What is Double Top?
A double top is a bearish reversal pattern where the price reaches approximately the same high twice with a moderate decline in between, forming an 'M' shape that signals buying exhaustion.
Double Top Explained
The double top shows that buyers tried and failed twice to push above the same level. The pattern is confirmed when the price breaks below the middle trough (the 'valley' between the two peaks). The price target is the height of the pattern projected downward from the breakout point. Volume typically decreases on the second peak, showing weakening demand.
Real-World Example
A stock peaks at $80, pulls back to $72, rallies back to $79.50, then fails again. When it breaks below $72 on volume, the double top is confirmed. Target: $72 - ($80 - $72) = $64. A trader might short with a stop at $73.50.
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