Hello and welcome to another lesson with Cantos Charts Masterclass. I'm Sandy Jadeja leading you through the world of technical analysis. As always, everything we teach you here is for information and educational purposes only.

In today's lesson we're going to be talking about applying simple chart patterns and over the next few lessons we'll discuss in detail various chart patterns that can be utilised in today's markets.

We'll start by looking at the double top pattern which is considered a major reversal pattern and one that we should all be paying attention to. So what is a double top? The double top is considered a major reversal pattern and a double top usually occurs after an extended upside move. Here we'll take a look at what a double top looks like and the first thing that you'll probably notice is that there are two peaks here. So we have peak one and peak two. What actually happens in the chartist's world is that we often see a market re-test a previous high and the bulls are really trying to take the market above that high and sustain a bullish move. But in actual fact, what has happened is that the market has failed and then starts to decline.

So here we are taking a look at the FTSE 100 Index and this is a daily chart. The first thing you'll notice is that we had a nice steady rally towards the upside and for whatever reason (whether it was fundamental or technical) the market stalled at point one and then it started to decline. Now the bears will probably come in and say "actually, that was a top and we're going to take this market lower." And, of course, the bulls take control and attempt to take the market back above point one and that actually fails again for the second time. That is where we say this is a double top and the market will then start to decline.

So should you go short at point two, will you know that that's actually a double top? Well, if you're a higher risk trader and a short-term trader, yes, you can utilise methods of entering the market. But if you take a look at this chart here, maybe a conservative way to trade is wait until the market has actually broken the low of the previous valley which we'll go into detail in another lesson.

So here we've seen a break of the low and the market starts to decline even further. That is where I would say that this is a confirmation of a double top pattern.

So yes, this is a very good way to look at chart patterns and a very proven way to see that the markets do form consistent patterns and that we can utilise it for our trading arsenal.

Now also if we take a look at a longer-term chart, over here this is the FTSE 100 index on a weekly basis, and the first thing we notice that we had a high in July 2007 followed by a second attempt in October 2007. That, of course, led to a major decline in the FTSE 100 index.

So double top patterns are really two peaks and can occur in different timeframes. These patterns can be used both on an intraday basis as well as a longer term basis on the daily and the weekly charts. These are very good patterns and fairly easy to spot because we can look at these as mountain peaks or simply two peaks on a chart. So they're quite easy to look out for.

In the next lesson we're going to be taking a look at double bottom patterns.

I'm Sandy Jadeja. This is Cantos Charts Masterclass and I look forward to seeing you in the next lesson.