Understanding the Perfect Buy Point in Swing TradingIntroduction
Swing trading is a strategy that traders use to capitalize on the "swing" or change in the prices of stocks. It involves holding a stock for a period ranging from a few days to several weeks to profit from price changes or 'swings'. A critical aspect of swing trading is identifying the perfect buy point (PBP), which is the most opportune moment to enter a trade.
The Concept of Perfect Buy Point (PBP)
The Perfect Buy Point is the price level at which the probability of gain is significantly higher than the risk of loss. It's not just about buying at a low price but buying at the right time when a stock is poised to increase in value.
Identifying the Perfect Buy Point
To identify a PBP, swing traders often rely on technical analysis, a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts look for patterns and signals that indicate the momentum is shifting in a way that suggests a move upwards.
Key Patterns for PBP
The Base Pattern (Point A)
The base is a pattern that looks like a consolidation or sideways movement in the price chart. After a decline, the stock begins to round out the bottom, creating a 'U' shape. The PBP occurs when the stock breaks out of this base on the upside with increased volume, signaling the start of a new uptrend.
The Pullback Pattern (Point B)
A pullback occurs after a stock has advanced and then begins to decline slightly. The PBP in this context is identified when the stock finds support and begins to turn upward again. The support level should be noticeable, and the upward turn should come with a surge in volume, confirming the strength of the trend continuation.
Graphic Analysis
In the attached graphic, two scenarios (A & B) illustrate potential PBPs. Each shows a different pattern leading up to the PBP, providing a visual representation of the textual description above.
Factors to Consider
Volume: Look for a significant increase in volume at the PBP. This is an indication that large investors are supporting the move.
Price Action: The stock should move through the buy point decisively, not just inch past it.
Market Environment: It is also essential to consider the overall market trend. Buying during a market uptrend will increase the chances of a successful trade.
Conclusion
The perfect buy point is a moment when the balance of evidence suggests a stock is likely to move higher. It is a combination of price action, volume, and pattern recognition. The graphic provided illustrates two classic scenarios for identifying PBPs. By understanding these concepts and combining them with a disciplined trading approach, you can enhance your ability to make profitable swing trades.
Remember, no matter how effective a strategy, there's always a risk involved in trading. It's crucial to manage your risk and use stop-loss orders to protect your capital.
Pullbacktrade
of Fibonacci RetracementsIn this article, we delve into the intricacies of the Springboard Effect of Fibonacci Retracements , drawing parallels between the trading world and the physics of a springboard.
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The Springboard Analogy:
Imagine a scenario with four different springboards, each with varying degrees of stiffness. Now, drop an identical weight from the same height onto each board. The resulting bounce illustrates the concept of retracement and extension in the context of momentum trading.
Barely Any Springs (0.236 Retracement):
A bounce at the 0.236 retracement level is seen as a potential trend failure. Buyers may step in, but the bounce is likely weak. Traders shift focus to shorter-term scalping opportunities, targeting other fib levels within the retracement as potential resistance.
Few Springs (0.328 Retracement):
Here, the bounce on the 0.328% retracement is viewed with caution. While a good bounce may occur, traders remain vigilant about a potential double top, closely monitoring candlestick reactions and utilizing the CCI to identify divergence if momentum falters.
Moderate Springs (0.5 Retracement):
A bounce at the 0.5 retracement level signifies continued bullish momentum. Buyers are willing to enter at a relatively lower point, maintaining optimism. Targeting the 1.272 extension, traders consider this a bullish signal. Aligning with nearby resistance or front-running the level becomes a strategic move.
Lots of Springs (0.618 Retracement):
This scenario represents a strong market extension. A bounce at the 38.2% retracement level indicates a plethora of buyers eager to enter the market promptly. This serves as a positive sign, suggesting a robust extension. The target? The 1.618 extension, potentially aligned with a nearby resistance level.
The Springboard Effect provides traders with a tangible framework for interpreting retracements and anticipating market extensions. By aligning retracement levels with the stiffness of a springboard, traders gain insights into the potential strength or weakness of a continuation. Whether aiming for robust extensions or preparing for short-term scalps, understanding the nuances of the Springboard Effect adds value to a trader's toolkit.
