If you really want to learn how to trade in a profitable way, you don't need to look any further. The Double Top chart pattern strategy is based on trading rules that are simple and safe.
When used right, it can change the way your trading goes. This is a very successful way to trade in just about any market. It can be used in your preferred time frame, no matter what your trading style is.
A double top is a very bearish technical reversal pattern that happens when an asset's price goes up twice in a row and then goes down a little bit in between.
It is proven when the price of the asset falls below a support level that is equal to the low between the two previous highs.
A bearish reversal trading pattern is a double top. It has two peaks above a level of support called the neckline. After a strong bullish trend, the first peak will happen right away, and it will go back to the neckline.
As soon as it reaches this level, the momentum will change back to the up direction, creating the second peak.
To confirm the double top pattern, the trend must retrace more than it did after the first retracement after the first peak.
Usually, this means that the price momentum breaks through the neckline level of support, and the bearish trend lasts for a long time.
Traders who use the double-top pattern will usually try to open a short position at the top of the second peak. This is because the pattern sometimes predicts a bearish reversal, which is shown by the red arrow below.
As we've already said, a double top is a bearish reversal pattern in technical analysis that happens when the asset reaches two consecutive peaks and then breaks below the support line. Most of the time, the letter "M" on a trading chart will show you that a double top has formed.
So, let's look at a trading chart to see what the double-top pattern really looks like. The daily chart for AUD/USD below shows a clear M shape, with two peaks and a neckline.
And once the currency pair broke the support neckline level, it was clear that the trend had changed and that the price was going down.
Keeping all of this in mind, here is a step-by-step guide to help you find the double top pattern and use it in forex trading:
There are two ways to trade with the double top patterns. When there is a double top, you will open a short position. Before you do either, though, you should check the signal with other technical indicators, like the relative strength index (RSI) or the parabolic SAR, which are both momentum indicators.
With a CFD or spread betting account, you can bet on double peaks and double troughs. These financial products are derivatives, which means that you can go long or short on the market they are based on.
Because of this, you can use CFDs and spread bets during both a double top pattern. With a double top pattern, you could use CFDs and spread bets to open a short position after the second peak, you could use them to open a long position after the second low.
To trade a double top, do the following:
Let's look at the price graph below as an example of a double-top trade. As you can see, the overall trend before the first peak is bullish, which means that the market's value is going up. But the momentum stops going up at the first peak and starts going back down to the neckline.
If the momentum had kept going down at this point, the pattern would have been broken. But it bounced off the neckline and went back to the bullish trend.
This went on for a short time, but then the asset lost its momentum again. This time, the retracement went through the neckline, which showed a more permanent change in the asset's overall value trend.
A trader would try to open a short position at the top of the second peak, before the pattern was fully confirmed to make money in this case. They would probably get out of their short position as soon as they saw an early sign that the trend was turning bullish again.
Traders can protect themselves from losing money if the market keeps going up after the second peak by using stops, including guaranteed stops. You can find out more about how to deal with risks.
There is, in fact, a big difference between a double top and a failed one. A real double top is a very bearish technical pattern that can cause a stock or asset to fall by a large amount very quickly.
To be sure of the identity of a double top, you must be patient and find the critical support level. If you judge a double top only by the fact that it has two peaks in a row, you could get a false reading and get out of a position too soon.
Read More From ForexScopes:
How The Double Top Pattern Is Structured! -ForexScopes
Forecast For The Euro/US Dollar On October, 2022
Walmart's Roblox Experiences Target Younger Shoppers -ForexScopes
