Double tops and double bottoms are one of the most common chart patterns. These patterns represent the market retesting temporary lows and highs. Recognizing double top and double bottom chart patterns can help a currency trader decide where to enter and exit a market.
Double Tops
Double top chart patterns many times are found in an uptrend where the market reaches a new high which is followed by a slight move back down. The market completes the double top pattern when the price moves back up to retest the previously formed new high and then ultimately fails to break through the previously established price level. Forex traders view this pattern as bearish for the currency market, because it shows weakening buying interest from market participants.
Double Bottoms
Double bottom patterns are essentially just the opposite of double tops. This chart pattern appears usually during a downtrend and is seen as evidence suggesting a reversal of the downtrend. The pattern is started with an initial move downward which finds support, creating the first bottom. Then after a rally back up, another move downwards will again reach the same support level, followed by another rally back upwards. The double bottom pattern is considered bullish for a currency pair.
Although being aware of chart patterns, such as double tops and double bottoms, can be of great assistance to forex traders, chart patterns are only one part of the equation to a comprehensive view of the markets. Currency traders should also consider fundamental analysis and market sentiment when making decisions on buying and selling currencies. This will help to increase chances of profit as well as minimize losses.
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Sources:
http://www.investopedia.com/walkthrough/forex/intermediate/level4/double-tops-double-bottoms.aspx
