Double Top and Double Bottom
Chart patterns where price tests the same resistance or support level twice without breaking through, commonly interpreted as a signal of a potential trend reversal.
A double top pattern forms when price rises to approximately the same resistance level (see Kaavon's "Support and Resistance" glossary definition) on two separate occasions, failing to break meaningfully higher each time, which is interpreted as a bearish signal suggesting buying pressure is running out at that level and a downward reversal may follow. A double bottom is the mirror case: price falling to approximately the same support level twice without breaking meaningfully lower, interpreted as a bullish signal suggesting selling pressure is exhausted.
Both patterns are generally considered more significant, and more likely to actually mark a genuine reversal, the further apart in time the two peaks or troughs occur, and when noticeably lower volume accompanies the second peak or trough compared to the first, suggesting genuinely weakening momentum rather than a coincidental retest. As with other chart patterns, many technical analysts wait for price to break through the level between the two peaks or troughs (sometimes called the "neckline," similar to a head and shoulders pattern) before treating the reversal as confirmed.
Examples
- A double top pattern where the second peak occurs on noticeably lower volume than the first is generally considered a more credible reversal signal than one where volume stayed roughly the same.
- Traders often wait for price to break below the level between a double top's two peaks before treating the bearish reversal signal as confirmed.