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Double Top

ForexTV Chart patterns

 

Double Top

The double top is one of the major reversal signals in pattern analysis. After a long period of up-trending price action, the pattern is formed by two consecutive peaks that are approximately equal to each other, with a trough in between. The appearance of the double top usually signals that the immediate and/or long-term trend has reversed to a bearish one after an extended period of upward movement. However, when a double top does appear its ugly head, one should pay close attention to whether or not the pattern has been confirmed by a subsequent break of support. Following the break, volume usually contracts during price rebounds, signalling a weakening demand. Moreover, the previous support level that was broken will now act as a resistance level in future price movements.

Double Top

 

The above example shows the price in an up-trend from point A to B. It then hit a resistance level and subsequently drifted downwards for about a month. It then peaked once more at point C but plummeted right afterwards and formed our double top pattern. A confirmation, however, would be needed to signal that the trend has indeed reversed and this may be issued by a break of support at point A.