Black Woman Of The Big Butt Dancing Hip-hop

 

 You see. When it comes to transacting, both parties want the best deal possible. 

If I’m the buyer, I want to buy at the lowest price while you as the seller want to sell at the highest price.

The same applies in forex trading.

As a forex trader, we’re engaging in a transaction of currencies. Well, it’s not really currencies but just a piece of contract in digital form. 

But you get the point.

When you’re going long on the EUR/USD, you want to be buying it at the lowest point possible, right? On the other hand, if I’m having an opposite bias to yours, I want to be shorting the EUR/USD at the highest point possible.

This is what happens in a typical economic transaction. Everyone’s trying to protect his own interest.

That’s why you must know “pullback” as a forex trader in order to be able to get the best deal from the markets. Otherwise, you’re going to be ripped off.

What is a pullback, you ask?

 

Simple. A pullback is a short-term move in the opposite direction of the longer-term trend.

And what has this to do with getting the best deal in forex trading?

Let’s assume the GBP/USD is in a super strong uptrend currently, and you’re looking to join the trend to get a piece of the pie. 

Do you simply jump straight in? No, you don’t. You want to wait for a pullback, which is a temporary dip in the trend, before you smash the buy button. 

That way, you’re buying at a relatively favorable price.

Similarly, when you’re looking to short the USD/JPY that is already trending down, entering at a pullback which is the temporary rise in the trend is certainly more advantageous.

You see that? 

A pullback offers us an opportunity to enter the market at a better price, if not the best price. 

After all, the goal of a forex trader is to manage risk as well as possible while obtaining the best entry price for each trade to maximize the risk-reward. Would you agree?

Let’s talk about some of the pros of trading a pullback.

Aside from entering the trade at a possibly best price (which most amateur forex traders don’t care about), what other benefits do you get? 

Improved risk-reward 

When you enter a trade at pullback, it has more room to run in your direction. You’re going to get a better potential reward when the distance between your entry and profit target increases.

Too abstract? Let me illustrate with numbers.

We have two forex traders here —Alex and Bobby. Both of them are looking to short the USD/JPY because of the political uncertainty in the country.

Currently, the USD/JPY is running at 104.50. Alex’s not read about this article, he has no idea what a pullback is so he jumps into the trade straight at the market price of 104.50. He sets his stop-loss at 105 and profit target at 103.50. That translates to a 1:2 risk-reward ratio. Pretty decent, huh?

Now, let’s look at Bobby. He prefers to wait and will only enter when the price pulls back to 104.70. He has the same stop-loss and profit target as Alex. 

The difference is that, now he’s getting a better risk-reward ratio of 1:4! 

Fewer premature knock-outs

Now that Bobby gets more room for the potential reward off the market, he can afford to give up some.

Here’s what I mean.

Bobby thinks that the forex market is more volatile than usual because of someone’s tweets. A 30-pip stop may get him knocked out early.

So he decided to set his stop-loss at 105.10. Another 10 pips to cushion the market shock. 

His risk-reward ratio now becomes 1:3. However, as compared to Alex, the likelihood of Bobby getting stopped out prematurely by the market is lower. 

Bobby can afford to have a wider stop without jeopardizing his risk-reward. 

All because Bobby is trading at pullback. 

Bobby is smart. Be like Bobby.

Higher probability entries

The reason why the market pulls back is often because the current price has gone too far from the average. 

What does it imply? 

When the pullback ends, the market is likely to (often will) continue moving in the direction of the initial move. 

This is especially true when you see a strong signal like reversal candlestick pattern at the critical level following a pullback. Because all signs are pointing to price bouncing from that point, you’re getting a very high-probability entry.

Though that doesn’t happen every time, it happens often enough for any level of forex traders to pay attention to it.

I didn’t know it when I first started out. But now, pullback is a killer tool in my forex arsenal.

Of course, every coin has two sides.

I’m not going to hide the cons of pullback from you. In fact, I’m going to be frank, and share with you some of the downsides of trading pullback. 

However…

That doesn’t mean you should abandon pullback given that the pros far outweigh the cons.

Less trading opportunities

Sometimes, markets don’t pull back but just keep going. Generally, you will have less trading opportunities trading pullback as compared to those who don’t.

More missed trades

When the market doesn’t pull back to trigger your entry, but keeps going in the direction as you predicted, it can really test your nerves! 

But remember, missing out on some trades is better than over-trading.

Let’s get practical now. 

We’re going to look at the 4 types of pullback entry strategies you can utilize immediately. I believe they can take your forex trading to a whole new level. 

So, please pay 100% attention.

4 Types of Pullback Entry Strategies

1. Structural pullback entry without candlestick signals

From the two charts above, you can see that right after the market pulled back to the structural level, the price quickly spiked.

There was no candlestick pattern formed prior to the spike that would give us a sign of price reversal so that we could be “ready” to get in.

If you’re doing a “blind entry”, meaning, simply set your entry right a tad above (long) or below (short) the structural level when the market pulls back, you’re going to get a very high potential reward.

2. Structural pullback entry with candlestick signals

This time, the market was kind enough to give us a hint.

When the prices pulled back to the structural level, a reversal candlestick pattern was formed. That’s a sign that the structural level is going to hold and prices will reverse.

You’re going to get a safer entry spot than those who do “blind entry” if you know how to recognize a candlestick reversal pattern.

If you don’t already know candlestick patterns, head to School-JCP on this JCP app to learn. If you’re reading this article somewhere on the internet, you can download the JCP app (for free) here.

3. Pullback to the mean with candlestick signals

If you’re a finance student, you will know this —prices eventually revert to their average levels (mean).

Moving average or trendline is a useful tool to identify the mean price.

When prices pull back to the mean followed by a candlestick signal, your expectation will almost always become reality. Just look at the two charts above.

4. 50% Pullback

This is going to make your chart look sophisticated.

You see. Prices have a tendency to pull back to approximately 50% of the previous major move. It’s said that traders who have profited from the straight-up or straight-down move are now collectively realizing their profits. 

That’s why a short-term pullback occurs.

When prices pull back to the 50% level, they’re likely going to reverse and continue moving in the initial direction. 

We can use the Fibonacci retracement tool to identify the 50% level. Quite ironically, the 50% is not a Fibonacci number though. Perhaps prices have pulled back to the 50% level for enough times to make it an important number that is worth traders’ attention.

As a smart forex trader, you definitely don’t want to ignore these 4 powerful pullback entry strategies, do you?

Wish you lots of success!