25

Question 1

According to Al Brooks, what are the two main roles a double top or double bottom pattern can serve?

Answer 1

It can be either a continuation pattern (a flag) or a reversal pattern.

Question 2

What is the fundamental concept being tested by a double top pattern?

Answer 2

It is a test of a prior high to see if a rally will continue or reverse.

Question 3

What is the fundamental concept being tested by a double bottom pattern?

Answer 3

It is a test of a prior low to see if a bear trend will continue or reverse.

Question 4

In a bull trend, a pullback that forms a small double bottom is often referred to as a _____.

Answer 4

Double bottom bull flag.

Question 5

In a bear trend, a pullback that forms a small double top is often referred to as a _____.

Answer 5

Double top bear flag.

Question 6

A double top or bottom pattern consisting of only two to five bars is called a _____.

Answer 6

Micro double top or micro double bottom.

Question 7

What is the significance of a micro double top appearing at the second peak of a larger double top?

Answer 7

It increases the probability that the reversal from the larger double top will be successful.

Question 8

Why is it important to be flexible when defining a double top or double bottom?

Answer 8

Because the computer algorithms that control the market use a very broad and flexible definition.

Question 9

What is a higher high double top?

Answer 9

A reversal pattern where the second peak is slightly higher than the first peak.

Question 10

What is a higher low double bottom?

Answer 10

A reversal pattern where the second low is higher than the first low.

Question 11

In the psychology of a double top, why do bulls who bought the first high often sell at the second high?

Answer 11

They are relieved to exit their position at break-even, fearing the trend has ended and evolved into a trading range.

Question 12

In the psychology of a double bottom, why do bears who shorted the first low often buy back their shorts at the second low?

Answer 12

They want to exit their position around their original entry price, fearing the bear trend has ended.

Question 13

Every major trend reversal top can be considered a type of what pattern?

Answer 13

A double top.

Question 14

Every major trend reversal bottom can be considered a type of what pattern?

Answer 14

A double bottom.

Question 15

When a small pullback occurs within a trend, the term _____ is used because trend resumption is more likely than reversal.

Answer 15

Flag.

Question 16

What is the definition of a bull flag in the context of price action?

Answer 16

A bull flag is a small bear trend that acts as a pullback within a larger bull trend.

Question 17

What is the definition of a bear flag in the context of price action?

Answer 17

A bear flag is a small bull trend that acts as a pullback within a larger bear trend.

Question 18

In a strong bull trend, two failed attempts by bears to reverse the market often form a _____.

Answer 18

Double bottom bull flag.

Question 19

A double top is a test of a prior high, which is a level of ____.

Answer 19

Resistance.

Question 20

A double bottom is a test of a prior low, which is a level of ____.

Answer 20

Support.

Question 21

When the market breaks below the neckline of a double top, what is the minimum expected price move?

Answer 21

A measured move down, equal to the height of the pattern from the peak to the neckline.

Question 22

When the market breaks above the neckline of a double bottom, what is the minimum expected price move?

Answer 22

A measured move up, equal to the height of the pattern from the low to the neckline.

Question 23

The low point between the two peaks of a double top is called the ____.

Answer 23

Neckline.

Question 24

The high point between the two troughs of a double bottom is called the ____.

Answer 24

Neckline.

Question 25

What is a 'failed double top'?

Answer 25

A situation where a double top pattern forms, but instead of reversing down, the market breaks out above the pattern's high.

Question 26

What is a 'failed double bottom'?

Answer 26

A situation where a double bottom pattern forms, but instead of reversing up, the market breaks down below the pattern's low.

Question 27

After a breakout below a key support level (like a neckline), that level often becomes ____.

Answer 27

Resistance.

Question 28

After a breakout above a key resistance level (like a neckline), that level often becomes ____.

Answer 28

Support.

Question 29

What is a characteristic of a 'minor reversal'?

Answer 29

It is usually followed by an attempt at trend resumption and is often a leg in a trading range or a flag.

Question 30

To be considered a potential major trend reversal, a pattern should typically consist of how many bars?

Answer 30

10, 20, or more bars.

Question 31

If a market repeatedly tries to do something, like break a low, and fails, what does it often do next?

