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HIGH PROBABILITY Pullback Trading Course (Best Patterns For Day Trading & Swing Trading) - YouTube
Channel: The Secret Mindset
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The most convenient way to trade in the direction
of the trend is by implementing a pullback
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trading strategy.
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Market pullbacks happen when price moves at
least one bar against the dominant trend direction.
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Basically a pullback is a price movement that
moves in the opposite direction of the trend
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but it's only a temporarily price movement
before it resumes back into the main market
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direction.
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Pullbacks are sometimes referred to as price
retracements or corrections.
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It doesn’t matter what you call it as long
as the temporary countertrend movement resumes
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in the main market direction later and it
does so by breaking beyond the recent price
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extreme.
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If price does not go beyond the recent extreme,
then the pullback could reverse, or it could
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consolidate.
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A pullback can be shallow or deep, and it
can be fast or slow.
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While the depth and speed of the pullback
are independent of each other, they are often
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influenced by the market drivers at that point
in time, and no one really knows when any
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of them happens.
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As traders, instead of trying to predict the
future, it is more useful to recognize these
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pullbacks and then perform your analysis based
on how these pullbacks behave.
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Remember that trading is about stacking up
the probabilities in our favor, and this is
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exactly what we are trying to achieve here.
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By recognizing the various types of pullbacks,
you can pick trades that have a higher probability
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of succeeding.
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Once we have the probabilities in our favor,
we take the trade.
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So to keep it simple and organized, I have
grouped market pullbacks in two distinct groups
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– simple and complex pullbacks, and each
group will have its particular chart patterns
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and characteristics.
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So let’s discuss each of them:
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1.
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First, simple Pullbacks
A simple pullback should be in the shape of
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an ABCD pattern.
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Hence, they are usually fairly obvious and
easy to spot while complex pullbacks might
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take a little longer to form.
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However, a simple pullback can remain simple,
or it can evolve to become a complex pullback
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as well.
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Since we don’t know when that happens, it
is important to manage your risk and money
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wisely.
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If you find yourself spending too much time
looking for simple pullbacks, it’s probably
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because they are either complex ones, or they
are not a pullback at all.
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Either way, when that happens, you should
just ignore it and look for trading opportunities
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elsewhere.
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Now, a simple pullback can be deep or shallow,
and it can be sharp of flat.
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Deep Pullback
Let’s start by having a look at a deep pullback.
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This is probably amongst the easier price
pattern to spot.
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- In a deep pullback, the price moves a significant
distance against the dominant trend direction
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- It can be happen quickly, or it can happen
slowly.
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In other words, it can also be a sharp pullback
even if it’s a deep one.
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- It’s usually made up of a few consecutive
seller (or buyer) bars with one or two bars
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that are relatively longer than the rest.
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However, the key is the distance travelled
(as opposed to the type of bar).
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- in this other example of a deep pullback,
the bears are trying to show their dominance
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on the market.
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However, the bulls are still strong and usually
come back into the market just before the
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bears managed to build confidence.
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Shallow Pullbacks
- The pullback moves very little against the
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dominant trend direction.
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- It can be happen quickly, or it can happen
slowly.
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It can also be a flat pullback if turns out
to be sideway movement.
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- It usually comprises a mixture of dojis
and small bodied bars.
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Sometimes, you can also expect to see long
tailed bars.
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The type of bars you get is less important
as it’s the movement of the bars that matters.
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- A shallow pullback is usually an indication
that the market is one-sided.
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If we read the price action in this example,
we see that bears only managed to push price
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slightly in their favor, and the bulls were
already back in the market.
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Hence, price is expected to move relatively
far after the pullback.
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Sharp Pullbacks
- This is usually a very quick pullback and
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the speed of the pullback is the key identifier.
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- Although a sharp pullback is typically made
up of only one or two bars, it can also happen
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when you have multiple bars, but there is
a clear counter trend movement within a relatively
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short span of time.
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- The sharp pullback can be considered a deep
pullback.
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But having said that, you can occasionally
find a sharp pullback that is relative shallow.
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- The price action in this example showed
some selling strength initially.
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With such a strong bear trend bar, the sellers
were hoping to attract more sellers into the
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market but only realized that the buyers were
still in control and, as a result, that push
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did not go far.
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Flat Pullback
- A flat pullback is considered a shallow
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pullback.
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However, it is slightly more extreme than
your typical shallow pullback because the
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market only moves sideways, with very little
countertrend movement, before it resumes in
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the dominant trend direction.
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- The sideways movement is key identifier
for this pullback.
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- A flat pullback is an indication of a very
strong market.
