Double top patterns are noteworthy technical trading structures to learn and integrate into a trader’s arsenal. Double tops can enhance technical analysis when trading both forex or stocks, making the pattern highly versatile in nature.
Double Top Pattern: Main Talking Points:
- What is a double top?
- How to identify a double top pattern on forex charts
- Using the double top pattern in trading
- Learn more about trading with technical patterns
WHAT IS A DOUBLE TOP?
The double top pattern entails two high points within a market which signifies an impending bearish reversal signal. A measured decline in price will occur between the two high points, showing some resistance at the price highs. After retracing a portion of the first peak, the market rallies back towards the high of the first peak however, strength in the market is waning and is unable to sustain a break above the first peak.
The slowing momentum may be evidenced through a lagging peak on an oscillator like RSI. Though not required, the market may break above the first peak, even if briefly. A slight and temporary break above the first peak is preferred as it may excite the bulls only to reverse and trend lower. Signs of a bullish shift in IG client sentiment may indicate a secondary top is looming. The neckline is formed between the price low of the valley between the two peaks. A break below this neckline will confirm the double top pattern. The bearish confirmation is specified by a break in the key price support level (neckline) situated at the low point between the ‘tops’.