Setup: pullback to the EMA
Lesson 39 of 39 in the course “Crypto”. Free, with animations and a quiz.
Condition: an uptrend. Each high is above the last one (HH, higher high), and each low is higher too (HL, higher low). Price stays above the EMA, an average price where recent candles weigh more.
Price pulls back to the EMA. A pullback is a temporary move against the trend. In an uptrend, it is a possible entry in the direction of the trend.
Price touched the EMA in an uptrend. What do you need to enter? Answer: A bullish confirmation candle. Answer: a confirmation candle. We wait for a sign that buyers defended the EMA, such as a pin bar or engulfing. A touch alone proves nothing yet.
Confirmation is in. Enter. SL (stop-loss, auto exit at a loss) below the pullback low. TP (profit target) at the next high of the trend.
The trend continued and the target was hit. Cancel: a candle closes below the pullback low. Then the HL is broken and the uptrend is gone.
Check yourself
- When does the EMA pullback setup fit?
Correct answer: In a market with a clear trend. In a sideways market price moves in a range and keeps crossing the EMA. Lots of signals, little use. - Where is the SL in this setup?
Correct answer: Below the pullback low. Breaking the pullback low breaks the trend structure. If that happens, the idea is wrong and the stop limits the loss. - What cancels the scenario?
Correct answer: A close below the pullback low. A close below the pullback low breaks the chain of HLs. The trend structure is broken.