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Technical Analysis · Intermediate · 4 min

Double top and double bottom

You can recognize a double top and a double bottom, mark the confirmation level and explain why most double touches do not complete the pattern.

Two peaks, one question

The price rallies back to an old high and turns down again. Within minutes, someone calls it a double top: the rally has failed, the reversal has begun.

Sometimes they are right. Often they are early, and the price goes on to make a new high. The pattern has a precise completion point, and waiting for it changes the picture.

Close below the trough

A double top is a reversal pattern after an uptrend:

  1. The price makes a peak and pulls back to a trough.
  2. It rallies again to roughly the same price as the first peak and fails to go higher.
  3. It falls and closes below the trough.

Only the third step completes the pattern. At that point, the uptrend has made a lower high, or an equal high, and a lower low, as in the lesson on trend changes. Before that, the second peak is simply a test of resistance near the first.

Candle chart A rise to 50.20, a pullback to 47.05 and a second rise to 50.21: two tops at almost the same price. Candle 23 closes below 47.05 at 46.80, completing the double top. The price falls to 45. Top 1 Top 2 Confirm

A double bottom is the mirror image after a decline: two similar lows with a peak between them, completed by a close above that peak.

The peaks do not need to be exactly equal. Textbook definitions, going back to Edwards and Magee, allow small differences, and the time between the peaks is usually a few weeks on daily charts. The classic measured target is the height from the peaks to the trough, projected from the break.

Lo, Mamaysky and Wang included double tops and bottoms in their 2000 study of US stocks and found that some patterns provided incremental information. That is a modest result. It means the pattern may carry some information on average, not that a particular double top will lead to a large decline.

Broken at 47.05

Follow the fictional chart.

The measured target would be the height of about 3.15 points, from 50.20 to 47.05, projected down from 47.05: roughly 43.90. By the end of the chart, the price has reached 44.92. A trader acting on the second peak alone, at around 50, would have had no objective level yet. A trader waiting for the break had a clear point and a stop above the second peak.

Common mistakes

The takeaway

A double top is two similar peaks with a trough between them. It completes only on a close below that trough.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

  1. 1Tap the candle that completed the double top.

    Tap the chart.

    Candle chart Chart for the question: Tap the candle that completed the double top. Confirm

    Candle 23 closed at 46.80, below the trough at 47.05 between the two tops. Before that, the shape was only a possibility.

  2. 2What is the confirmation level of a double top?

    A close below the trough means the uptrend has made a lower low, which completes the pattern.

  3. 3The price reaches a previous high and turns down. Is that a double top?

    Many second touches are followed by a new high instead. Only the break of the trough completes the pattern.

  4. 4What does a double bottom look like?

    It is the mirror image of a double top and appears after a decline.

of 4 correct.

Sources

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