Double bottoms and double tops (or triple bottoms and triple tops) are one of the most effective price action trading strategies in the market. Often used with other confluence such as support / resistance levels and trend lines, knowing how to properly identify these patterns can boost your trading success.
Step 1. Identifying A Proper Double Top
This is an example of price action from SPX on March 6th, 2023 on the 5 Minute Time Frame. The first thing you'll look for in a double top is your swing high level as identified by the body and wick of a certain candle. Double tops and bottoms are more easily spotted with objective rules in time frames 5 minutes and above.
Step 2. Drawing A Zone
After you notice a significant change in price from a swing high or swing low, you can create a zone that will serve as an OTZ (Optimal Trading Zone). This will be the zone you'll look for price to reenter for a double top or double bottom.
Step 3. Wait For Price To Reenter This Zone
As price reenters your OTZ, you can then look for other indicators or price action signals to determine whether you will have valid confirmation to enter a position. Other confluence can be RSI divergence, MACD crosses, or as simple as price action such as an engulfing candle.
Step 4: After Confirmation, Take Entry With Stops and Targets
After confirmation, you can enter a position, usually with a stop loss above the swing high (for double tops) or below the swing low (for double bottoms). Your risk/reward ratio should be somewhere between 1:1.4 to 1:2.
Step 5: Collect Profits
Once price has hit your target, collect your profits and look for your next entry.
For more trading tips, tricks, strategies, and a wide variety of other tools to help you succeed as a trader, and other dope shit, follow me on most social media platforms @austinmcgrady.
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