Double top chart pattern

Introduction: What is a double top chart pattern?

A double top chart pattern is a technical analysis chart pattern that investors use to predict a reversal in the price of a security. The pattern is created when the price of a security reaches two consecutive highs, and then falls below the second high. Many investors believe that this is a sign that the security’s price will reverse and start to decline.

How to identify a double top chart pattern?

The double top chart pattern is a price reversal pattern that forms when the price of a security reaches two consecutive peaks and then falls below the support level created by the trough between those peaks. The pattern signals that the security’s uptrend has ended and that a downward trend is likely to follow. The size and duration of the downtrend will depend on the severity of the sell-off that follows the breakout from the pattern.

What are the implications of a double top chart pattern?

This pattern indicates market exhaustion. It tells that resistance will hold and sellers will be in control.

The implications of this pattern can be significant for investors and traders who are using it to make informed decisions about their investments. A confirmed double top typically signals a reversal in the price trend and often leads to a sharp sell-off in the security or asset.

This pattern is considered to be confirmed once the price falls below the support level and remains below it for a certain period of time.

How to trade a double top chart pattern?

To trade this pattern we consider the conservative vs the aggressive entry points.

For conservative entry: You need to wait for the price to break the neckline, then pull back to retest the resistance before pulling the trigger ( taking a sell trade).

For Aggressive Entry: Trader takes a sell trade immediately there is a break and a close of the candle below the neckline.

Conclusion: What is a double top chart pattern?

In conclusion, a double top chart pattern is a technical analysis indicator that suggests that the price of a security or commodity may be nearing its peak and is due for a decline. The pattern consists of two consecutive peaks with a trough in between, and it is usually preceded by an uptrend. If you are observing this pattern in a security you are considering investing in, it may be wise to wait for the price to drop before buying in.

Author: Simeon Bala

I am a finance market research analyst with over five years of experience. I have a strong interest in personal finance and investment research. I am also a skilled copywriter.