As far as technical analysis is concerned, pullbacks will generate various trading opportunities after an active trend pushes up or down, but it is more difficult to make a profit using this classic strategy than it seems. For starters, the security you just bought on dips or sold short at resistance levels may continue to exist, forcing your position to suffer substantial losses, or it may just sit there and accumulate dust and you missed the other ten. Several transactions. So what skills are needed to obtain reliable profits through the callback strategy, how to actively obtain these profits, and how to admit that you are wrong without breaking the bank? In this article, we will consider some historical examples to illustrate these concepts.
Let’s outline the most favorable technical conditions under which a dime will be opened once you take the risk in the opposite direction. First, you need a strong trend so that other callback players will follow you closely, ready to join and turn your ideas into reliable profits. After a significant breakout or collapse level is far exceeded, a security’s rise to a new high or a sell-off to a new low meets this requirement. To obtain sustained profits, you also need to enter the peak or trough vertically, especially when the trading volume is higher than the normal level, because it will encourage you to move the price quickly after positioning. When trending securities change rapidly after peaking or bottoming, it is also best not to establish a considerable integration or trading range. This is necessary because during the subsequent rebound or rollover, the range of intervention will destroy the profit potential.
Microsoft (MSFT) established a three-month trading range below 42 and broke the above-average trading volume in July, rising vertically to 45.73. It paused for a week and sold, abandoned nearly 50% of the previous uptrend, and found strong support at the breakout level and the 50-day moving average. At midday, a small doji candlestick (red circle) was produced, which marked a reversal. A few days later, the momentum strengthened, raising more than two points to the test of the previous high. The stock subsequently resumed its strong upward trend, setting a series of multi-year highs.
Find the perfect entry price
Once the callback begins, look for cross-validation. The term refers to a narrow price area, in which there are several types of support or resistance arrangements, which are conducive to rapid reversals and a strong push in the direction of the main trend. When the area is tightly compressed and the various supports or resistances are perfectly aligned, the chance of rebound or rollover will increase. For example, selling to a breakout level high and consistent with key Fibonacci retracements and intermediate moving averages (such as the 50-day moving average) significantly increases the odds of a successful pullback transaction. Even so, by adjusting the conflicting price levels, you can treat support and resistance as price movement bands instead of thin lines, and enter a pullback in less favorable circumstances.
After a well-known hedge fund manager joined the company, Janus Capital Group (JNS) opened up a 9-month trading range at resistance 13 and went up vertically in a large number of breakthroughs. The news released a huge one-day gain, giving way to the immediate correction of the new support at the top of the range, now perfectly aligned with the 62% Fibonacci retracement level and the 50-day moving average. The turning point of the stock rose to above 15 points and resumed its upward trend at a slower rate. Two months later, it hit a six-year high.
Take opportunistic profits
After the transaction enters or expands, it actively makes profits, and as the securities regain lost ground, cash is collected in the bag. By placing the Fibonacci grid on a) the last wave of the main trend and b) the entire retracement wave, risk management can be customized according to the details of the retracement pattern. This combination can reveal the harmonic price levels of the two grid arrangements, pointing to hidden obstacles. Also need to pay attention to gaps and reverse fluctuations in small trading ranges, because callbacks always carry the risk of printing lower highs in an uptrend and higher lows in a downtrend. In most cases, the best exit occurs when the price quickly moves in your direction to an obvious obstacle, including the last major swing high in an uptrend or a swing low in a downtrend.
Marathon Petroleum (MRO) broke through the 19-month support level at 31 in November, in line with the decline in crude oil prices. A few weeks later, the high volume decline bottomed out at 24.28, giving way to a pullback that stopped at the 38% Fibonacci sell-off retracement level and established a low-risk short-sale pullback entry. The second retracement grid above the retracement wave helps trade management, picking out natural areas where the downtrend may stall or reverse. The bull’s hammer reversal at the 78.6% retracement level (red circle) in January warned that short sellers may become targets and tend to exit quickly to protect profits.
Effective stop loss strategy
Due to one of the following three reasons, trading losses are often due to callbacks. First, you incorrectly calculated the range of the counter-trend wave and entered prematurely. Second, you enter the market at the perfect price, but the countertrend continues, breaking the logical mathematics that triggers the entry signal. Third, the rebound or rollover starts but then ends because your risk management strategy fails and crosses the entry price. The last situation is the easiest to manage. Once the position is in your favor, set a trailing stop loss behind your position and adjust it as your profit increases.
The stop loss required when you first enter a position is directly related to the selected entry price. As you gain experience, you will notice that many callbacks show multiple levels of logical entry. The longer you wait, and the deeper without breaking the technical side, the easier it is to place a stop loss a few drops or a few cents behind important cross-validation levels. Using a deep entry strategy, you will miss the perfect reversal of the intermediate level, but it will also generate the largest profit and the smallest loss. If you choose to make multiple shots at a medium level, you need to reduce the size of your position and stop losses at any loss level, such as an exposure of 25 to 50 cents on blue chips and an exposure of $1 to 2 on high beta Import stocks, such as junior biotech companies or Chinese companies.
JC Penney (JCP) broke the nine-month trend line and rebounded to a 52-week high of 11.31. After breaking through the three-week trading range and finding triple support at the trend line, 50-day and 200-day EMA, it turned lower in mid-September. The stock rebounded under support, attracting bargain-hunting buying, but the wave of recovery stalled and the breakthrough failed. The callback during the rebound requires a stop loss below the low point (red line) of the period, because the price action entering this level will send various sell signals.
Breakouts and breakouts usually return to controversial levels, testing new support or resistance after the initial trend wave loses momentum. Callback positions close to these price levels show excellent returns to the risk profile that supports various swing trading strategies.