Embrace this strategy, and may your trades be propelled to new heights.
Top 3 Pullback Trading StrategiesAs traders, we all know the market can be unpredictable, but by understanding and utilising pullback trading strategies, we can take advantage of temporary price reversals to enter positions at more favourable prices. In this article, we’ll dive into the world of pullback trading, explain the concept of mean reversion, and look at how to use tools like the moving average indicator and Fibonacci retracements to identify potential pullback levels.
What Is a Pullback?
In the past, you might have seen stock traders discussing their plans to wait for a pullback to load up on shares and wondered, “but what is a stock pullback?” In fact, pullbacks occur in prices of all tradable assets, including commodities and forex trading pairs, such as EUR/USD and AUD/USD, not just in stock prices.
A pullback refers to a temporary reversal in the price of an asset after a period of upward or downward movement. If you’ve ever heard of “correction” or “retracement,” these are just other terms used to describe pullbacks. It's where the price cools off slightly before continuing its overall trend, and it is often the result of profit-taking by traders and technical factors, like key areas of support and resistance.
Why Do Pullback Trading Strategies Work?
Trading pullbacks in trends plays into the notion that “the trend is your friend.” In other words, trading in the direction of the higher-timeframe trend will typically yield the best results. But why does this strategy work? The easiest way to think about it is in the context of “discount” and “premium” pricing.
Discount and Premium Pricing
Imagine you have a bullish trend, like the one in the example above. Here, traders run the risk of buying at one of the many highs that make up the trend, paying more for a single unit of an asset than is potentially necessary (paying a premium) and resulting in sub-optimal risk/reward. Given the premium pricing, the number of buyers will taper off until sellers take control and push prices lower.
Conversely, pullbacks allow traders to get in once the price cools off, meaning they can enter at a discount. At this point, buying pressure will be at its strongest as many know these low prices often won’t last and that they can offer much better risk/reward ratios, maximising the profit for traders from the overall bull trend.
Mean Reversion
This concept relates to the idea of mean reversion, which states that prices tend to return to their average over time. By entering a position during a pullback, traders can buy an asset at a lower price, or at a discount, with the expectation that the price will eventually return to its average.
Notice that in the chart above, for example, the retracements typically fall below the midpoint of the previous retracement and the 50-period moving average before continuing higher. Additionally, we can see that the further the price moves away from these two averages into areas of previous premium or discount, the more likely it is to reverse.
As you’ll see, these ideas form the basis for several commonly used pullback trading strategies. Understanding how the concepts work, however, will help you develop your skills as an effective pullback trader and allow you to trade under a variety of market conditions.
Using Pullback Strategies in Forex and Other Markets
The following strategies can form the basis of a solid stock pullback strategy, but their uses aren’t limited to just stocks. You can use them while forex trading or in the commodities and crypto* markets. Just note that pullback trading will be most effective in trending markets and less so in ranges.
To get the best understanding of how these strategies work, you can try applying them to live charts using the TickTrader platform.
Strategy #1: Moving Average Pullback Strategy
Using the principle of mean reversion, we can start putting it into practice with moving averages. Moving averages often provide ideal areas of dynamic support and resistance and are a versatile tool in any pullback trader’s arsenal.
Requirements: You can use a simple moving average (SMA) or an exponential moving average (EMA), which gives more weight to recent prices. It may be a good idea to try experimenting with both to see which one you prefer.
Traders often use a 21, 50, or 200-period moving average, so again, you can try experimenting to find the most suitable one for you. We’ll use a 50-period MA, expressed as MA(50).
Entry: First, a trend will need to have been set in motion. Traders usually either set a limit order at the moving average or enter with a market order based on price action that supports their idea.
Stop Loss: Stop losses are typically set above the high or below the low that originated the leg before the pullback, as seen in the example above. Given that these trends can last for a long time, you may trail your stop just above or below key swing highs and lows as the trend progresses.
