TRADING USING DOUBLE TOP AND DOUBLE BOTTOM - 10% to @Tron-Fan-Club

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Hello everyone and welcome to my blog.

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In today's topic, we would be looking into trading using the double top and double bottom strategy.

This trading strategy is one of the common strategies used by day traders in catching trend reversals and pullbacks.
It is done by taking note of some key support and resistance areas on price chart. These areas tends to pullback or reverse prices once it get to them thus making traders to either take a sell or buy position based on trend direction.

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In as much as these strategy is usually effective, there's an issue on how to know whether the price will actually form a double top or double bottom or is it just going to break through the support or resistance level.

The above issue is what will lead us into looking at some practical examples on how to trade the double top and double bottom strategy.

DOUBLE TOP

The double top is formed when a price rejects on a key support area due to loss in momentum. In other to trade the double top strategy, we will be needing to add a momentum indicator since it's a momentum trade.

The momentum indicator we will be using will be the RSI which will help us to identify whether a price testing a resistance area is more likely to break it or reverse.

So in other to make an entry using the double top formation, wait for the double top to form and after the complete formation of the double top, wait for a reversal candle. Once the reversal candle is spotted, check the resistance for a possible formation of a bearish divergence and once it's spotted, you take a sell entry.

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From the above, we will see that all conditions were met. The divergence formation is what tells us that there's a loss in momentum in bullish momentum which signals a possible bullish-to-bearish price reversal.

DOUBLE BOTTOM

The double bottom is similar to double top but opposite. It is formed when a price rejects on a key resistance area due to loss of bearish momentum.

It is traded similar to a double top by adding a momentum indicator preferably RIS which will aid in spotting loss of momentum on a price at a double bottom resistance.

In making an entry using the double bottom, we will have to first wait for a reversal candle to form or subsequent bullish candle. After that we confirm it there's a divergence which would indicate a loss in bearish momentum. After that, we will take a buy position.

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From the above we will see that all conditions are met and and a successful reversal occurred.

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• EXIT

In taking an exit position using the double top and double bottom strategy, it is best for the stop-loss to be set slightly above the reversal candle for a double top while the target is set in consideration of the stop-lose in a 1:2 ratio. The same thing is applicable to the double bottom but in a reverse manner.

CONCLUSION

The double top and double bottom is a reversal pattern which occurs due to loss in momentum of a bullish or bearish price. This reversal pattern is mostly utilized by traders by adding a momentum indicator which will aid them is identying the level of price momentum.

The fact at the price is either at the support or resistance in addition with a bullish or bearish divergence along side a reversal candle, provides enough confluence for a trader to confidently take a buy or sell position.

Another thing to note in trading the double top and double bottom pattern is that it should be done on at least a 15min time frame or higher because the higher the time frame, the more prominent the support and resistance levels.

Thanks for reading...