Why does price make a pullback after a break? | Forex Factory

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Why does price make a pullback after a break?

  • #1
  • First Post: Feb 4, 2014 8:56am Feb 4, 2014 8:56am
After a break of support or resistance, why does price sometimes make a pullpack? What is the physcology behind it?

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In the above example why did price make a pullback after the trend line break? is it because the original buyers from the original swing low sold out their positions and took profits leading to price to pull back?
  • #2
  • Feb 4, 2014 4:36pm Feb 4, 2014 4:36pm
yes..........trading occurs in Waves........and when a psychological barrier is broken, traders usually take profit........also, keep in mind that alot of "newbies" get in the trade too late and consequently get slaughtered: supply and demand, greed, these are all factors and the retail traders (us) are open game for the seasoned market makers and more experienced traders.
  • #3
  • Feb 4, 2014 5:09pm Feb 4, 2014 5:09pm
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  • #4
  • Feb 4, 2014 5:12pm Feb 4, 2014 5:12pm
TS, the markets just seem to bounce around from liquidity spot to liquidity spot. In the chart you posted, there must have been some been spot that the market had hit at the top. If you look back further in time you will see why it sold off at the high. It falls to a new liquidity spot and reverses again. It is last seen heading north to the next liquidity spot. Understanding liquidity spots is the most powerful tool I have ever come across, but it is something that takes time to get good at.
  • #5
  • Feb 4, 2014 6:16pm Feb 4, 2014 6:16pm
The answers you have received above are mostly correct but very short sighted in their view...(no offense intended)...you must look at the structure of the market and order flow to really grasp the concept well.

Many traders (myself included) draw lines along the tops and bottoms of price areas where price seems to consolidate....in fact these areas of consolidation are areas where buyers and seller both come into the market and essentially balance each other out...yes there are moments of bullishness and bearishness in these areas, but for the most part the trading is balanced...it doesn't move up strongly or down strongly...

The result is an area of consolidation that we as technical analysts call different things depending on the visual characteristics of this consolidation zone. (Ranges, flags, pendants, etc).

Thus if you can draw a line on a chart most everyone else can also see the same thing and in fact will draw a line which is virtually the same. Then everyone moves their stops to this level...some get a little tricky and place it 10-25 pips outside these areas but just about EVERYone watching these zones moves their stops in tighter...

What happens? You have already observed that. Someone's or a group of someone's stops trigger, tipping the delicate balance of buyers and sellers. We see this and call it a "break out"...then as price moves outside the consolidation zone, more and more stops get triggered, causing a cascading and fast moving event throwing the market further off balance...This in turn will cause some traders to enter in the same direction adding to the order flow imbalance and creating what seem to be "strong" and fast moving price movements.

Why does it move back to where it started? All the stops have been triggered and there are no longer enough "new" entries to sustain the imbalance and thus price starts to tick back to where it stared its "break out". At this point there is often a group of new entries into the market going the direction of the break and price again moves sharply in the direction of the original break...however, it is not uncommon for this to fade again and price will once again tick backward and may fall back into the range. When this happen it is commonly referred to as a "head fake".

Many ascribe to the idea of a malevolent conspiracy where some market maker is "hunting" the stops because there are a large group of orders, and therefore liquidity in these areas...those people simply don't understand how the market works... if there are more buy orders than sell orders the market will tick higher...period...vise verse for and imbalance of sell orders...

These movements tell you a great deal about the participation in the market and allow you some insight into where the "true" supply and demand may be. You are well to study them, but try to do so from the point of view of order flow and market structure...most technical analysis techniques are severely lacking in their treatment of these events.
  • #6
  • Feb 4, 2014 6:32pm Feb 4, 2014 6:32pm
Quoting 4xplosion
traders usually take profit.
Explained like a Boss
So sorry for always replying late! But I got 2 Jobs!!
  • #7
  • Feb 4, 2014 8:28pm Feb 4, 2014 8:28pm
Order flow..bla bla bla...

Psychological levels...bla bla bla...

It's all bullshit.

To think like a pro, you are actually best to think like a newbie...ya just need a better grasp on shit.

Ya see...depending on the trade pair, there is more than a single session, some pairs, up to 3. Keep this term in mind...

THEY WILL ALL PLAY THE SAME MONEY!

Now, picture your newbie notion of the Retail Market Gap on weekend...

Ya know, the kinda shit that fills the pages with everbody buying the gap down and selling gaps up...to...dare I say...fill the GAP.

Ya see, this newbie notion is a big part of the larger time frames, these are still gap trades as where price closed during TK, will migrate back to that point before making a retest/retrace to lower lows and higher highs.

