A Double Top is a common chart pattern that indicates a potential trend reversal from bullish to bearish. It occurs after an uptrend and consists of two consecutive peaks that reach a similar (more or less) price level, separated by a trough (a pullback).
(Fig 2.1 - Double Top)
Here's how the Double Top pattern forms and what it signifies:
Initial Top: The price of the asset reaches a high point, forming the first peak.
Trough: After the first peak, the price retraces or pulls back from the high but finds support at a certain level, forming a trough or valley.
Second Top: The price rallies again to near the level of the initial peak, forming the second peak. This peak is often similar in height to the first peak, however, it may slightly exceed or fall short of the first peak.
The formation of two peaks at approximately the same price level suggests that the upward momentum is weakening, and the market may be running out of buyers willing to push the price higher. It is a bearish pattern, indicating a potential reversal of the uptrend and a possible downtrend ahead. The confirmation of the pattern usually occurs when the price breaks below the trough or the neckline that separates the two peaks.
Similar to H&S, a pattern failure on the Double Top can occur in many ways like the price after breaking below the neckline reverses and closes above the neckline. Or a small bullish pattern forms right after the breach of the neckline and a subsequent breakout happens.
Double Bottom is a bullish pattern, the exact reverse of Double Top above. Please refer to the image below.
(Fig 2.2 - Double Bottom)
Please click on "Next Post" to move to the next chart pattern - 1-2-3 Top or 1-2-3 Bottom.
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