Double Top Pattern: Your Complete Guide to Consistent Profits

by Justin Bennett  · 

September 10, 2022

by Justin Bennett  · 

September 10, 2022

by Justin Bennett  · 

September 10, 2022


The double top pattern is one of the most common technical patterns used by Forex traders.

It’s certainly one of my go-to methods of identifying a potential top.

Just as the name implies, this price action pattern involves the formation of two highs at a critical resistance level.

The idea that the market was rejected from this level not once, but twice, is an indication that the level is likely to hold.

However, as simple as that may sound, there are a few critical things that must be present for this topping pattern to be useful (and profitable).

By the time you finish with this lesson, you will know exactly how to identify a double top as well as how to enter and exit the pattern to maximize profits.

I’m also going to share with you a simple but effective method of staying out of trouble.

Let’s get to it!

Double Top Pattern Characteristics

Before we can learn how to trade a double top, we first need to know how to identify it as a chart pattern.

So let’s look at the characteristics of the pattern using the illustration below.

forex double top chart pattern

As you can see from the diagram above, the market made an extended move higher but was quickly rejected by resistance (first top).

The market then pulled back to support and subsequently retested the same resistance level (second top). Once again the market was rejected from this level.

One common misconception is that the double top pattern becomes tradable once the second top forms.

The truth is, a double top is only confirmed and therefore tradable once the market closes below the support level (neckline).

double top pattern breakout

Notice in the illustration above that the market is now trading back below the neckline. This confirms the double top pattern and signals the first part of the breakout.

Double Top Pattern Example

Now that we understand the dynamics and characteristics of a double top let’s look at a real-life example.

eurusd double top chart pattern forex

Here we have a double top that formed on the EURUSD daily chart. Notice that we have a well-defined neckline support level as well as a subtle “M” shape that has been carved out as a result.

You may have come across “M” and “W” (double bottom pattern) in your internet travels.

While these are considered separate technical formations, in my experience, they are remarkably similar to double tops and bottoms. In fact, it’s often hard to tell them apart.

For this reason, I tend not to separate the two, but I do like to see a well-defined M or W from the patterns I trade.

Okay, back to our EURUSD topping structure…

Here’s a question for you – at what point was the double top below confirmed?

Care to wager a guess?

eurusd double top breakout confirmed

If you guessed the daily close circled above, great job!

Because we’re trading this double top pattern on the daily chart, we would need to wait for a daily close below neckline support.

So as soon as the candle above closed (the one with the red circle), we had a confirmed topping pattern.

How to Trade a Double Top Pattern

Up to this point, we have discussed the dynamics behind the double top pattern as well as its characteristics.

You should also know how to confirm a double top breakout.

Now it’s time for the really fun part – finding out how to profit consistently from these setups.

The first thing you need to know is that the initial breakout is not what triggers the trade setup.

What we need is a retest of the neckline as new resistance. This ensures a favorable risk to reward ratio, which is an essential ingredient if you wish to succeed in this business over the long-term.

Here’s an illustration:

double top chart pattern explained

Notice in the illustration above how the market retests the neckline as new resistance. This is where we now have an opportunity to short the market.

Let’s revisit our EURUSD pattern to see if we can identify a favorable point of entry.

forex double top pattern setup

In this scenario, we would have waited for the market to break the neckline and then retest the level as new resistance.

Upon retesting the neckline, we could look for bearish price action on one of the lower time frames to help confirm that the level is likely to hold as new resistance.

Notice how the EURUSD currency pair sold off heavily immediately after retesting the neckline.

How to Determine a Target

First things first, we always want to use price action to identify potential targets for any chart pattern.

It doesn’t matter if it’s a double top or a head and shoulders pattern, the best and most efficient way of finding a profit target is to use simple price action levels.

That said, there is another way to estimate the potential move of a market after the formation of a double top.

It’s called a “measured move”, and the concept is incredibly simple.

But before we move on I should point out that there are in fact two terms you need to know.

Measured move

The distance (in pips) from the broken level of the pattern to a future point in the market.

Measured objective

The level at which the market is likely to find an increase of buy or sell orders.

So to summarize, a measured move specifies the distance of something while the objective defines the exact level or target.

To find the measured objective, you take the distance from the double top resistance to the neckline and project the same distance from the neckline to a lower, future point in the market.

