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The 1st Pullback Trading HACK (HIGH WIN RATE Price Action Strategy For Beginners) - YouTube
Channel: The Secret Mindset
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If you want to be profitable trading market
pullbacks, the best way is to catch the first
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pullback.
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The first pullbacks are the trend entries
that can be found at the very start of a new
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trend.
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In today’s video we’ll explore the idea
of trading the first pullback in a new trend
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and I will share my strategy to pinpoint the
exact moment to enter the market.
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In an ideal situation, the most profitable
way to trade the market is to catch the run
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from the very top and cash out at the bottom
of the market.
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The opposite is also true if you catch it
from the bottom and exit right at the top
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of the market.
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However, the nature of trading is such that
we never really know where the top or bottom
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is.
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Above and beyond that, catching the top or
the bottom of the market is probably one of
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the harder tasks and many traders have lost
substantial amount of money while attempting
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to do so.
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Instead of entering the market at the top
or bottom, the first pullback allows traders
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to enter near the top or bottom (as shown
in this example), this is similar to entering
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at the top or bottom, and you can still enjoy
the majority of the benefits.
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Hence, entering the market at the first pullback
is the next best entry.
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Essentially, the first pullback in the new
trend direction is also the final test of
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the extreme in the old trend direction.
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Understanding the final test of the extreme
is fairly important when identifying the first
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pullback.
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Just to be clear, the first pullback is not
a reversal set up.
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Instead, it is a trend-following setup that
enters the market at a very early stage of
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the new trend – it is the first trend entry
immediately after price has reversed.
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While many traders would be afraid to enter
the market using this technique, smart traders
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understand that this is a low risk and high
reward set up.
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Now, let’s explore the concept of “first
pullback in a new direction”.
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As we know, when the trend ends, it does not
imply that the new trend would start immediately.
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So it is important to know what price action
sings to look for when searching for the first
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pullback.
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Before we search for the first pullback, we
need to analyze price action right before
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it happens.
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Using this example, the market is currently
in an uptrend (which is the old trend direction).
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The first indication of a potential new pullback
(in a new direction) is when you see the first
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lower high.
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This is because the lower high is a sign of
weakness that shows that the buyers are not
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completely in control.
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This is also a potential final test of the
swing high.
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Buyers are testing to see if they can move
any higher.
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Meanwhile, the sellers are keeping a close
eye, and once they know that buyers are exhausted,
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big sellers would take control of the market,
and they would push price lower.
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However, the confirmation of the final test
requires a lower low or, in this case, a break
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below Point C.
When you have a lower high (Point C in this
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example) and when price breaks below Point
C, the first pullback in new direction is
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completed.
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In other words, the easiest way to find pullbacks
is to spot ABCD patterns.
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BC wave is the actual pullback but a pullback
must include CD wave where point D moves beyond
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point B, or the pullback is invalid.
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The same applies here, price must move below
Point B for confirmation of the first pullback
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in the new trend direction.
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Once you have a full cycle, the chances are
higher that the market is now in a downtrend,
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and the chances are now slimmer for price
to move upwards since the downward market
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has already started.
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Now, understanding the first pullback means
nothing if you do not take any positions.
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You either catch the new pullback or you missed
it.
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Truth to be told, there is nothing much you
can do about it once you miss the pullback.
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Trading is all about preparation and the more
you are prepared for it, the more you can
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grab a high probability trade.
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So in your analysis you must be able to identify
some important signs for catching the first
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pullback.
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1.
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First sign is that pullback fails in old direction
A break below Point A represents a confirmation
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that a pullback in the old direction has failed.
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This is also the first lower low that we were
looking for.
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While we don’t know what happens next, we
can only wait for more price confirmation
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to show us if the buyers or sellers are taking
the lead.
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Nonetheless, the only thing that we are certain
is the old trend has lost its drive and that
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is an important clue to note.
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2.
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Second sign is a trend bar showing confirmation
of failed pullback in the old direction
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While a failed pullback is important, we need
the probabilities to stack in our favour.
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Thus, in terms of price action, you want to
see a clear break below Point A and one of
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the best ways to identify seller’s conviction
is by finding one or more long bodied bearish
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trend bars breaking through point A.
