When the market is upwards, the buyers dominate. You only need to trade following the crowd to get a profit. If the market is in a panic and the price drops, then opening DOWN orders will give you a high probability of winning. So for the pullback market, what will you do to gain a profit for yourself?
In this article, I will show you the ways to achieve the highest winning rate in a pullback market.
What is Pullback?
Pullback can be simply referred to as the period in which the price temporarily goes against the main trend (either up or down). This is to adjust the price before it returns to continue to follow the old trend.
There are 2 types of pullback:
– Pullback in an uptrend.
– Pullback in a downtrend.
Price action in the market is like moving waves.
– In an uptrend market, prices continue to rise. But even if it is rising, there will be times when the price will go down before it rises again above the previous peak.
– In a downtrend market, the same but opposite thing happens. The price will continue to fall but at times it will increase before fall back below the previous trough.
Characteristics of a pullback market
Pullbacks usually occur when prices are in overbought or oversold zones. You can identify this signal through indicators such as RSI, MACD, or trendline. At the end of this period, the price will return and continue to follow the main trend. Therefore, the pullback can be considered a breaktime of a trend. That time, prices are gaining momentum to continue to rise or decrease according to the market movements.
Meaning of Pullback
Pullback shows that the main trend of the market has temporarily stopped. This may be due to a number of factors such as traders temporarily experiencing a lack of euphoria after certain advantages. And they are waiting for the next session when the trend stops correcting.
Therefore, a pullback is often seen as an opportunity to buy an asset that is in a major uptrend. It is also possible to sell when the market is in a downtrend.
Difference between Pullback and Reversal
The biggest difference between Pullback and Reversal is sustainability. A pullback is temporary while a reversal is a change of a major trend. A pullback usually lasts for a few sessions, while a reversal can indicate a complete change in market sentiment.
|Price adjustment (Pullback)||Price reversing (Reversal)|
|Appear in turbulent periods of the trend||Appears after accumulating or sideways periods|
|Short-term price movements||Long-term price movements|
|Few typical chart patterns are available. It is mainly based on indicators such as RSI or MACD to identify trends||Appears in many typical chart patterns such as Head and Shoulders, double bottom patterns, or candlestick patterns|
|In an uptrend, overbought appears to adjust prices. And in a downtrend, oversold appears to adjust prices.||In an uptrend, the bulls are not strong enough to push the price higher, causing it to reverse and decline. And in a downtrend, the bears are not strong enough to push the price lower, causing it to reverse and increase.|
How to trade effectively when the price is in a pullback
The price goes against the main trend and is strongly rejected by a candlestick with a tail several times longer than its body.
Open an UP order when a Hammer, Bullish Pin bar, or Dragonfly Doji candlestick appears in the uptrend.
Open a DOWN order when a Shooting Star, Bearish Pin bar, or Gravestone Doji candlestick appears in the downtrend.
Review on orders opened in Olymp Trade on June 9 and 10, 2020
Method of capital management: Classic.
Only trade with the EUR/USD currency pair.
Date June 9, 2020
Reasons for opening the 1st order: The price fell sharply with consecutive bearish candles. When prices started to recover, they were strongly denied by the main trend. The Bearish Pin Bar candlestick appeared showing that the price increase had failed completely. At that time, experienced traders would open orders following the main downtrend.
Opened a DOWN order when the price failed to pull back, forming a Shooting Star candle. Prices continued to fall in line with expectations. I received a profit of 82% of the investment.
Reasons for opening the 2nd order: It was still the main downtrend when prices continued to fall lower. This time, the bulls started trying to push prices higher but still failed. Finally, the price closed with a Bearish Pin Bar with an upper tail many times longer than its body. The market would continue with bearish candles in the near time.
Opened a DOWN order when the price failed to pull back, creating a Bearish Pin Bar candlestick. The price still fell in the near time as expected. I received a profit of 82% of the investment.
Date June 10, 2020
Reasons for opening the 1st order: The main downtrend recovered but could not surpass the resistance. The price then dropped before a trial to push the price higher again. But it failed, forming a Bearish Pin Bar with a tail many times longer than its body. Right there, you could confidently open a DOWN order when the price pullback had ended.
Opened a DOWN order when the Bearish Pin Bar showed that the price pullback had ended. The price fell sharply as expected. I received a profit of 82% of the investment.
Reasons for opening the 2nd order: The downtrend was fast and strong. A Doji candlestick suddenly appeared with an upper body longer than the lower one. It showed that the market was in hesitation but the sellers still controlled the market. Therefore, opening a DOWN order when the Doji candle ended was also a safe transaction.
Opened a DOWN order when the market was in hesitation but the candlestick upper tail was many times longer than the lower tail. Prices still fell naturally, resulting in an 82% return on investment.
One last word
The market recovers when traders are in a down of excitement. When the stability of the trend gradually forms, it is time for you to follow and make a profit. Hesitation can make you miss out on good opportunities. Trendy trading always brings a sense of security to all investors.
Choose a market as the main for making money. When the market is in an uptrend, the one who chooses to buy will receive the desired profit. If the market is in a downtrend, then the sellers will be profitable. And have you chosen a market to settle down yet? The pullback is also an interesting market for investors who prefer safety.