In this third part of the series strategy trading with technical analysis patterns chartists such. This time we are talking about the famous double formations, known as double roof and double floor, as the case may be.
What is a double ceiling/floor?
It is a type of pattern chartista of change of trend, way after the price rejected 2 times for a same area or price level. There are two cases special: In the case of bullish trends, the impossibility of overcoming a resistance on 2 consecutive occasions is known as double roof. When the price is in bearish trend, 2 minimum on the same area or level, is known as a double floor or floor. In the middle of the formation is a point of structural, is used to determine the neck line of this pattern chartista. Below is a graphical representation of a double ceiling for better understanding of the training. Trading strategy with technical analysis of patterns chartists such: Double roof. Provides a high reliability and is usually repeated very often within the price charts, so it is widely used by technical analysts of financial markets. It is worth to note that the example image is only a reference. Is made it is explanatory because the market can be that the peaks do not occur exactly on the same level, nor is the pullback of validation. The signal of sale or purchase that is returned can be used in any type of market, whether stock market, Forex, indices, cryptocurrencies, futures, commodities, etc
Aim of the patterns, chartists such double ceiling/floor
The doubles formations, like the vast majority of the patterns, chartists such, they project a target of the movement after a break is a minimum, equivalent to the size of the figure. When the employer starts a strong change of tendency, the predetermined goal is usually exceeded. Various tools used in technical analysis as setbacks of Fibonacci, or areas of supply and demand. Can be used to determine higher shots of winning.
How to operate a double ceiling/floor?
The constant dynamism of the financial markets takes traders to adapt constantly to do this; causing that there are countless ways to make an entry according to reading a pattern chartista specific. Today, we review only the 2 most common ways, and simple to take advantage of a double training:
1. Entry on the 2nd touch of the resistance
Usually the operator has already analyzed a broad overview of the situation, managing to identify a possible area for the start of a trend change. In this way you are prepared to wait for a training chartista that supports your vision. In case of an uptrend, the price has been making a series of highs becoming higher. However, when it comes to the area expected, the price fails to continue the feeling prior, thereby creating a double roof, demonstrating the weakness of buyers. It is the signal that was expected by the technical analyst, which leads him to take position to try to pre-empt a future movement.
The traders that make this type of entries observed the following:
Candlestick: search For the control of sellers. Indicators: an attempt to identify any divergence that demonstrates the weakness. For example, decrease the volume on the 2nd top, or a tilt downward between the two peaks observed in the RSI while the candlestick chart is ascending. False breaks of resistance/soportesCorrelación of temporalities: the observation charts from the largest to the smallest time frames to optimize the entry, and take advantage of the greater part of the movement. It is the most risky way of operating a double ceiling or floor, due to which the trader attempts to take advantage of a trend that has not yet started. Until the neck line is not broken the trend remains intact, so there is a good chance that the price fall a little product of the weakness momentarily, but resumed quickly the force majeure. As here we dedicate ourselves mainly to the analysis of cryptocurrencies, let’s turn to an example of a double top in Bitcoin. Double top on the weekly chart of Bitcoin. As you can see, the bearish trend that lived Bitcoin during the last months of 2019 could take advantage then of looking at a very clean double top on the resistance at USD 11.500. Also, as the neck line is violated a second time, demonstrated the strength of the previous trend. Later, when you look at a breakdown of the cash support, the goal which indicates the formation, located in USD $ 7.700, was highly efficient, reaching, in the first impulse. The figures chartists such are more efficient the higher the time frame where you identify. In this case, the formation is observed in the temporality weekly basis, so your prediction has high reliability.
2. Break of neck line
It is the ideal form, and indicated by the theory, as it is when it happens the change of trend. In the case of uptrend, the price goes through of making maximum each time higher, to find the minimum each time more low. The 2nd touch of the resistance, and rejection of the same, indicates the weakness of buyers. When there is a break of the neck line of the formation, the change of trend is confirmed.
A break of the neck line it can operate in 2 different ways, and they are the following
Break and reverse
The first way is carried out after a break and pullback on the line or zone of your neck. The supports and resistances are broken are usually tested before the price continues its course. It is the least risky to operate a double training. Using the example of the double top weekly in Bitcoin, the decline is made after the objective was reached immediately after broken the neck-line. The stop loss for this case can be positioned above the maximum made by the contraction. However, could vary depending on the correlation of temporalities that use the trader. As the initial prediction had already been reached, the investor might try to look for a second take profit below the previous minimum. Technical analysis double top this in the weekly chart of Bitcoin.
The second form of input is performed is hardly observed and a break of the effective neck-line. Traders use this form of input because in some cases the price continues to quickly, without making a test of the area broken. In the case of the double real roof analyzed in this article, the sailing of the breakdown reached the goal of the training, so wait for the close of the candle would not have been cost-effective. The investor who tried to take advantage of the movement with this type of input, needed to correlate temporalities, to enter the market by observing the time frames to minors. Double top on the chart Bitcoin vs us Dollar.
Where can I make trading?
It is necessary to put in practice as soon as possible the knowledge acquired, only the experience you will get to fine tune the view to the reading of repeating patterns in the markets, the profitability will come. Demo accounts are excellent tools to test trading strategies, particularly those as complex as patterns chartists such. That is if you use it with a lot of seriousness, thinking as if it were real money which you are operating. Brokers such as Plus500 offers demo accounts with the same features that has a real account. In this way, we can confirm that the company provides a responsible service and quality. As soon as possible makes a transition to a real account, as that is where you will begin to deal with the very important psychology of the investor. Start with money that you can afford to lose, for so thou shalt take decisions governed by a pre-established plan, and not by emotions fleeting. No matter how little money, the important thing is to manage the risk of falling into bankruptcy. The experience gained will be what will catapult you to the success. I hope this publication has been of your liking. Any suggestion or feedback you can leave it in the comments, we will be happy to read.