The video discusses a trading strategy using hidden divergences and the 50% Fibonacci retracement level to identify potential trend continuations. Proper marking of swing points on the price and MACD is crucial. Entry and exit points and candlestick patterns are also discussed.

Mastering the Pullback Trading Strategy: Using Hidden Divergences and Fibonacci Retracements

Introduction: The Perfect Pullback Trading Opportunity

Pullback trading can be a profitable strategy when executed correctly. It involves finding areas of price retracement within a dominant trend and entering positions in the direction of the trend. However, finding the perfect pullback trading opportunity can be a challenge. In this article, we introduce a strategy that combines two leading tools: hidden divergences and Fibonacci retracements. By using these tools, you can find high probability areas for initiating trades with a low risk and high reward.

Step 1: Find an Imbalance Between Price and MACD Histogram

The first step in our pullback trading strategy is to find an imbalance between price and the MACD histogram, which is a lagging indicator. However, we will be looking for leading signals, indicated by hidden divergences. Hidden divergences occur when the price trend and momentum indicator diverge, with one making a higher or lower high or low while the other does not. A bullish hidden divergence occurs when the price makes higher lows while the MACD histogram makes lower lows, and this can be a leading signal of an upcoming trend continuation.

Step 2: Find the 50% Fibonacci Retracement

The 50% Fibonacci retracement level is a key level that represents the halfway point of a price move. During a pullback, if price retraces to this level and holds, it can indicate that the previous trend is still in place and there is a likelihood of a continuation of the trend. This level is especially important during uptrends and downtrends and can act as a key level of support or resistance.

Step 3: Combine Hidden Divergences and 50% Fibonacci Retracement

Combining hidden divergences and the 50% Fibonacci retracement level can be a powerful combination when it comes to pullback trading strategies. When you see a hidden divergence forming on the MACD histogram while price is approaching the 50% Fibonacci retracement level, this could signal a potential trend continuation trade. This combination of leading signals can offer you a more complete picture of market conditions and can help you pinpoint pullbacks with a higher probability of success.

Step 4: Spotting Hidden Divergences and Applying Fibonacci Retracements

To spot a hidden divergence on the chart, you must mark the correct swing points on the price and MACD. It is important to use only one complete wave on the chart and one complete wave of the oscillator to spot divergences. You also need to correctly mark the higher highs and lower lows on the price and on the MACD histogram.

Once you have identified a valid hidden divergence, you can then apply the Fibonacci retracement level. If price hits this area, you can enter a trade either aggressively or wait for a candlestick pattern like a pin bar or engulfing candle. You can place a stop loss below the 61% or 78% Fibonacci retracement levels and initially target the previous swing high. You can also use Fibonacci extensions to find additional profit targets.

Step 5: Look for Trend Line Breakouts

Lastly, trend line breakouts or breakouts of other small levels are also strong signals that the hidden divergence could prove to be successful if you don’t find a valid candlestick pattern. By keeping an eye out for these breakout signals, you can further confirm your entry and potential profit targets.

Conclusion: Mastering the Pullback Trading Strategy

By using hidden divergences and Fibonacci retracements in combination, you can find high probability areas for initiating trades in the direction of the dominant trend. This strategy takes out the guesswork in pullback trading and allows you to spot potential trend continuations with ease. Remember to use proper money management, and keep an eye out for trend line breakouts and other key levels to confirm your entries.

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