This Article is About
currency prices
base currency
resistance level
line graph
resistance levels
forex market
The Traders’ Psychology Behind Double Tops And Double Bottoms Chart Pattern
Join 1000's of Authors at StreetArticles Today!

The Traders’ Psychology Behind Double Tops And Double Bottoms Chart Pattern

Sometimes I like to think of trading as a game of spotting support and resistance levels on price charts only to consequently bet on the possibility of say, currency prices with respect to the forex market halting, reversing or sometimes even breaking through these decision levels discounting some form of externally acquired data examples of which could be some political/news event as represented through the in - flow of orders painting traders psychology as price action unfolding on currency charts using the artistic visuals of candlesticks.

Trading with this thought approach you’ll agree with me that price isn’t actually the representation of the value of any currency against another but instead a representation of traders’ perception of the value of the currencies that should be, assuming we agree with John Allen Paulos’ sluggish market hypothesis in his book “A Mathematician Plays the Stock Market.”

Double Top and Double Bottom Formations from a psychological point of view only represent the inability of the bulls/bears to keep up the steam and momentum of the price trek up or down taking prices beyond their previous difficulty levels so to say, forming a somewhat M or W illustration on the trading charts when viewed through a line graph on currency charts.

A Support Level also known as a floor is that price level where buyers begun bidding prices higher due to the ever increasing demand for the base currency whose chart you happen to be studying say the euro on the EURUSD chart.

A Resistance Level on the other hand which called a ceiling represents that price level where for simplicity sake the euro bulls profiting from the rise of the euro face some sort of fear that their euro long positions could be affected it to by the impending swoon affecting their floating profits which could even plunge them headlong into losses might make the savvy minority of pro traders with the mega bucks take some profits off the table resulting in an aggressive sell that disrupts the demand for the euro causing a downward move on the chart, don’t be fooled, the gravity law also applies to forex trading, prices have a natural tendency of falling faster than they rise maybe what we should likely call the fear factor (season 1), oh sorry only fear factor it’s not a TV show, my bad.

A Double top formation looks like an M on currency trading chart when you switch to line graph view inside your forex trading platform telling you a lot about the current external market psychology i.e. the collective opinion of traders regarding the value price of that particular currency as actively discounted into the market.

To really appreciate the sell setup your forex trading strategy offers to you due to the negative MACD divergence signaling a slowing momentum of the flow of buy orders from traders caused by the reluctance of bull traders loading up the boat with regards their bullish trading positions because of the constant reminder very visually prominent on their charts where buyer failed to break to the upside as shown with the resistance level which we assume to be a .00 psychological level say 1.3100 is the price.

This further proves why this level is likely to act as support again supporting the MACD indicator which told us that less and less traders are willing to buy just yet. The subsequent formation of a hanging man candle stick which was later followed by a change of direction candle not only gives a strong sell signal but also paints the psychological picture in the traders mind of something like a movie story ingested from the chart really justifying the sell trade opened as opposed to just selling because the xyz indicator doing zyx.

Trading like this only make trading fun, exciting and really worth the sacrifice even though I trade for less than 2 hours a day whenever I do which is really often as I happen to be a full time trader it always feels like watching an adventure movie, you could too but only when you start trying to decode what price is telling you and not superimposing on it what some indicator thinks it should do, this you have to follow up with a lot of practice forex trading on a demo account.

Even though most forex brokers only supply us visual information of traders activity with candlesticks on a chart absolutely free which happens to be very generous of them, to trade successfully you must somehow reestablish the connection that this candles only show you what real people, by real people I mean other traders like yourself and myself are doing giving the information they ingest from external sources like news or political event through their favorite trusted online sources or carefully executed technical analysis and not just some software people click to buy or sell currency only to make or lose money extremely fast.

Trading currencies really isn’t rocket science as many people are forced to believe, yes there are lot of things that contribute to the success of any person as a forex trader, what I’d like to point out to is the fact that it is 100% achievable but only if you are ready to put in the work, you have to learn forex trading the right way else your dreams of trading for a living just wouldn’t happen.

Learn some new concept, strategy or methodology you want to add to your forex trading arsenal? Test it out on a demo account; interact with your peers with your peers in trading forum and trying teaching one or two friends of yours in some skype group teaching others helps you learn and understand what you’re trying to teach a lot faster than working it out in your mind endlessly.

Hope you enjoyed this article, don’t forget to share it with your friends, I look forward to hearing your comments and answering your questions. Cheers…


Street Talk

No comments present
You May Also Like
Best Forex Trading Strategies
The Best forex trading strategies will be the tools of any trader who wants to succeed in the world of forex trading. I have seen a couple of new traders who jump from one strategy to another, yet they are far from getting the best forex trading strategies. You can…
By: Jerome Kesslar in  Investing  >  Stocks   Dec 30, 2010  
0
  Likes: 4

Elss : Encompassing Investments With Tax Saving
The financial year 2015-16 has ended and with that, the tax paying deadline is also over. It is often observed that the clients pursue the tax saving plans by the end of the year, i.e., in February or March. It may have helped you till now, but it is a…
By: Dishika Baheti in  Investing  >  Day Trading   May 18, 2016  
0
  Likes: 0

