There are shapes that often appeared when a rising price was losing strength: two peaks at about the same height (a double top) or three (a triple top), and three peaks with the middle one highest (head and shoulders). In this lesson, real charts show when these shapes are read as "complete" (a break of the neckline), the pullback to the neckline after the break, and wrong examples where price broke the neckline and still went the other way. There is no short selling in the game, so top patterns are used mainly as a signal for when to sell.
The neckline: the line that decides a top
A top pattern is not judged by the shape of its peaks alone. The key is the line through the bottom of the valley between the peaks: the neckline. The neckline is the same as a support line from lesson 1, the level that held price up between the peaks. When price closes below the neckline, the support is read as broken and the shape as complete. Until then it is only "a shape that might be a top".
On the bottom side, each shape in this lesson has a twin turned upside down. Lesson 3, "Bottom patterns" goes through them in the same order.
Double top
A rising price turns down once, rises again, and turns down again at about the same height as the first peak. The two peaks draw an "M". Being held back twice at the same height is the same story as a resistance line from lesson 1: many people want to sell at that level.
The horizontal line through the bottom of the valley between the two peaks is the neckline. Two peaks alone are not yet a double top. The shape is read as complete only when price closes below the neckline, and after that it often fell further.
Drag the chart sideways with a finger or the mouse to move it, and pinch with two fingers to zoom in. With a keyboard, click the chart, then use ←/→ to move and +/− to zoom.
Charts by TradingView Lightweight Charts™
A chart of 100 candles. The down arrows (↓) are two peaks at almost the same height (around candles 63 and 74), and the purple horizontal line is the neckline through the bottom of the valley between them. Candle 80 (↓) closes below the neckline, and after that the price fails to get back above it and falls further. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
100 daily candles of one stock. After a fast rise it turned down around candle 63, was pushed down to the height of the neckline, rose again, and turned down again around candle 74 at almost the same height as the first peak. Candle 80 closed below the neckline, and after that the price fell further without once getting back above it. Note, though, that this break overlapped with a time when the whole market was falling sharply together, so it is hard to credit the shape alone.
Triple top
Price turns down three times at the same height. Held back once more than in a double top, that level carries more weight. There are now two valley bottoms between the peaks, and when they are at about the same height, the neckline is drawn flat.
It is read the same way as a double top. Even with a third peak showing, as long as price is above the neckline it cannot be told apart from a trading range (lesson 5). Only when price closes below the neckline is it read as a top.
Charts by TradingView Lightweight Charts™
A chart of 100 candles. The down arrows (↓) are three peaks at almost the same height (around candles 46 and 54, and once more after that), and the purple horizontal line is a flat neckline. After candle 80 (↓) closes below the neckline, the price falls straight down. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
This stock turned down three times at almost the same height (before that, it briefly spiked higher once). The valley bottoms between the peaks stopped near a flat neckline, and after candle 80 closed below that neckline, the price fell straight down without coming back above it.
Head and shoulders
Three peaks, with the middle one the highest. It looks like a head between two shoulders, hence the name. Price rises at the left shoulder, rises higher at the head, then turns down at the right shoulder before reaching the height of the head. Failing to make a higher high is read as a sign that the rise has lost strength.
The neckline joins the two valley bottoms between the shoulders and the head. It does not have to be horizontal and may slope a little. When price closes below the neckline after the right shoulder, the shape is read as complete, and after this shape at the end of a long rise, price often fell.
Charts by TradingView Lightweight Charts™
A chart of 100 candles. The down arrows (↓) are the left shoulder (around candle 42), the highest point, the head (around candle 56), and the right shoulder, and the purple line is a neckline that slopes slightly down to the right. The price stays just above the neckline for a few candles, then candle 80 (↓) closes below it, and the price falls after that. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
This shape came at the end of a long rise. The left shoulder formed around candle 42, the highest point, the head, around candle 56, and after that a right shoulder at about the same height as the left one. After the right shoulder, the price hesitated just above the neckline for a few candles, closed below it at candle 80, and then fell without getting back above the neckline.
The pullback to the neckline after the break
After breaking down through the neckline, price sometimes climbs back near the neckline a little later. This is called a pullback. It is the same story as "Role reversal" in lesson 1: the neckline that held price up now becomes resistance pressing down, and price often turned down again beneath it.
If the pullback turns down below the neckline, it is taken as a second confirmation that the break was real. If you did not manage to sell at the break, this pullback can be another chance to sell. On the other hand, if the pullback climbs and closes above the neckline, that is a sign the break may have been wrong (see the wrong examples below).
But a pullback does not always come. In the three charts above, price fell without once getting back above the neckline after the break. Waiting only for a pullback can mean missing the whole move after the break.
