Forex Trade Signal Based on Forex Double Top Or Bottom Formation

 

To describe double top or we can use a term used in technical analysis to showing the rise or of a price, a drop, another rise to the same level as the original rise, and finally another drop.

Double bottom would be a charting pattern used in technical analysis. It describes the drop of a price, a rebound, another drop to the same or similar area as the original drop, and finally another rebound. Most technical analysts believe that the advance off of the first bottom should be 10-20 percent. The second bottom should form within 3-4 percent of the previous low, and volume on the ensuing advance should increase.

Double tops and bottoms are one of a difficult price patterns to trade. There are few important things to remember if you would place your trade signal based on such formation.

The absence of precise borders in such formations does not allow to trade signals based on planning in advance. It appears to be quite difficult to see clear trade signals about when to enter the market at the certain level and it also is difficult to attach a stop loss strategy when placing such trade signal.

These formation s become clearer when the market already formed a pattern but it is too late to take an advantage of it and place trade signal based on double top or bottom formation. The main aspect which makes trade signals based on above pattern even more difficult is the fact that they are usually meet other technical levels. Double tops and bottoms are normally placed on very similar levels as Fibonacci retracement levels or support and resistance areas.

As we already know the support and resistance areas tend to attract the price and become a significant base for constructing your trade signal. Near such levels we can observe the price trend swing or its continuation. Trading Forex trade signals near to this level always carries significant amount of risk as there are a major turning point of the price trend.

Double tops and bottoms are the most difficult to recognize as in most of the cases they would suggest the price trend change and the pattern would not be recognize until the price is back to the same level as before. Only then we can actually consider placing Forex trade signal based on double top or bottom. Such a behavior would not be clearly visible on the chart until is almost fully formed. In most cases it could be too late to trade such signal. Even after fully formed double top or bottom, the Forex signal given by the formation could be the false one and the price could very quickly break through possible second top or bottom. It this case such signal is not valid and the price follows its trend and will create another technical level in the nearest future.

You never know where the market will go next and you should not forget this. Keeping this in mind, pay special attention while placing your trade Forex signals based on double top or bottom price formations.

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