What is a 'Top'

A Top refers to the peak price of a security, before it begins a downward trend.

BREAKING DOWN 'Top'

A Top refers to the price peak of an asset during a trading period, prior to a period of decline in price.

Short and mid-term traders such as day traders often rely on watching for tops and bottoms in price fluctuations to time their trades. Typically, an investor will desire to sell an asset when it reaches a top in order maximize profits on an investment, just as they will attempt to purchase an asset when it is close to a bottom, or the lowest price of an asset before it begins climbing, in order to maximize the potential for profit on an investment.

Because prices of securities are constantly in motion, even when markets or assets experience strong overall trends upward or downward, they will experience small price fluctuations over minutes, hours and days. These small shifts in price are the primary focus of day traders, who watch for temporary peaks, or tops, to sell assets and temporary bottoms to acquire assets.

Swing traders, who operate on a somewhat larger scale, look to identify price movement tops and bottoms over periods of time which are more broad, spanning weeks or months, in order to assess their investment strategies and time their trades.

Charting Tops

Traders and analysts find charting price ranges useful for predicting future performance of a market or an asset, often relying patterns over time to inform investments.

Charting the price performance of an asset over time usually reveals a pattern of resistance levels, or the price range which an asset maintains over a period of time. Typically, as an asset reaches a top price, it will peak somewhat near the upper limit of its resistance level for that period of time, and then begin a period of decline towards its established bottom. When a price exceeds its upper resistance level limit it is known as a breakout, and when a price declines below its lower resistance level limit, it is known as a breakdown.

When charting price ranges for assets, tops can take many forms. A top can often manifest as a sharp peak, like an inverted V, and it can also appear more rounded in situations in which the price of a security consolidates near the high for an extended period of time before declining.

When an asset performance charting a double or triple top without experiencing a breakout will often signal that a security may be nearing the end of an overall upward trend. A double top occurs when when security reaches a top price, declines, and then rises again to the same same top a second time before ultimately declining. A triple top is exhibited when the asset fluctuates to the top price three times before ultimately declining. Both patterns reveal that the security has tried and failed multiple times to move past its resistance limit, which can be a discouraging condition for investors.

RELATED TERMS
  1. Breakout

    A Breakout is the movement of the price of an asset through an ...
  2. Double Top

    A double top is a chart pattern, characterized by two consecutive ...
  3. Rising Bottom

    Rising bottom is a pattern on a security's chart, considered ...
  4. Cover On Approach

    Cover on approach refers to sale of a short position as a security's ...
  5. Rounding Bottom

    A rounding bottom is a chart pattern used in technical analysis ...
  6. Basing

    Basing refers to a period in which a stock or other traded security ...
Related Articles
  1. Trading

    Using Double Tops And Double Bottoms In Currency Trading

    Find out how to apply the two most common price reversal patterns to your trading.
  2. Trading

    Is It A Breakout? See The Point-And-Figure Chart

    These stocks have broken out of a triple top formation using point-and-figure charting, a bullish sign.
  3. Trading

    3 Charts That Commodity Traders Will Want to Watch

    Despite recent periods of consolidation on the charts of most commodities, active traders will maintain a bullish bias due to nearby support levels.
  4. Trading

    Energy Sector Faces Resistance Levels Ahead

    Major levels of resistance on the charts of energy-related assets suggest that the bulls could have their work cut out for them.
  5. Trading

    Stocks Surging Into Major Resistance

    These stocks recently surged but are now trading right at resistance. While another breakout is possible, it is also a good time to consider taking profit.
  6. Trading

    Analyzing Chart Patterns

    Learn how to evaluate a stock with a few easy-to-identify chart patterns.
  7. Trading

    Day Trading for Beginners

    Interested in day trading but don't know where to start? Here are some common day trading strategies, as well as some day trading tips for beginners.
RELATED FAQS
  1. What Does It Mean When There Is 'Price Action'?

    Price action refers to the day-to-day fluctuation in the price of an asset. Read Answer >>
  2. What are the differences between a bar chart and candle sticks?

    Explore the difference between bar and candlestick charts. Learn how technical analysts use charts in the analysis of supply ... Read Answer >>
  3. Volatility From the Investor's Point of View

    Increased volatility in the stock market provides greater opportunities to profit for both long- and short-term traders. Read Answer >>
  4. What are the top technical indicators used for range-bound trading strategies?

    Learn how to identify when a market is range-bound and what some of the technical indicators are that work best for trading ... Read Answer >>
Trading Center