Double Top
Candlefocus EditorA Double Top pattern is one of the most conspicuous reversal formations and can be a safe indication that the prevailing uptrend is waning and the security might be due for a reversal soon. As with all reversal patterns, confirmation is required to verify the anomaly. A confirmation is generally considered to be when the security's price falls below a support level, which is usually the lows that occurred between the two peaks.
Once the confirmation has occurred and the security's price has broken below the support level, an investor may take a short position and anticipate a downtrend. It is key to understand that the security's price has the potential to recover after a break in support and at times even reach the point of making a higher high.
The Double Top can be a reliable indicator to alert of a bearish reversal in the making. As with any technical analysis tool, understanding the Double Top can also be enhanced by reading chart patterns books or taking online courses. While the Double Top is sometimes hard to spot and requires confirmation, the rewards for correctly reading and correctly trading off the trend reversal can be quite lucrative.