A double top is a failure to make a new high
Price rises, pulls back, rises again to about the same level and fails there. The two peaks are roughly level and the low between them is the neckline. The pattern is not complete when the second peak forms — it is complete when price closes below that neckline, because until then it is simply a market that has not made a new high yet, which happens constantly inside healthy trends.
A double bottom is the same thing upside down
Two lows at about the same level with a peak between them, and the neckline is that peak. Price closing above it completes the pattern. Everything true of a double top is true here with the words reversed, including the part about most of them not working.
Head and shoulders is three peaks, the middle one highest
A left shoulder, a higher head, then a right shoulder that fails to reach the head. Drawn between the two lows is the neckline, and it is often sloped rather than flat. What the shape describes in plain words is a market whose buyers made one more high and then could not do it again — the same story as a double top with an extra failed attempt in it.
The measured move, and what it is worth
The usual target is the height of the pattern projected from the neckline: measure from the head to the neckline, and drop that distance below the break. It is a convention, not a law. It gives you somewhere to put a target instead of guessing, and that is the whole of its value. Nothing obliges price to travel that far and plenty of completed patterns stop half way.
Most of them fail, and that is fine
This is the part that pattern books leave out. A large share of textbook patterns break the neckline and then come straight back through it. That does not make the pattern useless, because a pattern gives you a level, a direction and a place to put a stop — which is enough to build a trade whose losses are small and whose wins are larger. It makes it useless as a prediction. Trade the break with a stop above the right shoulder, or do not trade it; do not trade it with confidence.
In short
| Double top | Two peaks, break below the low between them |
|---|---|
| Double bottom | Two lows, break above the peak between them |
| Head and shoulders | Three peaks, middle highest, break the neckline |
| Complete when | Price closes through the neckline — not before |
| Usual target | Pattern height projected from the break |
Common questions
Do the two tops have to be exactly level?
No, and they rarely are. A second peak slightly above the first is common and is often the more useful version, because it traps the traders who bought the new high. What matters is that the second attempt failed and the neckline broke.
Should I enter when I see the shape or when it breaks?
When it breaks. A shape that has not broken its neckline is a shape you have named early, and naming it early is how a normal pullback becomes a trade against a trend that is still running.
How reliable are reversal patterns?
Not reliable enough to trade without a stop. Their value is that they hand you a specific level to be wrong at, which lets you size the trade so that being wrong is affordable.
Trading forex and CFDs on margin carries a high level of risk. Most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade.