Double top reversal FOREX strategy

by TFK6: I will show you one more forex strategy, or if you will another signal for the same forex strategy. You will be looking for a double top reversal pattern at the top of the upward price movement and double bottom formation at the end of a downward movement. There are many nuances to finding the ideal entry and a lot to learn to become proficient in this type of trading.  Considering the rewards of positive trade it is all worth it.

 

We will be looking for price moving sharply for prolonged period of time. Price will move so rapidly that it will reach outside of our EMA defined tunnel. Then we can focus on finding double top/bottom pattern which reflects the behavior of bulls and bear at lower timeframes. Often times it can be very similar to ABC pattern.

 

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Used forex indicators

EMA (exponential moving average) 250 with additional lines of 800 and -800. Again. Same as with the belly of the beast strategy. Tunnel will help us to visualize price that has moved rapidly away from its center.

 

Forex strategy rules

 

SELL

Price reaches above 800 line above EMA 250. Rapid movement was necessary for the price to reach this zone.

We start looking for a double top formation.

 

Double top formation: Two local highs at approximately same price. They are separated by the low (base) that will mark position for pending order placement.

 

We place pending sell order at the base of our double top signal once the second peak is clearly formed. Signal gets canceled if price continues to move upwards and closes above second peak. It is advantageous if the wick on the second peak shows signs of hitting a resistance at the top (upper wick will at least twice the size of candle body showing that price encountered massive selling).

 

  • Reliability of signal is increased tremendously if it confluences with existing resistance at that price level.

  • The position is liquidated as soon as it touches the green EMA 250.

  • Stop loss is placed above the high of double top formation.

 

BUY

Price reaches below -800 line below EMA 250. Rapid price movement was necessary for the price to reach this zone.

We start looking for a double bottom formation.

 

Double bottom formation: Two local lows at approximately same price. They are separated by the high (base) that will mark position for pending order placement.

 

We place pending buy order at the base of our double bottom signal once the second valley is clearly formed. Signal gets canceled if price continues to move downwards and closes below second valley. It is advantageous if the wick on the second valley shows signs of hitting a support at the bottom (bottom wick will at least twice the size of candle body showing that price encountered massive buying).

 

  • Reliability of signal is increased tremendously if it confluences with existing support at that price level.

  • The position is liquidated as soon as it touches the green EMA 250.

  • Stop loss is placed below the low of double bottom formation.

 

Notes: In many cases, double top/bottom formation closely resembles ABC reversal formation. And it is not a problem. The borders between the two types of formations are blurred and they have the same reversal meaning. However, doubles are often times more closely related to price hitting resistance/support at the reversal. Therefore, make sure you have them highlighted in your chart. Often times, it can help you filter out meaningless signal and increase leverage at strong S/R zones.

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