At the end of a bull market, prices often form what is called a "double top." On a price-versus-time chart of a market, it looks like two peaks that are about the same price. The valley is the lowest point between the two peaks.
This lowest price point is called the formation's neckline. When the price goes below the neck line, the formation is complete and confirmed. This shows that prices are likely to drop further in the near future.
Trading with Double Top Chart Patterns: When trading with double top chart patterns, there are some rules to follow.
First, you need to figure out if the market is going up or down. Because a double top forms at the end of an uptrend, the movement before it should also be an uptrend.
Traders should look for two round tops and take note of their sizes.
Traders should only make a short trade if the price has broken out of a support level or a neckline.
A double-top pattern is one of the most powerful reversal patterns that can be seen. This formation is quite similar to the double bottom formation.
Efficiency and a high possibility of being effective in anticipating a shift in the trend direction are two of its main assets. Another one of its strengths is its ability to forecast the future.
The presence of a neckline provides the pattern with a level that may be clearly defined to compete against. Once the pattern is engaged, the neckline denotes the risk, and it also contributes to determining where to take profit.
On the other hand, the most significant shortcoming of the double top pattern is the fact that it goes against what is, up to that moment, an extremely potent trend.
Because of this, there is always the possibility that this scenario might eventually result in a continuation of the bullish trend.
This is why there is always a risk that this could happen. Because of this, a trader should never enter the market without first consulting a variety of different technical indicators.
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