Double tops are another reversal pattern which often occur at the end of an uptrend.  The price will move up to a certain level, pull back and then move up to test this level again but fail to break through once again.  After this, when the price reaches and breaks through the support neckline the second time, which this time is the level set by the low during the pullback, the chart pattern is complete and a move downward can be expected.

Conversely double bottoms occur at the end of a downtrend and look like a upside down version of a Double top, with 2 lows and a neckline set by a temporary high in between.

There are 2 further considerations when identifying double top/bottoms.  The first is the time frame during which double tops occur.  If the tops are too close together then this may not be a true double top pattern  and simply part of the same consolidation during a trend.  Remember from our previous lesson that there is always a certain amount of “trading noise” from shorter timeframes than the one you are observing; and this noise increases the shorter the timeframe you use.

The second consideration is trading volume.  Volume is simply a measure of the amount of trades made during a certain timeframe.  During a double top, it is expected to have an increased volume of trades until the first peak, and then falls to the neckline on low volume and the move up to the second peak should also be on low volume.  The final move towards the neckline should show a higher volume with an accelerated movement.

Volume can be added to the MT4 chart as an indicator.  Click insert > indicators > volumes > Volumes

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