Reversal Trading Patterns

These reversal forex patterns are formed after the forex market has had an extended move up or down and the price reaches a strong resistance level or support level respectively.

When price reaches such a point it starts to form a pattern. Since these formations are frequently formed it is easy to spot and identify them once you learn how and start using them. There are four types of forex reversal patterns:

• Double Top
• Double Bottoms
• Head and Shoulders
• Reverse Head and Shoulders

This reversal chart patterns tutorial will only cover double tops and bottoms reversal chart patterns, for the other 2, read this other reversal chart patterns tutorial: head & shoulders and reverse head & shoulders forex reversal patterns explained

Double Top - Forex Double Tops Chart Pattern

Double Tops chart Pattern is a reversal pattern which forms after an extended uptrend. As its name implies, this double top chart pattern formation is made up of two consecutive peaks which are roughly equal, with a moderate trough between.

This double top pattern formation is considered complete once price makes the second peak & then penetrates the lowest point between the highs, called the neck-line. The sell signal from this double top formation occurs when the market breaks-out below the neckline.

In Forex, this double top pattern formation is used as a early warning trading signal that a bullish trend is about to reverse. However, it is only confirmed once the neckline is broken and the market moves below the neckline. Neckline is just another name for last support level formed on Forex chart.

Summary of Double Tops Chart Pattern:

• Double tops pattern forms after an extended move upwards
• This double tops chart pattern indicates that there will be a reversal in the market trend
• We sell when price breaks below the neckline: see below for explanation.

The double tops chart pattern look like an M-Shape, the best reversal signal for a double tops chart pattern is where the second top is lower than the first one as shown below, this means that the double tops reversal pattern can be confirmed by drawing a downward trend line as shown below. If a trader opens a sell signal the stop loss order will be placed just above this downwards trend line.

M-Shaped Double Bottoms Forex Reversal Chart Patterns

Double Bottoms

Double bottom pattern is a reversal pattern which forms after an extended forex downtrend. Double bottoms forex trading pattern is made up of two consecutive troughs which are roughly equal, with a moderate peak between.

This double bottom formation is considered complete once price makes second low and then penetrates the highest point between the lows, called the neck line. The buy indication from this market bottoming out signal occurs when the market breaks-out the neck line to the upside.

In Forex trading, this double bottom formation is an early warning signal that the bearish Forex trend is about to reverse. It is only considered complete/completed once the neck-line is broken. In this double bottom chart pattern formation the neck line is the resistance level for the price. Once this resistance level is broken the market will move up.

Summary of Double Bottoms Chart Pattern:

• Double bottoms pattern forms after an extended move downwards
• This double bottoms chart pattern indicates that there will be a reversal in the market trend
• We buy when FX price breaks above the neckline point: see below for explanation.

The double bottom chart pattern look like a W-Shape, the best double bottoms reversal trading signal is where the second bottoms is higher than the first one as shown below, this means that the reversal signal can be confirmed by drawing an upwards trend line as shown below. If a trader opens a buy signal the stop loss order will be placed just below this upwards trend line.

W-Shaped Double Bottoms Forex Reversal Chart Patterns