Double Top Chart PatternThe Double Top or Bottom Chart Pattern is a reversal pattern as its name implies, the pattern is made up of two consecutive peaks or troughs that are roughly equal, with a moderate trough or peak in-between. This reversal could signal an end of an uptrend or downtrend. ( Double top with an end to an uptrend in this case).
Double Top Chart Pattern
A Double Top chart pattern is comprised of three main components:
After a long bullish trend , the price reaches the highest point of the current uptrend
After the highest point, there is a decline in price getting support from the support line
After this trough the price again increases and reaches another peak falling to the same support line
The long bullish trend is the prior trend which is reversed once the pattern is completed, with reaching the highest point of the current trend marking the 1st peak followed by a trough which gets support from the support line i.e. the neckline. Later the price further increases to reach the 2nd peak which gets resistance from the resistance line of 1st peak (usually). Once the price falls and breaks the neckline the formation is complete. The target price for the same is taken as the difference between the neckline and the 2nd peak, with the neckline acting as resistance after the pattern completion.
Volume is a confirmatory indication that increases substantially as the breakout is observed and confirms the double top pattern completion!
There are few limitations as well to the Double Top Pattern:
Can be extremely harmful if identified incorrectly
Sometimes the peaks or the trough could be just normal resistance than long-lasting change
Might get converted to Triple top, so pay attention to the volume carefully
Therefore, one must be extremely careful and patient before jumping to conclusions. Go Trading!!!
Further, there are four different types of Double Top pattern based on their respective average rises and failure rate percentage, namely: Adam-Adam; Adam-Eve; Eve-Eve, and Eve-Adam. Where the average is the measure of the price movement from the breakout point to the prime point i.e. 1st peak or the Ultimate high.
----------------------------------------------------------------------------------------
If you find the post useful, please like and share our ideas with the community!
- Mudrex
