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Pullback patterns are a frequent occurrence in forex markets which means there are plenty of opportunities to be had if you are able to spot them. Unfortunately however, they are not always as easy to trade as they are to spot.

Usually a pullback can be described whenever a market falls by a fair amount from its recent peak but not enough to indicate a reversal or market crash. Indeed, pullbacks tend to be quite small moves from around 5-25% and usually offer a good chance to get aboard the prevailing trend. (Any more than 25% and a pullback begins to look more like a reversal or a crash event).

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In fact, whenever a market is in a trend and the price pulls back, it is always tempting for a trader to jump in on the opportunity and try and join the trend, however, the trader must always be weary that the pullback does not indeed turn into a major trend change.

Low volume

Although market pullbacks can occur as a result of different factors, they often show themselves during periods of low market volume. In these situations, a pullback can sometimes be off putting since the market is falling for no fundamental reason. However, these are often excellent opportunities to join the recent trend, especially if you were unlucky enough to have missed it the first time round.

When there is low volume in the markets, liquidity dries up, which means the price can fall or rise more easily – as it takes less money to push the price to new levels. These are generally great opportunities for pullback traders as the trend is still intact but the market has simply come down to a better level for entry.

Timeframes

Some pullbacks will occur over very short periods so it is important to understand the timeframe you are using and trade accordingly.

For example, if you are looking at a 5 minute chart, it is not uncommon to see the price pull back 20-30% in a matter of seconds. This could offer a good opportunity for a quick pullback trade but you must always be weary of the longer time frames. For example, a small pullback in a 5 min chart could be the start of a much bigger pullback on an hourly chart. It may even be part of a longer term correction.

It therefore always makes sense to check different charts over different timeframes before entering a position. It also makes sense to keep your trade durations relevant to the timeframe that you are watching. For example if you are trading a pull back on a 5 minute chart, try not to hold your trade for any longer than an hour. Similarly if you are looking at a daily chart, you do not want to wait much more than 8-10 days. If the market has not started to move up to where you hoped it would by this point, then it likely never will.