Double tops

Double tops are followed by bearish price actions. It is shaped like the letter M when lines are used to smooth the price out. This pattern is the reverse of double bottom patterns. When detecting a double top, the price on the second wave has to surpass the price level of the first wave. 60% of the time, when the pattern failed to emerge, a price move downward is not likely to happen. However this pattern is less reliable than a double top because when conditions are met, prices only tend to deliver results 83% of the time compared to 97% for double bottoms.

This pattern is for short term trading. Double tops takes a shorter time frame to develop than double bottoms. Psychologically, traders will protect gains from an uptrend and will likely exit their position as soon as the trend starts to reverse. On the other hand, traders are more sceptical on trying to spot a bottom for a bullish rally that is why a double bottom bottom takes longer to form.

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