What is a Double top or M pattern and how to work?
Double top or M pattern, which is a bearish reversal pattern. That looks like the English letter M. The double-top pattern is most commonly used in intraday trading. The accuracy of the M pattern is almost 70-75% for intraday trading. Where the stock or index is unable to move up once the M pattern is formed formed. Due to this decline is seen.
Understanding the double top or M pattern
It forms after an uptrend.
It has two peaks with a valley in between.
The second peak is usually lower than the first.
After the second peak, the price tends to fall from the top level.
Remember: The M pattern is actually the opposite of the W pattern.
How to identify an M pattern?
Look for an uptrend.
Watch for a high point (first peak).
Then, a dip (the valley).
Another rise, but not as high as the first peak (second peak).
Finally, a drop below the valley
How to trade with M pattern?
Now that we know what an M pattern looks like, how do we use it in our trading? Here's a simple approach:
Entry point
Wait for the price to break below the low valley of the M pattern.
This confirms the reversal and is a good time to enter a short position below the valley of the M pattern.
What should be the Stop loss?
Place your stop loss just above the second peak price of the M pattern.
This protects you, if the pattern doesn't play out as expected.
Take profit
Set your first target at the total height (total point) of the M pattern.
You can trail your stop loss or set additional targets based on other support levels, if any fast reversal.
Remember, no pattern is 100% sureshot. Always use other volume and RSI indicators and analysis to confirm your trades.
Common mistakes, you have to avoid
Jumping in too early before the pattern completes, wait and watch for the perfect entry.
Ignoring the overall market trend or any event.
Not using proper risk management, trading without stop loss, and deploying all funds at a time.
- Expecting every M pattern to work perfectly, which is not possible.
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