Double top and double bottom patterns
The double top pattern forms in the uptrend. In this pattern, two consecutive peaks are formed. The peaks both have roughly the same price level. The breakdown will result in the trend reversal.
The double bottom pattern forms at the bottom of the trend. In this pattern, two consecutive bottoms are formed. The bottoms have roughly the same price level. In the double bottom pattern, a breakout will result in an uptrend.
The above chart shows the double top and double bottom pattern for a NASDAQ stock.
The double top forms because investors think the stock is expensive at the uptrend’s peak. As a result, investors sell the stock. High selling pressure leads to a trend reversal.
The double bottom forms when investors think that stock is trading at a low price. Investors buy the stock. High buying pressure leads to a trend reversal.
These patterns are used for trend identification. They’re also used for entry and exit signals.