This is a strong confirmation that the pullback
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has failed and the probability of getting
a fake failed pullback has greatly reduced.
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Trend bars are great to show strength in the
market, and you should look for them especially
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at the start of a new trend.
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They are very useful clues for trading success
especially near price extremes.
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If the trend bar is longer than the average
size bar, that is also a good indication of
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momentum and this is usually the start of
a market rally (or decline).
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If you find that the trend bars have very
small tails that is evidence that the market
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is one-sided, and the momentum is increased
further.
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3.
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Third sign is related to time frame correlation
When chasing the first pullback, you should
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try your best to understand time frame correlation.
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For example: - A price extreme at the hourly
chart is more relevant when trading a 15 minute
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chart.
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A price extreme at the daily chart is more
relevant when trading the hourly or the 4
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hour chart.
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The time frame below shows you the pattern
or the pullback that you are looking for.
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Looking at this example, you can see from
the daily chart that price was very far away
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from the moving average line.
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This point is considered the extreme since
it was at the point where it was furthest
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away from the moving average.
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However, there was no clue showing the lack
of buyers until the first lower high on the
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4 hour chart.
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Using the daily chart to identify the market
extreme, you can then move to the 4 hour chart
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to pinpoint when price pullback fails in the
initial trend direction.
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The first clue that the buyers have run out
of strength is the price action double top
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– a final test of the extreme.
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Then, it was followed by a lower low.
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The confirmation of the first pullback in
the new trend direction was when price broke
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below this bar.
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If you stayed on the daily timeframe, you
might not have spotted the pullback and would
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have missed a good pullback entry.
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4.
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Fourth sign is a the creation of a reversal
pattern
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Since a first pullback is an early entry in
a new trend, it should be no surprise that
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you can find many first pullbacks immediately
after a reversal pattern.
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So, let’s explore some conventional reversal
patterns.
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Just to be clear, the idea is not to trade
the reversal patterns and it is important
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to wait for price to have reversed before
looking for any first pullback entry.
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First pattern: double top/bottom and neckline
pullback
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A double top pattern is a good and simple
indication that the price has tested the extreme
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one last time and resulted in a final test,
in the old trend direction.
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The double top is only a potential start of
a new pullback and the clues that you should
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be looking for are the new lower low (point
B) and a new lower high (Point C).
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The retest of the neckline is an extra but
powerful clue as it is where the old support
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becomes resistance.
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In other words, the double top is only the
first clue, but not a confirmation that a
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first pullback is ready.
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Another pattern is the range market breakout
A range market can happen around the market
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extreme or in the middle of a trending market.
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A range market is only formed if there are
2 touches on either side of the market.
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As you can see from this example, Point B
is the first lower low, and it is also the
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first break outside the range.
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However, Point B can also be a false break,
and you can only find out if it is by watching
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Point C and Point D closely.
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Point C is the most important one for our
analysis, being the first lower high and also
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a retest of the resistance (previous support)
level.
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Like all other pullbacks, the first pullback
is only complete once we have Point D, which
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is the break below B to form a second lower
low and also a complete ABCD pattern.
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The Head & Shoulders (H&S) pattern is another
classic reversal pattern and, like a double
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top, it is also a good sign of price exhaustion.
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H&S pattern would consist of three tops where
the left shoulder is the first top, the head
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is the second (and highest) top and the right
shoulder is the third top.
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The two lows in between the three tops would
determine the shape of the neckline – as
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it can be a horizontal or a slope neckline.
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In a horizontal neckline, the entire H&S pattern
relies on the fact that Point D must be below
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Point B, which is also below the neckline.
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The neckline carries quite a bit of probability
weight.
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If price fails to break below the neckline,
this could turn out to be a double (or even
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triple) bottom bullish continuation pattern.
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Our first pullback would basically be the
right shoulder in the Head & Shoulders setup.
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The first pullback in a NEW directional trend
is one of most rewarding setups.
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They don’t always work 100% of the time.
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Sometimes they offer small profits, and other
times the price will maintain its initial
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direction, despite all reversal signs we identified.
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But if you learn to correctly identify the
first pullback, the profits can more than
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make up for any other failed attempts.
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As always, if you learned something new and
found value, leave us a like to show your
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support, subscribe to our channel and hit
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Until next time.
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