Double Top & Bottom Patterns

Reversal patterns that form when price fails to break a level twice.

Pattern Structure

Double Top (Bearish)

1. Rally to resistance (Peak 1) → pullback to neckline → retest the resistance within a predeclared price or ATR tolerance → failure

Double Bottom (Bullish)

1. Drop to support (Trough 1) → bounce to neckline → retest the support within the same frozen tolerance → failure

Workflow

1. Get Exact Data

get_candles_around_date(symbol=<symbol>, exchange=<exchange>, interval=<interval>, date=<peak_date>)

2. Mark Peaks/Troughs (2 parallel highlight calls)

draw_chart_analysis(action="create", drawing={
    "type": "highlight",
    "points": [{"time": <peak1_time>, "price": <peak1_price>}],
    "options": {"text": "Peak 1"}
})

draw_chart_analysis(action="create", drawing={
    "type": "highlight",
    "points": [{"time": <peak2_time>, "price": <peak2_price>}],
    "options": {"text": "Peak 2"}
})

3. Draw Neckline

draw_chart_analysis(action="create", drawing={
    "type": "support",
    "points": [
        {"time": <neckline_start>, "price": <neckline_price>},
        {"time": <neckline_end>, "price": <neckline_price>}
    ],
    "options": {"text": "Neckline"}
})

For double top use "support" (neckline is below). For double bottom use "resistance" (neckline is above).

4. Enter

Standard: Enter on neckline break + close with volume. Stop beyond peaks/troughs. Preferred: Wait for break + neckline retest. Enter on rejection. Aggressive: Enter at second peak/trough with LTF reversal confirmation. Target: Neckline ± (Peak - Neckline). Example: Peak $100, Neckline $90 → Target $80.

Evidence and Validation

• Treat the setup as a testable hypothesis, not a prediction. Define thresholds, entry, invalidation, and exit before evaluating outcomes.
• Calibrate on the same instrument, venue, session, and timeframe. Use closed candles and a held-out or walk-forward sample; record every variant tried.
• Include spread, fees, slippage, borrow or funding, partial fills, and latency. Reject the setup when net expectancy is not positive or depends on one narrow parameter.
• Return observed inputs, missing data, cost assumptions, entry, invalidation, exit, and a valid, watch, or no-trade status.
• Research basis: Lo, Mamaysky & Wang found incremental information in some algorithmically defined patterns, including double bottoms, but did not establish universal thresholds or profits.

Key Rules

• NEVER trade before neckline confirmation — pattern incomplete until it breaks
• Treat declining activity on the second test as context, not validation by itself
• Freeze the peak/trough tolerance and bar window before evaluating returns
• Failed double tops/bottoms lead to strong continuation moves

Related Skills

• head-and-shoulders — Similar reversal family
• cup-and-handle — Failed double bottoms can morph into cup patterns