Trading an Intraday Double Top

An Intraday Double Top chart pattern will form frequently and once recognized, becomes a tradeable pattern. I use one minute charts most often when Scalping, but this pattern can appear on various time frame charts.

The first thing to understand is what causes the pattern to form. Let's go ahead and break it down into stages with possible scenarios. Understand that I will be referring to an Intraday Double Top for the purpose of this article, but most of this can apply to other time frames as well.

A stock price rises because the level of demand is more than the level of supply for a particular stock. A Top is formed because of one of two occurrences: 1) when the previous demand is absorbed and therefore no longer exists at the same ratio compared to the available supply, or 2) when additional sellers step in and provide so much supply of shares for sale, that the price declines because there is not enough demand for the number of shares for sale.

Either way, once a Top is formed it is considered a resistance level. Often, once a pullback occurs there will be a second run at the top a short while later forming an intraday Double Top - if the level holds the second time.

This pullback I just mentioned from the first top, does not always occur. If it doesn't, then you will have a breakout, not a top. Also, a pullback from a top does not mean a second run will occur towards the top. In this case, it would be a plain reversal.

Finally, a second, or double top is not guaranteed neither. The second run at the top could produce a breakout instead and continue moving higher.

Let's take a look at an intraday Double Top that formed today. In fact, the chart below shows two separate intraday Double Tops that formed.

Intraday Double Top

The first Top we are concerned with occurred a few minutes before 12 noon at $11.38, labeled (1). You'll notice that between 10:45 and just before 12 noon there were several peaks that could have been considered "tops" as they occurred. The way we differentiate between these and the one just before noon is that after each of the prior tops, there were higher highs, therefore an intraday Double Top could not occur as the highs must be equal, or close to equal.

Shortly after 12 noon, a second run towards the prior top was made at $11.38 and the level held. This caused a reversal and it is at this point (2) that an entry signal for a short position is triggered.

Entering a short position here expecting the Intraday Double Top to hold would mean having a stop loss set at or near $11.40. If the price continued higher, it would mean the pattern is something other than you were expecting and it is time to get out.

The second intraday Double Top formed at about 1:20 p.m. at $11.44 (3) with a pullback, then a second run towards the top shortly after 2 p.m. (4) again triggering and entry signal for another short position with a stop loss at or near $11.46 to be safe.

Using the stop loss examples I mentioned, we would be risking .02 for this particular pattern example. You can see that we could have easily had a 1:2 through 1:5 Risk to Reward Ratio in these trades, meaning we could have gained between 2 and 5 times what we were risking which is a great high probability trading scenario.

See the same example above with the addition of a technical indicator for additional entry confirmation here: Intraday Double Top with MACD Indicator 07/06/2009.

Here are more pages to help with various chart patterns:




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