Double Top and Bottom Pattern
[You can add a abstract as an introduction of this lecture]
Double Top
As the name suggested, When twin peaks look similar in that both have an inverted V shape, a double top pattern is gently formed. Double patterns are the sign of medium or long-term trend changes in the price. The first peak is when the asset price rises and bounces back to the bearish trend until it reaches an assuming support level. The second peak is a repeat of the first one and also by hitting the level confirms its validity. Actually, the pattern outlines perfectly after forming the second peak. One more important thing is the high peaks which should be equal to maintain the visual feature of the double top pattern. All of them reach a presumed resistance level on top which is not necessarily being exactly horizontal. The exitance of resistance above the pattern is like a roof and breaking the resistance level is also a sign for traders as technical analysis concluded.
1. Appearance: A double top pattern look like a twin inverted V shape, just after one another. The price fluctuation shapes an obvious peak and dips, which in this particular pattern, the third top should never form. A gentle resistance level on top catch the traders' eyes who know not every resistance is horizontal.
2. Trendline: A clear-cut resistance level on top is enough to show beyond doubt, but a support level that goes through the dip is also needed to find the height of the pattern.
3. Pattern Category: Another pattern of reversal family.
4. Breakout Direction:
Expectation: This pattern in the middle of a bullish market is informing of further change, which means the price may continue moving in a bearish trend when it leaves the pattern. After a double top pattern, price looks for a lower potential level to set as a possible maximum loose, which is calculated as long as the vertical distance of support and resistance level from the breakout price. Wherever the price jumps over the resistance level is taken as breakout price.
Failure: When the price follows the prevailing trend before the pattern and demonstrates a continuous manner, the pattern is failed to live up to the expectations. This is also a sign for traders who see the market from the technical analysis sight. The double top pattern can even form a stronger reversal after a fake-out.
Double Bottom
A double bottom pattern is easily demonstrated when twin spikes (bottoms) come back-in-back and form a double V shape. Usually, it can be found at the end of a bearish trend and lead the market in the opposite direction (reversal manner). The price of market would decrease until it reaches a possible support level and jumps like a spring. This act repeats another time and immediately after the first one. The second one is a green light of a double bottom pattern assurance. As long as the second dip becomes lower, the higher bullish trend may come next. Like every level, support not ought to be horizontal.1. Appearance: Generally shaped like twin V. Peaks lie down on a presumed support level and the third V never forms.
2. Trendline: One support level at the bottom that holds the peaks and one resistance level on top are distinguishable levels of a double bottom pattern.
3. Pattern Category: Reversal. Bearish-to-bullish.
4. Breakout Direction:
Expectation: It is more possible that the price takes a bullish trend after a bearish one and the breakout happens in a rising direction after a double bottom pattern. Similar to the double top pattern the vertical distance of support and resistance level is calculated to find the price target. Breakout is specifically taken from the breaking point of the support level in a double bottom pattern.
Failure: Demonstrating a continuous manner is not far away from a double bottom pattern, which shows a stronger reversal even after a fake-out.