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- Based on the price action in this chart,
buyers often fail to find a good long entry
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into the dominant trend direction because
price barely retraces.
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Many waited for a minor reversal to show confirmation
that price is correcting itself – unfortunately,
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due to the big players driving the market,
price continues its bull run before traders
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even realize it.
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2.
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Now let’s discuss the patterns of complex
pullbacks
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1.
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First pattern is the rising/falling wedge
- A rising wedge occurs when you have a price
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action pullback that is sloping upwards when
in a downward trending market.
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Meanwhile, the price range of the pullback
becomes narrower as it goes against the dominant
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trend direction.
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- When price makes a pullback, you can eventually
spot an upper resistance line on the top and
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a lower support line at the bottom.
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Both the lines converge as price action becomes
narrower.
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- As the wedge starts to narrow, that is an
indication that the market is becoming more
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indecisive.
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As investors see this, they would also begin
to sit out of the market.
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This becomes a self-fulfilling prophecy as
the wedge continues to narrow even more.
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- price gets squeezed to the point where it
has no choice but to burst out with momentum.
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- In a rising wedge, the pullback ends when
price breaks below the lower support line
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and vice versa for a falling wedge.
- this applies to a falling wedge but in the
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opposite direction.
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2.
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Second pattern is the rising/falling flag
- A rising/falling flag is very similar to
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a rising/falling wedge with the exception
that the price range stays consistent as price
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moves against the DOMINANT TREND DIRECTION.
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In other words, the upper resistance line
and lower support line are parallel to each
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other, creating a small price channel.
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- Just like the rising/falling wedge, the
pullback ends as soon as price breaks out
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of the channel towards the DOMINANT TREND
DIRECTION.
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- Occasionally, price would continue in the
new direction (against the DOMINANT TREND
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DIRECTION) and making it a reversal pattern
instead of a pullback.
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3.
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Next we have the ascending / descending triangle
- an ascending triangle pullback was formed
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when there was a relatively strong horizontal
upper resistance line that was holding price
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from going higher.
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Each time price hits the line, it drops.
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However, each time it drops, the fall weakens.
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Thus, it starts making higher lows and, like
a wedge, price started to converge.
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- From a market psychology point of view,
this seems to suggest that there are large
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sell orders placed at a fix price (where horizontal
resistance line is located).
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Each time the buyers push price to that level,
price drops.
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This continues for a while, and once there
weren’t any more sellers, price pushed higher.
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- The opposite is true for a descending triangle.
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- Ascending /descending triangles are one
of the more attractive patterns to trade.
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Since price only moves towards the dominant
trend direction, the extremes are not retested.
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However, the problem (like all other complex
pullbacks) is that you don’t know what to
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expect until it happens.
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- Sometimes, you may find price breaking out
of the triangle where it goes against the
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dominant trend direction too.
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Thus, this becomes a reversal pattern instead
of a pullback.
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4.
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Next pattern: pennant pullback
- Pennant is similar to a symmetrical triangle.
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It has a sloping upper resistance line, a
sloping lower support line and both these
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lines converge to form a triangle.
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- Just like the wedge, buyers and sellers
are consolidating, and the consolidation causes
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price to funnel towards an equilibrium point.
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Typically, price would start moving again
before it reaches the extreme tip of the triangle.
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- Pennants are nice to look at in hindsight.
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However, it is challenging to pinpoint when
price would resume back into the dominant
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trend direction again.
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- Like the other triangles, it’s not surprising
if this turns out to be a reversal pattern.
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5.
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Fifth pattern: the widening wedge
- A widening wedge happens when the upper
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resistance line and the lower support line
diverge.
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While price looks like it’s potentially
forming a simple pullback, price would start
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to swing vigorously on both ends.
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- The buyers and sellers are definitely in
a clear battle, unlike previous converging
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pullbacks, where buyers and sellers sat aside
to wait for further confirmation.
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Buyers would push price higher but stronger
sellers would take over as soon as it reaches
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a higher price.
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The buyers came in again as soon as price
moves lower and pushed price even higher in
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the next round.
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The process repeats itself until a clear winner
emerges.
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- As you can imagine, a widening wedge is
one of the more complex pullbacks and it is
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where most new traders often get trapped.
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All of the patterns explained are useful technical
indicators which can help you to understand
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how or why an asset’s price moved in a certain
way.
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The first and most important step is learning
to recognize each pattern.
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In future videos, we’ll go one step further
and I will share how to enter a trade after
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you recognized the correct pattern or pullback
type.
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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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new videos.
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Until next time.
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