The In-depth Guide to Trading Pullbacks and Breakouts

What are Pullbacks?

Pullbacks, also called retracements, are temporary pauses in a trend before the primary trend resumes.

The price temporarily goes against the initial trend for a short while before embarking on the trend that was initially.

Uptrends will have downward pullbacks while downtrends will have upward pullbacks, and then each trend will continue as was initially.

Markets do not usually move straight up and down.

They show moments of pause and price corrections in the opposite direction before they continue in the initial direction.

Pullbacks present perfect opportunities to buy low or sell high.

Buyers or sellers usually pause for a while for certain conditions to be met.

Afterward, they jump into the markets, and the initial trend resumes.

In-depth Guide to Trading Pullbacks in Olymp Trade.

Follow this guide to trade pullbacks in Olymp Trade like a pro:

1. Know the Initial Trend.

We are going to use pure price action to establish a market trend.

An uptrend is a market whose price keeps moving up, posting higher highs and lows.

On the other hand, a downtrend is a market whose price keeps moving down, posting lower highs and lows progressively.

2. Spot a Pullback.

Have you established the prevailing trend?

The next thing is to look for pullbacks or retracements on that trend.

Look for downward pullbacks on an uptrend and upward pullbacks on a downtrend.

But wait, how do you distinguish a pullback from a trend reversal?

Pullbacks are short and temporary price movements in the opposite direction to the initial trend.

Price reversals, however, are permanent and long price movements in the opposite direction to a given trend.

Here is a Checklist to Use to Tell The Difference

	Pullback	Trend Reversal
1.	The primary trend appears to be strong and turbulent.	The price has had periods of sideways movement.
2.	Occurs away from possible support or resistance levels.	Occurs near or at a support or resistance zones.
3.	It is not accompanied by RSI, MACD or any other oscillator evidence for overbought or oversold conditions.	It is accompanied by overbought or oversold conditions as shown by most oscillators such as RSI and MACD.
4.	Candlesticks are usually rejected in the direction of the initial trend.	Candlesticks are usually rejected in the direction opposite to that of the initial trend.

3. Confirm the Signal.

Pullback signals are confirmed by analyzing price action and candlestick patterns.

A bullish pullback is one occurring downwards on an uptrend while a bearish pullback occurs upwards on a downtrend.

Bullish confirmation signals include increased upward momentum and the hammer, morning star, and upward rejection candlesticks.

Bearish confirmation signals include increased downward momentum and the shooting star, evening star, and downward rejection candlesticks.

 

4. Enter a Position.

If a bullish pullback has been confirmed by bullish confirmation signals, you can enter a buy position.

On the flip side, enter a sell position if a bearish pullback has been confirmed by bearish signals.

5. Stop Loss and Take Profit.

The use of proper risk-to-reward ratios cannot be overemphasized.

You should risk not more than 5% of your trading account.

At the same time, you should target reasonable profits to earn at least twice your stake, or even more, depending on your analysis.

Also Read: – FOREX TRADING FOR BEGINNERS | MUST READ FOR NEW TRADERS.

What are Breakouts?

Breakouts are cases where the price trades beyond specific levels.

They imply price momentum in the direction the price breaks a certain level, so trading in that direction is potentially highly profitable.

Breakouts are a perfect way of catching the market trend early.

They also enable you to ride the trend which you caught early to bag so huge profits in one trade.

In-depth Guide to Trading Breakouts in Olymp Trade. 

Here are the different types of breakouts which pros look out for in Olymp Trade:

A. Typical Breakouts.

For this kind of breakout, the price first falls within a range.

A range is where the price seems not to break an upper level and another lower level.

The upper level is called resistance while the lower level is called support.

From the price range, this kind of breakout occurs either upwards above resistance or downwards below support.

If the price range was so long, the breakout is going to be so significant and highly profitable.

 

B. Buildup-cum-breakout.

This kind of breakout is one that occurs after a secondary price range.

A huge price range with support and resistance which are wide apart first occurs, then a small constricted price range with support and resistance very close together.

The first huge price range is primary while the second small one is secondary.

From the secondary price range, this kind of breakout occurs either upwards above resistance or downwards below support.

The fact that breakout is occurring after a buildup (secondary price range) means that it is going to be so significant and profitable.

C. Chart Pattern-cum-breakout.

From what usually happens, a breakout should be from the price range.

The price range has an upper resistance level and a lower support level.

Prices tend to respect such levels and when they finally break out of the levels, then they tend not to return.

At times though, the price within a range tends not to hit the support level.

Instead, it forms higher lows progressively into the resistance, constructing an ascending triangle chart pattern.

 

At other times, the price within the range tends not to hit the resistance level.

Instead, it progressively forms lower highs into support, constructing a descending triangle chart pattern.

From the ascending triangle, a breakout occurs upwards.

From the descending triangle, however, a breakout occurs downwards.

The fact that breakouts are occurring from such powerful chart patterns means that they are going to be marked and highly profitable.

D. Trend-cum-breakout.

Wondering if breakouts occur on trends?

Well, breakouts do occur on strong uptrends and downtrends.

Strong trends are those which show either a definite uninterrupted uptrend or a definite uninterrupted downtrend.

A strong uptrend retraces towards and rarely below the 20 period moving average.

A strong downtrend, however, retraces towards and rarely above the 20 period moving average.

Breakouts occur such that in a strong uptrend, the price trades above a previous swing high.

A breakout in a strong downtrend is when the price trades below a previous swing low.

Follow these steps to trade breakouts in Olymp Trade like a pro:

1. Identify a Breakout.

We just handled different types of breakouts.

You only need to identify any type of breakout from your charts then proceed.

2. Confirm the Signal.

Typical breakouts must be confirmed before entry.

The other three types may be self-confirmatory but it is always good to confirm them too.

But how do you confirm a breakout signal?

If the price broke out upwards, you must wait for it to fall to the broken level severally and fail to break it downwards.

A bullish candlestick pattern should also form.

On the flip side, if the price broke out downwards, allow it to rise to the broken level severally and fail to break it upwards.

A bearish candlestick pattern must also form.

3. Enter a Position.

Enter a buy trade following a confirmed upward breakout.

You should also enter a sell trade following a confirmed downward breakout.

4. Stop Loss and Take Profit.

For buy trades, the Stop Loss should be just below the broken level.

It should, however, be just above the broken level for sell trades.

Most of these breakouts may result in huge price moves.

Therefore, we recommend the use of Trailing Stop Loss to lock in profits as the trend grows.

Exit a buy trade if the price breaks below a respected moving average or below a previous swing high.

On the contrary, exit a sell trade if the price breaks above a respected moving average or above a previous swing low.

Final Thoughts on Trading Pullbacks and Breakouts in Olymp Trade.

Been wondering how to trade pullbacks and breakouts in Olymp Trade?

You can combine the two trading techniques for increased profitability and the best experience on your Olymp Trade trading account.

Happy Trading!