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This double Top/Bottom and engulfing candles technique is one of the most effective strategies I used on trading. This method had been producing the best results for me, winning rates are average at 70%. The highest monthly winning ratio i achieved with this strategy was 82% while the worst monthly result was 63%.

 

The strategy is really easy to learn but may need continued practice in order to master. The strategy was the result of my years of trading experience and learning from others. Many techniques required more complicated technical indicators setup as well as many conditions before initiate a real trade. Methods with too many strict condition requirements might hard to find the ideal trading situation. Thus, missing a lot of trading opportunities.

This double Top/Bottom and engulfing candles system by contrast is simple. Furthermore, the perquisite of trade condition could be found be in almost daily intervals. It is also the same technique used by trading experts. You can use it to test on your demo account before using it on your real account. Furthermore, it requires lots of practices to really capture the best trading setups.

Before we get started, you need to identify the overall market sentiment. Use longer time frame to check the slop on chart. If the curve is sloping up, it is a bullish trend or it is a bearish market if the slope is trending down.

The method can be use in bull or bearish market. The overall market view is just to let you getting the general view of the market. But, this method might can be apply in trending and consolidating markets.

And the strategy best use on 4-hour and 1-hour timeframe. But i also used them on shorter time frame but the results were indifferent as there are a lot more ‘noises’ and resistance and support levels are harder to determined. It would take our understanding on candlesticks to compliment the technique.

Let’s get started with all the details,

Rule 1 – draw up major resistance and support lines in a higher time frame
Rule 2 – double top condition on major resistance and support lines in a higher time frame
Rule 3 – shooting star/hammer engulfing must formed right after the double top
Rule 4 – setup at/after condition is met
Rule 5 – position your profit taking/ cut lose level

 

 

Rule 1 – draw up major resistance and support lines in a higher time frame

FIRST REMEMBER : IMPORTANT – locate the key resistance and support lines on higher timeframe. For example, use 4-hour chart to find and draw the key resistance and support lines is your trade on 1-hour timeframe. Or set 1-hour chart to find and draw key resistance and support lines if you are planning to trade on 30 or shorter minutes timeframe.

Support is the price level where demand is strong enough to prevent the price from decreasing further. The logic precepts that as the price declines towards support and gets cheaper, buyers become more enticed to buy and sellers become less willing to sell. By the time the price reaches the support level, it is believed that demand will overcome supply and prevent the price from falling below support. Connect together few support levels and formed the major support lines.

In the contrary, resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further. The logic indicates that as the price moves toward resistance, sellers become more willing to sell and buyers become less inclined to buy. By the time the price reaches the resistance level, it is believed that supply will overcome demand and prevent the price from rising above resistance. Plot together few resistance levels and formed the key resistance lines.

 

 

Rule 2 – double top/bottom condition must be on the key major resistance and support lines on higher time frame.

Double tops are very common and can easily found just by looking on the chart. The price moves moved top to test the resistance and pullback from there, then retest and rejected again. These form a recognizable “M” shape pattern. As bulls strive to control of the market and buy the dip in price, they push price back up toward the old high. Unable to push price back above the old high, buyers give up and prices begin to fall back to support.


Double tops “M” shape pattern

The resembles the letter “W” double bottom chart pattern can be found at the rear of a downtrend and price drops to a fresh low and then rallies higher before going back to the new low. Unable to push price to a new fresh low to continue the downtrend, sellers give up and price bounces sharply from this area.


Double bottoms “W” shape pattern

Note, we cannot trade just based double top/bottom condition. A strong momentum will eventually breach these main levels. Furthermore, fake breakouts is also very common. But we can avoid these problems with this strategy with two more filter conditions that can reduces these ‘noices’ or ‘fakeouts’. First is based on the rule 1, where these condition must located on the key resistance or support levels that is located major resistance and support lines in a higher time frame. Another crucial condition is shootingstar/hammer engulfing after the double top/bottom(check Rule 3).

 

 

Rule 3 – shooting star/hammer engulfing must formed right after the double top

Shooting Star engulfing is candlestick pattern that normally hinted a possible bearish reversal pattern, appearing at the top of an uptrend. The shooting star candlestick is created when the open, low, and close are roughly the same price. Shooting Star engulfing occurred when the Shooting Star is engulfed by a bigger bearish candle. If you are a more aggressive trader, it will be just fine to enter the trade if it is engulfing bearish formation even though there is not shooting Star candlestick.


Shooting Star engulfing and Bearish engulfing Examples

On the opposite, hammer engulfing candlestick pattern usually a bullish reversal formation happen on the bottom. The hammer is a bullish reversal pattern that forms during a downtrend. When price is dropping, hammers signal the bottom could be done and price will start doing up again. The long lower shadow indicates that sellers pushed prices lower, but buyers were able to overcome this selling pressure and closed near the open. Hammer engulfing occurred when the hammer candle is engulfed by a bigger bullish candle. And For some aggressive trader, it will be just fine to enter the trade with engulfing bullish formation even the there is not hammer candlestick.


Hammer Bullish engulfing and Bullish engulfing Examples

IMPORTANT : shooting star/hammer engulfing formation after double top/bottom condition

Rule 4 – setup at/after condition is met on the major resistance and support lines

Let’s refresh, the above three conditions must be met before open any position.
Double top/bottom condition must be major resistance and support lines on a higher time frame
–  shooting star/hammer engulfing formation after double top/bottom condition

 

 

Rule 5 – position your profit taking/ cut lose level

There are few methods can be used on setting the profit taking/cut lose level. In this double top/bottom strategy, i opted to set the cut lose level based on the price from previous highest or lowest level. If you are to enter a buy position, set the cut lose level at the previous lowest closing price. Likewise, if you on the selling position, set the cut lose level at the previous highest closing price. Set the cut lose level at the previous highest closing price. Plus, set the profit taking price at least 1:1 of the cut lose level. You can set the profit taking at few different price levels, in order to take advantage of possible further pips gains.
* and you can also google for better ways on profit taking/ cut lose level like fibonacci retracement approach.

 

 

So, how this work? check on the real trade examples.

BUY Positon on Double Bottom

SELL Position on Double Top

Please do backtest on any charts or trade in demo account !

That’s it, it can’t get any easier than this. But seriously, it really requires more of your constant learning and experience to identify the most ideal tradable situation. Every day, you could see numerous double top or double bottom position. And remember no gamplan is 100% so be sure to apply a solid money management in every trade.

 

Please give me any questions and feedback on the comment. Thanks.

 

follow my twitter @onlinetraderbiz

 

Remember: The author is a trader who is subject to all manner of error in judgement. Do your own research, and be prepared to take full responsibility for your own trades.



Please do your own due diligence before making any investment decision. This article should not serve as investment advice. This post is mainly as reference and tutorial for trading on possible cryptocurrency breakout.

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