The double top technical analysis charting pattern is a common and highly effective price reversal pattern.
This guide explains what the double top pattern is and how to read and interpret it at the hand of an example chart.
How to Read a Double Top Pattern
Take a look at the following chart of Altria (MO) stock that illustrates the double top reversal pattern before we continue to interpret it.
Components of a Double Top
- First High – Bulls push prices upwards making new highs. However, these new highs are short-lived and prices retreat.
- Second High – Prices don’t retreat for long because bulls make another run, making a similar high. Nevertheless, this is bearish, because bulls were unable to push prices higher. Bears held their ground at the previous high level. The bears push prices back to support (confirmation line). This is a pivotal moment – either bulls will make another push higher or bears will take control and push prices even lower, more than likely taking over for good.
Recognizing a Potential Sell Signal
A potential sell signal is given when the price closes below the confirmation line.
Note that traders expect a significant increase in volume to accompany the confirmation line break. If there is very little volume when the price pierces the confirmation line, then the move downward is suspect.
Small volume usually means weak support of price movement.
Where to Trade Commodities Using Technical Analysis
If you’re interested in trading using technical analysis patterns like the double top, have a look at our reviews of these regulated brokers available in to learn which charting tools and analysis software they offer.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. <b>Between 74%-89% of retail investor accounts lose money when trading CFDs.</b> You should consider whether you can afford to take the high risk of losing your money.
Learn more about technical analysis charting concepts and strategies, including:
- Typical Price Moving Average
- Market Thrust
- Advanced Decline Ratio
- Adaptive Market Averages
- Exponential Ribbons
- Average Directional Movement
For all the basics on how to trade commodities, see our introduction to commodity trading.
Here are some answers to frequently asked questions in relation to the double top reversal pattern.
Is a double top bullish or bearish?
The double top has two high points, resembling an M-shape, which indicates a bearish reversal signal. This pattern emerges at the end of a bullish trend. The measured decline between the two high points is indicative of resistance to the price highs.
In contrast, a double bottom resembles a W-shape, signifying a bullish reversal in trend.
What does double top mean in forex?
The double top is one of the most popular technical analysis patterns used by forex traders. However, it’s applicable to all types of markets to indicate an uptrend. It emerges in the form of two consecutive peaks at the end of a bullish trend, roughly recognizable as an M-shape.