Pullback Analysis

Pullback Analysis: trade the auction inside the auction…

We have bad news for you. Whatever chart you are looking at is wrong.

Every horizontal division on a chart is arbitrary. Sure, lots of people use 5- and 15-minute so there is a degree of self-fulfilling prophecy to these charts. 30-minute is a reflection of Market Profile. Daily or overnight and day session captures the intentions of day traders. Range, Reversal, Tick, Volume are all arbitrary divisions and the market does not care how you are looking at it.

What matters is the volume traded in the market and the idea that a faster chart will get you ‘closer to the action’ is flawed too. A faster chart captures less volume in each bar. Professional traders in prop firms use minimal charts and are looking at the market vertically with the DOM and volume profile, i.e. considering the volume that’s trading at each price level.

Thinking ‘vertically’ can be an uncomfortable adjustment for traders conditioned to look at price over time. 

With order flow, we are concerned about volume at price. emoji Pullback Analysis can help you adjust successfully to vertical thinking.

emoji trading pullback volume explanation
Click to enlarge…

Pullback Volume

Consider a 30-minute bar that closed higher than it opened, but below its high. This bar opened, went lower, reversed from the low, went higher, reversed from the high and closed. It closed because 30 minutes had passed.

Inside this bar are six 5-minute bars, or two 15-minute bars, or a quantity of tick-based, volume-based, reversal-based or range-based bars. Which one of these views of the market is right? None of them! They are all arbitrary views of how price has traded over a selected period. The same indicator applied to any smaller timeframe charts will likely give different results because the volume data that is contained in each bar differs as you divide the price movement over different periods.

emoji Pullback Analysis provides a method to overcome the limitations of these arbitrary chart periods. We analyse the volume that has traded since price traded at the high or low of your current bar. We are now looking at the auction inside the auction.

Selected emoji indicators can be used to analyse Pullback volume – the volume that’s traded since the extreme price of the current bar.

This analysis can locate Supply/Demand events while the bar is forming that may be missed by arbitrary faster chart periods. 

As a result, you get opportunities for really well-timed and well-located intra-bar entries based upon the auction inside the auction.

The levels found using this analysis can of course be tracked as they retrade using EmojiZone visualizations.

emoji trading pullback analysis levels with EmojiZone
Trading the auction inside the auction. Click to enlarge…