Trend Reversal Outline

Double top

The double top figure is a basic turnaround that develops after a wide-ranging uptrend and is defined by a rally to a new high, then a pullback and then a subsequent rally to a new high. When the stock widens to the high, there is a furnish overhang and demand falls aside along with the share price. The share price retires to examine support levels.

Why does this occur?

The double top pattern is played out quite often. The wide-ranging scenario is that frequently buyers of the share compensate too much due to the prolonged rally, when the stock price moves against them the investor stubbornly declines to take a loss and exit the trade. The double top generally occurs after a comprehensive rally to new highs. There is frequent widespread information about the stock from analysts and from the media pushing the stock price higher (top 1), eventually the supply is overwhelmed by demand and the part price falls. The traders accept as true in acquire their and hold their positions not wanting to lose money or stubbornly, their pride. The price is then supported returning to its latest high (top 2). The essential top generally has the experienced traders reducing their positions along with the opportunistic investors. Mostly, the other traders who hold their positions find the share cost has fallen over an interlude of a few weeks supporting the "reaction low". The stock stabilizes and at times receives some good media attention, buy recommendations from analysts or positive company announcements will drive the price back to its recent highs. Commonly the investor who bought in on the first new high sells at their original purchase price, the volume begins to slow. The second wave of investors is now holding the same positions as the first investor. The media and analysts are back at the competent news stories pumping the stock higher, strong volume causes the stock to raise formerly more. The investor who was exposed to losses on the first top closes out the trade. This leaves the latest investor exposed as the second top climaxes forming equal peaks, the double top is formed. The scenario leaves two sets of investors likewise disappointed and the sell off begin speedily.

ALLCO Finance Group (AFG) Double Top
In late 2007 the stock had an upside breakout from a integration at 10.00 and ran up to more than 13.00 The stock fell back from 13.00 to a reaction low of 11.50 and then ran up to reach top 2 at 13.00 when it then collapsed to a low of 10.00.

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