Recently, I saw someone discussing the double top pattern again, which reminded me to have a good chat about the classic "M" shape as a signal for a top reversal.

Honestly, the "M" shape appears quite frequently in practice. My experience is that once you identify this pattern, it often indicates an upcoming significant decline. Simply put, the price makes two consecutive peaks during an uptrend, forming a shape that looks like the letter "M," and then starts to weaken.

Let me break down the key features of this pattern. First, there are two peaks: the left peak, which we call the left shoulder, and the right peak, called the right shoulder. Ideally, these two highs should be roughly the same height, but in actual trading, the left shoulder is usually slightly lower than the right, with a difference of about 3% being normal. The low point formed after the first peak is called the neckline, and this line is particularly important.

Volume also plays a role. Generally, the volume at the left shoulder is the highest, followed by the right shoulder, with an overall decreasing trend. What does this indicate? It suggests that during the second rebound, the buying momentum weakens significantly, and the price starts to show signs of fatigue. After the "M" shape forms, the price may occasionally bounce back during a decline, but these rebounds are weak, and the neckline acts as a strong resistance level.

So, how do you find the best selling points in practice? The first selling point is at the right top of the "M" pattern, where most traders tend to sell. Successfully selling at this point demonstrates sharp insight. But if you miss this opportunity, don't worry. The second selling point is at the neckline. When the price breaks below the neckline, it signals that a larger downward move is coming, and liquidating all your holdings at this point is the most prudent move.

In summary, the "M" shape is a fairly reliable reversal signal. As long as you can identify it in time and act at the key levels, you can avoid getting caught in a high position.