The Double Top forms when price hits resistance twice and fails to break through. The two peaks form an "M" shape. Breakdown below the trough between peaks (the neckline) confirms the bearish reversal.
Tops at 110 (day 6) and 109.5 (day 17), within 0.5% of each other, with a valley at 100 between. The pattern exists only once the price closes below the valley, as it does on day 22 (99). Measured move: 100 − (110 − 100) = 90.
The example data
The turning points the daily closes run through, in straight lines between them; high and low are half a point either side of each bar.
| Day | Close |
|---|---|
| 0 | 90 |
| 6 | 110 |
| 11 | 100 |
| 17 | 109.5 |
| 22 | 99 |
| 26 | 94 |
- Until the valley breaks it is just two similar highs, and in an uptrend those are often followed by a third, higher one.
- How equal is “equal” is a choice (2% here); loosen it and double tops appear everywhere.
- After the break the price often comes back to test the valley from below.
def swings(s, n=3): # a swing high (low) is the extreme of the 2n+1 bars around it
w = s.rolling(2 * n + 1, center=True)
return s[s == w.max()], s[s == w.min()]
c = df['close']
highs, lows = swings(c)
t1, t2 = highs.iloc[-2:]
valley = lows[(lows.index > highs.index[-2]) & (lows.index < highs.index[-1])].min()
is_dt = abs(t1 - t2) / max(t1, t2) < 0.02 # tops within 2%
target = valley - (max(t1, t2) - valley)
confirmed = c.iloc[-1] < valleyAssumes import numpy as np, import pandas as pd, and a DataFrame df with columns open, high, low and close for the data above.
- Encyclopedia of Chart Patterns (2nd ed.), T. N. Bulkowski, Wiley, 2005 — success and failure rates from large counts of patterns
- Technical Analysis of Stock Trends, R. D. Edwards & J. Magee, 1948 (later editions revised by W. H. C. Bassetti)
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1. Two peaks of similar height have formed. When is the double top complete?
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B. Two similar highs are common inside ordinary uptrends; the break of the valley is what separates a reversal from a pause.
2. What is the classic target after the break?
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B. Like other measured moves, it is a convention for planning, not a probability.
3. Why do traders insist on the break before acting?
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A. Confirmation trades a later entry for fewer false signals.