Double Tops and Bottoms

Double Tops and Bottoms

“Two tops or two bottoms at approximately the same price level” is only half the explanation.  Prices must decline below and close below the low point established between the two tops (the middle reversal point) before a double top has been activated.  In a double bottom, prices must close above the high point in between the two bottoms to establish a double bottom, see image below.  Taking the distance from the double top or bottom to the point in between and adding that distance to the breakout level can determine the measuring objective.  The middle reversal point will also provide support for any pullback.

Sasol Double Top:

In April 2017 Sasol traded around the R416 level two or three times and declined every time from there. That was not a double top yet though. Only when it closed below the low point established between the two tops (the middle reversal point) at R397 in May did the formation become a double top. Traders and investors should wait for the break below the middle reversal point before selling or opening a short position. The minimum objective of R378 was reached quite quickly and Sasol continued to fall after that.

 

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