$SOL In the context of trading, the "M" on a candlestick chart refers to the double top pattern, a technical formation that suggests a possible reversal from a bullish trend to a bearish one. This pattern resembles the letter "M" due to the formation of two price peaks at approximately the same height, with a valley between them.
Characteristics of the M pattern (double top):
Formation:
It consists of two successive highs at similar price levels, separated by a low.
Implication:
Indicates that buying pressure has weakened and sellers are taking control, which could result in a price decline.
Confirmation:
The confirmation of the pattern occurs when the price breaks below the low between the two highs.
How to trade with the M pattern:
1. Identification:
Look for the formation of the "M" on the chart, ensuring that the two peaks are at similar price levels.
2. Confirmation:
Wait for the price to break below the low between the peaks before taking a position.
3. Entry:
Sell (go short) once the break of the low is confirmed.
4. Stop-loss:
Place the stop-loss above the second peak to limit losses in case the pattern fails.
5. Profit target:
Estimate the profit target by measuring the vertical distance from the peaks to the low and projecting it downward from the breakout point.
Example
If a price chart shows two peaks at a similar level, creating an "M" shape, and then the price falls below the valley between the peaks, it can be considered that a double top pattern has formed. Traders might interpret this as a signal to sell, anticipating a further decline in price.
It is important to consider that trading involves risks and it is advisable to use other technical analysis tools, such as moving averages, to confirm signals before making decisions.
