When the price of currency peaks after a rising trend and then suddenly drops, a pullback occurs.? If not a definite trend reversal, a pullback may serve as a profitable currency buying opportunity.
An understanding of forex charts is necessary to enter a trade and implement a pullback strategy.? In observing trend lines on the chart, traders look for price breakouts where volatility increases and a currency price rises above the level of resistance.? The resistance level is seen as a time-bound currency price trade ceiling that a currency price on trade may not exceed.
A price breakout is considered a bullish trend and presents as a broken trend line on a chart.? The trader may then buy the underlying asset or currency on pullback below levels of support, after the peak.? On a chart, this appears as candlestick patterns in reverse.
With bullish breakouts, traders may enter a currency trade with a long position and a 1:2 risk-reward ratio.? A bearish breakout with sudden currency price decline may call for a short position with the same 1:2 risk-reward ratio.
A trader takes a long position when they are expecting the value of the currency to rise, and a short position when the currency value or price is expected to fall.? However, with currency pairs, traders buy long and sell short.? The first currency being commodity and the second ? USD ? being money.? Money or USD is used to buy the commodity, the first currency of the pair.
Source: http://www.thegwr.co.uk/using-pullback-currency-trading-strategy
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