The Pro-Pullbacks strategy is designed to trade pullbacks. In other words, this strategy will give you:
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BUY signals: When in an already established Uptrend, a stock falls but then resumes its upward trajectory.
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SHORT signals: When in an already established Downtrend, a stock rises but then resumes its downward trajectory.
This strategy will not give you BUY or SHORT signals at the start of an Uptrend or a Downtrend. For that purpose, please see Pro-Breakouts strategy. Through this strategy, we aim to trade in the direction of an already established trend by entering on a pullback. Thus, instead of trying to catch the whole trend, this strategy tries to profit from an already established trend.
Steps involved:
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First, it identifies whether the stock is in Uptrend or Downtrend.
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Next, it identifies pullbacks to an identified trend. Pullbacks are sometimes too short or too deep. This strategy ignores such short & deep pullbacks.
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Finally, it identifies certain threshold levels (for confirmation), beyond which the stock is expected to resume the original trend. If the stock closes beyond the threshold level, it gives the necessary BUY or SHORT signal.
Trades are entered only when the stock is about to take off in the direction of the main trend. You maintain tight stop loss which means that the Risk:Reward ratio increases for every trade.
Why the need of this Strategy?
The Markup (i.e. the Uptrend) and Markdown (i.e. the Downtrend) phases offer the most profitable and safest times to trade. Trading during the periods of Accumulation or Distribution often result in disappointments. This strategy enters trade only during the Markup & Markdown phases, and ignore Accumulation or Distribution phases.
Now, stocks do not move in straight lines. This is the fundamental principle of trend movement. Even during an uptrend, a stock often comes down, before resuming the uptrend again. Similarly, while in a downtrend, a stock may go up a little, before resuming the downtrend. These returning backs are known as ‘Pullbacks’. Once in an uptrend, every pullback becomes a high-probability Buy opportunity. Similarly, in a downtrend, every pullback becomes a high-probability Shorting opportunity. Waiting for a pull back and trading from that pull back is a much higher probability play than entering at the extended part of a move.
Have a look at some screenshots below
How it works
Step 1 - Which stock to trade?
The system automatically identifies pullbacks in an Uptrend / Downtrend and shows them as blue dots at the bottom of the chart. Deep & long pullbacks are avoided. A daily watchlist is sent to all subscribers to inform them of the stocks where blue dots are appearing. A user may also enter a scrip of his choice to check for blue dots.
The system then guides you the price level at which to enter the trade. We then wait for the blue dots to go and get the 'Buy' or 'Short' signal.
Step 2 - Generation of Buy or Short signals
After the appearance of blue dots, the system will generate the relevant 'Buy' or 'Short' trade signals.
However, it might still happen that no trade signal is generated if certain conditions (which you don't have to worry about!) are not fulfilled. A trade signal will be generated only if the probability of reward is much more than the risk of losing the trade.
Step 3 - Exiting the Trade
The trade lasts anywhere between 3-20 days. The user can input his choice of stop loss and profit target percentages. The system will show an Exit signal if any of the below-mentioned event happens first:
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If Stop Loss is hit; or
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If desired profit level is achieved; or
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If system exit conditions are met.