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Chapter 14, Part II. Double top and Double bottom. Page 2

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

    Aug 28, 2009
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    Chart #1 | JPY/USD futures monthly. M-top pattern

    2. It is preferable that the retracement down/up after first top/bottom has the same amount of bars as the move to second top/bottom. But this is not absolutely necessary. As you can see, in our example this is not the case. Still the M-pattern has worked perfectly;

    3. Pay attention to B-C move – from the bottom between tops to the second top. See – the market first showed explosive up candles to the second top, then the same strong candles to the downside. This is a shift in momentum and this is very typical for Double tops/bottoms;

    4. The failure point of Double Top/bottom pattern is when market shows a close above/below second top/bottom. You may use a more strict failure confirmation – two or three closes above/below top/bottom, for instance.

    5. The confirmation point of this pattern is when the market shows a close below/above the low/high between tops/bottoms of the pattern. Sometimes this level is called the “Neck line”.

    6. The target of this pattern could be estimated in two ways:

    - The classical approach tells that the target of a Double top pattern equals the height of the Double top formation. So, it assumes that market should go down from neckline the same distance as between tops and neckline. I draw it on the picture. Also, I use 2.0 extension ratio to show this moment – it counts the same distance to the downside from neckline as distance between first top to neckline. The same approach should be used with a Double bottom pattern;

    - Second approach – use tops and low between them as ABC pattern for Fib extension ratio, then, the approximate initial target of Double top will be 1.618 extension to the downside, the same with double bottom;

    Pipruit: Very important information, Commander. But could you please specify the major purpose of this pattern – where it usually appears, what it tells us about, how we should trade it, its market mechanics…
    Commander in Pips: Sure, these are really important items that you should understand.
    #1 Sive Morten, Dec 20, 2013
    Lasted edited by : Mar 26, 2016
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