Chart Patters – Double Top & Double Bottom
A double top is a reversal chart pattern. i.e It indicates the reversal of Trend. Suppose a stock is in a nice uptrend and if you see formation of a double top, then it indicates that the bull run is over and sellers are winning over buyers hence making the price fall. As the name suggests when the price forms a double top that means a strong resistance and huge supply of stock at that price, then the price falls. And the just reverse of a double top is Double Bottom, the bottom acts as support, hence more buyer’s win over sellers and the trend is most likely to be up.
Double Top resembles ‘ M ‘.
Double Bottom resembles ‘ W ‘.
Below figures will surely justify this and make you understand the use of this particular indicator.
Double Top
Double Bottom
How to trade this pattern (Double Top)?
Well as we have identified the resistance so we should short that stock or any other financial instrument just below the resistance level, with Stoploss just above the resistance line.
And our target will be the distance of trough in “M” (ie for the figure it should be 228.0 – 224.44= 4.44) below the blue line. i.e our target should be 224.44(blue line) – 4.44 (Distance of Trough) = 220.0
(in this case target was not achieved still one could have made a huge profit out of this GBP/JPY currency pair.)
Now needless to write a disclaimer as all the technical indicators give us a good entry and exit point by not loosing much of money and hence other indicators must also be used in conjunction with each other.
Should you have any questions, please comment
HOw about technical analysis part of investment strategies..?
Comment by Palvinder — April 24, 2008 @ 10:13 am
Well i am a Day Trader and hence i just believe in Technical Analysis and don’t believe in Fundamentals of the company.
I never look at the quarterly reports or what new projects the company is going to receive or any other such things.
These sort of news only help me confirming my decisions and not a basis of trading.
So if you also would like to take your decisions based on tech charts then to begin with it, i need to know if you are currently having any charting tool?
If yes then i can tell you the concepts, else you please download a free charting package called “AptiStock” from http://www.aptistock.com/
Or
You can sign in to http://www.finance.yahoo.com, in the text box you can type the company code say for eg NTPC.NS —— -> Click on Get Quotes.
Now you will see a small chart on the right hand side, click on it to maximize and then click on interactive chart.(For Interactive Charts you need to have flash player installed)
Just surf with some charts (try the codes of various companies) try to study their flow and some common things in all charts.
I am sure once identify the trends and some common things in charts of many companies you will come up with other questions.
Hope this much is enough for you at this stage.
Let me know if you have questions.
Thanks
Comment by prashant.singh — April 24, 2008 @ 10:16 am