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double top and double bottom can give you an edge in your technical analysis

Double Top and Double Bottom in Technical Analysis

Published On: August 19, 2022
Double top and double bottom are very important terms in technical analysis. Having a good technical analysis is one of the keys to cryptocurrency or forex or stock trading long term. Most technical analysis fundamentals are the same among the three sectors (cryptocurrency, forex, and stock).

Here we will learn how to identify double top and double bottom in technical analysis since they will give you a clearer picture of market reversal. You can use both double top and double bottom for your entries as well as your exits when trading. 

What Is a Double Top?

A double top in technical analysis is a market reversal pattern from bullish to bearish where the price reaches the same level two consecutive times, indicating that the trend is about to reverse.
double top example

example of double top where price rejects twice at ~$25,027

As you can see from the above chart, the price bounced back down on the 14th, from around the $25,027 resistance level. On the 15th, the price retested the same resistance level, but then it bounced back down for the second time. This is exactly what a double top is.

Most technical traders always try to time the bottom or the top. Many cryptocurrency futures traders, in particular, like to identify double top like this to open a short position.

Another example:
another double top example
A double top is not always obvious. Sometimes, they are harder to identify. Due to this reason, many technical traders often mix the concept of a double top with a candlestick pattern. The idea here is that they will take action only if they see a good engulfing bar, morning doji bar, or pin bar on the double top pattern.

Another strategy you can add to double top identification is support level break. By waiting for the break of support level, you will increase your winning chance. Take a look below at the support level break after double top formation:
double top example with support level break

check the bottom horizontal line (1.02817), that is the support level

In the above chart, waiting for a support level break means waiting until the price goes lower than 1.02817 (because 1.02817 is the support level here). So, in this particular case, you don’t make a trade right after the double top formation, but you wait until the price goes lower than the support level that was previously formed by the double top itself.

What Is a Double Bottom?

If you already understand what a double top is, it will be much easier to understand what a double bottom is. Double bottom in technical analysis means a market reversal pattern from bearish to bullish where the price reaches the same level two consecutive times, indicating that the trend is about to reverse.

Sounds familiar? Yes. double bottom is literally just the opposite of double top. An example:
double bottom example

example of double bottom where price rejects twice at ~1.03848

From the above chart, you can tell easily that double bottom is just the opposite of double top. There is literally no other difference. And yes, you can also combine the idea of a double bottom with a candlestick pattern or a resistance level break.

In the above example, a resistance level break means you wait until the price breaks above 1.04660 since it was the resistance level that was formed by the double bottom itself.

Is It Enough to Trade Just With Double Top and Double Bottom?

Unfortunately not. There’s no hard data that shows you will have a much bigger winning percentage just by trading using double top and double bottom patterns. Sometimes, you also need to identify the trends and use technical indicators (like Moving Average or RSI) to confirm everything that you see on the chart.

You have to think of technical analysis as if it’s a cooking experience. In cooking, you need a lot of different ingredients before you mix them up to create a dish. Technical analysis is similar. Double top and double bottom are just two parts of the ingredients, but you need more “ingredients” to increase your winning chances. Also, make sure you have enough discipline with your risk management.
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