Chart patterns are a trader's best friend. It helps them to make sound decisions during complex market movements. It allows them to reduce risks from losses and provides better profit opportunities. Many traders have known chart patterns for a long time, and their effectiveness has already been made clear and established. The commonly sought-after chart pattern is the double top pattern because of its potential opportunities for profits and reliability in evading huge losses during a trade. This article will share with you how to identify a double top pattern within a chart.
Before identifying a double top pattern in a chart, it is first essential to understand what this chart pattern is. A double top pattern is a reversal pattern that shifts an uptrend market to a downtrend market. It is a signal which indicates it's time to sell positions to avoid losses. Many traders use this point to profit from short selling and an opportunity to profit because of the imminent drop of the trend. Do you want to know about how to identify double top pattern? Kindly visit on hyperlinked site.
So how can you identify a double top pattern in a chart?
First of all, a double top pattern formation can only be found on a bullish trend or an uptrend market. There will be two range prices that will be established at their peak – these will be the peaks of the trend and will be the tops of the chart. As soon as the second top or range is established, the price will immediately drop or reverse in trend.
Usually, this chart pattern shows as soon as volume starts to stagger or lessen as the market climbs. This means lesser volume every time the price increases. Immediately, this should show that something is already happening or is about to happen. The volume is an essential indication for chart patterns. It is essential to consider them the same way you consider support and resistance levels and other indicators.
If you look at the double top pattern, it will look similar to a letter M. From its left is an uptrend and on the right is the downtrend. It is composed of two peaks: the tops and a middle point, which gives the pattern's neckline.
At the top of the trend, you will also encounter short consolidation or sideways movement. During consolidation, you must be able to find the tops of the pattern along with the neckline. The neckline would be the horizontal line on which the letter M stands. Once the price breaks the horizontal line, it immediately translates to a bearish breakout or continued downtrend.
Knowing this pattern as you see it in a chart enables you to make sound decisions during trading and reinforces your strategies and goals.