Welcome to Bravechart. Your in-depth article on chart analysis from a Scotsman stationed in the Outback.
As traders, we use technincal analysis as a reliable method for speculating on future price direction of both equities (shares) and indexes. Technical Anyalysis in simple terms is the study of historic price movements in a chart in search of patterns or consistantly traded support and resistance levels. Today we are looking at a Double Top.
Appearance: A double top Looks like a ‘M’ shape and comprises of:
- A strong rally usually to elevated price levels,
- A bounce off a resistance level (old or new),
- A reversal heading bearish,
- The bearish move comes down to a support level (old or new) and again reverses with bullish movement back towards the previous resistance,
- Failing at Resistance a second time is the first indication of the double top,
- The pattern isn’t confirmed until the support level breaks.
Pattern: The Double Top Pattern is a common chart pattern that can appear after the fact in a bearish market. The idea is to recognise it during the second bounce from resistance, watching the formation early on. Once that support breaks, it is a strong broader reversal pattern, and you can look at managing your positions.
Important Note: The Double Top is only confirmed once it has broken the support level and continued lower. If this doesn’t happen, you would be either looking at a channel forming, or a continuation pattern with further bullish movement.
Example: RIO
The XJO has formed this pattern after recently breaking out of the channel it was stuck in at roughly 6,360. As you can see from the below chart, the XJO rose up with strong volatility, bounced off resistance, came back down to a support level, once again pushed back up to the previous resistance, and then eventually turned bearish and broke through a couple of key support levels, mainly 6,200 and 6,150. The market has stalled on the third key support level at 6,100, but is still in an unseen 7th bearish trading day.
There are many ways that you could take advantage of these patterns. As a specialist in derivatives, we are able to profit on a stock when it falls as well as when it rises.
If you would like to learn how to pick a stocks direction, then Join us at our live face to face one day “Technical Analysis, Picking the Direction of a Stock” course.
Contact us today on 03 8080 5788.
Regards,
Your Freedom Fighter,
Benjamin Farkas