Question 2: What does double top mean?

Double top is usually called "M top" and double bottom is called "W bottom", which is the most common inversion form and appears frequently. The ideal double roof has two significant peaks, and its price level is roughly the same. At the first peak, the volume increased, and at the second peak, the volume decreased, so the price could not break through the previous high point. When the price finally closes below the bottom, the double top pattern is completed, which indicates that the trend is reversed downward.

From the perspective of market psychology, when the market wants to turn back, it is often unwilling, and it will try to return to the original trend. After a complete failure, it will willingly turn around and leave. Generally speaking, the longer the duration between two peaks, the greater the height of the form, and the greater the potential of the upcoming reversal.

From the technical diagram, a rising wave starts from point A, rises to point B as the peak, falls back to point C, and then returns to point D, which is similar to point B, forming another peak. Then it fell and fell below the "neckline", which became a prelude to the decline. This trend is generally called double top, because there are two tops with similar prices. Because its graphics are similar to the English letter m, it is also called m top. On the contrary, if there is a double bottom at the end of the downtrend, it is called a W bottom. The top of M is a strong downward signal, and the bottom of W is a reliable upward signal.

When the double-top shape is formed, many commonly used technical indicators, such as KDJ, RSI, MACD, etc. At the same time, it will show the top deviation signal, which can help investors confirm the formation of the bottom.

Because the price of double bottom has peaked twice, investors are advised to buy and sell when the neckline is broken and the withdrawal is confirmed. After most of the double-top forms are formed, there is an opportunity for EF to retreat.

There are two ways to calculate the minimum measured drop of the double roof:

Firstly, according to the measurement method in the attached figure, the height of the double-top form is calculated from point B;

Secondly, when there is uneven roof, the vertical distance between point A and point B is used as the measurement basis for predicting the decline. Occasionally, the second top will be higher than the first top. In this case, judging whether it is possible to form a double-top shape can be analyzed according to the following two points:

(1) Breaking the price by 3%;

(2) Whether the closing price is higher than the first one for two consecutive days.

The above identification method is not foolproof, but at least it can reduce the probability of sending wrong signals. In addition, the following two points are worth mentioning:

(a), the longer the distance between the two phases, the greater the decline;

(2), the height of the double roof is proportional to the drop.

Application principle

1. For the double-top form, there should have been an upward trend for several months. Otherwise, there is no such thing as inverted form. And there should have been a downward trend for several months before the double bottom.

2. In the process of forming the double-top second head, the transaction volume will usually decrease, and when it rises to the price of the first head area, it will encounter resistance. When the second peak cannot effectively break through the first peak, the weak pattern will be more obvious. The interval between two heads may be several weeks to several months, and generally it is 1-3 months. The two heads are generally about the same height, and the gap should be within 3%. Generally speaking, the second head may be higher than the first head, because optimistic forces try to push the stock price up again, but they can't make the stock price rise more than 3%. However, in the process of the formation of the double bottom and the second bottom, usually the trading volume will shrink, and it will be supported when it falls to the price of the first bottom area. That is to say, these two bottoms are the market's test of the price bottom, and the second test does not break the test, which represents the low point that the market thinks. However, the success of the test does not mean that the price will reverse, and the price must break through the neckline, then the reverse transformation state of the trend will be established. Generally, the second bottom point of the double bottom is slightly higher than the first bottom point, because far-sighted investors have already started buying when they fall back for the second time, and the stock price cannot fall back to the last low point.

3. When the second top of the double top falls, you should see the steepness of the volume enlargement or accelerated decline, which may be accompanied by one or two gaps. For the double bottom, in the rising process of the double bottom, the role of volume amplification is more critical. The two peaks of the double head have obviously high turnover rate, and the turnover rate of these two peaks is equally sharp and prominent, but the turnover rate of the second head is obviously smaller than that of the first head, reflecting that the purchasing power of the market has weakened. The turnover of the double bottom and the second bottom is very low, but when it breaks through the neckline, it must be confirmed with the surge in turnover. When the double head falls below the neckline, it should be believed that the turnover has not increased.

4. The breakthrough of the neckline should be heavy and accompanied by a steeper route.

5. The broken neckline of the double top will be transformed into a resistance line, and the broken neckline of the double bottom will be transformed into a support line. After the breakthrough, sometimes the neckline will be pulled back and tested again, which usually provides a second chance to enter the field.

6. Although the formation of the M-shaped head looks simple, we should be cautious in technical analysis:

(1) Sometimes, there will be a "multi-head trap" in the double top form, that is, the second top is higher than the first top, which makes people mistakenly think that another wave of upswing is coming. When people break through the buying situation, the stock price does turn down and build a second top, which is the "bull market trap". When we encounter this kind of situation, we should operate according to the judgment standard of double top shape mentioned above.

Occasionally, there will be a triple top (bottom), which is characterized by the height of the third peak (bottom) close to the previous one, but the transaction volume is less. But this type is rare.

② The period between two heads should be about 1 month. If the two heads are too close, it is more likely that it is just a common convergence form in the resistance area, rather than a reverse signal.

③ The decline from the first head should be at least 10%. The decline below 10% is not enough to represent a substantial increase in selling pressure. Pay attention to the performance of the stock price at the bottom. If the stock price has difficulties in the process of rising, it means that the purchase demand is drying up. If the transaction volume shrinks during the rising process, it further indicates that the purchase demand is weakening.

④ The most important thing is to prevent falling into bear trap, and wait until the support neckline is confirmed to fall below, which is usually accompanied by the enlargement of trading volume. You can use price or time as a filter. For example, when it falls below 3%, it is used as a confirmation signal, or it is still below the neckline within 3 days after it falls below.

Combined application of double bottom sum deviation

The picture shows the K-line chart of the euro against the US dollar, in which a very standard double bottom (W bottom) is made. Its formation process is that when the exchange rate falls to a certain price, it is likely to meet a reasonable support level, because it has been falling for a long time and there are many points. At this time, the exchange rate temporarily stopped falling, and Huimin entered the market to buy, which prompted the market to rebound for a while, but after rebounding to point A, it was under strong pressure and fell again, and the market sentiment was pessimistic again. If this round of decline only falls near the previous low point, it will start to rebound, which is often the initial signal to form the bottom of W. At this time, a horizontal straight line can be drawn from point A, that is, the neckline of the bottom of W. If the exchange rate breaks through the neckline upwards and is accompanied by a sharp increase in trading volume, then the bottom of W is declared complete. At the second bottom point, MACD showed obvious bottom deviation, which further increased the upward momentum. The bottom of W also has the function of forecasting the exchange rate trend, and its basic increase is the vertical distance from the second low point to the neckline. Therefore, investors can enter the market after making a deviation, and if they are blocked near the neckline, they will close their positions and leave. If they break through successfully, they can see the distance from the neckline to the finish line.