30 Mar 2016

LEARN FOREX - DOUBLE TOP AND DOUBLE BOTTOM FORMATIONS



The double top and double bottom formations are great for determining reversals. In this article we are going to look at how to trade a  double bottom which has formed at a rising trendline support. 


1) A potential double bottom appears at a medium term rising trendline support.


AUD/USD H4

The rate has formed a double bottom at a 2-month rising trendline support. We have to look for an upside break above the neckline to enter a long position.

2) Break and retest.


AUD/USD H4

We don't want to enter straight after a break in this situation as the risk/reward ratio is not favorable, so we wait for a retest of the neckline and less than a week later the rate comes back to the neckline and forms a bullish engulfing candlestick pattern signalling a long entry.

Because of this retest we can now put the stop loss just below the former neckline. 

When such a reversal pattern forms at trendlines we should target the previous highs/lows in a trend.

3) The rate hits the target.


AUD/USD H4

The rate hits the previous highs mere 3 weeks later, making this an amazing trade. It is important to remember, however, that it will not work out 100% of the time and it may be a good idea to scale out of this trade gradually. To learn how to do that, check out our video here.





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