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Double Top Reversal Pattern Guide

The double top pattern is a reversal pattern that occurs at the end of an uptrend. It is formed by two peaks reaching similar price levels, where bulls fail to push the price higher each time and bears gain control. This shows the bulls are losing power and a trend reversal may occur. A double top is confirmed when the neckline between the peaks is broken, signaling momentum has shifted and it is time to sell. Traders look for an uptrend, two rounded peaks within 10 pips of each other, and a break below the neckline candle to enter short positions with a stop loss placed above the double top resistance level.

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186 views3 pages

Double Top Reversal Pattern Guide

The double top pattern is a reversal pattern that occurs at the end of an uptrend. It is formed by two peaks reaching similar price levels, where bulls fail to push the price higher each time and bears gain control. This shows the bulls are losing power and a trend reversal may occur. A double top is confirmed when the neckline between the peaks is broken, signaling momentum has shifted and it is time to sell. Traders look for an uptrend, two rounded peaks within 10 pips of each other, and a break below the neckline candle to enter short positions with a stop loss placed above the double top resistance level.

Uploaded by

Shamil Ps
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd

Double Tops

Introduction

The double top pattern is a reversal pattern which has two peaks at about the same level. These
are the highest peaks reached after an uptrend, where prices find strong resistance. Double top
patterns show a reversal from an uptrend to a downtrend.

Prices are unable to rise higher than the first peak and find strong resistance at the price level
reached by the first peak. Subsequently prices fall back down. After testing the resistance level for the
second time, prices fall back down and penetrate the neckline. This is when we have the double top
pattern and the reversal in the trend is confirmed.

The Psychology behind The Double Top Pattern


The battle between the bulls and the bears is highlighted by the double top reversal pattern. After
the price has moved in a bullish trend, and it formed the first peak, it shows that the bulls are running
out of power.
After the first pullback, the bulls try to push the price to new highs. They fail to break the
previous peak as the bears are gaining control and begin to drive the price down.
Double Top Chart Pattern Trading Rules
1. Identify the Trend of the Market. The Double Top reversal needs an uptrend.
Just identifying the Double Top Patterns itself not enough so, the first step is to identify the current trend where
the Double top is identified. Double Top should be in an Uptrend, Since this is a reversal trading strategy, we
first need a prior trend. Otherwise, we end up trading just a ranging market. This is something we want to avoid,
particularly if we trade the Double Top reversal pattern.
2. Double Top Reversal should have 2 Rounded Tops.
Double Top should have two tops or rounded tops in order for the double top breakout to be considered tradable.
3. Allow a maximum of 10 pips variation between the two tops.
It is not mandatory to have two tops at the same or exact price level, the probability of two tops happening at the
same exact price level is almost impossible, there can be slight variations in the heights of Tops so we can allow a
maximum of 10 pips variation between the two tops.
4. Break Out Candle Confirmation
The Double Top breakout candle is our signal that the momentum has shifted and it’s what it confirms and
validates the double top pattern. When the candle (on which chart Double top is identified) breaks below the
Neckline, Its can be considered as the Final Confirmation for Sell.
5. Stop Loss
The Double Top chart pattern strategy gives you a simple way to quantify risk because you can place your
protective stop loss slightly above the double top pattern ( Above the resistance )

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