Forex Double Tops

Forex Double Tops:

Forex double tops is a bearish pattern. It indicates a reversal after a strong upward trend. It is very easy to identify.

1) First there will be sharp uptrend.
2) Now the price falls creating the a first high point
3) Now the price raises again to the first high point creating a first low point.
4) Now the price falls again creating the second high point and once the price crosses the first low point it is expected to be a long fall.
5) Double tops should look like a “M” when complete.

Double tops occur after a strong upward trend. To say a forex pattern as a double top pattern it must have two flat highs and one common low price. Double tops are similar to rectangles except double tops occur at a relatively new highs.

Check the following picture. In the following picture you can see two flat highs and a common low point and it formed a double top pattern.

Forex double tops

Trade Entry:

Once you see that double tops pattern is forming on any forex price chart, draw a line connecting the the two flat highs. Draw a parallel line to this at the low point. This line we can say it as support line. Now once the price crosses the support line with a strong candlestick body enter a short trade. A strong candlestick body means a candlestick which has a large body compared to the tail of the candlestick. Check the following picture. In the following picture the support line was broken by a strong candlestick body so it is a good opportunity to enter a short trade.

forex double tops pattern broken by the strong candlestick body

If the support line is broken by the tail of the candlestick and not by the body of the cnadlestick do not enter the trade. Check the following picture. In the following picture the support line is broken by the tail of the candlestick and not by the body of the candlestick. So do not enter long trade here.

Forex double tops pattern broken by candlestick tail

Take profit and stop loss:

Measure the difference between the top and bottom of the double top. Break out should be same as the difference.
Enter when the break out occurs. That means when the support line is broken by a strong candlestick, wait until the candlestick is complete and then enter trading. Set stop loss above the low price of the double top. Set profit target (limit) for less than the difference between top and botom.

For example check the folloowing picture. In the following picture the differene between the top and bottom of the double tops is 100 pips. Once the break out occurs the bearish candlestik went down around 10 pips. So the remaining profit target is 90 pips. But since we are using profit target for less than the difference between the top and bottom set the target for around 85 pips which is 5 pips above the actual target. Check the following picture.

Take profit and stop loss