How to trade trend reversals: the "M" pattern technique

Reversal of the Uptrend: What is happening on the chart?

Every experienced trader knows that uptrends are not eternal. One of the most reliable warning signals is the formation of the so-called double top pattern. Visually on the price chart, it looks like two mountains placed side by side, which crypto traders often denote with the letter “M”.

The essence of the phenomenon is as follows: the asset’s price approaches the same resistance level twice but cannot break through it both times. On the second attempt, a loss of momentum is noticeable — the second peak is usually slightly lower than the first. After that, a breakdown occurs downward, and a bearish trend begins. $BTC BTC, at the time of analysis, shows a price of 91,835.12 USDT with a gain of +1.12%.

Step-by-step method for identifying the double top pattern

Beginner traders often mistake any upward-downward movement for the “M” pattern. To avoid false signals, it is necessary to follow a clear algorithm:

First stage — locating the two peaks. Analyze the chart and find two consecutive maxima reaching approximately the same price level. They should be separated by a minimum (valley).

Second stage — defining the neckline. Draw a horizontal line through the minimum point between the peaks. This line serves as a critical support zone. For example, if both peaks reached the 50-dollar mark, and the minimum between them was 45 dollars, then the neckline passes exactly through 45 dollars.

Third stage — waiting for a breakdown. The double top pattern is considered fully formed only after the price drops below the neckline. At this moment, trading volume usually noticeably increases, which serves as additional confirmation.

Fourth stage — calculating the target level. Measure the distance from the neckline to the peak of the tops (in our example, this is 5 dollars). Subtract this value from the breakdown point. The expected decline will be the same 5 dollars, and the price may reach the 40-dollar level.

Entry and position management strategy

Now let’s move to the practical part — how exactly to trade using the double top pattern:

Conditions for opening a position. Open a short position only after the price has settled below the neckline. Do not rush to enter based on assumptions — wait for clear confirmation on the chart, preferably accompanied by increased volumes.

Placing protective orders. Set a stop-loss above the last peak (above the second top). This will minimize losses if the market suddenly reverses upward and the pattern turns out to be false.

Risk management on the deposit. It is critically important: do not risk more than 1-2% of your total capital on a single trade. If your deposit is $1000, then the maximum loss per position should not exceed $10-20.

Comprehensive market analysis. Technical picture is only part of the equation. Simultaneously, monitor fundamental factors: changes in regulatory frameworks, technological updates of projects, macroeconomic news. All of this can radically change the price direction, even if the double top pattern looks perfect.

$BNB BNB is trading at 907.27 USDT (+0.23%), confirming the importance of analysis for popular assets.

Strengths and weaknesses of the methodology

What works in favor of the pattern:

Critical levels are clearly defined. The double top pattern precisely indicates support and resistance zones, simplifying the choice of entry and exit points.

Reliable reversal indicator. The formation of this pattern signals a transition from an uptrend to a downtrend — information that market participants always value.

Convincing confirmation. If the pattern is fully formed and a breakout occurs with high volume, the signal becomes one of the most reliable on the chart.

Where difficulties may arise:

Noisy signals and false breakouts. The market can give a temporary breakout, which then reverses, leaving traders with losses.

Subjectivity in interpretation. Different analysts may interpret the chart differently, seeing peaks at different levels or drawing the neckline in different places. This leads to discrepancies in trading decisions.

$YFI YFI demonstrates the importance of proper analysis when trading volatile assets.

The double top pattern remains one of the most practical tools of technical analysis for cryptocurrency markets. The key to success is careful identification, strict adherence to entry rules, and most importantly, disciplined risk management on each trade.