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Chapter 14, Part II. Double top and Double bottom. Page 5

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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    Trading Double Top/bottom pattern

    From the classical point of view, the trading procedure of Double Top/Bottom pattern is a relatively simple task. You should enter the market, when it will close below/above the neck line, target, as we’ve said – distance from neck line to the downside/upside, that is equal to distance between tops/bottoms to neckline. The major problem with this approach is an area where we have to place our stop order. The pattern is treated as failed only if the market will close above/below tops/bottoms. So, logically we have to place our stop loss order there. But in this case, our potential profit will be lower than our potential loss. It tells us, that we should place stop order somewhere closer, and using one of Fibonacci resistance levels from the recent swing down is not bad idea, so as entering not just at low of confirmation bar but during some pullback to the neckline:

    Chart #2 | JPY/USD futures monthly. M-top pattern

    See – market has shown pullback to 0.382-0.50 resistance level, that is coincides with neckline. It allows you to have a better entry point as well as to place a tighter stop just above 0.618 Fib resistance. Still, if this pattern has formed, say, on 5-min chart you may use a softer approach to its trading. Just be sure that reward is greater than your potential risk and the value of potential losses will not be very painful to you and your trading account.
    Hamza Samiullah and fran alvarez like this.
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