What is a double top pattern?
In one line: A double top is a chart shape where price rises to about the same high twice, fails both times, then falls below the low point between the two peaks.
What it looks like
Picture the letter M.
- Price climbs to a peak and turns down.
- It dips to a low point. That low is called the neckline.
- It climbs again to about the same peak, and fails again.
- It falls back and breaks below the neckline.
Until step 4 happens, there's no double top. There's just a market that touched the same price twice.
A simple example
A stock rises to $120.00 and turns down. It dips to $112.00. It climbs back to $119.60, close to the old peak, and stalls. Then it slides. A daily candle body closes at $111.40, below the $112 neckline.
That close is the confirmation. Buyers tried the $120 area twice and couldn't get through. It acted as Resistance.
Where a stop would go
If you trade it as a short, the idea is wrong if price climbs back over the peaks. A stop just above $120 says that clearly. From a $111.40 entry, that's about $8.60 of risk per share. That's a wide stop, so the size must be small. The position size calculator works it out.
Some people project a target by measuring the height (peak $120 minus neckline $112 = $8) and subtracting it from the neckline: about $104. That's a rough guide used by many traders. A math example, not a promise.
Why it matters
A double top shows an uptrend running out of push. The second peak failing at the same place tells you buyers ran out of steam there. It's one of the most common Reversal shapes. Our double top and double bottom guide covers it step by step.
A common mistake
Calling it at the second peak. Many "double tops" break out to a new high instead. Until a body closes below the neckline, it's just a test of resistance. Patterns fail often. That's why the stop comes first.
Questions
Is a double top bullish or bearish?
Bearish. It's a sign an uptrend may be ending. It only counts once price closes below the low point between the two peaks.
Do the two peaks need to be at the exact same price?
No. Close is enough. The second peak is often a little higher or lower than the first.
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