Welcome to Bravechart. Your in-depth article on chart analysis from a Scotsman stationed in the Outback.
As traders, we use technical analysis as a reliable method for speculating on future price direction of both equities (shares) and indexes. Technical Analysis in simple terms is the study of historic price movements in a chart in search of patterns or constantly 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.
Woolworths has formed this pattern after recently struggling to get past resistance that has formed near $30.51. As you can see from the chart below you can see that WOW seems to create double tops quite often, so today’s move lower after touching the resistance at $30.51 seems to be starting to confirm this pattern. The Share price has started to fall, and the reverse of the bull run could be confirmed with further bearish movement this week.
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.
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