Are they better than trends without a pullback? For the seasoned trend trader the answer is a clear no. Best is the smooth trend, no swings, no bases, no dip, no pullback, simply the pure trend. The second choice is the straight trend with a pullback where the price has already regained the lost ground. Only the third spot gets held by the trend with an ongoing pullback.
The interesting thing here is the difference between number two and three. Swing traders like to enter the market in the moment the price goes up again. That is the natural behavior of the momentum surfer. But at that point the trend is not as good as the one which already has overcome the zone of weakness and makes a new high. Trading the restarts of a trend is therefore the better strategy than trading the swings. The trend is still at a high and thus still running.
Many times the pullback is just the beginning of a forming base, a zone where the price just swings forth and back, an indication that the trend has lost steam, the price pressure is gone and the trend dies away. Even worse, what looked like a resumption of the trend may become the opposite, the pullback gets resumed and the price goes south further.
Trading is a game of probabilities and traders have to judge at any given point the odds for their trade. Placing an entry directly after the downswing means betting on a force pulling back from the pullback. There is such a force, but it is generally smaller than the main driving potential that caused the trend in the first place. Think big and bet on the larger force.
There is also another reason why the smooth trend holds the top spot in this little ordered sequence or trader’s luck. Waiting on something while a trend is running is detrimental to trend trading, mathematically and psychologically.
In reality a trend trader will often enough be faced with a trend, of which he is convinced but also shaken out by a stop loss order. Getting on it again is the name of the trading game now and so a trend trader has to deal all the time with swings and pullbacks. Don’t actively increase that number by waiting on so called safe entry spots!
One more word to trend number four with a pullback that seemed to make the turn, but then fell again further. This may be the beginning of a countertrend. The upswing after the pullback that didn’t work out tells the technical trader something. The price pressure for a resumption of the trend plus the swing traders interest was not enough to override the adverse power. This is a sell signal, provided that you were long, of course.
