Formation of the Pattern
The M-head, also known as the double top, is a common technical analysis pattern. The M-head refers to a situation where during the upward movement of the stock price, it rises to roughly the same price level twice in succession, encounters resistance and then falls back, forming two peaks. It is named so because its shape is similar to the English letter “M”.
Formation Mechanism
Upward Phase: Before the formation of the M-head, the stock price is in an upward trend. The bullish forces dominate and push the stock price to rise continuously, forming the first peak.
Initial Pullback: After the stock price reaches the first peak, it meets the resistance from the bearish forces. The bullish forces weaken temporarily, and the stock price starts to pull back. The extent of the pullback is usually relatively large, and it may fall back to a certain proportion of the previous upward wave.
Second Rise: After the stock price pulls back to a certain extent, the bullish forces attempt to push the stock price to rise again. However, the upward momentum this time is significantly weaker than the previous one. The stock price fails to break through the previous high and encounters resistance and falls back again.
Second Pullback: After the stock price forms the second peak, the bearish forces take the upper hand again, and the stock price starts the second pullback. And this time, the pullback often breaks below the low point between the two peaks, that is, the neckline.
Confirmation Conditions
Confirmation of the Neckline: Connect the low points between the two peaks to form a straight line, which is the neckline. When the stock price pulls back and breaks below the neckline for the second time, the M-head pattern is basically confirmed. Some chart patterns may experience a weak rebound after breaking below the neckline, and then break below the neckline again. There is usually an increase in trading volume when breaking below the neckline, which further confirms the effectiveness of the pattern.
Technical Significance
The M-head is a reversal pattern, which indicates that the stock price has encountered strong resistance during the upward movement. The bullish forces are gradually exhausted, and the bearish forces begin to dominate. Although there is a short-term rebound after the first pullback, it fails to break through the previous high or false break, showing that the subsequent bullish forces are insufficient to push the stock price to rise further. Once the stock price breaks below the neckline, it often indicates that the stock price will start a downward trend, which is an important signal of an impending reversal of the market trend accuracy of analysis and the success rate of investment decisions.
Trading Strategies
The M-top pattern is the reverse of the W-bottom pattern. As shown in the figure above, once the neckline is effectively broken below 40, we can start calculating the extent of the decline.
Calculation Method
How to predict the potential decline of the stock through powerful technical analysis?
- The value in the middle of the double top is approximately 53 and the middle of neckline price is 40. The vertical distance is 53-40 = 13.
- The position of breaking below the neckline is approximately at 40. The price reached by the first equal distance decline is 27. 40-13=27.
When the price drops to 27, there is often a weak rebound, or there may not even be a weak rebound. If the bearish force continues to dominate, then calculate the decline of the second equal distance. - The second decrease is the equal distance. The target is14. 27-13=14.
In most cases, the price reached after two equal distances of decline is a price where one can try to go long. At such a price, the probability of making a profit by going long is very high.
The first case is about the Dow Jones Index in 2025.
Case1 DJI INDEX (2025, Daily Chart)
How to predict the potential decline of the index through powerful technical analysis?
- The value in the middle of the double top is approximately 45000 and the middle of neckline price is 42100. The vertical distance is 45000 – 42100 = 2900.
- The position of breaking below the neckline is approximately at 45000. The price reached by the first equal distance of decline is 39200. 42100-2900=39200.
When the price drops to 39200, the bearish force continues to dominate, then calculate the decline range of the second equal distance.
- The second decrease is the equal distance. And after two equal distance of decline, the price is 36300. 39200-2900=36300.
The second case is about the Adobe Company.
Case2 ADBE (2022, Weekly Chart)
How to predict the potential decline of the stock through powerful technical analysis?
- The value in the middle of the double top is approximately 675 and the middle of neckline price is 545. The vertical distance is 675 – 545 = 130.
- The position of breaking below the neckline is approximately at 545. The price reached by the first equal distance of decline is 410. 545-130=410.
When the price drops to 410, it can be seen from the chart that some investors started to buy at the level. During this period, there were several rounds of weak rebounds. - The second decrease is the equal distance. And after two equal distance of decline, the price is 280. 410-130=280.
Starting from the price of 280, Adobe’s stock has been on the rise for several years.
Case3 AMZN (2025, Daily Chart)
How to predict the potential decline of the stock through powerful technical analysis?
- The value in the middle of the double top is approximately 237 and the middle of neckline price is 216. The vertical distance is 237 – 216 = 21.
- The position of breaking below the neckline is approximately at 216. The price reached by the first equal distance of decline is 195. 216-21=195.When the price drops to 195, there were several rounds of weak rebounds.
- The second decrease is the equal distance. And after two equal distance of decline, the price is 174.195-21=174. At the price level of 174, the price started a strong rebound.
Case4 PYPL (2022, Daily Chart)
How to predict the potential decline of the stock through powerful technical analysis?
- The value in the middle of the double top is approximately 310 and the middle of neckline price is 225. The vertical distance is 310-225= 85
- The position of breaking below the neckline is approximately at 225. The price reached by the first equal distance of decline is 140. 225-85=140.
- The second decrease is the equal distance. And after two equal distances drop, the price is 55.140-85=55.
