Price pattern is an implementation of one of basic principles of technical analysis says “history repeats itself”. Apparently, from time to time, traders realized that the price repeatedly made certain patterns. Based on these “historical facts”, traders can predict the next movement when a pattern shows up.
There are two kinds of pattern: reversal pattern and continuation pattern.
A reversal pattern is a pattern that indicates a trend reversal. If this pattern shows up in an uptrend or downtrend, the price is expected to turn to the opposite direction of the current trend.
A continuation pattern is a pattern that indicates that the trend tends to continue its current direction. For example, a continuation pattern is confirmed in an uptrend. In that case, the market is expected to continue the uptrend.
We will start our discussion from the reversal pattern first.
Reversal pattern
Double top & double bottom
We will understand the word “top” as “peak” and “bottom” as “trough”. Therefore, double top means “two peaks” and double bottom means “two troughs”.
Double top and double bottom patterns indeed look like two peaks and two troughs side by side. It is easy to recognize these patterns and they also have high accuracy.