Strategy Library

Trend

Trend pullback to a moving average

In a trend, price often pulls back to a rising (or falling) moving average before carrying on. You confirm the trend with the averages in order, wait for the pullback to the faster one, and enter when price starts moving with the trend again.

BeginnerTrending markets: forex, gold, indices, cryptoLondon and New York for intraday; any for H4 and dailyH1, H4, D1
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Example 01

Trend pullback to a moving average on a chart

XAUUSD · H1Uptrendpullback, bounce

Averages: 20 above 50 above 20020 EMA at touch: 2,379.01Entry: 2,385.62Stop: 2,375.62Sample candles, not market data

The rules

Setup
  • The trend is up when price is above the 20 (or 21) EMA, that is above the 50, that is above the 200, and all are rising (mirror it for a downtrend)
  • Wait for price to pull back to the 20 or 21 EMA
Entry
  • Either: enter when a candle bounces off the average and closes back in the trend direction
  • Or: skip the first attempt to resume the trend and enter on a stop order above the second one (Al Brooks calls these H1 and H2)
Stop
  • Below the pullback low (above the high in a downtrend), or out on a candle close beyond the 21 EMA
Target
  • The sources leave targets open: set your own, such as the last swing high or a fixed R
Manage
  • Close or trail when a candle closes back through the average

Common mistakes

  • Using it in a sideways market. A flat average that price keeps crossing is a range, not a trend.
  • Ignoring averages bunching up. Averages squeezing together can mean the trend is weakening.
  • Taking the first touch in a weak trend. The first try to resume often fails; some traders wait for the second.
  • Too many averages on the chart. More lines add more signals to argue with, not more information.

When it's off

  • Skip it when the averages are flat or tangled together and price keeps crossing them
  • Skip it when the faster average turns against the trend and the 50 fails
  • Call it off when your trigger fails and price breaks the far side of the signal candle

Words to know

Moving average
The average closing price over a set number of candles, drawn as a line; the exponential version (EMA) weights recent candles more than the simple one (SMA). Traders use it as a trend filter or as a moving level for pullbacks.
Trend (higher highs and higher lows)
An uptrend makes higher highs and higher lows, a downtrend lower highs and lower lows, and a range makes neither. Always name the timeframe; a downtrend on M5 can be a pullback on H4.
Swing high and swing low
A swing high is a peak with lower highs on both sides; a swing low is a dip with higher lows on both sides. It only counts once the candles to its right have closed.
Dynamic support
A moving average acting as support under a rising market.
Signal candle
The candle whose break triggers the entry.
H1 and H2
Al Brooks's names for the first and second attempts to resume an uptrend after a pullback.

When you make it yours, I'll ask what the rules above leave open. Start with one of these:

  • Which average and type do you use (20 EMA, 21 EMA, 50 SMA), and why that one?
  • What exactly makes a market trending for you: the averages in order, their slope, or higher highs and higher lows?
  • How close counts as a touch, and may a candle close beyond the average?
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What testing exists

No independent test of this exact rule was found. The sources teach it as a way to join a trend, with averages that lag price.

Before you trust a backtest

  • Many professional traders risk under 1% of their account on one trade idea, and the common guideline is 1 to 2%.
  • The more versions of a rule you try on the same data, the more likely a good backtest is luck. Decide your rules before you test.
  • Include spread and commission, and practice on dates you have not looked at, before you trust a result.

Sources