Wrong examples: it broke the neckline and came back
A close below the neckline does not always lead to a fall. In the two charts below, both the shape and the break looked like the textbook, yet after the break the price came back above the neckline and rose instead.
Double top: back above the neckline a few candles after the break
Charts by TradingView Lightweight Charts™
A chart of 100 candles. The down arrows (↓) are two peaks at the same height (around candles 58 and 70), and the purple horizontal line is the neckline. Candle 80 (↓) falls far below the neckline and closes there. But a few candles later the price comes back above the neckline, moves above and below it for a while, and near the end it is well above the neckline. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
This stock made two peaks at the same height after it had already fallen a long way from much higher up, and at candle 80 it dropped far below the neckline and closed there. By the textbook, the double top was complete. But the next candle fell even deeper, then the price rebounded and got back above the neckline within a few candles, moved above and below the neckline for a while, and near the end climbed well above it.
- It did not come after a rise. A top pattern is the shape of a rise losing strength, but in this chart the price had already fallen a long way from much higher up. Two peaks at a level that had already fallen that far may have been a wobble near a bottom rather than a top.
- The break was too steep. The price fell far below the neckline in one go, and the next candle opened even lower. After a drop all at once like this, a big rebound sometimes follows, and in this chart that rebound went past the neckline.
- The close back above the neckline was the signal to change your view. If you sold on the break, deciding in advance something like "if it closes back above the neckline, look again" keeps you from missing the whole turn.
Head and shoulders: the pullback went past the neckline
Charts by TradingView Lightweight Charts™
A chart of 100 candles. The down arrows (↓) are the left shoulder (around candle 47), the head (around candle 56) and the right shoulder, and the purple line is a neckline that slopes slightly up to the right. After candle 80 (↓) closes below the neckline the price drops sharply, but a while later it comes back to just below the neckline, then climbs above it and stays above it to the end. Keyboard: ←/→ to move, +/− to zoom, 0 to see the whole chart.
The shape looked like the textbook. The head was the highest and the two shoulders were at the same height, and candle 80 closed below the neckline. The price was pushed down hard after that, but not for long. It came back to just below the neckline, stayed there for a few candles, then crossed above it and stayed above the neckline to the end. The sharp drop in this chart overlapped with a time when the whole market was falling sharply together.
- The fall was not only about the shape. It was a time when the whole market was falling sharply together, so this stock may have fallen with the market regardless of the shape and come back with the market. You cannot see such a move in advance from the shape of a single chart.
- The pullback did not stop at the neckline. If the returning price turns down again below the neckline, that confirms the break, but in this chart the price stayed just below the neckline for a few candles and then crossed above it. It was not a confirmation but the opposite signal.
- Keep watching the chart after you sell. Getting back above the neckline and holding there is sometimes read as a buy-side signal this time, the same reading as the bottom patterns in lesson 3.
Using top patterns in the game
When a match starts, the first 60 candles are already on the chart. If two or more peaks at about the same height show up near the end of those candles, draw a neckline through the bottom of the valley between them. There is no short selling in the game, so top patterns are used to decide "do not buy new" and "sell if you are holding".
| What you see | A common response |
|---|---|
| A second (or third) peak turns down at about the same height | If price is still above the neckline, the shape is not complete. The way up is capped, so wait before buying new; if you are holding, set the neckline as your exit. |
| The right shoulder turns down before reaching the height of the head | Read it as a sign that the rise has lost strength. If you are holding, decide in advance to sell if price closes below the neckline. |
| Price closes below the neckline | If you are holding, treat it as a place to sell. This is where the top pattern is read as complete. |
| After the break, price comes back near the neckline and turns down (pullback) | If you did not sell at the break, this pullback is another chance to sell. Do not buy new. |
| After the break, price climbs back and closes above the neckline | This is a sign the break may have been wrong. Rethink your view: as in the wrong examples above, the price sometimes rose instead. |
Watch out for
- Do not rush on peaks alone. Until price closes below the neckline, the shape may be a pause rather than a top. Even in a rise, two peaks at about the same height are common.
- Check that the shape comes after a rise. Top patterns mean something at the end of a rise. Peaks after a big fall are read differently.
- Do not forget the whole market. When the whole market moves sharply together, that move can drag the price more than the shape does. Do not be certain just because of a break.
- Trade count: a match allows up to 10 trades (a buy counts as one and a sell counts as one). Selling and buying back every time a peak forms uses them up fast, so act only at clear points such as a neckline break.
Turn a top upside down and you get a bottom. The next lesson covers the bottom patterns that often appeared when a fall was losing strength, and this time they are buy-side signals.