On the stock exchange, traders with clear trading rules and setups are particularly successful. The widespread use of the M-Formation is therefore explained by the fact that it is easy to identify in the chart. The price target determination is also very simple. The following basic data should be fulfilled with a double top:
- The two peaks should be as close together as possible in price
- Only the break of the support generates a sell-signal
- The target price is calculated from the distance between the lower high and support
You can see exactly what such a double top looks like by looking at the example chart on the title page. This formation appeared in exactly the same way in the DAX in 2018. The price target was also reached in this example, as the 2nd picture shows.
The double top in trading
Among daytraders the double top is also popular, but it causes many false signals. Only in the larger time levels the hit rate of this reversal formation increases. Especially in the day chart the M-Formation is very popular and widespread. The chart pattern presented here is intended to indicate the temporary end of an uptrend. The opposite of the double top is the double bottom. This is designed to identify the end of a downtrend.
A triple top is similar to a double top, but has one more high point.