Double Top Patterns?
A double top is a reversal pattern in a bull trend signal a down trend is coming, which is common and easily recognized.
- Double Top Pattern
- A prior uptrend sets a new high, usually on increased volume.
- Then, the stock price declines on a lighter volume.
- The price rallies again but is unable to pass the previous peak and falls again.
- If the price breaks support, declining below the previous low, a double top pattern has formed. (If the price does not break support, this might not be a reversal pattern since prices could just be in a consolidation phase, just before it resumes to its original uptrend.)
- After a double top pattern has formed, there is a possibility of a return move to the breakout point, but should not exceed it, before prices resume to the new downtrend.
If you are holding a stock and see a double top forming on a stock, you should be cautious and may need to sell your stock to protect your profit as there is a good chance the stock is near the top and the trend may reverse soon.