Here is an example from the EURUSD double top.

measured move of double top chart pattern

The distance from the double top resistance level to the neckline, in this case, is 270 pips. Therefore we would measure an additional 270 pips beyond the neckline to find a possible target.

Besides, I don’t know too many traders who will complain about booking 270 pips of profit.

Staying Out of Trouble

Okay, so this may be a bit redundant but I have to cover it.

A double top pattern without the close below the neckline is not technically a double top.

Allow me to explain…

I hear many traders calling two tops near an important level a double top all of the time. However, unless the neckline has been broken, they are mistaken.

What they think is a reversal pattern could just be consolidation.

So you see, no double top is complete until the market closes below the neckline. Not only is it not complete, but attempting to enter before having a confirmed setup can get you in a lot of trouble.

Summary

We have covered a lot in this lesson so let’s recap the most important points.

The double top is a reversal pattern which typically occurs after an extended move up. It signals that the market  is unable to break through a key resistance level.

There are three parts to a double top.

  1. First top
  2. Second top
  3. Neckline

A double top is only confirmed once the market closes back below neckline support. The trade setup is formed when the market retests the neckline as new resistance.

A measured move objective can be used to find a potential profit target. To find this you simply take the distance from the double top resistance level to the neckline and extend that same distance beyond the neckline to a future, lower point in the market.

To learn more about a reversal pattern that occurs at a swing low, be sure to read the lesson on the double bottom pattern.


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31  Comments

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  1. HI. I am beginning to test a system or strategy using double tops and bottoms and pivot points. My question is what qualifies as a significant run up or down before the top or bottom? Is there a specific amount of candles or a specific time on the daily chart or the hourly chart?

      1. Ok. A double top occurs after an uptrend and a double bottom after a downtrend. How long does that up/down trend have to be in order to validate the top or bottom. I know sometimes the “streak” up or down can be not much longer than the potential first leg of the top or bottom. Am I making any sense?

          1. That is what I needed to know. I stay away from patterns that aren’t clear to me. I have my monitors set up in my living room and sometimes I bring my charts up and sit on my sofa from across the room to look at PA and see what, if anything jumps out at me. I gives me a good perspective when I have been studying a good bit and need a break or If I am unsure of a pattern.

          2. Ha ha, I use to do the same thing sitting from across the room watching my large monitors. It really helped to see the bigger picture & it helped in recognizing the obvious patterns.

  2. Hi Justin….thank you for this very valuable
    lesson in addition to your piece on the H.S. pattern. I had a question. When it comes to identifying a potential double top do the highs of each top have to be a certain number of pips from each other in order to qualify? For example I have read you discuss the idea of a head and shoulders pattern over lapping and not having even shoulders….is it acceptable for a DT to also have lopsided tops? Also just to confirm….. does the boundary of the neckline come from the opening of the candle or is taken from the wick? Ttthank you!

  3. Hi Justin,

    I totally understand that one has to wait for the next move down to break support before the pattern can be confirmed for a short entry…

    But what happens to all the pips along the way from the second top to the support line before the break out?

    Can a trader atleast try to gather some of the pips from the move down from the second top to the support line? Is there anyway to trade this safely incase it doesn’t end up being a reversal double top?

    Regards.

  4. Hi Justin,
    Thanks for sharing information, I want to know if neckline is large pips and if there is strong support before measuring pips then which one should we choose. close at support or continue up to measured pips.

  5. This is great. You just taught me something priceless, I mean in the area of the price retesting the neckline. Thank you Justin.

  6. Hi Justin,

    Support and resistance levels are almost always zones, not sharply defined lines. In your illustration of the retest of the neckline, a red arrow shows the retest touching the neckline resistance exactly; but before that is a brief bull move that almost touches it and appears to enter the resistance zone. How do we know that this is not the retest? How do we know whether or not to wait for the kind of precise touch that you indicate with the red arrow?

    Thanks,
    Norm

    1. One way is to wait for bullish or bearish price action such as a pin bar. Such candlestick patterns indicate an influx of buying or selling pressure which in turn can give you more confidence about a particular area on your chart.

  7. Nice article Jay.

    After the closing below the neckline, there’s an initial pull back that got close to the neckline before the main retest that actually touched it. In the event where the latter doesn’t occur, can u assume the former to be the retest?

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