Strategy on pullbacks

Any strong trend movement sooner or later runs into some kind of support and resistance levels, as a result of which we can see a short-term price reversal.

In the language of traders, this situation is called a “Rollback”, since the price rolls back a certain distance from the global trend, and then begins to move back towards the global trend.

There is an opinion that rollbacks are specially created by large players in order to disrupt the maximum stop orders of naive players. 

Probably, no one knows the truth, but if you think about it logically, rollbacks are most often formed due to positive news against the backdrop of a strong deterioration in the economy as a whole, or vice versa, because it’s not for nothing that sooner or later another rollback develops into a new trend.

Many people suffer losses during pullbacks, but if you are confident in the main trend, then a rollback is the most profitable entry point in the direction of the main trend. To find such entry points, I suggest using an indicator trading strategy on pullbacks.

Due to the fact that the strategy is universal, you can apply it on any currency pair and time frame, however, as observations have shown on hourly and four-hour charts, due to less market noise, the strategy shows itself to be more effective.

Desktop strategy on pullbacks. Create a template

The trading strategy for pullbacks consists of five indicators, namely two moving averages with a period of 200 and 50, the Parabolic SAR indicator, MACD (38,120,20) and Stochastic. You can plot them separately on the chart, specifying all the necessary settings, or you can download and install the template at the end of the article, after launch, all indicators will appear automatically.

In order to install the template, enter the data directory of your terminal, which you can find in the running MT4 in the file tab. Place our template in a folder called Template and in the Navigator panel, click update. After completing the steps, go to the list of your templates and run “Strategy on rollbacks”. As a result, you will get a template like this:

 The essence of the strategy. Purpose of the elements

Trading on pullbacks is based on a simple pattern of price behavior. However, while it is very easy to recognize a rollback even without indicators, many may have problems finding entry points and filtering the trend.

The strategy uses two indicators to recognize the main trend direction, namely MACD and a moving average with a period of 200. For example, trading is carried out only for selling if the MACD indicator chart is below the zero line and the price is below the moving average with a period of 200.

To recognize an uptrend, the same indicators are used, only the MACD histogram should be above the 0 line, and the price should be above the moving average with a period of 200. The point that tells us that the pullback has reached its peak is taken to touch the value moving average with a period 50, and the entry point is given to us by crossing the 50 level with the Stochastic indicator.

By understanding the purpose of each element of the strategy, you can refine and adjust the strategy according to your preferences.

Signals

For a buy signal to appear, the following conditions must appear on your chart:

1) The price chart is above the moving average with a period of 200 (red line).

2) The MACD indicator is above the zero line.

3) The price has crossed or touched the moving average with a period of 50.

4) The Stochastic indicator crosses level 50 from bottom to top.

It is necessary to enter a position only by a closed candle, since the signal may be canceled if the movement continues sharply. Example of a buy signal:

 For a sell signal to appear, the following conditions must appear on your chart:

1) The price chart is below the moving average with a period of 200 (red line).

2) The MACD indicator is below the zero line.

3) The price has crossed or touched the moving average with a period of 50.

4) The Stochastic indicator crosses the 50 level from top to bottom.

It is necessary to enter a position only by a closed candle, since the signal may be canceled if the movement continues sharply. Example of a sell signal:

 Stop orders and trailing positions

According to the rules of the strategy, a stop order must be placed at the local maximum for sales and at the local minimum for purchases. If you find it difficult to find these levels, then place your stop order at the parabolic point.

The strategy does not use take profit, so instead you should move your stop along the points of the Parabolic SAR , which will allow you to squeeze maximum profit from the market, rather than being limited to a given profit number. Example in the picture below:

 
A few words about money management

When working on higher time frames, such as n1 and n4, you may have 3-5 trades per week, but they have great potential. In terms of risks, you must calculate your lot in such a way that if your stop order is triggered, you will suffer a loss of no more than two percent of your total capital.

Well, in conclusion, advice, before choosing a currency pair, look at its history of price behavior; if there is no need to make adjustments during the moving average period, then you can safely start working.

Download the template for the pullback strategy .