UNDERSTANDING COMPLEX PULLBACK

30 Eyl 2023

What is a two-legged pullback ?
A two-legged pullback in the market is a pattern of price action in which the market retreats in two separate steps or movements before resuming its primary trend. This is a counter-trend move. After a strong trending move, price needs to sort of take a break and there is a double attempt to reverse the trend. When the price hits a strong zone, the price pulls back from it and if the trend does not continue, a second pullback occurs. Here the second pullback is approximately equal to the first one. We use this model for 2 purposes in the market:

- Projection of the next move
- End of pullback

If you look at the market, it likes power of two, be it a double top/bottom, a double test of the uptrend, followed by a breakout. Let's look at the example of the recent movement on EURUSD. As we can see the asset has been in a strong bearish trend for a long time. The price bounced off the support and made the first pullback and then the second one. Note that the first pullback ended where there were no strong levels. But when we have the second pullback, we can see that it ends right at the strong resistance. This was an additional signal to enter a trend trade.



A two-legged pullback in the context of the market
Traders using the two-legged pullback strategy usually wait for both legs of the pullback to complete before entering a trade. It is very important to look at the context of the market here. If it happens that the second leg breaks through the lower high or higher low, it is a reason to be wary because it is usually a sign of a trend shift. The first leg can be projected and wait for the price at these levels. If it coincides with a strong level, it is a trade with a high probability of success.


Let's look at some examples
The recent example of gold shows well the interaction of a two-legged pullback with a strong level. The first time we got a pullback A. The price paused and then went up. The question remains where we should wait for price. We simply take the A pullback and project it and get the approximate end of the C pullback. This pullback ended on a strong resistance, which led to the price reversal.


The EURUSD, too, after a strong bearish movement, rolled back to the resistance, making a two-legged pullback. Note that the EURUSD touched a strong level and fell. Although it did not lead to a complete reversal of the price, but we got a reaction and a short term trade. Here you can see a perfect example that there can be a third leg, which exactly led to the price reversal.


The UKOIL example perfectly shows a trending trade. The price bounced off the resistance, and as you noticed there was a two-legged move before that. When A and B have formed, we use the projection method to wait for the price at the end of C.


The last example is a great example of a perfectly formation of the two-legged pullback. The price has not yet triggered the level. But what do we have here? A downtrend, a two-legged pullback and a strong resistance at 1.66000. Will the trend continue, what do you think? Let's see.



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