Double Top

The Double Top graphical price pattern is a longer chart formation that usually indicates a sign of a reversal in an uptrend. It is considered to signify a successful test and price rejection from a recent high. It is generally in the shape of the letter “M.”

The formation of the Double Top pattern

The creation of the Double Top pattern is distinct as it is roughly similar to the Latin alphabet “M.” This shape consists of the two highest price points that were reached recently, and above it, a line drawn would be considered as the resistance line. The most recent low (before the high points) would determine the support line and hence, the signal to sell. Doing so would create the lines as seen below:

Interpreting the Double Top

Once the support and resistance lines are determined, analysts can now spot or visually see either the price direction heading on a downward trend or see it as an indicator to sell. The signal and/or confirmation can be decided when the market direction crosses below the support line.

The formula for determining target price for the Double Top formation

To decide on what price would be the signal to sell, the target price for the Double Top formation would be as follows:

T = R – H

Where:

T – Target Line

R – Resistance Line (determined from the local high)

H – Height of the Pattern (determined by the distance between the support and resistance lines)