Personal Finance. Your Practice. Popular Courses. Part of. Guide to Technical Analysis. Part Of. Key Technical Analysis Concepts. Getting Started with Technical Analysis. Essential Technical Analysis Strategies. Technical Analysis Patterns. Technical Analysis Indicators. What Is Double Top and Bottom? Key Takeaways Double tops and bottoms are important technical analysis patterns used by traders.
A double top has an 'M' shape and indicates a bearish reversal in trend. A double bottom has a 'W' shape and is a signal for a bullish price movement. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Terms Double Bottom A double bottom pattern is a technical analysis charting pattern that describes a change in trend and a momentum reversal from prior leading price action. A rounding top is a chart pattern used in technical analysis which is identified by price movements that, when graphed, form the shape of an upside-down "U.
What Is a Diamond Top Formation? A diamond top formation is a technical analysis pattern that often occurs at, or near, market tops and can signal a reversal of an uptrend. Island Reversal Definition An island reversal is a candlestick pattern that can help to provide an indication of a reversal. Bull A bull is an investor who invests in a security expecting the price will rise.
Discover what bullish investors look for in stocks and other assets. White Candlestick Definition A white candlestick depicts a period where the security's price has closed at a higher level than where it had opened. Partner Links. Related Articles. Beginners Introducing the Bearish Diamond Formation. Investopedia is part of the Dotdash Meredith publishing family.
Please note that, unlike the chart above, many times there will be some pull-backs after the price breaks below the neckline and hence it may be a good idea to wait for some time to short-sell at slightly higher price. The first profit target would be at least equal to the distance from the neck-line to the level of the double tops as indicated in the above Forex chart. Many times a double-top pattern may extend to a triple-top. Considering this the safest stop-loss order is slightly above the level of the tops.
However, this makes the risk-reward worse than and hence should be avoided. Please refer the following chart:. The above Forex chart is a classical example of consecutive double tops. After the first double-top pattern completion the price action continued downwards. On the downside a double bottom formation took place and the then the currency pair formed another double-top pattern.
The important point to be observed is that the subsequent peaks were at a lower level than the previous peaks. This fact indicated that the market is not ready to retest the previous levels. In such case we can safely put the stop-loss slightly above the double tops for better chances of meeting the profit target without hitting the stop-loss level first.
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The double top pattern entails two high points within a market which signifies an impending bearish reversal signal. A measured decline in price. Price charts simply express trader sentiment and double tops and double bottoms represent a retesting of temporary extremes. If prices were truly random, why do. A double top has an 'M' shape and indicates a bearish reversal in trend. A double bottom has a 'W' shape and is a signal for a bullish price movement.