Double Top / Double Bottom Pattern

The double top and double bottom are the simplest and most commonly observed reversal patterns. A double top forms when price rallies to a resistance level, retreats, rallies again to roughly the same level, and then breaks below the swing low between the two peaks (the "neckline"). The two peaks indicate that sellers are defending the resistance level and the trend is losing momentum.

For prop firm risk management, double tops/bottoms are attractive because the neckline break gives a clear entry signal, the second peak defines the stop-loss level, and the measured move (distance from the peaks to the neckline, projected from the breakout) gives a defined target. The key risk is that many double tops fail -- price breaks the neckline, traders enter short, and price reverses and breaks to new highs. This failure pattern is called a "spring" and can quickly consume drawdown.

To improve reliability, prop firm traders look for double tops/bottoms with additional confluence: a significant prior trend before the pattern, volume expansion on the neckline break, the pattern forming at a key structural level, and the overall higher timeframe trend aligning. The double bottom at the end of a downtrend is a particularly high-probability setup when accompanied by a divergence between price and momentum indicators.