Stock Market Trading: What Are Double Tops and Double Bottoms
November 29th, 2009 at 10:17am Under Day Trading
End suffering to master traders in the securities market when double tops and double bottoms form. Keep reading to discover how you can make thousands of dollars when double tops and double bottoms form.
Every rally in the securities market arrives at a level wherever adequate bulls consider it and pronounce I have attained a lot of profit, and I could attain yet more profit, only I would prefer to take my profits off the table. Charts top out once adequate bulls get their profits, whilst the revenue from fresh bulls is not sufficient to replace what was drawn out.
Bulls who just bought in are mad as they came in too late. They are trapped. Their profits are melting away and turning into losses. Should they just stay in the stock and hope it comes back or sell for a loss? If enough bulls decide the stock has overshot to the downside, theyll step in and buy. As the rally resumes, more bulls come in. In real time prices advance to the point of their previous high, and that is where you should anticipate sell orders to reach the market.
There are always bruised and beaten warriors who got trapped in the previous sell off and take a blood oath to get out if the market ever gives them another chance.
A reflection of this position happens in the securities market at market bottoms. The market falls to a new low at which enough bears start taking profits by covering shorts and the market rallies. Eventually that rebound stalls out and prices begin sliding down once more, every last eyeball is on the former low-will it withstand the selling? If bears are stronger than bulls, prices will break below the first low, and the downtrend will continue. If bears are weaker than bulls, the downward move will stop near the previous low and create a double bottom bounce. Your other technical indicators will help you figure out which of the two possibilities is more likely to occur.
Whenever you see a stock climb to its previous high, the first question in your mind should be will the stock climb to a new high or form a double top and head back down. Technical indicators like volume, MACD, RSI, and stochastics can be a great help in answering this question.
If the volume, RSI, and stochastics start falling as the stock approaches its previous high, then it is likely that a double top pattern will form.
When a stock falls to its previous low, a double bottom is most likely to form when the volume, MACD, RSI, and stochastics are rising.
For more helpful advice from master stock traders go to stock market trading tips and for great technical analysis and free stock picks visit stock market picks
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