With top and bottom patterns, the target is the width of the W (or M) plus (or minus) the breakout line. It might be possible to eliminate some losing trades with a simple moving average (betting with the trend like you suggested). Because obviously most double tops will fail in an uptrend, and most double bottoms will fail in a downtrend.
Tradex, I am testing that now on my intraday swing trades. After entry and RR = 1, use a SMA, to close the position if price close below SMA. This will skew the average RR, but the bet is on a newer and bigger trend, and bigger reward on some trades. So the idea is to make something and hold for bigger and be logical at the same time. The SMA takes me out of the trade management process, and the "shoulda, coulda, woulda, dammit" game.
Here is a quadruple top on the NZD/USD (4h chart), red line is the (presumed) breakout line. Happy now?
Gurus of Backtest ... How to construct backtest parameters to include context? https://www.elitetrader.com/et/thre...acktest-parameters-to-include-context.348370/ Would you say that this chart's double bottom could have been affected by that mainstay blood simple bearish hammer (gravestone doji) at resistance that preceeded it? If so, how can we include pre-existing conditions, ie. context, in the backtest parameters? --- Any Backtest Gurus, please chime in here. Advice on backtesting in context would be most excellent. Thanks Fast charts 1minute, 2, 3, 5min futures, preferred. trading double tops double bottoms https://yippy.com/search?query=trading+double+tops+double+bottoms how to construct backtest parameters https://yippy.com/search?query=how+to+construct+backtest+parameters ---
Sure, you can add any parameter you like, including major candlestick reversal patterns, like hammers and shooting stars for instance, you just need to define them mathematically (it is very easy to do). A few ideas for double, triple and quadruple bottoms that should put the odds in your favor: 1: Trade them only if the whole formation is also above the 200-period simple moving average. 2: take the trade if price at breakout is also in an oversold territory (RSI indicator below 25). 3: take the trade if breakout candle is a hammer or a bullish engulfing pattern. 4: trade only if volume at breakout is at least 2 times greater than the average volume of the previous 20 bars. And vice versa for double, triple and quadruple top formations. Happy hunting!
My friend, these are totally meaningless double tops. Plus you should never chase double tops in an uptrend. In an uptrend look for double BOTTOMS only. In a downtrend look for double tops only. Always put the odds in your favor, that's what trading is all about. Cordially.
- "Trading an Engulfing Candle at Support & Resistance provides greater conviction." https://www.elitetrader.com/et/thre...t-right-here-baby.335635/page-10#post-5014575 -
It is true, but here is something to keep in mind: in trading and in life in general, our brain only looks for things that support our point of view! In other words it will systematically ignore (or at least downplay) all the things that contradict our opinions and convictions. That means our brain will notice that nice hammer that did provide an excellent buy signal at support level, BUT on the same exact chart it will simply ignore the other hammers that totally failed on other equally valid support areas. That's why it is so easy to fool ourselves when we try to validate our trading ideas on the chart.