Novice Traders’ Notebook

Cardinal Reversal Patterns — At Tops

4. The Ascending Top

The ascending top is a rare and unusual pattern because the aggressive upward trend is followed by an immediate reversal of momentum. The price action reflects an inordinate amount of demand for shares that, once satisfied, leaves a shortage of buyers beneath the recent price levels. This particular price pattern can occur toward the end of a persistent upward trend. The overall attitude for the market may be bordering on panic buying. At that point, however, some news item causes a major wave of profit-taking, aggressive short selling, and inspires latecomers to move to the sidelines instead of taking advantage of a temporary setback. Because of the swiftness of the decline, a distribution phase of the shares may not occur, and so, this pattern may evolve into another distribution pattern, such as a descending triangle.

Return to Topic Outline