Buy Signal on a Point and Figure Chart Double Top Breakout Pattern
Double Top Formation A double top occurs on a stock chart when prices reach a high point, pullback some, and then reach the previous high point once again.
On a Point and Figure (P&F) Chart, this can be seen by a vertical column of X's, followed by a column of at least three O's which display a decline in prices, or the "pullback" mentioned above, and then another vertical column of X's which rise to the price level reached in the previous column of X's.
In simpler terms, just picture a column of X's on your left, a column of lower O's in the middle, and another column of X's on your right that reach the same height as the column of X's on your left.
Double Top Breakout Buy Signals For Momentum traders, if the larger degree trend is upward and a double top forms, different signals can be given.
Many traders will wait for a breakout to the upside from the double top pattern and then go long.
A breakout to the upside from a double top pattern on a Point and Figure Chart is recognized when the vertical column of X's on the right initially exceed the height of the vertical column of X's on the left.
This means that buyers have taken control, pushing prices higher.
This can be considered a signal to go long.
On the other hand, this can also become a trend exhaustion move, only to quickly reverse, catching traders off guard who entered new long positions.
To help try and lower the risk of this happening, some traders will observe the breakout and wait for a pullback and re-test of the previous double top highs.
If this price level holds, which would now become a support level, then new long positions would be entered on the next move higher, or next vertical column of X's in the case of our Point and Figure Chart.
This technique of waiting for a pullback after the initial break out will cause some trades to be missed completely because many times a pullback doesn't occur on the initial breakout.
For this reason, some traders choose not to wait and enter long right away.
This is a viable option, as long as consideration is taken to using good stop loss price levels.
A failure, or reversal on a double top breakout, also provides trading opportunities for those who utilize short positions in their trading plan.
On a Point and Figure (P&F) Chart, this can be seen by a vertical column of X's, followed by a column of at least three O's which display a decline in prices, or the "pullback" mentioned above, and then another vertical column of X's which rise to the price level reached in the previous column of X's.
In simpler terms, just picture a column of X's on your left, a column of lower O's in the middle, and another column of X's on your right that reach the same height as the column of X's on your left.
Double Top Breakout Buy Signals For Momentum traders, if the larger degree trend is upward and a double top forms, different signals can be given.
Many traders will wait for a breakout to the upside from the double top pattern and then go long.
A breakout to the upside from a double top pattern on a Point and Figure Chart is recognized when the vertical column of X's on the right initially exceed the height of the vertical column of X's on the left.
This means that buyers have taken control, pushing prices higher.
This can be considered a signal to go long.
On the other hand, this can also become a trend exhaustion move, only to quickly reverse, catching traders off guard who entered new long positions.
To help try and lower the risk of this happening, some traders will observe the breakout and wait for a pullback and re-test of the previous double top highs.
If this price level holds, which would now become a support level, then new long positions would be entered on the next move higher, or next vertical column of X's in the case of our Point and Figure Chart.
This technique of waiting for a pullback after the initial break out will cause some trades to be missed completely because many times a pullback doesn't occur on the initial breakout.
For this reason, some traders choose not to wait and enter long right away.
This is a viable option, as long as consideration is taken to using good stop loss price levels.
A failure, or reversal on a double top breakout, also provides trading opportunities for those who utilize short positions in their trading plan.
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