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What is A Pullback?

In order to answer this question first …. Let’s quickly do some repetition. Let’s quickly do some repetition. Let’s throw in some trading cliche terms.
  1. The market does not move in a straight line.
  2. The market is fractal in nature.
  3. Each pattern repeats itself in several time frames.
  4. The market moves in waves, some would bet their house that it moves in a perfect Elliott Wave sequence (hmmm)
If price always moves in waves then the most logical course of action would be to trade when the market takes a pause within a nice clean moving chart. We like to see a chart in a nice 45-degree move.

How do you define a pullback? 

There are a few ways but to simplify it we will consider a pullback with a minimum of 3 candles and a maximum of 7 candles. (max can be subjective). But to keep it strictly objective, we would keep it to 3-7 candles and the price must stay above 20EMA. Bullish Pullback Signal:  For a Pullback within a Bullish Move, the Signal Candle must have a lower low. The low of the signal candle will have a Low that is lower than the previous candle.
A bullish pullback signal
A bullish pullback signal

Two Types of Pullbacks

Let’s agree here that we all understand that there are Two Types of Pullbacks

How many Pullbacks can I trade within a trend?

And the agreed answer to the question is to take the first or second pullback in a trend but not 3 or 4th. Note that it’s not an exact science. Sometimes even 3rd and 4th would be good but it will depend on the trading time frame you have chosen. This is a simple concept but as always there is a question of when to start counting? So the question is where to start counting your pullbacks  The answer is simple but depends on two situations To put it simply: the time to count is the time when you see the first initial breakout or the first turnaround of a trend. The trick is to simply understand where the TREND STARTED. You can visually inspect this simply by looking at the chart or you can use an indicator for this
  1. 10/20 ema (The Banana Trend Indicator)
  2. AIMS Wave and Box and Gator(The Setup Indicators)
  3. KC (The Hunt 1.0)

1. The Banana Trend Indicator  – 10 and 20 EMA

In the case of 10/20 ema, your trend breakout or trend reversal will usually have an accompanying cross of the moving average E.g. in this chart, (that I  have randomly selected no special reason to show this ticker symbol whatsoever) I have marked where price turned around at the bottom after the pandemic crash down. It broke above the swing high to the left going above the moving averages. This was then followed by a pullback. You will also see I have marked the cross of the moving average. And you will also be able to see that you could have seen it simply by looking at the price. But for people who can’t do this on the price chart alone, the 2 moving averages can be a big help. I know it’s hard to know if the trend is starting right now at this moment when you’re at the right end of the chart at the current time. But when the breakout has already happened then it’s not that hard.

10 and 20 EMA  Crossover Chart

In the picture, you see a chart with 10 ema in grey colour and 20 ema in black colour. 1. The EMA has crossed here. That’s where the EMA’s confirmed the uptrend. 2.  Price crossed above the 10/20 EMA after which it pulled back to it. This is your first pull-back after the cross over 3. This is probably the 3rd pull-back but I have deliberately ignored the 1 candle pull-back to the left marked with a small arrow. 4. and 5, are perhaps the same wave but I can mark them as 4th and 5th separately. They seem to have worked in this instance and it’s not uncommon in a strong bull market that we have seen since March 2020.

2. The SetupAIMS Wave, AIMS Gator, AIMS The Box

The second one is perhaps very easy because you get a lot of help from the pattern that you understand pretty well already. We know that when the gator sleeps, and AIMS Wave is close to the Zero line… price is stuck inside the box we know setup 1 might be happening.

Counting Pullbacks within Wave 5:

Assuming you understand the Setup 1 pattern then you know that when price breaks the box and begins to move into wave 5, the first pullback towards the green line of the gator will be considered the first pullback.

Setup Zero / Saddle Point Breakout – NEW WAVE 3:

Now if you are looking at an overall market with no clear wave you’re in a range. Mark the Range Highs and lows. Suppose it breaks out above the range high, you start to see the first Big peak of the AIMS Wave … (AO)… It will usually pull back to the range high.. Here you have the first pullback. In the picture below you see a perfect setup 1:
  1. Gator is sleeping, price is boxed
  2. AO is Close to ZL freshly cross above zero lines (turning green)
  3. Gator is opening now as price goes into wave 5
  4. This is your FIRST pullback
  5. 2nd pullback, Has only 1 candle so not the best but that’s a different setup we call the Waltz
  6. That’s really your 2nd pullback. Notice that price has already gone far up and you can assess that by the distance it’s travelled away from the initial break, and the peak of AO from when it first crossed above the zero lines. Also, you know that here we apply the concept of Target Zone 1.
Below now let’s look at the same chart I showed earlier for the 10/20 EMA cross over. Only this time you see it using The Setup template. You can see now how eWave or AIMS Wave or AO oscillator can come in handy.

