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How to trade a ​double top chart pattern?

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Once you spot the opportunity for valid double top chart pattern, you have to prepare yourself to wait for confirmation.

There are few ways to approach and trade double top.

We will cover the way for beginners and that is very clear and the safest one because it is the way of trading after strong confirmation.

The significant number of experts are trading this type too because once it gives confirmation, it has a high probability of achieving the target.

Once price reaches neckline after being rejected second time from resistance, the first thing you are waiting is close below neckline that acts as a support.

Once the closure happens, you are waiting for a retest of that line.

After support is broken, if that gets retested from underneath and got rejected, it becomes resistance.

Not only that it becomes resistance but you got confirmation for your trade setup.

What is the confirmation?

The sign you are waiting on the retest of support from underneath is bearish pin bar or bearish engulfing.

Also, candlesticks like Doji could be a very good sign.

Stop loss and target point vary from situation to situation.

The main factor is to choose trades that offer you profitable risk-reward.

You do not want to trade setups that don’t give you a potential of making a nice profit.

At the moment it is important for you to know how to spot this pattern, to know the importance of waiting for confirmation and to know what signs to look for when price tests broken support.

If there is no closure below the neckline (support), you do not have confirmation which means you do not have a valid double top chart pattern.

Most people want to trade before closure so they can get a higher entry price.

That’s the biggest mistake you can do.

The higher entry won’t make you profit if you are trading without a confirmed sign.

The main factor is getting confirmation.

The better entry will make you more profit but if you are getting better entry without confirmation, it can quickly turn your position into a loser.

After we explained to you how it works in theory, let’s see how it looks in real trading.

Let’s start by analyzing the area where these two highs (tops) formed.

The area was important in the past since it was support for quite a long time.

When some area is support or resistance in the past for such a long time, it can be expected to turn into support or resistance sometime in the future.

If it was a support, it could turn either in support or resistance.

It is an area of interest for both sides, not only one or another.

Before forming these two highs, we had nice uptrend that led to a test of this resistance area.

When the second top is formed below first one, it is considered even more bearish because it didn’t manage to reach the previous high which gives us a clear sign of weakness in the market momentum.

It slightly broke through neckline (support) and the retest was pretty weak.

On this time frame, it is almost invisible, but when we switch to lower time frames, we can see the retest.

Since this is a three-day time frame, every candlestick has taken three days to form.

So you had enough time to enter on that weak retest.

Trading without confirmation is never suggested because you are more like gambling than trading. 

If there is no confirmation, there is no chart pattern so the question is why are you entering the trade?

Here is an example of a potential double top without confirmation.

We had a resistance that was performing great in the past.

Price got rejected two times forming two tops, but the close below neckline didn’t happen.

Without close below support, we do not have a valid double top.

Without a valid double top, we do not have trade setup.