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What is a Double Top?

A Double Top is a reversal pattern. It is simply when a stock has 2 failed attempts to break resistance and actually ends up breaking support. When the stock breaks support it is a good indicator that it will continue to go down. Let us look at an example. This stock was heading up, but ended up staying in a channel between $18.5 and $29. It tries to break the $29 mark 2 times. Each time it fails and heads to support.

After the second time it fails to break resistance the stock actually breaks support. If you sold this stock when it broke support you would have got in on it when it was at $17.90. Now the stock is trading at $15.10. So you could have made $2.80.

So, how can a double top help you? Well it can help tell you when a stock is going to go down. Because of this it can be useful in a couple ways. If you were in this stock for a long position and you see it form a double top it may be an indicator to get out of it.

Also if you see this double top form you might think about entering a short position. Selling the stock during a breakout and buying either setting a target on it or follow it down.

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