The Hunt 1.0 (The original Hunt Method with Keltner Channels)

This is relatively simple. Start counting from where price FIRST broke outside of the Keltner Channel. And then count pullbacks using the definition of a pullback. Yes, that’s right, you want at least 3 candles. I suggest you blow this picture up and study it well. The annotations will help. (I hope) (Click on the link to see the bigger picture )
Hyper Smash

Anatomy of A Pullback Setup 

The pullback setup is made of 3 Parts.
  1. The Context or the Big Picture
  2. The Impulse Phase 
  3. The Corrective Phase 

Part 1: The Context and The Big Picture 

The Context is very important. A pullback setup can only be used when it is found within the right context. However, we must admit that the context itself is not part of the pullback pattern. If the pullback pattern is an Umbrella then the context is the Rainy Forecast, The cloudy sky, or the rainy seasons.  In simple words, context and the big picture means, trend or trading range on current and higher time frame. Also worth noting is the difference between a zoom-out of time frame. A zoomed-out chart or the next higher time frame is essentially the same thing.  The most important concept to understand is knowing when to use the Pullback Entry Method. The pullback entry method should be used to GET INTO TRENDS. 

Part 2: The Impulse 

The pullback pattern on its own is made of two parts. The first part is the Impulsive or Breakout section. This is where price breaks out of a trading range or resumes in the direction of the previous trend, breaking highs within bullish moves or breaking lows within bearish trends. The model perfect setups will have around 3-4 impulse candles. Most of these candles are trend candles with smaller wicks and bigger bodies. We don’t want exhaustive trend candles either. We don’t price to stretch apart too much away from averages. 

Part 3: The Correction 

Once we see the impulse move, we want to see a decent correction of the previous move. Ideally, this correction or a pullback ends around 50% of the impulse move. Almost like wave 4 of the Elliott Wave. 
The 7 Rules of the Banana Indicator Signals

When Scanning and Searching for Signals Ask these 7 Questions: 

Question 1: Where is the Impulse Move? I am looking for 2-3 Trend Candles that break out of a trading range. It can also happen when there is an Established Trend.

Question 2: Is there a good pullback? After an impulse move price takes 1-2-3 up to 5 candle pullback before it enters past 10 ema. The pullback candles are often smaller in range while the 10 and 20 lines are still separated and pointing up or down.  Best Single Leg pullbacks end near 10 while the best 2 legged Pullback ends near 20. I only take single-legged pullbacks. 

Question 3: Is the Impulse move too climactic? If Yes, No Trade. Price should not be too far from 10 ema. I don’t want signals when the Rubber Band Effect is present.

Question 4: Is the Pullback Impulsive? If Yes, No Trade. The 10 ema should not point down. Sometimes the pullback candles are equally or more impulsive than the impulse candles. Or price goes back inside the trading range. No trade.

Question 5: Is this the first or the second pullback? If yes, go ahead, if it’s late in the trend, perhaps think about avoiding it.

Question 6: Is there an S/R Level near Entry Level? If yes, do not trade until that level is clear. The S/R level should be a Trading Range High or Low from the HTF. e.g. when trading H1/M5 H1 should be out of TR. For M5/M1 it should be either or both.

 Question 7: Is M5 Breakout Phase or Pulling Back? If it is showing TC then wait for a pullback on the m1. If the m5 chart is showing pullback, wait for at least the high of the m5 candle to be broken

Entry Types: 

  1. Break of Premarket Highs and Pullback Banana signal
  2. The first pullback after a breakout
  3. The Micro Pullback Setup after a breakout TC

If you’d like to win a $200,000 FTMO Challenge then we got you covered with this trade plan. Once you have your Banana Indicator use this Game Plan (Trading Plan) to achieve your objective. You can apply this to either FTMO or My Forex Funds, or any other Prop Firm Challenges. 

Game Plan

Mental Side of Trading 

I will ensure that my mind is ready. I am properly rested, properly awake, and feeling good. I will use the 3-minute breathing exercise before or during trading when needed. 

HRV Breathing Exercise (6 BPM) – 5 Seconds In, 5 Seconds Out (Resonance Frequency Breathing)

Firstly I will Remind Myself every day about
The 5 Fundamental Truths and 7 Principles of Consistency.

