Chart Patterns

What is an Ascending Top

An ascending top chart pattern is when a security continues to make higher swing points after each pullback.  This type of price action is commonplace in an extremely strong bull market.  Ascending tops have the same bullish meaning on any trading time frame (minute, daily, weekly,  monthly). 

Trading Strategies for Ascending Tops

Ascending tops can be easily seen on a stock chart.  The pattern will start out with some sort of significant price low.  This low is then followed by an increase in volume and a move higher.  This move creates a series of swing highs where each high exceeds the preceding high.  This pattern may develop in the form of a price channel, but may elect to have a more ambigous price structure.

Be Cautious of Ascending Tops

Ascending tops look like very peaceful patterns, but the reality of it is that this formation often precedes major corrections.  This is because the pattern has produced so many new swing highs, at some point all of the longs are on board and the only place left to go is down.  A safe measure would be to place a stop below the most recent swing low.

This video reviews this day traders favorite charting pattern, the inverted head and shoulders which resembles a W bottom.  He reviews a few examples of trades that he placed and mentions that it is very important to see volume on the break through the neckline of the inverted head and shoulders. This pattern tends to occur near significant bottoms in the market or a stock. 

A trader needs to train their eyes to spot this pattern and be flexible in identifying it.  He mentions how he likes to see a tight consolidation on the right shoulders before it breaks out.  This indicates an unwillingness for the stock to back down and shows its energy building without a retracement.

The speaker whiteboards two very reliable chart patterns which are two of his favorites.  The double top and double bottom repeat themselves due to human emotion.  Traders need to see how the market reacts at the pivot point which represents the pivot which is between the two highs or two lows in both of these patterns.

For a double top, the distance between the high and the pivot point represents the amount that a stock is expected to head lower after it breaks below the pivot point.  Conversely, for a double bottom, the stock is expected to move higher in the amount of the pivot point minus the double bottom once it breaks above the pivot.