in the world of trading Fluctuations in asset prices are normal. The trader’s job is to determine the right momentum in buying and selling transactions amid price increases and decreases.
In this case, identifying terms such as pullback, retracement and reversal is important for traders. because if a trader does not understand these three terms He may fail to take advantage of momentum or even get caught in an unwanted price trend.
This time, the author will only talk about pullbacks, remember. retreat and reversal It was already mentioned in the previous article.
Meaning of pull back
A pullback is a condition in which the price of an asset that tends to rise meets a decline long enough. Or a condition in which the price of an asset that tends to fall temporarily increases.
slightly different from the correction Pullbacks are generally moderate, although only for the short term. Traders and short sellers take advantage of pullback moments to buy assets and enter the market.
Pullbacks of higher priced assets can happen because some traders or investors decide to take profits. For example, the price of a stock that has just released a good report on its financial statements has skyrocketed due to a large number of traders. Watching stocks at some point These traders decided to make a huge profit. As a result, the stock price dropped slightly before eventually rising again.
Several pullback moments coincided with a rather extreme drop. So it breaks the support level set by the trader. If traders are not careful This may indicate a permanent decline. As a result, he can sell his asset (cut loss) and lose a good moment to buy. Therefore, you must be able to identify pullbacks carefully.
How to identify a pullback
Brian Dolan on the Web Investopedia It indicates that the existence of a pullback is generally not related to the underlying nature of these assets. For example, the price of a stock declines and then rises again (pullback). Issuance of stocks recession
Pullbacks, on the other hand, are often caused by a large number of traders and investors taking profits. Check in advance for reduced or skewed performance issues with the issuing company.
Difference Between Pullback and Reversal
Pullback and reversal are two different things. although both indicate a change in trend. The difference between the first pullback and the reversal is that the pullback happens in a shorter time and with a more moderate ratio than the reversal.
The second difference between a pullback and a reversal is that there is a possibility that a reversal or reversal in price will occur due to a change in the fundamentals of an asset. For example, a financial report showing a loss. in the profits of the company or bad problems that happen to the company
To determine whether the change in your asset’s price is a pullback or a reversal. You should use other technical indicators and check the underlying conditions that underlie the change in the asset price.
How to Trade Using Pullback
The assumption of opening a position upon pullback is that the price will go back to its original trend. A pullback occurs when the price falls and the trader expects the price to rise again. Therefore, to determine the trading position when this phenomenon occurs. you have to be careful
To open a position during a pullback What you need to understand is that a pullback can happen after several price drops, so in order to open a position when this happens, you should:
- Create support and resistance levels that connect the asset’s highest and lowest price points.. Make sure you create these two lines for two periods i.e. long term and medium term accordingly. Daily Forex Crossing between support and resistance (especially in the long term) can indicate the end of a pullback.
- You can also use mid-term resistance or support. (depending on your trading style) to determine the entry point.. When the trend continues, the price trend is rising. You can open a position when the price breaks the resistance after a pullback.
- Confirmation of pullback with candlestick pattern. In order to make trading more stable in this session You can wait for the appearance of a candlestick pattern with a long tail and a small body, such as the bullish hammer pattern. Close to where the support and resistance lines intersect.
- to determine the exit point You should also consider the risk-reward ratio you usually use.The stop-loss is usually located below or above the expected support. This might be a weakness. This is because it is possible that the price of the assets they own will fall deeper. As a result, they get more profit. You should pay attention to the risk:reward ratio.
pull back example
to make it easier to understand Take a look at the following sample images:
In the figure, traders can be seen forming long-term support and resistance levels to assess the final point of this phenomenon. when pullback occurs He will open a position when the high of the first candle after the pullback breaks the previous high.
for taking profits and cutting losses He uses a 1:3+ risk:reward ratio where he will automatically sell his asset when the price drops to 0.4 and take profit when the price rises to 1.4, meaning he will profit if the movement of The price has increased 3 times above the level for the stop loss.
to make your trading easier You can also use the features trailing stop loss provided by the application This feature allows your stop loss level to increase as the price increases without interrupting it. take profit level You choose. So you don’t need to manually set stop loss repeatedly. when the price increases
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