Double Top / Double Bottom Forex Trading Strategy

The double top / double bottom forex trading strategy is a price action trading pattern that employs a couple of technical indicators i.e. Exponential Moving Average (200), Awesome and MKNC_4 MT4 indicators in defining market direction.

Chart Setup

MetaTrader4 Indicators: Exponential Moving Average.ex4 (200), Awesome.ex4 (default setting), MKNC_4.ex4 (default setting)

Preferred Time Frame(s): Any

Recommended Trading Sessions: Any

Currency Pairs: Any

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Buy Trade Forex Example (Click the image for full size view)

double-top-bottom-forex-strategy

Fig. 1.0

Strategy

Long Entry Rules

Enter a buy in the market if the following chart or indicator pattern are in display:

  1. Ensure that a double bottom formation has been sighted on the activity chart. This is obviously a resultant of two swing lows bouncing off a support level, but eventually breaking above the resistance level to confirm a buy signal.
  2. If price trades above the EMA 200, it is a signal to stay bullish.
  3. If the blue dotted line of the MKNC_4.ex4 breaks above the 0.00 level of the Awesome custom indicator, it is a trigger to buy. However, if both the blue and the red dotted lines of the MKNC_4 custom indicator stay above the 0.00 level of the Awesome custom indicator, it is a sign that the market is staying bullish.

Stop Loss for Buy Entry: Place stop loss below/on the support level that holds bottom 1 & 2 (refer to Fig. 1.0).

Exit Strategy/Take Profit for Buy Entry

The following conditions or rules will define an exit or take profit stance:

  1. If a double top forms (please refer to “Sell Entry Rules”), it is an indication that price is pushing lower, as such an exit or take profit is advised.
  2. If price breaks below the EMA 200, it is a trigger to exit or take profit.
  3. If the blue dotted line of the MKNC_4 custom indicator breaks below the 0.00 level of the Awesome indicator, an exit or take profit is advised.

Sell Entry Rules

Initiate a sell in the market if the following chart or indicator patterns holds true:

  1. If a double top forms on the activity chart, it is a trigger to sell if price breaks the support line.
  2. If price breaks below the EMA 200 line, it is a trigger to sell.
  3. If the blue dotted line of the MKNC_4 custom indicator breaks below the 0.00 level of the Awesome indicator, a sell is most appropriate.

Stop Loss for Sell Entry: Place stop loss above/on the resistance level that holds tops 1 & 2.

Exit Strategy/Take Profit for Sell Entry

Exit or take profit on position(s) if the following rules or conditions holds true:

  1. If a double bottom forms as price slides further downwards.
  2. If price breaks above the EMA 200, an exit or take profit should be initiated.
  3. If the blue dotted line of the MKNC_4.ex4 custom indicator break above the 0.00 level of the Awesome MT4 indicator, it is a trigger to exit or take profit.

double-top-bottom-forex-system

Fig. 1.1

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About The Trading Indicators

The Double Top and Double Bottom both have two swing highs and swings lows around the same price level respectively. The Double Top suggests a bearish trend, while the Double Bottom is meant to signal a bullish market.

The Exponential Moving Average (200) is a moving average that plots the average price with more weight given to the latest price.

The Awesome indicator is an oscillator that is deployed in measuring market momentum. It does this by computing the difference of a 34 period and 5 period SMA.

The MKNC_4 indicator offer signals in a vivid manner via its red dotted line and red dotted line and lastly the “MA ribbon filled.89.21” is an indicator that is based on moving average.

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