Part 15 - Finding the tops and bottoms

I must stress that the information in this blog is not a new ground breaking technique rather its the accumulation of several years and several course with a good degree of trial and error.

A double top or bottom is an easy thing to find by the eye, if the low of the day is 1050 and we again come down to 1050 and the level is not broken we have a double bottom, its just an area of high support and area where more buying than selling took place taking out the ask price and raising the price.

This is a chart pattern and many traders trade on just this type of situation with using a single indicator.

So we have our 1st criteria a perfect double top or bottom,but what happens if the price goes lower by just a couple of ticks or doesn’t quite come down to the last low by the margin of just a couple of ticks.This is called a technical double top or bottom but we need precise measurements after all is it a double bottom if the price comes to within 10 ticks of a previous low ?. These are my criteria for technical tops and bottoms, you may wish to change them or look out for just the perfect set up.

For a double bottom

• The price must come to within 5 ticks of the previous low


• The price must not go beyond 3 ticks of the previous low
  

For a double top

• The price must not go beyond 3 ticks of the previous high


• The price must come within 5 ticks of the previous high

We now have set our mechanical measurements for find technical tops and bottoms, we can kick the emotions to one side. If the price doesn’t come into our range of technical top/bottom we forget the setup and relax.

But what do we use to determine the point at which we measure the tops and bottoms. We use an indicator to guide us, again a mechanical a black and white way

Here is a simple explaination of the above