When the Pullback moves TOO DEEP TOO FAST

 

Let's look at a trade from Tuesday which was quite challenging to take.

One in which the pullback moves too deep… and WAY TOO FAST.

One which triggers the question in your mind – "Is this a pullback or is it the start of a complete reversal?"

Every trader is familiar with this feeling! It's NOT nice.

Let's look at how I timed the entry.

First though – a little context via the 15 minute timeframe:

I love an open like this. A real shock to the system. And potential for emotion to drive price with strong directional conviction.

I am secretly hoping for strong continuation lower. Blood in the water. Panic selling driving a massive trend day lower.

But I've been around long enough to know that this is not the only option from a large gap down.

Social media posts on Tuesday and Wednesday covered this. (Facebook: Tuesday, Wednesday. Twitter: Tuesday, Wednesday)

So let's look to the 1 minute Trading Timeframe chart to see the opening price sequence.

For readers of the YTC Price Action Trader, please refer to Volume 3, Chapter 4, page 81.

Note the very first item listed under the title "Entry Preconditions".

Candlesticks A to C do NOT satisfy this entry precondition requirement.

Following the pop higher with D, price then attempts a second push lower at E.

This candle (E) DOES satisfy the entry precondition requirement.

Take the trade!

Also – Page 89, Figure 4.65 (part 3 of 4). The third diagram is the LTF entry pattern.

Our plan is to understand the trend structure, project it forward and identify potential trade opportunity (should subsequent price movement confirm our projection).

Often though, price will decide to present us with something a little different.

No problem!

PAUSE & REASSESS.

If you find you're out of sync with the price movement and it doesn't make sense, then stand aside and wait for further price structure to develop.

But otherwise, you have processes in place. Carry them out again with this new information. Recognise the changes. Adapt. And take action.

Happy trading,

Lance Beggs

 

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