The Pullback Secret That No One Tells You About: Smart Money Trading Concepts

Summary

In this video, the speaker explains how to identify valid and invalid pullbacks in both bullish and bearish markets. Using detailed examples, they describe how to spot when a retracement is about to begin, focusing on the behavior of candle highs and lows. The video outlines how to recognize the difference between a valid pullback, where price retraces beyond a key level, and an invalid one, where key levels remain respected. By understanding these patterns, traders can better predict market movements and refine their price action strategies for improved trading results.

Takeaways

• 😀 A valid pullback occurs when a retracement violates the high of the last bearish candle in a bearish market, or violates the low of the last bullish candle in a bullish market.
• 😀 An invalid pullback is when the high of the last bearish candle remains respected in a bearish market, or the low of the last bullish candle stays respected in a bullish market.
• 😀 In a bearish market, you should continue selling until a bullish candle retraces above the high of the last bearish candle, signaling a valid pullback.
• 😀 In a bullish market, you should continue buying until a bearish candle retraces below the low of the last bullish candle, signaling a valid pullback.
• 😀 If a bullish candle does not violate the high of the last bearish candle, it is considered an invalid pullback, and you should continue with the current trend.
• 😀 A pullback is only valid if it violates the high or low of the last candle in the opposite direction of the trend (bearish or bullish).
• 😀 The concept of 'inside bars' is crucial for identifying invalid pullbacks. These bars do not violate the previous candle’s high or low and thus indicate continuation of the current trend.
• 😀 When the retracement high is violated by a bullish candle in a bearish market, or the retracement low is violated by a bearish candle in a bullish market, a valid pullback occurs, and the market is likely to reverse.
• 😀 This strategy can be applied to any time frame, from hourly charts to daily charts, and helps traders make decisions based on price action.
• 😀 Understanding the concept of supply and demand zones is essential for identifying where price action may continue after a valid pullback.

Q & A

What is the main focus of the video?

The video focuses on teaching traders how to identify valid and invalid pullbacks in market trends, which helps in understanding when a retracement is about to begin or if it's already in play.

What is a 'valid pullback' in trading?

A valid pullback occurs when the price retraces and violates the high or low of the previous candle, signaling a potential reversal or continuation of the trend in the opposite direction.

What does it mean when the high of a bearish candle is violated?

When the high of a bearish candle is violated by a bullish candle, it indicates that the price is in a retracement phase, and traders should consider exiting the market and waiting for a new opportunity.

How can traders identify an invalid pullback in a bearish market?

An invalid pullback in a bearish market occurs when a bullish candle does not violate the high of the last bearish candle, meaning the bearish momentum is still intact and the price will likely continue to the downside.

What should traders do when an invalid pullback is identified?

When an invalid pullback is identified, traders should not exit the market and continue holding their position as the trend is likely to continue in the direction of the original momentum.

How does the concept of 'inside bars' relate to invalid pullbacks?

An inside bar occurs when the current candle's high and low are completely within the range of the previous candle. This signals an invalid pullback because the price has not broken above or below the range of the previous candle.

What is the significance of respecting the low of a bullish candle in a bullish market?

In a bullish market, for a retracement to be valid, the low of the last bullish candle must be respected. If the low is violated, it signals that a valid pullback is happening, indicating a potential continuation of the uptrend.

How should traders react when the low of a bullish candle is violated?

When the low of a bullish candle is violated, it signals the start of a valid pullback, and traders should exit their positions, wait for the market to find equilibrium, and then re-enter when the price shows signs of continuing in the bullish direction.

Can this pullback strategy be applied to different timeframes?

Yes, this pullback strategy can be applied across various timeframes, including one-hour, two-hour, four-hour, and daily charts, allowing traders to use it for both short-term and long-term trading.

What is the role of demand and supply zones in identifying pullbacks?

Demand and supply zones help traders identify key levels where price action may reverse or consolidate. When a valid pullback occurs, it often happens near these zones before the market resumes its main trend.