Traders employ a variety of strategies in order to be able to consistently beat the markets and profit – however, there are few methods of trading as effective as scalping. Scalping refers to a form of trading that relies on making a series of small profitable trades, focussing on quantity rather than quality in order to boost profits. The primary focus of such strategies is to utilise trading volumes rather than performing a lot of complex technical analysis. There are several such trading strategies, and one of the patterns that you can use has been discussed in this article. Read on to find out more.
The main indicator used in this trading setup is the Double Top and Bottom Pattern, and it has been explained below in detail.
Double Top and Bottom
Double top and double bottoms are chart patterns that can be used to indicate a reversal in the trend. They happen when the price of the asset moves in such a way that the chart creates an M or a W sign. For example, if the price of a coin reaches a certain high, falls, and then comes back up to the same high, that makes an M sign, and usually indicates that there is a bearish reversal coming. At the same time, if the price of a coin reaches a certain low, rises, and then falls again to the same low, then this indicates that there is a bullish reversal coming, and a W shape is formed.
Results and Adjustments
The overall results after backtesting this strategy were:
Profitability: 43.22% net profit
Number of Trades: 168
% of trades profitable: 47.02%
Profit factor: 1.175
Some additional indicators and settings that could be added in order to increase the win rate and reduce the risk employed are:
- You can alter the maximum number of trades that can be made in a particular direction to reduce trades towards the very end of the market.
- You can add the ADX indicator to weed out bad trades that would have been made at the end of a trend.
- You can add more confluence through the MACD or EMA indicators.
Scalping has been proven to be one of the most profitable trading strategies out there, however, even when you’re scalping, you need to ensure that you have a high win rate so that the strategy is fruitful and profitable. Using the patterns discussed above, you will be able to profit in both bull and bear markets consistently. You can even tweak the settings to suit your level of risk and trading style, finding the right balance between the win rate and the net profit.
- Are Double Tops & Bottoms A Hugely Profitable Trading Strategy? – YouTube
- Settings Used in the Video
- Double Top and Double Bottom – Investopedia