Double tops and double bottoms are chart patterns that you often see in stocks, FX, and even virtual currencies. But the fact is, having this shape doesn’t always mean you can win. Because there is a trick. In what cases is it easier to win?
What is a double top?
A double top is a chart that has the following shape while the uptrend continues. The point is that it will be shaped like two large mountains, and it may be a pattern that stops and falls at about the same level as the previous high and low. Also, the second mountain is not necessarily lower than the previous one. The second peak can be larger than the first. When a double top occurs at a high price, it tends to be a sign of a trend reversal.
What is a double bottom?
A double bottom is the reverse pattern of a double top. In a crash market, it refers to a shape in which two large troughs are formed near the lowest price. When this shape is seen, it is said that the trend will change from a downtrend to an uptrend. This is also the same, but the second mountain is not necessarily higher than the previous one. The second peak can be lower than the first peak.
Double top/double bottom sample
Here are some examples of double tops and double bottoms. This will be the actual chart. As for the EUR/USD hourly chart, there are double tops and double bottoms on the July 2023 chart. It’s very easy to find, just find a shape that hits two highs or lows. And then you should see it being pushed back.
Source : Tradingview
Double top/double bottom trading strategy
As a double top double bottom trading strategy, it is to aim for a large price range with contrarian anyway. This is because it is said that it is common to change the trend as proof. The target price range will of course depend on the currency pair. New Zealand dollars and Swiss francs are pairs for swing trading, so you won’t be able to get a large price range. On the other hand, with pounds and euros, you can often get more than 100 pips. However, as I will explain next, there are many falsehoods.
double top double bottom
Contrary entry is the basic strategy for double tops and double bottoms. However, it is also true that there are many fakes. No investment is 100%, but unfortunately scams happen all the time. In order to reduce the possibility of cheating, it is necessary to pay attention to the following points.
time frame
Double top/double bottom falsehoods are always formed in short-term timeframes such as 1-minute and 5-minute timeframes, but they are prone to falsehoods. When finding double tops/double bottoms, it is best to find them at least for an hour, preferably daily or weekly. The longer the leg, the less likely it will be a fake. The longer the time frame is, the higher the probability of contrarian success.
the entry is the neckline
When entering double tops and double bottoms, be aware of the neckline. After passing through the neckline, it may come back once, so I will enter when I come back. And the loss cut line should be slightly above the highest price (slightly below the lowest price) and the profit taking line should be 50pips, 100pips.
triple top, triple bottom
It may be natural to enter when a double top and double bottom are formed. But after that it could be a triple top, triple bottom. In other words, there are cases where another big mountain is coming. There are cases where the third mountain is the highest, so there are cases where you have to escape once and cut losses.
whether you have a beard
When double tops and double bottoms are formed, the point is whether or not there are too many upper whiskers in the case of double tops. The more this is, the more likely there is no strength left in the market to go up. The opposite is true for double bottoms. If you have a particularly long beard, it is evidence that you have stopped hunting, so the possibility of a market turnaround increases. On the other hand, if there is no beard at all, it is assumed that it will penetrate, so be aware of loss cuts.
Ongoing trend
Even if double tops and double bottoms are formed, the trend may continue. Even if double tops and double bottoms are formed, it is only a temporary pause and there is a possibility that they will break out further. If you pull it out, you should quit contrarian once and cut the loss. In this case, unless you can probably grow a beard, there will be a big trend, and if you’re contrarian, your money will be gone in no time.
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