Double Top Day Chart Pattern

An intraday Double Top chart pattern will form frequently in an uptrend is considered a reversal pattern, and once recognized, becomes a pattern that can be traded. This pattern can appear on various time frame charts as a result of a rally and a reaction failing to go higher than the previous high and retreating below the previous reaction low signalling the reversal and a breakdown. To confirm a double top, the volume has to go lower as the stock is reaching the level of the first top.

The reason the stock price has gone up during the first tp formation was because there was more demand than the level of supply for a particular stock. A Top is formed as a result of two possibilities 1) the stock was trending higher and the supply became larger than the demand or 2) Speculators who held the stock at the high price and did not want to sell at a loss, now realize that the stock is not moving higher any more and start dumping the stock.

 

How to Play the Double Top Chart Pattern Trade

 

At the point of reversal you enter a short position to capitalize on price decline. Place a stop just above the reaction low reversal and it is at this point that an entry signal for a short position is triggered.

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