Tags: double top, double top pattern, using a double top, spotting a double top, trading, trading strategy,

Use this easy to spot pattern to predict the market's next fall

by Julie Brownlee, FSP Invest, 06 November 2015

Traders very commonly use the double top pattern. One of its main benefits is it's easy to spot.

The double top pattern can work well too, as long as you stick to the rules.

Let's take a closer look…

What is a double top pattern?

A double top pattern is a reversal pattern. It can indicate that the trend is going to change or reverse.

Learning to spot a pattern like this can be very useful as you can exit a long trade to bank your profits or look to put a new short trade on.

You’ll usually come across double tops in a liquid, well traded market. The price moves quickly higher, then it just stops moving higher. Then the price falls for a while, before a rally returns, taking the price back to the level of the rally before.

The price then falls again under heavy selling pressure.

What makes a double top?

For a pattern to qualify as a double top, the valley between the two peaks have to break when the price falls for a second time. Otherwise, it could be a different pattern in the making, Frank Hemsley in Profit Watch explains.

Have a look at the simple chart below showing a double top…

To be on the safe side, it’s a good idea to wait to see if the price continues falling past the neckline before putting a trade on, unless you’re a very aggressive trader.

Once the price goes through the neckline, you have confirmation of a new trend.

So there you have it. How to use this easy to spot pattern to predict the market’s next fall.

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