Our Academy

A double top is a bearish reversal pattern that forms after an uptrend, showing two peaks at roughly the same price with a dip (the neckline) between them, resembling an “M”. A double bottom is its mirror image: a bullish reversal after a downtrend, with two lows at a similar level forming a “W”. Both signal that the prior trend is losing momentum and may reverse once the neckline breaks.

A double top is bearish. It appears at the end of an uptrend when price fails twice to break above a resistance level, showing buyers are exhausted. The signal is confirmed only when price closes below the neckline (the low between the two peaks). A double bottom, by contrast, is bullish and signals a potential move higher. Remember, patterns show probability, not certainty.

Traders typically wait for a confirmed close below the neckline rather than anticipating the break. A potential entry may be considered after the breakout or following a retest of the neckline from below. The measured-move target is commonly calculated as the distance between the peaks and the neckline, projected downward from the breakout point. A protective stop may be placed above the second peak, depending on the trader’s risk-management approach. Confirmation from increased volume can provide additional context, although it does not guarantee a successful breakout. CFD trading involves a high risk of loss, and past performance is not indicative of future results.

Look for a clear prior downtrend, followed by two distinct lows forming at roughly the same price level. The lows do not need to be identical, but they should be reasonably close and separated by a meaningful price recovery that forms the neckline. The troughs should also be separated by time rather than appearing as adjacent candles. Volume may increase as price rebounds from the second low and breaks above the neckline, adding confirmation. The pattern is generally considered complete when price closes above the neckline; before that, it may simply represent consolidation rather than a confirmed reversal. CFD trading carries a high risk of loss.

The conventional target uses the measured move: measure the vertical distance from the two peaks (or troughs) to the neckline, then project that same distance from the breakout point in the breakout direction. For a double top you subtract it below the neckline; for a double bottom you add it above. This is a guide, not a guarantee, so many traders combine it with support/resistance levels and manage risk with stops.

The biggest mistake is entering before the neckline breaks. Two similar peaks or troughs alone do not confirm a reversal; price can break the other way and continue the original trend. Traders also mislabel normal consolidation as a pattern, or ignore the second high/low being significantly out of line. Waiting for a decisive neckline close, ideally with volume, and using a stop-loss helps avoid false signals.