pullback >< reversal

OddTrader · Jan 29, 2004

Quote from lindq:

In order to play pullbacks, you will usually be entering at the point of max fear in the stock, and also generally in the market. No pain, no gain. This takes a lot of confidence in your system, and a lot of experience.

Excellent advice above, plus some links you might have read:

Fibonacci Retracements
http://www.elitetrader.com/vb/showthread.php?s=&threadid=4112

Distinguishing between retracements & reversals
http://www.elitetrader.com/vb/showthread.php?s=&threadid=24933

TSCM - Monthly Pullback Candidate
http://www.elitetrader.com/vb/showthread.php?s=&threadid=26865

Pullback Entry Strategy
http://www.elitetrader.com/vb/showthread.php?s=&threadid=26275

tradersaavy · Jan 30, 2004

I trade reversals.

One thing that helps me is to not look for reversals.

I look for price to continue every time it pulls back to a trendline,support,resistance, moving average, or whatever you like to look at.

When it pulls back to one of these areas and then shows signs of not bouncing or moving with the steam it had previously, it alerts me to possible reversal.

I do not play pullbacks (currently) but it is amazing how price really likes to continue when pulling back to one of these S/R areas.

gms · Jan 30, 2004

Quote from lindq:

I swing trade pullbacks. Today [1/29/04], I bought the following:

INFY @ 86.55
ITW @ 77
BDK @ 49.49
CAT @ 76.90

You might want to look at daily charts on these stocks to get an idea of levels that caught my attention. Look for simple technical indicators yesterday, and what has happened today in terms of follow-thru on further weakness.

Good work, though for the life of me, I don't see how "simple technical indicators" helped you arrive at entry decisions instead of putting you off on a couple of those selections.

OddTrader · Jan 30, 2004

Perhaps worth to read the article Using Moving Averages To Trade Retracemenrs by Mike Moody PhD on TASC March 2003, using 150d/50d EMAs to confirm trends and 15d/5d EMAs to find retracements.

gms · Jan 30, 2004

I don't think that's what lindq used to make his decisions. He's on record as using macd divergences.

Furthermore, about 150d/50d EMAs or 15d/5d EMAs... is it just as well as using ADX>30 and EMA20s or 50% or 61.8% Fib levels or 4/14/40SMA crossovers or 5th waves or 2 deviation Bollinger Band tags or highest 20 day high...
and besides, did he test weighted averages against simple averages against median averages against adaptive averages as well? What about parameters such as 140/40 day averages, 130/30 days averages, 120/30 day averages [post fades out inquiring about every nuance of moving average question there is. The End].

Mecro · Jan 30, 2004

Quote from lindq:

I swing trade pullbacks. Today, I bought the following:

INFY @ 86.55
ITW @ 77
BDK @ 49.49
CAT @ 76.90

You might want to look at daily charts on these stocks to get an idea of levels that caught my attention. Look for simple technical indicators yesterday, and what has happened today in terms of follow-thru on further weakness. Remember, indicators only help you set up for the trade. You need price action to confirm your suspicions.

There is no clear rule for defining a pullback vs a reversal. It is all a matter of playing the percentages on levels. In order to play pullbacks, you will usually be entering at the point of max fear in the stock, and also generally in the market. No pain, no gain. This takes a lot of confidence in your system, and a lot of experience.

Wow these have the makings of great trades even intraday.

When do you plan to cover if you did not already.

BTW I love pullbacks/reversals. For intraday, it's really all about the time frame and volume. Many times a trade becomes a reversal and then there is a pullback much later in the day.

OddTrader · Jan 30, 2004

Quote from gms:

I don't think that's what lindq used to make his decisions. He's on record as using macd divergences.

Furthermore, about 150d/50d EMAs or 15d/5d EMAs... is it just as well as using ADX>30 and EMA20s or 50% or 61.8% Fib levels or 4/14/40SMA crossovers or 5th waves or 2 deviation Bollinger Band tags or highest 20 day high...
and besides, did he test weighted averages against simple averages against median averages against adaptive averages as well? What about parameters such as 140/40 day averages, 130/30 days averages, 120/30 day averages [post fades out inquiring about every nuance of moving average question there is. The End].

Just a thought:

Probably an answer has been already provided through his signature: "Keep it simple" - even if not knowing whether anything particularly useful other than prices would be still employed.

easyguru · Jan 31, 2004

One way to look at this is using Guppy Multiple Moving Averages.
The Multiple Moving Average indicator was devised by Daryl Guppy and consists of five short-term and five long-term exponential moving averages. The short-term MA's are 3, 5, 7, 10 and 15 days and the long-term MA's are 30, 35, 40, 50 and 60 days but these can be varied according to the Time Frame being traded.

The essence of it is that you chart a short term group (3, 5, 8, 10, 12 and 15)and longer term group (30, 35, 40, 45, 50 and 60) of EMAs and observe how they interact. The key features are:

When the two groups converge and crossover, a major turning point is signalled. As a trend develops, the two groups begin to separate away from each other. The MAs within each group also begin to separate. The distance between the two groups as at its maximum when the trend reaches the extreme. The gap between the MAs in each group is at its maximum when the trend reaches the extreme. The MAs turn and begin to narrow when there is a trend change. During pullbacks against the prevailing longer term trend, the short term MAs pierce the well spread longer term group. These are false trend breaks and are potentially favourable entry points. Best and low risk pullback entries happen when price pulls back to the short MA set of ribbon.

lindq · Jan 31, 2004

Quote from gms:

I don't think that's what lindq used to make his decisions. He's on record as using macd divergences.

I don't use divergences for pullbacks. If you will remember the simple analogy of a rubber band being stretched, then bouncing back, you may begin to see this reflected in price action on a daily, then an intraday chart. The trick is to find the right levels at which the "probabilities" are that a pullback will reverse for a profit, and that you are not buying into a continuing downtrend. Through a lot of experience with this, I am usually right in 4 of 5 trades. Fundamentals are also very important, as are news reports that give a sense of why the stock is in a pullback. Nothing happens in a vacuum. The right application of simple TA can bring candidates to your attention, and the system traded only on TA can bring nice profits. But the odds are greatly improved by understanding what you are buying, and why others may have been selling.

As most experienced traders will tell you of any strategy, it is a lot like learning to ride a bike. At first you'll fall and get hurt. Eventually you'll "get it", and things will become clear and quite simple.

murray t turtle · Jan 31, 2004

Quote from paulus:

hi,

has anyone well defined technical rules for entering a pullback
and how to distinguish between a pullback and a reversal ?

kind regards,

paulus

==================

Paulus;

Yes.

In addition to years of work & years of discretion, experience;

50 period moving average with years of discretion works better
than 50 period ma well defined without discretion.

An experienced trader would know thru profits ;
that a pullback is more likely, but not infallible , than a reversal in a bull market.

Love learning- Solomon, trader king.