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Pull-back in a Price Action Trading
Price action trading is a common term in various markets.
Lots of price action traders are trading in the market everyday and being successful by applying this concept.
Pull-back is a common term used in price action trading.
A pull-back is a move where the market interrupts the prevailing trend or retraces from a breakout.
But it does not retrace beyond the start of the trend or the beginning of the breakout.
A pull-back which does carry on further to the beginning of the trend or the breakout would instead become a reversal or a breakout failure.
In a long trend, a pull-back often lasts for long enough to form legs like a normal trend and to behave in other ways like a trend too.
Like a normal trend, a long pull-back often has 2 legs.
Price action traders expect the market to adhere to the two attempts rule and will be waiting for the market to try to make a second swing in the pull-back.
They will wait with the hope that it fails and therefore turns around to try the opposite – i.e. the trend resumes.
One price action technique for following a pull-back with the aim of entering with-trend at the end of the pull-back is to count the new higher highs
in the pull-back of a bull trend.
Traders can also count the new lower lows in the pull-back of a bear, i.e. in a bull trend.
The pull-back will be composed of bars where the highs are successively lower and lower until the pattern is broken by a bar that puts in a high higher
than the previous bar’s high.
Traders can easily use pullbacks to determine their best entry positions.
For beginners it is very important to have the knowledge of pullbacks in order to trade successfully.