How to Choose A Broker for Day Trading
Day trading is the practice of holding positions in a financial market for no longer than a single day, and often for much shorter periods of time. Day traders always exit any trade before the end of the trading day (often referred to as the 'regular cash session'), and aim…
By: Alexander Pearson in  Investing  >  Day Trading   Apr 27, 2016  
0
  Likes: 0

Fundamentals Of A Company Check - What Would Be the Services Employed
Business planet is cool as well as risky. The deeper you enter, the a lot more threat you get into. Nevertheless a systematic approach generally assists to collect the puzzle and stroll straight. Investing into a company could be helpful should you go through a meticulous company check. All strings…
By: daniel huang in  Investing  >  Day Trading   Apr 26, 2016  
0
  Likes: 0

How Administration Outsourcing Benefits Private Wquity And Venture Capital
In the high-frequency world of alternative securities, private equity and venture capital investments stand out for bringing in substantial returns from equity appreciation and capital gains. Private equity firms align with accredited investors, like wealthy individuals and institutions such as foundations, university endowments, pensions, insurance companies, and other multi-manager funds,…
By: Cheryl Muncher in  Investing  >  Day Trading   Mar 15, 2016  
0
  Likes: 0

Tips for Buying Refurbished Robots
Is a refurbished robot right for my business? That is the first question that comes to mind when you consider buying a refurbished robot. They are repaired, rebuilt, and cleaned in order to reenter the robot market. If bought from a quality robot store, they offer cost benefits as well…
By: alexbarker in  Investing  >  Day Trading   Feb 19, 2016  
0
  Likes: 0

Out Of Currently Being Goods Involving Must to Help Professions to 800 DIY Currently Currently Being
Many people maintain the money pertaining to items it's possible not really pertaining to paying for models concerning the Professions powerleveling railings. The most famous porch models typically include wood. Lumber porches plus lumber railings generally go with equally modern day plus Victorian or even various other form real estate.…
By: appgamenews in  Investing  >  Day Trading   Jan 21, 2016  
0
  Likes: 0

What is the Highest Standard Of Corn Peeling Machine?
Corn peeling machine develops towards high-performance. And we have high quality automatic corn peeling machine now. Corn peeling rate can reach 98% above and soybean and mung bean peeling rate can reach 95% above, which reaches the highest standard of this industry. When it refers to find out a high…
By: paomo in  Investing  >  Day Trading   Jan 08, 2015  
0
  Likes: 0

How To Choose The Right Bridesmaids Dress
Like planning your wedding, every stage of the selection of bridesmaid Long Champagne Bridesmaid Dress is once in a lifetime event. Exciting, right? But because it is a one-time, I know to make a decision may be a little scary. After all, you can not rely on past experience to…
By: vickysunny in  Investing  >  Day Trading   Oct 27, 2015  
0
  Likes: 0

Knowing The Ins And Out Of Forex Helps
Opportunities abound for personal traders in the Forex marketplace. You should take time to research the forex market carefully, as it can net you significant earnings. During the learning process, new traders can greatly benefit from guidance provided by seasoned traders. Read this article for advice on how to get…
By: mick leach in  Investing  >  Day Trading   Feb 07, 2012  
0
  Likes: 0

So What is Forex?
If you have ever traveled to a foreign country, then you must have found it rather necessary to find a currency exchange booth right at the airport, and exchange the money present in your wallet that is if you are a man or a purse if you are a women,…
By: Graham O. Osano in  Investing  >  Day Trading   May 12, 2013  
0
  Likes: 1

Automatic Forex Trading Systems - Do Metatrader 4 Expert Advisors Really Work?
If you've been on the Forex trading scene for any given amount of time, you're likely to have come across one of the many automatic Forex trading systems available on the market. The majority of the best Forex trading systems are created as Metatrader 4 expert advisors, and there are…
By: Thad B. in  Investing  >  Day Trading   Feb 21, 2011  
0
  Likes: 0

Things to Avoid Before Entering the Forex Market
A vast majority of forex traders never achieve success as a forex trader, yet everyone wants to get into the forex business. They think that they be able to beat the odds and become one of the few successful forex trader. However, most traders enter forex market and make the…
By: prabhu1 in  Investing  >  Day Trading   Dec 30, 2013  
0
  Likes: 0

Truths That Cannot Be Denied About Forex
There is a lot of interest in forex markets, but a lot of people tend to be hesitant. Perhaps it seems difficult for a lot of people. It's always wise to be careful with your money. You want to educate yourself on Forex before you start investing. Pay attention to…
By: mick leach in  Investing  >  Day Trading   Feb 08, 2012  
0
  Likes: 0

How To Succeed With Forex Trading Today!
Anyone can trade on the foreign exchange market. Read on to discover the basics of forex, and some ways you can make money by trading.Don't expect to create your own unique strategy to wealth in forex. Forex trading is a complicated system that has experts that study it all year…
By: mick leach in  Investing  >  Day Trading   Feb 06, 2012  
0
  Likes: 0

Article Views: 3349    Report this Article