Double Top - Taking a Swing Trading Perspective

A Double Top formation is a common chart pattern that occurs and can become tradeable, specifically for Swing Trading, with some experience and pattern recognition skills.

This chart pattern is one of the easier ones to understand but many times over looked. The tops are formed several time periods apart and do not necessarily have to be the exact same prices. They should just need to be two separate, distinguishable tops.

For example: A stock makes a multi month high on March 10th at $24.75 and then pulls back for a few days. About ten days later it rises to $24.50 and starts to pullback again. While not perfect, this can still be considered a double top even though the second top did not reach the previous high of $24.75.

This doesn't mean that exact Double Tops cannot be found. You can find these patterns that do in fact reverse at the same price point, or at least a lot closer than in my example. The point here is that it does not have to be exact. In fact, making a lower high for the second Double Top with declining Technical indicators may signal a near term decline as well. We'll get into those on another page.

Here's a good example showing a clear pattern that formed recently in KKD for a great swing trading opportunity:

Double Top

Notice how as the second top was formed, both the MACD and RSI made considerably lower highs signaling the upcoming price decline.

For those of you who pay close attention to volume, you can see that the volume that occurred on the second top was lower as well.

Entering a short position based on this specific pattern would mean entering near the second top around $4.00-$4.25 with a stop set above the initial top, somewhere around $4.50-$4.75 depending on your risk and money management guidelines.

If the price did continue higher, then the reason for entering this trade, a Double Top formation, would no longer be valid. This would signal the time to close your position and get out.

For those of you interested in shorter time frames as well, I've already added a page on an Intraday Double Top and an Intraday Double Top with MACD Indicator.

As I mentioned at the beginning of this page, this pattern occurs often and should be added to your list of chart patterns to be on the lookout for.

Here are more pages to help with various chart patterns:

Return To "Stock Chart Patterns"

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