They all do it.

Cheap bitches...because, well...just because 95% of the newbie suckers can't figure out this angle, doesn't mean that it doesn't actually exist.

Issue is..

They don't necessarily do it per sesssion. There could in fact be DAYS before these get filled, but you can drop dollars to donuts on the fact that THEY ALWAYS GET FILLED!!!

I know some asshole is about to come and spew stupidity in the, WHAT ABOUT...

In advance, I will say...fuck that guy. We live our lives by rules, not exceptions. The majority of time, I am spot on. The rest of the time under this logic, just means that Market plays by its own clock and just hasn't gotten back to price yet.

This is the larger TFs.

The smaller ones, a whole other story.

Nevermind the reasons WHY. It doesn't matter. Focus on learning WHERE, this will be your key to success.

See a simple session chart applied...2 sessions in view, TK and NY. Purple line where the Zig Zagged, is NY open. Bottom of the retrace, is the NY/TK lows.

The ZIGZAG is just being used to illustrate the point.

Keep your eyes on this idea of trading and apply it to your pair and its respective, applicable sessions.
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Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
  • #8
  • Feb 4, 2014 9:24pm Feb 4, 2014 9:24pm
Quoting Magix
Nevermind the reasons WHY. It doesn't matter. Focus on learning WHERE, this will be your key to success.
Agreed. I feel that point is something many traders need to get through their skull. Well said, Magix.
There's always money in the banana stand.
  • #9
  • Feb 4, 2014 9:53pm Feb 4, 2014 9:53pm
Quoting ReyesWhite
After a break of support or resistance, why does price sometimes make a pullpack? What is the physcology behind it? {image} In the above example why did price make a pullback after the trend line break? is it because the original buyers from the original swing low sold out their positions and took profits leading to price to pull back?
To pick up all them people who missed the train.........
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  • #10
  • Feb 5, 2014 1:54am Feb 5, 2014 1:54am
Quoting Magix
Order flow..bla bla bla... Psychological levels...bla bla bla... It's all bullshit. To think like a pro, you are actually best to think like a newbie...ya just need a better grasp on shit. Ya see...depending on the trade pair, there is more than a single session, some pairs, up to 3. Keep this term in mind... THEY WILL ALL PLAY THE SAME MONEY! Now, picture your newbie notion of the Retail Market Gap on weekend... Ya know, the kinda shit that fills the pages with everbody buying the gap down and selling gaps up...to...dare I say...fill the GAP. Ya...
Magix, you are fresh out the penalty box. Are you trying to get popped AGAIN? Trying to teach people stuff, have you not learned your lesson yet???
If you are good at something, never do it for free--Joker
  • #11
  • Feb 5, 2014 1:56am Feb 5, 2014 1:56am
Quoting jmn5611
{quote} Magix, you are fresh out the penalty box. Are you trying to get popped AGAIN? Trying to teach people stuff, have you not learned your lesson yet???
?
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
  • #12
  • Feb 5, 2014 5:48am Feb 5, 2014 5:48am
Quoting Magix
To think like a pro, you are actually best to think like a newbie...ya just need a better grasp on shit. ..{image}
To actually consider yourself a pro, you might want to start by at least trading a real account. No offense intended, but try to not come off as a know-it-all when you are trading demo accounts.
  • #13
  • Feb 5, 2014 8:25am Feb 5, 2014 8:25am
Quoting Zappa
{quote} To actually consider yourself a pro, you might want to start by at least trading a real account. No offense intended, but try to not come off as a know-it-all when you are trading demo accounts.
Commenting out of context doesn't make you look smart.

Do you DD before you continue to embarrass yourself.

K?
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
  • #14
  • Feb 5, 2014 9:20am Feb 5, 2014 9:20am
Enough with the Pro and No Pro bullshit and try to be productive ladies and Jens
So sorry for always replying late! But I got 2 Jobs!!
  • #15
  • Feb 5, 2014 9:42am Feb 5, 2014 9:42am
Quoting Muhammad Ezz
Enough with the Pro and No Pro bullshit and try to be productive ladies and Jens
Hey Doc,

The information is the same and wouldn't by any other language.

Folk just need to keep their focus on the information, not just by way of delivery or the mail man.

Simplicity dictates that market goes bullish because of more money buying than money is selling and vice versa.

Actuality dictates that the market has balance and all relevant trade sessions will have opportunity to trade the same money.

This is the answer to the question and still leaves my original statement intact.

