Pull back vs reversal

Discussion in 'Risk Management' started by LetItRide, Jul 1, 2011.

  1. In a strong upward run how do you detect a pullback vs a reversal with no resistance at sight as price breaks into a new territory
  2. hahaaa..

    as the wise one suggested to me once.

    "18EMA usualy helps to differ"
  3. Others may tell you that the key is in watching volume, or if the pullback starts at a certain level, etc. Truth is, that it is like going over the top of a mountain in the fog. You never know where the top is until you see it in your rear view mirrow. The most reliable indicator that a reversal has occurred is when a clear swing is put in place below the last swing low. That tells you that those supporting stops have been cleaned out, some additional selling may have occurred, and a pullback test is likely to confirm the new resistance.

  4. buy on pullback = reversal of pullback itself

    reversal areas are arbitraged pretty well these days with AI and tons of computer power. no free lunch.
  5. Locutus


    Nobody knows.
  6. What you meant to ask was, "how does one know when 60 or more out of 100 similar pullbacks will continue with the trend versus true reversals"

    Any single circumstance in trading means nothing. It's a waste of time to examine and dissect one lone sequence on any chart. You need to look at hundreds and hundreds of similar situations and see how a majority resolved.

    That's how technical analysis works... everything is a blended cumulative result over time. If one, two or five consecutive setups "fail" per se, that does not mean tech analysis doesn't work. It's not designed to work every time, just a majority of all times :)
  7. In stocks, the most commonly watched averages are 50 and 200 days. In commodities, most moving averages are under 40 days. A popular moving average combination in futures, for example, is for 4, 9, and 18 days in averages.

    Many old timers (like me) learned ancient TA with the 18 day SMA as a trend indicator for trading futures. Many moons ago I used to have a service deliver me a chart book with nicely printed 4, 9, and 18 SMAs to trade futures. Back then Pullbacks bounced off the 18SMA and reversals broke out through the 18SMA. MA crossovers were a big part of it.

    Look at a chart of the daily S& P Index. On May 31/June1 and June21/June 22 pullback from 18SMA and on June27/June28 reversed through 18SMA with the 9 SMA crossing above 18 SMA .

    How much do these SMA work today in futures and indexes? I don’t know? But I still see them on futures sites.

    Does this silly TA still work at all today? No its ancient wizard craft. But as an old wiz my mind still uses it.:eek:
  8. Volume can sometimes help, but the best way to differentiate in my opinion is if there was a large extremely aggressive seller you observed on the tape.
  9. that is all still true... with one big caveat

    Keep in mind that price will magnetize to moving-average "touches" as time goes on. What was not a clean pullback or touch in real time becomes a clean touch historically when looking back.

    One of the biggest traps to MA trading... whole different reality in real-time versus what appears so in look-back. That is true for all oscillators, stochastics, macd, etc that are not fixed price-action measurements
  10. Research dominant versus non-dominant volume.
    #10     Jul 1, 2011