What is a double bottom and double top in trading?

The double bottom and double top are two reversal patterns that presage a possible trend reversal. These two patterns appear when the price of a cryptocurrency collides twice with a key level, without managing to cross it, a sign that the mainstream is running out of steam and that the trend is about to reverse. How to spot them?

What is a double top?

A double top (or double top) is a reversal pattern that appears when a cryptocurrency comes to the end of an uptrend. One easily recognizes this figure which takes the shape of an M and portends a bearish reversal.

A double top in the shape of an “M”

A double top is recognizable by its two peaks located above the support line, also called the neck line. Once the first peak is reached, the buying current runs out of steam and the price of the cryptocurrency goes down to its support before starting to rise again, until reaching the second peak which corresponds to the same level as the first. .

This second attempt by the buyers to overcome the resistance again ended in failure, which reinforces the selling current. If the first time, the buyers managed to rebound the price of the crypto-asset on its support zone until returning to its highs, this is not the case this time. At the second attempt of the selling current, the support is pressed, the reversal pattern is then validated, the balance of power is reversed in favor of the sellers and the price then accelerates downwards.

double top

Example of a double top – Source: Trading View

Note that for the double top to be confirmed, the retracement must be larger than the initial retracement following the first peak. In other words, the break in the neck line (which corresponds to the support) sends a strong trend reversal signalin this case a downward reversal.

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What is a double bottom?

the double bottom meanwhile is a bullish reversal pattern that takes the shape of a W and appears at the end of a downtrend. It is easily recognized this figure which takes the shape of a W and that portends a bullish reversal.

double bottom

A “W” shaped double bottom

A double bottom (or double trough) corresponds reversal of a downtrend. This figure testifies to the shortness of the seller’s current: the prices fail to push the lowest, which results in a sharp rise in the price of the cryptocurrency.

The double bottom is identifiable thanks to its two troughs that form below the resistance level, here also called the neck line. The first low occurs at the end of the downtrend. Once this low point is reached, the price takes advantage of buybacks and bounces up to the neck line, or resistance.

double bottom

Example of a double bottom -Source: TradingView

In the case of a double bottom, the buyers fail to break through the resistance, the selling current regains strength, resulting in a bearish retracement to the second bottom. If the first time, the sellers managed to prevent the price from exceeding its resistance, this is not the case the second time. At the second attempt of the buying current, the resistance is exceeded, the reversal pattern is then validated, the balance of power is reversed in favor of the buyers and the price of cryptocurrency may accelerate upwards.

Be careful, however, because the reversal of the upward trend is only confirmed when the price breaks the neckline for a long time and continues to rise. Another condition to validate the figure, the overcoming of the resistance must also be accompanied by an increase in the volume of exchanges.

Conclusion

The double top and the double bottom are easily identifiable chart patterns. They give valuable clues about future changes in the price of a cryptocurrency, and therefore increase the chances of a successful trade. They are to be used in combination with other chartist analysis tools in order to have an overall idea of ​​the trends concerning the price of a crypto-asset.

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