00:00So, you'll be relieved to know that I'm laying off the psychology, at least for now.
00:09Today we'll talk about a strategy for trading pullbacks. Stick around.
00:34Hi, this is Tim from TradingStrategyGuides.com. Welcome back to our channel.
00:38Even though the trader's mindset, and all the other boring stuff, is the most important thing, I try not to
00:45labor over it too much.
00:46We'll talk about it more in the future, but today we're talking about entry strategy.
00:51More specifically, we're talking about trading pullbacks.
00:54You may have heard the phrase, the trend is your friend, and the most convenient way to trade in the
01:00direction of the trend is by implementing a pullback trading strategy.
01:03Trading pullbacks in trends is a basic trend following strategy.
01:07There are many different ways to profit from trading pullbacks, and in this video we're going to show you a
01:13very practical way of trading pullbacks in trends.
01:16You can profit from trading pullbacks on all time frames because a trend can show up from the 5-minute
01:23chart all the way up to the monthly time frame.
01:25So, it doesn't matter if you're a day trader or a swing trader, you can safely apply our pullback trading
01:31strategy.
01:32Before we start covering the rules of our practical pullback trading strategy, we're going to first define a pullback and
01:39learn how to recognize it.
01:40A pullback simply represents any price movement that is against the prevailing trend.
01:45If we're talking about trading pullbacks in trends, we're basically entering in the direction of an uptrend as the market
01:51is trading at a lower price or at a higher price in a downtrend.
01:55The pros of trading pullbacks in trends are that you're buying low and selling high.
02:00If we're trading pullbacks in an uptrend, you're basically buying low, and if we're selling pullbacks in a downtrend, we're
02:07basically selling high.
02:08Kind of goes without saying, right?
02:10The second advantage about trading pullbacks in trends is that it's actually easier from a psychological standpoint because you have
02:18the trend working for you.
02:20The only indicator you need for our pullback trading strategy is the Fibonacci retracement tool.
02:27The Fibonacci retracement tool measures the latest trend movement and divides it into the Fibonacci ratios that can be used
02:35to identify potential support and resistance levels where you would anticipate price to reverse.
02:41Just so you're up to speed, the Fibonacci tool uses the so-called golden ratio to calculate certain levels at
02:48which you would expect the price to reverse.
02:51If you read up on this tool, you'll read about all the mystical, magical properties of the golden ratio and
02:57the Fibonacci numbers and how it appears throughout nature and so on and so on.
03:02It is actually kind of cool and all, but for trading, you can forget about all that.
03:07The fact is, the Fibonacci or Fibbo tool works because traders expect it to work and they act accordingly.
03:15When trading pullbacks in trends, the most important Fibonacci levels are the 38.2%, the 50%, and the 61.8%.
03:26Normally, the distance the pullback will go all comes down to the strength of the trend.
03:33Usually, the stronger the trend, the smaller the pullback will be, in which case it may only reach the 0
03:39.382 Fib retracement.
03:41Now, let's see how you can effectively trade pullbacks and how to make profits from trading pullbacks by simply following
03:48our pullback trading strategy.
03:50The power and the secret of the pullback trading strategy are all contained by the fact that we're aiming to
03:56trade in the direction of the trend by entering on a pullback.
04:00Trading pullbacks in trends really offer you the opportunity to lower your risk while maximizing your profits.
04:08Obviously, in order to profit from trading pullbacks, we first need to define the trend,
04:13so we make sure we only trade pullbacks with the trend because these are the setups that can make us
04:20the big profits.
04:21Which brings us to step one.
04:24Identify a bullish trend characterized by a series of higher highs and higher lows.
04:30Identifying the direction of the trend should be a fairly easy process.
04:35The easiest method to use to identify the trend is the swing high and low structure that we've discussed in
04:42prior videos.
04:43In essence, an uptrend is defined as a series of higher highs with a series of higher lows.
04:49It's important to use a higher time frame to determine the trend, regardless of the time frame you normally base
04:55your trades on.
04:57Step number two, switch to the shorter time frame and wait for a pullback against the uptrend.
05:03After successfully identifying the trend, we can switch lower to our preferred time frame.
05:08It can be whatever time frame you feel most comfortable with, but for the purpose of this pullback trading strategy,
05:15we'll use the one hour time frame.
05:17Now it's time to bring into play the Fibonacci retracement tool, which brings us to the next step of our
05:23pullback trading strategy.
05:25Step number three, place your Fibonacci retracement indicator between the last swing high and swing low levels prior to the
05:34pullback.
05:34Identify the most recent swing low and swing high and place your Fibonacci retracement indicator between the two swings.
05:42Note that when you draw your Fibonacci retracement, you should click first on the earlier candle and then click second
05:50on the later candle.
05:51In other words, it should be placed from left to right.
05:54Next, we need to figure out where to enter the trade, which brings us to our next step.
05:58Step four, buy anywhere between the 50% and the 61.8% Fibonacci retracement area.
06:07After you've placed the Fibonacci retracement tool on your chart, mark the area between the 50% and the 61
06:15.8% Fibonacci retracement and buy as soon as the price trades within that area.
06:21It's up to you whether or not to buy as soon as the price hits the 50% or to
06:26wait for the 61.8%.
06:30With experience, you'll be able to fine tune your entry and profit from trading pullbacks.
06:35Step five, place the protective stop loss below the swing low.
06:40The last swing low used to draw the Fibonacci retracement levels can provide us with a very attractive place for
06:48our protective stop loss.
06:50Since a break below the last swing low will invalidate this trade, that's where we'll want to get out of
06:56it.
06:56Step six, take profit once we break above the previous swing high.
07:01In order to profit from trading pullbacks, we need a strategy for taking profits as well.
07:06The ideal place to liquidate our position is once we make a new high.
07:11The market never moves in a straight line and after we break to new highs, a pullback occurs more often
07:17than not.
07:18So, if you want to be in and out of the market very quickly, that's the easiest way to profit
07:24from trading pullbacks.
07:27Alternatively, if we want to maximize our profits, we can take only half of the profits once we break to
07:34new highs,
07:35and the remaining half of our position can be taken at the 100% Fibonacci extension using the Fibo extension
07:43tool.
07:43And of course, the prior was an example of a buy trade.
07:48You can use the same rules, but in the opposite trade direction for a sell trade.
07:52Trading pullbacks and trends can be one of the most rewarding trading strategies available.
07:58The pullback trading strategy is a time-tested profitable strategy,
08:02and the key to its high rate of success is given by the fact that we're trading in the direction
08:07of the prevailing trend.
08:09The way to profit from trading pullbacks is by simply buying weakness in an uptrend and selling strength in a
08:16downtrend,
08:16which is what the pullback trading strategy presented in this video is trying to accomplish.
08:21And that's all for today's video.
08:24Come back for my videos on Monday, Wednesday, and Friday at 3 p.m. New York time.
08:28Don't hesitate to ask any questions you may have.
08:31Remember the only stupid question is the unasked one.
08:35If this video helped you, smash that like below.
08:38Subscribe and hit the bell if you want to be notified of our videos in the future.
08:42And have a great Wednesday, and I will see you on Friday.
08:46See you Friday.
08:48.
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