Using Higher Time Frame to Improve Pullback Setups

[Valentino104 10]

Dear All,

 

I have been working on a strategy that looks for reversals in an uptrend off the daily chart, which i will call pullbacks. The strategy suits my trading style i think, and for sure i like these pullbacks much better than breakouts which i've also tried. Typically a hitrate of 35-40% is achieved, with a profit factor of 1.5-2.0 excluding transaction costs.

 

Lately i have been trying to refine the strategy using the higher time frame, being the weekly. The idea is to use the weekly to find the strongest trends, which i will then zoom in using the daily to find pullbacks in the direction of the larger trend. In many articles it is taken as a fact that trading with the larger trend result in higher probability setups, but so far it has not yet worked for me. I've tried MA crossovers, RSI, Donchian channels (resistence/support) and some other indicators to find the strongest trends on the weekly, but to no avail. If i take a look at the charts and select those stocks that i consider to be in stronger weekly trends, it seems indeed that the pullback setup works better but i'm not able somehow to code it such that it results in higher hitrate or profit factor.

 

Has anyone been looking into the same issue and made some progress? Basically it all boils down to the question how to define a strong trend i guess. Then it would be possible to skip those weaker trends and focus on the stronger trends, resulting in higher probability setups. Does anyone have some insight into which conditions when the pullback setup works better? Some general/conceptual ideas are also welcome, i could test it on what i have so far and report back so we can improve together.

 

Thanks, Valentino

[howthom 10]

I also trade pullbacks and will hold from 1 day to 4 months. I have a couple of suggestions for you to look into. If you typically trade using the daily chart, look at the weekly and sometimes monthly charts for levels of major support and resistance. Once you have established those levels, make your trades near those levels. I use the weekly chart for my signals and move to the daily and 15 minute for timing the decision to buy/sell.

 

I've discovered getting in near the beginning of a trend ( after the first HH and LH has occurred and there is a visible level of R above) works better for me than simply buying pullbacks on a stock making newer highs. I also look for strength in the move at the level of S (ie. are there wide ranging bars closing higher, was there a down bar followed by an up bar closing at least halfway up the down bar...signs of strenth).

 

Stop placement is also very important (too tight and another test stops you out, too loose and you leave $ on the table). But...the most important piece is, what is happening with price at the levels of S/R.

 

As a swing or position trader, I have found the lessons on the Wyckoff forum to be invaluable. I hope this is helpful.