Multiple Tops

Dictionary Says

Definition of 'Multiple Tops'


A reversal chart pattern that shows the failure of a security to break through to new highs on a number of occasions, and is therefore a strong sell signal. Multiple tops can be double or triple tops. A multiple top usually develops at the end of an uptrend in a security or index. As the uptrend fades out in the same general area many days or weeks apart, the security falls back on each occasion and establishes a support level, which is the price level at which the bulls shore it up. If it continues to fail to break through the stiff resistance offered by the multiple top region, at some point the bears will succeed in pushing it below the support level. The downside break of this support level would be conclusive evidence of the multiple-top pattern formation.

Investopedia Says

Investopedia explains 'Multiple Tops'


Note that multiple tops do not have to be formed at the exact same price. Chartists consider acceptable multiple tops formed at price points as much as 3% apart.

Traders would generally sell short the security on the downside break of the support level. Short selling may be facilitated at this time by the significantly higher trading volume that generally accompanies the downside break. The profit objective of this short sale usually equals the difference between the multiple top region and the support area.
 
For example, if a stock forms a triple top around $15, and has retreated to around $12.50 after each failed attempt at new highs, the short sale would be entered into on a downside break of the $12.50 support level. The profit objective equals the $2.50 difference between the triple top and support level (i.e. $15 - $12.50). This means that the trader would have a price target of $10 on the short sale, for a profit objective of $2.50 ($12.50 - $2.50).
 
Of course, aggressive traders who are particularly bearish on the stock may not wait for the downside break at $12.50 to short it. They may enter into the short sale after the stock has failed to break through $15 for the third time, rather than wait for confirmation of the sell signal on the downside break at $12.50.
 

comments powered by Disqus
Hot Definitions
  1. Valuation

    The process of determining the current worth of an asset or company. There are many techniques that can be used to determine value, some are subjective and others are objective.
  2. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  3. Tech Street

    A term used in the financial markets and the press to refer to the technology sector. Companies like Intel, Microsoft, Apple and Dell are all considered to be part of Tech Street.
  4. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
  5. Momentum Investing

    An investment strategy that aims to capitalize on the continuance of existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
  6. IPO ETF

    An exchange-traded fund that focuses on stocks that have recently held an initial public offering (IPO). The underlying indexes tracked by IPO ETFs vary from one fund manager to another, but index IPO ETFs are usually passively managed and contain equities that have recently been offered to the public.
Trading Center