The double top pattern is a bearish reversal pattern in which the price reaches the same levels twice with a small decline in between the two crests. A double top pattern usually signals an intermediate or long-term change in trend.
Before the pattern starts to emerge, there is a considerable uptrend spanning across many months. The first top is the highest value the trend has reached during the current trend. After the first top, there is usually a price recession of 10 to 20%. This decline in asset value is usually insignificant; however, the decline can sometimes be prolonged due to a decrease in demand.
The movement towards the second peak usually takes place with a low volume. Once the value reaches the first peak level, it resists moving upwards. It may take the price 1-3 months to reach this level. A difference of 3% between the two tops is usually acceptable. After the second peak, there should be an increase in volume accompanied by an accelerated decline or at least one of the two phenomenon.
At this stage, the double top still needs to be confirmed. For this purpose, the trend should break the lowest point between the two peaks accompanied by acceleration and/or volume increase. To set a price target, traders should subtract the distance from break to top from the breakpoint. If the distance between the peaks is too small, then the pattern may not indicate a longer-term change in asset price. To learn more about the double top pattern click here.