Well, it probably wouldn't make all that much difference since we all know what reversals and pullbacks are...in hindsight at least. As such, if a chart is posted, I think it would likely make it more convoluted giving everyone to pitch in what they "think" they already know.
Is It a Reversal or a Pullback?
- Thread starter schizo
- Start date
Yes, "higher low" and "lower low" are the first thing I would ask.
PULLBACK = HIGHER LOW
RETRACEMENT --> REVERSAL = (USUALLY) LOWER LOW
So the question remains as to how you can differentiate what is "higher" and "lower". In this regard, I think you need to create a BUFFER ZONE.
Actually, it makes a lot of difference considering already there's been a few instance where someone thought someone meant something else in this thread.
That's the beauty of chart examples...it clears up statements that someone else may be confused about or thought something was something else in error.
For example, there are many prior threads on this topic with chart examples...less confusing statements.
There was a guy over at ForexFactory that identified like +50 different types of pullbacks with chart examples of each...he linked it all to his blog or something like that. The one thing I remember clearly was that people have their own identification or jargon for the words pullbacks, reversal, retracement, counter-thrust, trend change and so on.
Simply, a pullback is different to someone else. A reversal is different to someone else.
Therefore, whatever definition you come up with...others out there are using something differently for the same word. Thus, the next time you take that reversal trade because you thought the trend had change...someone else is trading with the trend because they think its just pullback only because they have a different definition than you.
It really makes sense in that perspective and the only deciding factor is losses/profits regardless if sees the price action the way you do. Yet, I do understand why we need to categorize things by names especially if we want to put a name on statistical analysis. That's why some traders include chart examples with their statistical analysis. I know one person here at ET that does such going back many years. He once said that his trading in pullbacks about 5 years ago had dramatically different results in pullbacks a year ago. More importantly, his definition of a pullback 5 years again had changed in comparison to his definition of pullbacks a year ago.
Personally, I need context to go along with the price action before I can try to label a price action as pullback or reversal. Thus, using words like higher low, lower low is meaningless to me. That's my point...we all use different reasons for labeling something a particular name.
To me retracements and pullbacks are very inefficient ways to trade on. The fact that you have so many questions confirms this, as well as the fact that you need "bufferzones". So it is never clear what it is, where it is and how big the "bufferzone" is. And you can draw lines from which in hindsight is clear that most of them where complete useless.
In short:
Mathematical models combined with statistics and probabilities don't have these problems. Basicaly there are only three possibilities:
In short:
- there are bufferzones from which you cannot say exactly which is the upper level and which is the lower level of the bufferzone
- it is not clear what is "higher" or "lower"
- it is not clear where to draw the correct line
- it is not clear when it is a pullback or not
Mathematical models combined with statistics and probabilities don't have these problems. Basicaly there are only three possibilities:
- trend is up so you should buy
- trend is down so you should sell
- situation is not clear so you should get out or stay out till condition 1 or 2 is fullfilled
your question is to vague.
it could be a reversal on the timeframe you are looking and a pullback on a higher timeframe.
first look at the context and ask yourself where am i.is it a trend or a trading range.who is stronger buyers or sellers.also look at support and resistance levels.
a strong trend is UNLIKELY to have a reversal .more or less a one legged pullback or a trading range first then trend resumption or then a trend reversal.
you can also look at the reversal of the high and wait for a reversal from the reversal does it reverse from the reverse or pull back from the reverse(and their you go you have a classic head and shoulders pattern lol)
it could be a reversal on the timeframe you are looking and a pullback on a higher timeframe.
first look at the context and ask yourself where am i.is it a trend or a trading range.who is stronger buyers or sellers.also look at support and resistance levels.
a strong trend is UNLIKELY to have a reversal .more or less a one legged pullback or a trading range first then trend resumption or then a trend reversal.
you can also look at the reversal of the high and wait for a reversal from the reversal does it reverse from the reverse or pull back from the reverse(and their you go you have a classic head and shoulders pattern lol)
Correct, but you should always try to minimize ambiguity and optimize your edge. Which brings me back to what posted earlier.
Maths gives much better results to me.
Have to use what works for you. Many scoff at oscillators, I use divergances to define trend resumption entries on my lower TF.