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
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)
Entry: 1H neckline breakdown Target: Pattern height from neckline Stop: Above second peak
Resistance Level Rejection (SHORT)
Setup Process:
Price approaches major resistance level
Double Top forms at resistance
Second peak shows volume divergence
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
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
❌ Forms in middle of trading range ❌ Peaks at different levels ❌ Low volume on breakdown ❌ Compressed time formation
Best Practices
For SHORT Strategies
Wait for neckline break - Pattern isn't confirmed until breakdown
Volume confirmation - Ensure high volume on neckline breakdown
Resistance context - Best results at major resistance levels
Target management - Take profits at measured move targets
For LONG Strategies
Exit signal only - Use primarily to exit existing LONG positions
Quick recognition - Exit immediately upon pattern completion
No new entries - Avoid new LONG positions with this pattern
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
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
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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