How To Trade Pullbacks & Rallies

How Do You Trade Price Pullbacks in an Uptrending Market and How Do You Trade Rallies in A Downtrending Market?

One common characteristic of swing trading is the ability to trade pullbacks and rallies of price action.

Now, if you know what to do or have a a swing trading method or system to allow you to get in when these pullbacks and rallies END,  then hopefully all is well with you if you have been succesful with that…

However, one of the greatest misery to swing traders is the fact that sometimes, you get in a the very wrong time and you wonder how on earth you got into a trade at exactly when its starting to do a pullback or a rally (and not at the end of it!).

It would look like the market knew exactly when you got in so it starts to reverse and you got stopped out almost immediately.

What may be happening is that at the time and price level where you entered, the market was due for pullback or rally.

So you exactly got into a trade at a spot where price was just starting its rally(upward move in a overall downtrending market). At some point that rally would end, and price would start to fall again. Why? Because the overall market is in a downtrend.

The Key To Trading Rallies And Pullbacks

The key thing here is, as a swing trader, you need to enter a short trade(sell) when that rally is just about to end has ended so your trade is  in sync with the overall downward trend…meaning you are with the “flow” of the market.

The same thing applies to trading a pullback: you have to learn to get into a trade when the pullback is about to end or has ended so that you are buying and you know that the overall trend of the market is upward.

It makes more sense, doesn’t it?

But we have a problem, well, as a matter of fact, we have a couple of problems and here they are:

(1) you can never be 100% certain when or at what price level  a pullback or rally will end so you can get into a trade. So what do you do? Sometimes, from my experience, I know I have to take a couple of hits(loss) before I get into a trade that will go well finally,when the bullback or rally ends at the level where I entered.

(2)It is pretty daunting seeing a pullback happening and you are buying (or seeing a rally happening and you are selling). To many swing traders, this is a big problem. In simple terms, it goes like this: “How can I be selling when the price is rising?” or “How can I be buying when the price is falling?” You eyes are seeing something different on your forex trading chart, like lots of red candlesticks, but your swing trading system is saying you should buy now because it may be that your swing trading system is indicating that the pullback is ending so its time to get in.
 (3)Not all pullbacks and rallies are good for you to trade. This means that you need to be picky on the types of rallies and pullbacks you need to trade. The best spots to enter a short trade in an upward price rally is when price  hits horizontal resitance levels or when price hits downward trendlines(which provide diagonal resistance) or some resistance levels provided by moving averages, or pivots or fibonacci levels. You need to trade rallies based on these levels as it makes sense to do so.  The opposite is also true for short trades: sell when price hits levels of support.

Now to refine your entries, you may opt to use reversal candlesticks.

You see, reversal candlesticks are pretty useless if they happen anywhere on your forex charts. However, if reversal candlesticks happen around these levels of interest like support and resitance levels etc…then that brings a lot more significance into the equation.

Don’t forget to check out my top 10 reversal candlestick patterns if you haven’t had a chance to go through it yet.


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