What does a Double Top Mean for a Stock?

Published: 10th December 2009
Views: N/A

So what does a double top or a double bottom mean on a stock chart? It is one of the most fundamental chart patterns that can be interpreted with a great degree of accuracy. A double top or bottom is simply when a stock's price hits the same high or low twice at the same level. It usually indicates strong support or resistance for a stock depending if it is a high or a low.



If it is a double top this leads to strong resistance.



If it is a double bottom this leads to a strong area of support.



One thing to keep in mind is the duration of the stock chart you are looking at. A double top on an intra-day chart does have a different meaning than a double top on a yearly chart. One must use the appropriate chart depending on ones trading horizon. A trader who like to hold for long periods would not in general us an intra-day chart. A day trader will focus more on the short term chart, but must also keep in mind long term support and resistance as they are considered more robust. Another key point is to put in some checks and balances for any trading indicator. Bollinger bands are commonly used to put in price stops to limit losses should the support or resistance indicated not hold.



Bollinger bands are named after John Bollinger. Bollinger is a highly regarded technician of the stock market. These bands act as a sort of channel for stocks to work there way through. Bollinger bands are very accurate in predicting a stock charts behavior. Stock prices rarely lie outside these bands for more than a day or two. This may happen when some big news comes out on a stock such as a bad earning report or an analyst downgrade or upgrade.



If you combine the use of double tops and double bottoms in combination with Bollinger bands and some common sense, you will do very well in the stock market. Use them to consistently pick winning trades.



David Petersen has been an active day and swing trader in the stock and bond market for over 20+ years now. David also authors several websites including How to Trade Stocks and Stock Market Predictions. Have a blessed day!

Report this article Ask About This Article


Loading...
More to Explore