What is double Top chart pattern?
A double Top chart pattern is a chart pattern used in technical stock analysis that describes a rise in price, followed by a rebound. It’s a ‘Bearish’ pattern typically found on bar charts, line charts & candlestick charts.
As, it name implies the pattern is made up of two Top points that are almost equal or equal to each other with a moderate peak between them. It closely resembles the letter “M”
Double Top patterns can appear in charts that are intraday, daily, weekly, monthly, yearly, and longer-term.
How does it work?
A double top is formed when buyers attempt to breach a Resistance level twice. Sellers enter the market at a Resistance level and prevent the buyers from pushing the price up higher, at Top 1. After a second failed attempt at making new highs, the buyers retreat and the sellers gain the momentum to rally the price back down, shown at Top 2.
How to Trade with Double Top pattern?
- Entry when the price breaks through the neckline
- Stop loss goes below the pattern
- Profit target goes the same distance as the height of the pattern, down from the neckline.
Why is double top chart pattern significant?
If accurately identified, the double top can signal a fortunate entry point for investors. To chartists, the double top formation indicates that the stock has reached a crucial resistance level and is encountering difficulty moving higher. That implies the stock has formed a high and is now positioned for a downward move.