Sell-at-top technical Pattern-Double Top (M Top)

I. What is a double top

When the currency price rises to a certain price level, the volume stagnates, and then falls, and the trading volume decreases. A second uptrend followed, and volume increased as prices rose, but failed to exceed the volume of the previous peak.

When it rises to a position almost equal to the previous high point, it starts a second decline and falls below the previous low point, thus forming a double top pattern. From a graphical point of view, the currency price forms two peaks, so it is called a double top. And because it is shaped like the capital letter “M” in English, it is also called M top. As shown below:

Draw a straight line through the lowest point between the two high points, which is the [neckline]. The neckline is an important reference line for judging buying and selling points.

II. How to identify a double top

1. Appears in an uptrend;

1. The two high points are on the same horizontal line, or the right high point is slightly lower;

1. The trading volume on the right side of most double tops is lower than that on the left side;

1. The neckline of the double top is generally the horizontal line passing through the first pullback point, and sometimes it is inclined.

   III.What is the meaning of double top

The double top is a turning technical pattern, and when the price falls to the double top neckline, it is a reliable sell signal.

IV. Application of double top

We know that the double top is a technical form of escape from the top. When it is formed, it is a better opportunity for short selling. Now let’s analyze the short selling point in detail:

1. After the double top is formed, when the price falls below the neckline of the double top, it closes the negative line of the entity, which is short selling position 1 at this time. As shown below:

1. After the double top is formed, the price falls below the neckline of the double top, rebounds to the neckline position, and continues to fall after closing the negative line of the entity. At this time, it is short selling position 2. As shown below:

1. After the double top is formed, after the price falls below the neckline of the double top, the rebound touches the neckline and falls again, falling below the previous low point. This is short selling position 3. As shown below:

Now let’s summarize, the three selling signals of the double top are: as shown in the figure below

Sell ​​signal 1: break below the neckline;

Sell ​​signal 2: step back on the neckline and fall below it again;

Sell ​​signal 3: break below the neckline and then break below the previous low.

1. The longer the double top is formed, the more reliable the signal of a turnaround will be. The trend it forms is more likely to be a long-term trend.

1. After the double top is formed, how to predict the decline of the double top. The vertical height difference from the neckline to the highest point is the expected minimum drop for a double top. As shown below:

1. Of course, there are also situations where the double-top construction fails. If the price steps back on the neckline and continues to rise after closing the solid positive line, you need to pay attention to risks at this time. As shown below:

Ⅴ.Example of the pattern

Let’s take the BTC real offer as an example to see the application of the double-top pattern in actual transactions:

The picture above shows the daily trend chart of Gate.io’s contract BTC. Since July 21, BTC has experienced a strong upward trend. The price of the currency has risen from $29,000 to around $66,000, and the cumulative increase has reached more than 120% in just three months. Then, after a sideways arrangement, it made a slight correction and hit a new high of $69,000 again. After that, it hit many times but failed to break the previous high, thus forming a double-top pattern. As the price of the currency fell below the neckline of $58,000, it started a one-year decline.

Summary

In practical applications, triple tops or multiple tops will also appear outside of double tops, and its technical meaning is also a signal of a trend change. In general, it is necessary to cooperate with the neckline to find a sell signal.

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Disclaimer

This article is for informational purposes only, and such information provided by Gate.io does not constitute any investment advice and is not responsible for any of your investments. Content related to technical analysis, market judgment, trading skills, and trader sharing may involve potential risks, investment variables and uncertainties. This article does not provide or imply any opportunity to guarantee returns.