Double Tops & Triple TopsTechnical Analysis
Double Tops are also called “M’s” in common parlance. They are reverse patterns that occur at the end of uptrends, and create short opportunities or short signals. Double Tops feature two consecutive peaks (two swing highs) that are at approximately equal heights. They do not have to be exactly equal. After the second peak, price should fall below the trough in between them, completing the pattern.
The high risk entry trigger for a short sale is after the swing high of the second peak. Low risk entry to the short side is after price falls below the middle trough. The stop goes above the second peak.
Volume on the second peak should be lower than the volume on the first peak. Volume should expand during the falls from the peaks, and expand strongly after breaking the middle trough.
A triple top has a third top or swing high, but is otherwise the same. Enter on the third peak in a triple top for high risk, or after price falls below the middle troughs. Exact peaks are not required, and the lowest trough should be considered as the most important support level. The highest peak is the stop.
For targets, measure the distance from the peaks to the middle trough. Project that distance down from the middle trough when price falls below the neckline. Watch for swing lows near that level to take profit, price may stop beyond or fall short of that distance.
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