The Double Top Trap: How to Profit from the Australian Dollar vs. Canadian Dollar Shakeout

The Hidden Pitfall Most Traders Ignore

Ever feel like the market is out to get you? You spot the perfect double top pattern on the Australian Dollar/Canadian Dollar (AUD/CAD) chart, set up your trade, and boom—price action laughs in your face, reversing just enough to take you out before heading exactly where you thought it would go. If this sounds familiar, welcome to the world of the double top fakeout, one of the market’s most devious tricks.

But fear not! Today, we’re going deep into the real mechanics behind the double top, uncovering the traps institutions set, and learning how to flip the script to profit where most traders fail.

Why the Double Top Works—Until It Doesn’t

Double tops are like the ghost peppers of Forex trading—they seem exciting but can burn you badly if you’re not careful. At their core, a double top is a reversal pattern where price peaks at a resistance level twice before declining. The logic seems sound: buyers try to push higher, fail, and then sellers take over. But here’s the problem:

???? Retail traders all see it too!

???? Market makers know that!

???? They use it against you!

Instead of collapsing as expected, price often pierces just above the second peak, triggering stop-loss orders before reversing hard in the actual intended direction. This move is known as a bull trap—a technique institutions use to absorb liquidity before the real move.

The Smart Money Blueprint: How Banks Exploit Retail Traders

Institutions and hedge funds don’t trade like retail traders. They have deep pockets and access to market flow data that lets them see where orders are clustered. Here’s their typical double top attack strategy:

1. Retail traders spot a double top and enter short.
2. Stop losses get placed just above the second peak.
3. Market makers push price slightly higher, triggering stops and inducing panic buying.
4. Liquidity is absorbed, and price reverses sharply downward.

Your takeaway: The first touch of resistance in a double top is often a warning, but the second peak is where smart money sets the trap.

How to Profit from the Fakeout (While Others Get Stopped Out)

Now that we know how institutions manipulate the pattern, let’s flip the script. Here’s how you can profit instead of getting trapped:

1. Wait for the Stop Hunt

• Instead of shorting immediately at the second peak, wait for price to spike slightly above it.
• Look for a sharp rejection, such as a long wick or a bearish engulfing candle on a smaller timeframe.

2. Confirm with Volume and Momentum Indicators

• If price fakes out above resistance but fails to close above with strong volume, it’s a sign of a stop hunt.
• Use RSI divergence—if price makes a higher high but RSI makes a lower high, momentum is fading.
• The MACD crossover to the downside can add confluence.

3. Short AFTER the Trap is Set

• Once stop losses are cleared and price starts to drop, enter your short position below the previous peak, ensuring the bull trap is complete.
• Place your stop loss slightly above the fakeout high to stay safe.
• Target the neckline of the double top as your first take-profit level, then use Fibonacci extensions for a secondary target.

Example Trade Setup:

• Entry: After price fakes out above the second peak and then closes back below resistance.
• Stop Loss: Above the fakeout wick.
• Take Profit 1: Neckline of the double top.
• Take Profit 2: 127.2% Fibonacci extension.

The AUD/CAD Factor: Why This Pair is a Double Top Goldmine

Australian Dollar vs. Canadian Dollar (AUD/CAD) is particularly notorious for trapping traders in double tops for three reasons:

1. Commodity-Driven Volatility – Both currencies are commodity-backed (AUD = gold, CAD = oil). Sharp price swings based on commodity data often create false breakouts.
2. Thin Liquidity During Off-Hours – The market gaps more frequently, exaggerating fakeout wicks and stop hunts.
3. Central Bank Divergences – The Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) often take opposing monetary stances, increasing false moves before actual trends establish.

Conclusion: Outsmarting the Trap

Double tops work—if you know how to avoid the trap. Instead of jumping in blindly, wait for the fakeout, use confirmation tools like RSI and volume, and enter once the institutions have played their hand. With the AUD/CAD pair, understanding central bank policies and commodity fluctuations gives you an extra edge in spotting high-probability setups.

Want to gain even deeper insights into smart money strategies and real-time trade alerts? Check out StarseedFX Community for elite trading tactics, exclusive market breakdowns, and advanced methodologies that help you stay ahead of the pack.

—————–
Image Credits: Cover image at the top is AI-generated