Double Top Definition
Double Top is a chart pattern with two swing highs very close in price. This pattern can be seen in all time-frames. There are a few requirements to classify a chart pattern as a double top:
- Two peaks that are near equal in price
- Equal distance in terms of time between highs
- Volume decreases on the second top
Double tops have an enormous amount of "cause" or breakout potential as the price of the stock has moved back in forth within a defined range. So, when the stock finally breaks out, there is an expansion in volume and price movement. Breakouts can occur to both the upside and downside. If you enter a breakout of a double top chart pattern, you will want to keep a close stop above/below the support and resistance level.
Double Top Price Target
When a stock breaks out of a double top formation, the price target is the range of the formation added to the breakout level.