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Double Tops & Bottoms - Advanced AnalysisDouble tops/bottoms are relatively frequent and easy formations to identify and use. In this post, we provide a description of each pattern, implications, respective measure rule, as well as the variations described by Bulkowski. We also review the literature on these patterns in order to find various observations as well as a theoretical explanation of their occurrence. 1. Double Tops Double tops are a bearish pattern commonly found in uptrends and characterized by two consecutive peaks located at a similar level, separated by a trough. Bulkowski suggests that the absolute relative distance between the two peaks should be within 6%. The first peak is followed by a 10/20% decline. The location of the trough in the formation forms the "confirmation" level. The price breaking this level signifies the completion of the pattern, and a short position should be opened. In order to avoid fake breakouts, Bulkowski suggests a 5% decline below the confirmation level. Volume is generally declining during the formation of a double top. The time separating two peaks is an important factor when it comes to determining the validity of a potential double top. This separation should be in accordance with the duration of the uptrend before the peaks. Peaks that are too close to each other are not indicative of a double top, while an excessive time separation might indicate that the prior uptrend is outdated. Double top on OIA daily. 2. Double Bottoms Double bottoms are a bullish pattern commonly found in downtrends and characterized by two consecutive troughs located at a similar level, separated by a peak. Bulkowski suggests that the absolute relative distance between the two troughs should be within 6%. The first trough is followed by a 10/20% rise. The location of the peak in the formation forms the "confirmation" level, the price breaking this level signifies the completion of the pattern, and a long position should be opened. In order to avoid fake breakouts, Bulkowski suggests a 5% decline above the confirmation level. Volume is generally declining during the formation of a double bottom. Like with double tops, the time separation between two troughs should be in accordance with the duration of the downtrend prior to the troughs. The observations on the matter previously described for double tops also apply to double bottoms. Double bottom on CFFN daily. 3. Measure Rule The measure rule allows for the determination of the amplitude for the expected price move after a breakout of the confirmation line. This also allows for the trader to decide the location of take-profits/stop-losses when trading double top/double bottom patterns. For double tops, the take profit is determined from the height given by subtracting the formation highest peak with the trough. The height is then subtracted from the formation trough. For double bottoms, the take profit is determined from the height given by subtracting the formation peak with the lowest trough. The height is then added to the formation peak. Another rule suggests an expected price movement after breakout equal to 73% of the distance between the formation highest peak and the formation lowest low. 4. Eve/Adam Variations Bulkowski classifies double tops and double bottoms into four distinct types: - Adam & Adam - Adam & Eve - Eve & Adam - Eve & Eve The term Adam and Eve is given to peaks/troughs depending on their width, with the term Adam given to narrow (V-shaped) peaks/troughs and the term Eve given to wider (U-shaped) peaks/troughs. There aren't large scale studies quantifying the accuracy of each of these variations, Bulkowski ranks each one of them as follows (lower is better) (1): For double tops: - Adam & Adam: 19 out of 36 - Adam & Eve: 10 out of 36 - Eve & Adam: 16 out of 36 - Eve & Eve: 12 out of 36 For double bottoms: - Adam & Adam: 26 out of 39 - Adam & Eve: 17 out of 39 - Eve & Adam: 20 out of 39 - Eve & Eve: 5 out of 39 Note that such classification is not always used by traders. Example of Adam & Eve double top on LEO daily. 5. Observations The big M and big W patterned described by Bulkowski are variations of the double top/bottoms. The analysis conducted by Caginalp and Balevonich shows that double formations can be the consequence of identical equilibrium prices with slightly differing undervaluation (2). 6. References (1) Bulkowski, T. N. (2021). Encyclopedia of chart patterns. John Wiley & Sons. (2) Caginalp, G., & Balevonich, D. (2003). A Theoretical Foundation for Technical Analysis. Capital Markets: Market Microstructure eJournal.
Editors' picks
BITSTAMP:BTCUSDEducation
by LuxAlgo
29
MY 2 TOP BEARISH PAIRS: 1.) EURJPY I always like looking at higher time frame charts because they let me see the whole forest, as only like this I can get a better understanding of where the price is likely to go. And most importantly I like(want) to take a big piece out of major moves as they happen - my overall strategy objective when trading the markets. As we can see on Monthly Chart, the price broke above its long-term resistance line and formed a small double top pattern. This behaviour is very bearish and indicated the breakout is basically a bull trap (all the bulls who chased this breakout are likely to be severely punished when the price suddenly goes the other way). We can see Double Top even better on the Weekly chart where the price has already broke the neckline. However the price has since moved back above the neckiline and it could stay above for a little longer. Nevertheless, due to its Double Top Pattern the price will ultimately move (much) lower overtime. I will be looking for Sell positions on lower time frame.
