Double Top

A bearish reversal pattern where price makes two nearly equal highs separated by a trough — resembling the letter M — signaling a potential end to the uptrend.

The double top forms when price makes a new high, pulls back to a support level (the "neckline" or valley between the two tops), rallies again to approximately the same high, and then fails to make a new high. The second attempt at the prior high represents the final exhaustion of buying demand. The pattern is confirmed — and the sell signal triggered — when price breaks below the trough between the two tops.

The two tops should reach approximately the same price level (within a few percentage points) for the pattern to be valid. The volume profile is important: ideally, the first top forms on higher volume than the second, reflecting diminishing buying enthusiasm on the second attempt. A long-lasting double top — where the two peaks are separated by weeks or months — carries more significance than a quick double top formed over days.

The price target is the distance from the tops to the trough, measured downward from the breakdown point. Double tops are best identified in retrospect — in real time, what looks like a double top formation may simply be a stock consolidating before resuming higher. The key discipline is to wait for the neckline breakdown as confirmation before acting on the bearish signal.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.