Summertime is here, and, as far as markets are concerned, it’s been here a while. One of the characteristics of summertime trading is generally lower volatility and poorer followthrough.
Summer markets are not untradable, but they do require utmost discipline–any mistake will likely be severely punished. In some market conditions you can be a little “loose” and take trades that might not be very well set up. Not so here; markets like this only reward the most disciplined traders.
However, one thing that has always fascinated me is that the pullback is such a robust pattern it continues to work even as most trends dry up. Yes, you’ll need to reduce expectations a bit. (We’ve found that taking full profits at 1R is a good way to play defense in this environment.) You’ll need to consider your risk management and position sizing carefully.
But the core methodology still works.
Here are a few examples of pullback patterns from recent markets. In all cases, I’ve just drawn a line over the “business end” of the patterns–so the downsloping lines indicated bull flags and upsloping for bear flags.
Perhaps nothing revolutionary here, but a quick look at a pattern on which you can ground a trading plan.
click charts for full size
