Trapped Pullback Traders

[Tobi]

Markets move in waves with impulsive and corrective moves. A very popular trading method is trading the corrective move and entering a trade in the direction of the trend once the corrective move signals completion.

The issue is that many traders are impatient and don’t want to risk not being in the move.

So they enter trades too early at the first sign of completion. When stopped out, they still don’t want to miss the move so they re-enter.

Complex pullbacks are a little tricky in that they can be hiding inside a higher time frame structure. What may appear to be a simple pullback will actually be a two-legged (complex) pullback on a lower time frame.

 

[gwolf666]

It's true that markets move in waves composed of impulsive and corrective movements. A popular strategy is to trade in the corrective phase and enter in the direction of the trend once the correction shows clear signs of ending. However, many traders are impatient and prefer to risk missing out on the main movement by entering too early in the correction. When they are stopped out, they still feel they don't want to miss out, so they re-enter the market. Complex corrections, which at first glance appear to be simple pullbacks, can actually be hidden within larger timeframe structures. What appears to be a simple correction on one scale may actually be a multi-phase correction (of two or more movements) on a smaller timeframe. The key is patience and understanding market structure at different time levels to avoid premature entries and better manage risks.