Pullback Trading Strategy

In this article, I am going to discuss Pullback Trading Strategy in detail. Please read our previous
article where we discussed how to trade with support and resistance. As part of this article, we
are going to discuss the following pullback trading strategy concepts in detail.
1. What is pullback and psychology behind pullback?
2. Benefits of Pullback Trading
3. Characteristics of pullback
4. Pullback types
5. Where does pullback end?
6. Conservative vs aggressive entry
What is pullback and psychology behind pullback?
A pullback is a price movement that moves in against the trend. It is a temporary price movement
before it resumes back into the main market direction. Pullbacks are sometimes referred to as price
Correction or retracement. Pullback occurs when price moves at least one bar against the opposite
direction of the trend.
1. The hope of comparison to find top or bottom on find weakness in price move by the novice.
2. If the pullback is sluggish contra trader will lose hope while bullish traders will regain
confidence.
3. If he pullback down is strong and signals bearish conviction, the bar will get more aggressive
and the bulls will start to doubt their position
The benefits of pullback trading
There are several benefits to trading pullbacks. Some of them are as follows:
1. Trading pullback lets you have a tighter stop loss as your trade location is good and this
gives you a better risk to reward
2. From a psychological standpoint, it’s easier to pull the trigger as you’re buying high and
selling low
Characteristics
CHARACTERISTICS of WEAK PULLBACK
1. Correction (depth of pullback) must be small and without strong momentum candlestick
2. Volume decreases / low volume correction
3. Great mix between red and green candle with light volume
4. Closes towards the middle with wicks
5. How pullback came (should not come after consolidation)
Week pullback leads to continuous of an existing trend
CHARACTERISTICS of STRONG PULLBACK (leads to TR/REVERSAL)
In a bull trend, the strong pullback key features are as follows:
1. First is a series of consecutive bearish bars(LH/LL)
2. Second is the presence of strong bearish bar( trend bar)
3. The third VOLUME DOES NOT REDUCE on a pullback
4. Fourth Depth of pullback (deep)
5. Fifth How pullback came (after consolidation)
6. When pullback fails to bounce back quickly
Hence, a weak pullback is one that lacks all these features.
Strong pullback leads to TRADING RANGE OR reversal of trend or serious attempt to reverse
the trend
Pullback Trading Strategy
PULLBACK TYPES
These corrective moves either are the time or price correction but they denote a change in the order
flow and participation depend upon the types of trend. There are TWO TYPES of Pullback. They are
as follows:
1. TIME CORRECTION
2. PRICE CORRECTION
A strong trend: (Time correction)
In strong trending markets, you’ll have pullbacks that usually stock move in horizontal, low volatility
trendless manner. Because the pullback is shallow, it’s difficult to time your entry on a pullback.
Instead, you can look to trade the breakout, or find an entry on the lower timeframe.
Healthy trend: (PRICE CORRECTION)
A healthy trend is between a strong and weak trend. You can expect a pullback towards the SR
level.
Weak trend (TRENDING RANGE TYPE):
In weak trending markets, you’ll have steeper pullbacks that usually retrace towards major Support
and Resistance
TIME CORRECTION
TIME CORRECTION (Stock to digest the directional move is through a time correction). In time
correction the stock moves in horizontal, low volatility trendless manner. Generally, a strong trend
has time correction.
A strong trend: (Time correction)
In strong trending markets, you’ll have pullbacks that usually stock move in horizontal, low volatility
trendless manner. Because the pullback is shallow, it’s difficult to time your entry on a pullback.
Instead, you can look to trade the breakout, or find an entry on the lower timeframe.
What happening here is as follows?
As the trend continues, it gets far from the stop loss point; retailer’s taking profit to reduce risk
.market pulls back and goes sideways. Once bulls confident that the bears will fail to reverse the
trend, bulls buy again with tighter stop loss

The diagram above shows a time correction pullback example.

PRICE CORRECTION
PRICE CORRECTION, CORRECT as price moves in the opposite direction of the primary trend, this
correction occurs by price and move towards SR level.
Healthy trend: (PRICE CORRECTION)
A healthy trend is between a strong and weak trend. You can expect pullback towards the SR level
The above diagram shows that the bears are usually trying to show their dominants, but not realizing
that the bulls are still strong, the bulls usually come back into the market just before the bears
managed to build confidence
Complex Pullbacks
Complex pullbacks happen when price steps into a consolidating phase in the form of any pattern. It
then remains consolidated for a while before it resumes into the trend No one really knows how long
it remains consolidated before it moves again. Generally forming a continuous pattern like
1. Rising / Falling Wedge Pullback
2. Rising / Falling Flag Pullback
3. Pennants Pullback
4. Widening Wedge Pullback
Where does the pullback end?
Here are some of the guidelines to find
1. Towards previous resistance turned support
2. Towards previous support turned resistance.
3. Towards dynamic support.
4. Towards a dynamic resistance.
5. Towards a Fibonacci retracement
Now you have an idea where price could potentially retrace to.
Conservative vs aggressive entry at technical test point or end of the pullback
Should one insist on playing a reversal without waiting for build-up, firing into a technical test (where
pullback end) is certainly superior over firing into a void. But there is still a large degree of
aggression and risk involved with respect to the stop-loss point. Let me explain to you.
Pullback D-E represents a test in the level of B, which was a function of the earlier sideways activity
within a bull trend
It can safely be stated that the level of B plays a crucial role in this chart:
1. Resistance turned into support
2. It provided a level for a technical test in a Fibonacci 50/61.8 percent correction;
3. It offered a platform for bulls and bears to fight it out in order to determine the lows of the
correction,
By waiting for consolidation at support, it is inevitable to occasionally miss a turn. In fact, it is quite a
frequent occurrence. But it will save us also from many a quick shake.
It is important to note that the higher entry above F does not necessarily compare unfavorably to the
more economical entry at E. First of all, the consolidation below F shows more confirmation on the
likelihood of the reversal, which is already a plus. But there is another issue to take into account that
will affect the clinical odds on both wagers. The levels for protection and target in relation to the level
of entry.
The above chart with a small variation
The above diagram demonstrates what exactly it is that we aim to avoid when waiting for
consolidation. This time the pullback D-E reversal played itself out a little differently. Technically
seen, the level of B once again presented itself as the most likely candidate for a possible
turnaround (a 50/60 percent retracement in an area of former support, now resistance), but an
immediate short at point e would have put an aggressive bull in serious trouble before the actual turn
set in.
Take note of the fact that in this situation, prices once again put in a technical test before reversing,
but instead of using a former level of support to bounce away from (B), the market opted for a former
level of resistance to turning around in if matches (C). Both E and F are valid technical tests and
equally common in occurrence. since we have no way of knowing beforehand which level the market
will pick in any one situation, the idea is to remain on the sidelines until more clarity comes along.
BUT Not always will the market offer us this extra information, but it will do so often enough to
consider patience as a vital ingredient in operating tactics.
As to the conservative long, an entry above the level of G and a tight stop below the level of F will
certainly have suited many BULLS just fine
How to enter your trades on a pullback
There are many ways to enter your trades via a pullback. Here are some entry techniques you can
us
1. Reversal candlestick patterns break out
2. Continuous pattern TL breakout
Reversal patterns
Reversal patterns represent a rejection of higher/lower prices, which are useful for entry triggers.
Some of these patterns can be the pin bar, engulfing pattern and outside bar
Continuous pattern TL break
PULLBACK SETUP FOR DAY TRADING
Trade set up cannot have the following:
Already traded to target on bigger time frame after the initial morning move