It’s time to learn How to Trade Pullbacks in the Forex Market.
Trading pullback setups in Forex is without a doubt my favorite style of trading. As many of you may know- I am a Professional Forex Trader, using strong trending pairs to catch high probability trade setups. There are two major categories of setups within the trend trading style- pullbacks and breakouts. Though both setups can be very powerful and consistent, pullbacks are by far my favorite. In order to learn how to trade pullbacks in the Forex Market, you must first understand what a pullback is.
To understand How to Trade Pullbacks in the Forex Market, you must know what a pullback is. A pullback is a term referred to in technical analysis, and it occurs after a trending move is made in a currency pair. After a trending move is made, price then retraces against the direction of the trend, or pulls back its value. A pullback can occur in either a down trend or an uptrend and is equally useful in each. In the image below, I have illustrated what a pullback looks like in an uptrend.
How to Trade Pullbacks in the Forex Market
As you can see, price is setting Higher Highs and Higher Lows, an indication of an uptrend. I have labeled the pullback by surrounding it in a grey box. Price has made a push higher, setting the Higher High, and then pulled back to set a Higher Low before pushing higher again. This retracement in price presents a great opportunity to enter long in the direction of the trend, at a discounted price since we have recently experienced a correction.
Let’s look further into How to Trade Pullbacks in the Forex Market. Now that we have an idea of what a pullback is, how are we to use this in our trading? One of the most difficult parts in finding how to trade pullbacks in the Forex Market is knowing when a pullback is coming to an end and it is time to enter. This is the part that most traders fail to understand and continue to lose money, so I will show you how I am able to successfully trade these setups.
First, you are going to want to be sure the pair you are trading is in fact in a strong trend. There are a few tools that can help determine a strong trend. The main things you want to look for are:
- The pair is making HH & HL in an uptrend, or LL & LH in a downtrend
- Price is trading above the 50 SMA in an uptrend or below the 50 SMA in a downtrend
- Price is generally moving from bottom left to top right in an uptrend or top left to bottom right in a down trend
To learn more about how to identify a trending pair, check out this video How to Identify Forex Market Trends.
Second, we want to look for price to pullback to a strong area of support or resistance. If we are in an uptrend, we want to see price set a new HH, then pull back to retest old resistance as new support. If we are in a downtrend, we want to see price set a new LL, then pull back to retest old support turned resistance. See the image below, you can see that within this uptrend, we experienced a pullback that came back to retest what was resistance now as support.
This is a great indication the pullback could be coming to an end and ready to continue the trend.
The third step in determining when a pullback is coming to an end, is to use additional forms of confirmation. Some other tools I like to use when identifying a pullback are as follows: Fibonacci retracement tool, trend lines, candle stick patterns, supply & demand, pivot points, chart patterns, and more. This is where you want to personalize your own system and test to see what works for you.
If you would like to skip this step and save some time, I have a full course teaching traders exactly how I have found success with these setups, sharing my exact strategy that has been tested and proven. To learn more about this course, visit the Full Online Forex Training Course Outline.
How to Trade Pullbacks in the Forex Market: Summary
Now that we have learned all about pullbacks and how to identify them, I want to share with you why I love these setups so much. Pullbacks, unlike breakouts, offer a great opportunity to get into strong trending markets at a discounted price. This means we are getting into trades early, with potential to make much larger gains. On top of that, they typically offer a tremendous risk to reward ratio, making it an even more attractive trade. When these setups are used in combination with multiple technical analysis tools (what we call confirmations), they can be extremely accurate. That is why I like trading this style setup so much and why I will continue to use them to ride trends in the Forex Market.
If you would like more education and guidance to learn how to do this, I have designed an entire course to teach you how to trade Forex. It will teach you everything you need to learn, from the ground up, while having my personal guidance all along the way. Click here to learn more and take our Full Online Forex Training Course.