LogoLogo
Return to StockChartsCharts & ToolsArticlesChartSchoolYour Dashboard
  • 📋ChartSchool
  • Table of Contents
    • Overview
      • Why Analyze Securities?
      • Technical Analysis
      • Fundamental Analysis
      • Random Walk vs. Non-Random Walk
      • Asset Allocation and Diversification
      • John Murphy's 10 Laws of Technical Trading
      • John Murphy's "Charting Made Easy" eBook
      • Technical Analysis 101
        • TA 101 – Part 1
        • TA 101 – Part 2
        • TA 101 – Part 3
        • TA 101 – Part 4
        • TA 101 – Part 5
        • TA 101 – Part 6
        • TA 101 – Part 7
        • TA 101 – Part 8
        • TA 101 – Part 9
        • TA 101 – Part 10
        • TA 101 – Part 11
        • TA 101 – Part 12
        • TA 101 – Part 13
        • TA 101 – Part 14
        • TA 101 – Part 15
        • TA 101 – Part 16
        • TA 101 – Part 17
      • Irrational Exuberance
      • Cognitive Biases
      • Arthur Hill on Goals, Style and Strategy
      • Arthur Hill on Moving Average Crossovers
      • Multicollinearity
      • "The Trader's Journal" by Gatis Roze
        • Stage 1: Money Management
        • Stage 2: Business of Investing
        • Stage 3: The Investor Self
        • Stage 4: Market Analysis
        • Stage 5: Routines
        • Stage 6: Stalking Your Trade
        • Stage 7: Buying
        • Stage 8: Monitoring Your Investments
        • Stage 9: Selling
        • Stage 10: Re-Examine, Refine, Re-Enhance
        • Additional Reading
      • Bob Farrell's 10 Rules
      • Richard Rhodes' Trading Rules
      • Donchian Trading Guidelines
      • Why and How To Use Correlation
    • Chart Analysis
      • What Are Charts?
      • Support & Resistance
      • Trend Lines
      • Gaps and Gap Analysis
      • Introduction to Chart Patterns
      • Chart Patterns
        • Broadening Top or Megaphone Top
        • Double Top Reversal
        • Double Bottom Reversal
        • Head and Shoulders Top
        • Head and Shoulders Bottom
        • Falling Wedge
        • Rising Wedge
        • Rounding Bottom
        • Triple Top Reversal
        • Triple Bottom Reversal
        • Bump and Run Reversal
        • Flag, Pennant
        • Symmetrical Triangle
        • Ascending Triangle
        • Descending Triangle
        • Rectangle
        • Price Channel
        • Measured Move—Bullish
        • Measured Move—Bearish
        • Cup With Handle
      • Chart Types
        • Arms CandleVolume
        • CandleVolume
        • Elder Impulse System
        • EquiVolume
        • Heikin-Ashi Candlesticks
        • Kagi Charts
        • Renko Charts
        • Three Line Break Charts
        • MarketCarpets
        • Relative Rotation Graphs (RRG Charts)
        • Seasonality Charts
        • Yield Curve
      • Candlestick Charts
        • Introduction to Candlesticks
        • Candlesticks and Traditional Chart Analysis
        • Candlesticks and Support
        • Candlesticks and Resistance
        • Candlestick Bullish Reversal Patterns
        • Candlestick Bearish Reversal Patterns
        • Candlestick Pattern Dictionary
      • Point and Figure Charts
        • Point and Figure Basics
          • Introduction to Point & Figure Charts
          • Point & Figure Scaling and Timeframes
          • P&F Trend Lines
        • Classic Patterns
          • P&F Bullish Breakouts
          • P&F Bearish Breakdowns
          • P&F Signal Reversed
          • P&F Catapults
          • P&F Triangles
          • P&F Bull & Bear Traps
        • P&F Price Objectives
          • P&F Price Objectives: Breakout and Reversal Method
          • P&F Price Objectives: Horizontal Counts
          • P&F Price Objectives: Vertical Counts
        • Point & Figure Indicators
        • P&F Scans and Alerts
          • P&F Pattern Alerts
      • Chart Annotation Tools
        • Andrews' Pitchfork
        • Stock Market Cycles
        • Fibonacci Retracements
        • Fibonacci Arcs
        • Fibonacci Fans
        • Fibonacci Time Zones
        • Quadrant Lines
        • Raff Regression Channel
        • Speed Resistance Lines
    • Technical Indicators & Overlays
      • Introduction to Technical Indicators and Oscillators
      • Technical Indicators
        • Accumulation/Distribution Line
        • Alligator Indicator
        • Aroon
        • Aroon Oscillator
        • ATR Bands
        • ATR Trailing Stops
        • Average Directional Index (ADX)
        • Average True Range (ATR) and Average True Range Percent (ATRP)
        • Balance of Power (BOP)
        • Bollinger BandWidth
        • %B Indicator
        • Chaikin Money Flow (CMF)
        • Chaikin Oscillator
        • Chande Trend Meter (CTM)
        • CMB Composite Index
        • Commodity Channel Index (CCI)
        • ConnorsRSI
        • Coppock Curve
        • Correlation Coefficient
        • DecisionPoint Price Momentum Oscillator (PMO)
        • Detrended Price Oscillator (DPO)
        • Distance From Highs
        • Distance From Lows
        • Distance To Highs
        • Distance To Lows
        • Distance From Moving Average
        • Ease of Movement (EMV)
        • Force Index
        • Gopalakrishnan Range Index
        • High Low Bands
        • High Minus Low
        • Highest High Value
        • Linear Regression R2
        • Lowest Low Value
        • Mass Index
        • MACD (Moving Average Convergence/Divergence) Oscillator
        • MACD-Histogram
        • MACD-V
        • MACD-V Histogram
        • Median Price
        • Money Flow Index (MFI)
        • Negative Volume Index (NVI)
        • On Balance Volume (OBV)
        • Percentage Price Oscillator (PPO)
        • Percentage Volume Oscillator (PVO)
        • Performance Spread
