The Double Tops is pattern used very often in FXLORDS’ Managed Forex Accounts, Forex Trading Signals, and it is among subjects discussed in the Training Course. It is a very popular charting pattern used in technical analysis and it is usually used with other charts patters and technical indicators like the RSI and Moving Average.
It consists of two consecutive tops that are roughly equal, with a price drop between those two tops. The Double Tops appears frequently at the end of a bullish market and it looks like the letter “M”, and it indicates a bearish reversal. This pattern clearly shows that buyers are losing control over the price movement and that sellers are dominating.
The Double Tops is formed when an uptrend sets a new high to find resistance, which prevents the price from moving higher. Upon finding the resistance level, the price will drop to find the middle low, which will form a support level. The next stage of the Double Tops pattern is another increase in the price which will take it up to the previous high and then falls back again to the support level formed when the price drop down the first time. The resistance level formed by the two tops is considered a resistance only after the second test, and the support level to which the price dropped to is called a Neckline. The pattern is complete and confirmed only when the price falls below the Neckline, indicating a reversal in the uptrend. The breakout of the Neckline should happen on increased volume.
The time between the two tops is also an important factor whether a Double Tops pattern exists or not. If the two tops appear at the same level but are very close to each other, then most probably they are part of a consolidation and the original trend will resume.
Volume is another important factor to consider when using this pattern. When the price reaches the first top on increased volume then falls down to the neckline with low volume, then the attempt to the second top should be accompanied with lower volume.