Forex: Waiting for Pullbacks

Filed under: Learn Forex Trading |

At the moment, we are having to do a lot of waiting around in the forex markets. There are a number of strong trends present in different pairs, and what we are having to do is to wait for some pullbacks to areas of support so that we can hop on to some of these trends. This is a very high probability kind of trade, and I would like to talk you through the idea of trading on pullbacks right now, and provide you will an example.


Figure 1.

Figure 1.

Take a look at Figure 1. This is the daily chart for the USD/JPY pair. This pair has been in a ferocious bull trend of late. As you can see, the 8-day EMA is crossed well above the 21-day EMA, and if anything, the moving averages are diverging even further apart. We would love to be in this market on the long side, but we cannot just enter anywhere and hope for the best. One of the best strategies for entering a market such as this is to wait for a pullback (a time when the market is ‘taking a breather’). A pullback to an area of support/resistance is best, and when that happens, we wait for a price action signal to form, telling us that the trend is about to resume.


Figure 1 has an area of support/resistance marked in on the chart (marked with a horizontal green band). This first acted as a resistance area, but now price has broken through this area and we are waiting for a pullback so that we can see if this resistance area will become a new support area. If price does come back down to this level, we will wait for a price action signal (such as a pin bar, or a bullish engulfing pattern). If a bullish price action signal forms at this level, then we almost certainly put an order in to go long.

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