When a double top or double bottom chart pattern appears, a trend reversal has begun.

Let’s learn how to identify these chart patterns and trade them.

Double Top

A double top is a reversal pattern that is formed after there is an extended move up.

The “tops” are peaks that are formed when the price hits a certain level that can’t be broken.

After hitting this level, the price will bounce off it slightly, but then return back to test the level again.

If the price bounces off of that level again, then you have a DOUBLE top!

Wow! We must be psychic or something because we always seem to be right! Looking at the chart you can see that the price breaks the neckline and makes a nice move down. Remember that double tops are a trend reversal formation so you’ll want to look for these after there is a strong uptrend.

The Double bottom is also a trend reversal formation, but this time we are looking to go long instead of short.

These formations occur after extended downtrends when two valleys or “bottoms” have been formed.

You can see from the chart above that after the previous downtrend, the price formed two valleys because it wasn’t able to go below a certain level.

Notice how the second bottom wasn’t able to significantly break the first bottom.

This is a sign that the selling pressure is about finished, and that a reversal is about to occur.

The price broke the neckline and made a nice move up.

See how the price jumped by almost the same height as that of the double bottom formation?

Remember, just like double tops, double bottoms are also trend reversal formations.

You’ll want to look for these after a strong downtrend.

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