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Support and Resistance

Support and Resistance

Support and /Resistance

Support and Resistance Lines are often confused with trendlines but they are horizontal lines under the lows and above the highs respectively. They indicate where a previous rally met resistance and where a previous decline met support. These are two important levels in terms of trend identification since an uptrend will tend to break previous resistance levels above the market while a down trend will break the previous support levels below the market.

When the support line below the recent minor low is broken in an uptrend, it indicates that the balance of the market forces is beginning to shift, ...

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Double Tops

Double Top Pattern

Double Tops

The Double Top patterns appear at the end of an uptrend when the price reaches the previous resistance level but fails to break through the resistance. The result is two price peaks with the same high. The entry point in this pattern is when the price moves below the minor low between the two peaks. This will result in a lower low and the start of a downtrend.

The Double Top pattern is confirmed when the support at the bottom of the recent low is broken and indicates an intermediate to long-term change in the direction of the trend. However, a pullback to the recent low can be anticipated but this is not a ...

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Reversal Patterns

Reversal Patterns

Double Tops

Reversal patterns mark the turning point of an existing trend and are good indicators for taking profit or reversing your position. Generally, trend reversal patterns indicate that a support level in a downtrend or a resistance level in an uptrend will hold and that the pre-existing trend will start to reverse. These patterns allow you to enter early in the establishment of the new trend and usually result in very profitable trades.

The common reversal patterns include the Double Top and Double Bottom patterns, the Triple Top and Triple Bottom patterns, broadening tops and broadening bottoms. There are also ...

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Triple Top and Triple Bottom Patterns

The triple tops and triple bottoms patterns are similar to the double tops and double bottoms patterns that appear on line, bar, candlestick charts, and Point-and-Figure charts. They are short-term trend reversal patterns with the triple top being a bearish trend reversal pattern and the triple bottom being a bullish trend reversal pattern.

Triple Tops

Triple Tops

The Triple Tops Pattern

The triple top pattern is a bearish trend reversal pattern that often marks the end of an uptrend and the start of a down trend. It consists of three consecutive peaks that reach a resistance level at more or less the same high value, with valleys creating clear separations between three distinct peaks. The low of the valleys is important for price projection purposes as is the volume. Preferably, the volume at each successive peak should be lower than the volume on the preceding peak.

Entry Signal

The triple tops pattern has only entry signals to sell short. This signal is triggered when the price breaks below the support level created on the lowest low of the two valleys. This break should preferably be accompanied by an increase in volume as a drop in volume may indicate a false break.

Price Projection

A price projection for the triple tops formation is similar to that of the double top. It is calculated by taking the distance from the support level formed at the low of the intervening valleys to the top of the peaks and subtracting it from the point at which the support level was subsequently broken. However, the price will usually attempt to retest the previous support level, which would now become a resistance level and may even violate this level before the down trend takes effect. Should the resistance level be broken on strong volume you should be cautious and perhaps exit the trade, looking to re-enter when the price breaks down below the resistance level.

Triple Bottoms

The triple bottom pattern is the bullish trend reversal counterpart to the triple top pattern. It often marks the end of a down trend and the start of an uptrend. This pattern consists of three consecutive and distinct dips that reach a support level at more or less the same low value, with peaks creating clear separations between three dips. The high reached by the peaks is important for price projection purposes. The volume is also important. Preferably, the volume should increase as each successive dip is formed.

Entry Signal

As with the triple bottom pattern, the triple top pattern has only entry signals to buy long. This signal is triggered when the price breaks through the support level created on the highest high of the two intervening peaks and closes above it. This break should preferably be accompanied by an increase in volume as a drop in volume may indicate a false break.

Price Projection

A price projection for the triple bottom formation is similar to that of the double bottom. It is calculated by taking the distance from the resistance level formed at the high of the intervening peaks to the bottom of the dips and adding it to the point at which the resistance level was subsequently broken. However, the price will usually attempt to retest the previous resistance level, which would now become a support level and may even violate this level before the uptrend forms. Should the support level be broken on strong volume you should be cautious and perhaps exit the trade, looking to re-enter when the price breaks up above the support level.

Wealth Warning

Trading equities, options, derivatives, currencies and cryptocurrencies, commodities or any other financial security can offer significant returns BUT it can also result in significant losses if the market moves against your position. It requires a strong commitment to skill development, knowledge acquisition, and emotional control. It should be treated as a business with a clear business plan, proper risk analysis, and a defined set of attainable goals. The risk associated with trading the vagaries of the stock markets is probably the most important consideration as it has a profound effect on a trader's emotional control. You should not trade the stock markets with money you cannot afford to lose as there is considerable exposure to risk in any stock market transaction.

Furthermore, the past success of any trading method, strategy, or system is only indicative of future success. Under no circumstances should past success be misconstrued as a guarantee of future success!

Unless otherwise specified, the trading systems and strategies discussed on this website are intended for educational purposes only and are not meant to recommend or promote any trading system or strategy. You are expected to do your own research and testing to determine the validity of a trading method, system, or strategy on the market and instrument you wish to trade.

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