Trading The Pull Back

Today we’re trading the full back. 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

uptrend-pullback1.png

This is an example of an uptrend full back inaction. 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 seedowntrend-pullback

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.pullback- 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

pullback-downtrend

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 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

 

movingaverage-pullback

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.

If you’re not sure about your moving averages knowledge visit my posts, We’re Moving Averages Part I and We’re Moving Averages Part II.

If you’ve stumbled in here looking to join the forex trade bandwagon, here is what you need to do. First,  look up Why Forex Trade Is So popular.  Next, you learn the fundamentals of forex trading by reading  Forex Trading Basics – Top To Bottom Part I  and Forex Trading Basics – Top to Bottom Part II .

To be able to interpret what the candlesticks are telling you, You Need To Know Ten Of These Candlestick Patterns . if you want to give your trading skills an edge by relying on pure price action trading/analysis,  instead of fancy forex robots and fancy indicators,,  get started with What is Price Action Trading?

However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch  of several weeks, consult  How to Spot High Probability Trades.  Dont let me stop you from reading the other posts as well. But the  suggested posts above are the most important posts to get  you started.

 

That’s  a wrap for “Trading The Pull Back”.  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.

Til next time,take care.

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