Thursday, March 17, 2011

Double top and double bottoms


Double tops and double bottoms are important trend terminators and are the easiest to identify. Once the price forms a trend terminator, a transition from a trend to a trading range is complete and you should no longer be thinking in terms of trend continuation, but rather trend breakout. On a trend day, you usually find at most one of these. Trading range days can have two or even three.

Any overshoot of a trend channel line by the bars that form the DP increases the chances of a deep pullback and a wide trading range, allowing a possible trade off the double top or bottom.

On a trading range day, any 2 legged move to the other end of the trading range can still be traded as if they were an A2 (b31 and b46) even though they are strictly not trend continuation. Once a trend has terminated in one direction, the next breakout could be in either direction, so its a good idea to enter every 2 legged move if its sufficiently well formed.

Any pullback close upto midway of the bars forming the double top/bottom can be treated as a DP and shorted for a swing. An inside bar such as b59 serves as a pullback after a DB or DT so you could treat it as a DP signal.


2 comments:

  1. Great blog Cadaver. Found it via Al's room and your posts are just excellent...concise, meaningful, and relevant. Just wanted to say thanks for posting.

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