There are different types of trading strategies available in the market.
The core idea lies behind knowing when to enter the market and how to trade stocks in the market.
Entering the market at the right time can seem challenging at the intial stage.
This could be the case because of several reasons.
You may be entering the market at the wrong time and not when it makes an objective sense to do so.
This is the first thing to learn about trading.
Let’s begin with the simple definition of Pull Back Trading.
The first thing to note while dealing with Pull Back Trading is believe in the underlying trend.
Pull back trading can, therefore, help lower entry point risks as you would be trading at a key market area that has previously shown support or resistance.
So, why is pull back trading so profitable?
Mostly, it is because markets experience uptrends and downtrends [an ebb and flow] so a pull back helps us as traders to relook at our entry point to further ensure whether we are entering at or close to the turning point between the uptrend and downtrend.
This does not mean you would always succeed – but your chances become higher.
Several traders would find it comfortable to enter the market when it is moving in a direction they find preferable.
The first thing to do would be to look for trends and then look out for pullbacks within the chosen trend.
Always remember that the market does not move in straight lines – spotting an uptrend does not necessarily mean the makret won’t go down during the rest of the day or for longer than that.
What is an advantage in case of a Pull Back Trading Strategy?
In case of a confusing day at the market, pull backs or retracements could work in our advantage.
How?(*) Imagine a case where you notice an uptrend but suddenly the prices begin to pullback, swinging lower within the same uptrend.
Notice the course of this trend for a few weeks to be sure about whether there is a pullback in sight which could keep moving lower – make sure to note whether the uptrend is over yet.
In such cases, keep an eye out for upside retraces so that you can get short or to sell. Especially, after the first retrace higher got turned lower again, you can look at selling on subsequent retraces.
(*) Look out for a bullish pin bar on a market chart – it denotes a perfect example for entry through the use of price action signal on a pull back.
This way you are buying into the weakness prevalent in an uptrend.
(*) The next thing you could do is find the newest swing move and trade an early retracement.
How does this work?
There are times when the market trend is confusing. These are the times when pull backs act to our advantage.
(*) Pull back trading to backup support or resistance levels or moving averages is another thing that could be followed.
In such cases, identify support and resistance levels and keep an eye out for the prices to pull back to these levels – wait for a price action signal to enter.
For those of you who are unsure about what price action signals are, read more here: http://stockmarketsignals.com/top-3-price-action-trading-patterns/
(*) 50% of retracement on intraday charts gives us ample entry opportunities.
You can use market entry orders or limit entry order, to keep an eye on when to enter the market after a pull back is spotted.