===================== Nice measures,I-trader; those 1-4 are good measures. 1] 50 day moving average support or resistance; and strong sector for uptrends, weak sector for downtrends...................... 2]200 day moving average support or resistance. Downtrends/bear trends may be a bit more non linear.LOL
True, but I only have 2 computers, one for music, surfing and emails, the other for Trading. So this frees up my computers. btw, there's been some beautiful pullbacks in the YM, TF and NQ lately. 5Min charts, 20EMA. Very simple stuff. (thankfully for me! )
The ideal pull back, for me has a pre-requisite, a well established trend as I need some sense of security. Let's use an uptrend as example. Uptrends make higher highs and higher lows, therefore the closer we get to the last higher lower without breaching it, is imo the ideal pullback. Sometimes in the afterhours the markets do "stop hunts" below these higher lows that tend to never be revisited in the regular trading session, that is another great pullback opportunity, but that's a bit more advanced and beyond the scope of the simple explanation of this post. Once you have detected your ideal pullback area is always good practice to search for confluence that buyers are indeed piling up here to keep that uptrend alive, because if that particular higher low was breached, market could want to try to find support on the next support level. On another note, higher lows may be breached while keeping the trend alive, but in this case a quick regain of the support level in the form of an inverse head and shoulder might be desired to regain that uptrending trust
I see 2 sorts of opportunities for "ideal" pullbacks: 1) "strong" trend - how one defines a "strong" trend isn't the point ... the point is, an "ideal" pullback is one which leads to a new leg for that trend with a very high probability. As already stated, in such conditions pullbacks are usually shallow, just enough to get counter-trend traders in - and stopped - again & again. 2) initial breakout out of a consolidation range ... ideally, that range has developed over a few days (for intraday trading) or a few weeks (for swing trading). There is a "classic" pullback after the break-out, which usually only retests the breakout level, the longer-term players get on board & price never looks back. Outside of these ideal conditions, my favorite pullbacks are ABC-type pullbacks, where C comes in confluence with some other level (a prior S/R level, a retracement level, anything will do, really). I use 2 projection methods from AB to defined a maximum excursion for C, this gives fairly low $$$ exposure entries - but not too frequent either, because often-times C actually makes a DB(/DT) at B. To the OP, even though retracement levels are sometimes useful, there are so many possible in a trend that of course 1 gets hit & is the pullback extreme, but which one is the million dollar question. BUT, there is another tool that works pretty well in established trends, the popular & better known version of it is the channel.
I have defined ideal pullback in stock move as something that occurs with lower volume comparing to trend move I want to trade. I do swing and position trades so I describe it from this perspective. Also retracement should be less then 50% from top of last uptrend move. Pullback should lasts 3 days at least. Price should be above 50 day moving average for uptrend (bullish trade) and below 50day MA for bearish trade (short sell) Ideally some reversal candlestick should be seen as signal for possible end of pullback. And if this reversal candle is accompanied with above average volume then it is also plus. This is also basis for definition of my pullback stock screeners that I run in Amibroker. Richard www.simple-stock-trading.com