Double Top

A M-shaped pattern where price tests resistance twice at nearly the same level but fails to break higher. This pattern signals that buyers are losing strength, and a breakdown below support confirms a bearish trend reversal.

Significance

• Suggests that strong resistance is preventing further price increases.
• Indicates a shift in market sentiment from bullish to bearish.
• A breakout below support confirms the reversal and signals selling pressure.

Characteristics

1. Two equal highs testing a key resistance level.
2. Breakout occurs when price drops below the middle support between peaks.
3. Volume declines at the second peak and rises on the breakdown.

Market Condition

1. Forms after a prolonged uptrend, signalling that the trend is weakening.
2. More effective when accompanied by decreasing momentum indicators.

Trading Strategy

• Entry point – Short when price breaks below the support
• Stop-loss – Above the second peak to limit losses.
• Target price – Measure the pattern height and subtract it from the breakdown level.