Pullback Indicator

Following on from my previous posting, I have created a custom indicator to identify the pullback setup.

In the price chart below for EURJPY the fibonacci levels for a pullback have been marked, with levels for entry, stop and target prices marked with line segments (green, red and blue respectively).



Below the price chart is the custom indicator.

The black lines indicate price range, with the yellow line representing close price. When a pullback opportunity occurs, the yellow line splits into 3 lines - red representing the 100% pullback level for the stop, the green representing the 61.8% retracement level for the entry, and the blue line representing the target price with a 2.6:1 reward-to-risk ratio. During the period of the split lines, the yellow line represents a 1:1 reward-to-risk ratio that can be used to achieve break-even by scaling out 50% of the position of this price level.

A trade would be triggered if price crosses up through the green line.

My motivation for creating the indicator was to speed up manual testing of pullback strategies and to facilitate automated backtesting.

Keeping it Simple

Currently I'm in back-test mode to test overall performance of different strategies. One strategy is very simple, and just involves identifying pull-back opportunities (i.e. when price fails to make a new high or low) then setting an order at 61.8% retracement level with a stop at 100%, and setting a target with a 2.6 to 1 reward to risk ratio. The key aspect of this strategy is to draw the retracement to the nearest swing low or swing high, even if it appears insignificant, and even if there is ambiguity in the trend.

In the chart below, entry levels are in green with stop in red and targets in blue. Obviously the ordering of the levels indicates if the position is long or short. There are some other trade setups in the same time period, but they didn't trigger so are not shown.

Volatility Analysis

Here is an interesting posting that discusses the combined use of bollinger bands and average true range indicator to evaluate conditions of volatility and the impact that can have on formation of trends ... read it here

EURUSD Breakout

Finally the EURUSD breakout has occurred.



I'll be looking for a pullback to the resistance level, with buying opportunities in a zone between 14,360 and 14,460, subject to further analysis.

Here is the breakout in close-up - notice that price hit a price target level at 14,632 which is a monthly pivot level - even though I am a month behind on updating my pivot levels.