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Identifying a Double Top or Double Bottom

Identifying a Double Top or Double Bottom

Richard Krivo, Trading Instructor

Student’s Question:

I read your prev. comments on Double Bottom/Top formation. I would like to know how many candlesticks should be between both legs to qualify them…thanks.

Instructor’s Response:

The interpretation of candlestick charts has often been referred to as being more of an art than a science. As such, there is not a hard and fast number of candlesticks that need to occur between the two legs. More is better than less, and two candles right next to each other would not qualify.The process/pattern that needs to occur for a valid pattern is price action needs to touch support for a bottom or resistance for a top, trade away from that level for a time and then come back and test that level again and respect it. Ideally, a longer period of time between the two levels would lend more validity than a shorter period of time. Thepreciselength of time or number of candles is definitely debatable.Take a look at the example Daily chart below...

Identifying_a_Double_Top_or_Double_Bottom_body_32893d1246488173-post-day-double-top-chart.png, Identifying a Double Top or Double Bottom

Note how the double top pattern forms a capital letter "M". In a double bottom pattern we would be able to see a capital letter "W".Also, a textbook double top pattern will take place at a new high on the chart while a textbook double bottom will take place a new low.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.