A Concept in Technical Analysis Called “Perfect Pullbacks” Within an Uptrend

This concept helps traders identify potential entry points in a market that is moving upward.

Here is a detailed explanation of the key terms and stages illustrated in the chart:

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Uptrend

An uptrend is characterized by a series of Higher Highs and Higher Lows. This means that each new high is higher than the previous one, and each new low is also higher than the one before it.

Higher High (HH)

This is the highest point the price reaches before starting a temporary decline. Each time price breaks above a previous high, it forms a new Higher High.

Higher Low (HL)

After forming a Higher High, the price pulls back temporarily to create a low. This low is still higher than the previous one, confirming that the uptrend is still strong.

Pullback

A pullback is a temporary price decline that occurs after forming a Higher High. It is considered a natural and healthy movement in the market, as some traders take profit, leading to a slight drop in price before the uptrend continues.

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How to Read the Chart

1. Price starts from a Low and rises to form a High.

2. A Pullback occurs, forming a Higher Low above the previous low.

3. Price then rises again, breaking the previous high to form a Higher High.

4. This cycle repeats: price rises to form a new Higher High, then pulls back to form a Higher Low, and so on.

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Why Are They Called “Perfect Pullbacks”?

These pullbacks are considered “perfect” because they offer clear buying opportunities. The idea is to buy at the end of the pullback (at the Higher Low), expecting the price to resume its upward movement and form a new Higher High.

The area that previously acted as resistance (the previous high) often becomes support (the new Higher Low) — making it an ideal entry point.

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In Summary

The diagram illustrates a trading strategy based on following the uptrend and buying during temporary pullbacks rather than buying at the highs.