What the double top pattern is
A double top is a bearish reversal pattern shaped like the letter M. After a rise, price climbs to a peak, falls back, rallies to roughly the same peak again, and then turns down. The low between the two peaks is the neckline. Whether you plan to sell short or simply to protect a holding, a double top gives you a breakdown level, a stop-loss and a downside target.
It suggests buyers tried twice to push through the same resistance and failed both times. If price then breaks below the neckline, the uptrend of higher lows is broken.
As a reversal pattern, it needs a clear rise before it. The peaks are usually a few weeks apart and within a couple of per cent of each other. The second peak is often reached on lighter volume than the first, a sign that buying is fading.
How the double top is confirmed
Two similar peaks are not a double top. Many stocks pause at a high and then break above it. The pattern is confirmed only when price closes below the neckline, a break of support.
Look for:
- a daily close below the neckline, not just an intraday dip;
- volume on the breakdown day above the recent average;
- a failed attempt to rally back above the neckline, which often follows.
Until the neckline breaks, the stock is just in a range near its highs.
Double top stop-loss and target
A bearish pattern can be traded as a short: sell first, buy back later at a lower price. In Indian markets, shares can be shorted in the cash segment only within the day; holding a short overnight needs futures or options, which carry their own risks. Many swing traders therefore use a double top as a reason to exit or avoid buying rather than to short.
For a short, the stop-loss goes above the entry, because a rising price is what hurts you. Two common places:
- Above the second peak. If price makes a new high, the pattern has failed beyond doubt. It is a wide stop.
- Above the neckline, or above the small rally that often follows the breakdown. Tighter, but hit more often by noise.
The target uses the measured move: take the height of the pattern, from the peaks down to the neckline, and project it downward from the breakdown point. A pattern ₹50 tall gives a first target ₹50 below the neckline.
With the stop above the peaks, the distance to the stop and to the target are about the same, so the reward-to-risk is near 1:1. That is why the tighter stop is popular.
Sizing the double top trade
For a short, the risk per share is the stop minus the entry:
Shares = risk in ₹ ÷ (stop-loss − entry)
A separate example with round numbers: two peaks near ₹600 and a neckline at ₹550, so the target is ₹500. You short at ₹545 after the breakdown, with the stop at ₹570, above the small rally back towards the neckline. Your risk is ₹25 a share. If you are willing to risk ₹3,000, you can short ₹3,000 ÷ ₹25 = 120 shares. With the wide stop at ₹605, the risk would be ₹60 a share and the same ₹3,000 would cover only 50 shares.
The Position Size Calculator does the arithmetic and shows your risk per trade. A stock that gaps against a short can jump past your stop, so allow for slippage.
Common mistakes
- Selling at the second peak because it "looks like" a top, before the neckline breaks.
- Calling any two similar highs a double top, even in a strong uptrend.
- Placing a short without a stop-loss, where the possible loss has no limit.
- Moving the stop higher as price rallies against you.
- Shorting a stock just because it has risen a lot.
How often the double top fails
Often. Breakdowns below the neckline regularly reverse within days, and price can go on to break above both peaks and continue higher. Strong stocks in a rising market frequently shake off what looked like a clear top. Nobody can tell in advance which double tops will follow through, and the pattern guarantees nothing.
What it gives you is a level where you are clearly wrong. Size the trade so that hitting the stop costs a small, planned amount.
Related patterns
- Double bottom, the bullish mirror image
- Head and shoulders, another bearish reversal
- Cup and handle and bull flag
- Trends, support and resistance
- Coming later: rising wedge, descending triangle and bear flag.
Updated 2026-10-16
Educational content only. It is not investment advice and not a recommendation to buy or sell any security. Prices in examples and illustrations are made up. Patterns and rules fail often; past behaviour guarantees nothing.