Questioning "Why", will never make you 10 cents. Questioning "Where", with the use of applicable market relevance, will.
Money Can't Buy Happiness. Poverty Can't Buy SHIT! You Choose!
  • #16
  • Feb 5, 2014 9:46am Feb 5, 2014 9:46am
Quoting Magix
{quote} Hey Doc, The information is the same and wouldn't by any other language. Folk just need to keep their focus on the information, not just by way of delivery or the mail man. Simplicity dictates that market goes bullish because of more money buying than money is selling and vice versa. Actuality dictates that the market has balance and all relevant trade sessions will have opportunity to trade the same money. This is the answer to the question and still leaves my original statement intact. Questioning "Why", will never make you 10 cents. Questioning...
this is exactly what I meant! ...
So sorry for always replying late! But I got 2 Jobs!!
  • #17
  • Feb 5, 2014 10:20am Feb 5, 2014 10:20am


Quoting gspajon
The answers you have received above are mostly correct but very short sighted in their view...(no offense intended)...you must look at the structure of the market and order flow to really grasp the concept well. Many traders (myself included) draw lines along the tops and bottoms of price areas where price seems to consolidate....in fact these areas of consolidation are areas where buyers and seller both come into the market and essentially balance each other out...yes there are moments of bullishness and bearishness in these areas, but for the...
SPC * Swollen PocketZ Crew!
  • #18
  • Feb 5, 2014 12:51pm Feb 5, 2014 12:51pm
cause theres no freakin liquidity to push stuff higher read beat the forex dealer, trends are not as big as they used to be and are few and far in between hence you get chopped unless your using really wide stops and low leverage. staying in a socalled trend move aint easy alot of shake outs happen and flat out reversals. very very hard. easy moves are a dime a dozen who knows if or when it will change.
  • #19
  • Feb 5, 2014 1:26pm Feb 5, 2014 1:26pm
To simply put, price does not move straight.
psychology!.. have you ever seen anything can go too long without a breather.. you try to run, sooner or later you'll slow down.. you drive fast then for no particular or some reason you'll slow down.. you can yell loud only for so long then you'll tone it down.. you can even fuck like a rock star only for so long then you'll slow down, lol.
What I am trying to say is that nothing lasts for ever or too long.. it's just life.. trading is like life.. human emotions are involved and best to understand it, is to simply look at everything around you in it's simplest and pure way.
price can only go up or down only for so long in all markets.. it will stop or slow down for any or whatever reason, at will.. there is in no way or shape one could know when and why exactly.. pursuit of why will drive you crazy down to no answer.
retail traders bank as soon as they see little profit then let loser run longer.. pro trader maybe at this a bit better.. the big guy who knows shit from sky would have to bank or change risk at some point.. I mean who the hell knows what would who do what and when and where for why and what reason based on his/her agenda.

for example one trades off the pullback.. but if he don't make a correct use of MM and be discipline-less, he would have no chance at succeeding in trading.. even if he receives inside information correct for 90% of times.
pullback style is "buying cheap".. ok that's great.. but price could always go cheaper from your magical PB point.. and may even turn into a reversal engulfs the whole freaking trend and make a new one the other way.. so now what.. what you should do!!.. I say forget the why and how's.. instead, have a sound MM.. have a trading plan.. have discipline to actually executing that plan and etc,..

Best of luck.
Passion, Persist, Patience, Protect
  • #20
  • Edited 5:35pm Feb 5, 2014 1:53pm | Edited 5:35pm
I will start with my usual.... I'm not trying to be a dick but.... These types of post are the reason why I'm losing interest in being a part of this trading forum. Pure rubbish! Find a better trading style...adapt... There are plenty of clear signals each and every session to enter trades with minimum risk. I have minimum experience and find them all the time. I can only imagine how many entries the pros find everyday. Seriously find a better way to trade. There's money to be made.... SCREEN TIME - SCREEN TIME - SCREEN TIME.... did I mention screen time? Oh and here's another hint. When the setup starts to take shape, getting the best entry requires having the stomach to drop the hammer when it's going the opposite way of the anticipated course (a pullback on the next bar or candle). That my friend takes the re-writing of a mental crease in the brain that's really really hard to re-write. My stomach still knots each and every time I drop the hammer on the pullback regardless of the fact that I know I'm right more times than I'm wrong.

Price Action,.... clean charts........ it works for me...

There's so much money to be made in a ranging market.... and the S&P will be zig zagging for a good while now... I love it...


Quoting enoc2g
cause theres no freakin liquidity to push stuff higher read beat the forex dealer, trends are not as big as they used to be and are few and far in between hence you get chopped unless your using really wide stops and low leverage. staying in a socalled trend move aint easy alot of shake outs happen and flat out reversals. very very hard. easy moves are a dime a dozen who knows if or when it will change.
SPC * Swollen PocketZ Crew!
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