Double top and double bottom

A double top is a bearish reversal pattern that forms after an uptrend, when a stock rallies to a high, pulls back, rallies again to roughly the same high, and then fails to break through it a second time, tracing a shape that resembles the letter M. A double bottom is the mirror image, forming after a downtrend, when a stock falls to a low, bounces, falls again to roughly the same low, and then holds, tracing a shape resembling the letter W.

Both patterns reflect the same underlying idea, a level that has now been tested and rejected twice is treated as more significant than one tested only once. In a double top, the first peak shows sellers exist at that price, and the second peak, failing to break through despite fresh buying pressure, confirms that resistance is holding, which is why the pattern is generally not considered complete until price closes below the low point between the two peaks. A double bottom works the same way in reverse, with the pattern confirmed once price closes above the high point between the two troughs.

Traders often estimate a price target for the move that follows by measuring the height of the pattern, the distance from the peaks or troughs down to the middle point between them, and projecting that same distance beyond the confirmation level, a version of the measured move technique. As with most chart patterns, a double top or double bottom that forms after a strong prior trend and on declining volume through the second peak or trough is generally considered a more reliable signal than one occurring in a choppy, directionless market.