Gold rallies to 2,430, pulls back to 2,395, rallies again, stalls at 2,428 this time, two dollars short of the first high, and rolls over. The second attempt failing just below the first high is not a coincidence and it is the entire trade. A double top is one of the most recognized patterns in trading precisely because it is one of the most honest: it shows you, in real time, that a second group of buyers tried the same thing the first group tried and got weaker results.
The pattern is not about two peaks looking similar on a chart. It is about the second peak proving that demand is fading at a price where it previously held.
The formation
A double top needs two comparable highs separated by a real pullback, ideally to a level worth calling a neckline: a swing low between the two peaks that acted as support while the pattern was forming. The second high should approach the first, not smash through it. A second peak that clears the first by a wide margin is not a double top, it is a new high with a pullback, and forcing the label onto it is how the pattern earns a reputation for being unreliable. The mirror version, a double bottom, needs the same logic in reverse: two comparable lows with a rally between them holding as the neckline.
The neckline break and why it matters more than the peaks
The two highs get the attention but the neckline break is the actual signal. Price breaking below the low between the two peaks means sellers have taken out the one level that was holding the range together, and the traders who bought the second peak are now underwater and eventually forced to sell into further weakness. A pattern with two textbook peaks that never breaks the neckline has not failed, it simply has not confirmed anything yet, and trading it before that break is trading a shape, not a signal.
Measuring the target
The classic measured target takes the height from the peaks down to the neckline and projects that same distance below the break. If gold's two highs sit near 2,430 and the neckline sits at 2,395, the pattern height is 35 dollars, and the target after a confirmed break sits near 2,360. This is a guide, not a guarantee: plenty of double tops travel further, and some barely reach half the projected distance before finding new support.
A worked example
EURUSD prints a high at 1.0920, pulls back to 1.0865, rallies again to 1.0915, five pips short of the first peak, and turns down. The neckline sits at 1.0865. Price closes below it at 1.0858 on a strong candle. Entry comes on that close, the stop goes above the second peak at 1.0920, a 62 pip risk, though a tighter version places the stop just above the most recent minor swing inside the drop for roughly 30 pips. Pattern height of 55 pips projects a target near 1.0810. On a $10,000 account risking one percent with the tighter 30 pip stop, that sizes to roughly 0.33 lots at $10 per pip. If price closes back above the neckline after the break, the pattern has failed and the short is wrong.