PULLBACK and SIDEWAYS (Consodidation or price zone without direction) are probably two familiar terms in the market. In a way, these two price positions are quite similar, causing many traders to confuse.

However, once you understand their characteristics and uses as well as the price situation that follows them, traders can make good use of Pullbacks and Sideways to find profits for themselves.

Briefly for traders who do not yet understand these two concepts: A pullback is a price correction 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 pullback, sideways, also known as consolidation, roughly translated into Vietnamese as a sideways price zone also occurs after a trend has just ended, sideways state can go on for a very long time and is also a sign of a complete end. old trend. After the price moves sideways for a period of time in the sideways zone, the price can either go in the old direction or in the opposite direction.

Unlike sideways, a pullback is just a break in a trend. Therefore, if you can distinguish these two concepts, traders can build themselves a trading plan that is relatively accurate with what is happening in the market. As well as not being confused leading to wrong catching tops and bottoms and trading against the trend.

Analyze market sentiment to find the divergence

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 have stopped trending and is starting to move sideways, traders will continue to trade in the direction of the trend because they believe the trend is still going.

When a pullback forms, the trader will enter an order in the direction of the pullback (ie against the old trend). Orders are placed more or less depending on the depth and distance of the pullback from the old trend. Specifically, if the pullback goes a bit deep, or the pullback has been around for a long time and the price has not turned back, retail traders will start to close the current order, and place orders according to the pullback.

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

You keep an eye on the trend end zone to give you an idea of how retail traders put their faith in the pullback.

Institutional traders took profits at the first green zone, causing the price to push up from the downtrend, creating a pullback.

When the market made a new low lower than the old one, institutional traders took another round of profits causing the price to push up once more. At this point, the price enters a sideways state, not a pullback anymore.

As the market moves further, people are beginning to realize that the pullback has turned into a real reversal, not a sideways one. So a lesson for us to learn from this example is: if a pullback is formed within a pullback, it is a sign of the formation of a new trend.

Back to the sideways issue, why is there sideways in this area? The reason is that when a pullback occurs (created by institutional traders taking profits), retail traders still believe that the market is only pulling back and take advantage of the opportunity to enter SELL orders and push the price down. Thanks to those SELL orders, the big trader has another chance to close his remaining SELL orders. And so the market wobbled there.

Three times like that (as shown in the picture above), retail traders no longer see any downward force, part of them will get bored and close their current order, the rest will not enter any more sell orders.

In the end, small is still the loser.

Another trap

The price is in an uptrend right now. The price goes up and forms a first pullback.

For now, retail traders believe this pullback is a reversal signal and 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 (current uptrend is quite short), so traders have reason to suspect this is not a pullback, and lead to trend sentiment. will reverse. They place a SELL order. Bank traders took advantage of that opportunity and they placed a reciprocal BUY order and pushed the price above the resistance.

When the price has risen too high, now everyone thinks it will be appropriate to place a BUY order to follow the trend, then the big traders they continue to take advantage of that Buy force to lock in their Buy orders. As a result, prices fell.

Retail traders who saw the price drop quickly closed their Buy orders and made the price fall even more. When the SELL order reached the maximum, the price bounced up forming a Pullback.

And the buying and selling cycle between large traders and small traders continues. Small traders are constantly being psychologically exploited, large traders are waiting for the right opportunity to collect and discharge goods in a reasonable way.

Those behaviors created pullbacks, sideways and price trend reversals.

So what is the difference between Pullback and Sideways?

Pullbacks and Sideways are two tools that Bigboys 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 a pullback forming, if it is wide enough it will fool ALL retail traders into thinking the price has reversed and they will help the Bigboys push the price in the new trend.

Sideways can't do that. The reason is that when the market is sideways, traders will place both Buy and Sell pending orders at the two tops and bottoms of the sideways zone as a safety measure. Therefore, tricking the small side by side is extremely difficult.

As you know, institutional traders often have to match a huge volume of orders. To do so, the market had to be extremely liquid. In other words, when they want to BUY they have to create a market push trap that provides them with a huge number of SELL orders to execute their BUY order (the pullback in the example above).

Above is the whole essence of pullback, sideways formations as well as price reversals around retail psychology and the action of the big boys.