Double Tops and Double Bottoms
A
double top occurs when a stock attempts to break out above a recent peak but fails. (Remember, that first peak is resistance!) If a stock doesn’t immediately get through an old peak, it doesn’t mean a double top is forming. In order to get confirmation, the correction low (valley) between the two peaks must be broken to the downside. For a visual representation of this, see figure 5.
When a double top has been confirmed, the price objective is the same distance down from the valley as the distance from the peak to the valley. In our example, the target price is around $11.
The mirror image of a double top is the double bottom. A
double bottom formation is a bullish pattern. But care should be taken not to buy into the stock until the formation is confirmed by a breakout above the peak that’s between the two bottoms.
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