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Chapter 14, Part II. Double top and Double bottom. Page 4

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 20, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    When all initial sell orders have been absorbed by those who add to position or just initiate it, the up move reestablishes and traders who add to positions move their stops below the low of the retracement – they are happy, their greed has been satisfied. But now the public (that just have entered short) start to scream “let me out”. Market makers punish the public by taking out the previous highs (first top of potential Double top pattern). That’s why the second top could often be a bit higher than the first one, and this is a good sign for potential reversal.

    When public stops have been grabbed, new big sellers enter the market and move it lower. So the second top has appeared. When and if number of sellers becomes greater and greater – the market moves through the neck line and trigger stops of “happy buyers” who just added to positions. Their stops add fuel to the down move and the market tends towards the target of the Double Top pattern.

    If, in turn, market confirms the pattern but couldn’t go lower, then it turns back and takes out the second top – it tells us that there is an insignificant amount of sellers now and they can’t hold down the market and move it lower. It’s time to buy with “Stop” entering order, because in this case, sellers’ stops will add energy to further move up.

    The same happens with a Double bottom but in opposite direction.
    Pipruit: Cool! And where could this pattern appear?​
    Commander in Pips: As you can see from the picture, Double Top/bottom is a reversal pattern. When it appears we expect reversal of the trend. In fact, it could appear on any time frame. But this is more significant, when it appears on monthly, weekly or daily time frames. For instance, appearance on a monthly chart could give you an early signal of a big and long term reversal. But also you could see it on 5-min charts.
     
    Hamza Samiullah and fran alvarez like this.
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