PULLBACKS: To wait or not to wait...

[Mike]

Hello Everyone,

I've been at this long enough to know that one of two things happen when trends form,

1) Sizable moves happen immediately.


2) Sizable moves happen only after a minor or major pullback.




Now, if you make a choice to always wait for the pullback, you might miss some really nice moves that your indicators tell you is likely to occur. If you choose to take every trade as it happens according to your indicators, you might be headed toward a drawdown that could scare you out of the trade, only to have the trade go your way.

That's a tough thing to swallow either way, missing trades completely or worse yet getting scared out of a trade that would have been a winner for you (this has happened to me many times over the years).

I was personally wondering what all of you felt out there about this and how you approach your trading in this regard.

[DickP]

Anything might happen, that's what I'm getting used to in Forex. But you basically have to be prepared for it no matter what.

[BigE]

I always expect a pullback, that is my vote.

[McPott]

One of the pictures is not working there Mike....

[tab]

Yes, first example not displaying....

[Mike]

Sorry, not sure what happened to the first image.

[tab]

It's ok, but I get the picture figuartively speakin g

[Mike]

Right, imagine a move that just works from the first pip and doesn't go back. There are hundreds of examples of these moves but very easy to say "look how easy that would have been" in retrospect.

[Matt]

I'd wait for the pullback, it makes the most sense, you'll cut out a ton of your losses this way!

[DarkManFX]

Can you better describe what a pullback is? When are thse most likely to occur ?

[Jimalexp]

Hi,

First post here. As far as I understand things, a pullback is when a pair makes a big move, stalls, goes back a little and then resumes the direction it was taking. Correct if I'm wrong.

[CT_Meovin]

Waiting for pullbacks/retracements when a trend occurs might indeed cost you the opportunity to enter into the trade. However entering immediately when price reaches say a support/resistance zone or fibs retracement level is not advisable. Price might not respect the level and break it.

Waiting for price to resume in the trend direction is a better way to trade pullbacks. One should also ensure that the momentum of the trend is still present. Otherwise there is no point entering in that direction
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Entering on Breakout from the initial move is another way to enter into a trade. The risk of price pulling back over the initial breakout level is there, but it is a rather safe stop loss level.

The stop could be set further away at another swing point away for more comfort but the risk is increased.

Breakout will ensure you won't lose the opportunity to enter into a trade. But beware of entering with stop orders. You will most likely get filled at a worse price than your stop

[Jimalexp]

How about waiting for the pullback and then see if candles close below the previous low? The pull back on Mike's graph can be interpreted as a pair building up momentum. If the drop is at a steep enough angle it could have enough "velocity" to break the support.

According to the simple 1-2-3 pattern on line graphs this would make sense. On the higher time frames, a push past the previous immediate maximum/minimum will continue going in some caes or peter out before resuming/dropping down.

Of course, doing things this way means you lose out on some potential gains and there's a chance that there's another resistance/support line underneath (again, like on Mike's graph). I guess a pair will hit a point of no return past a certain proportion and it just happens to be those long candles which are hard to catch. Maybe the best approach to these is to look at indicators for a confirmation and place an order accordingly.

[★FX★]

You pose a simple yet profound question that could affect a trader's bottom line more than any other decision. A pullback could tunr a winning trade into a losing trade very easily and when I was a beginner, I found myself exiting a trade that would have went my way because of a measly pullback.

I truly do not know the answer to this because like you say, it happens about half of the time, not every time, so its hard to make a plan for.

[Mike]

Originally Posted by Jimalexp

Hi,

First post here. As far as I understand things, a pullback is when a pair makes a big move, stalls, goes back a little and then resumes the direction it was taking. Correct if I'm wrong.

You are absolutely right. To add to that, a pullback in my own way of defining it, is not a complete reversal to previous highs or lows, rather, just a "hickup" that eventually ends and the original trend is resumed. Like you see in the example of my first post, this trade works in hindsight, but if you enter right when these indicators (or most other indicators) alert you to a possible trade set up, you must endure a draw down lest you believe the pullback is a reversal and you exit the trade with a small loss or break even. In the past I probably would have added to the last sentence "for no good reason" but my trading strategy has evolved in such a way that exiting break even is preferable to an eventual winning trade and much more preferable than a small to medium loss.

[Buffett]

To larger traders pullbacks are incidental. Can I recommend ignoring them as smaller traders like you with less than $100,000 to absorb those pullbacks, not at all.

[DarkManFX]

Why not just get in, stay in for the pullback and set stops slightly lower than wher eyou entered instead of at 0, does that elinmate the problem altogether?

[PipSeer]

It really all depends, that's the way I voted.

[FxQ&A]

Mike,

You should consider the options of each trade independently and determine whether or not to enter with a pullback or sit the trade out, or better yet, enter underneath the swing low/high regardless of a pullback or not.

[adam2011]

Well .. depends on the situation .. might be wait for a pllback .. or start hitting immediately ..

[Jorge911]

i really have no opinion

[mk3fx]

Originally Posted by Jorge911

i really have no opinion

Well, why dont you formulate one so you can partake