Double top and double bottom
The double top (M-shaped) and the double bottom (W-shaped) are reversal patterns: the price tries twice to break the same level without succeeding.
The double top forms after a rise: the price climbs, pulls back, rises again to the same level and then falls. The double bottom is the mirror image, after a decline. The point in between, the low between the two highs (or the high between the two lows), is the neckline.
How to spot it
Two relative highs (or lows) a few percentage points apart in price, separated by a clear pullback. The pattern is confirmed when the price breaks the neckline. The indicative target is obtained by projecting the height of the figure beyond the neckline.
Worked example
Double bottom: a stock falls to €20, rebounds to €23, returns to €20.20 and rises again. When it breaks above €23 (the neckline) the pattern is confirmed; the height is 23 − 20 = €3, so the indicative target is 23 + 3 = €26.
How to read it
A neckline break with rising volume makes the signal more solid. If instead the price rises above the double top (or falls below the double bottom), the pattern is cancelled.
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