Chart Patterns: Double Top and Double Bottom

by bug man, 5191 days ago

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The double top, double bottom, multiple top and multiple bottom are four chart patterns. These reversal patterns are generally formed after an uptrend for the double top and multiple top or a downtrend for the double bottom and multiple bottom.

As said previously, a double-top pattern occurs at the peaks after an upward trend. It is a signal that this upward trend is weakening and that sellers are dominating. The double-top pattern looks like an 'M', it has two tops (this is why it is called double), but could have more. The double-top pattern becomes then a multiple-top pattern. Once the pattern is formed and the security price trend is reversed, it is expected that the security continues its downtrend.
A double bottom is the opposite of a double top. It has two bottoms and it is formed after a downward trend. It could have more than two bottoms and in this case, it is called a multiple-bottom.

In the double top and double bottom, as well as, the multiple-top and multiple-bottom patterns, a price target could be calculated by taking the distance between the support and resistance levels of the chart pattern. Let us call this difference the range. To get a price target for the double-top and multiple-top patterns, subtracts the range from the support level (expecting the price to move lower). To get a price target for the double-bottom and multiple-bottom patterns, adds the range to the resistance level (expecting the price to move higher).

This item downloads signals for the double-top, double-bottom, multiple-top and multiple-bottom patterns, for all U.S. Stocks, from the finviz.com website. The data is stored in a database called "pattern_topbottom".
Stocks that have for example, a double-top pattern will get a value of one in the "doubletop" field of the "pattern_topbottom" database for the date where this pattern occurred.
The other database's fields are "doublebottom" (for the double-bottom pattern), "multipletop" (for the multiple-top pattern) and "multiplebottom" (for the multiple-bottom pattern).

Only signals for the current day are downloaded. Here is an example on how to use them:
doubletop = GetData("pattern_topbottom", "doubletop", Zero) == 1;

This simple rule returns 1 on bars where a double-top pattern is found, otherwise it returns 0.