Chapter 11
First Pullback Sequence: Bar, Minor Trend Line, Moving Average, Moving Average Gap, Major Trend Line
There are many types of pullbacks that can occur in a trend, some shallow and others deep, and they can be classified and ranked in terms of their extent. The first time any one of them appears is a first pullback for that type of pullback. Each subsequent pullback will be the first one of a larger variety, and each one will usually be followed by a test of the trend extreme since strong moves generally have at least two legs. Each type of first countertrend move will therefore likely be followed by another leg in the trend. The pullbacks don't have to occur in the exact same order. For example, sometimes a high 1 will occur after a high 2 if the trend accelerated after the high 2.
As a bull trend progresses, it eventually loses momentum, becomes more two-sided, and starts to have pullbacks. The pullbacks become larger and evolve into a trading range, and eventually a trading range will reverse into a bear trend. Prior to the final reversal, each countertrend move is usually followed by another high in the trend. Therefore, each sign of weakness is theoretically a buy setup, and each can occur several times before any other on the following list develops. Also, one can occur and then occur again later after others have occurred.
Here is the general order in which signs of weakness in a bull trend develop:
- The bull bodies become smaller.
- Tails start to form on the tops ...
