Price Action: Double Tops and Double Bottoms (Part 2)

1. Testing and Failure

A "double top" is the market testing the same resistance (prior high) twice; a "double bottom" is testing the same support (prior low) twice.

If a double top fails, price continues upward; if a double bottom fails, price continues downward.

Measured move: once the neckline is broken, the target is typically projected at an equal distance based on the "height of the double top / double bottom."

2. The First Reversal in a Strong Trend Is Usually Minor

In a strong bear trend characterized by breakouts or extremely narrow channels, the first bounce is usually just a move into a trading range or the formation of a bear flag.

Bears often maintain their positions with stops placed very far away; the risk-reward is poor, but the win rate is high.

For bulls to achieve a true reversal, they must first push price back to the prior low for "confirmation," constructing a major high/low with 10+ bars and a two-leg structure.

3. The Importance of Confirmation

The market is always seeking "confirmation":

After a strong decline, the first bounce usually gets stopped well before reaching the high;

Only when price returns to the prior low and buying appears does the reversal begin to be accepted by the market.

4. Typical Scenario of Transition from Bull to Bear

We were originally in a bull trend, which then transitioned into a bear trend.

The market clearly declined here, breaking below the bull trend line and the bull channel.

Then the bulls resumed the rally.

When the market reached this price area again, it declined once more.

After returning to this area again, it declined yet again.

This indicates that this price level is a significant resistance level, and the market finds it very difficult to break through.

This once again confirms that this area is resistance.

Bulls were buying at every point during the rally, even buying at the high of this bar;

They believed the first decline would be minor and that the market would return to this price level, allowing them to at least exit at breakeven.

This bounce helped them get back to breakeven.

The bull who bought at the high was now finally out of his losing position. He might breathe a sigh of relief, finally able to sell at breakeven.

When he saw this decline, he concluded: the bull trend is weakening, perhaps the market has entered a trading range;

If the market is a trading range, he is unwilling to hold long positions at the top.

He used this test of the prior high to exit.

Other bulls saw this strong decline and also sold at the same level;

Bears simultaneously opened positions, betting not just on a minor pullback, but on a double top or even a major trend reversal.

A double top does not require the two highs to be exactly the same — it only requires that the same price area is repeatedly sold.

5. Trading Range: Buy and Sell Signals Coexist

After a trading range persists for 20+ bars, the probability of an upside breakout and a downside breakout is roughly equal.

Within the same chart, there simultaneously exist reasonable buy points (double bottoms, bull flags) and sell points (double tops, bear flags).

A failed double top / double bottom often immediately triggers a measured move in the opposite direction, producing a "two-leg" move.