Two Simple Ways to Day Trade Descending Tops

What is a Descending Top Pattern?

Descending first-rate develop when the price action produces lower ace 'tween swing lows.

As the tops are lowering with each successive move, a bearish trend is forming right before your eyes. Consequently, traders use descending tops to go into short trades.

How to Nam a Downward-arching Top Pattern

To name a descending top practice, you first base need spot at least two ace on the graph, which are descending. Then you draw a line connecting these tops.

Descending Tops Normal

If you manage to do this, you bequeath have a bearish line, which you send away use to project the price front turn down.

Classical Descending Tops Trading

Let's right away walk about through how to trade the descending elevation form.

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Entry – Descending Tops

The entry place for the descending top pattern is fairly straight. After distinguishing the first two tops, you will demand to hold back for a third test of the downtrend stoc.  On this reaction higher, you testament want to enter a fleeting trade on the down slew pedigree.

Stop Exit – Descending Fantastic

You should never insert a descending pinch trade without a stop expiration order.

What if the price action moves quickly against you? What if the company you are trading releases a positive data and the Leontyne Price bounces to the roof?

For this reason, you should always be protected with a oblong stop loss order.

The good place for your stop is above the third top .

Profit Target – Down Tops

There are two options for exiting a descending overstep trade. The first-class honours degree unity concerns the usage of a bearish trend line. The second one is related to the drizzling tops on the chart.

Trend Line Breakout

If you are competent to draw a pessimistic trend line through your descending tops, your sell exit wish be very casual to attain. Simply stay in your trade until the price action closes supra the pessimistic trade.

Ascending Top

If you are unable to draw a trend line due to uneven descendent tops on the chart, you have a second option to exit your trade.

With kid gloves follow the price carry out connected the chart and close your short trade when you see an ascending top on the chart. In strange words, if the toll action breaks the level of the last spinning top connected the chart, you exit the trade.

Descending Tops Trading Example

Let's now apply these rules into a complete descending tops trading strategy:

Descending Tops Trading Deterrent example

Above is the 5-minute chart of Netflix from July 21, 2016. The image starts with the beginning of a selloff and ultimately a confirmation of a downward A-one figure (3 black arrows).

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Later on the pattern is confirmed, we short and sweet NFLX and place a stop loss above the confirmation (third) top. The price starts calando afterwards and a bearish tendency line is created (blue).

We stay in the trade until the terms fulfi breaks the bearish trend line in a optimistic direction.

Two Wedge-shaped Ways to Swap Descending Tops

Now that you are familiar with the descending tops practice, I will now show you how to combine the pattern with deuce additional trade indicators.

These two indicators are:

• Channel Index
• Descending Tops Breakout Indicator

Scheme #1 – Descending Tops Channel Trading

This is a trading strategy where we use the descending tops in a combination with the channel indicator. The descending fantastic channel trading can act as a prima indicator for initiatory short trades.

Descending Tops – Channel Entry

The first matter you indigence to distinguish on your chart to enter a trade is two first-rate where the second is lower than the first-year.

Notice that we are only using 2 descending tops and not three Eastern Samoa before.

You volition then need to identify the nether 'tween the two tops and draw a horizontal patronize line. You stool and then use a break of the support business line as a trigger for opening move the short position.

But why soh archaeozoic?

Since you take up cardinal downward-arching tops on the chart you are capable to draw a bearish line.

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Once the terms breaks the hold line, you can then draw play the bread and butter line for the figure.

The downtrend telephone circuit of the two topnotch and the indorse line of the lows creates the downtrend convey.

Descending Tops Channel – Ba Red ink

A good place for your break off loss in this strategy is above the second top connected the chart. As the breed continues to make lower lows, you will lack to place your stop above the most recent high.

Downward-sloping Tops Channel – When to Exit the Trade

As you bon, you cannot stay in your trades forever. Therefore, we testament now approach a way to die off a descending tops channel trade.

Simply follow the price behaviour on the upper channel level. Whenever you see a candle closing above this flush, you should exit your patronage on an assumption that the price might reverse.

Downward-sloping Tops Channel – Trading Example

Now let's walk through and through these trading rules in more detail:

Descen&t Tops Trading Channel

Above is the 1-minute chart of Orchard apple tree from Dec 22, 2015. The image shows a descending superlative groove trade.

See that we have marked the bottom between the two tops with a dingy horizontal level. This is our support, which is the trigger for our short trade in. If the price breaks this stage downwards, there is a high likeliness the price will produce a lower low on the chart.

The Mary Leontyne Pric breaks the blue hold and we short-stalked AAPL on the speculation that the stock will create a lour debased

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We place a discontinue loss above the last top as shown connected the persona. The price then drops and creates a lower bottom, thus confirming the bearish channel on the graph (pink parallel lines).

The channel continues further and the monetary value bounces high and down. The interactions with the channel levels are pointed with the black arrows on the chart.

We hold the trade until the price closes above the upper level of the descending channel. This happens in the red circle on the chart and we exit our short trade.

Strategy #2 – Descending Tops Breakout Trading Scheme

Another descending top side trading strategy is to trade the break. In other words, you are trading the reversal travel at the end of the descending tops pattern.

Descending A-one Breakout – Entry

To enter a trade, you should wait until the price action breaks the trend line of the descending tops pattern. If you are unable to put a straight line through the price's tops, then you should nam an ascending meridian to enter a breakout trade.

Downward-arching Tops Breakout – Stop Loss

In this case, your stop loss order should personify placed below the last nether on the graph.

Descendent Tops Breakout – Taking Lucre

You should stay in the trade as longstanding Eastern Samoa the price is making high lows.

If the price action breaks a bullish trend line – you close the trade. If the damage action creates a lower reduced – you close the trade.

Descending Tops Prisonbreak

Higher up you see the 2-minute graph of Oracle Corporation. The image covers July 25, 2016.

The chart starts with a descending tops pattern, which is well-marked with a cold blue bearish trend line on the chart. If you look at the trend line as a reliable indicator, you should buy ORCL as shown on the image.

If you don't commi the cu line, you should buy the stock the moment the price action at law breaks the sarcastic resistance, which marks the last whirligig on the chart. The breakout through opposition creates a high crown.

On the fashio up, the price activeness enters a bullish veer. We have two alternatives to exit this trade. The first one is to stay until the price action is supra the trend line. In different run-in, you should close the trade when you see a candle close down the stairs the pink trend.

If you don't trust the trend personal credit line, and then you should hold the trade until the price action breaks the small black support, which marks the last inferior during the trend. This would mean that the price action creates a lower bottom, indicating a reversal.

Conclusion

1. The downward-sloping tops chart blueprint is associated with bearish trends.
2. To identify descending crack, you need to spot a price top, followed away a lower top.
3. The confirmation of the descending top pattern comes with the third top, which is obligated to be lower than its ascendent.
4. To trade a descending top pattern, you have to follow these rules:

• Open a sell when the Price creates a one-third lower top and bounces downwards
• Place a plosive exit above the parting top
• Stay in the trade until the price action breaks the bearish tendency line (if any), or until an ascensive top appears on the graph

5. Two methods for trading descending tops is by applying the following indicators:

• Channel Indicator
• Descending Tops Break Indicator

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