Tags: double top, double top pattern, using a double top, spotting a double top, trading, trading strategy,
Use this easy to spot pattern to predict the market's next fall
by Julie Brownlee, FSP Invest, 06 November 2015
Traders very commonly use the double top pattern. One of its main benefits is it's easy to spot.
The double top pattern can work well too, as long as you stick to the rules.
Let's take a closer look…
What is a double top pattern?
A double top pattern is a reversal pattern. It can indicate that the trend is going to change or reverse.
Learning to spot a pattern like this can be very useful as you can exit a long trade to bank your profits or look to put a new short trade on.
You’ll usually come across double tops in a liquid, well traded market. The price moves quickly higher, then it just stops moving higher. Then the price falls for a while, before a rally returns, taking the price back to the level of the rally before.
The price then falls again under heavy selling pressure.
What makes a double top?
For a pattern to qualify as a double top, the valley between the two peaks have to break when the price falls for a second time. Otherwise, it could be a different pattern in the making, Frank Hemsley in Profit Watch explains.
Have a look at the simple chart below showing a double top…
To be on the safe side, it’s a good idea to wait to see if the price continues falling past the neckline before putting a trade on, unless you’re a very aggressive trader.
Once the price goes through the neckline, you have confirmation of a new trend.
So there you have it. How to use this easy to spot pattern to predict the market’s next fall.
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Note that FSP Invest, a division of Fleet Street Publications (Pty) Ltd, is a research house and not a registered broker, financial advisor or financial service provider. Our editors and customer services teams also do not give personal investment advice. The advice in this website is general advice only and may not be appropriate to your particular investment objectives, financial situation or particular needs, so before investing or if in any doubt about your personal situation, you should seek professional advice from a stockbroker or independent financial adviser authorised by the Financial Services Board.
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© Copyright 2019 Fleet Street Publications (Pty) Ltd. Registered in SA No: 1999/019170/07, Vat No: 4430185282
Note that FSP Invest, a division of Fleet Street Publications (Pty) Ltd, is a research house and not a registered broker, financial advisor or financial service provider. Our editors and customer services teams also do not give personal investment advice. The advice in this website is general advice only and may not be appropriate to your particular investment objectives, financial situation or particular needs, so before investing or if in any doubt about your personal situation, you should seek professional advice from a stockbroker or independent financial adviser authorised by the Financial Services Board.
We research our recommendations and articles thoroughly, but disclaim all liability for any inaccuracies or omissions found in this publication.
Remember: Never invest more than you can afford to spare and that the value of any investment, and the income derived from it, can go down as well as up. The past is not necessarily a guide to future performance.
Editors or contributors may have an interest in investments commented on in this newsletter. However they have signed restraints to prevent the abuse of their position as contributors to this publication.
© Copyright 2019 Fleet Street Publications (Pty) Ltd. Registered in SA No: 1999/019170/07, Vat No: 4430185282
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