Top reversal is a YardCharts trend inversion bearish pattern and can be expected to take form at market tops. It occurs as the result of an up-trend followed by a trading range that is followed by a further market rise and a sudden reversal of the self-same market rise.
The entry point for a bear trade or closing of a long position is at the break (on a closing base) of the range's lower band horizontal delimitation. It is important to consider the speed at which the market falls back from the recent market high to below the range to close below its lower band. The up-velocity from range lower band to the market recent high must be lower or equal to the down-velocity from the market top back to close down below the range lower delimitation. This translates into the leg, range-low to market top, being composed by a number of bars >= than the leg, market-high to range low. See picture B. If the market has indeed reversed, it should start declining from this point on. The first sign that these patterns are failing is when the market rises back above the range higher delimitation instead of declining. It is a definite failure if the markets takes out the last recent top. Depending on the investor's risk appetite, a stop loss should be placed either above the range higher band or no higher than the market recent top (see picture B).
Below are shown six real Top Reversal alerts recently called by YardCharts that have successfully performed since the day of the sell alarm. In this case, success means that beginning from the entry point, the market in the particular stock has declined a distance at least equal to three times the range's High-Low band differential without first hitting the stop placed below the range higher band. The range segments and colors are shown exactly as they appear in YardCharts Alarm section.
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