        • Price Relative/Relative Strength
        • Pring's Know Sure Thing (KST)
        • Pring's Special K
        • Rate of Change (ROC)
        • Relative Strength Index (RSI)
        • Relative Volume (RVOL)
        • RRG Relative Strength
        • StockCharts Technical Rank
        • Slope
        • Standard Deviation (Volatility)
        • Stochastic Oscillator (Fast, Slow, and Full)
        • StochRSI
        • Traffic Light
        • TRIX
        • True Range
        • True Strength Index
        • TTM Squeeze
        • Typical Price
        • Ulcer Index
        • Ultimate Oscillator
        • Vortex Indicator
        • Weighted Close
        • Williams %R
      • Technical Overlays
        • Anchored VWAP
        • Bollinger Bands
        • Chandelier Exit
        • Double Exponential Moving Average (DEMA)
        • Hull Moving Average (HMA)
        • Ichimoku Cloud
        • Kaufman's Adaptive Moving Average (KAMA)
        • Keltner Channels
        • Linear Regression Forecast
        • Linear Regression Intercept
        • Moving Averages—Simple and Exponential
        • Moving Average Ribbon
        • Moving Average Envelopes
        • Parabolic SAR
        • Pivot Points
        • Price Channels
        • Triple Exponential Moving Average (TEMA)
        • Volume-by-Price
        • Volume-Weighted Average Price (VWAP)
        • ZigZag
    • Market Indicators
      • Introduction to Market Indicators
        • Market Indicator Dictionary
      • Advance-Decline Line
      • Advance-Decline Percent
      • Advance-Decline Volume Line
      • Advance-Decline Volume Percent
      • Arms Index (TRIN)
      • Bullish Percent Index (BPI)
      • DecisionPoint Intermediate-Term Breadth Momentum Oscillator (ITBM)
      • DecisionPoint Intermediate-Term Volume Momentum Oscillator (ITVM)
      • DecisionPoint Swenlin Trading Oscillator (STO)
      • High-Low Index
      • High-Low Percent
      • McClellan Oscillator
      • McClellan Summation Index
      • Net New 52-Week Highs
      • Percent Above Moving Average
      • Pring's Bottom Fisher
      • Pring's Diffusion Indicators
      • Pring's Inflation and Deflation Indexes
      • Pring's Net New High Indicators
      • Put/Call Ratio
      • Record High Percent
      • Volatility Indices
    • Market Analysis
      • Dow Theory
      • Sector Rotation Analysis
      • Intermarket Analysis
      • The DecisionPoint Chart Gallery
      • DecisionPoint Rydex Asset Analysis
      • Wyckoff Analysis Articles
        • Wyckoff Market Analysis
        • Wyckoff Stock Analysis
        • The Wyckoff Method: A Tutorial
      • Elliott Wave Analysis Articles
        • Introduction to Elliott Wave Theory
        • Identifying Elliott Wave Patterns
        • Guidelines for Applying Elliott Wave Theory
    • Trading Strategies & Models
      • DecisionPoint Trend Model
      • Trading Strategies
        • Bollinger Band Squeeze
        • CCI Correction
        • CVR3 VIX Market Timing
        • Faber's Sector Rotation Trading Strategy
        • Gap Trading Strategies
        • Harmonic Patterns
        • Hindenburg Omen
        • Ichimoku Cloud Trading Strategies
        • The 'Last' Stochastic Technique
        • MACD Zero-Line Crosses With Swing Points
        • Moving Average Trading Strategies
          • Finding Support and Resistance in Moving Averages
          • Guppy Multiple Moving Average: An MA Ribbon Designed to Tip the Market’s Hand
          • How To Trade Price-to-Moving Average Crossovers
          • Trading the Bounce: Finding Support and Resistance in Moving Averages
          • Trading the Death Cross
          • Trading Using the Golden Cross
          • Using the 5-8-13 EMA Crossover for Short-Term Trades
        • Moving Momentum
        • Narrow Range Day NR7
        • Percent Above 50-day SMA
        • Percent B Money Flow
        • The Pre-Holiday Effect
        • RSI(2)
        • Six-Month Cycle MACD
        • Slope Performance Trend
        • Stochastic Pop and Drop
        • Swing Charting
        • Trend Quantification and Asset Allocation
    • Index & Market Indicator Catalog
      • Advance-Decline Indicators
      • Cboe Indices and Indicators
      • CME Futures and Spot Prices
      • DecisionPoint Sentiment Indicators
      • Dow Jones Breadth Indicators
      • Dow Jones Global Indices
      • Dow Jones Select Indices
      • Dow Jones Titans Indices
      • Dow Jones US Indices
      • Economic Indicators
      • ICE Futures and Spot Prices
      • Intellidex Indices
      • MSCI Indices
      • New 52-week Highs and Lows for Exchanges
      • NYSE Arca Equity Indices
      • NYSE Equity Indices
      • Philadelphia Indices
      • S&P 500 Sector and Industry Groups
      • S&P GSCI Indices
      • StockCharts AD Percent
      • StockCharts AD Volume Percent
      • StockCharts Bullish Percent Index
      • StockCharts High-Low Index
      • StockCharts High-Low Percent
      • StockCharts Percent Above Moving Average
      • StockCharts Pseudo Symbols
      • StockCharts Record High Percent
      • StockCharts Theoretical Indices
      • US Treasury Yields
    • 📖Glossary
      • 📖Glossary - A
      • 📖Glossary - B
      • 📖Glossary - C
      • 📖Glossary - D
      • 📖Glossary - E
      • 📖Glossary - F
      • 📖Glossary - G
      • 📖Glossary - H
      • 📖Glossary - I
      • 📖Glossary - J
      • 📖Glossary - K
      • 📖Glossary - L
      • 📖Glossary - M
      • 📖Glossary - N
      • 📖Glossary - O
      • 📖Glossary - P
      • 📖Glossary - Q
      • 📖Glossary - R
      • 📖Glossary - S
      • 📖Glossary - T
      • 📖Glossary - U
      • 📖Glossary - V
      • 📖Glossary - W
      • 📖Glossary - X, Y, Z
    • Options Glossary
    • Educational Resources
Powered by GitBook
LogoLogo

