The double top is a chart pattern figure, widely used in technical analysis. This is drawn on a graph when the price of an asset in the market, within an uptrend, forms two consecutive highs.
First of all, it is convenient to remember that chartism is the branch of technical analysis that studies the graphs that draw the prices – the quotation -, trying to find patterns that allow predicting the future price of a certain asset.
Therefore, chartist figures are those figures that draw the evolution of quotations over time, which are analyzed to predict future movements.
The double top is one of those chartist figures that are analyzed. And, is a significant trend Indicator, giving rise to a reversal of the trend that, until now, the quotation had followed.
Graphical Representation of the Double Top pattern
Next, we can see the graphical representation of the double top. That is the drawing that forms the evolution of the quotation over a certain period.
Two highs, representing a double top
As can be seen in the image, in such a scenario we would be facing a very clear double top. Attending to the chartist analysis, we must be attentive, since a change in the trend that the asset had followed until now could occur, causing us losses along the way.
The Double Top pattern in Trading
In trading, it is common to come across the concept of “double top”. It is one of the most well-known and elementary chartist figures of chartist analysis. Technical analysis, which is composed of this analysis and technical indicators, is based on this figure to predict or approximate the future price of a particular asset.
The Double-top and the Triple-top
Just like we have the double top, we have another very similar figure in trading that we know as a triple top.
This figure, as its name already tells us, is drawn when the price of a certain asset draws 3 consecutive highs on a graph.
The triple top, although a little more complex than the double top in the analysis, since the analysis must be complemented with the stock volume, is quite similar in terms of what this tells us. Because a triple top, like a double top, could be indicating that, after an upward trend that the asset has experienced, it could be the case that the trend is reversed, giving rise to a fall.
Just like we have the double and triple top, we have the double and triple bottom.
Although it may seem complicated at first, double tops and triple tops are actually quite simple to understand.
In trading, the double top and triple top, as we have seen, are produced when an asset, after an uptrend, draws two or three consecutive highs on a graph. Now, if we talk about the double and triple bottom, as its name indicates, we are talking about a figure that is formed when the asset, after a downtrend, draws two or three consecutive lows.
Double bottoms and triple bottoms mirror double tops but indicate a potential trend reversal after a downtrend, with consecutive lows instead of highs. These patterns are valuable for spotting trend shifts in trading.
How can I spot a double top on a graph?
Spotting a double top is relatively straightforward. Look for two peaks that reach a similar price level, forming a pattern resembling the letter “M” on the chart. It’s a visual clue to be mindful of potential trend shifts.
Do all double tops lead to a trend reversal?
Not necessarily. While double tops indicate a potential trend change, it’s essential to consider other factors like volume, market conditions, and price action confirmation before concluding a reversal.