[es] Fading Dbl Tops and Dbl Bottoms

[Jugador 10]

Anybody trade this strategy? If so, what kind of entry do you use? Anticipate or confirmation, or maybe something else?

[brownsfan019 17]

I think you'll find that double bottoms/tops (and triple bottoms/tops for that matter) work great on some days and will get slaughtered on other days.

 

Risk management will be key to make it work and IMO you'll want/need some other confirmation - candle patterns, indicators, confluence of S/R, etc.

[Jugador 10]

Risk management will be key to make it work and IMO you'll want/need some other confirmation - candle patterns, indicators, confluence of S/R, etc.

 

When you say confluence, you mean like a bollinger or keltner being touched?

[wjrusnak 10]

I think you'll find that double bottoms/tops (and triple bottoms/tops for that matter) work great on some days and will get slaughtered on other days.

 

Risk management will be key to make it work and IMO you'll want/need some other confirmation - candle patterns, indicators, confluence of S/R, etc.

 

Especially since most people know about these things. Anyone watching a chart is going to see it. Really you have to ask "what are traders going to do with this double top/bottom?" Much of the time, these double tops and bottoms are also pushed even further, just enough to shake/stop out someone with a good position. Look for any trouble that price has when trying to move any further above or below the double top or bottom. And of course, be ready if case you're wrong.

[diablo272 10]

I am not an expert on VSA, but I think that some kind of volume analysis would be useful in this situation, more so than any indicator that I know of.

[brownsfan019 17]

When you say confluence, you mean like a bollinger or keltner being touched?

 

There's so much you could look for... a few ideas:

 

Touch BB or Keltner

Market Profile areas

Other S/R areas (globex high/low, previous days high/low, etc.)

Candlestick patterns

VSA stuff

Plethora of oscillators - macd, stochastics, etc.

You get the idea.

 

Basically, just seeing a DB or DT by itself can be a risky setup.

 

Equally important is entry method, where to place stop and where to exit for profits.

 

As you can see, quite a bit needs to go into it.

[Jugador 10]

There's so much you could look for... a few ideas:

 

Touch BB or Keltner

Market Profile areas

Other S/R areas (globex high/low, previous days high/low, etc.)

Candlestick patterns

VSA stuff

Plethora of oscillators - macd, stochastics, etc.

You get the idea.

 

Basically, just seeing a DB or DT by itself can be a risky setup.

 

Equally important is entry method, where to place stop and where to exit for profits.

 

As you can see, quite a bit needs to go into it.

 

Okay, thanks...that should keep me busy for awhile.

[brownsfan019 17]

Here's a good article from Investopedia.

 

Scroll down to the middle of this page on stockcharts and they talk about DT/DB w/ Bollingers.

[Jugador 10]

Here's a good article from Investopedia.

 

Scroll down to the middle of this page on stockcharts and they talk about DT/DB w/ Bollingers.

 

Cool...I didn't even know about Investopedia.

[MPTrader 10]

actually if the same volume cannot make a higher high or lower low, its turning pt in my opinion

[Jugador 10]

I have to admit, I haven't really spent that much time researching the significance of volume. I'm gonna have to put that on my "to do" list. Thanks

[david22 10]

also you can use market internals to assess the strength or spot divergance.

[AgeKay 10]

Anybody trade this strategy? If so, what kind of entry do you use? Anticipate or confirmation, or maybe something else?

 

In my opinion, the best way to trade any kind of support/resistance (i.e. tops/bottoms) is to watch the sell market orders vs. buy market orders (also known as "delta") at that point in time at the support/resistance. It makes no sense shorting a top when you see a lot of buy market orders. As someone pointed out earlier, in this case they might take the market a bit higher until everyone who shorted at the resistance pukes and then it will go back down again, but you will see this when you see the sell market orders hitting the market.

[bakrob99 11]

I have to admit, I haven't really spent that much time researching the significance of volume. I'm gonna have to put that on my "to do" list. Thanks

 

With all due respect, that's bit like saying you will get around to figuring out how to put gas in your car when you run out.

[Jugador 10]

With all due respect, that's bit like saying you will get around to figuring out how to put gas in your car when you run out.

 

Okay...I get the hint! :o

[brownsfan019 17]

With all due respect, that's bit like saying you will get around to figuring out how to put gas in your car when you run out.

 

That's only if you place significance on volume. I don't have it on my charts in any capacity and don't need it.

 

So while important to some, others may find it useless.

 

[DbPhoenix 42]

Okay...I get the hint! :o

 

If you want to pursue this business of support and resistance and volume further, this post may be of interest to you.

[Eiger 10]

In the Wyckoff and VSA methods, Upthrusts for a double top and Springs for a double bottom are often excellent indications of directional movement. Volume certainly plays a part. When you see less volume on the retest of the top or bottom, it is high odds for a reversal. Even given that, you still want to see a key reversal bar, either closing on the low after attempting to go higher for an UpThrust, or closing on the high after attempting to go lower for a Spring. In both cases, prices above or below resistance and support are rejected by the market and indicate a directional move.

 

Here are a couple of examples:

 

In the first chart, you can see the market fell. Note that the last rally indicated some strength because it pushed above the Supply Line AA at 1. The market then drops below support and makes a 'double bottom,' but a Spring occurs at 2 with the Key Reversal bar. The market rallies at 2 back above support. Because volume is low at this point, it is a relatively 'safe' entry to the long side. The market then rallies 10+ points.

 

In the second chart, you can see an UpThrust. Here, you see an old top in the background. This is resistance. The market tried to push through this old resistence and on the third time, it fails miserably. At 1, it tries to go up, but reverses and closes on the low (second bar). This is a clear indication of lower prices, no doubt. The market then procedes to fall over 30 points in a short period of time.

 

UpThrusts and Springs occur freqently and can be high odds trades in the right circumstances. We talk a lot about these and other high probability setups on the VSA thread - VSA stands for Volume Spread Analysis, a useful, modern, and intuitive version of the Wyckoff Method. Check it out here: http://www.traderslaboratory.com/forums/f151/

 

Hope this is helpful,

 

Eiger