A "double top" is a chart pattern often observed in technical analysis of financial markets, particularly in stocks or indices. It's characterized by two peaks of roughly equal height, separated by a trough. The pattern is considered bearish, signaling a potential trend reversal from an uptrend to a downtrend.
Here's how it typically forms:
1. **Initial Uptrend:** The price of an asset is in an uptrend, reaching a peak (first top).
2. **Temporary Decline:** After the first peak, the price retraces or declines, forming a trough, but usually doesn't fall significantly.
3. **Second Attempt:** The price rises again, often reaching a similar level as the first peak.
4. **Confirmation:** After the second peak, the price declines once more, breaking below the trough formed between the two peaks. This break below the trough is seen as confirmation of the pattern.
5. **Downtrend:** The confirmation of the double top pattern suggests a reversal in the trend, with the price likely to continue lower.
Traders often use the height of the pattern (the distance between the peaks and the trough) to estimate a potential downside target once the pattern is confirmed.
It's essential to remember that like all technical analysis tools, the double top pattern is not foolproof and should be used in conjunction with other indicators and analysis methods for making trading decisions.
Here's how it typically forms:
1. **Initial Uptrend:** The price of an asset is in an uptrend, reaching a peak (first top).
2. **Temporary Decline:** After the first peak, the price retraces or declines, forming a trough, but usually doesn't fall significantly.
3. **Second Attempt:** The price rises again, often reaching a similar level as the first peak.
4. **Confirmation:** After the second peak, the price declines once more, breaking below the trough formed between the two peaks. This break below the trough is seen as confirmation of the pattern.
5. **Downtrend:** The confirmation of the double top pattern suggests a reversal in the trend, with the price likely to continue lower.
Traders often use the height of the pattern (the distance between the peaks and the trough) to estimate a potential downside target once the pattern is confirmed.
It's essential to remember that like all technical analysis tools, the double top pattern is not foolproof and should be used in conjunction with other indicators and analysis methods for making trading decisions.