Double Top & Double Bottom Chart Patterns

DOUBLE TOP PATTERN

A double top is a bearish reversal pattern that is very commonly used by the intraday or positional traders. This pattern resembles the letter ‘M’. In this pattern, the price of the stock forms a peak at the resistance level and retrace back to the level of support. After reaching support level, it bounces back to the resistance level and forms a peak. It once again reaches the level of support. Here, at this support level, it breaks the level into the downtrend. 

 How to identify Double Top Pattern?

Generally, this pattern can be found in the uptrend. The first top is formed in the shape of inverted ‘U’ or ‘V’ symbols.  Second top is also formed in the same shape. Most importantly, both the tops have almost same height. We can confirm the formation of this pattern when the price breaks through at support level and continue moving downwards. The Volume also rises high during the process of break the support level.

 

Setting Stop Loss & Target

The stop loss can be kept above the support level where it breaks the neckline. We can take a short trade with the target of 1:1. The minimum target is the vertical distance from pattern ‘M’. 

EXAMPLE CHART:

Double Top Chart Pattern

 

DOUBLE BOTTOM PATTERN

A double bottom is bullish reversal pattern that is quite opposite to the double top pattern. This forms at the support level. This pattern resembles the letter ‘W’. In this pattern, the stock price forms a peak at the support level and retraces back to the resistance. After reaching resistance level, it bounces back to the support level and forms a peak. It once again reaches the level of resistance. Here, at this level, it breaks the level into the uptrend.

How to identify Double Bottom Pattern?

This pattern can be found in the downtrend. The first bottom is formed in the shape of letter ‘U’ or ‘V’.  Second bottom also forms in the same shape. Both these bottoms have almost same low. The formation of this pattern can be confirmed when the prices break through at resistance level and continue moving upwards. The Volume also raises high during the process of break the resistance level.

Setting Stop Loss & Target

The stop loss can be kept above the resistance level from where it breaks the neckline. We can take a long trade with the target of 1:1. The minimum target is the vertical distance from pattern ‘W’.

EXAMPLE CHART:

Double Bottom Chart Pattern