One of the safest and effective ways to trade trend following is pullback trading. This is also the trading method used by many traders. In this article, we will share with traders one of the most effective pullback trading methods.

Before getting into trading rules, let's repeat a bit about pullback trading.


WHAT IS A PULLBACK?

The picture below shows the pullbacks in a trend:


Pullbacks are price actions that go against the main trend. As shown above, pullbacks are a bearish wave in an uptrend. Or as shown below, the pullbacks are bullish waves in a downtrend:


In this strategy, we will use the Fibonacci indicator to identify support and resistance that the price can bounce back. In which we focus on the 50% and 61.8%.

To determine the potential return price. If the trend is stronger, the price will return smaller. In that case, it is likely that the price will only go back to 38.2% on fibo. Now we go into the rules of the transaction. We'll do an example with a buy order. Sell order you can think in reverse.


STEP 1: IDENTIFY THE UPTREND

We rely on the structure, the market creates a higher high after the previous low on a higher timeframe as shown below:


If you trade H1, you can use larger timeframes like H4, D1 to check the trend.


STEP 2: SWITCH TO H1 FRAME TO WAIT FOR A PULLBACK IN UPTREND 

After confirming the trend on the big timeframe, we return to H1 frame waiting for the pullback. As shown below:




STEP 3: DRAW THE FIBONACCI ON THE NEAREST PUSH WAVE BEFORE THE PULLBACK ENDS

After drawing the fibo, we will easily identify the support levels at the levels above the fibo where prices can retrace like 50% and 61.8%. As shown below:




STEP 4: MAKE A BUY ORDER WHEN THE PRICE RETURNS ABOUT 50% - 61.8% ON FIBO

You can adjust your entry points based on 50% or 61.8% or divide your trading volume to buy in both of these price zones. As shown below we can execute buy order at 61.8%.

The next step is to place stop losses and take profits.


STEP 5: SET STOP LOSS

For the stop loss, we put the stop loss below the bottom of the push wave so that we draw the fibo. As shown below:


When the price breaks the bottom of the most recent uptrend we see that the market structure has changed. And that is a good time for us to cut loss.


STEP 6: TAKE PROFIT

As for the take profit point, the ideal position to profit is when the trend makes new highs. Because in these price zones, the market will often have a bearish run. So that is the right time for us to reap our profits. See the picture below:


In addition, if you see the trend can go further, you can cut the position in half, the rest can be cut at the extended fibo level or move the stop loss to follow the trend. As shown below:


These are 6 steps for a pullback buy strategy. The picture below shows a selling strategy with similar trading principles.