USDCHF 4H DOUBLE TOP
Step #1: Identify the Phase of the Market. The Double Top reversal needs a uptrend.
Just because you can spot the reversal it doesn’t mean you have to jump in willy-nilly. Remember, we need the right context and everything needs to line up for a trade-able setup.
So, the first step is to identify the phase or market condition. At any given moment the market can be trading either up, or down, or it can go sideways.
Establishing the phase of the market aka identifying the trend is probably the biggest ingredient that can determine the success rate of double bottom pattern technical analysis.
Step #2: The historical precedent. An A++ Double Top Reversal is composed of 2 Rounded Tops
The second step of the Double Top is to find what we call the historical precedent or a chart pattern.
We don’t want to make a trading decision without price confirmation, and in our case, we use the reversal pattern. You need to identify two rounded tops in order for the pattern to be considered trade-able.
But, what is a rounded top?
In technical analysis, a rounded top is simply a price formation that typically occurs after an uptrend, prices move upwards and then quickly rallies creating a rounded top.
Now, of course, that depending on the structure the rounded top will vary in size and magnitude. But the idea is that we need a quick move up followed by a quick move down to define a rounded top
Note* A valid double top reversal has two rounded tops.
Step #3: Allow a maximum of 10 pips variation between the two tops.
Don’t seek perfection, because in trading you need to get rid of your idealistic mindset as the pattern will not look perfect all the time, so be flexible.
This is the reason why we need to allow a maximum of 10 pips variation between the two tops.
The probability of two tops happening at the same exact price level is almost impossible.
Now, we to determine an entry technique for our chart pattern strategy.
Step #4: Sell when Double Top breakout candle closes below the neckline.
After we identify the phase of the market and the characteristics of a good reversal we need to wait for confirmation that momentum is shifting.
The breakout candle is our signal that the momentum has shifted and it’s what it confirms and validates the double top pattern.
You’ll see the double top breakdown happen over and over again, but it’s important to analyze them within the context of the market trend.
The next logical thing we need to establish for the strategy is where to take profits.
Step #5: Take Profit at the same price distance as measured from the highest peak to the Neckline
The minimum profit target for this type of trade is approximately equal to the same price distance as measured from the double top to the neckline.
If we project the same price distance to the downside we obtain our first take-profit zone for the strategy.
The double top pattern can produce a major reversal so we advise you to be very flexible with your profit target not to miss any big profit opportunity.
Step #6: Place the protective stop-loss slightly above the resistance created by the Double Top reversal
The Double Top chart pattern strategy gives you a simple way to quantify risk because you can place your protective stop-loss slightly above the double top pattern.
The double top pattern really gives you the opportunity to also trade with a tight stop loss, which is great as we always want to keep losses at a minimum.
Note*** The above was an example of a SELL trade… Use the same rules – but in reverse – for a BUY trade, but this time we’re going to use the double bottom pattern.
Conclusion
There is no other chart pattern that illustrates the trend reversal. However, despite the high success rate you still need to use a protective stop loss and to wait for the breakout when trading with the double top chart pattern strategy. You can also trade with the breakout triangle strategy.
The bottom line is that you still need a plan to successfully trade the double top breakout. Our double top chart pattern strategy should answer all your questions in regard to how to make money with this simple pattern.
Just because you can spot the reversal it doesn’t mean you have to jump in willy-nilly. Remember, we need the right context and everything needs to line up for a trade-able setup.
So, the first step is to identify the phase or market condition. At any given moment the market can be trading either up, or down, or it can go sideways.
Establishing the phase of the market aka identifying the trend is probably the biggest ingredient that can determine the success rate of double bottom pattern technical analysis.
Step #2: The historical precedent. An A++ Double Top Reversal is composed of 2 Rounded Tops
The second step of the Double Top is to find what we call the historical precedent or a chart pattern.
We don’t want to make a trading decision without price confirmation, and in our case, we use the reversal pattern. You need to identify two rounded tops in order for the pattern to be considered trade-able.
But, what is a rounded top?
In technical analysis, a rounded top is simply a price formation that typically occurs after an uptrend, prices move upwards and then quickly rallies creating a rounded top.
Now, of course, that depending on the structure the rounded top will vary in size and magnitude. But the idea is that we need a quick move up followed by a quick move down to define a rounded top
Note* A valid double top reversal has two rounded tops.
Step #3: Allow a maximum of 10 pips variation between the two tops.
Don’t seek perfection, because in trading you need to get rid of your idealistic mindset as the pattern will not look perfect all the time, so be flexible.
This is the reason why we need to allow a maximum of 10 pips variation between the two tops.
The probability of two tops happening at the same exact price level is almost impossible.
Now, we to determine an entry technique for our chart pattern strategy.
Step #4: Sell when Double Top breakout candle closes below the neckline.
After we identify the phase of the market and the characteristics of a good reversal we need to wait for confirmation that momentum is shifting.
The breakout candle is our signal that the momentum has shifted and it’s what it confirms and validates the double top pattern.
You’ll see the double top breakdown happen over and over again, but it’s important to analyze them within the context of the market trend.
The next logical thing we need to establish for the strategy is where to take profits.
Step #5: Take Profit at the same price distance as measured from the highest peak to the Neckline
The minimum profit target for this type of trade is approximately equal to the same price distance as measured from the double top to the neckline.
If we project the same price distance to the downside we obtain our first take-profit zone for the strategy.
The double top pattern can produce a major reversal so we advise you to be very flexible with your profit target not to miss any big profit opportunity.
Step #6: Place the protective stop-loss slightly above the resistance created by the Double Top reversal
The Double Top chart pattern strategy gives you a simple way to quantify risk because you can place your protective stop-loss slightly above the double top pattern.
The double top pattern really gives you the opportunity to also trade with a tight stop loss, which is great as we always want to keep losses at a minimum.
Note*** The above was an example of a SELL trade… Use the same rules – but in reverse – for a BUY trade, but this time we’re going to use the double bottom pattern.
Conclusion
There is no other chart pattern that illustrates the trend reversal. However, despite the high success rate you still need to use a protective stop loss and to wait for the breakout when trading with the double top chart pattern strategy. You can also trade with the breakout triangle strategy.
The bottom line is that you still need a plan to successfully trade the double top breakout. Our double top chart pattern strategy should answer all your questions in regard to how to make money with this simple pattern.
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