Take Profit: Some traders begin to take profits at the high or low that originated the retracement, denoted by “Potential Target” in the example. So, when entering during a bullish pullback in an overall bear trend, traders can use the low that started the retracement as their first target. Subsequent levels of support or resistance are also commonly used as profit targets.
Strategy #2: Fibonacci Retracement Pullback Strategy
Using Fibonacci retracements is also a common way to find entries in pullbacks. Recall that the price will often cross above or below 50% of the retracement. Sometimes, it’ll reverse to the key Fibonacci levels of 0.618 and 0.786 in a larger bull trend or 0.382 and 0.236 in a bear trend. Don’t forget that 0.5 itself is a Fibonacci level.
Requirements: You just need the Fibonacci retracement tool that can be found in most charting software, like TickTrader. In a bullish trend, apply the first point to a swing low and the second to a swing high. Apply it to a swing high and low for a bear trend.
Entry: Entries here can be adjusted to your preferred style of trading. Some traders will simply set a limit order at 0.5, while others will place them at 0.786 or 0.236 to maximise risk/reward. Alternatively, you can break up your order into three, setting limits at 0.5, 0.618, and 0.786 to cover all bases for a bullish trade or 0.5, 0.382, and 0.236 for a bearish one.
Stop Loss: Like the Moving Average strategy, traders often put a stop loss above the high or low that originated the leg before the pullback. For instance, the second entry above would mean placing the stop at the 0.618 level of the Fibonacci retracement. You can also try putting stops above or below nearby engulfing candles for better risk/reward. Alternatively, you could choose to trail your stop below swing lows or above swing highs for bullish and bearish trades, respectively.
Take Profit: Some traders will start taking profits at the nearest major swing points, while others use the 1.618 extension of the pullback to set their profit target.
Strategy #3: Breakout Strategy
Finally, in markets where the overwhelming trend is too strong to allow for a deeper pullback, you may try to trade the breakout. In a bullish breakout, for example, the price might quickly back up to test the resistance-turned-support before shooting higher. Note that some breakouts are merely false breaks designed to trap traders and force prices into a deeper retracement - just look at the significant highs in the first picture in this article.
To counteract these traps, you can look for high volume on the movement that caused the break, as well as the close of the candle. Candlestick patterns, such as shooting stars and hammers, can typically signal false breaks.
Entry: After a bullish breakout above a recent swing high on high volume, traders will usually set a limit order at or just above the high or wait for price action to confirm that the high is now acting as support before entering with a market order. Conversely, traders will enter in the same way for a bearish breakout but use swing lows instead, setting orders at or just below the low or looking for price action confirmation to enter.
Stop Loss: Traders can choose to set stops below the range that the breakout occurred from or above or below an engulfing candle, like in the Fibonacci strategy.
Take Profit: As with the two strategies mentioned, some will just trail their stops above or below key swing highs and lows to ride the long-term trend and maximise their profits. Others choose to use the most recent swing high or low to take partial profits before closing their position at a suitable level of risk/reward.
Closing Thoughts
Pullback trading can be an effective strategy for traders looking to ride trends. By taking advantage of the concepts of premium/discount pricing and mean reversion and using technical analysis tools like moving averages and Fibonacci retracements, traders can get involved at optimum points in the market before the trend continues.
It’s also worth remembering that any pullback can signify a market reversal. Always be cautious and use these pullback strategies in conjunction with other forms of technical analysis before considering making a trade. Once you feel ready, you can try opening an FXOpen account to put your skills to the test. Happy trading!
At FXOpen UK and FXOpen AU, Cryptocurrency CFDs are only available for trading by those clients categorised as Professional clients under FCA Rules and Professional clients under ASIC Rules, respectively. They are not available for trading by Retail clients.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Top Pullback Trading StrategiesTop Pullback Trading Strategies
In this article, we will be discussing some of the most effective pullback trading strategies that can assist forex traders in identifying ideal entry points that align with the current trend. These strategies enable traders to take advantage of short-term price retracements, allowing them to navigate the volatile currency market with greater ease and profitability.
What is pullback trading?
