subject: Course Setback Form [print this page] Course Setback Form Course Setback Form
Double top
The double top pattern is a main turnaround that evolves after a comprehensive 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 extends to the high, there is a supply overhang and demand falls away along with the share price. The share price retreats to test support levels.
Why does this occur?
The double top pattern is played out quite often. The general scenario is that usually buyers of the share pay too much due to the extended rally, when the stock price moves against them the investor stubbornly refuses to take a loss and exit the trade. The double top generally occurs after a comprehensive rally to new highs. There is often 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 share price falls. The traders believe in their purchase and hold their positions not wanting to lose money or stubbornly, their pride. The rate is then supported returning to its recent high (top 2). The first top usually has the experienced traders reducing their positions along with the opportunistic investors. Commonly, the other traders who hold their positions find the share price has fallen over an interlude of a few weeks encouraging the "reaction low". The stock stabilizes and at times receives some just 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 basic new high sells at their original buy 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 upright 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 fresh investor exposed as the second top climaxes forming match peaks, the twice top is formed. The scenario leaves two sets of investors equally disappointed and the sell off begin rapidly.
ALLCO Finance Group (AFG) Double Top
In late 2007 the stock had an upside breakout from a consolidation 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.
