What Is the Double Top Reversal Pattern?
- You need a prior trend that is positive in order for it to be a reversal
- There are usually two points that force a stock to reverse
- As the stock climbs upward, it hits the first top, the stock goes down (sentiment is saying the stock is too high), the stock isolates, and eventually creates a second top
- Remember that it creates an “M”
- More tops create more resistance
- The stock can break through the support line
- If you are trying to enter this on the short side, you want to be careful because there is an area of confluence beneath the support line. Make sure the stock clears the support line before entering.
- Usually the double top is shorter and takes less time to develop than the double bottom.
How to Trade a Double Top Reversal Pattern
- Take the distance between the resistance and support lines (one distance level) and bring it down under the support line.
- That is your ideal goal for where the stock may head.