Recently, when analyzing candlestick trends, I noticed that many people fall into a classic trap—the M-top pattern. This pattern is actually quite common, but few can identify it before it forms.

Simply put, the M-top pattern is a double top that looks like the letter M. The price rises continuously to a certain level, with increasing volume, then reverses and falls back. After dropping to a certain point, it rebounds again, but this time the rebound volume is noticeably weaker than the first. Finally, it drops again, breaking below the previous low of the retracement, and the overall movement resembles an M shape.

To identify the M-top pattern, there are several key points to watch. First, the two peaks form the left and right shoulders, which should be roughly the same height. In actual trading, the left shoulder is usually slightly lower than the right, with a difference of about 3% being normal. Second, the low point of the first peak’s retracement is crucial; we typically call this the neckline. When the price rises again after the second peak and then falls below this neckline, the M-top pattern is officially confirmed.

Another particularly important detail is volume. The volume at the left shoulder is the highest, followed by the right shoulder, with a general decreasing trend. What does this indicate? It suggests that during the second rebound, the buying momentum is weakening, and the price may be nearing its top. Although there may be some pullbacks during the decline, these rebounds are weak, and the neckline acts as a strong resistance level.

So, how should you operate when encountering an M-top pattern? There are two key selling points. The first is at the reversal of the right shoulder, which is the optimal selling point. Traders who sell here are often called “the prophets.” The second is at the neckline; once the price breaks below the neckline, it signals a significant downtrend is coming, and it’s wise to exit all positions at that point.

In my own trading experience, I’ve found that the hardest part of identifying the M-top pattern isn’t recognizing the pattern itself but having the patience to wait for confirmation. Many people rush to sell before the right shoulder is fully formed, only to be hit by a rebound. Therefore, the key is to wait until the neckline is broken and the pattern is fully confirmed before taking action. Doing so greatly improves the success rate.