Pullback trading refers to the practice of capitalizing on temporary price retracements or surges within an existing uptrend or downtrend in the forex market. These fluctuations in price typically occur over a brief period and do not interrupt the prevailing trend. Traders can leverage pullbacks by entering positions when the currency pair's price approaches its support or resistance level, enabling them to profit from upward or downward market movements.
Discover the Top Pullback Trading Strategies for Forex Traders
Moving Average Strategy
The Moving Average (MA) strategy is among the most widely used techniques for identifying pullbacks in an ongoing uptrend. This technical indicator calculates the average price of a currency pair over a specified timeframe and compares it with the present price to ascertain market behaviour.
In an uptrend, when the current price of the currency pair is significantly below its average price, it suggests that a short-term dip is likely to occur and provides a signal to enter long positions. Conversely, in a downtrend, if the current price of the currency pair is significantly above its average price, it implies that a short-term hike is probable, indicating the need to enter short positions to profit from a subsequent market downturn.
Trendline Strategy
Trendlines play a crucial role in identifying the direction of a trend in forex. Connecting three or more high or low price levels creates an uptrend or downtrend trendline, respectively. When trading pullbacks with trendlines, traders look for higher high price levels followed by higher low price levels, indicating a temporary dip in an ongoing uptrend. Alternatively, traders can enter short positions with trendlines showing lower low price levels followed by higher low price levels, signaling a temporary hike in an ongoing downtrend.
Traders can enter long or short positions with trendlines at the third, fourth, or fifth high or low price level, as these levels confirm the prevailing trend and signal the optimal entry point in the forex market.
Breakout Strategy
The Breakout strategy enables traders to enter the market immediately after currency pair prices reach their support or resistance level and subsequently move above or below it, respectively. Breakouts represent opposing movements to the prevailing trend, providing opportunities to enter the market during temporary reversals.
In an uptrend, when the currency pair price briefly touches its support level and contracts, a breakout signals a pullback in the trend, providing a signal to enter long positions and benefit from rising prices. Conversely, in a downtrend, when the currency pair price briefly touches its resistance level and expands, a breakout signals a pullback in the trend, providing a signal to enter short positions and benefit from falling prices.
Fibonacci Retracement Strategy
The Fibonacci Retracement strategy determines the optimal levels for entering the market during an uptrend or downtrend. Using Fibonacci levels, traders can identify the ideal support and resistance levels, based on which they can decide to long or short the market. This strategy utilizes Fibonacci retracement levels, which indicate how much currency pair prices are retracing before continuing in the prevailing trend direction.
During a downtrend, lower Fibonacci levels, such as 23.6% and 38.2%, suggest that the markets have not retraced significantly, enabling traders to identify the ideal resistance level (representing a temporary pullback hike) and signal short trades due to the expected continuation of the downtrend. Conversely, during an uptrend, higher Fibonacci levels, such as 61.8% or 78.6%, indicate that the markets have retraced extensively, helping to identify the ideal support level (representing a temporary pullback dip) and signal short trades due to the anticipated continuation of the uptrend.
Additionally, during an uptrend, lower Fibonacci levels like 23.6% and 38.2% suggest that prices are approaching the resistance level, which may break above this level, signaling traders to place long orders and benefit from the ongoing rising markets. On the other hand, during a downtrend, higher Fibonacci levels like 61.8% or 78.6% indicate that prices are approaching the support level, which may fall below the support level, signaling traders to place short orders and benefit from the ongoing falling markets.
Trade forex pullbacks and identify ideal entry prices
In forex trading, pullbacks can help traders pinpoint the optimal entry points for both long and short trades. By identifying temporary dips or hikes in currency pair prices during an existing uptrend or downtrend, traders can take advantage of short-term trading opportunities without missing out on potential profits.
types of pullbacksIn this lesson, I shared with you the types of pullbacks
Be careful, pullbacks are breaks in the middle of the trend
Poolbacks do not have the strength of main steps
In my opinion, the best type of trading with pullbacks is to recognize the completion of these corrections patterns so that we can move in the direction of the trend at the right point.
Of course, it depends on your trading time frame.
