Deep Pullback Strategy

James Chen, CTA, CMTDirector of Technical Research and Education

FXDD

Key Principle: Trade T.P.B.Identify the TREND. Watch for PULLBACK. Trade the

BREAKOUT.

Risk

Reward

Underlying Principle: RISK CONTROL through stop-loss

1) Trend

2) Pullback

3) Breakout

Strategy:

Deep Pullback

Deep Pullback: 3 MA Pullback Trade

• Three moving averages (simple: 200, 100, 50)• Only trade with the trend when three are in correct

order• Enter only when Stochastics pullback coincides with

price pulling back to 100 MA or more.• Stop-loss at last swing.• Target 2-3 times RISK or better.• (Optional) Trail SL to lock in breakeven and further

profits.

Position Sizing and Taking Profit

• Stop-loss is right above/below the last swing high/low. Measure the number of pips from entry to the stop loss. Call that 1T.

• Size trading position so that the dollar amount of 1T does not exceed 2% of your overall trading equity.

• Set your overall profit target at 2T-3T.• (Optional) At 1T profit, bring stop-loss to breakeven.• (Optional) At 2T profit, bring stop-loss to 1T profit.• (Optional) At 2½T profit, bring stop-loss to 2T profit.• (Alternatively) Enter trade with 3 positions and stagger exits.

James Chen, CTA, CMT

• Director, Technical Research and Education at FXDD, a global forex broker

• Active forex trader/analyst since inception of retail forex, using primarily technical analysis. Traded equities and futures.

• Chartered Market Technician (CMT)• Registered Commodity Trading Advisor (CTA)• Publish daily and intraday currency analysis at TradersLog.com,

FXDD.com• Authored numerous articles in Forbes.com, Futures Magazine,

Technical Analysis of Stocks & Commodities Magazine, SFO magazine, etc.

• Quoted by Reuters News, Dow Jones, Bloomberg, Associated Press (AP), International Herald Tribune, etc.

• Author of Essentials of Foreign Exchange Trading (John Wiley & Sons, 2009), Essentials of Technical Analysis for Financial Markets (John Wiley & Sons, 2010), and High-Probability Trend Following in the Forex Market (FX Street, 2010) DVD set