Definition of "Double Top"

A double top is an unfavorable technical reversal pattern that emerges when an asset reaches two highs in a row with a small price decline in between. Double-peaks are common in financial markets.

Confirmed when the asset's price falls below the low between the two preceding highs.

Double Top Definition

Double tops may signal a change in an asset class's medium- to long-term trend. The chart above depicts Amazon.com, Inc.'s (AMZN) double top pattern in September and October 2018 at $2,050. The $1,880 raised was a significant amount. The double top could not be confirmed until the price fell below $1,880, despite down 8% from its October peak. The share price then plummeted significantly, falling almost 31%.

Netflix Inc. (NFLX) appears to have formed a double top in March and April 2018. Since the stock price is rising in an uptrend, support isn't broken or even tested. Further down the chart, the stock forms a double top in June and July. As shown by the price falling below $380, which prompted a 39% loss to $231 in December, the pattern is a reversal pattern this time. In November, the $380 support level twice halted the stock's rising momentum.

Double Top vs. Two-Tier

Double tops are different from failed attempts. A double top is a negative technical pattern that can lead a stock's price to plummet.

This decline can be disastrous. To identify a double top, you must be patient and find critical support. Identifying a double top based on two successive peaks can lead you to leave a trade too early.

Double-top restrictions

Double top and bottom chart patterns often fail. Most notable is the neckline break. Price breaks the neckline to retrace and continue in the previous trend. Many traders join after a neckline breach instead of waiting for prices to pull back and retest.

Tops and bottoms of patterns aren't uniform or predetermined. Variables include market volatility, price momentum, and pattern timing. Misidentification is common among dealers.

Many traders enter the pattern at the middle, halfway between the neckline and the highest top point, before it's finished.

Instead of a take profit point, the patterns use different technical or risk management strategies.

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