The Tower Top pattern is a technical analysis tool used in forex trading to identify potential trend reversals. It was first introduced by Tom Joseph DeMark, a renowned technical analyst and founder of DeMark Analytics, in the 1970s.
What is the Tower Top Pattern?
In the market, the Tower Top pattern is formed when there is a series of lower highs and lower lows, followed by a breakout above the previous high. This indicates a potential reversal of the current downtrend and the start of an uptrend. The opposite of the Tower Bottom is the Tower Bottom pattern.
- The strategy behind the Tower Top pattern is to wait for the breakout above the previous high and then enter a buy position. The idea is to catch the early stages of the trend reversal and ride the new uptrend.
- The pattern signals a potential trend reversal. By waiting for the breakout above the previous high, traders can potentially enter the market at the early stages of a new uptrend.
- The pattern can help traders confirm the strength of the trend reversal. If the breakout above the previous high is accompanied by strong volume and momentum, it suggests that the trend reversal is likely to continue.
- The pattern can help traders set stop-loss orders. By waiting for the breakout above the previous high, traders can use the previous low as a stop-loss level, which can help minimize potential losses in case the trend reversal fails to materialize.
Tower Top Pattern Strategy
Sell Signal
- The pattern of an uptrend is most effective at identifying trend reversals when the trend is upward.
- When there is a series of higher lows and higher highs, it indicates an uptrend and sets the stage for a potential reversal.
- A sell signal is triggered when there is a breakout below the previous low.
- Strong volume and momentum confirm the strength of the trend reversal and suggest that it is likely to continue.
Benefits of using the Strategy
- It can help traders identify potential trend reversals and enter the market at the early stages of a new trend.
- It can help traders confirm the strength of the trend reversal and set stop-loss orders.
- It can be used in combination with other technical analysis tools such as 2 period RSI, Awsome Oscillator and the SMA to improve the accuracy of trade signals.
Conclusion
The tower top pattern is a bearish reversal pattern that is formed at the top of an uptrend. It is characterized by a series of lower highs and lower lows, which suggest that the uptrend is losing momentum and may be ready to reverse, the uptrend begins, and the currency pair starts to make higher highs and higher lows, the currency pair starts to make lower highs and lower lows, indicating that the uptrend is losing momentum, the currency pair breaks below the previous low, triggering a sell signal, the currency pair continues to decline as the downtrend takes hold, confirming the trend reversal.
The Tower Top pattern is a useful strategy for forex traders looking to identify potential trend reversals and enter the market at the early stages of a new trend. By waiting for the breakout above the previous high and confirming the strength of the trend reversal with strong volume and momentum, traders can place trades confidently and potentially maximize their profits.
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