The Double Top Strategy: The Pullback Trading Entry Technique

The Double Top Strategy: The Pullback Trading Entry Technique

The second method traders use to trade the double top chart pattern is the pullback trading entry method.

So, what is the pullback trading entry method?

This entry method implies waiting for the market to retrace to the neckline after breaking below it.

Let me show you an example with this GBP AUD H1 chart below:

Notice that the market was trending up and later formed a nice double top pattern, indicating a potential bearish reversal.

The breakout of the neckline is a good opportunity to enter the market, but if we are conservative traders, we may want to get more confirmations.

So, we can wait for a rejection of a pullback to the neckline after the breakout. 

Look at what happened next in the chart below:

Pro Trading SchoolMenu

trading-pullbacks-with-double-tops

The Double Top Strategy: The Pullback Trading Entry Technique

The second method traders use to trade the double top chart pattern is the pullback trading entry method.

So, what is the pullback trading entry method?

This entry method implies waiting for the market to retrace to the neckline after breaking below it.

Let me show you an example with this GBP AUD H1 chart below:

double-top-pullback-strategy

Notice that the market was trending up and later formed a nice double top pattern, indicating a potential bearish reversal.

The breakout of the neckline is a good opportunity to enter the market, but if we are conservative traders, we may want to get more confirmations.

So, we can wait for a rejection of a pullback to the neckline after the breakout. 

Look at what happened next in the chart below:

double-top-chart-pattern

As you can see, after the breakout of the neckline, the market retraced to retest the neckline, which has now become a resistance level.

At the neckline, it formed a bearish engulfing bar candlestick pattern.

 This bearish reversal candlestick pattern at the neckline indicates that the little attempt by buyers to push the price back up was rejected, as sellers took charge, ending the retracement move and starting a new impulse move downward. 

So at this point, we have four important elements that encourage us to short the market:

The formation of the double top

The breakout of the neckline 

The pullback to the neckline

The formation of a bearish candlestick pattern signal (bearish engulfing bar)

Now, let me show you how to place your entry, stop loss, and profit target.

Look at the chart below:

As you can see from the chart, you place your entry at the close of the bearish engulfing bar, your stop loss above the upper shadow of the engulfing bar, and your profit target at the next support level.

I marked two profit targets because there are two levels that the market can reach if it moves downward.

So, it is up to you to decide whether to choose the first profit target or the second one.

 No one will teach you which one to choose, as you will only learn that from experience, but as a beginner, I recommend you look at the first major level and place your profit target just above it.

successfully, and many other traders trade the pullback successfully as well.

I don’t really want you to ask me which one to choose; you are the only one who can decide the entry method that suits you best.

However, if you are a conservative trader, you will always feel like you need to wait for a pullback, and that is fine.

On the other hand, if you are an aggressive trader, you will like to enter immediately after the breakout.

Now, you may be wondering whether you are a conservative trader or an aggressive trader.

The truth is, nobody can give you the right answer, because nobody knows you better than yourself.

Open a demo account and start practicing these strategies. From there, you can learn more about yourself to know the type of trader you are and the trading method that is best for you.