No trend lasts forever. Human nature is predictable we fear when we should be greedy and we should be greedy when people are fearful. I believe that Warren Buffet stated something to that effect. Its true, that as traders and investors when we see a good thing we are sometime blinded by how well it is doing not realizing that the music is about to end, and that is the key how to recognize when does the music end?
Like all patterns double tops take some time develop and that can be a little frustrating because that means we have to be patient, but be assured the results can be worthwhile. Remember good things come to those who wait.
Double top patterns generally occur some where there is a new high being created or at least where a previous high existed. The crowd when it reaches these tops begin to wane in there enthusiasm for the price move. They begin to question, Is the price moving to fast? So what do they do the begin to take there positions off and this causes a brief confidence break but rest assured there are still buyers that are interested and the jump back in.
At this point it becomes imparitive to let the crowd dictate what will happen. Institutions at this point are controlling the money flow and if there are sell order at that sell point (resistance) you better believe there might be a collapse coming.
This was no more true than what happened last year on the SPY.
In the midst of a political debate in the summer of 2011 over the debt ceiling the SPY had reached a high of $136 in May and then sold of to some major support around $126.
Now its interesting that a double top begins with some sort of big rally or move up because this where buyers feel confident that the market is not at a top, and just like clockwork it bounces of support.
The next phase...