A double top pattern in technical analysis is a bearish reversal chart formation indicating that an uptrend is likely to conclude. It typically manifests as two consecutive peaks of approximately equal price, separated by an intermediate trough, signaling diminishing buying pressure after two attempts to push prices higher.
Mechanism
This pattern forms when an asset’s price ascends to a resistance level, retracts, and then attempts to ascend to that same level again but fails to breach it with conviction. The two peaks indicate repeated rejections at a specific price point, suggesting sellers are entering the market at that level. A subsequent decline below the trough between the peaks confirms the pattern, initiating further selling pressure.
Methodology
Traders and systems architects utilizing this pattern observe its formation on price charts, often confirming it with other indicators such as decreasing volume on the second peak or bearish divergence in oscillators. The methodology involves identifying the two peaks and the intervening low, drawing a “neckline” across this low, and typically placing a sell order when the price decisively breaks below this neckline, projecting a price target equal to the pattern’s height subtracted from the neckline.
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