It is no coincidence that double top and double bottom chart patterns have become one useful tools for Crypto investors. What does this pattern mean in the technical analysis of coin trading? How to trade with the model effectively? Let’s find out about Crypto Trading in the article below!
Some theories about double top and double bottom chart patterns
First, everyone needs to grasp the basic theoretical knowledge about the double top and double bottom model. What is a double-top pattern? And What is the double bottom model?
What is the double top model in coin trading technique?
The double-top model is also known as the double-top model. This is a price reversal pattern. It often appears at the end of an uptrend and provides a reversal signal from an uptrend to a downtrend.
The 2-peak pattern consists of 2 peaks with almost the same height. Along with that is a Nickline line passing through the bottom created from 2 peaks. Thus, in terms of shape, the 2-peak model is shaped like the letter M.
Signs to recognize the double top model are as follows:
– Before the double top pattern appears, there is a clear uptrend.
– The shape resembles the letter M. The two peaks of the model have almost the same height. The price difference is small, no more than 5%. The pattern has a central bottom created between the two peaks and a Nickline neckline passing across the central bottom. At this time, the Nickline line acts as a support line.
– The time to form the double top pattern is from 3 to 4 weeks. The pattern is only accurately identified when the price has broken out of the Neckline neckline. At this time, the price breaks out of the neckline and will fall sharply or retest the neckline before falling sharply.
See more: Reversal candlestick pattern: everything should know
What is a double bottom pattern?
The opposite of the double-top model is the double-bottom model. The market forecast model is from a downtrend to an uptrend. For that reason, this pattern often appears at the end of a downtrend.
In terms of shape, the double bottom pattern is similar to the W shape. The pattern includes 1 peak in the center. Along with that is the Nickline road passing through this peak.
Characteristics of the double bottom model:
– The model has a W-shaped shape.
– The pattern is a clear downtrend. If the downtrend only appears transiently or the market declines and then increases again, the identification of the pattern will not be accurate.
– Model formation time is from 3 to 4 weeks.
How to trade with double top and double bottom chart patterns in Crypto Trading
What double top and double bottom chart patterns are, and how to recognize them, you already know. However, do you know how to trade with this model? If not, let’s learn about the ways below.
Trade with double top and double bottom chart patterns when the price breaks out of the Neckline
With this trading method, as soon as you see a double top or double bottom pattern forming and the price breaking out of the Neckline neckline, you place a “Sell” order.
The entry point is placed at the closing price of the candle that broke the Nickline.
The stop loss is located a few pips away from the second peak of the double top pattern or below the second bottom of the double bottom pattern. Meanwhile, the take profit point is placed at a distance from the entry point equal to the height of the model. Or you can also set the profit-taking point at a ratio of 1:2 or 1:3 depending on the level of expectation of each investor.
Trade Crypto Trading when the price returns to retest the Neckline
The second form of trading is to enter an order right at the point where the price retests the neckline. Take profit and stop loss points are determined similarly to method 1.
This form of transaction compared to method 1 is considered safer. However, because of safety, in case your prediction is not accurate, the price does not retest back to the Neckline neckline but continues to drop sharply, and you will most likely miss an investment opportunity.
See more: Open an Bybit account – explore the crypto exchange
Crypto Trading right after the 2nd top or 2nd bottom is established
If the above two forms of trading are almost similar, this third method is a bit different. Because this method will require the use of a trendline. The main trendline is a straight line passing through the center bottom. At the same time, it also passed through the bottom of previous corrections.
This transaction is conducted as follows:
As soon as you notice the price falling sharply from the second peak and starting to touch the trendline, you proceed to enter an order. The stop loss will be a few pips above the second peak of the double-top pattern. As for the double bottom model, the stop loss point will be a few pips below bottom 2.
The profit-taking point will be set similarly to the two methods above.
Comparing the 3 forms of trading, method 1 and method 2 are safer while method 3 is a bit more risky. However, the higher the risk, the greater the profit will be if you predict correctly. You can consider choosing the most suitable trading method.
Besides, you can also use the Wedge model and Triangle pattern to predict the market more accurately. How to use these two models, you can learn in detail in other articles on the page.
Some important notes for effective trading with double top and double bottom chart patterns
The way to trade with the 2 top and 2 bottom models, if understood clearly, is not too complicated. However, to be safer and more effective, you need to remember a few more things:
Firstly, you should not stuff too many orders at the same time when trading. Because this can make you confused and difficult to predict the market. Besides, if you are a new investor, making such continuous transactions can cause you to suffer losses if your prediction is wrong.
As you know, the trading volume of the second peak will always be no more than 5% lower than the first peak. Similarly, the trading volume between the two bottoms of the double-bottom model also differs by no more than 5%. In case you notice that the trading volume does not match the characteristics of the model, you should not be too hasty but need to monitor it for a while before entering the order.
Besides, you should combine the Japanese candlestick chart with other indicators such as: moving average MA, RSI, MACD… This will more accurately assess the market trend. From there, you come up with the most appropriate investment strategy.
Finally, don’t forget to come up with an effective capital management plan and try to follow it to the end. You should not invest all the capital you have or put it all into the same cryptocurrency when trading Crypto trading.
Conclude
So above is the necessary knowledge about the concepts, characteristics, and trading methods for double top and double bottom chart patterns. Investors should not ignore this during their trading process. Besides, you can also learn other useful investment knowledge on the Crypto Trading page.
FAQs
Is the double top and double bottom pattern a continuation or reversal pattern?
The double top and double bottom patterns are reversal patterns.
How long does it take to form a double top and a double bottom model?
The time to form a double top and a double bottom model is about 3 – 4 weeks.
How much is the price difference between the tops of the double top model and the bottoms of the double bottom model?
The price levels between the tops of the double top model and the bottoms of the double bottom model are 5% different.
