M pattern

 

In technical analysis, the M pattern, also known as a Double Top, is a bearish reversal pattern that signals a potential decline in a stock’s price after an uptrend. Here are its key characteristics:

1. Formation

• The M pattern forms after an uptrend.

• It consists of two peaks (highs) at approximately the same level, separated by a trough (low).

• The second peak fails to break above the first, indicating weakening buying pressure.

2. Volume Behavior

• High volume during the first peak.

• Lower volume during the second peak, indicating reduced buying strength.

• An increase in volume when the price breaks the support (neckline), confirming the breakdown.

3. Support (Neckline) Level

• The trough between the two peaks acts as support.

• A breakdown below this support level confirms the bearish trend.

4. Price Target

• After the breakdown, the expected price drop is roughly equal to the height of the pattern (distance from peaks to neckline).

5. Confirmation Signal

• A decisive close below the neckline with high volume confirms the pattern.

• Traders often wait for a retest of the neckline before shorting.

6. Implication

• The pattern suggests a trend reversal from bullish to bearish.

• It indicates that buyers have lost control and sellers are taking over.

7. Common Mistakes

• Entering a short position too early before confirmation.

• Ignoring volume analysis, which is crucial for confirmation.

• Mistaking a consolidation pattern for a breakdown.