Reversal Setups

These reversal forex patterns are formed after the market has had an extended move up or down and the price reaches a strong resistance level or support level respectively.

When price reaches such a point it starts to form a pattern. Since these formations are frequently formed it is easy to spot and identify them once you learn how and start using them. There are four types of reversal patterns:

• Double Top
• Double Bottoms
• Head and Shoulders
• Reverse Head and Shoulders

This reversal chart patterns tutorial will only cover double tops and bottoms reversal chart patterns, for the other 2, read this other reversal chart patterns tutorial: head & shoulders and reverse head & shoulders forex reversal patterns explained

Double Tops - Forex Double Tops Chart Setup

Double Tops chart Pattern is a reversal pattern that forms after an extended uptrend. As its name implies, this double top pattern formation is made up of two consecutive peaks that are roughly equal, with a moderate trough between.

This double top setup formation is considered complete once price makes second peak and then penetrates lowest point between highs, called the neckline. The sell signal from this double tops formation occurs when the market breaks-out below the neck-line.

In Forex, this double top pattern formation is used as a early warning signal that a bullish trend is about to reverse. However, it is only confirmed once the neck-line is broken and the market moves below neck-line. Neckline is just another term for the last support level formed on the chart.

Summary of Double Tops Chart Pattern:

• Double tops pattern forms after an extended move upwards
• This double tops chart pattern indicates that there will be a reversal in market trend
• We sell when price breaks below the neckline: see below for explanation.

The double tops chart pattern look like an M Shape, the best reversal signal for a double tops chart pattern is where the second top is lower than the first one as shown below, this means that the double tops reversal pattern can be confirmed by drawing a downwards trend line as shown below. If a trader opens a sell signal the stop loss order will be placed just above this downwards trend line.

M Shaped Double Bottoms Reversal Chart Setups

Double Bottoms

Double bottom setup is a reversal pattern that forms after an extended downtrend. Double bottoms setup is made up of two consecutive troughs that are roughly equal, with a moderate peak between.

This double bottom formation is considered complete once price makes second low and then penetrates highest point between lows, called the neckline. The buy indication from this market bottoming out signal occurs when the market breaks-out the neck-line to the upside.

In trading, this double bottom formation is an early warning signal that the bearish trend is about to reverse. It is only considered complete/confirmed once the neckline is broken. In this double bottom pattern formation the neck line is the resistance level for the price. Once this resistance level is broken the market will move up.

Summary of Double Bottoms Chart Pattern:

• Double bottom pattern forms after an extended move downwards
• This double bottoms chart pattern indicates that there will be a reversal in market trend
• We buy when price breaks out above neck line: see below for the explanation.

The double bottom chart pattern look like a W Shape, the best double bottoms reversal signal is where the second bottoms is higher than the first one as shown below, this means that the reversal signal can be confirmed by drawing an upward trend line as shown below. If a trader opens a buy signal the stop loss order will be placed just below this upwards trend line.

W Shaped Double Bottoms Reversal Chart Setups