Usually, the following rally stops at or near the exact price of the previous high. In some cases, a slightly lower low is made as buyers run out of strength. Notice in the example above, the uptrend makes a new high and then pulls back to a level of support. As bulls take back control of the market and buy the dip in price, they push price back up toward the old high. Unable to push price back above the old high, buyers give up and prices begin to fall back to support. Traders should then wait for price to close below the previous level of support to confirm that the pattern is truly a forex double top. On the other hand, the forex double bottom chart pattern is found at the end of a downtrend and resembles the letter “W”.
Price falls to a new low and then rallies slightly higher before returning to the new low. Unable to push price to a new lower low to continue the downtrend, sellers give up and price bounces sharply from this area. Buyers have confidence in trading the currency pair long because the odds of price reversing is now much less. Aggressive traders may place waiting buy orders at or near the previous low in order to catch an early move higher.
While more conservative traders will wait for a close above a trend line to confirm the pattern. The double bottom can be a fast moving pattern so traders will want to see price rally after a few bars. After entering long into the market, traders will place a protective stop a few pips below the lowest low of the pattern and a limit equal to twice the size of the stop. It is important to always use a protective stop when trading and waiting for confirmation of the pattern to filter and reduce the number of pattern failures that can happen. This piece provided you entry and exit rules for trading forex double bottoms and forex double tops.