Double top and double bottom pattern
Double tops and bottoms are reversal patterns. A double top signals the price is no longer rallying, and that lower prices are potentially forthcoming. A double bottom indicates the price is no longer falling, and the price is heading higher
The double top is a frequent price formation at the end of a bull market. It appears as two consecutive peaks of approximately the same price on a price-versus-time chart of a market. The two peaks are separated by a minimum in price, a valley. The price level of this minimum is called the neck line of the formation.
The formation is completed and confirmed when the price falls below the neckline, indicating that further price decline is imminent or highly likely. The double top pattern shows that demand is outpacing supply (buyers predominate) up to the first top, causing prices to rise. The
Supply-demand balance then reverses; supply outpaces demand (sellers predominate), causing prices to fall. After a price valley, buyers again predominate and prices rise. If traders see that prices are not pushing past their level at the first top, sellers may again prevail, lowering prices and causing a double top to form. It is generally regarded as a bearish signal if prices drop below the neckline. The time between the two peaks is also a determining factor for the existence of a double top pattern. If the tops appear at the same level but are very close in time, then the probability is high that they are part of the consolidation and the trend will resume. Volume is another indicator for interpreting this formation. Price reaches the first peak on increased volume then falls down the valley with low volume. Another attempt on the rally up to the second peak should be on a lower volume.
A double bottom forms when the price makes a low within a downtrend and then pulls back to the upside. On the next decline, the price stalls near the prior low then rally above the pullback high. It’s called a double bottom because the price stalled in the same area twice, unable to drop below that support area.
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