Double Top and Double Bottoms with MACD

DOUBLE TOP:
A double top is a pattern that occurs at the top of the chart. It appears when the prices are in an uptrend, reach a high, fall to a support, and rise again to the first top area. At that point, the bears come in play; so, the prices are unable to climb higher. If you look closely, you will see that this
pattern looks like an “M” in the chart. This pattern is very powerful especially if you use another
indicator to confirm it. For this strategy, we will use the MACD-Histogram, particularly the divergences between prices and this indicator. You can use the double top strategy in any timeframe you like.
The Rules:
When we see a double top formation with a bearish divergence on the MACD-Histogram, we will short sell the currency pair. The bearish divergence occurs when both prices and the indicator rise, fall, and when prices start to go up again and achieve a higher point, the MACD-Histogram can’t reach a new high.
You can choose between two entry points. You can short sell the currency pair when the MACD-Histogram starts to fall and it is above its centerline, or you can short sell the currency pair when it breaks below the minor support it made in this formation. The first entry point is more risky but it gives you more profit if you’re right. This entry point is better if you are using shorter timeframes (like, for example, the 15 minutes charts). If you’re using larger timeframes like, for example, the 60 minutes chart, it is better to enter in the previous support breakdown. At this point, you have more confirmation that the double top formation will successfully reverse the previous uptrend.
You should place your stop loss 1 pip above the higher value that the currency pair reached during the double top formation.
You should exit the trade if your stop loss is reached or if the MACD-Histogram is below its centerline and starts to rise.
Entry: Short GBP/USD at 1.7929
Exit: 1.7768
Profit: 161 pips
In this GBP/USD 1 hour chart, the 2 lines represent the double top formation. If you look at the MACD-Histogram, you can see that there is a divergence between the prices and the indicator – while prices are moving up, the indicator is moving down. We will enter a short sell order at 1.7929, just at the bottom of the “M”. The MACD-Histogram will let us know when it’s the best time to exit the trade. As soon as the indicator starts to go up, we should exit the trade. The exit signal came at
1.7768.
Entry: Short GBP/USD at 1.7720
Exit: 1.7674
Profit: 46 pips
In this GBP/USD 15 minutes chart, we won’t wait to enter in the “M” pattern breakdown. As this is a smaller timeframe, we will place our short sell order when the MACD-Histogram gives the signal. This happened at 1.7720. After entering the trade, we will need to focus on the MACD-Histogram so that we know when to exit the position. This happened at 1.7674, when the indicator gave a signal that it reached the bottom.
Entry: Short GBP/USD at 1.8484
Exit: 1.8434
Profit: 54 pips
In this case, we will place our short sell order when the MACD-Histogram makes a downtick. Our entry price will be at 1.8484. As soon as the MACD-Histogram gives an exit signal, we
will take our profits. In this case, we will cover our short sell at 1.8434.
DOUBLE BOTTOM:
A double bottom is the opposite of a double top. This pattern occurs at the bottom of the chart. If you look closely, it looks like a “W” is drawn on the chart. As in double tops, we will use the MACD-Histogram to confirm the movement, particularly the divergences between prices and the indicator. You can use this pattern in any timeframe you like but, as in the double top, you should have different entry points depending on the timeframe you are using. For shorter time frames, we will enter on the second bottom of the pattern, when the MACD-Histogram gives a buy
signal. On longer time frames, we will place our buy order on the breakout of the “W” formation, taking always in concern, in both cases, the divergences on MACD-Histogram.
The Rules:
We will place a buy order when we see a double bottom formation with bullish divergence on the MACD-Histogram. The bullish divergence occurs when both prices and the indicator fall, rise, and when prices fall to a lower point or to the same point, the MACD-Histogram can’t reach a new low. You can choose between two entry points. You can buy the currency pair when the MACD-Histogram starts to rise while is below its centerline, or you can buy the currency pair when prices break above the minor resistance they made in the “W” formation. Just like in the double top formation, the first entry point is more risky but it gives you more profit if you’re right. We will use this entry point in smaller timeframes (like, for example, the 15 minutes charts). If we are trading in a larger timeframe chart like, for example, the 60 minutes chart, we will place our buy order
in the previous resistance breakout. At this point, we have more chances that the double bottom formation will successfully reverse the previous downtrend. You should enter your stop loss order 1 pip below the lower value that the currency pair reached during the double bottom formation. You should exit the trade if your stop loss is reached or if the MACD-Histogram is above its centerline and starts to fall.
Let us look at some examples:
Entry: Buy GBP/USD at 1.7777
Exit: 1.7868
Profit: 91 pips
In this GBP/USD 1 hour chart, we have a bullish divergence on the MACD-Histogram. On the first bottom, the MACD- Histogram is lower than on the second bottom but prices are in the same area.
We will enter our buy order on the breakout of the “W”, at 1.7777. From this point, we will look at the MACD-Histogram. Once the indicator decreases (and it is above its centerline), we will have our exit signal. That happened at 1.7868, giving us 91 pips profit.  
Entry: Buy GBP/USD at 1.7623
Exit: 1.7676
Profit: 53 pips
We are now using a 15 minutes chart. So, we will place our buy order not in the “W” pattern breakout but on the second bottom, when the MACD-Histogram gives a buy signal. As we always do, we need to see if there is bullish divergence on MACD-Histogram before we enter the trade.
Although prices are in the same zone on the two bottoms, the MACD-Histogram is higher on the second bottom than on the first one. This means that the indicator confirms that a double bottom is being formed. Everything is in place for a good trade, so we enter our buy order at 1.7623. Now we need to keep an eye on the MACD-Histogram so that we can maximize our trade. At 1.7676 the MACD-Histogram gave an exit signal; so, we closed our position with 53 pips profit.

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