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Double Top Reversal

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 is made up of two consecutive peaks that are roughly equal, with a moderate trough in-between.

Note that a Double Top Reversal on a bar or line chart is completely different from a Double Top Breakout on a P&F chart. Namely, Double Top Breakouts on P&F charts are bullish patterns that mark an upside resistance breakout.

Gillette Co. (G) Double Top Reversal example chart from StockCharts.com

Although there can be variations, the classic Double Top Reversal marks at least an intermediate-term, if not long-term, change in trend from bullish to bearish. Many potential Double Top Reversals can form along the way up, but until key support is broken, a reversal cannot be confirmed. For clarification, we will look at the key points in the formation and then walk through an example.

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) at this time.

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

Second Peak: The advance off the lows usually occurs with low volume and meets resistance from the previous high. Resistance from the previous high should be expected. Even after meeting resistance, only the possibility of a Double Top Reversal exists. The pattern still needs to be confirmed. The time period between peaks can vary from a few weeks to many months, with the norm being 1-3 months. While exact peaks are preferable, there is some leeway. Usually, a peak wit

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