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Neckline Trading – Double Top Pattern

Neckline Trading – Double Top Pattern

Neckline Trading - Double Top Pattern 1

Neckline Trading

There are very few trading setups that excites us as much as the Neckline – Double Top setup. This trading technique is a derivative of the Head & Shoulders pattern. The setup itself is not too abundant and will only appear every now and then. However, when it does appear, it’s a gold mine. It carries one of the highest success rate scores amongst all the advanced setups that we normally apply in our day to day trading.
Neckline Trading - Double Top Pattern 2
After countless of neckline trading events, we can estimate the success rate of this trading technique at around 85%. We assume that the main reason for this high success rate score is the powerful relationship between the neckline of an established Head & Shoulders pattern and a simple Double Top Pattern that interacts with that neckline from below.
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Effectively speaking, on the second touch, the neckline is being confirmed by price action which by now, is officially a solid-strong resistance level, and its probably going to hold its ground. This means that with unusually high probability level, price is going to bounce off that resisting neckline into a full-fledged downside move, continuing the natural flow of the original Head & Shoulders breakout.
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Neckline Trading - Double Top Pattern 5
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The complimentary confirmation spikes (from the Weekly and Monthly charts) off the major resistance key level of 0.9068 created a particularly high probability situation and re-enforced our bearish conviction. This in turn, helped us to build a big size position sliding downwards.
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The second bounce off the neckline completes the setup and triggers our full commitment to push more trades and increase our short position. Even though we have a long way to go till our primary price target at 0.8540, we are going to utilize the relatively close by 200 Daily moving average as a secondary price target for partial profit taking.
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Roy Levine,

Head of Trading