Double Top / Double Bottom

A Double Top pattern forms at the end of an uptrend when the price reaches a peak, pulls back, and then rallies again to a level very close to the first peak without clearly breaking above it, before reversing downward once more and breaking below the intervening trough, known as the neckline. Resembling the letter "M", this pattern indicates the market's failure to post a higher high and reflects weakening buyer momentum.

Conversely, a Double Bottom pattern forms at the end of a downtrend in a shape roughly resembling the letter "W". Here, the price fails to make a lower low, rebounds upward, and breaks above the peak between the two troughs, signaling a potential trend reversal from bearish to bullish.

Both patterns are confirmed when the intervening neckline is broken. The height of the pattern (the distance between the peaks or troughs and the neckline) is used to project the potential price target following the breakout, in the same manner as other reversal patterns.

A common mistake is assuming the pattern is complete as soon as the second peak or trough forms without waiting for an actual breakout of the neckline, as well as mistaking ordinary sideways price consolidation for the pattern. It is also advisable to monitor trading volume, which often diminishes during the formation of the second peak or trough as an additional sign of fading momentum.