[Chart Pattern] How to use the double top as a selling opportunity on a pullback

This time,we are explaining how to use a double top as a signal to sell on a pullback. A double top is a chart pattern that occurs at a turning point.

However, many people interpret it incorrectly, so this time we are explaining in detail how to use a double top as a signal to sell on a pullback.

As also explained in the video, there are four main points to using a double top for a pullback sell.

① The time frame two levels up is in a downtrend

② A double top is a selling signal

③ Moving averages help as entry signals

④ Place the stop loss above the recent high

The time frame two levels up is in a downtrend

Among the four points, the most misunderstood is the way of thinking about the time frame when looking at a double top. If a double top appears, it tends to be a selling setup on any time frame.

That is not wrong, but to improve the win rate, another step is needed. That is to look at the trend of the higher time frame.

An empirical rule is that if the trend on the time frame two levels up aligns with the direction of entry, the win rate increases substantially.

For example, as explained in the video, if you are trading on a 1-hour chart and a double top appears on the 1-hour, it does not simply mean you should short right away.

What matters is that the same trend is present on the higher time frame (for a 1-hour chart, the daily chart's trend direction should be the same as the entry direction).

In the video, the daily chart is in a selling trend while a 1-hour chart shows a double top, so the entry is a short position.

Mastering this time-frame concept significantly increases the win rate and is therefore the most important point.

Double top is a selling signal

I think this is something everyone knows. So we aim to short, but the initial time-frame perspective is important.

Also, the double bottom is a buying signal, so that should be remembered as a basic reference.

By the way, in the video I explain that a double top can be used only when highs are lower, but I sometimes enter when highs break higher as well.

That is because if a confirm candle is retracing by a wick or if oscillators like MACD or RSI show divergence, I may still enter even if the high is slightly updated.

In this video, that would mean a sell entry.

Moving averages help as entry signals

As also explained in the video, entry is made when the price breaks through the moving average. However, some may feel that the timing of the moving average is too early.

In this case, the 1-hour chart has not yet entered a downtrend. I want to break the neckline, recognize the Dow Theory trend confirmation, and enter.

However, because two levels up the time frame is in a downtrend, it is okay to enter even before breaking the neckline.

The higher time frame has more power, so there are always traders who will sell on pullbacks.

Stop loss is placed at the recent high

We will use the double top pattern as a pullback selling strategy, so I want to clearly explain the stop loss as well.

If you don’t know the stop loss, you cannot manage funds, which is a major flaw in the strategy. So the stop loss is disclosed as well.

Place the stop above the recent high to avoid overtrading and manage losses. That is the basics of trading.

By the way, in this video case the stop loss is placed at the most recent high on the 1-hour chart. The reason is because that area marks the start of the uptrend.

Breaking above the double top means a new high is being set. In other words, at the 1-hour chart level the uptrend would continue.

If that happens, it is not possible to know how high it will rise, so we place the stop there. Many who are short will place their stop there as well.

Thus, it is a point where losses could be amplified by a stop-out surge. Therefore, the double top stop loss level is only at the recent high.

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