Pipe Top: Definition, How to Trade, and Example

What Is a Pipe Top?

A pipe top is the bearish mirror of the pipe bottom. It consists of two adjacent bars with long upper shadows that reach approximately the same high price, while the bodies close well below that high.

The pipe top is conceptually similar to a tweezer top but emphasizes the length and sharpness of the upper shadows. The pipes should be significantly taller than the bodies.

Pipe tops form after advances and signal that a specific price level has been tested twice from below and rejected both times. The pattern is classified as a bearish reversal with a roughly 65% completion rate.

How a Pipe Top Works

The pipe top works because the two sharp probes to the same high represent a double failure of demand. On the first pipe, buyers push price sharply higher. Sellers step in and drive it back down by the close.

On the second pipe, buyers try again at virtually the same high, and again sellers overwhelm them. This double rejection is strong evidence that the high is a genuine ceiling.

The breakdown occurs when price closes below the low of the two-bar formation. The measured-move target is the height of the pipes projected downward from the breakdown.

How to Identify a Pipe Top

The pipe top has specific visual requirements.

• Two adjacent bars with long upper shadows reaching approximately the same high.
• The bodies close in the lower portion of their respective ranges.
• The upper shadows should be at least 2:1 shadow-to-body ratio.
• The pattern appears after a rally - it is a reversal signal.
• Volume is often elevated on one or both pipe bars.
• Confirmation requires a close below the formation's low.

How to Trade a Pipe Top

The entry is a short position on a close below the low of the pipe formation. Some traders use a sell-stop order below the formation low.

The stop loss goes above the pipe highs. Because the pipes are sharp, the stop is usually tight.

The target is the height of the pipes projected downward from the breakdown. The prior swing low is also a natural first target.

• Entry: short on a confirmed close below the pipe formation's low.
• Stop: above the pipe highs.
• Target: the pipe height projected down from the breakdown, or the prior swing low.
• Speed: like the pipe bottom, this pattern forms and resolves quickly.

Limitations and Pitfalls

Pipe tops fail roughly 35% of the time. When they fail, price breaks below the formation low briefly, trapping short sellers, and then rallies back above the pipe highs.

The most common mistake is identifying any two bars with upper shadows as a pipe top. The shadows must be long and reach nearly the same level after a meaningful advance.

Another pitfall is shorting against a strong trend. A pipe top in a powerful uptrend may simply be a pause before the next leg higher.

Stocks with news catalysts can blow through pipe-top resistance with a gap. Always consider the calendar.

Example

Imagine a stock that has rallied from $52 to $68 over three weeks. On Thursday, the stock spikes to $72 and closes at $67.80. On Friday, the stock spikes to $71.80 and closes at $67.50. The pipe formation has a high of $72 and a low of $67.50.

On Monday, the stock closes at $66.80, breaking below the formation low. A short entry at $66.80 with a stop at $72.50 risks $5.70 per share. The pipe height is $4.50, so the target is $63. The prior swing low near $58 offers $8.80 of downside for those who trail the stop.

Bottom Line

The pipe top is a fast, efficient bearish reversal that reveals supply overwhelming demand at a specific price level - twice - in just two bars. Its compact form gives traders a tight stop, a clear entry, and a defined target. The ~65% follow-through rate makes it a genuine edge when the pattern meets strict identification criteria.