Friday, October 4, 2013

Shallow and deep pullbacks with trendlines

I have often advised new traders to only trade deep pullbacks or obvious pokes into the trendline. This is usually very good advice on most days. The only exceptions are possibly hard trend days, where you can really take any small bar near or touching the trendline and soft-trend days, when you can take any fL2.

Trade #1 illustrates a shallow pullback. The price barely pokes beyond the trendline. The signal bar b6 is also a poor bar and in the middle of a BW. However, 2L 1PB when successful can go quite a while, so I often take it despite it being a lower probability trade.

Trade #2 on the other hand illustrates a deeper pullback. b10 clearly has poked well beyond the TL and therefore is more likely to give an entry bar (b12) that does not take out a stop.

Trade #3 is an fBO trade. Note the smaller size since its always better to sell the next pullback after the fBO succeeds

Trade #4 is a reasonably deep pullback since b27 poked many ticks beyond the TL and also gave an entry bar b28 that did not take out any stops.

Trendlines enable entries and also point out obvious exits. For example, the W down to b13 violated the TCL b2,8 and the the sell from b27 stopped at the trendline from LOD of prior day.

With discipline, simply entering on every deep poke of the trendline should be a viable trading strategy.


  1. Thanks for sharing the observations.

    #1 and #4 seem to be entries on stop beyond a signal bar, whereas #2 and #3 seem to be entered at the close of the bar. Am I correct? If yes then what is the criteria to decide this. Sorry I have not gone through all the posts so don't know If you have shared this already.

    1. When an inside bar or near inside bar has an entry side tail, you can usually enter as if the entry side tail does not exist. i.e. stop entry on the close instead of the low of the bar.

    2. helps. You really need to be quick in last few seconds of the closing of the bar... #3 was doji with very small body, so you still want to go with it? especially after 3 strong bull bars I tend to wait for second entries. I dont know if it can be called buy vacuum.

    3. Its perfectly fine to wait for a second entry. Just dont be surprised if one never shows up.

    4. Thanks... Do you always trade smaller size for fBO trade or depends upon signal bar strength?