Charting  |  APR 2005

Trading Moving Average Pullbacks by Steve Palmquist

Stocks & Commodities V. 23:4 (16-20): Trading Moving Average Pullbacks by Steve Palmquist Many traders have found success in trading pullbacks. But even a popular system needs to incorporate risk management. Every evening, I look over a dozen different scans and select trading techniques that are best suited to the current market environment. Because the market constantly changes, it is important to have multiple techniques in your toolbox. But how do you know if a scan is suited for the current market? To answer this question, you must understand how each system is affected by a variety of market parameters. This analysis also makes you more aware of how you can manage your risks. FIRST STEPS Pullback techniques are based on the idea that trends continue, and the best way to trade them is to look for a pullback in the trend because it usually represents a lower-risk entry point. Prior to trading a system, I want to have a clear understanding of issues, such as: • How does the system behave when the market is in an uptrend? • How does the system behave when the market is in a downtrend? • How does the system behave when the market is moving sideways? • How do price and volume affect the system? • How does trigger-day volume affect the system?

by Steve Palmquist