Definition: Double top is defined as ‘two well defined tops occurring approximately at the same price level’. As the name suggests, this major reversal pattern usually occurs at the top and usually signals the end of a rally or a major reversal.
Psychology behind it: Like any other top in a bull market, the first one (marked as T1 in the Maruti SuzukiNSE 0.66 % chart) occurs because the bulls push up the price and this is followed by a normal correctio ..
Confirmation: Two tops occurring at the same level is only the first sign of a possible double top and you need further price action for its confirmation. Now, it’s the turn of the bears to show their strength and pull the prices down. The real fight between bulls and bears takes place when the prices reach the previous bottom, a common support level (B). This level is also known as the ‘double top confirmation level’ and investors/ traders need to keep a close watch here. A hor ..
Possible actions: This is a major reversal pattern and once it is confirmed, investors / traders can consider selling their positions / going short in the counter. The target, i.e. the price fall expected from the breakout level, is calculated with the help of the pattern’s ‘height’. This is measured by reducing the value at B from the values at T1 and T2. For instance, the price has rallied to Rs 10,000 (T1 in the given chart) and it fell to Rs 8,250 (B) before it rallied back ..
Double bottom: Double bottom is formed at the bottom and indicates the end of a falling market. This pattern is identical to the double top, except for the inverse relationship in price. The pattern is formed by two clear bottoms separated by a top. The confirmation occurs when the price goes above the top (i.e. the confirmation line). Most rules associated with the double top formation are also applicable to double bottom pattern
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