In this THREAD I will explain “Pullbacks”
1. What is a Pullback?
2. What is a Retracement?
3. What is a Reversal?
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1. What is a Pullback?
A pullback refers to a temporary price decrease or pause within a larger upward trend.
It's a short-term retracement that doesn't signify a change in the overall direction of the trend.
1.2 What is a Pullback?
Pivots can be defined as significant Highs or Lows that act as potential reversal or support/resistance points.
Pivot point analysis helps traders identify pullbacks.
1.3 What is a Pullback?
Pullbacks usually happen when volatility spikes.
That means when the market gets nervous and prices move fast, it often leads to short-term drops.
Once things calm down and volatility falls, prices tend to bounce back.
1.4 What is a Pullback?
Elliott Wave theory asserts that markets move in repetitive cycles.
The core principle behind the theory is that prices alternate between an impulsive or driving phase.
And a corrective phase on all time scales of trend.
1.5 What is a Pullback?
This chart shows a clear uptrend with multiple pullbacks (A to E)
Each dip finds support near the moving averages before the trend resumes.
They are healthy pullbacks in a strong trend.
Traders use these pauses as entry points in trending markets.
1.6 What is a Pullback?
Shallow pullback is a brief and limited price retracement within a prevailing trend.
These pullbacks are typically characterized by a small price movement against the main trend.
Often less than 38.2% of the preceding price move
1.7 What is a Pullback?
A deep pullback in trading is a substantial price retracement within an established uptrend or downtrend.
Typically retracing a large portion (50% to 78.6%) of the previous price move.
2. What is a Retracement?
A retracement is a temporary price movement against the prevailing trend.
It's a temporary pause or correction before the price continues in its original trend direction.
2.1 What is a Retracement?
A retracement is merely a temporary price reversal, taking place within a substantially larger trend.
There should be a continuation of the previous trend when a retracement is over.
3. What is a Reversal?
A reversal means a shift in the direction of an asset's price movement.
It's when an upward trend (a rally) turns into a downward trend (a correction), or vice versa.
Essentially, it's a change in the prevailing price direction.
3.1 What is a Reversal?
One of the simplest ways you can find high probability reversal trades on different time frames is with the Fibonacci Levels.
In the example below, the price is in a trend higher.
After the price pulls back lower, reverses at 50% Fibonacci Level.
3.2 What is a Reversal?
The key when reversal trading is to use the major levels as a guide.
If there is any clear momentum to trade with it and not against it.
When the price moves back lower into a clear support area, we could look to make long trades.
3.3 What is a Reversal?
Divergence Trading occurs when the price is making new Highs or Lows, but the oscillator (RSI) fails to mirror this movement.
Signaling that the trend is losing momentum and a reversal could be imminent.
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