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Double Top

What Is a Double Top?

A double top is an extremely bearish technical reversal pattern that forms after an asset reaches a high price two consecutive times with a moderate decline between the two highs. It is confirmed once the asset’s price falls below a support level equal to the low between the two prior highs.

KEY TAKEAWAYS

  • A double top is a bearish technical reversal pattern.
  • It is not as easy to spot as one would think because there needs to be a confirmation with a break below support.

The Difference Between a Double Top and a Failed Double Top

There is indeed a significant difference between a double top and one that has failed. A real double top is an extremely bearish technical pattern which can lead to an extremely sharp decline in a stock or asset. However, it is essential to be patient and identify the critical support level to confirm a double top’s identity. Basing a double top solely on the formation of two consecutive peaks could lead to a false reading and cause an early exit from a position.

 

Limitations of Double Tops

Double top formations are highly effective when identified correctly. However, they can be extremely detrimental when they are interpreted incorrectly. Therefore, one must be extremely careful and patient before jumping to conclusions.