A Double Top Pattern (DT) is a
bearish stock chart technical analysis charts reversal pattern that is
found
at market tops.
Stock chart patterns recognition
A Double Top
is one of the most reliable stock chart
patterns found in technical analysis charts. It is a straight forward
pattern defined by two clear peaks in the market at about the same
price levels. A triple top is a variation of this.
The first peak is created when the prices fall back in a consolidation
following a clear trending phase in the market. Prices then rise again
to a around the level of the first peak but buyers fail to gain enough
momentum to push prices up through the resistance. Prices can fall
slightly short or slightly exceed the previous high but as long as it
tops at around the same price level it is quite normal. Either way, it
should be on lower volume.
As prices fall back again sellers gain control and volume increases.
The Double Top is created when prices break down through the level of
the previous consolidation low and this should be broken on high
volume.
Backtest
A normal market will usually come back up to back test the validity of
the break down through support. This should be on much lower volume but
on rare occasions, it may not do a backtest if the market is
very
weak.
Volume Confirmation
2nd peak - lower volume
Subsequent decline - high volume
Break - high volume
Backtest - low volume
Targets
A valid double top pattern produces a measured move so we can
find a price target by calculating the vertical height of the
consolidation zone, and
then measuring an equal distance below.
Stops
An DT fails and is not valid if prices break back above the highs
before hitting its price target. If prices are accepted back into the
topping zone once it has broken down through support, it severely
weakens the odds that it is a valid double top chart pattern.
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