Double tops and double bottoms are reversal patterns that form when price tests the same area twice and fails to continue.
Double top
In an uptrend, price rallies to a high, pulls back, then rallies again to a similar high. If the second peak cannot exceed the first with conviction, sellers may gain control. A break below the valley between the two peaks confirms the pattern for many traders.
Double bottom
The bottom version appears in downtrends. Price hits a low, bounces, retests the low, and holds. A break above the middle peak between the two lows can signal a trend change.
Why the pattern works psychologically
The first extreme shows strong participation. The retest shows whether that side still has energy. Failure on the second attempt often flips sentiment.
Practical filters
Look for the pattern after a clear trend, not in the middle of a random range. Volume on the confirming break adds weight. Measure targets from the pattern height, but treat them as guides, not guarantees.
Risk management
Stops typically sit beyond the second peak or trough. If price reclaims the broken level quickly, the pattern may have failed. Respect invalidation and resize risk on illiquid Nordic small caps.