Double Top Pattern - How to Identify and Trade

Double Top Definition

The Double Top is a bearish reversal pattern that forms after an uptrend. It consists of two roughly equal highs, creating an 'M' shape on the chart. Between the two peaks lies a trough known as the neckline.

How to Identify

• Prior trend: Must be a clear uptrend.
• First peak: Price rises to resistance, then pulls back.
• Neckline: The low point between the two peaks, acting as support.
• Second peak: Price rallies near the previous high but fails to break above, then declines.
• Volume: Typically declines, especially on the second peak, indicating weakening buying pressure.

See the diagram illustrating the pattern below: 

How to Trade

• Entry: Short sell when price breaks below the neckline. Wait for a strong bearish candle as confirmation.
• Stop loss: Place just above the second peak.
• Take profit: Measure the distance from the neckline to the peaks, then project that distance downward from the neckline. For example, neckline at 100, peaks at 110 → difference 10 units → target at 90.

Real Example

In January 2023, EUR/USD formed a Double Top with peaks near 1.1050, neckline at 1.0950. After the neckline break, price fell 100 pips to 1.0850, matching the projected target.

Common Mistakes

• Confusing with consolidation: If the two highs are unclear, it might be a sideways range, not a reversal.
• Early entry: Wait for neckline break confirmation; don't sell prematurely.
• Ignoring volume: Low volume on the second peak is crucial; without it, the pattern is less reliable.

Practice identifying Double Top on H4 charts before trading live.