Most amateurs get killed in the stock market when double bottoms and double tops form. In fact, after reading this article you will be able to get the revenge you deserve.

Every bull run in the stock market hits a level where longs start taking profits because the stock has run up too far too fast. Charts top out once adequate bulls get their profits, whilst the revenue from fresh bulls is not sufficient to replace what was drawn out.

Bulls who are still long are screaming mad, especially if they came in late. They are trapped. Their trading account keeps piling on losses. Should they hold on or sell for a loss? Whenever enough bulls determine the stock has overshot to the downside, they will intervene and buy. So as more and more of these bulls step in, the stock begins to rise and the rally continues. Now when the stock finally rises back up to its previous high, you can expect sell orders to hit the market as those who were trapped exit their positions.

There are always bruised and beaten warriors who got trapped in the previous sell off and take a blood oath to get out if the market ever gives them another chance.

An exact opposite situation happens in the stock market at a bottom. The market falls to a new low at which enough bears start taking profits by covering shorts and the market rallies. Eventually that rebound stalls out and prices begin sliding down once more, every last eyeball is on the former low-will it withstand the selling? If bears (fear) are stronger than bulls (greed), prices will fall below the previous low and the downward move will keep on going. If greed is stronger than fear, the downtrend will stop near the old low forming a double bottom. Technical indicators help decipher which of the two is more likely to happen.

Any time you catch a stock ascend to its former top, the primary wonder in your head had better be will it climb to a new high or form a double top and decline. Technical indicators like volume, MACD, RSI, and stochastics can be a great help in answering this question.

If a stock climbs to its previous high, if the volume, MACD, and stochastics are dropping then a double top is likely to form.

A double bottom is most likely to form if the MACD and volume start rising when the stock hits its previous low.

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