The Double Top is a two-peak bearish reversal pattern. Price rises to a resistance level, pulls back, rallies again to the same level, and fails a second time โ confirming that sellers are strongly defending that price. When the pattern completes with a break below the valley between the two tops (the neckline), a downtrend begins.
Pattern Diagram
Two equal highs at resistance โ Break of neckline = target equal to pattern height
Key Characteristics
- Both tops should reach approximately the same price level (within 1โ3%)
- The valley between the tops should be a meaningful pullback (at least 5โ10%)
- Time between tops should be at least several weeks on daily charts
- Second top often forms on lower volume than the first
Price Target
Double Top Target
Target = Neckline โ (Resistance Level โ Neckline)
Example: Resistance โน600, Neckline โน540
Target = 540 โ (600 โ 540) = โน480
Trading the Double Top
Entry: Short on neckline breakdown (close below neckline on volume)
Stop Loss: Above the second top
Target: Neckline minus pattern height
Early warning sign: When the second top forms on RSI below 70 (bearish divergence) while price matches the first top โ very high conviction signal
Stop Loss: Above the second top
Target: Neckline minus pattern height
Early warning sign: When the second top forms on RSI below 70 (bearish divergence) while price matches the first top โ very high conviction signal
Do NOT short at the second top โ wait for the neckline to break. Many stocks test resistance twice and then break higher (creating a different pattern). Only the neckline break confirms the Double Top is complete.
