What it is
A double top is two peaks at approximately the same price with a trough between them, forming an M. Its mirror image, the double bottom, forms a W. The logic is simple: the market attempted the same level twice and failed both times, which implies the supply defending it is still there.
How it works
For identification the two peaks should be separated by enough time to represent two genuinely distinct attempts — on a daily chart typically several weeks — and should sit within a small percentage of each other. The pattern confirms only on a close below the intervening trough, sometimes called the neckline. The measured objective is the height of the pattern subtracted from the breakdown point.
How traders use it
Traders enter on the break of the trough or on a retest of it from below, with the stop above the higher of the two peaks. The formation is often most useful not as a standalone trade but as a way to mark a decisive level: once that level breaks, the structure above it becomes resistance and the market has a defined character until the level is reclaimed.
Where it breaks down
A second peak that pokes marginally above the first is extremely common, because it takes out the obvious stops resting above the level, and it is not by itself an invalidation even though many traders exit there. The larger issue is base rates. Most double peaks on any chart resolve upward, and only the ones that broke down are remembered as patterns. Confirmation and a defined invalidation matter far more than the shape.
Educational reference. This entry describes how a concept is defined and used. It is not investment advice, not a recommendation, and not a signal. Any rule you build from it should be tested with realistic costs before it is traded, and no historical result guarantees a future one.