Prior trend

There must be a trend on the market to talk about a such pattern. In the case of Double Top, it must be a massive ascending trend for a few months.

• Role: Reversal
• Expected trend: Bearish
• Previous tren: Bullish
• Reliability: High
• Pattern: Double Top

Double Top Example

First peak

The first peak is the highest point of the current trend. At this point, it may seem like the trend is going to continue.

Pullback low

There is a pullback low after the first rally. This pullback is between 10% and 20%. The trading volume has no interpretation yet. This period can last relatively long, indicating a weak demand.

Second peak

Around the trough, the trading volume is low and the share price is close to the resistance line. The two peaks are remarkably separated. The second rally develops with low trading volume. The share price does not reach the previous top’s height, it is usually 3% lower. The time between the two peaks can last from a few weeks up to 3 months. In some cases, more peaks can form.

Decline from peak

After the second top, a decrease in the share price starts. There might be one or two gaps. During the incline, the trading volume also decreases until reaching the neckline.

Breaking the support line

It cannot be a Double Top unless the share price touches the support line. The pattern is complete when the price drops below the neckline with large trading volume. Minimum 2 trading days and a 2% distance from the neckline is needed for a confirmation.

Resistance from support

The broken support line becomes a resistance line. The share price will come back to this line several times. These movements give opportunity to close long positions and open short positions.

Target price

The price target is the difference between the neckline and the top line of the larger top. It should be placed on the breakout point. The larger the formation, the bigger the chance for a reversal.