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Double top
Double top refers to the shape of two peaks at the top of the price, often called "M head". After rising to a certain price, some investors think that the price is too high and want to take profits, so they sell in large quantities, resulting in large trading volume and price decline. When the price falls, the number of investors who sell decreases, and some investors think that it has fallen to a certain extent and the short-term risk has been released, so they will buy again. Then the price rises to a peak that is almost equal to the previous price, and the trading volume increases again but cannot reach the trading volume of the previous peak. Then it falls for the second time, and the price movement trajectory is like an M.
This is a double top, also known as an M head. The trend is similar to the head and shoulders top pattern. The double top must also break through the neckline before its pattern is completed.
Theoretical decline of the M head: If the price falls below the neckline of the M head and the rebound cannot stand on the neckline, the price will go down. The first theoretical decline (i.e. the minimum decline) is: the distance from the neckline to the double-top high point. As shown in the figure, L1 is the distance from the double-top high point to the neckline, and L2 is the initial predicted decline, L1=L2.
When the neckline of the M head falls below the neckline and the rebound fails to stand on the neckline, it is a selling point.
The double head is a turning pattern. When the double head appears, it means that the price rise has ended. Usually this pattern appears at the top of a long-term trend, so when the double head is formed, investors can be sure that the highest point of the double head is the peak of the price.