The Double top pattern is used in trading to determine the price reversal in the market. It got its name because of a formation that resembles two consecutive price maxima forming a "top" and a "top-2". This pattern is considered a signal indicating the possible end of the uptrend and the upcoming price decline.
The main characteristics of the Double Top pattern include the following:Structure: The pattern consists of two price maxima that have approximately the same height and width.
- The highs form resistance lines separated by a time period.
- Trading Volume: An important aspect of the "Double Top" pattern is trading volume. Usually, on the first day of the peak formation, the trading volume should be higher than on the second day. This indicates the increased interest and activity of sellers.
- Time interval: The interval between the two highs can vary from a few days to several weeks or months. The longer the interval, the stronger and more significant the pattern is considered.
The application of the Double Vertex pattern includes the following aspects:Reversal Signal: The appearance of the Double Top pattern signals the possible end of the uptrend and the upcoming price decline.
- This can serve as a signal for traders to open a sell position.
- Reversal Confirmation: When the price breaks through the lower line of the Double Top pattern, this is considered a reversal confirmation and can serve as a signal for traders to set additional positions for sale.
- Resistance Level: The Double Top pattern forms a resistance level that can serve as an important price level. If the price falls below the resistance level, it may indicate a strong decline in the price.
It is important to note that the success of applying the Double Top pattern depends on the combination with other indicators and confirmation signals. Traders usually use additional tools such as trading volumes, overbought/oversold indicators and confirming candlestick formations to increase the reliability of the Double Top pattern signal.
In general, the Double Top pattern can provide traders with the opportunity to enter a position at an early stage of a price reversal and profit from the subsequent decline.