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Double Tops:

A double top is a reversal chart pattern which is defined by a chart where a financial instrument makes a run up to a particular level, then drops back from that level, then makes a second run at that level, and then finally drops back off again.

Currency Chart Example of a Double Top:


In its most basic sense what the double top pattern is saying about supply and demand forces is that demand is out pacing supply (buyers are winning) up to the first top causing prices to rise, and then the equation flips and demand is no longer out pacing supply (sellers are winning) causing prices to fall. After then falling back the buyers make another run at the same price and then after failing to break that level for a second time, sellers take control and keep the upper hand causing prices to sell of even more dramatically after the second top than they did after the first. For double bottoms the reverse is true.


A double bottom is also a reversal pattern in the futures, forex, or stock markets which is the exact opposite of a double top . To form a double bottom a financial instrument makes a run down to a particular level, then trades up from that level then makes a second run down to at or near the same level as the first bottom, and then finally trades back up again

Chart Example of a Double Bottom:


You can also see the connection here between the double top and double bottom pattern, and support and resistance as the double top forms resistance and the double bottom forms support.

Double Top Forms Resistance:


Double Bottom Forms Support:


That completes our lesson for today. You should now have a good understanding of the basics of chart patterns and of two of the more common patterns, double tops and double bottoms and most likely have already started to think about how one might integrate these into their trading strategy. In tomorrow's lesson we will go over the exact details of a common strategy used to trade double tops and double bottoms in the stock, futures and forex markets.

Links to Help You Learn About Double Tops and Double Bottoms:

http://www.trade10.com/Double_Top.html
http://www.investopedia.com/universi...ts/charts4.asp
http://www.avidtrader.com/Stock-Trad...ouble-Top.html
http://stockcharts.com/help/doku.php...e_top_reversal
 
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