What is double top? Explanation of typical chart patterns for ceiling formation

2024-03-05

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[Summary]

A double top is a chart pattern in which the price makes two similar highs and then declines.

It is known as a typical example of ceiling formation, and is a warning sign of the end of an uptrend. It will be interesting to see if the momentum slows down after the second high.

What is a double top?

A double top is when a stock price hits a high, then falls, rises to the same level again, and then falls back.

It is also called the M top because it looks like the letter M.

neckline is important

In a double top, the low price between the two peaks is called the neckline.

If the price breaks below this neckline, it will be easily recognized as a sign of a downward turn. Just hitting the high twice doesn't mean the ceiling is confirmed yet.

Points to see

Are the two highs close to each other?
Is the momentum weak due to the second rise?
Did it fall below the neckline?
Is trading volume increasing?

Summary

The double top is a basic pattern for reading the weight of the top price and the formation of a ceiling.

Don't decide it's finished until you've cracked the neckline, check it out before making a decision. Even if it looks like an M-shape, it may rise again without breaking.