Tuesday, June 21, 2011

G2 after a deep pullback in a strong trend

The first deep pullback of a strong trend is usually worth entering for another leg. When a trend is strong and has moved many points (b4-26), the first deep pullback (b28-50) is likely to be very deep and often moves below the ema. The second attempt to fill the gap (b52 after failed b49) usually succeeds and is a high probability trade that is likely to reach a new extreme (b62).

It is important to note that the first deep pullback may have broken the trend and reaching the new extreme may simply act like a trend termination and possible reversal. G2 is also something you should only take when the potential profit is 4pts or larger. If the pullback is not sufficiently deep, it may have another leg to go before the original trend resumes.

Additional reasons to take the trade will strengthen the trade. For example, today's b51 was a low momentum 3 push pullback and therefore a wedge pullback. b51 was also the first bull signal bar that actually triggered (b34 and b40 were entry bars).

G2 is a lower probability on days with weaker trends and on second deep pullbacks and you should look for additional reasons to take the trade.

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