What is double top pattern and how to do intraday with it?
A double top is an extreme bearish reversal pattern that forms after the price reaches the highest point and gets bounced back from the resistance level two consecutive times with a moderate downfall between the two highs. You get the confirmation once the price breaks the support level.
It is the opposite of Double bottom pattern, which is effective in the downtrend.
How to identify the pattern?
to identify the pattern, you should look for these points.
1. Look for the two high points with similar width and height
2. The distance between the first peak and the neckline should be minimum of 7 candles and same for the distance between neckline and the second peak.
3. There should be a breakout at the neckline
When to take an entry if double top is formed?
Breakout
Once the price hit resistance level two consecutive times look for the breakout (when candle breaks the neckline), the opening of the second candle after the breakout will be your first entry.
a) Where to add stoploss?
you can add the stoploss between the peak and the breakout point.
b) What will be the target?
The gap between the support level and the first resistance level will be the same price point for your target after the breakout.
When support becomes the resistance
After the breakout when the price rise again for re-testing and hit the resistance level (Previous support level) and bounce back the candle which forms after that will be your entry point.
a) Where to add the stoploss?
Add the stoploss at the high of the candle which retested.
b) What will be the target
The gap between the support level and the first resistance level will be the same price point for your target after the breakout
Key Takeaways
It is a Bearish reversal pattern
It can occur in shorter and longer time frames
do not enter before the breakout
Some examples of the Double top in real life chart
The chart patterns showed on the internet are not always realistic, you have to study thoroughly to see the double top forming, in few of the cases you might have missed the opportunity of a great trade because you are sticking to the unrealistic patterns shown. Here are few double top patterns from Live trading