Answer 31

It often tries to do the opposite (e.g., rally).

Question 32

Al Brooks states that once a pullback grows to 20 or more bars, he begins to call it a ____.

Answer 32

Trading range.

Question 33

Once a pattern is identified as a trading range, what are the probabilities of a bull breakout versus a bear breakout?

Answer 33

The probabilities are roughly equal (50/50).

Question 34

What two patterns are always present within any trading range?

Answer 34

A double top and a double bottom.

Question 35

What is a higher low major trend reversal?

Answer 35

A double bottom where the second low is higher than the first, leading to a major trend reversal.

Question 36

What is a lower high major trend reversal?

Answer 36

A double top where the second high is lower than the first, leading to a major trend reversal.

Question 37

What defines a major higher low in a bull trend?

Answer 37

It is a higher low that results in a strong rally, usually to a new high.

Question 38

In a bull trend, a break below a major higher low signifies what?

Answer 38

It signifies that the bull trend has likely ended and has evolved into a trading range or a bear trend.

Question 39

In a bear trend, a break above a major lower high signifies what?

Answer 39

It signifies that the bear trend has likely ended and has evolved into a trading range or a bull trend.

Question 40

What kind of pattern often contains consecutive double tops and double bottoms?

Answer 40

A triangle.

Question 41

What is a triple top or triple bottom pattern?

Answer 41

A pattern with three attempts to move in one direction, where the reversal points are around the same price level.

Question 42

A higher high major trend reversal can also be classified as what type of pattern?

Answer 42

An expanding triangle top.

Question 43

After a strong bull breakout, if the market reverses and breaks below the low of that breakout, it can be treated as a ____.

Answer 43

Failed double bottom attempt.

Question 44

In a strong trend, the first reversal attempt is usually ____.

Answer 44

Minor.

Question 45

Why do traders often wait for a second entry signal to trade against a strong trend?

Answer 45

Because the first reversal attempt has a high probability of failing and being a minor reversal.

Question 46

In a bull trend, a buy setup that involves two attempts by the bears to reverse the trend is often called a ____ bull flag.

Answer 46

High two.

Question 47

A trader looking for a measured move target from a failed double top would measure the height of the pattern and project it ____.

Answer 47

Upward from the breakout point.

Question 48

A trader looking for a measured move target from a failed double bottom would measure the height of the pattern and project it ____.

Answer 48

Downward from the breakout point.

Question 49

Why is a High Two bull flag a high probability buy setup?

Answer 49

Because bears who held short through the first reversal attempt often give up and exit after the second failure, fueling the rally.

Question 50

When a breakout from a double top fails, creating a third push up, the entire structure functions like what type of pattern?

Answer 50

A wedge top.

Question 51

What is the psychological state of bears when they see a strong, multi-bar bull rally following a sell-off?

Answer 51

They become disappointed and start to believe the bear trend may have evolved into a trading range.

Question 52

What is the psychological state of bulls when they see a strong sell-off after a rally?

Answer 52

They become concerned the bull trend has ended and will look to sell their longs near the prior high.

Question 53

A double bottom bull flag can also be described as what three-part pattern?

Answer 53

A Head and Shoulders bottom.

Question 54

When a market is in a trading range, it is said to be in ____ mode.

Answer 54

Breakout.

Question 55

A pattern with three pushes down, such as one pullback two, pullback three, is often called a ____.

Answer 55

Wedge bottom.

Question 56

How does Al Brooks differentiate between a pullback (flag) and a trading range based on bar count?

Answer 56

A pullback is smaller, while a pattern of 20 or more bars is considered a trading range with a 50/50 breakout chance.

Question 57

When a reversal is minor, it is most likely to be a leg in a ____ or a ____.

Answer 57

Trading range or a flag.

Question 58

Why might a trader sell on a reversal down after a breakout above a double bottom's neckline?

Answer 58

Bulls who bought the double bottom often place limit orders to take profits at the measured move target, causing a reversal.

Question 59

Is it necessary for the two tops or bottoms in a pattern to be at the exact same price?

Answer 59

No, computers and traders use a flexible definition; they are rarely identical.