Today we’re trading the pull back with panache. No, we’re not talking tug of war. We’re talking about a very popular trading strategy called the pull back. It is also known as the retracement strategy although both terms are used interchangeably.
Trading the pull back is a very popular strategy among traders. They help keep you from going gung-ho with your trades. And if you’re the type who trades like a gambler you most certainly need to learn how to trade the pull back.
So first things first: We’ll find what the pull back is really is. Of course we’ll looking into a few examples,and to put the icing on the cake we’ll find out how to trade the pull back.
So first things first:
What is the Pull Back Trading Strategy?
Well the pull back strategy is a temporary turnaround or reversal of the prevailing trend-regardless of whether they’re heading for the hills(up) nosediving to the valley(going down). when trading the uptrend watch the price head on up at first.
But later on it swings up and down, and then goes past its previous high. The same posture occurs in the downtrend, except the complete opposite happens. Price first drops bu then swings up and down and gets lower than its previous lower low
You’ll probably be wondering “Are we playing Jekyll and Hyde or what?” You need to understand that it will not be in your bestin to jump straight into the pond just like that,Why? because the market is like a wave.It’s still trying to find its level.So all you gotta do is watch while it finds its level. Let’s take a look at what a pull back pattern looks like, starting with the uptrend pullback
This is an example of an uptrend pull back in action. Notice the zig zig motion of the uptrend pattern.This represents the temporary retracement before getting back to its normal self.Like I said earlier,don’t jump in just yet as the market is trying to find its level.Once the uptrend gets its act together, now will be the perfect time to make your trade entry.
Next up is the pull back in the downtrend.
As you can see
Just like the uptrend, the zig zag motion is in effect here. And just like I said in the uptrend, don’t jump into the pond just yet.It’s still trying to find its level. So once the bears find their bearings, then you can put in your sell order(or go short as they say.
Now that we’ve gotten the explanations out of the way, let’s get find out how to trade the pull backs .The first thing you need to do is
Identify Trends Then Scan For Pull backs
First look for established trends and then look for pull backs within these trends. The whole idea behind this exercise is to identify the chart’s momentum. You want to know whether the chart is moving left or swerving right. Make that your path of least resistance – a path the market is most likely to tread for some time to come.
There is something to you need to keep in mind. Markets do not stay permanent. Just because you see a very hot trend doesn’t mean it’s going to stay that way forever. To the average trader, who wants to make instant cash, a downward pull of a few days may seem very huge
But the savvy trader looking at the big picture doesn’t see it that way. He sees those few days as a little drop in the ocean that could cost him moolah(cash).So you need to take this scenario into account when contemplating the direction of your trading strategy. Let’s take a look at an illustration of pull backs in the uptrend.
This is a classic example of a pull back trade at work here. Notice the brief reversal at the line of support. When that happens , just put in your entry trade along the line of resistance. To protect your trading position, place your stop loss just above the pull back.
Now let’s see the pull back in down trend trade in action
See the downtrend pull back setup in action. Even more important pay attention to the pull back a the line support at the line of support. Why? because you’ll place your entry order just below the line of support. And to protect your trading position against any unexpected surprises,place your stop loss just above the pull back.
Trade Pull Backs on Moving Averages
You can also hunt for pull backs on moving averages. However moving averages work only if the trend is so obvious that you can’t miss it.
Look out for smaller pull backs, especially on exponential moving averages( ema for short).Once you’ve identified the pull backs, you can join the trend on a price action signal. But you may not need to that extent,so long as the trend strong and too obvious no to miss, Let’s take a look at a moving average setup
This definitely a classic moving average pullback setup in a downtrend. The trend is so obvious it’s ridiculous. I mean,it’s screaming ‘SELL’i n your face. You can’t miss it.
That’s a wrap for “Trading The Pull Back With Panache”. Trading the pull back can give you great dividends. Just stay patient and wait for the right opportunities and your forex account will be forever grateful to you for holding out.
Til next time take care.
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