Double top is a reversal pattern. The formation of double top is announced after the second top of the price appears. The top is the high point of the price in a period of time. When the price reaches a certain level but it is difficult to break through it, it is possible to form a top. When the price reaches the resistance level, the price will encounter resistance and retreat slightly, but then rebound again to test the resistance level. If the price falls back from the level near this level again, then we may see the formation of a double top pattern!
In the chart above, you can see that the price has formed two peaks or a double top after a strong rally. Notice how the second top has trouble breaking the high of the first top. This is a strong reversal signal and it indicates that a reversal is about to occur because it tells us that the buying pressure is about to end.
As the double top pattern forms, we can place our stop entry order below the neckline as we anticipate a possible reversal in the uptrend.
As you can see, the price broke the neckline and formed a perfect downtrend. Remember, the double top is a type of reversal pattern, so you will be looking for this pattern to form after a strong uptrend. You will also notice that the price fell below the neckline by the same height as the double top. Keep this in mind as it will help you set your profit targets.