Trading Pullbacks

There is a system to trading pullbacks that can earn you a great deal of money.

The most vital thing to do is to establish the longer term trend. In the event that the stock is in an uptrend even with the pullback, then the setup is great.

The majority of stock traders have problems distinguishing between a regular pullback in a bullish uptrend, and a pullback that signifies a trend reversal. It is the main reason traders lose money.

The whole step to trading pullbacks is to measure how much a stock pulls back. The research into computing pullbacks is called Fibonacci Retracements.

The vital Fibonacci Retracement ranges to watch are 38.2%, 50%, and 61.8%. You have to memorize these retracement levels.

Up to 70% of most Fibonacci Retracements occur between the 50% and 61.8% ranges so shoot for a 50% retracement entry.

I like to use the ADX technical indicator with retracements. J. Welles Wilder invented the Average Directional Index (ADX) to determine the strength of an ongoing trend. In the event the +DI crosses above the -DI line just after the stock hits a major retracement level, the odds of success of the trade go up.

How I trade with these two tools is to think okay, let's see what happens when the 50% retracement level is struck. Did it bounce? No? Then let's see what the results are once the 61.8% retracement level is hit? Did it bounce? Yes? Has the ADX DI line crossed above the -DI line? If not, then I stay on the sidelines and await confirmation of the short term swing trade up by watching the ADX. Yet another thing I ask myself is did the pullback reverse the trend? Was the lower Donchian channel wall hit? Is the volume rising on the downside? Any major support level broke like the 50 or 200 day moving averages?

Within the video below, I am going to examine Ciitigroup (C) and what your frame of mind should have been as the stock pulled back and hit the major retracement levels. I'll also explain to you how making use of the ADX tool would have confirmed that something was nastier regarding the pullback.

There is a system to trading pullbacks that can earn you a great deal of money. The most vital thing to do is to establish the longer term trend. In the event that the stock is in an uptrend even with the pullback, then the setup is great. The majority of stock traders have problems distinguishing between a regular pullback in a bullish uptrend, and a pullback that signifies a trend reversal. It is the main reason traders lose money. The whole step to trading pullbacks is to measure how much a stock pulls back. The research into computing pullbacks is called Fibonacci Retracements. The vital Fibonacci Retracement ranges to watch are 38.2%, 50%, and 61.8%. You have to memorize these retracement levels. Up to 70% of most Fibonacci Retracements occur between the 50% and 61.8% ranges so shoot for a 50% retracement entry. I like to use the ADX technical indicator with retracements. J. Welles Wilder invented the Average Directional Index (ADX) to determine the strength of an ongoing trend. In the event the +DI crosses above the -DI line just after the stock hits a major retracement level, the odds of success of the trade go up. How I trade with these two tools is to think okay, let's see what happens when the 50% retracement level is struck. Did it bounce? No? Then let's see what the results are once the 61.8% retracement level is hit? Did it bounce? Yes? Has the ADX DI line crossed above the -DI line? If not, then I stay on the sidelines and await confirmation of the short term swing trade up by watching the ADX. Yet another thing I ask myself is did the pullback reverse the trend? Was the lower Donchian channel wall hit? Is the volume rising on the downside? Any major support level broke like the 50 or 200 day moving averages? Within the video below, I am going to examine Ciitigroup (C) and what your frame of mind should have been as the stock pulled back and hit the major retracement levels. I'll also explain to you how making use of the ADX tool would have confirmed that something was nastier regarding the pullback.