Retracement or Pullback Trading: mrtq13

Retracement or Pullback Trading :


This is the most interesting and profitable trading style! Here I put forward some points on pullback with charts. I hope this will clarify the idea of pullback/retracement trading....................

Known as Retracement/pullback trading,this style has several different ways or techniques to trade. For example,one can buy on pullback to Moving averages,or pullback to Fibonacci retracement levels,or pullback at support level,or pullback at pivot levels etc……….

Stocks don't go straight up or down. Stocks will go up,pause,fall a bit and again go up,pause,fall a bit. That is natural process for a stock!!

When a stock makes higher highs and higher lows,we call it uptrend.

Well,an uptrending stock will see pullback on its way up.

And it is always wise to enter into the pullback of a stock in UPTREND................Trend is our friend..........Remember.........!!

In pullback,the present low can't go below the last low.

When we find that the present low is unwilling to go below the last low,we consider it pullback. 

How do we understand that the present low is unwilling to go below the last low. 

Very simple. We use Pivot indicators for that..............Also,our trading system should be able to give us white/green signal to show that the stock is actually reversing or has stopped its fall..............

Now,let's see a simple example of pullback trading............Below is EHL. As we can clearly see that each time the stock is falling a bit from its high,it is stopping somewhere and rising again...........Also,we can see the Pivot Lows are forming as this stock is going high from pullback...........
Now it is always wise to enter into a stock at its first pullback. 

Pullback can be measured...........Below are some points to note.........

Market corrections,up or down, usually retrace a significant portion of the previous trend. You can measure the corrections in an existing trend in simple percentages :

1. A fifty percent retracement of a prior trend is most common. A minimum retracement is usually one- third of the prior trend. 
2. The maximum retracement is usually two-thirds. 


In stock, a pullback usually takes place like this: "Two steps forward, one step backward”. That means, when pullback starts, the stock price should retrace at least 35% to 50 % of the original trend. 

A pullback should be questioned/ doubted if it retraces more than 60%/ 70% of its original trend. If it does, then the retracement should be treated as reversal not pullback. However, note that a stock can retrace two-thirds of its prior trend. 

It is to be noted that if the stock has suffered 100% retracement, then it is useless to use Pullback method or Fibonacci level. If it has reversed 100%, then look for the support level. There is a high probability that this stock will go upward from its support level or form a base at the support level. For example, Atlas has formed a base at the support level after the 100% price decline on December. 

Shallow pullbacks tend to lead to longer term, smoother continuation moves. Deeper pullbacks tend to lead to much shorter term and much sharper reactions.

Below is a classic example of pullback. I hope this makes sense...............

See that Bxpharma has retraced nearly 50% from its top price. And then,it started to consolidate and show several buy signals and other things...........And this is a good place to enter this stock.

How do we measure a pullback? By Fibonnaci.............Fibonnaci easily shows how much a stock has retraced and that way we can determine,where we should prepare to enter!!

Below is another example of 60% retracement/pullback................

Pullback is a very important thing to learn in trading because of two reasons :

1. If we have missed a stock at its reversal point,we can wait to see if it pullbacks. And then we can enter at its pullback.

2. Second thing is,in an uptrending stock either one should enter into the stock at pullback or at breakout. So,it is always wise to understand and practise pullback trading...........

It is said that pullback is safer method in trading. I agree with it......

Note that there is a difference in Pullback and Reversal............

In pullback,the stock is in uptrend and making Higher Highs and Higher Lows.

But in reversal,the stock has gone below the last low breaking down the support line..............One example is as below :

Reversal trading is a very risky and troubling trading. It is like "catching the falling knife.........." If we try to catch it,our hands may cut............

All banks are in reversal trading setups............

All IT are pullback trading setups.............

DSE itself was in reversal since Jun-July...............

I follow a simple rule :

1. I at first check if DSE Index itself has given any entry(buy) signal :
2. If DSE has given buy signal,then I check individual stocks and sectors.
3. Now,if stocks give buy signals,I enter.........

But the condition always is : DSE at first has to give buy signals. 

This is just my own strategy..........Have a look at the charts below.

You will see when DSE gave buy signal and reversed,Finance sector did the same.............

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Now to your query,stocks mostly follow Index. But it is not that they will surely follow Index pattern. They "may" follow Index patterns,but they may also have their "own pattern". The main point here is whether Index is up or down. If it is up,then we are happy. If it is down,we go to take rest...........

There are always some exceptions. But let's not worry about those!!

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