Double Top Chart Pattern

Written by Himanshu Jain

Double top pattern is one of the most common chart formation. It signifies the fear of further upward gains and hence indicates deeper consolidations or even the possibilities of a reversal.

Double Top formations are reversal patterns which take place during an uptrend. Double Top formations are two consecutive peaks of same or almost same height with a pull back in between which can be called a pivot point or neckline.

Double top patterns works on charts of any time-frame but can prove to be a major reversal pattern on longer time-frame charts like daily charts, especially after an extended uptrend. This pattern is confirmed when the price goes down from the second peak and breaks below the neckline. The break of the neck line support indicates deeper declines.

Double-Top Formation

Double Top chart pattern

A double top formation is a distinct chart pattern characterized by a rally to a new high (peak1 or resistance1) followed by a moderate pull back to the pivot point or neckline support level and then again a second rally to another peak (peak 2 or resistance 2). The second peak is almost equal to the first peak.

Now if the market pulls back from the second peak and breaks below the neckline level then it makes our double top pattern.

How to Trade Double Top?

Double top pattern comes into picture only if the price action falls below the neckline level from the second peak. Considering this we can enter a limit order for short-selling just below the neckline.

We can place a stop-loss order slightly above the second peak. Stop-loss order level would also depend on the height of the peaks and the momentum of the drop. If the downward momentum is strong then the stop-loss can be narrower.

Please note that many times there will be some pull-back after the price breaks below the neckline and hence it may be a good idea to wait for some time to short-sell at slightly higher price. 

The first profit target would be at least equal to the distance from the neck line to the level of the two peaks or the double tops, as indicated in the above diagram.

Double Top Chart Examples

Let's have a look on the following 3 charts to see how a double top chart formation looks like and how to trade it.

Example 1

Double top chart pattern - example 1

The chart above shows Double Top pattern on EUR/JPY 30 Min chart.

Example 2

Double top chart pattern - example 2

The chart above shows Double Top pattern on USD/JPY hourly chart.

Example 3

Double top chart pattern - example 3

The chart above shows Double Top pattern on EUR/JPY 30 Min chart.

Go back to the common Forex patterns page.

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