Entering Trades At Pullbacks by Candy Schaap
When opportunities knock, tell them to come in! Hereís how
pullbacks in trends offer opportunity.
Anybody who has ever bought an asset, whether itís
bonds, stocks, mutual funds, or real estate, knows
that prices go up and down. Prices fluctuate between
support and resistance most of the time.
This is information that technical analysts use for trend trading and countertrend trades. A countertrend trade is
also known as a scalp trade. As price moves back to support
in an uptrend, or up to resistance in a downtrend, there is an
opportunity to make money in the trend.
Letís look at trend dynamics to understand how to make
entries into a trend by entering at pullbacks.
FOLLOWING THE MOVE
One aspect of technical analysis is the study of price activity
and trend. Traders cannot control price, but how they react to
its movements is the difference between profit, a small loss,
and a large loss. Using a trendline can help you identify a
trend, a pullback in a trend, and when a pullback becomes a
reversal. A trendline will also give you an objective way to
Figure 1 shows a price chart, pivots, and a trendline. The
arrows point to pivot lows. It takes a minimum of two pivot
points to draw a trendline. The solid line is the start of the trendline connecting a pivot low and a higher pivot low.
The extension of the line (dotted) shows the trendline as