[B]Student’s Question:[/B]
I think this is a valid double top?
As the support line has been breached Is this a possible indicator of a down trend?
If so how do I know when to enter a short position?
[B]Power Course Instructor’s Response:[/B]
Yes…that would be a valid double top…the two tops on this 4 hour chart are within 11 pips…more than close enough. Also, when trading a Double Top formation, the entry would occur on the opening of the next candle after the double top has been confirmed.
There are a few things at work here…
The pair has been building higher highs and higher lows (the textbook definition of an uptrend) since the beginning of March. However, on the Daily chart (see below) it is up against the 200 SMA. Based on those two items, you are correct in mentioning indecision on your posted chart.
A prudent trader would wait for a break below support or above resistance as identified on the 4 hour chart below.
A more aggressive trader could short the pair at the opening of the candle after the Double Top has been confirmed (see chart below) with a stop above. The risk would be small for the potential reward…