ON STOCKCHARTS

  • Charts & Tools
  • Articles
  • StockCharts TV
  • ChartSchool

MEMBERS

  • Your Dashboard
  • Your ChartLists
  • Advanced Scans
  • Technical Alerts

HELP

  • Support Center
  • FAQs
  • Contact Us
  • Pricing

COMPANY

  • About Us
  • What's New
  • Careers
  • StockCharts Store

© StockCharts.com, Inc. All Rights Reserved.

On this page

Was this helpful?

Export as PDF
  1. Table of Contents
  2. Chart Analysis
  3. Chart Patterns

Double Top Reversal

Explore the Double Top Reversal chart pattern and learn to identify, interpret, and trade this common bearish reversal pattern.

PreviousBroadening Top or Megaphone TopNextDouble Bottom Reversal

Last updated 11 months ago

Was this helpful?

The Double Top Reversal is a bearish reversal pattern typically found on bar charts, line charts, and candlestick charts. As its name implies, the pattern has two consecutive roughly equal peaks, with a moderate trough in between.

Although there can be variations, the classic Double Top Reversal pattern marks at least an intermediate-term bullish to bearish trend change. The chart below is an example of a Double Top Reversal.

Note: A Double Top Reversal on a bar or line chart differs from a Double Top Breakout on a P&F chart. Double Breakouts on P&F charts are bullish patterns that mark an upside-resistance breakout.

Many potential Double Top Reversals can form along the way up, but until key support is broken, a reversal cannot be confirmed.

