A Visual Guide to the Double Top (M Top) Pattern: Buyer Exhaustion and Trend Collapse

The double top pattern is a bearish reversal pattern that appears at the end of an uptrend. It consists of two roughly equal highs and a middle low point (the neckline), resembling the letter “M”.

• First Top: Continuation of the uptrend, bulls push to new highs, but then profit-taking occurs, causing a pullback that forms the middle low.

Second Top: Bulls attempt to resume the uptrend and launch another attack. The key point: the price fails to effectively break above the previous high (or only briefly breaks out before quickly retreating), indicating no new capital is willing to buy at higher levels—the buying momentum is exhausted.

Breakdown: Disappointment spreads, the price falls below the middle low (neckline), triggering stop-losses from bulls and accelerating the decline.

Strict Confirmation Criteria

Premise: There must be a clear uptrend before the pattern appears.

High Point Requirement: The two highs should be roughly the same height. If the second high is significantly lower than the first, the bearish signal is even stronger.

Neckline Confirmation: Draw a horizontal line at the lowest point of the pullback between the tops—this is the neckline.

False Breakout Alert: The second top often features a long upper shadow that briefly pierces the previous high but quickly retracts—this is a strong bull trap.

Timing for Exiting Long/Entering Short:

Aggressive Approach: Attempt a small short position when a clear bearish candlestick (such as a shooting star or bearish engulfing pattern) appears at the second top, aiming for a high risk-reward ratio.

Conservative Approach (Recommended): Wait until the price decisively breaks below the neckline before shorting.

Stop-Loss Placement: Set just above the highest point of the double top.

Take-Profit Target: Measure the vertical distance from the top to the neckline and project the same distance downward from the breakdown point.