Double Top and Bottom Chart Patterns Explained -- with David Moadel
hello and welcome to looking at the markets with David Modell today I'm
going to give you the basic explanation of double bottom and double top stock
chart patterns doesn't have to be just for stocks it could be used for
commodities currencies crypto currencies whatever it is you might be trading
could be used for day trading intraday trading it could also be used for swing
trading whatever it is on any almost any timeframe and also you want to know
about the neckline that's an important part of the double bottom and double top
chart patterns and by the way I do offer coaching if you need more help with
trading or investing or putting together a plan my name is David Modell and for
coaching which I do offer you can email me at David Modell at gmail.com alright
so let's get into it this is the classic double top pattern so you have the
initial trend and then it reaches a resistance level and then it bounces off
of it and then it reaches up to that resistance level a second time and then
finally reverses and so this is called a reversal pattern it's a double top
alright and then it reverses and goes down alright and so it is because it
eventually goes down it is considered a bearish pattern and these patterns do
not work a hundred percent of the time alright they are not guaranteed to work
sometimes they work sometimes they fail I've found that in my trading and
investing they seem to work pretty well alright so it and it depends on the
circumstances you have to be aware of things other than just looking for a
pattern you want to have a plan alright but that is the classic double top
trading pattern alright and then now that was bearish so here's a bullish
version of it you just reverse everything this is the double bottom
trading pattern so the initial trend is down and then it reaches a support level
first it does it once and then it goes back up
and then head fakes back down again and hits that support level a second time
and then finally reverses upwards and that final trend and again it's a
reversal pattern as you can see and that final trend is back up and so that's a
bullish chart pattern alright double top and double bottom now you want to know
about the neckline not everybody pays attention to that but you probably
should if you're going to use this pattern just be aware of it so how do
you draw a neckline in the double bottom and double top pattern it's very simple
you just draw a horizontal line right at right at here okay right after you have
that that initial trend and then that bounce back up and then right when that
bounce reverses back down to that's that support level right there is where you
can draw a horizontal line that's called the neckline and then same with double
top pattern after the initial move and then it goes down the price goes down
and then it bounces off and then goes back up to that resistance level there
right when it starts to bounce back up toward that resistance level is where
you can draw a horizontal line and again that's called the neckline so why is the
neckline important well we'll just use a double top pattern as an example but you
can reverse this for the double bottom pattern it pretty much applies the same
way just in Reverse alright so you what you want to pay attention to after you
draw your neckline on your chart or just visually know it in your head all right
you want to be aware of the size the distance alright from that line up here
that that resistance level down to the neckline alright that lot that distance
between where it bounces off of the resistance twice and in the case if you
reverse this and made it a double bottom pattern the distance would it would be
the distance between where it bounces the support level twice in the neckline
alright so know that distance and then understand that that's how far you want
it to go from the neckline and afterwards and I'll show you what that
means here it is okay so this distance should be the same as this distance in
other words if you take a position here after it breaks out or in this case
breaks down from the neckline because this is where you would probably take
your position this is where you would take your short position right here
after it breaks through the neckline you can take a short position and then what
is your profit target your minimum profit target would be right here what
is this distance from the neckline to the profit target it's the same distance
as from here to here okay and again you could reverse it for the double bottom
pattern alright you would measure for the double bottom you would measure from
the where it bounced off of it twice here to the neckline you would measure
that distance and then you would hope that it would bounce from there the same
distance and so you would take a position from the double bottom pattern
if you drew your neckline here you would take a long position here and how far
would you want to go before you took profits what is your minimum profit
target well you would measure this distance from here to here to the
neckline and then you would want to go about that far okay after you take your
position here alright so if you took your position here that's your profit
target right there now that's the minimum target if there's a lot of
momentum going on if it's really thrusting in that direction powerfully
you can use a trailing stop for example to let it go further that's why it's
called a minimum minimum target doesn't have to be a hard target there or you
could just take partial profits here and then allow it to go further and then
take more profits after that all right so let me show you an example of what
that might look like in real life this is Jane UGG jr. goldminers ETF
bullish triple leveraged and you can see quite clearly a textbook double bottom
pattern you could draw the neckline here alright and then because you have the
two support points here that support level here bounced off of it bounced off
of it again not exactly but very close to it it's
not an exact science here alright it's not gonna work out perfectly every
single time but it's pretty close to the same level so it bounced once head-fake
down again and then bounced off of it when would you take profit well you
would measure this distance from here to the neckline and then if you took a long
position here you would project that it would go this distance from here up to
let's say about there and you could have taken profits now that's minimum profit
target you could have taken partial profits or use a trailing stop and just
let it go even further that's okay too and it did go further and a lot further
if you held on long enough again it does not work perfectly every single time but
this worked out quite well and I've used it myself
alright so that's your basic introduction to the double top and
double bottom patterns my name is David Modell if you like this video if it
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videos like this one and again I do offer the coaching if you need more help
you can email me at David Modell at gmail.com thank you so much for watching
and listening I'll talk to you again soon
you