How do you define a double top/bottom?

[BobbiDigital]

I am curious how others define and use double tops/bottoms? There is something simple and powerful about them. Of course, in theory the market can't get through a limit order. But, very often the markets comes close to DT/DB's but may break the level by a tic or two, or not quite come back and touch the level and reverse.

My question is do you treat price turns within a couple tics (either short of a level or through the level) the same as price turns that occur directly at the same price? Are they inherently different?

BD

 

[Autodidact]

I am curious how others define and use double tops/bottoms? There is something simple and powerful about them. Of course, in theory the market can't get through a limit order. But, very often the markets comes close to DT/DB's but may break the level by a tic or two, or not quite come back and touch the level and reverse.

My question is do you treat price turns within a couple tics (either short of a level or through the level) the same as price turns that occur directly at the same price? Are they inherently different?

BD

When you see one, fade it, especially if they form against the predominant trend. They wont necessarily fail and break out, but market knows of their stops and it loves to hunt them.

 

[Scataphagos]

My question is do you treat price turns within a couple tics (either short of a level or through the level) the same as price turns that occur directly at the same price?

Yes. "Measure with a micrometer, mark with a paint brush, cut with an axe."

IOW... "Close" is close enough.

 

[BobbiDigital]

When you see one, fade it, especially if they form against the predominant trend. They wont necessarily fail and break out, but market knows of their stops and it loves to hunt them.

Yes! I was noticing how well those work at certain times. To me a DT in an uptrend shows there is demand present but it is being squashed so more can be accumulated at lower prices.

 

[BobbiDigital]

Yes. "Measure with a micrometer, mark with a paint brush, cut with an axe."

IOW... "Close" is close enough.

That is basically how I was looking at it. So to take it one step further, you then must define a higher high/lower low by more than a simple bar break. Perhaps price needs to close above the previous high on your trading timeframe to be a valid HH.

BD

 

[Scataphagos]

That is basically how I was looking at it. So to take it one step further, you then must define a higher high/lower low by more than a simple bar break. Perhaps price needs to close above the previous high on your trading timeframe to be a valid HH.

BD

Whatever "price level" you play for a trade, there needs to be a buffer to accommodate "overshoot/undershoot".

 

[Stewie]

I would also like to add that you're not playing the double top or bottom. Once you can call it as such, the trade is gone. In my opinion, all you can really do is place a short trade if price seems to be stalling at a previous resistance level that might turn into a double top, with hopefully a stop just beyond it, but far enough that it won't be picked off, as scataphagos suggests. If you can look at a chart and see the double top, an entry at that point would not be the best place to enter as your stop will have to be huge as to allow for another test of this same level.

I've read something before that went something like you have to already be positioned before the move in anticipation of that move. Once the move is under way, its really too late to get in with any decent stop.

 

[oraclewizard77]

For an example, lets say previously the market made the high of the day at 2088. Now later in the day a candle hits this high and then falls back creating a complete candle below the high. Then a 2nd candle fully forms next to the previous candle and again does not break the high of the previous candle. That is a double top, reverse for double bottom. It has no significance by itself at all. There is no increase of win% if you fade them or wait for them to break. You have just 50% chance either way.

However, if you were to add non lagging indicators and other things like understanding price action, you then might be able to determine if you were to place a trade.

The problem with people that don't give technical analysis credit is that they take an TA indicator by itself and say well that does not work 100% of the time so TA does not work.

The truth is that if you can with equal risk vs reward get a 55% or higher win% using TA then TA becomes useful.

TA becomes even more useful intraday when you notice that price is respecting the technical analysis that you use to define a setup that you are waiting patiently to take.

Then you have 2 outcomes, the setup will eventually hit your target or your stop mental or hard. After this outcome, you decide how or if you will continue to trade during the day based on your trading plan which may included a mental stop for loss amount for the day or profit amount for the day, or even number of trades for the day.

 

[dom993]

Looks to me you are placing the cart before the horse ... asking how to define a DT/DB, without 1st defining the purpose of that definition.

What I mean is, if you are looking at DT/DB as a reversal signal, you define it in a way that maximize the odds of successful reversal (through proper statistical analysis). And if, to the contrary, you are looking at it as a continuation signal, you define it to that effect.

 

[Xela]

My question is do you treat price turns within a couple tics (either short of a level or through the level) the same as price turns that occur directly at the same price? Are they inherently different?

For my purposes, they're the same. A couple of ticks makes no difference at all to my interpretation, and I treat them as the same. But - as rightly observed above - whether or not this is so for any individual trader is going to depend on the purpose of their examination and assessment of double-tops/bottoms.