Technical Analysis Mode (8) Double Top and Bottom

Technical Analysis Mode (VII) Double Top and Bottom

Double top and double bottom patterns are chart patterns that appear when the underlying investment moves in a pattern similar to the letter "W" (double bottom) or "M" (double top).Double top and double bottom analysis is used in technical analysis to explain the movement of a security or other investment and can be used as part of a trading strategy to take advantage of repeating patterns.

Key Points

• Double tops and double bottoms are important technical analysis patterns used by traders.
• A double top is in the shape of an "M", indicating a bearish trend reversal.
• A double bottom in the shape of a "W" is a bullish price signal.

Learn about double tops and bottoms

Double-top and double-bottom patterns often evolve over longer periods of time and do not always present the ideal pattern visuals because price changes do not necessarily resemble a clear "M" or "W".When looking at chart patterns, investors must note that peaks and troughs do not necessarily have to reach the same point for an "M" or "W" pattern to appear.

Double tops and bottoms are formed by successive rounded tops and bottoms.These patterns are often used in conjunction with other indicators, as rounding patterns can often easily lead to fake or false trend reversals.

Double top

A double top pattern is formed by two consecutive rounded tops.The first dome forms an inverted U-shaped pattern.Domes can often serve as indicators of bearish reversals, as they usually follow a long-term bullish rally.A double top would have a similar inference.In the event of a double top, the second dome is usually slightly lower than the first, indicating resistance and exhaustion.Double tops can be rare, and their formation usually indicates that investors are looking for eventual profits from a bullish trend.Double tops usually lead to bearish reversals, and traders can profit by selling stocks during a downtrend.