DOUBLE TOPS AND BOTTOMS / TRIPLE TOPS AND BOTTOMS
Double Tops and Double Bottoms
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Double tops and double bottoms are some of the most frequently appearing chart patterns. This price pattern alerts traders to the possibility of a reversal in trend as price fails to create new highs or new lows.
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A double top occurs when a higher high has been created, price then drops and finds support (which is now the neckline). This area of support holds and price will then attempt to make a new higher high.
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When price fails to create new highs and is rejected from the same area of resistance, this indicates that there is a lack of buyers and shows that sellers are taking control and entering positions.
How to trade double tops and double bottoms?
After identifying a double top/bottom, what do you do next? Well it’s important for you to make sure that the pattern is confirmed with full candle close.
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For a double top; price may fluctuate higher than the previous high but as long as it closes at the same level or beneath the previous high, the rejection is valid. Jumping the gun and entering a position early, believing that price is creating a double top without waiting for the candle close will always end badly. It’s important to be patient; that’s the difference between a gambler and a trader.The same theory applies to a double bottom.
Here is an example of a double top and how you trade it.
So for the double top, once the rejection has been established we enter short with stops above the last high of resistance.
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Your first target will be the neckline as it’s the initial area of support and could potentially bounce back up again from here.
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Now for your second entry you would be looking for a break and close below the neckline (area of support) to then go short(sell trade) again.
Now this presents a minimum of 1:1 risk reward trade set up and we can see this in the example with the dotted vertical lines. We establish this target by measuring from the neckline to the highs of resistance (dotted blue line). Multiply this line, place it at the break of neckline, and the end of the blue line is your next target.
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Other double top formations
Here is an example of a double bottom and how you trade it.
Now for the double bottom, once support has been established we enter long with stops below the last low and your first target would be the neckline, as price could potentially reverse from here.
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For the second entry, you would be looking for a break and close above the neckline (area of resistance) to then go long again. This presents a minimum of 1:1 risk reward trade setup and we can see this in the example with the dotted vertical lines.
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Same as the double top, we establish this dotted line by measuring from the neckline to the lows, then placing the dotted line at the break of the neckline and the end of the blue line is your second target.
Other double bottom formations
Triple Bottom/Top Formations
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The Triple Bottom/Top formation is very similar to double bottom/top formation. We approach this formation in the exact same way, the only difference is that price tries a third and final time to breach the area of support/resistance. If these levels hold a third and final time then we have a strong confluence to enter a trade.
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USDJPY Daily Chart-Triple Bottom Example
Above and below are examples of very high probability trade setups. Support/resistance held strong on 3 separate occasions; in the example above we even had the break of a significant daily trendline which added additional confluence and provided us with a better entry and consequently a better risk reward ratio.
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USDJPY Daily Chart-Triple Top Example
