Double top pattern

A double top is a bearish reversal pattern. After an uptrend price makes a high, falls back, then returns to the same area and fails again. On the chart the two peaks and the dip between them look like the letter M.

The reading is simple: sellers defended the same level twice, and the second rally could not get past it. Thomas Bulkowski's Encyclopedia of Chart Patterns sorts double tops by the shape of the peaks – narrow spikes or wide rounded turns – but all of them are confirmed the same way.

• Prior uptrend – there has to be a rise to reverse. Two equal highs inside a sideways market are a range, not a double top.
• Two peaks at about the same level – they rarely match to the tick. The second peak can stop slightly below the first or poke slightly above it.
• A clear low between the peaks – the pullback should be deep and long enough to stand out. Two highs a few candles apart are one top, not two.
• Neckline – a horizontal line through the low between the peaks. It acts as support until it breaks.
• Volume – often lower on the second peak than on the first, then higher on the break.
• Momentum – a lower RSI reading on the second peak than on the first is a common extra check.

Two peaks alone do not make a double top. Until a candle closes below the neckline, price is still inside a range, and many such ranges resolve upward with the uptrend intact.

A close below the neckline completes the pattern. After the break the neckline often turns into resistance, and price may come back to test it from below before falling further. Not every break gives a retest.

On Charts the trend line and rectangle tools mark the resistance and the neckline, and Replay steps through past double tops candle by candle.

A double top gives a short trade, and only after the neckline breaks.

• Entry – on the candle close below the neckline, or on a retest of the neckline from below.
• Stop – above the second peak. A stop just above the neckline is tighter, but a deeper retest takes it out more often.
• Target – the measured target: the height of the pattern, from the peaks down to the neckline, projected down from the neckline.
• Example – peaks at 150, neckline at 128. The pattern is 22 points tall, so the measured target is 128 – 22 = 106.
• The target is an estimate of the size of the move, not a level price has to reach. The nearest support on the way is a common place to take part of the profit.

A double top and a double bottom are mirror images. The double top forms after an uptrend, has two peaks and is bearish. The double bottom pattern forms after a downtrend, has two lows and is bullish.

Both are confirmed the same way – by a close beyond the neckline – and both use the height of the pattern as the measured target. Only the direction changes: short below the neckline of a double top, long above the neckline of a double bottom.

• Selling the second peak before the break – the trade is early, and an uptrend that pauses at resistance often continues.
• Calling any two highs a double top – without a prior uptrend and a clear low between the peaks the pattern has nothing to reverse.
• Ignoring the timeframe – a double top built over weeks on a daily chart carries more weight than one on a 1-minute chart.
• Holding a failed pattern – if price closes back above the neckline and then above the peaks, the double top has failed and the uptrend is intact.
• Demanding equal peaks – a second peak that briefly exceeds the first and closes back below it is still a double top. It is often a liquidity sweep of the stops above the first high.