Pull back vs reversal

[NoDoji]

Quote from LetItRide:

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

In a well-defined uptrend (all this is the opposite in a downtrend), I watch how price reacts to key levels as it pulls back.

The strongest key level is the trend line.

Another strong key level is the line of previous resistance (previous R becomes S in an uptrend).

The 20-period EMA is also a key level, but may break if the trend line or previous resistance is further away (which can be the case in a wide channeling trend).

The last key level is the previous low.

If the previous low breaks, that signals uncertainty. The trend may be signaling a reversal or may simply be pulling back in a narrow channel (bull flag), only to regain strength later on. If it's a narrow orderly pullback channel on low volume, continuation upside is more likely later on, unless another key level breaks down.

Some common ways of trading a pullback are:

Place a limit order to buy at a key level and use a tight stop in case the level breaks.

Place limit orders to buy at each key level during the pullback to average down into a full-size position, with a stop loss below the previous low.

Wait for price to react to a key level and break the high of a pullback bar. Use a stop order to buy a break of a pullback bar's high.

A reversal is generally signaled by a lower high, a double top or a weak breakout following 3 or more pushes in a trend. For confirmation, it's best to wait for a previous support level to break, price to pivot off the break and then find resistance at previous support.

Hope that helps!

 

[Cheese]

Quote from LetItRide:

.. how do you detect a pullback vs a reversal ..

So far in this thread you have not received applicable and clear answers. Probable contexts have been offered instead for the turn arounds from one swing to the succeeding swing in the opposite direction.

If the aim is to take as much as possible from the maximum points a full daily session offers (eg CL), then your question is the most fundamental that can be asked.

I'm not going to set out the exact detailed procedure but I am going to go to the practical tenets which you need to grasp.
First of all you can trade the pullback. Simple. Or you can use a slower chart which keeps you out of the pullbacks. Also simple.

One minute Chart
Now a one minute chart is not always suitable but assuming a 1m chart you can apply your signals. Example: you have sold, price is going down; you take the next signal where you buy and reverse but then you have to take the next signal (sell and reverse). If it was a pullback then you would have made a small loss or profit but you are now back in the continuing pre-existing downswing.

Slower Chart
You can use a chart which is a bit slower, either a time or volume bar chart. You signals will keep you further away from the tops and bottoms but you can still take good consistent gains from the days main swings.

I deliberately avoided the refinements of sophisticated playing. So there is no detail offered in this post but if you are learning you need to know what you are doing. The point of this post is tell you what you should be doing.

 

[athlonmank8]

Cheese your posts are beyond worthless. You spit out the same rhetoric each time. Find something better to do. Your posts contribute as much as JH.....sometimes less. At least he gets into specifics.

There's not going to be a cookie-cutter answer to this.

 

[bearmountain]

I believe this is where reading price action pays off.

reading price action (al brooks style) offers many clues to guage the 'strength' of a breakout and the subsequent trend.

properly reading the context is also important. what type of trading day is it? Trend or Trading range.

Is this the first pullback in a trend or the second or the third etc etc

 

[Swan Noir]

bearmountain's advice is spot on. This is a constant dilemma that will be resolved most often with PA. Nothing else will get you as high closer (or even as close) to the truth.

Quote from bearmountain:

I believe this is where reading price action pays off.

reading price action (al brooks style) offers many clues to guage the 'strength' of a breakout and the subsequent trend.

properly reading the context is also important. what type of trading day is it? Trend or Trading range.

Is this the first pullback in a trend or the second or the third etc etc

 

[athlonmank8]

Yup, multi-TF price action reading is an excellent signal complementing major levels. If you're trying to pin point an exact spot it's simplest way to do it

 

[Cheese]

Quote from athlonmank8:

Cheese your posts are beyond worthless.

You wouldn't know. LOL.

 

[anglagard]

I look for exhaustive volume at the swing extremes.

Helps a bit.

 

[NoDoji]

Quote from anglagard:

I look for exhaustive volume at the swing extremes.

Helps a bit.

That may be a potential reversal signal but it's not a "pullback". The OP wants to know how to distinguish pullbacks in a trend from trend reversals.

 

[tomahawk]

Quote from NoDoji:

That may be a potential reversal signal but it's not a "pullback". The OP wants to know how to distinguish pullbacks in a trend from trend reversals.

The way I interpret the original question is that at least some countertrend move is taking place in an environment where the market is making new highs (how would you otherwise even be thinking about trying to differentiate between a p/b and a reversal?)

I think that knowing what exhaustive volume often looks like for your instrument, under specific circumstances (like the ones you mentioned earlier) can be a good clue that the turn, however you define that, is a reversal and not a pullback.