Best 1 Hour Forex Trading Strategy | The Double Tops and Bottoms Trading Strategy

As the name suggests, a 1-hour trading strategy is centred on a 1-hour market chart.

Usually, Traders use a 1-hour trading strategy when they do not have sufficient time. Therefore, instead of keeping eyes on the screens, they can check the chart once every 1 hour. 

Traders can take advantage of a 1-hour time-frame in this strategy.

The best currency pairs are

  • EUR/USD
  • GBP/USD
  • USD/JPY
  • AUD/USD. 

In this case, let’s look at the double tops and double bottom trading strategies.

Double Top and Double Bottom

Double tops and double bottoms patterns are one of the most common chart patterns in trading.

They are used to indicate the reversal from a prevailing trend. These patterns appear very often and are formed from repeated rounding tops and bottoms to create a pattern that looks like

  • ‘M’ for a double top
  • ‘W’ for a double bottom.

They are used for technical breakdown to describe the movement, and if there is a possible reversal. 

1. What is a Double Top? 

The double tops are bearish reverse trading patterns which means that it expects to anticipate a possible drop in the price of the pair.

These chart patterns occur when the pair move in a pattern that looks like a letter M.

Look at this illustration to understand better.

Double Top | Fx Forex Trader

A double top pattern usually starts with a sustained rising price movement that is losing its strength.

The double top has double peaks above the support level, which is called the neckline. The first top appears typically immediately after the strong bullish movement. It then retraces to a neckline.

When it reaches this area, the motion shifts to bullish again to make the next peak.

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Generally, this action pattern connects the formation of the double tops at a critical resistance level. The idea that the market has rejected the price to go higher twice indicating that the level is likely to hold.

When you use the double pattern in the market, you usually try to open a short position at the top of the second peak anticipating bearish reversal to take place.  

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2. How to Trade Double Top Trading Strategy. 

When you see a double top in an uptrend, then there are chances of the market to continue to move higher.

Therefore, I am sure you will go short since you spotted a double top chart pattern. So if the market is steadily above the 20MA, avoid shorting the double top pattern.

3. When To trade the double top Pattern.

Time and Space

Most of the times, you will realize that time and space between the first and second peak are very close.  So, you can avoid this and trade when the time and space is far apart between the first and second peak.

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The reason why I suggest space and time between the first and second peak be far apart is that the swing levels become more significant since traders realize the price level.

Therefore, once people start to realize that the second peak is getting to the same level of the first peak, more pending orders are added since more traders would like to trade in that area.

2. What is Double Bottom? 

The double bottom patterns are bullish movement reversal pattern. The patterns usually are the opposite of the top patterns.

The double bottom occurs after a single turning bottom pattern that can be the sign of a possible reversal.

Double bottom indicates a bullish reversal which provides an opportunity for traders to get profit from a bullish rally.  

The double bottom has three parts:

  • First low (first price rejection) – at this point, the market bounces higher and forms a swing low. Here it is likely a retracement in a downtrend.
  • Second low (second price rejection) – the market rejects the previous swing low. At this point, there is buying pressure. But there is no guarantee that the market could continue high.
  • Break of neckline – the price broke above resistance or the neckline, and it signals the buyers are on a safe side, and there is more likely that the market may move higher.

So, the double bottom pattern shows that the downtrend has perhaps bottomed out, and the price is almost to move higher.

This is how to double bottom looks like

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How to Trade Double Bottom Pattern – Trading Techniques 

Some traders make a mistake by buying the break of the neckline immediately when a double bottom is formed, but this can be very tricky. Be very careful since if the market is firmly in a downtrend and forms a small double bottom, there is a likelihood that the market would continue to lower. To avoid that, here is the secret.

  1. Add the 20 period MA (Moving Average) to your chart.
  2. If the price is below the 20 MA, then don’t buy the double bottom.

If you decide to trade the double bottom, first ensure that you pay attention to the time and space between the lows. The larger gap is better since it gets the attention of many traders who could probably push the price higher when the lows are far apart.

Here is an example.

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Also, you can use it to make a profit from trapped traders. 

This is how you can make a profit from trapped traders.

  • First and second lows need to have space and time between them.
  • Allow the price to break below the first low.
  • Wait for rejection of lower prices and then go long.

The secret is that as the price breaks below the first low, bearish traders are going to short the market and have the stops above the lows. And once the price suddenly reverses higher, all short traders are trapped. So at this point, you can take advantage of the market by going long. Expecting the price to move higher, it will cause their stops and then push the market in favour of your side.

To get a better understanding look at this illustration.

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Safe Double Bottom strategy 

A profit can be made by entering a long position that targets the advantage of a resulting upward movement in the price of the security.

A trader can take advantage of the full upward price movement of a double bottom by setting a stop order that set a maximum percentage decline in the price of the security, which could be the signs that a trend reversal is taking place.

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Therefore, the maximum profit is realised from a double bottom once a trader manages to enter the position at the moment when the price breaks the neckline level and exits the position before the trend is reversed.

Conclusion

Double top and double bottom are highly effective when identified correctly. But on the other hand, they can be unfavourable when not interpreted correctly. So before jumping into conclusions, a trader must be patient and careful.

 

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