Pullbacks and retracements

What a pullback is

A pullback is a temporary move against the larger trend. In an uptrend it is a dip, and it gives you the chance to buy at a lower price before the trend continues. If you want to buy a market that is trending up, you never buy at the top; you buy the low of the pullback.

Where a correction ends

There are three kinds of level where a correction tends to end: a supply or demand zone, an order block, and a Fibonacci level with a decisional candle. Enter a retracement only when two things line up: an area of confluence, and price action confirming it.

Clean and complex pullbacks

A clean pullback is perfect price action: not too many wicks, opposing candles, and clear impulse and correction legs inside the structure. A complex pullback is how the market retraces most of the time: many wicks, invalid price action, and mixed impulse and correction moves. Even when the retracement looks bullish, if the impulse was bearish the momentum is still down.

A swing trade, top down

Always see what the higher timeframe is doing first.

Decisional and extreme moves

The market makes two kinds of move toward a point of interest. The market will not always retrace to your order block or institutional area. You need to see where else there was buying or selling pressure inside the impulse: those are decisional areas. A decisional area is your first point of interest; if it breaks, the next point of interest is the institutional area, the order block, which is the extreme move.

This has probably happened to you: price makes a low, retraces, and just before it reaches the institutional candle it plummets. What happened is that there was heavy buying at the low, and if there was heavy buying before the sell-off, that is a sensible area and a decisional point of interest for the future. The market often will not retrace all the way to the institutional candle or the deep Fibonacci levels, so you have to scout the decisional moves on the lower timeframes.

Extreme pullbacks

The market is always playing out one of these two scenarios, an extreme pullback or a decisional pullback. When it pulls back to mitigate earlier orders it goes back into a point of interest: another order block, a stop-run candle, a break-of-structure candle, a head and shoulders, or a Wyckoff accumulation or distribution. Whichever it is, the way you wait for it is the same: as price heads to your point of interest you want to see the market compressing, the smaller timeframes losing momentum, and then the smaller timeframe giving confirmation.

An institutional candle always needs an imbalance behind it and an engulfing candle to confirm it.

Replay the pullback

Click the candle where your entry sat and the Trade Desk shows what the pullback had reached when you took it: a zone, a decisional area, or nothing yet.