Technical Signals for Double Top Figure

1. Prior trend: like added reversal patterns, there have to be a trend current to turn. 

2. First Peak: The first new high should mark the top of the recent trend. This peak is usually acceptable and normal in an uptrend. There is no importance about status at this moment in time. 

3. Trough: Following the first new high (top 1), a retraction in cost occurs and its range is more or less 10-20%. Due to the decline from the first high the volume is generally regarded as insignificant. 

4. Second Peak: To ensure a convincing double top has formed, it is essential that the volume declines rapidly as the share price attempts to retest the recent new high (top 1). It should be anticipated that resistance will be met upon the retest. This pattern still needs confirmation at this stage. 

5. Decline from the High: The following decline from the second high will observe an increase in volume and a possible associated accelerated fall. The share price could possibly gap lower. The strong fall represents the supply outweighing the demand and retractions to support levels are looming as a real possibility. 

6. Sustain Break: the double top design is only accomplished if a break of the reaction low has transpired. The share cost is able to trade down to its support level, the pattern of double top and more importantly trend reversal is not fulfilled. To complete the double top you must have a break in support below the lowest point between the two peaks. The following decline from the second high will detect an increase in volume and a possible associated accelerated fall. 

7. Support turned into Resistance: Pullback breakouts usually have 2-3% declines before attempting to retest the breakout point. If for any reason the share price closes above the breakout level it will become a new support level, hence the pattern becomes invalid. If the support levels are broken there becomes a chance of impending resistance with a possible test of this newly found resistance level amid a small bounce in share price, commonly known as a reaction rally. At this point, it gives the trader a chance to close a losing position or take an opportunistic approach and trade this market to the short side. 

8. Price Target: Generally, a good indication is the following calculation - by measuring the distance between the support break level to the peak and then subtracting it from the support break. This will give you the approximate price target. Predictably this gives the trader an understanding, the larger the construction the greater the possible for a pricey decline in charge. Anticipated swing trades are executed at breakpoints through to reaction lows, although it is more common to let the share price fall lower than the reaction low. It is potential to achieve a rally back up to the reply low. This is the most appropriate time to begin to trade the share short. You will want to place a stop order merely above the response low. It is acceptable to sell into the market to the first top; you will need to place the stop loss just above that top.