1. A stock has made a high of the day but has turned around. It has formed what we call a top. Selling took place at that level showing traders are unwilling to buy more at that level and the stock has gone down.

 

2. The stock turns around and begins to climb back up. Day traders watch to see if it returns to the high. This would be a double top. If the overall feeling for the day is negative and this stock cannot go through the previous high day traders will look for a short entry. The stock has indicated it cannot make a higher high. If it goes through it may signal an upward trend.