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http://www.wallstreettrading.com/blog/what-pullback-and-why-it-might-indicate-buying-opportunity
A pullback occurs when a security falls back from its peak price. It’s known in the day trading business as a buying set-up because many traders see a pullback as a pause in a continuing upward trend. Pullbacks often occur after a security experiences a significant price increase. New traders should be cautious as they learn how to trade pullbacks, as the drop in price could be the start of a trend reversal. But with practice, day traders can learn to differentiate between buying opportunities and trend reversals…and ultimately generate consistent profits.
There are a few different things to look for when identifying a pullback as a buying opportunity. Pullbacks are best used as a day trading set-up when many traders have just exited their positions, creating a low-risk buying opportunity. Below, please see an example of how to trade pullbacks.
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Notice how at each arrow a buying opportunity presents itself. The stock gets sold, and a strong uptrend emerges. The reason this uptrend is a quality day trading buying set-up is because it’s defined by higher pivot highs and higher pivot lows. The price should always be above the Simple Moving Averages (SMA), both the shorter-term SMA and the longer-term SMA. Traders looking for a day trading buying set-up should try to find a pullback that ends near a rising SMA.
Learning how to trade
pullbacks will undoubtedly lead to profitable buying opportunities. At Wall Street Trading, getting new traders to understand day trading buying set-ups like pullbacks is key to launching a day trading strategy that works for you!
