Measure pullbacks in time, not only in price

[Fairman]

Measure pullbacks in time, not only in price

Everyone measures pullbacks by depth. Did it retrace to the 50 percent, to the order block, to the last swing. Fewer people look at how long the pullback took, and I think that's half the story.

A pullback that takes three candles to retrace a strong move is a different animal from one that takes thirty candles to retrace the same distance. The quick one often means aggressive selling against the move, and the trend might be in trouble. The slow one, grinding back in small overlapping candles, usually just means the market is resting.

A rough comparison I use: how long did the impulse take, and how long has the pullback taken? If the pullback is taking much longer than the impulse and moving in small steps, I'm comfortable looking for a continuation entry. If the pullback is as fast as the impulse, or faster, I wait. That usually means the other side has real interest.

There's also a limit. A pullback that drags on for hours can turn into a range, and the original impulse stops being relevant.

None of this needs an indicator. Just count candles. It's a small habit, and it changes how many pullback trades look once you notice it.

[Fairman]

Session timing gets mixed into this. A slow pullback during the London lunch might just be the market going quiet, not a sign of anything about the trend. The same slow pullback in the busiest part of the morning says more, because there were plenty of participants and none of them pushed hard against the move. I'd judge the speed relative to what's normal for that time of day rather than in absolute terms. A pullback that's slow for the London open might be normal for late New York. Time is just one more lens on the same move, and it's easy to keep track of with a bar count.

[Fairman]

Combining time with depth gives a cleaner picture than either alone. A deep pullback that took a long time is often a range forming. A shallow one that took a long time is classic strength. A deep one that was fast is the warning sign. A shallow one that was fast can go either way and needs more context. Writing those four combinations down and tagging a few weeks of trades by them would show whether the idea holds up for your pairs, rather than taking it on faith from a forum post.

[FXS Prop Desk]

A slow pullback with small candles often shows weak counter-pressure, while a fast, deep pullback suggests stronger opposition to the trend.

Measuring the pullback time relative to the impulse can make it objective. For example, a pullback that takes more than twice as many candles as the impulse is often a sign that the trend is losing strength.

[Fairman]

It helps to compare the pullback's duration with the leg before it. A trend leg that took six candles followed by a pullback of twenty candles is a very different situation from a six candle leg and a three candle pullback. When the pullback starts taking longer than the move it's correcting, the trend is losing its grip, even if the pullback is shallow in price. I use a rough ratio. Once the pullback lasts more than about twice as long as the leg, I stop treating it as a normal pause and start treating it as a possible change in direction.

[Fairman]

Does anyone use a time stop on pullback entries? The idea would be: if you enter on a pullback and price hasn't resumed the trend within a set number of candles, you exit, even if the stop hasn't been hit. It fits with the idea that time tells you something. A trend that should continue usually does so fairly soon after the pullback ends. If it doesn't, the trade's reason is getting weaker by the minute. I've been trying it with a limit of about the same number of candles as the original leg, and it cuts some of the slow losers.