PULLBACK and SIDEWAYS (Consolidation) are probably two familiar terms on the market. In a sense, these two price states are quite similar, confusing many traders.

However, once they understand their features and uses as well as the price state that continues after them, can traders make good use of Pullbacks and Sideways to seek profits for themselves.

The pullback is a corrective price segment in an ongoing trend. The pullback can be short or long depending on the length of the trend, but at the end of the pullback, the price will continue to follow the old trend. Unlike pullbacks, sideways, also known as consolidation, which also appears after a trend has just ended, the sideways state can take place very long and is also a sign of the complete end of the old trend. After the price moves sideways for a period of time in the sideways, the price may move in the old direction or in the opposite direction.

Analyze market sentiment to find the differences

The big difference between pullbacks and sideways is that they make retail traders believe in the direction of the market.

When the market seems to stop the trend and start to move sideways, traders will continue to enter the trend because they believe that the trend will continue.

When a pullback is formed, the trader will enter the order in the direction of the pullback (i.e., against the old trend). More or fewer orders are placed depending on the depth and distance of the pullback from the old trend. Specifically, if the pullback goes a bit deep, or the pullback is long but the price has not returned, the retail trader will start to close the current order, and place the order on the pullback.

Now, look at the AUDUSD pair illustration above. The price has gone through a downtrend.

At the end of the trend, you can imagine how the retail traders believe in the pullback.

Institutional traders took profit at the first blue zone, causing the price to push up from the downtrend, forming a pullback.

When the market makes a new low below the old one, institutional traders take another profit, causing the price to be pushed up again. At this time, prices entered a sideways state, not pullback.

As the market moved further it began to realize that the pullback turned into a true reversal, not a sideways. So one lesson we can learn from this example is: if a pullback is formed in a pullback it is a sign of a new trend formation.

Back to the sideways problem, why are there sideways in this region? The reason is that when the pullback occurs (created by institutional traders), retail traders still believe that the market only pulls back and takes advantage of the opportunity to enter the SELL order while pushing the price down. Thanks to those SELL orders, the big trader has an opportunity again to close his remaining SELL orders. And so the market went sideways there.

Three times like that (as shown above), small traders no longer see the downward force, some will get bored and close their current orders, the rest don't enter sell orders anymore.

The end result, small, is still the loser.

Another trap!

At this time the price is in an uptrend. The price moves up and forms the first pullback.

For now, retail traders believe this pullback is a reversal signal, not a pullback (perhaps because the lesson is still there).

Another reason is that this pullback is moving quite deep and long compared to the current uptrend (the current uptrend is quite short), so traders have reason to suspect this is not a pullback and leads to trend sentiment. will reverse. They place orders SELL. The bank traders took advantage of that opportunity and they placed a BUY order with reciprocal orders and pushed the price to overcome the resistance.

When the price has increased too high, now everyone thinks it is appropriate to set BUY to follow the trend, then big traders continue to take advantage of that Buy force to close their Buy orders. The resulting price falls.

Retail traders who see a falling price quickly close their Buy order and make the price drop even more dramatically. When the SELL order reached its maximum, the price bounced up and formed a Pullback.

And the buying and selling cycle between big traders and small traders goes on. Small traders are constantly being used mentally, big traders wait for the opportunity to gather and discharge goods properly.

These behaviors cause pullbacks, sideways, and price trend reversals.

So what is the difference between Pullbacks and Sideways in the end?

Pullbacks and Sideways are two tools that Big boys use to give retail traders an expectation that the price will still follow the old trend and take advantage of that to take profits.

Only one fundamental difference is that a pullback is formed if it is wide enough, it will fool ALL retail traders into a reversal and they will help the Big boys push the price towards the new trend.

Sideways can't do that. The reason for this is that when the market is sideways, traders will place both Buy and Sell pending orders at the low peaks of the sideways as a safety measure. Therefore, the sideways sideways fool is extremely difficult.

As you know, institutional traders often have to execute extremely large volumes of orders. To do so, the market must then be extremely liquid. In other words, when they want to BUY they have to create a market push trap that gives them a huge amount of SELL orders to match their BUY orders (pullback in the example above).

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