Pullback Trading Strategies Indicators You Must Know

 

Pullback Trading Strategies You Must Know

Pullback trading is a perennial favorite among both new and seasoned traders. And it’s not surprising as looking for pullbacks ensure that you align yourself with the market. On top of that, it also allows for a superior reward-to-risk ratio.

In this article, you’ll find ten handpicked pullback trading strategies.

You might be thinking – Do I need ten trading strategies to profit from pullbacks?

No, definitely not.

But you might find that some strategies appeal to you more than others. And this depends on the tools you’re familiar with and your market inclinations. Hence, getting a sense of the varied approaches is beneficial for any pullback trader.

The chosen strategies are offer diversity and fall (more or less) evenly into three categories.

• Price Action and Lines
• Moving Averages
• Other Indicators

We are aiming for an overview here. Hence, for each strategy, we will explain its basic idea, followed by a short example.

So be sure to visit the link to the respective strategy guides for detailed rules and more trading examples.

Price Action and Lines

If you want to avoid indicators altogether and focus on price action, pay attention here.

The three strategies in this section use trend lines, channels, and retracement lines. In a nutshell, we’ll find pullbacks by drawing lines on our charts.

Strategy #1: Pullback Trading With Trend Lines and Channels

If you like the simplicity of price action, this strategy will appeal to you.

In this method, you use a trend line to define the significant trend. Then, you draw a channel to identify oversold (overbought) conditions for your entry.

Pullback Trading Strategies

1. With these two swing lows, we drew a trend line to track the bullish market.
2. These overshoots of the bearish channels are oversold signals. Here, they act as pullback entries.

For more examples, refer to this guide.

 

 

Strategy #2: John Hill’s Trend Line Method

This pullback strategy from John Hill is unique in the way it uses trend lines.

It uses the slope of trend lines to judge the momentum during a entrancement. Shallow lines mean weaker momentum, and steep lines point to strong momentum.

By doing so, it enters only those with faltering counter-trend strength.

You will find that this strategy applies only in cases of complex pullbacks.

For diagrams explaining how this strategy works, refer to this guide.

1. During a pullback, draw two trend lines with the trend extreme (low) as the origin. Here, the second trend line was shallower, indicating that bullish momentum was weakening.
2. Under this premise, a pullback entry was possible as the market broke the second trend line.

Strategy #3: Pullback To 50% Replacement

This strategy uses the 50% retracement of a price thrust as a support or resistance.

• First, identify a significant price thrust.
• Then, project a entrancement zone (50% to 61.8%) and wait for the market to retrace into the area.

1. The choice of the thrust is critical for this replacement strategy to work. In this example, the thrust was significant as it broke the prolonged tight trading range.
2. With that thrust, we highlighted the 50% retrenchment zone. The market pulled back down and found support within the zone. One way to enter the market is to place buy limit orders within the area.