Double Top and Double Bottom: Rules and Targets

Two peaks at roughly the same price, with a trough between them. That’s a double top. Turn the drawing upside down and you have a double bottom, which shows up at the end of a sustained fall, and both shapes record the same event: price reached a level, got rejected, came back, and got rejected again.

Reversal structures get no simpler. This one also looks finished long before it is, and plenty of traders are already in the position by the time it fails.

The second test carries the information

Ignore the first low, because markets bounce on the way down constantly and a single bounce says nothing about whether the fall has ended.

The second visit is a different animal. The reason is mechanical: price came back to the same shelf, sellers had a fresh opportunity to drive it through, and the attempt failed where everybody could see it happen. Three groups react.

• Buyers who stepped in at the first low were proven right, and they’ll buy again
• Sellers who expected continuation start questioning the position
• Traders who missed the first bounce get a second entry at a known level

Intent piles up at one price. That accumulation is what turns a line on a chart into support you can lean on, and the pattern is really that one idea tested twice, drawn in a shape somebody bothered to name.

Identification rules

The W shape, a double bottom, wants all of this:

• A clear preceding downtrend
• Two lows within roughly 3% of each other
• A visible rally between them, ideally 10% or more off the low
• Volume typically lighter on the second low, heavier on the confirming break
• A close above the interim high confirms it

Invert every line and you get the M shape after an uptrend, confirmed by a close below the interim trough.

The middle is where people get sloppy. Two peaks separated by a 2% wiggle are noise, and the trough has to be a genuine move for any of this to carry weight, because that separation is what creates two distinct groups of participants who committed at different prices and now have different things to defend.

Measuring the target

Target = Confirmation level ± (Peak − Trough)

Height comes first. Take a double top that peaks at $80 with a trough at $70: the height of the pattern is $10 and broken at $70, that same distance projects down to roughly $60.

Then check it against the chart. A prior consolidation at $64 makes a more realistic first target than the formula’s $60, and the risk/reward calculator will tell you whether the trade still pays at the nearer number.

The trade

Two entries are on offer. You can take the confirmation close itself, or you can wait for the retest of the broken level, and the retest usually rewards the patience: the level flips role, gets probed from the other side, and your stop sits much tighter because the structure you are leaning on is right there in front of you.

The premise is dead below there. Stops go beyond the second low on a bottom, beyond the second peak on a top, with a small buffer added, because a floor that gave way has stopped being a floor and everything the pattern promised goes with it.

The target is the measured move, checked against real structure again, and partial profit taken along the way keeps the trade honest when price stalls halfway.

Triple tops and bottoms

Add a third test and convention says the structure got stronger. The logic is easy to follow: three rejections at one price implies a wall of supply or demand parked there.

A counterargument is worth carrying. Every test eats into the orders resting at that level, so a level probed three times has had more of its supply absorbed than one probed twice, and when the break finally comes it can travel harder for exactly that reason. Read repeated tests as information about how much is left.

Next: head and shoulders for the three-peak version with a measured target, and the chart patterns overview for how reversal and continuation formations differ.