Chart Pattern Analysis
the minimum one‐to‐one price objective of the smaller inverted head and shoul-
ders formation coincides with the neckline of the larger formation. This is an
example of a complex head and shoulders formation, that is, a formation with
multiple shoulders.
In Figure 13.13, we observe an inverted head and shoulders top formation
meeting its minimum one‐to‐one price objective on the daily chart of the U.S. Oil
Fund. We also see a rising channel meeting its minimum one‐to‐one downside
price objective. Bearish divergence with respect to the MACD is additional evi-
dence for a more reliable rising channel downside breakout.Double tops and bottoms
A double top formation is simply a retest of a prior resistance level and a double
bottom is a retest of a prior support level. A double top is a bearish reversal forma-
tion, whereas a double bottom is a bullish reversal formation. A double top forma-
tion is completed once the lowest trough between the two peaks in a double top
formation is violated. In similar fashion, a double bottom formation is completed
once the highest peak between the two troughs in a double bottom formation is
violated. This price level associated with the completion of a double top and bot-
tom formation is referred to as the validation level. The formation is considered
tentative until it is completed via a valid penetration of the validation level. Volume
should be lighter on both the second peak in a double top formation and second
trough in a double bottom formation. Volume should ideally begin to increase
on breakout. The minimum one‐to‐one measuring objective for a double top for-
mation is simply the downside projection measured from the validation level offigUre 13.13 The Minimum One‐to‐One Projected Price Target for an Inverted Head
and Shoulders Formation on the 30‐Min Chart of the U.S. Oil Fund.
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