Strategies · Lesson 9 · Beginner

Pullback Entries in an Intact Trend

You buy corrections in an uptrend with timing, instead of chasing the breakout.

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Buy the Dip

Instead of chasing the breakout you buy the pullback in an intact uptrend. Murphy's retracements: minimum around 33 percent, typical 50 percent, maximum around 66 percent.

If the pullback runs beyond 66 percent, it is probably no longer a correction but a trend reversal. That is where your hard stop logic kicks in.

Mark the high of the move, from there you measure the pullback.

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Test yourself

In an uptrend the price retraces around 45 percent of the last move and is oversold. What do you do?

Long into the pullback, the zone and the timing line up
Short, because it is oversold
Wait until it retraces 80 percent

The key points at a glance

Buy the dip in an intact uptrend, short the bounce in a downtrend.
The pullback zone typically sits between 33 and 50 percent of the move.
Beyond 66 percent it is likely a trend reversal.
Determine the trend first, use the oscillator only for timing.

Deep dive

Why the pullback offers a better risk-reward ratio

Whoever chases the breakout buys at the top edge and needs a wide stop. Whoever buys the pullback in an intact uptrend enters closer to support and sets a tighter stop below the correction low. Same price target, smaller risk.

You are not buying the cheap dip, you are buying strength at a discount. Ryan deliberately buys names that have doubled, because then no one is left underwater above him, pressing to exit on every rise.

Measuring the retracement zones correctly

Murphy's rule sets the frame: a healthy pullback retraces a minimum of 33 percent, typically 50 percent, at most 66 percent. Mark the high cleanly first, because a wrong anchor point shifts the whole zone.

33 to 50 percent: preferred entry area
66 percent: breaking point, below it a real trend reversal threatens
Stop below the correction low, exactly at the invalidation

Trend first, timing after

The most common mistake is the wrong order: an oscillator shows oversold, the trader buys against the downtrend and catches a falling knife. Murphy: determine the trend first, use oscillators only for timing within that trend.

Elder's Triple Screen makes this operational: the higher timeframe sets the direction, the lower one the timing. Weekly trend up and daily correction down: a buy stop just above the high of the last bar to enter on the turn.

Sources: Murphy, Elder, Goodman

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