The Trading Strategy Based On The Figure «Double Top»
To conduct effective technical analysis, it’s not necessary to use indicators because, on a clear chart, the most important information is initially presented. So, there are many reversal patterns that are easily detected even by novice traders. In this article, we’re going to consider a very powerful trading strategy, built around a technical analysis figure dubbed «double top» and «double bottom».
The pattern overview
The very essence of it is in the name of the figure. The price reaches a certain resistance level, after which it rebounds to the support level, then rises again to its original value and then drops again. Thus, something similar to the letter «M» is formed. The appearance of such a figure in the vast majority of cases precedes the reversal of the trend with a significant reduction in price. If the pattern is clearly outlined and it has the correct shape, then the patency of the signals will be very high.
The signal to enter the market is the penetration of the lower support level, on which the letter «M» stands. If this happens, then we should expect the beginning of a downtrend. As a rule, the price passes the distance, which is at least equal to the height of the pattern itself.
A mirror image of the pattern is a similar figure – a «double bottom». It resembles a letter «W». It’s formed during the reversal of a downtrend. The rules for entering the market are identical. The UP option is purchased when the candle closes above the upper resistance level.
The expiration rules are standard – from 4 to 5 candles. It’s an optimal interval. If you use pipe options, then you can conduct your technical analysis at the intervals of 15 seconds and 1 minute. In this case, the duration of transactions should be equal to either 60 seconds or 5 minutes. If the chart timeframe is 5 minutes, then binary options with a duration of 20-30 minutes should be used.
An example of trading on a real deposit
We’ve conducted our trading on a small interval equal to 15 seconds. Therefore, on the platform of the Binomo broker (also try trading with broker Olymp Trade), the CRYPTO IDX asset has been chosen. It boasts high volatility, providing a full-fledged formation of candles in a short time period. The chart shows the figure «double top», which, in turn, also consists of two patterns of the top and one bottom. The price behavior in the picture below is indicated by green arrows.
Immediately after the candle has closed below the support level, an option has been bought for $10. The expiration is equal to 4 candles, everything is standard.
The pattern has fully met expectations. As predicted, the price passed the distance equal to the height of the pattern. You can see it in the picture. When trading, investors should take into account this feature of this pattern.
At greater intervals, the overall accuracy of trading with this method increases. The optimal choice would the timeframe M1. In this case, the patency of the signals will increase significantly, without having to spend several hours in front of the monitor waiting for the formation of the desired pattern.
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