Blow-Off Top

What is blow-off top’

A shot from the top of the figure, indicates a steep and rapid increase in the value of securities and trading volume followed by a sharp and rapid decline in price and volume. Rapid change is indicated by a blow-off top, also called blow-off, or move exhaustion can be the result of actual news or pure speculation.

Penetration ‘blow-off top’

A blow-off top usually indicates that the price of the securities fall, and airflow from below suggests that the price of the securities is about to grow. Security can also introduce a flash-off period, during which its value remains inflated for weeks or months. Often times, momentum stocks experience deflation periods during their violent UPS and downs.

For example, a conventional blow-off top pattern occurs when a pharmaceutical company announces the results of key clinical trials. Failure to comply with clinical outcomes, typically to disaster in early stage biotechnology and pharmaceutical companies, but the optimism leading up to the date of announcement of the FDA can lead to a spike in prices. Another example could be an initial public offering of a tech startup, which was hyped prior to the date of the IPO.

Traders who want to profit from deflation periods, and to limit their potential losses can use a trailing stop technology, and blow-off tops can also be useful for identifying potential gap-N-go auctions. The key to success when trading blow-off tops to correctly identify them and ensuring that they are not just a long rising, especially if traders want to do the opposite trade.

Definition Of Blow-Off Tops

Traders can find it difficult to accurately determine the blowout tops. Earlier, blowing the tops may appear strong rallies. That can make it difficult to initiate short position on a call reversal, and potentially too late to buy a long position if the stock already has risen sharply.

Some common features of blow-off tops include:

  • No kickbacks: blow-off tops have experienced a massive ascending without significant setbacks, which distinguishes them from stocks that are just in a long trend.
  • Bear Amount: blow-off tops is not accompanied by sharp movements of the bottom on massive volume, which shows that traders with long stock positions in droves.
  • Broader market: blow-off tops often compounded by wider market conditions, which means that the broad market may lead to decline.

If traders mistakenly blow-off top or traded wrong, it is often better to exit the position early, to avoid becoming a bag holder. Those who successfully identify blow-off tops have a unique opportunity to capitalize on the reaction of other traders.

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