Double Top & Double Bottom Patterns
Double top and double bottom patterns produce an approximate 75% win rate.
This pattern is one of the most common price reversal patterns.
The double top pattern is defined by two almost equal highs and a double bottom pattern is defined by two almost equal lows, both with space in between.
Double Top Pattern
The double top pattern is complete when price breaks below the previous swing low of the first high, and is considered successful when price moves at least the same distance of the previous swing low.
Double Bottom Pattern
The double bottom pattern is complete when price breaks above the previous swing high of the first low, and is considered successful when price moves at least the same distance of the previous swing high.
When you recognize double top or bottom pattern, you can either A enter at market price once the breakout occurs or B set a pending order.
The pending order you would want to set would be just above the previous swing high for a double bottom pattern or just below the previous swing low for a double top pattern.
In the example below, you see a double top pattern. The second trend line is the previous swing low and the pending order would be set just below for a short position.
Trail Stopping & Risk To Reward
After you have decided whether you will be entering at market price or setting pending orders, you must have a trading plan in place for take profit levels and solid risk management.
In the example below you see a double top pattern. The lines represent TP (take profit) levels for multiple positions. They are 1:1, 2:1, 3:1 and a 4th position of 3:1 with trail stop.
In my next lesson, I will be covering Triple Top & Triple Bottom Patterns. If you missed out on last week’s lesson CLICK HERE to access.
See you then!