Most short-term traders lose money not because they lack charts or indicators—but because they’re impatient. They chase too soon, hold too long, or assume that “this time” the market will keep climbing forever.
But here’s the twist: one of the highest-probability setups for short-term traders comes not on the first pullback, but on the second pullback after a strong bullish surge.
It feels counterintuitive—because everything in your gut screams “buy now before it’s too late!” But if you learn to wait, you’ll often catch the cleaner, safer move with a tighter stop-loss and a more favorable profit ratio.
Why the Second Pullback Matters
Let’s say a stock (or crypto, or futures contract) rockets up with a massive bullish candlestick. Excitement fills the air, FOMO sets in, and traders pile in. Inevitably, a large bearish candlestick appears.
Now the crowd splits:
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Some panic and short.
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Others rush to “buy the dip.”
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Both groups often get whipsawed.
Why? Because markets rarely move in straight lines. They breathe. And more often than not, that first dip isn’t the end—it’s the beginning of a two-step pullback (what Elliott Wave Theory would call an ABC correction).
The Psychology Behind It
Think of it like this:
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The first pullback shakes out the weakest hands.
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The second pullback punishes the “impatient dip-buyers” who jumped too early.
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By the second pullback, weak players are gone, volume dries up, and the setup is cleaner.
That’s where disciplined traders strike.
How to Trade the Second Pullback
Here’s the practical playbook:
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Wait for the second dip. Don’t jump in after the first bearish candlestick. Let the market show its second wave of weakness.
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Look for a bullish candle with shrinking volume. This is your signal that selling pressure is fading.
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Enter near the low of that candle. Keep your stop-loss tight—20 to 30 pips (or ticks) below the key bearish candlestick that triggered the pullback.
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Target the previous high. Don’t dream about moonshots or “holding for months.” Short-term trading thrives on consistency, not hope.
Why This Feels Wrong (But Works)
Most traders think: “If the previous high breaks, the sky’s the limit.” And sure, in long-term investing, that can be true. But short-term trading is a different beast.
If you ride past the previous high, you risk giving back hard-earned profits. Instead, cash out there. Bank the win. Move on.
The secret is not maximizing every single trade—it’s stacking a series of small, controlled victories. With small stop-losses and clean take-profits, you protect capital and compound faster.
The Real Lesson
Short-term trading is about survival and discipline, not predicting the future. By waiting for the second pullback, you:
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Avoid the impatient crowd.
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Enter with lower risk.
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Trade against fewer emotional players.
It’s a method that looks boring, but boring is what keeps your account alive. And in trading, staying alive is the only way to win long term.
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