Double Top

The Double Top technical analysis charting pattern is a common and highly effective price reversal pattern.

The chart below of Altria (MO) stock illustrates the Double Top reversal pattern:

Double Top Formation Components

1. First High: Bulls push prices upwards making new highs; however, these new highs are short lived and prices retreat. 
2. Second High: Prices don't retreat for long because bulls make another run, making a similar high. Nevertheless, this is bearish, because bulls were unable to push prices higher; bears held their ground at the previous high level. The bears push prices back to support (Confirmation line); this is a pivotal moment - either bulls will make another push higher or bears will take control and push prices even lower, more than likely taking over for good. 

Double Top Potential Sell Signal

A potential sell signal is given when price closes below the confirmation line.

Note that traders expect a significant increase in volume to accompany the confirmation line break; if there is very little volume when price pierces the confirmation line, then the move downward is suspect. Small volume usually means weak support of price movement (see: Volume).

Another similar chart pattern is the Head & Shoulders Pattern (see: Head & Shoulders). The opposite of the Double Top is the bullish Double Bottom (see: Double Bottom).

(Source: onlinetradingconcepts.com)

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