How to trade using Double Top Pattern?
Different parts of Double Top pattern
There are three major parts which forms this pattern.
1. First Peak – Inverted V/U – The market does a pullback and forms an inverted V/U shape. At this point, there’s no way to tell if the market will reverse because a pullback occurs regularly in a trending market.
2. Second Peak– Inverted V/U – The price gets rejected at the same area, again. This is a first sign that the market could reverse lower. This forms the second inverted V/U shape
3. The trendline – This is the last line of defense for the buyers. If the price breaks below it, the market could reverse, head lower and begin the start of a downtrend.
Once you identify the double top formation, just draw a straight line in bottom which connects swing lows of the peaks. We will get a technical breakout when the price gives breakout below the line drawn.