Stop losing to professional traders when double tops and double bottoms form. Keep reading to discover how you can make thousands when double tops and double bottoms form.

Every rally 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 I’d 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 are still long are screaming mad, especially if they came in late. They feel trapped. Their profits are melting away and turning into losses. Should they hold or sell? If enough bulls decide the stock has overshot to the downside, they’ll step in and buy. As the rally resumes, more bulls come in. Now prices approach the level of their old top, and that’s where 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.

A mirror image of this situation occurs at market bottoms. The market falls to a new low at which enough bears start taking profits by covering shorts and the market rallies. Once that rally stalls out and prices start sinking again, all eyes are on the previous low—will it hold? If bears are stronger than bulls, prices will break below the first low, and the downtrend will continue. If bears are weaker than bulls, the decline will stop near the old low, creating a double bottom. Technical indicators help decipher which of the two is more likely to happen.

Any time you see a stock rise to its previous peak, the main question in your mind should be will it rise to a new high or form a double top and turn down. Technical indicators like volume, MACD, RSI, and stochastics can be a great help in answering this question.

When a stock rises to its previous peak, a double top is most likely to form when the volume, MACD, RSI, and stochastics are falling.

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.

I hope you enjoyed this article. Leave any comments you might have below. Thank you and happy improved trading.

Lance Jepsen
President, GuerillaStockTrading.com
Your Trading Coach
(because everyone, even Tiger Woods, needs a coach)

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