What is a double top pattern?
A double top pattern is a reversal pattern. It can indicate that the trend is going to change or reverse.
Learning to spot a pattern like this can be very useful as you can exit a long trade to bank your profits or look to put a new short trade on.
You’ll usually come across double tops in a liquid, well traded market. The price moves quickly higher, then it just stops moving higher. Then the price falls for a while, before a rally returns, taking the price back to the level of the rally before.
The price then falls again under heavy selling pressure.
What makes a double top?
For a pattern to qualify as a double top, the valley between the two peaks have to break when the price falls for a second time. Otherwise, it could be a different pattern in the making, Frank Hemsley in Profit Watch explains.
Have a look at the simple chart below showing a double top…
To be on the safe side, it’s a good idea to wait to see if the price continues falling past the neckline before putting a trade on, unless you’re a very aggressive trader.
Once the price goes through the neckline, you have confirmation of a new trend.
So there you have it. How to use this easy to spot pattern to predict the market’s next fall.
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