What Is a Double Top?
After uptrend, price rallies to a peak, pulls back to support, rallies again near the first high, then reverses. The two peaks should be near equal height—wider tolerance on volatile names. Valley between peaks forms neckline support. Double tops express supply overwhelming demand at a visible ceiling. Classic measured move subtracts peak-to-neckline distance from breakdown. Pattern duration from first peak to break often spans multiple sessions to weeks. Triple tops add a third peak but share logic.
Peaks separated by months on weeklies are major topping signals; same structure on five-minute is day-trade scope.
How Do You Identify a Valid Double Top?
Two clear peaks with pullback valley between. Resistance horizontal—ascending second peak slightly higher may be head and shoulders instead. Volume often lower on second peak—buying exhaustion. Neckline drawn across valley low. Peaks within three percent on dailies is common tolerance. Pattern needs prior uptrend context for reversal interpretation. Sideways double tops in ranges are rectangle trades, not reversals.
Label pattern only after second peak completes—first peak alone is insufficient.
What Confirms the Neckline Breakdown?
Close below neckline on rising volume. Second peak rejection is early warning to tighten long stops. Retest of neckline from below that fails confirms short entry. Break without volume often retraces—wait for follow-through. Gap down through neckline accelerates but may bounce—scale shorts. Relative weakness on break day versus market supports thesis. Intraday close matters for swing traders; scalpers may use session rules.
Bull trap: quick reclaim of neckline after break—cover shorts if two closes back above.
How Do Stops and Measured Targets Work?
Stop above second peak or above neckline on retest failure setup. Measured target subtracts peak-to-neckline height from breakdown point. Partial profits at prior support zones below neckline. Trail stop on shorts below lower highs during decline. Entry on retest of neckline improves risk-reward. Wide valley means wide stop—reduce size.
If breakdown stalls at major long-term support, take profits—full measured move may not print in one leg.
When Do Double Tops Fail?
Breakout above second peak invalidates—continuation higher. False breakdown springs below neckline and recovers. Strong bull market ignores textbook tops. Second peak substantially exceeds first—pattern morphs to continuation. Low-float spikes through resistance on news. Double tops in downtrends are often bear flags mislabeled. Treat invalidation literally—do not short hoping.
M and W terminology: double top is M shape at top of trend—ensure valley is deep enough to matter.