Double Tops         

Double Tops and Double Bottoms Patterns

With pattern analysis, technical analysts look for specific trading patterns that have yielded consistent trends in trading history. One popular pattern is the Double Tops formation; another is the Double Bottoms formation.

A double tops pattern occurs at market tops and predicts a trend reversal. It is formed when prices reach a peak, then dip, then form a another peak at about the same price level as the first peak, followed by a break below the intervening trough. Volume is usually high on the first peak, reduced on the second peak, and increased on the breakout downward as technical traders recognize the formation and act on it. They can be difficult to trade though, because they can turn into triple tops or quadruple tops instead.

A double bottoms pattern occurs at market bottoms and predicts a trend reversal. It is formed when prices reach a trough, then rally, then form a another trough at about the same price level as the first trough, followed by a break above the intervening peak. Volume is usually high on the first trough, reduced on the second trough, and increased on the breakout upward as technical traders recognize the formation and act on it. They can be difficult to trade though, because they can turn into triple bottoms or quadruple bottoms instead.

You can increase your profits in option trading by considering both fundamental analysis and technical analysis. When you are analyzing potential option positions, it helps to have a computer program like Option-Aid that swiftly calculates volatility impacts, probabilities, statistics, and other parameters of interest. These programs can pay for themselves with the first trade that they help you with.

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