Technical Analyst’s Blog

A double top is a reversal chart pattern. i.e It indicates the reversal of Trend. Suppose a stock is in a nice uptrend and if you see formation of a double top, then it indicates that the bull run is over and sellers are winning over buyers hence making the price fall. As the name suggests when the price forms a double top that means a strong resistance and huge supply of stock at that price, then the price falls. And the just reverse of a double top is Double Bottom, the bottom acts as support, hence more buyer’s win over sellers and the trend is most likely to be up.

Double Top resembles ‘ M ‘.

Double Bottom resembles ‘ W ‘.

Below figures will surely justify this and make you understand the use of this particular indicator.

Double Top

Double Bottom

How to trade this pattern (Double Top)?

Well as we have identified the resistance so we should short that stock or any other financial instrument just below the resistance level, with Stoploss just above the resistance line.

And our target will be the distance of trough in “M” (ie for the figure it should be 228.0 – 224.44= 4.44) below the blue line. i.e our target should be 224.44(blue line) – 4.44 (Distance of Trough) = 220.0

(in this case target was not achieved still one could have made a huge profit out of this GBP/JPY currency pair.)

Now needless to write a disclaimer as all the technical indicators give us a good entry and exit point by not loosing much of money and hence other indicators must also be used in conjunction with each other.

Should you have any questions, please comment