Double Top Pattern

What is a Double Top Pattern?

Double tops are useful reversal patterns in an up-trend.

They are identified by two peaks of similar height, followed by a break below the level of the intervening trough. They are treacherous to trade, partly because of their similarity to triple tops and trading ranges.

The target for a breakout move is measured vertically from the highest peak to the support line drawn through the intervening trough. This is then projected downwards from the breakout point.

Double Top Pattern

Volume confirmation

Reduced volume on the second peak followed by increased volume on the break below the support line.

Trading Signals

Go short on a break below the support line.

Place a stop-loss just above the last peak.

Price often rallies back to the support line which then acts as a resistance level. Go short on a reversal signal and place a stop-loss just above the resistance level.

Colin Twiggs

Author: Colin Twiggs is a former investment banker with over 30 years experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary newsletter.

Colin also writes The Patient Investor newsletter which focuses on the global economic outlook and key macro trends.

In addition, he founded PVT Capital (AFSL No. 546090) which offers investment strategy and advice to wholesale clients.