Double Top Pattern: Definition, Formation, What It Indicates

This continued only for a short while before the asset once again lost its momentum. This time, the retracement broke through the neckline which signified a more permanent reversal in the overall momentum of the asset’s value. As an example of a double-top trade, let’s look at the price graph below. As you can see, the trend before the first peak is overall bullish, indicating a market that is rising in value.

What is a Double Bottoms chart pattern in forex?

In fact, it is common to see a second peak slightly higher or lower than the first due to market noise. If prices bounce off the resistance level a third time, the pattern is called a triple top pattern. A double top is where the market forms two highs near the same price level, and then reverses lower. Secondly, price drops temporarily to a support zone where there is a price bounce which forms the trough component of the pattern. This confirms the double top pattern and signals the first part of the breakout. The truth is, a double top is only confirmed and therefore tradable once the market closes below the support level (neckline).

However, measuring the take-profit target and considering trading volumes is double top pattern rules vital. The price reaches the local support level, while the bulls are trying to take the initiative and drive the price up. However, as soon as quotes reach the first top level, short trades are massively opened in the market.

A double bottom pattern is a bullish pattern in technical analysis that signals a bullish reversal of a downtrend. This chart pattern occurs after an extended price decrease in financial markets and consists of two swing low troughs at approximately the same price level, separated by a temporary price bounce. Double bottom patterns are completed when the price increases above the resistance trendline of the price peak that separates the two troughs. A double bottom pattern resembles the letter “W” of the English alphabet.

Second, after the neckline is broken, the price may occasionally retest it from below before continuing its downward movement. The breakout point marks the point where the price breaks out of the support level created by the neckline and moves further down. Yes, a double bottom pattern is reliable provided the trading rules are followed.

Why is Double Top Pattern a Bearish Technical Reversal Pattern?

1. It’s no wonder that double tops and double bottoms are both favourites used by traders all over the world.
2. Retail traders use this price pattern to forecast a change of trend from bullish into a bearish trend.
3. The neckline, the lowest point between the tops, is crucial for confirming the pattern.
4. A measured move objective can be used to find a potential profit target.
5. The second main advantage of the double-top pattern is that it is used with various time frames.
6. In this example, the CAC 40 index forms a double top pattern (in black).

When this line is broken, we have a reversal confirmation signal and a nice opportunity to go against the primary trend. The chart on the right shows an example of an Adam & Adam double top chart pattern. The flat base is not clear on this chart, but it lasted over a month.

1. However, measuring the take-profit target and considering trading volumes is vital.
2. The formation is completed and confirmed when the price rises above the neck line, indicating that further price rise is imminent or highly likely.
3. The ‘M’ shaped double-top pattern, is the exact opposite of the ‘W’ shaped double-bottom pattern.
4. Downtrends make lower swing lows, which is what a double top pattern requires.
5. The double-top pattern occurs very rarely and it is not very easy to spot it on the price chart.
6. Double tops and bottoms offer a graphical representation of price support and resistance in stocks, cryptocurrencies, commodities, and other securities.

Up to this point, we have discussed the dynamics behind the double top pattern as well as its characteristics. The pattern is most effective in the context of a preceding uptrend. First, the price rises continuously (the first high is being formed).

Double Top Pattern vs. Double Bottom Pattern

In addition, you could get other kinds of confirmation of the reversal. The two blue areas on the chart are the size of the formation and the respective minimum target. For this reason, I believe the stop loss should come closer to the entry price.

The last and final step to trading with the double-top pattern is to apply the appropriate trading strategies. Investors and traders commonly use shortening to make the best possible gains from the bearish trend reversal. A double bottom pattern failure, also known as a “failed double bottom reversal”, is when a double bottom forms but fails. The left swing low trough is formed as the market price reaches a support level during the downtrend and a price bounce occurs.

A double top pattern is important for indicating bullish trend price exhaustions, potential profit taking amongst bullish traders, increased selling pressure, and bearish reversals. Understanding a pattern’s psychology may help you learn how to spot it on a price chart and read its signals. As a double top is a bearish formation, it occurs only in an upward trend. However, the second high, which appears at the same level, shows that bulls don’t have the strength to push the price up further. The double top pattern in the Nifty (Nifty 50 index) indicates a potential bearish reversal.

The double-top pattern indicates an extreme bearish trend reversal. A double-top pattern usually forms towards the end of a strong uptrend. The buyers are in a dominating position with the demand for the security prevailing over its supply, in the initial phase of the double-top formation.

A double bottom pattern trading strategy is the U.S. equities trailing stop double bottom strategy. Scan all U.S. equity markets for stocks forming double bottom patterns on the daily timeframe price chart. Enter a long trade position when the market security price penetrates the pattern resistance zone on increasing buying volume. Put a trailing stop loss order directly below the 10 exponential moving average. A double top pattern trading strategy is the U.S. market securites double top trailing stop strategy. Scan U.S. equities using a chart pattern screener for double top pattern formations.