Double Top

The Double Top is a chart patterns indicator used in Skyrexio Strategy Builder for pattern recognition and reversal/continuation signals.

Introduction

The Double Top is a bearish reversal chart pattern that signals potential SHORT opportunities or LONG position exits. This pattern occurs when price reaches a high, declines, rallies back to a similar high, then declines again, creating an "M" shape that indicates potential trend reversal from bullish to bearish.

How Double Top Works

Double Top is a bearish reversal chart pattern with specific characteristics:

• Two peaks - Price reaches approximately equal highs separated by a valley • Neckline formation - The low point between peaks creates support (neckline) • Volume pattern - Typically decreases on second peak, increases on breakdown • Confirmation requirement - Pattern confirmed when price breaks below neckline • Target calculation - Price target equals pattern height subtracted from neckline

Pattern Psychology: The pattern shows bulls making two attempts to push price higher, but failing to break above the previous high. This failure, combined with the subsequent breakdown below the neckline, demonstrates a clear shift in market sentiment from bullish to bearish as sellers gain control.

Key Characteristics

Attribute
Details

Category

Chart Patterns

Type

Bearish Reversal Signal

Primary Use

SHORT entries, LONG exits

Timeframe

All timeframes supported (1m to 1M)

Confirmation

Neckline break, volume, resistance levels

Strategy Applications

🔴 SHORT STRATEGY (Primary Use)

Double Top is primarily a SHORT signal - enter short positions when the pattern completes with neckline breakdown.

Base Entry Order (SHORT)

Additional Entry Orders (SHORT)

Take Profit Orders (SHORT)

Stop Loss Orders (SHORT)

🟢 LONG STRATEGY (Secondary Use)

Double Top is used in LONG strategies primarily as an exit signal for existing positions.

Counter-Trend Risk: Using Double Top for new LONG entries is high-risk and should only be considered in extreme oversold conditions with very tight risk management.

Base Entry Order (LONG) - Not recommended

New LONG entries not recommended with Double Top pattern. Use bullish reversal patterns instead:

Take Profit Orders (LONG) - Exit existing positions

Stop Loss Orders (LONG) - Protect existing positions

Advanced Strategy Combinations

Multi-Timeframe Double Top Analysis (SHORT)

Higher Timeframe Confirmation:

  • Daily: Double Top formation + RSI > 65

  • 4H: Trend weakening (EMA(21) flattening)

  • 1H: Neckline breakdown + Volume confirmation

Resistance Level Rejection (SHORT)

Setup Process:

  1. Price approaches major resistance level

  2. Double Top forms at resistance

  3. Second peak shows volume divergence

  4. Neckline breakdown confirms pattern

Execution:

  • Base Order: Double Top neckline break

  • Additional: RSI momentum confirmation

  • Take Profit: Support levels, pattern targets

  • Stop Loss: Break above resistance peaks

Risk Management Guidelines

Position Sizing

Strategy Type
Position Size
Conditions

SHORT Strategy

Standard

Pattern at resistance with volume

LONG Strategy

Avoid new entries

Exit existing positions only

High Volume

Increase confidence

Larger position acceptable

Low Volume

Reduce size

Wait for confirmation

Pattern Reliability Factors

✅ Forms at established resistance levels ✅ Volume decreases on second peak ✅ High volume on neckline breakdown ✅ Clear separation between peaks

Best Practices

For SHORT Strategies

  1. Wait for neckline break - Pattern isn't confirmed until breakdown

  2. Volume confirmation - Ensure high volume on neckline breakdown

  3. Resistance context - Best results at major resistance levels

  4. Target management - Take profits at measured move targets

For LONG Strategies

  1. Exit signal only - Use primarily to exit existing LONG positions

  2. Quick recognition - Exit immediately upon pattern completion

  3. No new entries - Avoid new LONG positions with this pattern

  4. Risk management - Protect capital from major reversals

Common Mistakes to Avoid

  • Early entry - Entering before neckline breakdown confirmation

  • Wrong direction - Going LONG on a bearish reversal pattern

  • Volume ignored - Trading without volume confirmation

  • Target greed - Holding beyond reasonable profit targets

Market Conditions Analysis

Market Type
SHORT Strategy Effectiveness
LONG Strategy Effectiveness

Uptrend

🟢 High (major reversal)

🔴 Very Low (against trend)

Downtrend

🟡 Medium (continuation)

🔴 Low (counter-trend)

Ranging

🟢 High (at resistance)

🟡 Medium (exit signal only)

High Volatility

🟢 High (clear patterns)

🔴 Low (whipsaws)

Low Volume

🔴 Low (wait for confirmation)

🔴 Very Low (avoid)

Related Patterns

Pattern
Relationship
Link

Double Bottom

Opposite bullish signal

Double Bottom

Head and Shoulders

Similar bearish reversal

Head and Shoulders

Rising Wedge

Bearish continuation

Rising Wedge

Bearish Flag

Bearish continuation

Bearish Flag

Conclusion

Double Top is primarily a SHORT signal indicating potential major trend reversal from bullish to bearish. While it can be used in LONG strategies as an exit signal, its primary value lies in identifying SHORT opportunities at major resistance levels.

Key Takeaways

  • PRIMARY USE: SHORT entries after neckline breakdown

  • SECONDARY USE: LONG exits when holding positions

  • NEVER: New LONG entries with this bearish pattern

  • ALWAYS: Confirm with Volume and wait for neckline break

Success with Double Top requires patience to wait for pattern completion and confirmation. The pattern's reliability increases significantly when it forms at major resistance levels with proper volume confirmation on the breakdown.

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