Double tops and double bottoms are two-touch reversal patterns that form when price tests the same level twice and fails to break through. A double top signals bearish reversal after an uptrend, while a double bottom signals bullish reversal after a downtrend. The pattern is confirmed when price breaks the support or resistance level formed between the two peaks or troughs.
Two peaks (double top) or troughs (double bottom) at approximately the same price level. Confirmation line: the reaction low between the peaks (top) or reaction high between the troughs (bottom). Volume typically declines on the second touch. The measured move target equals the height of the pattern projected from the breakout.
Enter on a confirmed break below the reaction low (double top) or above the reaction high (double bottom) with volume expansion. Wait for a retest of the broken confirmation level for a higher-probability entry. The second peak or trough should show momentum divergence on RSI or MACD. Ensure the two touches are spaced far enough apart to represent genuine retests, not minor fluctuations.
Measured-move target equals the vertical height of the pattern projected from the breakout point. Place stops above the double top or below the double bottom. Partial profits at 1:1 risk-reward with the remainder targeting the full measured move. Exit if price reverses back through the confirmation level.
1H, 4H, Daily
The best double tops and bottoms occur after extended trends. The second peak or trough does not need to touch the exact same price — a close approximation is valid. Always check for bearish or bullish divergence on oscillators at the second touch for higher-conviction setups.
Rectangle patterns form when price trades sideways between two parallel horizontal lines — a clearly defined support and resistance. Rectangles represent a period of equilibrium where buyers and sellers are evenly matched. The pattern resolves when price breaks decisively through one of the boundaries, often continuing in the direction of the prior trend.
Broadening patterns, also called megaphone or expanding patterns, form when price creates progressively higher highs and lower lows, diverging rather than converging. These patterns reflect increasing volatility and disagreement between buyers and sellers, often appearing during periods of uncertainty or at major market turning points. Broadening patterns are among the most challenging formations to trade because they lack the contracting structure of typical chart patterns.
The inverse cup and handle is a bearish continuation or reversal pattern that mirrors the bullish cup and handle formation. It consists of a rounded top (the inverted cup) followed by a brief upward consolidation (the handle). The pattern indicates that buying attempts fail to sustain higher prices, and the handle's upward drift represents a final weak rally before sellers take control, breaking price below the handle's support.
Diamond patterns are relatively rare reversal formations that combine a broadening pattern followed by a symmetrical triangle, creating a diamond-shaped outline on the chart. They typically appear at market tops (diamond top) or, less commonly, at bottoms (diamond bottom). The pattern signals an exhaustion of trend momentum as volatility first expands then contracts before a decisive breakout.