Free Essay

How to Trade Successfully

In: Business and Management

Submitted By hayderAlee
Words 1092
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Lecture 4
Lecture 4
Trading and Exchange

Double/Triple Tops/Bottoms
Double/Triple Tops/Bottoms





All variations on the same theme
All variations on the same theme
Double tops fairly common
Triple tops are rare i l
Any time frame

Double Tops
• A term used in technical analysis to describe the rise of a stock, a drop, another rise to the same level as the original rise, and finally another drop.
• The double top is a frequent price formation at the pp end of a bull market. It appears as two consecutive peaks of approximately the same price chart of a p p y market. The two peaks are separated by a minimum in price, a valley.
• The formation is completed and confirmed when
The formation is completed and confirmed when the price falls below the neck line, indicating that further price decline is imminent or highly likely. further price decline is imminent or highly likely

Double Tops
• The double top pattern shows that demand is outpacing supply (buyers predominate) up to the first top, causing prices to rise. The supply‐demand balance then reverses; supply outpaces demand
(sellers predominate), causing prices to fall. After a price valley, buyers again predominate and prices rise. If traders see that prices are not pushing past their level at the first top, sellers may again prevail, lowering prices and causing a double top to form. It is generally regarded as a bearish signal if prices drop below the neck line.

Factors effecting Double Tops
• The time between the two peaks is also a determining factor for the existence of a double top pattern. If the tops appear at the same level but are very close in time, then the probability is high that they are part of the consolidation and the trend will resume. Volume is another indicator for interpreting this formation. Price reaches the first peak on increased formation Price reaches the first peak on increased volume then falls down the valley with low volume.
Another attempt on the rally up to the second peak
Another attempt on the rally up to the second peak should be on a lower volume.

Double Tops

Double Tops
Double Tops

Double top
Double top
• Easy to detect
Easy to detect
• Only trade after break
• S
Strategy should be the height of the pattern h ld b h h i h f h projected from the break out

Triple tops
• A pattern used in technical analysis to predict the
A pattern used in technical analysis to predict the reversal of a prolonged uptrend. This pattern is identified when the price of an asset creates three identified when the price of an asset creates three peaks at nearly the same price level. The bounce off the resistance near the third peak is a clear the resistance near the third peak is a clear indication that buying interest is becoming exhausted. It is used by traders to predict the exhausted It is used by traders to predict the reversal of the uptrend.

Triple tops

Double Bottom
• A double bottom is the end formation in a declining g market. It is identical to the double top, except for the inverse relationship in price. The pattern is formed by two price minima separated by peak f db db k defining the neck line. The formation is completed and confirmed when the price rises above the neck and confirmed when the price rises above the neck line, indicating that further price rise is imminent or highly likely. highly likely
• Most of the rules that are associated with double top formation also apply to the double bottom top formation also apply to the double bottom pattern. • Volume should show a marked increase on the rally
Volume should show a marked increase on the rally up while prices are flat at the second bottom

Double Bottom

Triple Bottom
• A pattern used in technical analysis to predict the reversal of a prolonged downtrend. The pattern is identified when the price of an asset creates three troughs at nearly the same price level. The third bounce off the support is an indication that buying interest (demand) is outweighing selling interest
(supply) and that the trend is in the process of reversing. Triple Bottom

Wedge
• The wedge pattern is a commonly found pattern in g p y p the price charts of financially traded assets
(stocks, bonds, futures, etc.). The pattern is characterized by a contracting range in prices coupled h i db i i i l d with an downward trend in prices (known as a rising wedge) or a upward trend in prices (known as a falling wedge) or a upward trend in prices (known as a falling wedge). • A wedge pattern is considered to be a pattern which is
A wedge pattern is considered to be a pattern which is forming at the top or bottom of the trend. It is a type of formation in which trading activities are confined within converging straight lines which form a pattern. It should take about 3 to 4 weeks to complete the wedge.
This pattern has a rising or falling slant pointing in the
This pattern has a rising or falling slant pointing in the same direction.

Difference between triangle & wedge
• It differs from the triangle in the sense that both g boundary lines either slope up or down.

Wedges
• There are two types of wedges yp g
• Rising wedge and falling wedge.
• Rising wedge is a bearish signal which represents
Rising wedge is a bearish signal which represents bear market rallies
• Falling wedge is a bullish signal which represents ll d b ll h l h h bullish market pulls back.
• Trend flattens and range of the market narrows
• Return move is fairly common. y • MPO is height of pattern at its widest point projected from its break out point. projected from its break out point

Falling Wedges
• The falling wedge is a generally bullish pattern g g g y p signaling that one will likely see the price break p g g upwards through the wedge and move into an uptrend. The trend lines of this pattern converge, with both being slanted in a downward direction as g the price is trading in a downtrend.

Rising Wedges
• Conversely, a rising wedge is a bearish pattern that y, g g p signals that the security is likely to head in a p downward direction. The trend lines of this pattern converge, with both trend lines slanted in an upward direction. p Falling Wedge

Rising Wedges

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