Stock Market Help: Playing Double Bottoms and Double Tops
Stop losing to professional traders in the stock 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 stock market reaches a point where enough bulls look at it and say"I've made a lot of money, and I might make even more money, but Id rather take my profits off the table. Charts top out when enough bulls take their profits, while the money from new bulls is not enough to replace what was taken out.
Bulls who just bought in are mad as they came in too late. They are trapped. Their position continues to pile on losses. Should they hold on or sell for a loss? Only when enough bulls decide the stock has overreacted on the downside will they come in and buy. The rally will resume to the upside as more bulls rush in to buy on weakness. As prices approach the level of their old top, you can expect sell orders to hit the market.
Many battle scared traders who got caught in the previous decline take a blood oath to get out if the market gives them a second chance.
An exact opposite situation happens in the stock market at a bottom. A stock falls to a new low at which enough shorts start taking profits by covering their positions which causes the market to rally. Once that short covering rally stalls and the stock begins falling again, all eyeballs are on that previous low-will it hold? If fear is greater than greed, prices will break below that previous low which will mark a continuation of the downtrend. If greed is stronger than fear, the downtrend will stop near the old low forming a double bottom. 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 the RSI, MACD, and volume are very helpful in answering this question.
If a stock climbs to its previous high, if the volume, MACD, and stochastics are dropping then a double top is likely to 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. - 23314
Every rally in the stock market reaches a point where enough bulls look at it and say"I've made a lot of money, and I might make even more money, but Id rather take my profits off the table. Charts top out when enough bulls take their profits, while the money from new bulls is not enough to replace what was taken out.
Bulls who just bought in are mad as they came in too late. They are trapped. Their position continues to pile on losses. Should they hold on or sell for a loss? Only when enough bulls decide the stock has overreacted on the downside will they come in and buy. The rally will resume to the upside as more bulls rush in to buy on weakness. As prices approach the level of their old top, you can expect sell orders to hit the market.
Many battle scared traders who got caught in the previous decline take a blood oath to get out if the market gives them a second chance.
An exact opposite situation happens in the stock market at a bottom. A stock falls to a new low at which enough shorts start taking profits by covering their positions which causes the market to rally. Once that short covering rally stalls and the stock begins falling again, all eyeballs are on that previous low-will it hold? If fear is greater than greed, prices will break below that previous low which will mark a continuation of the downtrend. If greed is stronger than fear, the downtrend will stop near the old low forming a double bottom. 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 the RSI, MACD, and volume are very helpful in answering this question.
If a stock climbs to its previous high, if the volume, MACD, and stochastics are dropping then a double top is likely to 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. - 23314
About the Author:
Written by Sean Phelps. I hope this article makes you a ton of money. For many more money making tips visit the most popular stock trading blog on the Internet at stock market
posted by Mr. Forex at
1:47 AM
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