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Double top and Double bottom

The double top and double bottom patterns are chart patterns that occur when the underlying investment moves in the same pattern to the letter W or M. The pattern analysis is used in technical analysis to explain movement in a security or other investment. They can be used as part of a trading strategy to exploit recurring patterns. The double tops and bottoms are technical analysis patterns that are used by traders. A double top indicates a bearish reversal in trend. A double bottom is a signal for a bullish price movement. Double top and bottom patterns evolve over a longer period of time, and not present an ideal vision of a pattern. This is because the shifts in prices don't necessarily resemble a clear "M" or "W".These patterns are formed from consecutive rounding tops and bottoms. These patterns are used in conjunction with other indicators since rounding patterns lead to mistaking reversal trends.

Double Top Pattern

It is formed from two consecutive rounding tops. The first rounding top forms an upside-down as U pattern. The rounding tops can be an indicator for a bearish reversal and occur after an extended bullish rally. Double-tops will have the same inferences. If a double-top occurs, the second rounded top will be below the first rounded top's peak indicating resistance and exhaustion. The double-tops can be rare occurrences with their formation indicating that investors are seeking to obtain final profits from a bullish trend. Double-tops lead to a bearish reversal in which traders can profit from selling the stock on a downtrend.

Double Bottom Pattern

The results of this pattern have the opposite inferences. Double bottom is formed by a single rounding bottom pattern which is the first sign of a potential reversal. The rounding bottom patterns will occur at the end of an extended bearish trend. A double bottom will indicate a bullish reversal which provides an opportunity for investors to obtain profits from a bullish rally. After a double bottom trading strategies include long positions that will profit from a rising security price.

What do Double Tops and Bottoms tell traders?

A double top and bottom chart pattern traders indicate a possible trend reversal to the traders. These patterns do not indicate certain trend reversals. Traders use the chart patterns with other indicators as a volume for confirming the reversal before taking a position.

Trading with Double Top

Check the market phase as it is up/down. When a double-top is formed the prior trend should be an uptrend. Traders should spot if two rounding tops are formed and note the size of the tops. Traders should enter the short position when the price breaks out from the support level or the neckline.
Stop Loss :In Double-Top chart pattern, the stop loss is placed at the second stop of the pattern.
Price Target : The price target should be equal to the distance between the neckline and the tops.

Trading with Double Bottom

First thing is to see the market phase whether it is up or down. After forming a double-bottom at the end of the downtrend, the prior trend should be the downtrend. Traders should spot if two rounding bottoms are formed and note the size of the bottoms. Traders should enter the long position when the price breaks out from the resistance level.
Stop Loss :-In Double-Bottom chart pattern, the stop loss should be placed at the second bottom of the pattern.
Price Target :- It must be equal to the distance between the neckline and the bottoms.

Trade double tops and double bottom

There are two ways to trade by using the double-top and double-bottom patterns. You open a short position on a double-top and a long position on a double bottom. Then take a position on double-tops and double bottoms with a CFD/spread betting account. These financial products are derivatives means they enable you to go both long or short on an underlying market. We can use CFDs and spread bets both a double-top and bottom pattern. In the double-top pattern, we use CFDs and spread bets to open a short position after the second peak. Then with a double bottom, we use them to open a long position after the second low.

Steps to trade a double top/double bottom

Decide what do you to trade CFDs or spread bets. Then research the markets you can trade. Then learn how to identify double-tops and double bottoms. The next step is to practice trading with an account. Create when you’re ready to trade the live markets

Drawbacks of the Double Top

The double top pattern is not used on its own. The formation provides an overview of what is happening between the bulls and bears. Analysts and traders need to be precautious when identifying the price formation.
Double Bottom:- The double-bottom formation occurs at the end of a downward trending /declining market.

Summary:

The double top is a type of chart pattern as an indication that the prevailing trend may reverse, in the short/long term. The double top is an occurrence towards the end of a bullish market. The price formation looks like two peaks occurring after one another. The double bottom formation occurs at the end of a downward trending/declining market. The double bottom is same as double top, but difference is in inverse/negative relationship in price.