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The classic "M" formation - a powerful reversal pattern where price tests a resistance level twice and fails to break higher, signaling the end of an uptrend.
The Double Top is a major bearish reversal chart pattern that resembles the letter "M". It forms when price makes two consecutive highs at approximately the same level, with a moderate trough (the "neckline") in between.
The pattern signals that buyers attempted to push price higher twice but failed both times at the same resistance level. This double rejection shows that sellers are stepping in at that level, and a breakdown below the neckline confirms the reversal.
The Double Top represents a dramatic shift in market psychology. After an uptrend, price reaches a high where sellers step in - this creates the first top. The subsequent decline finds support at the neckline, and buyers push price back up.
Here's where it gets interesting: price returns to the same resistance level, but this time the buying pressure is weaker. Sellers who missed the first opportunity are now waiting. When price fails to make a new high, it signals buyer exhaustion.
The breakdown below the neckline is the *moment of truth*. Longs exit their positions, sidelined bears jump in, and the previous support now becomes resistance. This combination creates the powerful move that typically follows a confirmed Double Top.
Conservative: Enter short on a close below the neckline with volume confirmation.
Aggressive: Enter short on the retest of the neckline as resistance after initial breakdown.
Place stop above the higher of the two tops. This is where the pattern is completely invalidated - if price makes a new high, the double top failed.
Measured Move: Project the height of the pattern (tops to neckline) downward from the breakdown point. Alternative: Use prior support levels and Fibonacci extensions.
Double tops typically offer 1:2 to 1:3 R:R based on the measured move target.
A double top is only as good as the context it appears in. The same pattern shape can be a high-probability reversal signal or noise - the difference is where it forms and what surrounds it.
The two tops don't need to be exactly equal - within 3% is close enough. What matters is the failure to make a new high.
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