Direct answer
A worked example of a Double Top shows, step by step, how you might identify the pattern on a price chart and measure something consistent (for example, the distance from a neckline to the top) using assumed numbers. Double Top is generally described as a chart pattern where price forms two peaks at similar levels and then drops, often after breaking below a level that traders call the neckline.
This article uses a fully transparent scenario with explicit assumptions. It does not use real-time market data, and it does not claim that any outcome is repeatable.
Mechanism or definition
Double Top (chart pattern) is a visual formation typically identified by four elements:
- Peak 1: the first local high.
- Peak 2: a second local high near Peak 1.
- Neckline (reference level): a level derived from the chart between the peaks (commonly a prior swing low or the line connecting lows).
- Decline after Peak 2: price falls after the second peak, potentially moving below the neckline.
Important distinction: the pattern label and any subsequent measurement (like peak-to-neckline distance) are different things. A label depends on your choices about what counts as “nearby” and where exactly the neckline sits.
Assumptions used in the worked example
- The chart is based on one instrument’s price.
- We use assumed prices, not live data.
- “Similar peaks” means within 1.0% of each other.
- The neckline is chosen as a specific prior swing low between the peaks (we will assume its value).
Evidence or example (worked scenario)
Below is a concrete, numerical scenario. Use it to practice explaining the pattern to someone else and to independently check the logic.
Assumed price sequence
Assume the chart shows these simplified swing points:
- Peak 1 high: 100.0
- Between-peaks swing low (neckline reference): 94.0
- Peak 2 high: 99.2
- Later swing low after the break: 90.0
Step 1: Check that it fits “two nearby peaks”
- Peak 1 is 100.0.
- Peak 2 is 99.2.
- Difference = 100.0 − 99.2 = 0.8.
- Relative to Peak 1, 0.8 / 100.0 = 0.8%.
- Because 0.8% is within the stated 1.0% rule, the peaks can be treated as “similar” under this assumption.
Step 2: Mark the neckline
We assumed the neckline reference equals the between-peaks swing low: 94.0.
Step 3: Describe the post–Peak 2 behavior
We assumed that after Peak 2, price falls below the neckline reference (from above 94.0 down toward 90.0).
Step 4: Do one simple measurement (reference distance)
A common way to measure the pattern is to compute the vertical distance from the neckline to the peaks.
- Distance from neckline to Peak 1: 100.0 − 94.0 = 6.0
- Distance from neckline to Peak 2: 99.2 − 94.0 = 5.2
If you wanted a single reference distance, you could choose the midpoint of these two values (optional):
- Average = (6.0 + 5.2) / 2 = 5.6
Step 5: Compare later movement to the reference
The later swing low is assumed at 90.0.
- Neckline to later low: 94.0 − 90.0 = 4.0
In this scenario, the later decline (4.0) is smaller than the reference distance (about 5.2 to 6.0, depending on which peak you used).
What you should take from this: even when a double top is visually matched under explicit rules, any measured “how far it could fall” style idea is not exact and depends on your measurement choices.
Limitations and risks (what can fail)
- Subjectivity in pattern boundaries: Peak selection and neckline choice can differ between people. That changes the measurement and any comparison you make.
- Timing uncertainty: A chart can look like a double top, but later candles may redefine the swings. Historical appearance does not guarantee that the formation will complete in the way you initially mapped.
- Market conditions and costs: Even if the shape matches, real trading involves spreads, commissions, liquidity, and execution timing. These factors can affect realized results.
- Non-repetition: Chart patterns are descriptions of past price structure, not models that guarantee future behavior.