First I will Establish whether it’s a Trend or Trading Range 

  • I will always check charts on the H1 time frame first. 
  • I will identify Support and Resistance Levels and establish if it’s a Trend or Trading Range
  • I will NOT enter short trades when entry is just above support. 
  • I will NOT take long trades if entry is just below resistance. 

When Trading inside Tall Trading Range

  • If it’s a trading range on the M5 but Tall/Wide, I will look for M1 setups between the trading range highs and lows.  
  • If trading within a tall trading range, Short entries must be within the upper ½ of the TR and long entries should be within the lower ½ of the Trading Range. 

What will I do at the open

  • I will trade based on the LOBOT or NEOBOT concept at the open which I now call Momentum Breakout Setups. 
  • I will look for Breakout of the levels I have identified and wait for a pullback. 
  • I will identify if it’s a trend or trading range before the market opens.  
  • If it is a Trend candle and it breaks the Trading Range that I have marked before the open, then I may trade a pullback or pullback and retest signal. (Using m1 chart)

Daily Risk Management Action Plan

What will I do if my first trade is a winner and I’m up 3R on the first trade? 

  • When I’m up 3R and the market is raging bulls or growling bears then I will go for the killer trade of 2% and set a 3R Target. If successful I will win the challenge. 
  • If the market is slow  I will stop trading and wait for the US Session

What will I do if the market is moving and I’m down -2R during London Session?
If I’m down 1R I will see if the market is moving or if it’s faking. If the market is clearly moving and the rent was just a normal loss trade, it was not a DS0, it was not a wrong signal, then I may try again for a clean clear setup. If the 2nd attempt fails and I am down 2R then I will stop trading until the US session. 

What will I do if I’m down 1R or 2Rbefore Starting US Session and what will I do if I’m down3R: 

  • If I’m down 1R and the US session provides good clean setups then I will trade normally. Risk will be defined as per Risk Management Section below. 
  • If I’m down 2R before the US session I will be VERY careful and only take the BEST and CLEANEST Setups within CLEARLY moving markets. If my first trade is rent, I will stop and come back tomorrow. 

What will I do if I’m Up 2R on the Account? 

  • If I’m up 2R my next trade will be 2% Risk. If I win this, I will win the challenge. 
  • If I lose the 2% trade I will trade with 1R (post loser) risk and can trade until I hit Daily Stop Loss.  
  • If I have a winner and the account is above Breakeven I will go for the killer trade. 
  • If I lose 3 trades in a row I will stop.
  • If I’m up 2% or more I will go for the killer trade but if it fails, I will drop to 1% trade until I lose 3 Trades. Finish at BE and come back tomorrow. Next day I will start with 0.7% risk.

Risk and Trade Management

Account Profit Target: $16000 (8%) 

Account Maximum Loss: = -12% (-$24,000)  

Daily Stop Loss: $-4000 (Official Stop Loss for the Day is -$6,000)

Total Risk at any point in time? 

Only take one trade per pair or market. 

How much to risk per trade? 

Asymmetric Risk Management Model: Risk Per trade will be conditional

Condition 1: Account is at or Above 200K

  • As Long as the overall account balance is above 200K the Risk Per Trade should always be 0.7%. 
  • If it’s the first trade on the account or first trade of the day or if the last trade was a loser the risk will always be 0.7%. 
  • If the First Trade is a winner and gets 2% then the next trade should be 2% with 3R Target. 
  • If the Next trade is losing trade then Risk will go back down to 0.7%. 

Condition 2: When Account drops below 200K 

  • Risk per trade will drop to 0.5% and if the last trade is a winner, the next trade will be a 1.5% Trade with a 3R target. 

Daily Stop Loss: 

The daily Loss Limit is $6000.

Where to Setup up Target Points: 

Always set a 3R Target Point. (3R target is a must for this method to succeed) . 

One Caveat with Trading Indices

MyForexFunds have a limit of 100 lots. You might not be able to get in that 2% trade. So for the killer trade will have to wait for a Setup on the m5 chart with wider than 25 Stop Loss on DAX40, US30 or Nas100 at the US Open or may even find a good setup during the London session.

Or you may try to get in 2 trades of 1% Each. Try which one works

This method will work on 100K accounts without a problem.

But, you can still trade Dax when the risk does not require 100 lots. e.g. if trading m5 chart and you need 30 stop loss looking for 90 Target, you may be able to trade Dax as well.

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