The Double Top has a reversal character which means once it forms, there is a potential for a trend reversal.
To have a valid double top, you need to have an uptrend.
If there is no uptrend, there is no double top because there should be something to reverse to.
Let us show an example of a double top.
This is how it looks like. As you can see, we have a prior uptrend.
Once uptrend reaches the area of resistance, it shows the signs of weakness.
You can see now the reason why marking key levels is so important.
Once price approaches those levels, patterns like this one may form which give you trade opportunity.
The double top may form anywhere, but those patterns that form in the area of resistance are the ones with most success because in that area we expect an increase in selling pressure.
By this price pattern, it is being confirmed.
After the first high is reached, the price declines.
The reason for the decline is the first wave of sellers that were selling at resistance.
Once the selling pressure is gone, the price starts going up again until it approaches the area of resistance one more time.
It may go through this area and that would invalidate the pattern.
But, if the area becomes resistance again and causes one more decline to the neckline, we have a potential for a valid double top.
The tops don’t have to be formed at an equal price.
Looking for perfection may cause you to lose a great trade opportunity.
It is more important to get confirmation than tops lied out at the same price.
Milos is an independent trader, with a background in journalism and publishing. Nomadic by nature, he’s lived in four different countries this decade. He’s fascinated by Blockchain technologies’ potential to reshape all aspects of our lives. Milos got into Bitcoin while completing his degree and hasn’t looked back since, writing about anything crypto-related. He is the co-founder of the Cryptoaims and he has a strong passion to educate people about this revolutionary technology.