What is a Double Top in Trading?

Traders in cryptocurrencies use almost all of the technical analysis tools from the old stock market. At the same time, both the way work is done and how prices are set are the same. Let’s see what a double top is in the trading world.

How to Analyze a Double Top in Trading

If patterns like “Pennant,” “Flag,” or “Box” show up on the screen, the price is likely to keep going in the same direction after the figure is reached.

People often confuse the Pennant pattern with the Triangle pattern because of how similar they look when they form. The difference between them is that Vympel’s top edge points down, while the bottom one points up. The number is often found after the asset has made strong, sudden moves in the direction of the main trend.

When the pennant’s edge is broken in the direction of the main trend, this is a sign that the trade should be made. The situation is the same for the downtrend.

The rectangle pattern is a horizontal consolidation that shows there is uncertainty in the market. It is hard to predict which way the price will go, and there isn’t much point in trying. Instead, you can just wait for one side to break down and trade in that direction.

In some cases, the way the market was moving when the “Rectangle” pattern was being formed could make it more likely for one of the directions to break down. For example, in a strong trend, the formation of a narrow “Rectangle” near extreme values is seen as a stage of market consolidation before the trend continues.

The edges of the “Flag” continuation pattern point against the main trend. People often mix it up with “Rectangle” because of how they both form. It shows that the “bears” mistook a small correction for a change in direction, and some sellers open positions. It appears after big changes on the chart.

What is Double Top for Traders

“Head and Shoulders” is the most well-known technical analysis figure, and it is used on all exchange markets.

The formation is made up of three peaks, the highest of which is in the middle. The two peaks on the sides are about the same height. The pattern looks like a sketch of the shoulders and head of a person. In this case, the “shoulders” can be in different places and at different heights. The signal to get into the trade is when the “Neck” line breaks or is tested again after it breaks. The pattern is turned around for a downtrend.

The double top pattern is a bearish reversal pattern that shows the end of an uptrend. It is made up of two price highs at the same level and a cutout line that acts as a local support. Traders will wait until the price falls below the cutout line before selling.

“Double tops” show up quite often on the monitors of traders, but not all of them are good.

How to find the pattern for the double top

This drawing is made up of three main parts. When the price goes down for the first time, that is the first high. The second price drop is the second high. The cut line is a short-term support line that shows up between the highs.

When the first top is made, the volume will rise with the price and fall with the price as well. This is normal for a trend that is going up, which is the first half of the Double Top pattern.

As soon as the second peak forms, the volumes start to change. When the price goes up, the number of items sold goes down, and when the price goes down, the number of items sold goes up. This shows that the trend has changed and that the price has gone from going up to going down. Technical analysis has more than just the Double Top pattern. There is also something called the Triple Top.

In a market that is going up, there are three peaks that are all about the same height. It looks a lot like the Head and Shoulders pattern. This is called a Triple Top pattern. The difference is that the average peak does not rise higher than the two peaks next to it.

How to Use Double Tops

When the market gets to the point where it has been bought too much, it may meet resistance and form a “double top” pattern. It starts at the first high and continues until the price finds local support.

At the moment, there is no way to find this pattern. After the first top, the price falls back to the support (cut line) and then bounces back to test the newly formed resistance again.

If the price doesn’t break above it, it will make a second high. When that happens, traders are cautious about the trend. When the price falls below the neckline, they should be ready to sell short.

These two patterns can be found in all markets, including cryptocurrencies, and they work well. But these patterns may happen less often than, say, on the forex market. But when you look at a chart, they are all just as important.