Written by Thomas Bulkowiski,
The following is from Friday's post for Monday, August 1 (for my blog, see: http://thepatternsite.com/Blog.html).
I show the Dow utility index on the daily scale.
You might think that the index formed a double top at AB.
Price pierced the horizontal line at C, but guess what. The index did not close below the line. That's important.
Because the index did not close below the line, what you are looking at are just squiggles on the price chart, and not a double top.
The move at D suggests and upward move, but we'll have to see about that.
Research says that there is a 63% probability that price will not confirm the double top. Instead, that's why you should wait for confirmation (a close below the valley between the two peaks) before trading the stock (shorting).
You can read the research here: http://thepatternsite.com/Confirmation.html