Home Beginner Trading Basics Adjustment on the Neckline of a Double Top or Bottom

Adjustment on the Neckline of a Double Top or Bottom

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This is not a perfect world neither the financial markets’ charts are. Traders often need to make adjustments on the trading charts they trade at. We know how important it is to be able to spot out the support/resistance level as far as trading is concerned. Breakout, breakout confirmation and signal candle play around the level of support/resistance. Thus, without spotting them immaculately, it is a tough task to trade accordingly and make money out of it. The chart below may represent it easily.

A Failed Attempt of Breaching the Neckline of a Double Bottom

The support and resistance lines are very evident here. The price had a bounce twice on the support line (circled). In between these two bounces, the price had a rejection from a level (circled on the resistance level) which is the neckline of the potential double bottom. It is to be called a double bottom once the neckline is breached. The arrowed candle tried to make a breakout, but the price came back in. The neckline was held. Should traders wait for the next attempt of the price to get a breakout right here? Nor really, look at the upside spike (arrowed candle). The highest high of the arrowed candle has some significance. In fact, this is the new resistance level or the neckline of the potential double bottom.

The New Neckline

New resistance level has been drawn here. This has to be taken into account. The price headed towards the upside again but had another rejection from the old neckline. It means a stronger resistance zone is being built over there. Let us find out what happened next.

The New Support Level of a New Double Bottom

Look at the chart. We have a new support level. This means we have a new potential double bottom as well.  The support level, however, is not as important as the resistance level since buyers are to keep an eye at the breakout and breakout level (resistance) more than the support level. Nevertheless, the new support level would allow the buyers to set their stop loss by conceding fewer pips. The very last candle failed to make a breakout again. In fact, it came back in by having an upside spike. The buyers on this chart would not be interested yet in going long until a new candle closes above the last candle. This means the highest high of the last candle is not the neckline level yet, but it has to be counted as a resistance level. If the price comes back to the support level again, then it has to be counted as the new neckline of the double bottom. This would make the buyers adjust their resistance/breakout level again.

Things to Remember

A failed attempt of a breakout at the neckline and spike may create a new neckline.  If the price comes back to the level where it started from again or makes a new support level of a potential double bottom, then neckline is to be drawn at the top of the spike. In the case of a double top, things are just vice versa.

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