A Double Top is a bearish reversal pattern that forms after an extended upward trend. It consists of two peaks (tops) that reach a similar price level, separated by a temporary pullback.
Here’s what it represents:
- The market pushed higher twice
- Buyers failed to break through the resistance level
- Selling pressure increases
- A trend reversal may begin
The double top shows that the bulls tried twice to push the price up but failed, giving sellers an opportunity to take control.
Structure of a Double Top
A textbook double top pattern includes three main elements:
1. First Top
Price reaches a high point after an uptrend and then pulls back.
This pullback shows early signs of resistance.
2. Second Top
Price rises again and tests the previous high, but fails to break above it.
This confirms strong resistance at that level.
3. Neckline
The support level between the two peaks is called the neckline.
When price breaks below the neckline, the reversal pattern is confirmed.
Once the neckline is broken, traders typically expect a downward movement.
Why the Double Top Pattern Works
The double top works because it reflects market psychology:
✔ Buyers lose strength after failing to break resistance
✔ Sellers gain confidence as price rejects the same level twice
✔ Support breaks, giving a strong bearish signal
✔ Momentum shifts from bullish to bearish
This natural shift in market sentiment is what makes the double top pattern reliable.
How to Trade a Double Top Pattern
Trading a double top involves patience and confirmation. Here’s a step-by-step approach:
1. Identify the Two Peaks
Ensure that both tops:
- Reach similar price levels
- Are separated by a clear pullback
- Form after an uptrend
If there’s no uptrend before it, it’s not a valid reversal pattern.
2. Wait for the Neckline Break
Do not enter after the second top forms.
The stronger signal is when the price breaks below the neckline.
This break confirms that sellers have taken control.
3. Enter the Trade on Retest (Safer Entry)
When price breaks through the neckline, it often comes back to retest it.
This retest gives a cleaner and safer entry point with lower risk.
4. Place Stop-Loss Above the Second Top
This ensures protection if the pattern fails.
5. Set Profit Targets
Most traders use:
- The distance from the top to the neckline
- Fibonacci extensions
- Support zones to predict the next potential move.
Double Top vs. Double Bottom
A double top is a bearish reversal pattern.
A double bottom is its opposite — a bullish reversal pattern.
Learning both helps you understand major turning points in the market.