How the pattern forms?
✍The two peaks are separated by a minimum "v" shape price movement. The price level at the low is called the neck line of the pattern.
✍The price formation is confirmed when the price breaks the neck line, shows that further price decline is highly likely.
✍The double top pattern shows that bulls is outpacing bears up to the first top, resulting in prices to rise. The supply-demand balance then reverses; supply outpaces demand, causing prices to fall.
✍After a price fall, demand again dominate and prices rise. If traders see that prices are testing level at the first top, sellers again dominates, lowering prices and causing a double top to form.
✍It is generally regarded as a sell signal if prices drop below the neck line. The gap between the two tops is also a confirmation factor for the existence of a double top price pattern.
✍Volume plays an important role in this pattern confirmation.
✍Price reaches the first peak on high volume then falls down the valley with less volume.
✍Another attempt on the upside to the second peak should be on a lower volume.
How to trade the double top pattern?
✍The stop loss of the trade has to be taken on the high point of second top and target is double the size of rally.
✍The second top formation is lower than the first then the reliability of pattern is higher.
✍The lower tops and the lower bottoms formation is the downtrend and same happens in double top.
✍If the pullback happens after the breakdown of support then the neckline may act as a resistance for the price.
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