Trading pullbacks successfully can only be done in the presence of a strong trend. Using the channel indicator we can study how the price behaves around the upper and lower to gauge the strength of the trend.
As you already learned when the price hugs one of the two bands and crawls along the band, we have a case for a strong trending market.
In the chart below we’ve highlighted small retracements while the price hugs the upper band. Notice that the price retrace to the area around the 20-EMA. It won’t give you an exact price, but a price zone from where the price can potentially bounce and the can resume.
This remains a good way to measure pullbacks in price. Successful trading doesn’t require catching the exact turning point.
For a better timing of our trades we can use the indicator in combination with the indicator for more confluence.
The trade trigger is simply to follow with this Channel pullback strategy. Pull the trigger when the price retraces to the middle band and the indicator develops a crossover from an oversold territory.
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