Direct answer
A worked example of “Double Top Bottom” is a step-by-step scenario that uses a hypothetical price path to show how someone would identify (1) the two highs (double top) or two lows (double bottom), (2) the key level between them, and (3) what they measure to estimate a possible next move. This article uses a fully stated numerical scenario and separates stable mechanics from variable real-world conditions.
Mechanism or definition
A double top typically describes a situation where price forms two relatively similar peaks, then drops. The “double bottom” is the mirror image: price forms two relatively similar troughs, then rises.
Key parts you will see in both versions:
- Two touchpoints (peaks or troughs): the two local extremes that are “close enough” in height/depth to be considered a pair.
- A separating level: for double tops, this is often the neckline (the lowest point between the two peaks). For double bottoms, it is often the neckline (the highest point between the two troughs).
- A measured move concept: a common approach is to measure the vertical distance between the extremes and the separating level, then apply that distance after a break.
Important uncertainty: “close enough” is not a universal rule. Different charting tools and traders use different tolerances (for example, within a percentage range or a small price distance). Because the term is used broadly, any example must state the tolerance assumptions.
Evidence or example (numerical scenario)
Below is one worked example for a double top. No real-time prices are used; everything is hypothetical.
Assumptions (state everything used in the calculation)
- We observe prices on a chart with a chosen timeframe (assume “1-hour candles” for discussion only).
- Similarity tolerance: two peaks are considered a “pair” if they are within 2 units of each other.
- We define the neckline as the lowest price between the two peaks.
- We define a “break” as a candle close below the neckline (not just a temporary wick).
- We use the measured move as:
- Height = (peak price − neckline)
- Projected target = (neckline − height) after the break.
Hypothetical price path
- First peak: 105
- Trough between peaks (neckline): 100
- Second peak: 104 (within 2 units of 105, so it qualifies)
- After the pattern forms, price breaks by closing below the neckline.
Step-by-step measurement
- Check the “double” condition (similar peaks):
- |105 − 104| = 1, which is ≤ 2 ⇒ qualifies.
- Identify neckline:
- Neckline = 100 (lowest between peaks).
- Compute height (vertical distance):
- Height = 105 − 100 = 5 (using the first peak in this example; in practice you could use the average of peaks—here we explicitly choose the first peak).
- Compute projected target (measured move):
- Target = 100 − 5 = 95.
What would be “independently verifiable” here?
Anyone can verify the arithmetic and the rule set because we specified them:
- tolerance = 2 units
- neckline = lowest between peaks
- break = candle close below neckline
- height = peak − neckline
- target = neckline − height
Limitations and risks
Material limitations
- Pattern definitions are not standardized. The “2 units” tolerance and the “candle close” rule are assumptions. Change them and the classification or target changes.
- False breaks happen. Price can close briefly below the neckline and then return above it. The measured-move idea does not guarantee it will reach the projected level.
- Volatility can distort shape. In fast or noisy conditions, peaks may look similar without forming a robust structure.
Failure modes to watch (conceptual, not a recommendation)
- Late confirmation: requiring a break (close below neckline) means you act only after the event starts, which can reduce the usefulness of any projection.
- Using inconsistent measurement: choosing the first peak vs. the average peak changes the height and target.
- Costs and execution effects (variable conditions): in real markets, spreads, commissions, and order execution can affect where entry/exit happens relative to the measured levels.
Verification or next question
To verify a double top/double bottom example independently, apply your own explicit rules for (1) similarity tolerance, (2) how you draw the neckline, and (3) what counts as a break (close vs. wick). If your rules change classification or the measured target, that is not an error—it shows why the pattern is a descriptive framework rather than a guaranteed prediction.