Volatility Measurement: Average True Range Hello, dear subscribers!
The market volatility measurement is a very important for the trading strategies constructing. One of the most appropriate and effective way to do it is to use the Average True Range (ATR) indicator.
How to calculate ATR?
First of all we should receive True Range value and calculate it's moving average on 14 periods. The True Range is a maximum of three values:
1. High - Low
2. Absolute value of (High - Previous candle close)
3. Absolute value of (Low - Previous candle close)
Thus, this indicator takes into account not only the current candle prices, also for the previous candle.
How to use it?
This indicator can't help to define the future price action direction but it can be very useful in combination with other indicators. The most appropriate way is to combine it with any oscillator. The oscillator will help you to identify the overbought and oversold conditions or bullish/bearish divergences, as a result you can define the direction of potential price move. The ATR will define the best entry point when the price on the minimum/maximum level.
ATR is greatly triggered on huge pumps and dumps, as you can see on the chart after that price usually has a correction which can be used in your trades.
DISCLAMER: Information is provided only for educational purposes. Do your own study before taking any actions or decisions.
How a RETEST works - with Trade IDEA - Pullback explained(Note for professional Traders: If you have some experience on this strategy or
if you feel like something is missing, please comment, so everyone can benefit from it :) Thanks in advance!)
Hi Traders!
Have you ever been in this situation:
The market is clearly in an Uptrend.
Big, Green Candles moving up.
Making higher highs and lows.
Breaking all the major Resistance.
Because of all of this, you hit BUY.
Now...
The market makes a 180° U-turn.
You see your trade is losing.
The Big green candles are now red candles.
Falling towards the Support.
Let's move on...
You think, the Up-Trend is over now.
You now see some red candles in the chart.
You think the trend has changed.
You want to be the one how rides the huge Down-Trend.
You hit SELL.
OK...
The market uses this Support and is Continuing the Up-Trend!
Ouch :(
So, in this idea you'll discover what those so called "Retests" are.
Ask yourself: When does a Retest occur?
If you think correctly, you might have a picture of a breakout in your head.
This Breakout can be anything:
Support and Resistance
Trendline
Fibonacci Levels
Parallel Channel
SMA 20, 50, 200 ...
EMA or other trending indicators
etc. think of anything
After the Breakout the Retest can occur at any time.
NOTE: A Retest does not occur on every Breakout! The market occasionally breaks out without a Retest.
Here we listed some "sorts" of the Retest:
The "classic" Retest
This is the kind of Retest which you can find in every trading book.
Let's get an example:
The market just broke out from major Resistance.
Since there is price action in the movement, the price even moves a few pips further.
It suddenly stopped, made a 180° U-turn and it makes a Pullback.
It tested the previous Resistance (now it is a Support) and continues higher.
What you can use to predict the Retest is over:
- use the 20MA
In a strong Trend the 20MA is often the key level many traders are watching.
So if you notice that the market and the 20MA are far away from each other, than wait for a Retest.
If both are touching each other, the market often continues higher.
- use false breakouts
If you notice that the Support gets broken and fastly comes back, this is a sign that bullish power exists.
Buy the False Break.
- use other indicators
It is also possible to trade it with Bollinger Bands or Parabolic SAR...
The long Retest
As you can see in the third example of the chart, the market broke out and immediatly retests the trendline.
Then it moved very long on the other side of the trendline and finally moves further.
If you zoom in, you can notice a little Trendline which gets broken.
This could serve as an Entry Trigger.
Watch out for other sorts
These Retests can - as every pattern in trading - come up in every kind.
You have to watch it yourself!
In the chart of USDCAD we highlighted three (potentially four) Examples of the Retest.
We hope that we helped you with this idea.
Please like, follow and comment!
Thanks and successful Trading :)!
ETHUSD 1D KELTNER CHANNEL PULLBACK TRADING STRATEGYTrading Pullbacks with Keltner Channel
Trading pullbacks successfully can only be done in the presence of a strong trend. Using the Keltner channel indicator we can study how the price behaves around the upper and lower envelopes to gauge the strength of the trend.
