How to Trade Double Tops - Winning Strategies Double Top DefinitionP&F Bullish Breakouts
A very common chart formation is going to be discussed today.The reversal chart pattern appears at the end of trends.You can be familiar with the double top chart pattern if you notice an upside down W formation in stock charts.
The double top is a chart pattern with two swing highs.This pattern can be seen all the time.A chart pattern can be classified as a double top.
Double tops have a lot of potential as the price of the stock moves back and forth within a defined range.When the stock breaks out, there is an increase in volume and price.The upside and downside can occur at the same time.A close stop above the support and resistance level is what you will want to keep in mind if you enter a double top chart pattern.
The pattern has a Trigger level that is used to confirm the pattern and open positions in the direction of the reversal break.Between the two tops of the pattern is where the signal line is located.We have a chance to go against the primary trend when this line is broken.
There is a double top chart pattern on the 2-minute chart of Microsoft.MSFT created a second top after a minor correction.
The signal line is used to confirm the pattern.After the second top is created, the signal line is used to confirm the pattern.The best time to short MSFT based on the double top strategy is when the long bearish candle closes.
After the double top confirmation breakdown, the price continued to fall, reaching $50.37 per share.
The minimum target is equal to the formation's size after confirmation of the pattern.When a stock breaks out of a double top formation, the price target is the range of the formation added to the level.
There is a 2-minute chart of Hewlett-Packard.The image shows a double top pattern example, where we measure the size of the figure and its minimum target.
The double top is confirmed by the black lines on the image.The range of the formation is defined by the blue horizontal rectangle.The range was used to calculate the price target of the pattern.
The second top is slightly higher than the first.This top is used to measure the size of the pattern.The blue field is stretched from the top to the signal line.The size of the pattern is the range between these two levels.The double top formation is 7 cents long.
After the double top is confirmed, we need to calculate our minimum target.
Take $0.07 and subtract the signal line from the image.The two blue areas are the same color.The minimum target of a double top is the same as the formation's size.The minimum target of the pattern is at $10.74 per share since the signal line is located there.The pattern on the chart provides an opportunity to short HP for a profit.
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Many traders claim that if you trade double tops, you should place your stop loss above the lower top.I don't agree with this rule.In many cases, your win-loss ratio is less than 1: if you place your stop above the lower top.
The double top pattern success rate is 70%, so we would be walking into a losing situation.
The stop loss should be closer to the price.If you put your stop loss at another smaller swing point, it will come after the second bottom.Measure the distance between the second bottom and thetrigger line and place your stop loss in the middle if the price moves after the bearish bottom.
This is an optimal risk management solution for the double top chart system.The pattern system is profitable if you get at least 1.8 win-loss ratio.The double top pattern example compares the two risk management systems.
There is a double top chart pattern on Facebook.The chart frame was from March 30th.
The double top figure can be seen in the black lines.The signal line of the pattern is red.There are two blue areas on the chart, the size of the formation and the minimum target.There are two stop loss options.
The stop loss order is above the second top in the first option.This is 20 cents above the entry price, which is a price move.
The target is 19 cents below the entry price.The first stop loss option has a win-loss ratio of 0.18.
Without a win ratio of 85%+, you will risk 1 and get less than 1, which doesn't make sense.
The second stop loss option is recommended.The price created a doji candle on the way down from the second top to the signal line.
I use this as a price action level, where I can place a tighter stop.The mid-point between the signal line and the top is in line with the other rule when choosing a stop loss level.
The risk when placing the stop loss is zero.Since we have the same target, we now have a win-loss ratio.
I think this option is better than the first one.The minimum target of the pattern will not be pursued if the price increases through the second top and signal line.
The double top and double bottom chart patterns are the same.The double bottom is a full mirror image of the double top.The double bottom pattern in the opposite direction is what we have stated so far.
There is a 2-minute chart of AT&T.A classical W Bottom chart pattern is shown in the image.The signal line of the pattern is the red horizontal ray.When AT&T breaks this line in a bullish direction, we get a long signal for a minimum target equal to the size of the pattern.The double bottom works the same way as the double top pattern.
I will show you how to trade the double top chart definition and double bottom formation successfully.
You can see a 2-minute chart of the company.A double top and a double bottom chart pattern can be seen in the image.
A top is created after a price increase.A new price increase develops into a second top after a corrective move.The signal line is on the bottom between the two tops.
GOOG decreases through the red signal line after creating the second top.A confirmation signal of the pattern is given by this break.
The size and target of the double top chart pattern are the first two blue areas on the chart.The first red area is the risk we are taking on this pattern.The risk of the stop loss is 0.21%.The minimum target calls for a profit of 0.49%.We get a win-loss ratio of 2.33
The price continues to decrease after we shorted it.We were able to close the trade with a.49% profit after 20 minutes.
The first bottom of the next pattern is created by the decrease which brings us the.49% profit.The price action creates a second bottom on the chart after a bullish correction.
We notice that the chart has a double bottom potential.Between the two bottoms of the pattern is where it should be placed.The size of the double bottom and its target are measured in the second two blue areas on the chart.
The pattern is confirmed when a new increase of the price leads to a break through the signal line.The double bottom pattern technical analysis shows us a little below the entry price, which is a great location for our stop loss.The risk we are taking in this trade is 0.23%.Our target is a profit.Our win-loss ratio is 1.61
After we go long on the signal line, the price goes up.We closed our trade with a small profit after 34 minutes.
The result from these two trades is less than an hour of work.The risk was equal to 0.44%.The two positions have an average win-loss ratio.
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