HomeCHART PATTERNHow To Trade The Double Top Pattern

How To Trade The Double Top Pattern


The Double Top Chart pattern is a reversal pattern that is bearish. This pattern is created when a key price resistance level on a chart is tested twice with a pullback between the two high prices at resistance price level tests.

Chart Facts:

  • A double top chart pattern happens at the end of an uptrend that has likely gone on for weeks or months.
  • The first bounce off resistance where price stops going up is the first level of price resistance.
  • The first rejection and reversal in the uptrend is small and the short-term pullback is usually about 5% to 10% off the resistance highs.
  • The first pullback from the high’s bounces and price returns to the close to the previous resistance but is usually a little lower than the previous high of resistance.
  • The previous price resistance highs hold on the second test.
  • The second test of resistance must be confirmed by a reversal and pullback as there is only a potential pattern until resistance holds and price is rejected off the previous resistance with higher volume and sometimes a large bearish candlestick or a gap down in price.
  • If there is a close in price above the previous high the double top is invalidated and the odds are that the uptrend continues.
  • A breakdown under the low price that occurred in the middle between the double top resistance levels is a full confirmation momentum signal of the double top reversal pattern. This is the level where a signal to sell or sell short is given.
  • Selling short at a higher price after the rejection of resistance at the second top has lower odds of success but a better risk/reward ratio.
  • A double top chart pattern can take weeks and even months to play out with the middle pullback to support taking many different sizes and shapes.

This is a historical example in the NASDAQ Composite of the double top during the Dot Com mania in March of 2000. $COMPQ at 5,132 was the first peak only to find support twice near 4,455 before the next run up to a lower high at 5,078. The neckline break and close below support at 4,455 was a sell short entry signal. The old support became the new resistance before the downtrend started a strong move. That was the top for over a decade.

Chart Summary: This pattern is one way to locate high probability short selling opportunities after an extended uptrend in price. It also gives you a way to quantify your stop loss if you choose to take the short sell off the second resistance level your stop would be a close above the first price level of resistance. If you short sell a trend line breakdown of the middle line of support then the stop loss can be set with a break back above the middle support line.


Technical Analysis For Beginners (The Ultimate Guide)

Technical analysis is the art and science of reading charts to quantify the trend or trading range price is in, the path of least resistance for the next directional move, the area of value on the chart, and create good risk/reward ratios by defining key technical levels.

Common Mistakes in Technical Analysis

Technical analysis can be both an art or a science based on how you use it. It is very easy to become too rigid in its practice believing it can become too flexible whatever you want to see. 

Forex Signals in Indonesia

Free Forex signal, Technical trading analysis in Indonesia are provided by top forex trading experts. Join and Start receiving forex signals.

Forex Signals In Canada

Forex Signals In Canada are provided by top forex trading experts. Daily opportunities for forex signal with expert advice and guidance.

Follow us


Most Popular


- Advertisement -spot_img