Trading strategy “From rollback“is based on the assumption that the price movement, especially the impulsive one, is more likely to continue the direction than to change it. The H1 timeframe is suitable for trading, but if another timeframe is more comfortable for you, then you can use the” Pullback “trading strategy on it The strategy can be applied in the Forex market, stocks, futures.
Signal to buy according to the “Pullback” trading strategy
For a signal to open a long position, the following conditions must be met:
- A characteristic growing impulse movement (so that the chances of the trend continuation are maximum);
- At least one pullback during the price growth, after which an impulse followed again (this will be a confirmation that this impulse easily overcomes rollbacks);
- The candles on the working time period, which make up the impulse in question, should, according to this trading strategy, be visually proportionate (because after one huge candle, a very deep retracement may follow, the end zone of which is very difficult to predict).
If all these signs are present, we can place a Buy Limit order, according to the “Rollback” trading strategy. In order to determine its optimal location, it is necessary to measure the distance from the highest High price of the last candles to the lowest local minimum that was during the last completed rollback. Then, according to the strategy, you need to divide the calculated distance by two and add a few ticks. The resulting number of ticks must be postponed from the highest High price of the last candles – this will be the level to which a pullback can reach, which should appear sooner or later.
If the price rises and a rollback does not appear, then it is necessary to repeat the specified calculations at the end of each time period: i.e. if we trade on H1, then after the completion of the formation of each subsequent candle, if its High price is higher than the value that was used for the calculation earlier. This is how kickbacks are caught. Examples of buy signals in a pullback trading strategy:
As you can see, for ease of determining the entry point from the rollback, I took Fibo levels – and removed all unnecessary level values in the properties, leaving only 0.50% and 100%, stretching them between the necessary points – and then just postponed a little lower, getting place to set Buy Limit.
Sell signal according to the “Pullback” trading strategy
For a signal to open a short position, we must simultaneously have the following conditions on the currency pair, futures or stock in question:
- Characteristic falling impulse movement;
- At least one pullback during this fall in price, followed by a downward impulse again;
- The candles on the working timeframe that make up the impulse under consideration should, according to this trading strategy, be visually proportionate.
According to the strategy, the next step will be to find the middle between the lowest Low price of the last candlesticks and the highest local maximum, which is part of the last pullback from falling impulses. Slightly above the middle between these points, your Sell Limit order should be located. Examples of sell signals in a pullback trading strategy:
Of course, many situations can arise when you notice a favorable trading situation already in the process of a pullback. In this case, if the price has already reached the entry level, you can enter the market as well. If the price has risen much higher than the entry level, then I would recommend placing a Sell Stop order at the calculated level for setting the Sell Limit. The trading strategy will not suffer from this, and may even win, because if the price rise is unpredictable, then you can avoid a loss.
Stop Loss and Take Profit in the “From Rollback” trading strategy
If you buy Stop Loss in this trading strategy, you must set it below the lowest minimum that was formed during the last rollback. And in the case of a sale, it should be set behind the highest local maximum that was formed during the last pullback. The distance from the extremes must be the same that you use when offsetting from the calculated middle, when determining the entry point, to the pending order. In case of selling, do not forget to add the spread of the traded instrument to the value of the received Stop Loss price.
You should transfer a position to breakeven at your own peril and risk, relying only on your own experience. If your trading principles do not allow you to do without protecting the current profit, then you can use for this purpose the newly formed extremes that appear after a pullback as the price moves towards profit.
In order to determine the Take Profit price in case of buying from a pullback, you need to take the highest High price of the last impulse candles, which you took to calculate the Buy Limit price, and postpone as many ticks down from it as you postponed from the middle that you calculated to find the Buy Limit price. And in order to determine the Take Profit price in case of selling from a rollback, it is necessary to postpone up as many ticks from the lowest Low price of the last impulse candles as you postponed up from the calculated middle to find the Sell Limit price.
As a result, when trading from pullbacks, you get a ratio of potential Stop Loss to Take Profit of about 1 to 1. Not the most attractive ratio, but this is the peculiarity of this trading strategy. Of course, if you are sure that the market will go further in the direction of the impulse after a rollback, then you can place Take Profit in a more advantageous place, but keep in mind that this may reduce the chances of your position being closed by Take Profit.
Capital management in the “Pullback” trading strategy for the Forex market, futures and stocks
Due to the fact that the “From Rollback” trading strategy assumes the use of pending orders, you have the opportunity to enter each transaction with the same percentage risk from the deposit, so that each transaction has the same chances to bring both profit and loss to your trading account.
As for the amount of risk, I always agree with A. Elder, who advises not to risk more than 2% of the deposit in one transaction. If you get three losses in a row, then you need to stop trading from pullbacks – and carefully analyze its results. And only after a thoughtful and honest analysis of your trading from pullbacks, you are allowed to continue your trading activities.
Well, in this article you got acquainted with another indicatorless trading strategy, which has both advantages and disadvantages. Whatever it is, the author of this strategy applies it very successfully in the Forex market. This does not guarantee that it will suit you too, but someone will definitely like it due to the considerable degree of formalization, which not every non-indicator strategy can boast of.