The Double Top and Double Bottom Strategy

Posted by OliverPearson 0

Double Top and Double Bottom Strategy

The top and bottom strategy is based on chart patterns, historical data, and price behavior.


The essence of the strategy is that the price touches a support or resistance line before it reverses. The price tries to break through the line several times. As rule, there are two or three attempts.


 

If the price touches 2 or 3 times the line of resistance or support, but can’t break through it, then it will certainly reverse.  If you see this chart pattern, this is the right moment to buy either CALL or PUT option.

Double Top

The double top occurs during an uptrend, and the double bottom is formed during a downtrend.

DOUBLE TOP

Double Top Strategy
 

The double top is formed during an uptrend. After touching the ceiling, the price can’t break through the support line and declines again. Thus, the price forms two tops at the same horizontal level. They look like the letter M.

Double Top Bottom Strategy
 

Going down, the price is to reach the previous local support line (in this case, the neck line) and breaks through it. It means that the pattern is completed, and you can invest in a PUT option.

Some traders think that there is no need to wait until the price breaks through the neck line. They think that they can open a trade in case the price fell to the neck line. However, conservative traders are sure that this is a risky step because the trend can reverse. It can keep going upward and form a stronger pattern, the Triple top:

Double Bottom Strategy

DOUBLE BOTTOM

Double Bottom
 

The Double bottom is a mirror reflection of the Double top and looks like the letter “W”. To complete the pattern, the price is to break through the neck line and then the trend changes it direction to upward.

Strategy
 

Impatient traders do not always wait for the moment when the neck line is broken. They open an order when the price just touches the neck line. They risk though sometimes the Double bottom can develop into a stronger pattern, the Triple bottom holding the price in the same direction  If you see the Double bottom on the chart, you should buy a CALL option.

You should have in mind that the Double top and Double bottom are reversal patterns. They are common for a steep uptrend and downtrend.

 

To use this binary option strategy, you just need charts available on the brokers’ websites. It should be noted that the strategy is commonly used with binary options on currencies. If you want to see even the slightest price fluctuations, I advise you to use the charts provided by AnyOption, the top binary options broker.

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