The double bottom pattern and the double top pattern are among the most well-known and most trusted models by technical analysis users. Double tops and double bottoms are very important and consistent patterns in order to predict movements that may occur in the trend. It occurs when the price reaches a certain level and breaks out of the new level it has reached. These breaks sometimes occur with a decline and sometimes with an increase. As a result of these price movements, we get new support and resistance points . These patterns, which we often come across, give signals to investors about the future of the price when trading.
Double Top Formation
It is a formation that users of technical analysis know well but are often encountered by traders who do not do technical analysis. In the market that is in an uptrend, the price rises to a peak level and the market gains value. The price that reaches the resistance level gives investors a sell signal. With the arrival of sales at this level, there is a decrease in the price and this means that the market loses value. After this decline, the market encounters a support level and the price starts to rise again. Purchases are continued until the market reaches the previous peak level and the price increases. This increase is followed by the second peak indicated in the formation. Since this price level is also a resistance level, traders perceive it as a signal and start selling at this point.
With the sales, the market will lose value again and the price will fall. As a result of this price movement, we encounter a structure similar to the letter “M” on the chart. In theory, this letter “M” should be perfect, but for reasons that affect the price in the market, most of the time the peaks are not at the same price level and the pattern is formed in this way. When this pattern is completed, traders can predict that the uptrend has ended and the market may start to decline from this level. A decrease in the height between the support and resistance points formed in the continuation of the formation is foreseen.
Double Bottom Formation
This formation, which we also encounter a lot, consists of two bottoms in contrast to the double hill. In a market where the price is falling, there is a high amount of buying and at this point a bottom is formed. With the continuation of the purchases, we observe that the price increases and the market gains value again. This increase continues until the resistance level and investors start selling at the resistance level formed. As a result of these sales, prices begin to fall again and the market begins to depreciate again. This decline comes close to the previous level of the bottom and then there is a break in the price again as investors buy again. Thus, a double bottom formation is formed.
The double bottom pattern, which reveals a structure similar to the letter “W” when we examine the chart, can give us signals that the price will increase. An increase in the height of the support and resistance level is foreseen and the target price is created. Users who invest in the cryptocurrency market can make their own risk management thanks to technical analysis. At this point, the double bottom and double top formations, which are the main models to be known, can give us information about the course of the trend. In a structure where a double top pattern is formed, users can predict that prices will fall as a result of the pattern and continue their transactions without being affected by price drops that may occur by converting their investments into sales. Otherwise, for the double bottom formation, it can give a signal that the market that is in a downward trend will predict the point where this decline will end and the market will increase. Investors who encounter a double bottom pattern can be expected to buy in anticipation of the price increasing.
