Top Pullback Trading Strategies
Pullback trading strategies provide traders with ideal entry points to trade along with the existing trend. Pullbacks only last for a short period of time and help trade the rapidly fluctuating currency pair prices. In this article, we discuss the top pullback profitable trading strategies that you can use as a forex trader.
What is pullback trading?
Pullbacks in forex are temporary dips or hikes in the currency pair prices during an ongoing uptrend or downtrend, respectively. The price declines and inclines only last for a short period of time, and the downtrend or uptrend continues thereafter. Pullback trading is the process of trading short-term dips and hikes. In most cases, pullbacks bring the currency pair’s price near its support or resistance level, allowing traders to enter a long or short position and profit from the rising or falling markets.
Top pullback trading strategies every forex trader should know
Moving Averages (MAs) are one of the most commonly used indicators to determine pullbacks in an existing uptrend. It is a technical indicator that calculates the average price of the currency pair in a particular time period and compares it with the current price to determine the market behaviour.
- When the currency pair’s current price in an uptrend is far below its average price, it indicates that there is a short-term dip that might follow and signals to enter long trades.
- When the currency pair’s current price is in a downtrend and far above its average price, it indicates that there is a short-term hike that might follow, signalling to enter short positions to benefit from falling markets later.
Trendlines in forex determine the trend’s direction. When three or more high or low price levels are connected, they form an uptrend or downtrend trendline, respectively. You can trade pullbacks with trendlines when higher high price levels are followed by higher low price levels, indicating an existing uptrend that is following a temporary dip. Or, you can also enter short positions with trendlines with lower low price levels followed by higher low price levels, indicating an existing downtrend that is following a temporary hike. You can enter a long or short position with trendlines at the third, fourth or fifth high or low price level as these levels confirm the uptrend or downtrend, and signal you to enter the forex market.
Breakouts enable trades to enter the market right after the currency pair prices touch their resistance or support level and move above or below it, respectively. Breakouts are opposite movements in the current trend that provide the opportunity to enter markets during a temporary trend.
- During an uptrend, when the currency pair price temporarily touches its support level and narrows, the breakout signals a downtrend pullback and provides the signal to enter long positions and benefit from the increasing prices thereafter.
- During a downtrend, when the currency pair price temporarily touches its resistance level and widens, the breakout signals an uptrend pullback and provides the signal to enter short positions and benefit from the decreasing prices thereafter.
Fibonacci Retracements determine the ideal levels to enter the market during an uptrend or downtrend. With Fibonacci levels, you can also identify the ideal support and resistance levels, based on which you can decide to long or short the market. This strategy uses the Fibonacci retracement levels that depict how much the currency pair prices are retracing before they continue trending in the existing trend direction.
- During a downtrend, the lower Fibonacci levels like 23.6% and 38.2% depict that markets have not retraced much and help in identifying the ideal resistance level (acting as a temporary pullback hike), signalling traders to short the trades due to an expected downtrend continuation after.
- During an uptrend, the higher Fibonacci levels like 61.8% or 78.6% depict that markets have retraced a lot and help in identifying the ideal support level (acting as a temporary pullback dip), signalling traders to short the trades due to an expected uptrend continuation.
- During an uptrend, the lower Fibonacci levels like 23.6% and 38.2% depict that the prices are approaching the resistance level and can break above this level, signalling traders to place long orders to profit from the continued rising markets.
- During a downtrend, the higher Fibonacci levels like 61.8% or 78.6% depict that the prices are approaching the support level and can fall below the support level, signalling traders to place short orders to profit from the continued falling markets.
Trade forex pullbacks and identify ideal entry prices today
Forex pullbacks enable traders to determine the accurate price level at which they can either enter a short trade or a long trade without missing out on the short-term trading opportunities. Start trading with Blueberry Market’s forex trading platform today to enjoy various pullbacks and other strategies that will help you become a successful forex trader. Sign up for a live trading account or try a risk-free demo account.
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