![]() These two bottoms are separated by a rally between them. It comprises of two bottoms that appear at identical levels. A double bottom is a bullish reversal pattern that appears after a decline in price. Double bottom (Pattern type: Bullish Reversal)Ī double bottom is the opposite of a double top pattern. ![]() Such an increase in volume increases the likelihood of a reversal in trend. Also notice how volume declined during the first half of the pattern, increased during the second half, and further accelerated during the breakdown from the neckline. ![]() Although the second half of the pattern took more time to unfold than the first half of the pattern, that is still fine as long as it does not stretch too long. Notice the double top pattern in the above chart. Price Target: Once the break is confirmed, the chartist can project the price target of the pattern as: vertical distance between the two peaks and the intervening low, subtracted from the intervening low to arrive at the potential downside objective for the pattern. Filters that can be used to confirm the validity of the break include: increase in volume, closing below the intervening low, closing below the intervening low for a few days, break below the intervening low by a certain percent etc. This breakdown must be accompanied by an increase in volume. The double top pattern is complete if the decline from the second peak breaks the intervening low between the first peak and the second peak. This suggests that the rally is running out of steam and that supply is starting to exceed demand. So, essentially, what this pattern indicates is that the second peak was not able to make a new high, while being accompanied by less volume during the up move and more volume during the down move. Preferably, the rally during the second peak should be accompanied by less volume than the rally during the first peak, while the decline from the top of the second peak should be accompanied by a higher volume than that seen during the decline from the top of the first peak. The first peak should be the highest peak reached during the current leg of the up move, while the second peak should essentially be at the same level as the first peak (minor difference between the first peak and the second peak is acceptable). These two peaks are separated by a trough between them. It comprises of two peaks that appear at identical levels. Double top (Pattern type: Bearish Reversal)Ī double top is a bearish reversal pattern that appears after a rally in price. Note that price patterns can be applied to line chart, bar chart, or candle chart. Similarly, if the breakout from the pattern leads to a continuation in trend, the price pattern is termed as a continuation pattern.īelow mentioned is the list of patterns that we will be discussing in this chapter: If the breakout from the pattern leads to a reversal in trend, the price pattern is termed as a reversal pattern. Price patterns can be of two types: reversal and continuation. After studying about the Dow Theory, support & resistance levels, price tools, and moving averages, we will now turn our focus towards another important aspect of technical analysis: price patterns.
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