Double top and double bottom
Two reversal patterns: price tests the same level twice, fails, then breaks the other way. A double top forms at highs, a double bottom at lows.
What the patterns are.
Two tests of the same level that can show a trend running out of steam.
A double top forms after a rise. Price reaches a high and pulls back. It then climbs to about the same high again and fails to go further.
The low between the two peaks is the confirmation level. The pattern is complete only when price closes below it.
A double bottom is the mirror image. It forms after a fall, with two lows at about the same level. It is confirmed by a close above the peak between them.
How the patterns form.
Four stages for a double top. A double bottom runs the same way, upside down.
A trend.
A double top needs a rise before it. A double bottom needs a fall. Without a trend, there is nothing to reverse.
The first test.
Price reaches a high and pulls back. The low of that pullback becomes the confirmation level.
The second test.
Price returns to about the same high and fails again. The two peaks rarely match exactly.
The break.
Price closes below the confirmation level. This close completes the pattern.
Some traders estimate how far a completed pattern might run. They measure the distance from the peaks to the confirmation level and project it from the break.
Projected level, double top = confirmation level − pattern height
Projected level, double bottom = confirmation level + pattern height
The projection is a rule of thumb, not a level the market has to reach. Price can stop well short of it or run past it.
How to read them.
What traders weigh once two peaks or two lows appear. None of it is a signal on its own.
The confirmation close.
Two peaks alone are not a pattern. Until price closes beyond the confirmation level, the trend may simply carry on.
How closely the tests match.
The peaks do not need to match exactly. Traders look for two tests that turn back from the same area, not the same price.
The gap between the tests.
Peaks only a few bars apart can be noise. Traders generally look for a clear pullback and some time between the two tests.
The retest.
After the break, price sometimes returns to the confirmation level. The old support can act as resistance, or the break can fail.
Everything above applies to a double bottom in reverse. Look for two lows after a fall, a clear rally between them, and a close above the peak of that rally.
Common mistakes.
Where traders new to these patterns most often go wrong.
Calling the pattern at the second peak. Without a close beyond the confirmation level, it is only a possible pattern.
Forgetting the trend before it. A double top needs a rise to reverse. Two highs inside a sideways range mean something different.
Treating the projected level as certain. The measured move is a rough guide, and price often stops short of it.
Trading without a plan for failure. Many patterns fail and price returns through the level. Decide where your idea is wrong before you trade.
Drawing them on MetaTrader 5.
MT5 has no double top indicator. You mark the levels yourself with horizontal lines.
Open a chart.
Open the instrument and timeframe you want to study, and find two peaks or two lows at about the same level.
Mark the confirmation level.
Go to Insert, then Objects, then Lines, and choose Horizontal Line. Place it at the low between the two peaks.
Mark the tests.
Add a second horizontal line across the two peaks, so you can see how closely they match.
Check a longer timeframe.
Switch to a higher timeframe to see the trend the pattern formed in. Your lines stay on the chart when you change timeframe.
Questions, answered.
What traders ask most about double tops and double bottoms.
01What is the difference between a double top and a double bottom?
02Do the two peaks need to be at exactly the same price?
03What is a triple top?
04What if price closes back through the level after the break?
05Can I practise spotting them first?
Practise it on a demo.
Mark confirmation levels on a free MT5 demo and watch how the patterns play out before you trade with real money.
Trading CFDs on a live account puts your capital at risk and you can lose money. A demo does not.