How to trade with “M” Pattern in Trading?
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Double Top or M Pattern in Trading
Stock traders can bank on the M patterns in which you can short the stocks that enable you to earn profits.
Experts say the M patterns can form in a span of hours, weeks or even months altogether and the proper identification of it can help you yield more profits.
In simple terms, these double top patterns are also known to be bearish reversal.
Below you can find lines defining M pattern and basic sketch that explain the formation of it.
Stock charts represent M patterns in the stock trading environment and it is price variations of the stock that provide a pattern of the ‘M’ form, also known as ‘Double Top pattern.’
M- pattern : A Representation of Bearish Reversal
The M pattern does form at the end of the uptrend.
A price reaches the highest position and takes a reversal and progresses for a while and again makes an uptrend movement touching the first highest position. It means, the price has attained the highest position twice and both positions get connected forming a trough.
The price reaches the highest level ( uptrend) in the first peak reflecting the resistance level, and then the price begins to decline ( downtrend), reflecting a potential reversal.
Further, the stock price takes an uptrend, reflecting a potential reversal, and it reaches the highest level in equivalence to the first peak, thus confirming it to be a resistance level.
From the second highest level ( peak) the stock price trails down, thus indicating a bearish trend.
A trader can apply for a stop loss order to limit the losses in case the price rises and usually it is done above the resistance level.
The best position is the support level where you ( trader) can make profit by taking advantage of the bearish trend.
Traders can place a stop loss order above the resistance level to limit their losses for a rise in stock price. They can also place a take profit order at the support level to take advantage of the bearish trend.
Caution:
A price break above the resistance level after the second peak can create a false alarm and you may fall prey.
You must wait for the confirmation of the bearish trend. Look-in for the breakout below the support level, and a retracement ( minor pullback), it is a sign of confirmation.
Therefore you can enter a short trade by taking the advantage of the Bearish Reversal.