Short
by Dragon_Ball
BTCUSD - D1/H4 - WHY I REMAIN BEARISH ?A lot of my followers asked me recently... why I was so bearish ? I will try to "justify" my bearish view in looking today, at the daily and at the 4 hours time frames, which, for me, both of them are quite representative of the recent and current price action which is likely to trigger further downside move towards the 60'000 at least if some important support levels were to be broken on a daily closing basis !!! DAILY Under the pressure of a RSI bearish divergence confirmed a couple days ago which is also showing a double top formation in progress, which is for the time being, of course, still quite far away of its trigger level @ 56'425 ! In addition, the global picture is also showing a rising wedge pattern in progress, with its support line, which also coincides with the important D1 cluster level (currently @ 62'700). Last daily closing level was below TS & conversion line and should be seen as the first warning signal for further downside which would be confirmed by ongoing closing level below TS or better below the pivot support level @ 62'700. Confirmation of the rising wedge downside breakout (@ 62'700) would give a technical target of 52'000 which is also currently the daily clouds bottom support level !!! 4 HOURS The double top target (@ 63'000) has already been filled in this time frame; it has been followed by a pullback attempt which has been, so far, rejected by all three major resistances !!! Currently under pressure, slightly below the H4 clouds support zone. RSI below 50 Failure to quickly recover above MBB (currently @ 64'945) should open the door for former recent bottom @ 62'300 and then 61'700 (very minor uptrend line support level) ahead of the psychological 60'000 level or even potentially lower. CONCLUSION : D1 : Levels to watch, on a daily closing basis, are the following : R1 : 64'550 S1 : 62'700 A daily close either above or below one of the level above mentioned should trigger a roughly 4'500 points. Have a great weekend and may your long goes up and your short goes down Do you like my analysis ? If yes, please do not forget : 1) to like it 2) to add Ironman8848 on your following list that will be great :-) Many thanks in advance. All the best and take care. Ironman8848
BITSTAMP:BTCUSD
by Ironman8848
4
1INCH-USDT - Breakout Sym.Triangle&DoubleTop | Target 4.20 1h tfHello Folks and Crypto Friends, after a long way up for BTC and Down for ALTS BTC Dominance is Falling Again... this will Boost Alts. Luck for 1Inch which is on the break of a Symatrical Triangle 1h TF. Which could also lead to break of the Double Top "W" PAttern. BUY: 3,02 - 3,12 Target: 4.20 TP1:3,20 TP2:3,50 TP3:3,86 TP4: 4,20 SL: 2,806 If you want to be more save, always wait for the Retest. So no financial Advice - Just my 4.20 Dollar :) DIOR Good Luck and have fun!
Long
by WE_Love_TA
AMC Retest $41 One More Time Or Higher?For the last 3 days AMC experience strong increase movement in price an movement in the 30 min chart. On Friday AMC finished a Falling Wedge. What I see right now is AMC buying volume is getting weaker despite holding strong today. I start to see bearish divergence in 1hr chart and a bit in 2hr but not yet confirm. We could experience a symmetrical triangle today or tomorrow. I expect a strong start tomorrow but slowly price dipping. Good for reentry if you are in for the long. Good for selling if you made your entry back at $36. So its a 50/50 tomorrow. Either it continues this week bull or it is retesting. Update: If it forms a symmetrical triangle and stay above the $42.80s it will bounce up much higher. If not expect to retest.
NYSE:AMC
by gojira91
Overall Bearish Outlook EURUSD SHORT 1.) Price is in the monthly/weekly supply zone. Price has had trouble breaking this zone and I think price was just consolidating and gathering momentum to make a bearish push. 2.) Price formed a double top, after an uptrend. A double top formation at the end of an uptrend can signal a potential reversal. 3.) After forming a double top, price then broke the neckline. Once price breaks the neckline of a double top/double bottom formation, it is common to expect price to retrace to the neckline and meet resistance before making another impulse. 4.) I think price will create another impulse to the downside and am looking to take profit near the 50.0 fib level.
Short
by NoCeilingsTrading