The scope of this project has been to investigate the phenomena known as double tops and double bottoms. Analysts Magnus Lundh and Eric Portela have investigated four different trading strategies when either of a double top or double top has arisen in historical data of the Forex market. Six months of data presented in 5-minute intervals were used for this project. In total, 23 double bottoms and 93 double tops were found.
Double tops are defined as an M-shaped form with a first top followed by a descended price where after the second top will occur. I the event of a double top, the market tends to fall thereafter – also known as a bearish market. Double bottoms are nothing but the exact opposite, with a shape more resembling to a W. After the occurrence of a double bottom, the market typically has an upward trend – a bullish market. This project was therefore an attempt to verify whether these topicalities had any truth, i.e if the forex market exhibited any non-random behaviors during situations like these.
The results do not point towards this being a suitable method to decide when to make a trade or not. No significant results indicate that this would with a high certainty give any desirable ROI. However, it is possible that some of the strategies researched in this report would together with a completely different strategy be a useful tool to decide over a trade.
To read the full report, please see attached PDF below: