What Is A Pull Back ?

[Grey1]

What is a pull back ?

One of the most important rules in trend trading is to recognise the top of the trend and to avoid it .. We obviously don't want to be the No1 Prat who buys right at the top..

Experienced traders tell you to buy the second pull back from high .. The term pull back is used by most traders but ask them what they mean and you get 1001 different answer..

To explain what a pull back ( retracement ) is :-

Some use fib retracements

Some use an OB/OS oscillators .

Some use Elliot waves ...

Some watch Level2 for major turn in volume ..

Some use Adhoc level or just wait to see a bar opening in the trend direction to take a position ..

My question from you all is ..

What is the best way to gauge the pull back and why ?

PS:-- remember MM don't not use Moving averages or RSI or Fib Levels and stuff like that .. All they watch is HIGH LOW and VWAP .... These levels are crucial for MM's .. Specially VWAP..

 

[Trader333]

Would a possible pullback in an upward trending market be to the lower VWAP band ?


Paul

 

[options]

If it isn't a bounce off of natural sup or res area's, I have just tried to gauge the natural ebb and flow of the waves.

Certainly not a scientific approach. Over the years I have coupled this now and again with the use of cci at differing settings, but always end up dumping the cci when it lets me down.

Is there a more precise way to gauge the extent of the pullback so that you are climbing aboard just as it takes off?

Given Trader333's answer I have the feeling you are going to say the lower vwap band.

 

[TheBramble]

A hopelessly non-VWAP answer (if indeed your heading that way Grey1), but wouldn't the second pull-back from the high (or a low) be the good old double-top (or double-bottom)?

The classic'M' and 'W' (-ish...) shapes of classic TA?

 

[BBB]

Hmm.

I judge whether a trend has reached it's end by looking at the formation of the bars. If there are a few gaps and long bars, then that suggests a climax, so I will not enter, unless to scalp. Bollinger Bands also help in this SOMETIMES. Volume too.

As for trading pullbacks, first I ensure the end of trend isn't here. To trade the pull back, the peak (assuming long) must be made on healthy volume. Preferably the pull back on lighter volume. Classic stuff, but reliable if you have the discipline not to take any half signals. I enter if I see a Pinocchio bar (spike bar/ bull tail whatever), or other type of reversal bar as long as the retracement hasn't gone too far. Any more than 5 bars and I'll leave it alone. What I call the character of the stock is also very important. How the bars form up, how it moves. No indicators used at all. If I dont see better volume as the price returns, I exit. If I dont like the look of any of the early bars, I exit. I will look to take SOME profit as the old high is retested, may be a bit before incase the move is engineered rather than real.

It doesn't matter what time frame I'm looking at 5 min, 20 min, 1 hour, daily etc. It works on 'em all because it's based on how markets work.

 

[Grey1]

Here we go

 

[DaveGos]

In their book Tools and Tactics for the Master Day Trader, Velez & Capra state that the depth of the retracement is often an indication of the move to come. A 40% retracement after a strong advance/decline is typically followed by a new high/low, 50% a 50/50 chance, 60% a 30% chance, 100% ( a double bottom/top ) is often followed by a 50% to 60% rebound.
I don't usually trade pullbacks but on the ocassions I have I have found that these figures are not far from the mark.

 

[TheBramble]

In their book Tools and Tactics for the Master Day Trader, Velez & Capra

As an aside DG - did you spot all the typos and just plain wrong-way-round examples and definitions in their book? I'm no rocket scientist - it was real basic errors they were making.

I did email them with some corrections they might want to consider for an errata or reprint, but never got a reply. Strange that....

I enjoyed reading it very much though and it was well worth the money/effort (IMHO).

I couldn't help wondering though whether their proof-reader was on holiday at that time or whether they were deliberately trying to wrong-foot their loyal readers...Naahhh, they wouldn't do that - would they!?

 

[Rognvald]

Grey 1

Your Word doc contains an excellent basis for planning an objective system for executing trades within a price area and time frame and with a risk level we can decide on and be comfortable with.

Your arguments seem very much stock related - would you care to comment on their possible relation to index futures in the light of the techniques employed

Perhaps as you say it may not be a new concept but your explanation of the interactions is very convincing and to me, for one, a very helpful one. Thanks.



ps Don't burn too much midnight oil

 

[Rognvald]

BBB

"It doesn't matter what time frame I'm looking at 5 min, 20 min, 1 hour, daily etc. It works on 'em all because it's based on how markets work."

This is something we should perhaps all think more about

 

[Grey1]

RoG,

The reason I am using stock examples is because this is the field I have chosen to trade.. Trader 333 has been applying the VWAP strategy principles to indexfutures ( if I am not wrong ).. So he has more evidence on its performance..

regards

 

[Trader333]

Ron,

I have only applied it to the S&P Mini but then used the signals to trade SPY and it does work quite well. The strategy used is somewhat different to that used for stocks and depends on many other things including volume price divergence as well as other things. More recently I have focused on stocks only and havent really been following the S&P Mini using this strategy.


Paul

 

[Grey1]

Dave,

Thank you for your comments..

Quote " A 40% retracement after a strong advance/decline is typically followed by a new high/low "


Could not agree more .. Good research.

I totally appreciate the work and research done by other market researchers on retracements . I personally feel daytraders need to have razor sharp rules to limit their drawdawns and hence the risk .. Most researchers go back to history for help .. I have given up on the history .. I really have.. if I use history it has to be the most recent history if you know what I mean ...



regards

 

[Rognvald]

Thanks Paul - I hope to run some investigations soon and report on them

 

[DaveGos]

Tony
The mistakes and constant references to their courses and Pristine.com, but like you said some good stuff amongst all that.

Dave

 

[Jerry Olson]

What is a pull back ?

One of the most important rules in trend trading is to recognise the top of the trend and to avoid it .. We obviously don't want to be the No1 Prat who buys right at the top..

Experienced traders tell you to buy the second pull back from high .. The term pull back is used by most traders but ask them what they mean and you get 1001 different answer..

To explain what a pull back ( retracement ) is :-

Some use fib retracements

Some use an OB/OS oscillators .

Some use Elliot waves ...

Some watch Level2 for major turn in volume ..

Some use Adhoc level or just wait to see a bar opening in the trend direction to take a position ..

My question from you all is ..

What is the best way to gauge the pull back and why ?

PS:-- remember MM don't not use Moving averages or RSI or Fib Levels and stuff like that .. All they watch is HIGH LOW and VWAP .... These levels are crucial for MM's .. Specially VWAP..

Hi Grey 1

the pullback? for me as a scalper there is only one type of pullback if your scalping for a living.

In a trend day up using the 5 min time frame and a 20 period ema, i am looking for bull flags, usually 2-3 sticks moving back down on contracting volume that brings the price back to the "rising 20 ema". In fact if you just automatically take the trade every time it makes it back there over time you'll be a winner...

it holds 100% true for the bear flag bounce using the same 20 ema falling as stocks tend to make backside bounces up and into the 20's...they are shorts.

Here's what we trade today using JBL as an example i hope this helps everyone..

http://www.buyitbuyitsellitsellit.com/OJ1.gif