A commonly traded, but commonly mis-traded price pattern is the stock market double top trading chart pattern.
While it’s not a difficult price pattern to trade on stocks, most amateur traders over simplify the pattern. Then they wonder why it doesn’t work for them.
As usual, the devils’ in the details and in this video you’ll learn the details that make some double top chart patterns work, while others don’t.
What you’ll learn from this video can be used by stock market traders, but also by those who trade futures and Forex.
Enjoy the video and please leave your comments below.
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Welcome to this week’s video. This is Doctor Barry Burns with Top Dog Trading and today we’re talking about Stock Market Double top trading chart patterns. And we’ll also look at double bottoms.
Here’s the way that people get this wrong. I’m going to show you how the professionals do this as opposed to amateurs. And the devil is in the details like a lot of things when it comes to the stock market trading these double bottoms, double tops. The stock market double top trading chart pattern are very detailed and very important.
WHEN THE STOCK MARKET DOUBLE TOP TRADING CHART PATTERN DOESN’T WORK
The problem I find some people having is they’ll look at just something like this. They’ll see this high and they’ll see that high. And they’ll say that’s a double top. Okay that is not technically a double top. That is just, I would just call them even highs.
The reason is, the first thing you need to get a stock market double top trading chart pattern is you’ve got to have a trend. And the indication of that is the word top. We’re looking for the top, we are looking for the end of a trend. That’s really the point of this pattern. So this is not a trend. That is just a half cycle move. A trend is a long term move.
Let’s scroll forward here, and lets find a real trend. And there we go. now we have a trend. Now the average trend lasts five waves. As you can see here, we’ve got 1, 2, 3, 4, and 5. That’s your average trend. That’s the sweet spot for a trend to end. I’m not talking about Elliot waves here, if you want to learn how I count waves, I’ll be happy to show you that another time and it’s actually pretty darn simple. But it’s much more objective than Elliot waves so the wave counts don’t change. They stay. But you can get more than 5 waves, the way that I count them.
The average, mathematically is 5. So we are not even going to look for a double top until we get 5 waves. So for example, I mean, even here we see, we’ve got what some people would see as a potential double top there. Again those are just even equal highs. That is not where the trend ends. So the trend started way down here, and then we go up here. So this is it, now.
Now what we are looking for is a retest of this high. So rule number 1, when it comes to double tops is we are not even looking for them until we put in at least 5 waves. And again you can pretty much say, basically when I’m talking about waves is I am just talking about higher highs, higher lows. But there is a candle stick rule that applies as well, which is why that is a failed 3, and that is a real 3. So it’s a little candle stick pattern rule that we apply to it. It can’t just be barely another higher high. It has to be a real body above the previous high that closes above it. So that makes it more of a committed move.
Now once we put in wave 5, that is the only time we can now start looking for a double top. Again double top meaning the end of a trend. So you got to have a trend started. So here we go, and this is where we come back down, and then we retest this high. Alright, now again that’s still not enough. That’s the price pattern. We are retesting that high. Now we have the price pattern in place, but the question is, is that going to actually work? Will the trend end there and the market then go down?
And there would be two reasons if you want to know them.
- If you’re long, take profits, lock in your profits at that point.
- if you wanted to take a reversal and actually short that then that would be an opportunity for you as well.
You could do it either way. so just remember the famous saying we all know that trend is your friend until the end. And part of what that means is that the early in the trend, it’s not likely to end. But the trend is your friend until the end, it means that the longer that trend goes on, The less likely it is to continue because it’s not your friend anymore.
CONSIDER CYCLES AS WELL AS WAVES
Therefore, what else do we look for? Alright not just the wave count. That’s Number 1, how far has this trend been going, how extended is it? That’s number 1. Then we look for a cycle high, by the way if you want my cycle indicator, I’ll be happy to share that with you. send me an email at Barry@TopDogTrading.com and I’ll show you how to get this indicator absolutely free. a tutorial on how to use it because it’s very hard to read unless you know how to use it.
I make it real easy for you when it does go a little black here at that high then the market does end up pretty on a lower level because I think these are just short-term signals. That’s actually a long signal there. but what we are looking for is trend any one of these indicators.
The indicators only do what they promise to indicate. Right, they just indicate. They don’t tell you anything, they don’t make you money. If indicators made you money, we’d call them money makers. So they’re just one piece of evidence of one of the energies in the market and you put together the pieces in the methodology that makes you money.
The pieces of information put together is the extended trend. We retest that high at a cycle high with lower momentum. When you put all 3 of these together, then we have the double top trading chart pattern on the stock market. And you put all together then we have a probability scenario. That’s what to look for.
Alright, maybe I’ll do another video showing you double bottoms too. We run out of time here.
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