Reversal Bitcoin Chart Patterns - Double Tops and Double Bottoms Bitcoin Chart Patterns
Reversal chart patterns are formed after the market price 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 chart pattern - reversal chart pattern. Since these chart formations are frequently formed it is easy to spot them once you learn how to spot them and start using them.
There are four types of reversal chart patterns:
- Double Top
- Double Bottoms
- Head & shoulders
- Reverse Head and shoulders
This tutorial will only cover double tops and double bottoms chart patterns, the other 2 will be covered in the next tutorial: head and shoulders and reverse head and shoulders chart pattern.
Double Top - Reversal Chart Pattern
This double tops chart pattern is a reversal pattern that is formed after an extended upwards market trend. As its name implies, this formation is made up of 2 consecutive peaks that are roughly equal, with a moderate trough between.
This double tops formation is considered complete once price makes second peak & then penetrates lowest point between highs, called the neckline. The technical sell signal from this reversal pattern formation occurs when the market breaks-out below the neck line.
In Bitcoin trading, this formation is used as an early warning signal that a bullish Bitcoin price trend is about to reverse. However, it is only confirmed once the neckline is broken and the market moves below neckline. Neckline is just another name for the last support level formed on the Bitcoin price chart.
Summary:Forms after an extended price move upwards
This formation indicates that there will be a reversal in market price direction
We sell when price breaks below the neckline: see below for explanation.
Double Top Reversal Pattern - Bitcoin Trading
Example 2: Double Tops Reversal Chart Pattern
Double Top Reversal Pattern - Bitcoin Trading
The double tops reversal chart pattern look like an M Shape, the best reversal signal is where the second top is lower than the first one as shown below, this means that the reversal signal can be confirmed by drawing a downward trend line as shown below. If a trader opens a sell trade the stop loss will be placed just above this downwards trend line.
M Shaped Double Tops Reversal Chart Pattern - Downwards Trend Line
Double Bottom - Reversal Chart Pattern
Double bottom is a reversal chart pattern that forms after an extended downwards trend. It is made up of 2 consecutive troughs that are roughly equal, with a moderate peak between.
This double bottom reversal chart pattern is considered complete once price makes second low & then penetrates highest point between lows, called the neckline. The buy indication from this bottoming out signal occurs when the market breaks-out the neck line to the upside.
In Bitcoin trading, this formation is an early warning trading signal that the bearish Bitcoin price trend is about to reverse. It is only considered complete/confirmed once the neckline is broken to the upside. In this formation the neckline is the resistance level for the price. Once this resistance level is broken the market will move up.
Summary:Forms after an extended move downwards
This formation indicates that there will be a reversal in market trend
We buy when price breaks above the neckline: see below for explanation.
Double Bottom Reversal Pattern - Bitcoin Trading
Example 2: Double Bottoms Reversal Pattern - Bitcoin Trading
Double Bottom Reversal Pattern - Bitcoin Trading
The double bottom chart pattern looks like a W Shape, the best reversal signal is where the second bottom is higher than the first one as shown below, this means that the reversal can be confirmed by drawing an upwards trend line as shown below. If a trader opens a buy trade the stop loss will be placed just below this upwards trend line.
W Shaped Double Bottoms Reversal Pattern - Upwards Trendline