The following are key points in the Double Top formation:

  • Prior Trend. With any reversal pattern, there must be an existing trend to reverse. In the case of the Double Top Reversal, a significant uptrend of several months should be in place.

  • First Peak. The first peak should mark the highest point of the current trend. As such, the first peak is fairly normal, and the uptrend is not in jeopardy (or in question).

  • Decline from Peak. The subsequent decline from the second peak should witness an expansion in volume and/or an accelerated descent, perhaps marked by a gap or two. Such a decline shows that demand forces are weaker than supply, and a support test is imminent.

  • Support Break. Even after trading down to support, the Double Top Reversal and trend reversal are still incomplete. Breaking support from the lowest point between the peaks completes the Double Top Reversal. This should occur with increased volume and/or an accelerated descent.

  • Support Turned Resistance. Broken support becomes potential resistance; sometimes, this newfound resistance level is tested with a reaction rally. Such a test can offer a second chance to exit a position or initiate a short.

  • Price Target. Subtract the distance from support break to peak to obtain a price target. This would infer that the bigger the formation is, the larger the potential decline.

Although the Double Top Reversal formation may seem straightforward, proper steps should be taken to avoid deceptive Double Top Reversals.

The peaks should be separated by about a month. If the peaks are too close, they could represent normal resistance rather than a lasting change in the supply/demand picture.

Ensure that the low between the peaks declines at least 10%. Declines under 10% may not indicate a significant increase in selling pressure. After the decline, analyze the trough for clues on the strength of demand. Demand could be drying if the trough drags on and has trouble moving back up. When the security does advance, look for a contraction in volume as a further indication of weakening demand.

Perhaps the most important aspect of a Double Top Reversal is to avoid jumping the gun. Wait for support to be broken with an expansion of volume.

You can apply a price or time filter to differentiate between valid and false support breaks. A price filter could require a 3% support break before validation. A time filter might require the support break to hold for three days before it is considered valid.

The trend is in force until proven otherwise. This applies to the Double Top Reversal as well. Until support is broken convincingly, the trend remains up.

In the chart below, the double top formation took five months to form. Even after the support break, there was another test of newfound resistance almost four months later.

Let's walk through the above chart.

  • Ford's stock price advanced from a low near 10 in March 1997 to 36 by December 1998. The trend line extending up from March 1997 is an internal trend line, and Ford held above it until the break in May 1999.

  • The stock declined around 15% from the first peak to form the trough.

  • After reaching a low near 30 1/2 in early February, the trough formed over the next two months. There wasn't a rally until early April. This long-drawn-out low suggested tepid demand.

  • In late May and early June, the stock traded for about three weeks at support from the previous low. During this time, money flows declined below -20%. Even though the situation looked ominous, the double formation would not be complete until support was broken.

  • Support was broken in early June when the stock fell below $28.50. That's more than 3% below support at $30.50. This sharp drop was followed by an equally sharp advance and the stock price was back above the newfound resistance level. A test of broken support can happen, but typically not this early. The advance to $32 in late June may have triggered some short-covering by those who jumped in on the first support break. The stock fell to $25 and then began the retracement advance that would ultimately test support.

The chart below shows that $30.75 marked the support turned resistance level, and $31 marked a 50% retracement of the decline from $36.80 to $25. Combined with the price action in early June and early July, a resistance zone could probably be established between $31 and $32. The stock subsequently formed a lower high at $30 in Jan 2000 and declined to around $22 by mid-March.

Trough. After the first peak, there is generally a 10-20% decline. on the decline is usually inconsequential. The lows are sometimes rounded or drawn out a bit, which can signify tepid demand.

Second Peak. The advance from the trough usually occurs with low volume and rises to the previous high. from the previous high should be expected. Only after meeting resistance will a Double Top Reversal pattern be possible. It still needs to be confirmed. The time between peaks can vary from a few weeks to many months, with the norm being one to three months. While exact peaks are preferable, there is some leeway. Usually, a peak within 3% of the previous high is adequate.

The decline from $36.80 occurred with two gaps down and increased volume. Furthermore, the moved below -10%. The speed at which money flows deteriorated indicated a significant increase in selling pressure.

Chaikin Money Flow
Volume
Resistance
Example of a classic Double Top Reversal pattern.
An example of a double top formation that took five months to form.
A closer look at the support turned resistance level in Ford Motor Co. (F).
Chart from StockCharts.com showing a double top reversal pattern
Chart from StockCharts.com showing a double top formation that took five months to form
An example of a chart from StockCharts.com showing a support turned resistance after a double top reversal.