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Chapter 14, Part II. Double top and Double bottom. Page 6

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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    Advanced Talks on Double Top Trading

    To trade this pattern we can apply some additional tools that we’ve studied already. I talk about MACD indicator and candlestick patterns. Also, just a simple having an eye on the market will help you to avoid many troubles.

    Let’s take a look at a bit another Double top pattern – it has second top slightly higher than the first one. I’ve done it with purpose in Paint software, because this is necessary for our explanation.

    Chart #3 (manually adjusted) | JPY/USD futures monthly. M-top pattern

    When this candle with high up shadow has been formed, and market comes right back below the previous high – this is first bearish sign – Wash&Rinse. If here will appear some bearish candle pattern - much better. It could be shooting star, bearish engulfing or something…

    Second, despite the fact, that price action shows a new high, MACD holds the bear trend well. So currently you have two important confirmations – trend, W&R pattern and/or bearish candle pattern. You should use them, because your task is entering with as tight as possible stop loss order, but not blindly of course. You have to get confirmations from the market first – here we’ve got some.

    Now about perception - the number of bars in the down move from the first top to neck line and from neck line to second top is preferable to be equal. If it is – then the pattern is more significant and has more chances to work well. By the way – you get this sign even before second top has been formed. Another important moment is a trend shifting momentum while the second top is forming. Look, the market shows strong up bar when it moves to the second top, but right after that – a strong move down. Sometimes (but rare on Forex), it could look not only as long bars down, but as gaps also that is side-by-side to long down bars.

    And last one, when M or W-bottom pattern is fair, usually market does not show any significant retracement during the thrust down/up from second top/bottom. Here you can see it. Even after breakout of neckline market has shown 0.382 retracement up.
    Hamza Samiullah and fran alvarez like this.
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