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Key Takeaways
- A double top forms two similar peaks around an intervening trough; a double bottom forms two similar troughs around an intervening peak.
- The reversal setup activates through the intervening level under its chosen breakout rule.
- Measure the extreme-to-middle distance and name the target anchor.
- This example projects a $9.20 height from a $50.60 breakdown-close anchor to $41.40.
- A second-peak stop and a stop beyond the entire pattern are different price references.
What are double tops and double bottoms?
A double top is a bearish reversal chart pattern in which an advance makes two similar peaks separated by a trough, and its setup activates when price breaks through that middle trough. A double bottom is the bullish mirror image: a decline makes two similar lows separated by a peak, and the setup activates through the middle peak.
Traders also call them M and W patterns. Reading either one means marking the preceding trend, the two outer extremes, the middle level and the selected breakout rule.
Formula
Top height = highest peak − middle trough; top target = selected breakdown anchor − height; bottom height = middle peak − lowest trough; bottom target = selected breakout anchor + height- Use the highest of the two peaks or lowest of the two troughs for the height calculation.
- The example selects the $50.60 breakdown close as its target anchor.
- A separate boundary anchor at $51.20 would give $42, while the close anchor gives $41.40.
Double top example and price target
XYZ rallies from $38 to a peak of $60.40, pulls back to a trough of $51.20, rallies again to $59.90, and then turns lower. The two peaks sit within 1% of each other, so a trader tracks $51.20 as the confirmation level.
- Peak difference relative to the higher peak: ($60.40 − $59.90) / $60.40 × 100 = 0.83%
- Pattern height: $60.40 − $51.20 = $9.20
- Confirmation: daily close at $50.60, below the $51.20 trough
- Measured target: $50.60 − $9.20 = $41.40
- Assumed $50.60 short entry and $60.10 stop reference above the second peak give $9.50 distance; $9.20 target distance / $9.50 = 0.97
Price returns to $51, then declines to $41.60, finishing $0.20 above the $41.40 close-anchored target. The $60.10 stop reference is above the $59.90 second peak and below the $60.40 first peak. A neckline-reclaim exit and a second-peak stop are separate plans.
XYZ advances from $38 to $60.40, falls to $51.20 and rallies to $59.90. The peak difference is $0.50, or 0.83% of the higher peak, inside the selected 1% tolerance.
The $50.60 close breaks below the $51.20 middle trough. Pattern height is $60.40 − $51.20 = $9.20. Using the breakdown close as the anchor gives $50.60 − $9.20 = $41.40.
A boundary anchor at $51.20 instead gives $42. Name the selected anchor alongside the objective.
How to trade a double top: stop placement and reward-to-risk
Assume short entry at $50.60 with a $60.10 stop reference above the second peak. The planned distance is $9.50. Distance to the $41.40 target is $9.20, giving a 0.97 ratio.
The stop reference is below the first $60.40 peak. A reference beyond both peaks at $60.41 would give $9.81 distance and a 0.94 ratio. A rule exiting on a reclaim of $51.20 is another distinct plan.
The example returns to $51, then reaches $41.60, finishing $0.20 above the selected target.
Compare participation on the break with Relative Volume, and for an options trade, carry the objective and timing into the expiration, premium and volatility inputs of the Options Profit Calculator.
Double bottom example and price target
The reflected example declines into lows at $39.60 and $40.10 around a $48.80 middle peak. Its $49.40 breakout close activates the upside setup.
Height is $48.80 − $39.60 = $9.20. The close-anchored objective is $49.40 + $9.20 = $58.60. An assumed $49.40 entry and $39.90 stop reference below the second low give $9.50 distance. Price retests $49 and reaches $58.40.
Limitations of double tops and double bottoms
- Wait for the break of the middle trough. Two similar peaks become a double top when price breaks that level; until then the advance can resume.
- Write the peak tolerance and the breakout rule into the plan. A 1% tolerance and a closing break can mark different patterns and entries than looser or intrabar rules.
- Name the target anchor and manage the exit as price nears it. The anchor alone moves it from $41.40 to $42, and price can stop short of it or run past it.
- Place the stop reference beyond the retest you expect. Price can retest the broken level, as both examples do at $51 and $49, and the stop reference decides whether a retest ends the trade.
- Size the trade from the stop beyond the second peak or trough, so a failed pattern costs a planned amount. With the stop above the second peak, the example’s target distance is 0.97 times its risk.
Bottom line
Double tops and double bottoms mark a second test of a prior high or low that turns back, and the break through the middle level activates the reversal setup. Name the tolerance, breakout rule and target anchor before the break, and compare the stop distance with the target before entering.
Clear answers
Frequently Asked Questions
Sources and Further Reading
- Fidelity Learning Center: Identifying Chart Patterns
- Fidelity Learning Center: Identifying Chart Patterns with Technical Analysis (transcript)
- Fidelity Learning Center: Support and Resistance
How entries are sourced, calculated and updated: editorial methodology.