This is when we have the double top pattern and the reversal in the trend is confirmed. Just below the breakout point you have the opportunity to enter a sell position. Look at the example in the chart below. USDJPY began to lose strength as the double top chart pattern formed and this resulted in a price reversal. Just like in the head and shoulders situation, it is possible to calculate a price target in the double tops case after prices breakout and we have a trend reversal.

You would measure the distance from the neck line to the peak and take that distance and project downwards from the neckline. This would give you the minimum distance prices will move.

The double bottoms chart pattern is a reversal pattern that signals a change in price direction. It is basically the opposite of a double top reversal pattern. This pattern signals the reversal of a downtrend into an uptrend. A double bottom pattern usually forms in a situation when sellers are battling against buyers but sellers eventually fail to be in control. More buyers enter the market and push prices higher. During a downtrend prices are reaching new lows until they find support which prevents prices from falling further.

This creates the first bottom which is the lowest level. Prices soon bounce off support and retrace up to a resistance level. When prices fail to break resistance, there will be another sell off to the previous low. The re-test of the support forms the double bottom on the chart pattern. Subsequently prices climb higher after failing to break support.

The double bottom formation is completed when prices break above the neckline resistance level. Let us look at an example of a double bottom pattern. The pair weakened its fall and a double bottom pattern formed, with prices subsequently reversing to move upwards. An opportunity to buy occurred just above the neckline when prices breakout above it.

Just like in the double tops situation, it is possible to calculate a price target in the double bottoms pattern after prices breakout and we have a trend reversal. You would measure the distance from the level of the two bottoms to the neck line and take that distance and project it upwards from the neckline.

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We can see that the price target was reached in this scenario. If you entered a buy position at the breakout and exited at the price target you would have made a good profit! The triple top chart pattern is similar to the double top. All three tops should be approximately at an equal level. It does not have to be exact, but very close. Hence, prices rally to this level and test it three times. Prices are unable to break resistance and eventually reverse direction and the trend becomes a down trend.

During the formation of the pattern, a support level was also formed, which prices bounced off when attempting to rally but met resistance and fell back down to this support level. The triple top reversal is completed only until this support level is broken to the downside. This confirms the reversal of the prior uptrend. Upon breaking the support line, this is a good opportunity to enter a short position. Measure the vertical distance from the highest peak to the lower bottom between the three tops. Use this same distance and project it downward from the breakout point at the support line.

The triple bottom chart formation is the exact opposite of the triple top pattern. It is a bullish reversal pattern , meaning it shows the reversal of the prior downtrend to an uptrend. During the formation of the pattern, prices which are in a downtrend reach a strong support level which they attempt to break three times.

This results in the formation of three troughs, or bottoms, hence giving the name triple bottom. These three troughs are at around the same level and form the support line. Each time prices attempt to break the support line, they bounce back up to the resistance line.

Once prices breakout from this resistance line to the upside, the pattern is complete and the trend is confirmed to have reversed. Measuring the price target is similar to that with the double bottoms pattern. Take the vertical distance between the lowest bottom and highest peak and project that distance upwards from the breakout point at the resistance line. Most spike reversal patterns also called V-Reversal patterns are formed after a sharp previous trend. Prices reverse direction without giving any signals and as such this is known as the market turning on a dime.

This situation is difficult to trade and it is best to stay out of the market. Sometimes when a spike occurs the only recourse we may have is to check oscillators that show if the market was over-extended. The rounding bottom saucer pattern is another type of reversal pattern. Unlike the spike reversal pattern, it takes longer to form and prices change direction very gradually. Saucers are usually spotted on weekly or monthly charts that span several years.

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Reversal Patterns

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Third, key technical barriers would need to break. A key technical barrier could be defined as multi-month support in an uptrend or resistance in a downtrend. For that reason, the first two components need to be in play before the third really matters. Hopefully you can see with this article that the trend should not be fought until substantial evidence has surfaced.

However, we can ask, how should we act when the evidence has surfaced? Should this uptrend be worth a short trade, we would have to see a substantial change to the underlying fundamental story, correlated markets breaking their prior trend, and key intermediate levels of support on this chart breaking as well so that you can enter with a favorable risk: reward along with favorable evidence that a reversal is underway.

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Conclusion

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