In this short tutorial, we will look at the three most common Double Top formations along with how to properly trade them and when/where they typically appear on a chart. Double Tops work very well as trend continuation patterns for the obvious reason that you are trading with the underlying trend (strength) in the market however, Double Tops can also be a great tool for identifying and trading trend reversals. I do not recommend trading these patterns as reversals at every support or resistance level, as trading this way will most likely not be a consistently profitable trading strategy. One method to trading these patterns as reversals is to use higher timeframes to identify important price levels.
For Example- You may use the Daily chart to identify important support/resistance structure levels while using the 1hr chart to actually identify and trade the double top itself.. Every strategy should have something called conditions and criteria's for entry.. If you follow my work, you have heard me say this in the past. In the case of this example, A daily level of structure Support/Resistance would be our condition and a double top on the 1hr chart would be our criteria for entry.. You rules should state this:
Condition: 1) Price must retest a daily level of support or resistance in order to look for entry criteria.
Criteria: 1) After price has retested a daily level of support/resistance, I am allowed to look for a double top entry on the 60 minutes timeframe. -See example of this exact trade at bottom of description (Chart 4 and 5)
Chart One: Most Common Double Tops Chart Two: Examples Of Double Top Reversals & Trend Continuation Chart Three: Double Top Trade Examples
Chart Four: Daily Retest Of Support/Resistance: Chart Five: Double Top On 60 Minute Timeframe:
Often, you will notice that price is up-trending on the daily chart but down-trending on the hourly charts. Many traders get confused regarding how to handle this confliction of trend.. One way to handle this is by doing what is stated above. Use a higher timeframe like the daily chart to find important price levels, and use a lower timeframe like the hourly or minute charts to trade at these levels. Just because the daily trend is up does not mean we cannot trade a double top reversal on the 1hr chart as that timeframe may be down-trending in a perfectly healthy daily uptrend.. I hope this was explained clearly, please feel free to ask me any questions you have in the comments below or via private chat & I will be happy to help. Also please let me know what double top you think is the best to trade (see chart 3) in the comments below. I will do a follow up lesson to answer this question I am asking you. I think the answer may surprise you & know it will be a AAH-HHA moment in your trading journey!
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Great content! On a daily timeframe: If there are two consecutive days with a top, can it then be a double top? Or is it a requirement that there has to be a price decrease between the two tops?
There are no requirements so yes, it can be a double top. (That is the short answer). The longer version of that answer- There is no right or wrong way to trade any pattern, in fact you can make up your own if you'd like. The important thing is that you define exactly what its is you plan to trade and trade it the exact same way every time. This process can be perfected through manual backtesting etc. I wish i could give you more, there is just to much information to cover in a comment. Please private message me, and i can point you in the direction to more resources. I hope that is helpful.
choudharyksb1111
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excellent knowledge, did not find such an awesome content anywhere
Mishazhang
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Thanks
wwejonathan
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What is the answer to the double top best to trade? is it 2?
Alec40
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@wwejonathan, Many voted for top 2 and that was a very good answer! Please see the update and answer to this lesson here:
afojay
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Best double top - top 2 that forms a lower point 2?
Alec40
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@afojay, Great answer! See follow up lesson above :)