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Trading Double Top And Double Bottom Chart Patterns On The Forex Markets
Double Top Chart Pattern Double top patterns afford forex traders an insight into the contradicting draws of buyers and sellers. A double-top chart pattern is found at the highs of an ascending trend. This pattern is demonstrating to the chart analyst that the past ascending momentum is dampening and that the bulls are backing up. As and when this chart pattern is confirmed technical analysts ascertain a reversal of the trend as impending (for a period of time) and the forex currency pair consequently has potential to move lower. The pattern commences to form as a new high is made on an up trend then some form of resistance pushes the price down to a level of support. Price then starts to move back up to the aforesaid resistance level encountered in the last rally and subsequently drops off to the support level again. The trading pattern is accomplished in its entirety when the forex pair declines below the support level that had blockaded each previous drop. Double Bottom Chart Pattern This is the opposite chart pattern of the double top as it signals a reversal of the downtrend into an uptrend. This pattern has a "W" shape to it. All of the above points relating to double top chart patterns can be used for double bottom analysis/identification. Price targets Many technical analysis traders think that the price objective should be appraised by taking the distance between the high and low levels of the double top array and projecting from the breakout point. My experience is that a lot of times these price projections are hit but in addition to many times they are not. I prefer to look at the big picture and look for obvious confluent areas to exit on my forex chart. Other notable points relating to trading double top / double bottom patterns * A break of a double top to the upside and double bottom to the downside can also be a high momentum breakout play as order flow can build about these areas. I consider this kind of setup to be trading a failure of the pattern. * I do not look for picture perfect patterns but like to see solid resistance as a prerequisite. These patterns can give excellent forex profits when identified and traded in conjunction with sensible money management and an understanding of the forex market. Article Directory: http://www.articledashboard.com The author can be found writing at this forex trading blog |
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