WHAT IS Ascending Tops
Ascending tops is a pattern in a price chart in which each peak in price is higher than the previous peak in price was. The ascending tops pattern indicates a bullish trend in the price of the security. An ascending tops price chart looks like this:
You can see that the peaks all successively increase from the first peak.
BREAKING DOWN Ascending Tops
Ascending tops is a pattern on a stock price chart indicating that the market for that security is turning bullish, or increasing. Ascending tops can be recognized when a second peak is higher than the first peak, and then confirmed when a third peak is higher than the second peak. For example, say the first peak is $40 and the stock price drops to $28, then peaks at $43 and drops to $31. This looks like ascending tops. If the next peak is more than $43, this confirms that this is an ascending tops price pattern, and the trader or investor should prepare for a bull market, even if only for the short-term.
Eventually an ascending tops pattern has to end. If the next peak in price is lower than the current peak in an ascending top run, the trend is broken and the market will either go bearish or stagnate.
Sometimes an ascending tops pattern will have drops that progressively ascend, too. This pattern is called ascending bottoms. When an ascending tops pattern reverses, an ascending bottoms pattern is likely to reverse at the same time or within one more drop and peak.
Strategy for Investing During Ascending Tops
Since ascending tops may last only a matter of minutes, long-term value investors are unlikely to invest specifically during this pattern. Traders who time the market or day traders, however, can find ascending tops convenient to help them make money during a short run. These short-term investors will buy the stock because the price is going up progressively, so the longer the ascending run lasts and the higher the price, the more money they can make. The key to success when entering an ascending tops market is to set a lower limit below one of the earliest peaks, such as the second or third peak, and to get out of that position by selling as soon as the market reverses. To know when to get out of the position entirely by selling because the market is reversing, short-term traders need to understand that the first peak below the previous peak is their signal to trade out of their position and sell.