By Sean Hyman Yesterday, I gave you all the ins and outs of how to use the most popular Forex charting technique to your advantage…the head and shoulders charting pattern.

But frankly, there’s more than one way to use Forex charts in your trading. Today, I want to show you how to use what’s called the “double top” and “double bottom” patterns to secure your next round of profits in Forex.

Like the head and shoulders pattern, both the double top and double bottom charts have minimum price targets as well. A double top looks like an “M” on the chart, while a double bottom looks like a “W” on the chart.

Double-Top: Looks like an M
Double-Bottom: Looks like a W

I’ve emphasized the double bottom on the chart below by tracing out a “W” in black lines.

“W”ant to Pick a Bottom? Look for the “W”!

This pattern shows that the sellers can no longer muster up the strength to continue the “lower highs/lower lows” process that keeps the downtrend intact.

At that point, buyers step in and take back control at the second bottom. In other words, they stubbornly stop the currency pair’s decline. At this point, traders believe a pair is grossly undervalued so they are willing to step in “in mass” and aggressively buy.

So here’s how you use this information: When you look at a double-bottom chart and see the top of the double bottom pattern is broken and closed above, you can buy (go long) that pair.

This is much safer than buying at the second low (the second low point of the “W”). While it’s obvious in retrospect, it’s not so simple as the pattern is forming. So go long as the top of the “W” formation breaks higher and place your stop-loss at the bottom of the “W” pattern.

You can also use this pattern to find a minimum price target. It just involves some drawing on your part.

Once you see the “W” forming, draw a line from the bottom of the two lowest points on the W (the “double bottom support” shown as the green line above), up to the highest middle point of the W (shown by the yellow line.).

Then you just duplicate the yellow line, above the W (top yellow line). At the top of this new line, draw a horizontal line from the top of the yellow line across to the Y axis (shown as the red line above). Once price reaches that new horizontal line, you have met your minimum price target. This is a great place to take all or partial profits.

Remember, Sizable Pullbacks Can Come After You Reach Your Price Target

If you take partial profits, you should move your stop-loss up past your breakeven entry point to give the trade plenty of breathing room.

Currency pairs commonly have decent pullbacks after they hit key targets. But at times, pairs can continue the trend. So if you’re brave and want to try to squeeze more out of the trade, you can slowly move your stop up as the pair moves into new highs past the minimum price target.

Double tops would be gauged the same way except you’d draw your line from the tiptop resistance that the “M” forms and draw straight down to the deep middle trough of the “M”. Then project your line down and put a horizontal line to the right and look for the price to work its way down to the minimum price target.

Now you know a couple of the secrets for how the pros use their charts to find the next high or low point for currency pairs. This elongates their profits and keeps them in the trade much longer than the typical retail speculator will be in the trade.

That’s one way they beat out the competition…the “average Joe” trader.

Related Articles:

World Currency Watch
China’s Recession-Recovery Plan: Sink the Dollar

The Sovereign Society
Global Financial Crisis to Hasten China’s Rise

World Currency Watch
The Forex Profit Secret That Dates Back to 1202 AD

Financial Times
China Calls for New Reserve Currency

Wall Street Journal
China, Argentina Agree to Currency Swap