Simple, frequent reversal patterns: price hits the same level two or three times and can't get through. Here is how to trade them and how not to confuse them with an ordinary range.
Two highs at roughly the same level after a rally. A reversal down.
Double bottom
Two lows at the same level after a decline. A reversal up.
Neckline
The low between the tops (or the high between the bottoms).
Entry
After a close beyond the neckline; the target is the pattern's height.
What the pattern looks like
Double top: price rallies, hits a high, pulls back, returns to the same level — and again can't get through. Buyers tried twice and lost twice. When price breaks the low between the tops (the neckline), the pattern is complete.
Two tests of the high and a neckline break down. Illustrative data.
A double bottom is the mirror pattern after a decline: two lows at the same level and a neckline break up.
Two tests of the low and a neckline break up. Illustrative data.
Triple top and triple bottom
The same idea, but the level is tested three times. A third failed attempt shows the side is completely spent. The pattern is rarer than the double and takes longer to form, but often gives a strong neckline break.
Three tests of the same high and a neckline break down. Illustrative data.Three tests of the same low and a neckline break up. Illustrative data.
The difference from a range: a triple top appears after a trend and ends with a neckline break. With four or more touches and no break, it's a range.
How to trade it
01
Make sure there was a trend
It's a reversal pattern: a double top needs a rally before it, a double bottom a decline.
02
Mark the neckline
The low between the tops or the high between the bottoms.
03
Enter after the break
A close beyond the neckline or a retest of it from the other side.
04
Stop beyond the second top or bottom
If price makes a new extreme, the pattern is broken.
05
Target the pattern's height
From the top to the neckline, projected from the breakout point.
A second top on lower volume or with an RSI divergence strengthens the pattern: buyers are no longer as active as the first time.
Common mistakes
Shorting the second top
That's not a pattern yet, just a test of the level. Many "double tops" turn into a breakout up.
Confusing it with a range
If there are already four or five tops, it's a range, not a reversal.
Putting the stop right at the top
The second test often pokes past the first high. You need a margin.
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