Hey hey: what's up my friends so in today's episode right, we'll discuss about pullback trading, in other words, pullback trading, explain what is this trading strategy about so, first and foremost, what is pullback trading and why does it work so pullback trading right? In essence, what you're trying to do is to buy the dips, buy the retracement by the correction in in an existing trade. So, for example, if the market is trending higher, you're looking to buy the dip to buy the retracement to buy the pool bag, that's why it's called pullback trading and the reason why this works is because, when the market is trending, it doesn't go up in one Straight line like people just just go up: no, instead right in an uptrend, you can expect to see a series of higher highs and higher lows. So as a pullback trader. What you're trying to do is to time your entry on the pullback to time your entry and the retracement on the correction.

Okay make sense, so that is what a pullback trader tries to do so now the question is, you know you might be thinking so rain. What's the difference between pullback trading and catching a falling knife? That's a good question. So, as mentioned earlier as a pullback trader, you are trying to trade in the direction of the trend. You're still trying to you know, enter when the market is sort of like going against you on the retracement move, but you're still after all trading in the direction of the trend.

Whereas someone who is trying to catch a falling knife, they are pretty much trying to fish the bottom in the market where the market, let's say, for example, is you know declining in a downtrend and you're trying to catch the bottom? So that's the main difference right between trading a pullback and catching a following knife. So now the question is: how do you trade, a pullback? So there are few things to look for number. One market must be trending because, as mentioned earlier, when you trade pullbacks, you are trading pullbacks in an existing trend. So, first and foremost, you must have a trend, because without the trend you are not able to catch a pullback, we are not trying to catch a falling knife.

We are trading, pull back so, first and foremost, trade in the direction of the trend identify an existing trend, and then we can look to trade pullbacks in it number two. We want to identify the area of value, so here's the thing just because the market is, let's say in an uptrend, doesn't mean we want to blindly hit the buy button because we want to be trading from an area of value. An area of value could be things like a swing low, it could be, support could be a trend line could be a trend channel. This is a potential area on your chart where buying pressure could step in.

So this is what we call an area of value. Third thing we're looking for is an entry trigger, so yes, market is trending higher. Yes, it has made a pullback towards an area of value, but it doesn't mean that we want to blindly hit the blind the buy button. Yes, we can, but that's uh.

That's a separate thing altogether for most pullback traders. We want to look for a specific entry trigger to. Let us know that the buyers are stepping in they're in control and they're about to take the price higher. So entry trigger could be something as simple as reversal.

Candlestick patterns, like a bullish hammer a bullish, engulfing pattern, so that's an entry trigger right for us to time our pullback to get on board the trade and to join the existing trend. So that's an entry trigger we are looking for and we only look for the entry trigger after the first two conditions are met, number one and uptrend and number two, the price retracing towards an area of value. Then we have a look for the entry trigger number. Four, since we are trading pullback, the next question is you know: where do we set our stop loss so, logically, if you're trading pullback, then your stop-loss should be below the lows of the pullback.

So this means, if the market rallies higher and it breaks below the lows of the pullback. It clearly tells you that you know this pullback, it has failed and you want to get off. The trade, so very simple way is to identify the lows of the pullback. Then give it some buffer below the lows you can use the atr indicator for it.

So let's say the low of the pullback is a hundred dollars and let's say you pull out the atr indicator. The average true range of the market is five dollars. So what you can do is just take hundred dollars, which is the low of the pullback minus five dollars, and your stop loss is about ninety five dollars. That's a small buffer, a distance below right, the low of the pullback and finally, the last thing right: where do you take profits so, generally speaking, right if you're trading in the direction of the trend, what you can do is you can reference right? The extreme swing high to take profit so, as you know, when you're trading pullback you're buying the dip when the market has retraced against you.

So when you retrace against you, if you look prior to the retracement, you should be able to identify a swing high on the chart, so that swing high could be a reference point for you to take profit. So if you are looking to buy the pullback you got long market has moved in your direction. You can look to take profits just before the swing high, why not after the swing high or why not at the absolute swing height, simple, because swing high swing, low support, resistance and stuff like that they are not a specific level on your chart. They are an area on your chart, so what this means is that the price could come close to the swing high, but not reach the exact price point and then start to reverse from there it's possible because you're dealing with an area on your chart.

So if you don't want to watch your open profits to come close to your target, only to watch the market do a sudden reversal and hit your stop loss. Then what you want to do is to set your target just before the recent swing high, for you to you know, take profits off that area on the chart, make sense. So one last thing right before we conclude today's video is that what are the pros and cons about pullback trading so number one right. The pros about public trading is that, from a psychological perspective right, it's quite easy to trade, this type of strategy, because you're in essence, trying to buy low and sell hype to buy the dips and then to sell the rally.

Number two is that, from a risk to reward standpoint is pretty favorable as well. It's because, compared to let's say someone trading, the breakout of the highs by the time the price reaches the swing high. You are already in profit, so you can see that from a risk to reward standpoint right, it's a favorable to you as well, and the only downside that i can think for pullback training is that you may miss the move right. Sometimes, if the pullback doesn't come towards your area of value or you know, if you are or maybe even if you're, not a patient trader, you have no patience to wait for a pullback right.

You might make uh. This strategy might not be for you, so these are kind of like the pros and cons to pullback trading. So, let's do a quick recap to pull back trading number one pullback trading is in essence right trying to buy the dips to buy the retracement by the correction right in an existing track. Number two: you must trade from an area of value.

If you want to trade pullbacks number three, you can look for an entry trigger number four. You can set your stop loss right, just below the low of the pullback and number five. You can take profits just before the most recent swing high in the trade. So with that said, i wish you good luck and good trading.

I will talk to you soon. You.