As you already learned when the price hugs one of the two bands and crawls along with the band, we have a case for a strong trending market.
There will be highlighted small retracements while the price hugs the upper Keltner band. Notice that the price can retrace to the area around the 20-EMA. It won’t give you an exact price, but a price zone from where the price can potentially bounce and the bullish trend can resume.
This is a good way to measure pullbacks in price. Successful trading doesn’t require catching the exact turning point.
For a better timing of our trades, we can use the Stochastic RSI indicator in combination with the Keltner indicator for more confluence.
The trade trigger is simply to follow with this Keltner Channel pullback strategy. Pull the trigger when the price retraces to the middle band and the stochastic indicator develops a crossover from oversold territory.
USDJPY 1D/1H - HOW TO PROFIT FROM TRADING PULLBACKSTRADING PULLBACK RULES
1 - Find Daily uptrend with HH's & HL's.
2 - Switch to the 1h Time Frame
and Wait for a Pullback
against the Uptrend.
3 - Place Fib between last swing
high and low levels,
prior to the pullback.
4 - Buy Anywhere Between 50% and 61.8% Fib.
5 - Place Stop Loss below Swing Low.
6- Take Profit at break above the
previous Swing High.
ETHUSD 1D LONG or 1H BEARISH CONTINUATION1D ASCENDING TRIANGLE BULLISH BREAKOUT.
Wait for a Daily Candle Close above triangle.
1H PULLBACK TRENDLINE BEARISH CONTINUATION BREAKOUT.
Wait for a 1H Candle Close below Pullback Trend line.
Or wait for a Bearish Continuation Break-Hook-Go candle pattern.
GBPAUD Documented MA trade + 50 PipsToday we had a nice push down in the GBP pairs which set-up an MA trade on this pair. Although this was not the last to reach the MA, price pulled back to the MA as opposed to the MA coming to price. Those who trade the Gold Method Ichimoku and have been in the training, know exactly what I am talking about. GA is also my favorite pair.
Everybody in the training room banked + 50 pips on the trade, Nice and easy.
Have a great weekend!!
Allen
For those traders who I gave extra time to decide if they want to join, remember Monday is the deadline.
TRADING PULLBACKS WITH KELTNER CHANNELTrading Pullbacks with Keltner Channel
Trading pullbacks successfully can only be done in the presence of a strong trend. Using the Keltner channel indicator we can study how the price behaves around the upper and lower envelopes to gauge the strength of the trend.
As you already learned when the price hugs one of the two bands and crawls along the band, we have a case for a strong trending market.
In the chart below we’ve highlighted small retracements while the price hugs the upper Keltner band. Notice that the price retrace to the area around the 20-EMA. It won’t give you an exact price, but a price zone from where the price can potentially bounce and the bullish trend can resume.
This remains a good way to measure pullbacks in price. Successful trading doesn’t require catching the exact turning point.
For a better timing of our trades we can use the Stochastic RSI indicator in combination with the Keltner indicator for more confluence.
The trade trigger is simply to follow with this Keltner Channel pullback strategy. Pull the trigger when the price retraces to the middle band and the stochastic indicator develops a crossover from an oversold territory.
The secret of pull back tradeOne of the most common asked questions.
When price is creating higher high or when the resistance level is broken, what can I do? when and where should I enter?
The answer is very simple
Breakout (structure broken) > WAIT for pull back (to structure level) > BUY
As we can see from the chart on the left, when there's a breakout (structure broken / new high is created), do not chase or enter immediately. The secret of pull back trade is to WAIT for it to pull back. Be patient, patient is the key to success.
The rationale behind is before the breakout happen, the yellow structure is a resistance level. But when it's broken and new high is created, the resistance level will become support level. That is why we want to buy low (Support level) and sell high (Resistance level)
Good luck and happy trading!
This is How a Full Time Pro Trader makes PROFIT!As long as price stays above the 50 ema there is a bullish trend. Pull backs to the 50 ema are entry points. Tight SL under 50 ema. How would you make re-entry trades on this bullish trend for the BTCJPY. Leave a comment below about your trade idea.
