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Revision as of 10:34, 19 July 2005
A double top is a major reversal pattern that forms after an extended uptrend. As its name implies, the pattern is made up of two consecutive peaks that are roughly equal, with a moderate trough in between.
Double Tops appear on a chart in the shape of the letter "M" and are quite common.
A peak price is reached before a small decline, which causes the valley between the Double Tops, and then the price rallies again to a peak roughly equal to the level of the first. The price then falls away on a new downtrend.
Correctly predicting a Double Top can be tricky. This is because a simple uptrend, with each new wave of buying interspersed with minor reactions and profit taking, will appear as if it is making a Double Top formation. However, as you can see in the chart above, the data can progress in either direction.