Double Top Pattern

Why the second peak is not an entry

The tempting version is to sell at the second peak, because the stop is tight and the reward looks enormous. The problem is that at the moment you place that trade, there is no double top. There is one high, one pullback and price back at resistance, which is also what an ascending triangle looks like just before it breaks out.

You are choosing between two bad prices. Selling the peak gives you a good ratio on a pattern that does not yet exist. Selling the break gives you a real pattern at a poor ratio. A third option is to sell the retest instead: waiting for price to close below the confirmation low, then to come back and fail at it from underneath. That fill sits near 1.2620 with the same 1.2750 stop, which trims the risk from 140 pips to 130 and leaves 120 pips to the objective, so the ratio moves from roughly 0.8 to roughly 0.9. Note what that does and does not do. It improves the price and it puts you short at a level that has already flipped from support to resistance, but it does not turn a poor ratio into a good one.

The cost of that patience is the trades that never come back. Some double tops break and run without a retest, and you will watch those from the sidelines.

Two rejections inside an uptrend often precede a third

• It was a pause, not a top. Inside a strong uptrend, two rejections at a level often just precede a third attempt that succeeds. The shape describes the swing it formed on, not the higher timeframe.
• The break that snaps back. Sell stops pile up under the confirmation low. Price reaches down, fills them, and reverses. This is common enough that the mechanics of where orders sit is worth understanding before you trade any breakout.
• It was drawn afterwards. If you found the pattern after the break, you did not identify it. Mark the confirmation low while the second peak is still forming, or accept that you are reading history.
• Timing is absent. The measured objective carries no schedule. Price can sit under a broken low for a fortnight before it does anything.

Mark the level, do not sell the second peak

Use it as a prompt to mark a level, not as a trigger to sell. Draw the confirmation low the moment a second peak stalls near the first. Write down three numbers before you do anything: the confirmation low, the invalidation level above the higher peak, and the measured objective. Compare the second and third. If the objective does not clear your minimum multiple of the risk, the honest answer is that this instance is not worth trading, and skipping it costs nothing.

Those three numbers are also what a published trade idea is really showing you behind the label, and how to read a forex signal goes through them one at a time. A double top hands you levels. It does not hand you an edge, and the levels are only useful if you price them honestly.