Double Tops and Bottoms: Tolerance and Failure

Define comparable rather than perfectly equal

A double top commonly has two peaks near one another in price, separated by a lower trough. A double bottom reverses the arrangement. TradingView documents a double-top detector and its pattern rules. The permissible difference between the extremes, required spacing and intervening retracement depend on the selected convention.

Exact equality is often too restrictive, but unlimited tolerance is not useful either. State tolerance in ticks, a percentage or another declared unit. Do not increase it only when that makes a later reversal fit the desired label.

An original top candidate

Suppose a completed swing high is 150, price falls to 140, and a second confirmed swing high is 149.50. With a predeclared one-unit peak tolerance and a minimum eight-unit intervening decline, the example qualifies as a double-top candidate.

If the confirmation rule requires a completed close below the intervening low of 140, a bar with low 139.50 and close 141 has not confirmed it. A subsequent close of 139 satisfies that particular rule. A rule based on any traded price below 140 would have acted earlier and must be tested as a separate specification.

Now imagine the next closes are 143, 147 and 151. The earlier condition occurred, but the expected sustained decline did not. The test must retain this failed break and whatever entry, exit and costs its rules generated. Calling it “not a real double top” after price rises removes precisely the evidence needed to evaluate the idea.

Mirror the geometry carefully

For a hypothetical bottom, lows near 80 and 80.50 with an intervening high of 90 can form the opposite candidate under analogous tolerances. Confirmation might require a close above 90. The reference boundary is the intervening high, not an arbitrary line chosen after the breakout.

A conventional target may project the formation's height beyond that boundary. Such a target is a geometric convention, not a probability estimate. A small difference between the two extremes also means the chosen measurement reference should be disclosed.

Keep the observation available at the time

Pivot-confirmation rules can delay recognition of both extremes. Record the time a candidate became eligible, whether it expires after a fixed interval and how overlapping candidates are counted. A chart with only the final selected pattern hides these choices.

Compare three-swing head-and-shoulders geometry and rounded recovery conventions. Preserve candidate and failure records in a journal. Consistency in classification makes the pattern research interpretable; the familiar M or W shape alone does not establish a trading advantage.