Case Studies Detail

How to Use Double Top Trading Strategy in Forex

The trend gets interrupted at some point and the price of the currency pair starts to range. After the creation of the second top, the price action drops and starts a new bearish trend. The breakout of the intermediate support line predetermines a further decline.

Double bottom trading example

The reversal signal confirmation helps traders determine the appropriate double top pattern entry point for their trade positions. The double top pattern’s peaks represent strong resistance, showing that buyers have been unable to push the price higher twice. A price break below the double top pattern’s neckline indicates that selling pressure is now dominant. The price break confirms the bearish reversal, attracting more sellers and increasing the trading volume.

• As mentioned above, the double top pattern is used to find a reversal when a financial asset is moving upwards.
• There may be some subjectivity involved in recognizing a double-top pattern.
• Online traders adjust their trade positions to take advantage of the expected downtrend once the double top trading pattern is confirmed with a price breakout below the neckline.
• The double top pattern drawing involves identifying two equal height resistance points and plotting the number 1 and 2 above them.
• Breakout trading strategies and momentum trading strategies serve as complementary methods that capitalize on the double top pattern’s completion and subsequent price movement.

What factors contribute to the reliability of the double top pattern?

• You can also project the vertical distance between the neckline and the highest peak downward from the neckline to determine your profit target.
• The momentum decline signals weakening bullish sentiment and potential dominance of sellers, leading to a bearish reversal.
• Especially when opening short trades after the breakout of support at its lowest point.

The prices then pick up from the low to a level close to the prior high. A downward movement follows the second high, completing the ‘M’ shape and confirming the bearish or downward trend reversal. Another disadvantage that investors and traders face while using the double-top pattern is that they need to wait to confirm the pattern signal before applying their trading strategies. The double-top pattern can be confirmed only after the second downward price action breaks the support level created by the first downward price action. Technical chart patterns called double tops often point to the possibility of a reversal to a downtrend from an uptrend. It develops when the price of an asset twice reaches a resistance level, fails to break through it, and then starts to fall.

What’s the typical double top pattern entry?

The Double Top pattern can be applied across various timeframes, but its success rate is often higher on longer timeframes like the daily or weekly charts. To trade the Double Top effectively, it’s important to time your entry and exit points well. It develops over time, allowing traders ample opportunity to spot it and prepare their trades. Filippo Ucchino has developed a quasi-scientific approach to analyzing brokers, their services, offers, trading apps and platforms.

This 11-step process works absolutely the same way with the Double Bottom reversal. As we already said, the Double Top and the Double Bottom have a reversal character. double top forex In this manner, they are expected to change the direction of the trend, creating a brand-new tendency. Notice how the EURUSD currency pair sold off heavily immediately after retesting the neckline. Notice in the illustration above how the market retests the neckline as new resistance.