How to Trade the Double-Top Pattern

The positions of the peaks and troughs, as well as how symmetrical the pattern ought to be, may be interpreted differently by traders. This subjectivity may cause discrepancies and a range of outcomes among traders. A double-top pattern is a visual cue of a possible change in trend from an uptrend to a downtrend.

Price then quickly snaps back higher, testing the old neckline support which acts as a new price flip resistance. As with all things price action trading there are different strategies you can deploy depending on your individual style and comfort level. The trader would then wait watchfully for its neckline level to give way.

The downside estimate is 2024 estimates don’t budge but to $18 in EPS, providing a downside target of $360 at a 20 P/E, or 7.5% downside from $390. This is highly unlikely as estimates continue to tick higher over the last month, and a Q1 guide to my $35B revenue number immediately puts $18 as the new average for 2024 EPS. The company could only perform in line for the rest of the year and still achieve this valuation target. Keep in mind my estimates are what I expect reported earnings to come in at – so after guidance boosts and quarter outperformance on the day of report. Given a forward P/E of 20 (merely average) on $21.79 in earnings, a fair value for the stock is $435.

If you don’t identify a double bottom pattern correctly, you may end up executing a trade that will have a slim chance of becoming profitable. It’s always best to perfect your trading strategies in demo accounts before testing them in real accounts. The double bottom pattern in a specific security always follows a large or small downward trend, and it indicates the reversal as well as the beginning of a future rally in the market. If you don’t identify a double top pattern correctly, you may end up executing a trade that will have a slim chance of becoming profitable. When it comes to trading, there is no chart pattern that is more popular than the double bottom or double top.

  1. This level will often hold as an old support / resistance price flip level.
  2. By accurately identifying the pattern, planning entry and exit strategies, and implementing proper risk management techniques, traders can increase their chances of success.
  3. This guide provides a straightforward introduction to the double top pattern, how it forms on charts, and how to use it as part of your trading strategy.
  4. The double top pattern is formed when an asset’s price reaches a peak, pulls back slightly, and then tests the same peak level again before dropping to a new support level.
  5. To identify a double top pattern, traders need to look for two peaks that are roughly at the same level, with a trough in between.

Here we look at the difficult task of spotting the important double bottom and double tops, and we demonstrate how Bollinger Bands® can help you set appropriate stops when you’re trading these patterns. The chart below demonstrates when to enter the market, place a stop-loss order, and take profits. Whilst a lot of traders will wait for the neckline to break for their confirmation, you don’t have to. In this chart you can see that price makes a move lower to reject the swing low (first bottom).

Develop your trading skills

As mentioned earlier, the pattern takes place after the formation of two tops and two bottoms. In many ways, a double top looks very similar to a double bottom with the exception of the peaks. A double top results in consecutive “highs”, while a double bottom results in consecutive “bottoms”.


The “tops” are peaks that are formed when the price hits a certain level that can’t be broken. After hitting this level, the price will bounce off it slightly, but then return back to test the level again. The double top is frequently used in the forex and equity markets as sell/bearish signals. The charts below provide examples using both markets as references to observe how this pattern is utilized in different ways with regards to trade entry and exit points.

Combining Double Top and Double Bottom Forex Patterns with Other Tools

It has improved remarkably from where it was a year ago and even a quarter ago. And with 2024 full of significant events like the 2024 Paris Olympics and the US Presidential election, there are catalysts lined up to provide upside to estimates. Muse predicts an 18% growth in semiconductor revenues for 2024, noting that certain risks could drive this figure above 20%. The current cycle sees AI, PC/Smartphones, Data Center/Networking as potential gainers from here, while Industrials and Auto may just see a downcycle phase, the analysts note. Their top stock picks, as highlighted in the report, were NVIDIA Corp NVDA, Western Digital Corp WDC, ASML Holding NV ASML, NXP Semiconductors NV NXPI and GlobalFoundries Inc GFS for 2024.

Identifying a Double Top Pattern

That is when identifying the pattern and using the other strategies discussed below can come in handy. If you are an aggressive trader you can enter a double top or bottom as you begin to see it form. If waiting for confirmation that the neckline has broken you will often miss the biggest move that first occurs. As the name implies, the double top is a pattern where two tops form, and a double bottom is where two bottoms form.

At this point, if the momentum had continued lower, the pattern would have been void. This continued only for a short while before the asset once again lost its momentum. This time, the retracement broke through the neckline which signified a more permanent reversal in the overall momentum of the asset’s value. Last, by spotting a double-top pattern, traders can determine their profit goals and determine the probable downside target depending on the pattern’s height. Due to the fact that the potential profit goal is often higher than the original risk (stop-loss), this usually provides a good risk-reward ratio. The biggest problem with this retail forex pattern is simply that price will tend to grab liquidity above highs where there is liquidity sitting.

Rather, using other tools alongside these pattern setups may result in more profitable trades. These might include other price patterns, moving averages, pivots, support or resistance levels, trendlines and Fibonacci levels. When some or all of these tools give the same buy or sell signal, it is a good way to confirm the validity of your trade.

Using the knowledge of what does a double top mean in Forex is not a guarantee of success. To be sure of the correctness of the signal, it is necessary to ensure that all the required conditions for the formation of a double top are met. It is also essential to confirm the chart pattern with other double top forex aspects of technical analysis. The more confirming factors there are, the more reliable the trading signal will be. The use of Forex double top is widespread among traders in the Forex market. Forex double top pattern looks like the formation of two maxima at a critical resistance level.

The pattern on the chart is bearish and points to a possible trend change from an uptrend to a downtrend. Volume analysis can offer more assurance of the correctness of the pattern. Volume frequently rises when the price breaks below the neckline and decreases throughout the creation of the two peaks.