Introduction
Trading is a complex game that requires a lot of skill, knowledge, and experience. One of the key skills that traders must master is the ability to read and interpret charts. Charts are graphical representations of a security’s price movement over a specific period. There are various chart patterns that traders use to identify potential trading opportunities. One such pattern is the double top chart pattern.
What is a Double Top Chart Pattern?
A double top chart pattern is a bearish reversal pattern that forms after an extended uptrend. The pattern is characterized by two peaks of almost the same height, separated by a trough. The first peak represents the highest price point reached during the uptrend, while the second peak is a failed attempt to break above the first peak. The trough that separates the two peaks is often referred to as the neckline.
How to Identify a Double Top Chart Pattern?
Identifying a double top chart pattern requires some knowledge of technical analysis. Traders typically look for two price peaks that are almost the same height, separated by a trough. The neckline is drawn by connecting the lows of the trough. The neckline acts as a support level that, when broken, signals a bearish reversal.
Trading the Double Top Chart Pattern
Trading the double top chart pattern involves taking a short position after the neckline is broken. Traders typically place a stop loss above the second peak and a take profit at the distance between the second peak and the neckline. However, it is important to note that not all double top chart patterns result in a bearish reversal. Traders should always use proper risk management and follow their trading plan.
Examples of Double Top Chart Patterns
Let’s take a look at some examples of double top chart patterns. In the chart below, we can see a double top chart pattern that formed on the EUR/USD daily chart. The first peak was reached in early January, while the second peak was reached in late January. The neckline was drawn by connecting the lows of the trough. The neckline was broken in early February, signaling a bearish reversal. 
In the chart below, we can see another example of a double top chart pattern that formed on the NASDAQ daily chart. The first peak was reached in mid-February, while the second peak was reached in early March. The neckline was drawn by connecting the lows of the trough. The neckline was broken in mid-March, signaling a bearish reversal. 
Conclusion
The double top chart pattern is a bearish reversal pattern that forms after an extended uptrend. Traders use this pattern to identify potential trading opportunities by taking a short position after the neckline is broken. However, not all double top chart patterns result in a bearish reversal, so traders should always use proper risk management and follow their trading plan. With the right knowledge and experience, traders can use the double top chart pattern to their advantage in the competitive world of trading.
