Entering the trade at the right moment increases the chances of successful transactions. Professional traders use some tricks to discover the best time to open a trading position. One of such signs that gives information about good entry point is called Pullback candlestick. Today’s article is just about that.
Key Takeaways🔑
| →Pullback candlesticks are useful indicators for determining potential entry points in trading. |
| →Recognizing a pullback candle requires understanding the trend direction and observing the candlestick’s body and tail. |
| →Using pullback candlesticks in trading can be complemented by other indicators for more robust decision-making. |
Contents
Pullback candlestick characteristic
Commonly, the price retraces for a while just to resume the previous direction. When such a correction happens for a duration of just one candle, this candle is called Pullback.
Pullback candlestick’s body is small. But its wick is long and it points in the opposite direction to the current trend.
Recognizing Pullback candlestick
Identifying Pullback candlestick during the Downtrend
You observe the downtrend in the market. The prices are falling. Suddenly, you notice a candle that signifies that the buyers are fighting. The candle closes near the opening and the tail is long and pointed upwards. It shows that the pressure of the sellers is too big. The price took a try to go up, but it failed. The trend will seemingly continue in its previous direction.
Identifying Pullback candlestick during the uptrend
During the uptrend Pullback candlestick’s tail will point downwards and the small body upwards. It will be a candle that signifies a failed attempt to draw prices down.
Not only Pullback candles have a small body and a long tail. They have a similar shape to pinbars, but they work differently. Similar bars can appear more frequently. You should always look for a clear trend first. There is no Pullback when there is no trend.
Pros and Cons of Using Pullback Candlesticks😊🙁
Pros😊:
- Precise: Pullback candlesticks can provide specific entry points for trades.
- Flexible: They can be used in both uptrend and downtrend markets.
- Complementary: They can be used in conjunction with other indicators for more robust analysis.
Cons🙁:
- Requires experience: Identifying pullback candlesticks accurately requires a good understanding of candlestick patterns and trends.
- Not foolproof: Not every pullback candlestick guarantees a successful trade.
- Dependency: Over-reliance on pullback candlesticks without considering other factors may lead to poor trading decisions.
Comparison of Pullback Candlesticks During Uptrend and Downtrend📈📉
| Market Trend | Pullback Candlestick Characteristics |
|---|---|
| Uptrend📈 | During the uptrend, Pullback candlestick’s tail points downwards and the small body points upwards. This indicates a failed attempt to draw prices down. |
| Downtrend📉 | In a downtrend, the Pullback candlestick’s body points downwards and the tail points upwards. This shows a failed attempt to push prices up. |
How to use Pullback candlestick in trading on the Olymp Trade platform
Using Pullback in trading relies on the colors of the candles. During the downtrend, you are looking for a Pullback that has the body directed downwards and the tail upwards. This is a temporary correction in the price so you should expect a red candle afterward. Open a sell trade at the beginning of the next candle. Duration should be set for a full candle so it is 15 minutes on the AUDUSD chart below.
During the uptrend, Pullback’s body will point upwards and a tail downwards. You should open a buy transaction at the beginning of the next candle.
In the example below, you can see the first Pullback that appeared during the downtrend. The body was pointing downwards and the tail upwards. Unfortunately, this transaction failed. The second pullback developed during the uptrend. The small body was pointing upwards and the wick downwards. This time, the transaction opened for a fixed time of a duration of 1 candle ended with a profit.
A strategy based on identifying Pullback candlesticks can be used in addition to some indicators like the SMA30 or together with support and resistance levels. It is always a good idea to get confirmation differently. Like this, the chances of a successful transaction are much higher.
Try trading with Pullback candles on the Olymp Trade demo account. Once you get hold of it, shift to the live account so you can make some profit. Remember to be careful, as could easily lose money as well.
I encourage you to leave a comment about the Pullback candlesticks strategy in the comments section below.
Best of luck!
Quick Q&A Section🔍
- Q: What is a Pullback candlestick?
A: A Pullback candlestick is a price retracement indicator that helps to identify potential entry points in trading. - Q: How do you recognize a Pullback candlestick?
A: A Pullback candlestick is identified by a small body and a long tail. Its direction depends on the market trend (up or down). - Q: Is a Pullback candlestick always an accurate trading signal?
A: No, not every Pullback candlestick guarantees a successful trade. They are used in conjunction with other indicators and analysis. - Q: Can a beginner use Pullback candlesticks effectively?
A: Identifying Pullback candlesticks accurately requires understanding candlestick patterns and trends, which may require some experience and learning. - Q: How can I practice using Pullback candlesticks in trading?
A: You can practice using Pullback candlesticks on a demo trading account before applying this strategy on a live trading account.