Identifying a pullback from a reversal. Lets look at this chart… This chart looked like it had a decent uptrend; price broke through a resistance to a fairly decent extent and looked as if it might continue but only to turn into a pull back. .
How do you get around this? Well… The best method I’ve found for trading is a breakout method… But how do you identify reversal or pullback? Well, using a Exponential MA (moving average) with a period of only 5. As you can see in the picture below after price broke through the resistance, the MA however DID NOT!! Lucky I had the MA set otherwise I might have lost some dollars! (Pheww… more money for the wife to blow).
The method I use is the MA breakout… Unless the MA breaks through the support / resistance I won’t make the trade. This method has saved me thousands of times and lots of money! Give it a try, I’m sure you won’t be disappointed.
A simultaneously-arising issue is the fact that the 5-period MA necessarily lags behind the price, which means that on your [I]successful[/I] trades, with this method, you’re entering later and making smaller profits from each of them as a result.
It’s a method that clearly increases [U]win-rates[/U], but that isn’t necessarily quite the same thing as increasing overall [U]returns[/U], because it reduces trading frequency, too, so it’s possible for such methods to prevent losing trades but still have an overall negative effect, by reducing the profits on the winning ones.
Before adopting such measures, it’s advisable to monitor and test very carefully, by comparing the overall effects rather than simply looking at the times it’s saved you.
I mention it only because I trade so many breakouts myself, but I’ve found that waiting for an MA breakout (I actually did most of my own testing on a 6-period MA, rather than the 5-period one shown in your example above), although it undeniably prevents some losing trades, [I]wasn’t[/I] actually beneficial to me, overall. :8:
I see, of course, that it may be for some people, depending on a range of variables about the ways they’re identifying and trading breakouts.
I definitely encourage people to test their own method my method may not work for other people, each has to find their own. However I find this one does works for me. As you said though, it might not increase overall returns but the returns (depending on your leverage) can be fairly decent.
I’ve tried many different trading strategies in the past which work for some but didn’t seem to work for me, I find this one fairly simple and effective (for me) and hopefully maybe someone else that has a same trading style as I do.
Also, I might mention I trade mostly on a daily chart.
What breakout method do you find works best for you Lexys? I’d be interested to hear
I use the methods taught by Bob Volman in his books [I]Understanding Price Action: Practical Analysis of the 5-minute Time Frame[/I] and [I]Forex Price Action Scalping: an In-depth Look into the Field of Professional Scalping[/I]. I’m not a scalper, though: his techniques work just as well on longer time-frames. He also regularly makes his trading charts available, free, for readers (via Dropbox). I also apply these methods to the techniques taught by Joe Ross and Al Brooks.
I tend to take a lot of “second breaks”. I’ve found that “first breaks” include their share of fake-outs (of course), while waiting beyond “second breaks” reduces my trading frequency too much.
I also scale in and out of positions, with some set-ups adding to (winning) positions, and with others closing about two thirds of my position quite quickly (sometimes together, sometimes separately) while letting the last third run for longer.
In your example, I would definately not be looking at long positions as the trend is clearly down. The rally back to your resistance line is a good opportunity to short on the CLOSE of that candle. Had that candle closed above your line, then I would be seeing that line as a support line.
But imho it all comes down to the close of the candle. If you removed your MA and had a ‘only on candle close’ rule, you will achieve the same thing. If its working for you though…why fix something that aint broke?
I’m sorry all but I look at this picture and think where’s the breakout in the first place. This looks like a simple pullback and therefore we would surely lose if traded as a breakout.
Don’t need nothing else but one’s eyes to see this. See with your eyes not perceive with your mind.
I’m curious as to why I can’t post about something that CLEARLY does work for without so much negativity? I don’t mind feedback and peoples insights but pure negativity and “It won’t work” is pretty uncool… There are many, many different ways to trade and this is my way and I wouldn’t post about it if it didn’t work, right? So why once again for pure negativity?
I’ve used this trading method for the past 2 years.
You can’t say something won’t work unless you try for yourself…
Are you asking why you are receiving negative feedback?
I don’t think anyone is deliberately trying to shun your methods…just pointing out the plain facts of the matter based on logical observations from what you have laid forth here?
I conquer bro. No one here is critical on how you trade my freind. Just if your going to come to a place of learning ie BabyPips, then you need to use the correct terminology. Maybe if you titled the thread how to spot a pullback from a reversal.
A breakout needs to as a prerequisite have a range form first. Whether thats a channel such as a donchian or linear. Or a pattern like a flag or wedge. Without it you have no points of reference to make other trade decisions involved in breakout trading.
There is no evidence of a range in your picture. Just a strong trending market thats easily identified with the naked eye.
Welcome to the forum but bro. Keep posting. Newbies need to view the full spectrum of trade methodologies we all deploy
I appreciate everyone’s replays and I don’t think everyone was negative at all! Just one post caught my attention thats all… But thank you all! And look forward to chatting with you in the near future.
its not an identity fake out its just another person thinking that oh aver a few hours 5 minutes of highs and lows oh the trend is on.
and as usuall there wrong the markets move buy hedge funds and carry traders not people following charts
its maths like i always say not price action or trend lines i would of sold by the 3rd bar before the first red line.
the answers right infront of you i would of sold befoe your first red bar simple maths, but you sell after the first red line you make a profit identity or not
