View a more detailed Double Top Chart Pattern Video. The Double Top technical analysis charting pattern is a common and highly effective price reversal pattern.
The chart below of Altria (MO) stock illustrates the Double Top reversal pattern:
Double Top Formation Components
- 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.
Double Top Potential Sell Signal
A potential sell signal is given when 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 price pierces the confirmation line, then the move downward is suspect. Small volume usually means weak support of price movement (see: Volume).
How to Get Started Trading
If you are interested in trading using technical analysis, 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. Between 73.0%-89.0% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and 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, the Advanced Decline Ratio, Adaptive Market Averages, Exponential Ribbons, and Average Directional Movement.
If you'd like a primer on how to trade commodities in general, please see our introduction to commodity trading.