Follow-up17 Sept, 09:48
Mark the invalidation before you buy the pullback
The Fed raised rates a quarter point on Wednesday, to 3.75% to 4.00%, the first hike since July 2023. The dollar index went back through 100 on it.
The part that matters for anyone buying pullbacks is the projections. In June the Fed's median had rates coming down to 3.6% by the end of 2027. In September it's 4.1% and staying there, with 16 of 18 officials pencilling in another hike this year. So every inflation and jobs release between now and the October meeting carries more weight than it did a month ago.
That changes the order you should do things in. https://www.tradingview.com/x/YPAgEPAV/
Most people buy a pullback like this. Price comes back towards a moving average in a trend, it looks cheap, they get in, and then they go looking for somewhere to put the stop. Every pullback looks cheap while it's happening. You can't tell a pullback from the start of a reversal until price gets somewhere it shouldn't.
So find that somewhere first.
Pick the side off the trend. On the daily, if the 8 EMA is above the 21 you're only looking at buys. That's the whole first question and it takes two seconds.
Mark the invalidation off the ATR. Take the weekly ATR, the distance the market normally travels in a week, and measure down from where you'd enter. That block is where the idea is wrong. If price gets in there the pullback has turned into something else. The stop goes there, and your size comes from the distance to it rather than from how much you like the chart.
Check how much of the week is already spent. If the week has already travelled most of its ATR, there's less room left for a fresh target, and a good-looking entry with nowhere to go is still a poor trade.
Then look at the target off the same ATR. Now the reward-to-risk is sitting on the chart before you've done anything.
There's one more thing the ATR gives you if you draw the daily and the weekly sets together. You can split one entry into two pieces. One takes the nearer daily target. The other is held for the weekly level, and when the daily target pays, its stop goes to entry. If the week has already used up its normal range by then, that's a good sign the daily piece has had most of what the week was going to give. The first piece pays for the trade, and once it has, the second one is running for free.
One honest thing about all of this. Buying a pullback in a trend isn't an edge on its own. Replay the simple version back through the daily bars on the pairs I've run it on, same stop, same target, and it comes out close to flat. What the order above does is make sure you know where you're wrong and whether the week's got room before you commit, which matters a lot more in a month where any single release could move a rate expectation.
Where is the invalidation on the last pullback you bought, and did you mark it before or after you got in?
Educational content. Not financial advice.
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