Rajandran R Creator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

Understanding Pullback Low – Market Profile Tutorial

1 min read

Pullback Low is identified during trend days when there’s a price movement in the late afternoon that counters the day’s prevailing trend. This movement is part of what’s termed an “inventory adjustment,” suggesting a period where traders are likely adjusting their positions in anticipation of the market closing or in reaction to accumulated information throughout the trading day.

Based on the Nifty Future price action from March 22, 2024, the image illustrates a “Pullback Low” which, in simple terms, can be described as follows:

During the trading day, the Nifty Future experienced a downward movement late in the afternoon. This occurred within a day when the overall trend was upwards, or at least not downward. The term “Pullback Low” is applied to the lowest price point reached during this late afternoon period. It is indicative of a counter-movement against the day’s larger trend.

This Pullback Low often represents a point where traders are collectively reassessing and adjusting their positions. This could be in response to new information, a reaction to the nearing market close, or simply a collective decision to take profits or limit losses. The activity results in a temporary decline in the price, marking the Pullback Low, which can be seen on the Market Profile chart.

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Characteristics of a Pullback Low

  1. Elongation Over Bulges: Contrary to balanced structures, a Pullback Low typically manifests as an elongated structure, signaling a deviation from the day’s trend.
  2. Common in Bull Markets: These adjustments are a hallmark of traditional bull markets, indicating a temporary recalibration of intraday inventory.
  3. Short-term Validity: The significance of a Pullback Low is primarily for the immediate trading day that follows.
  4. A Cue for Traders: Short-term and intraday traders often leverage Pullback Lows for visual trading strategies, seeking opportunities around these levels.
  5. Trend Reversal Indicator: A significant acceptance below the Pullback Low on a subsequent day may indicate a shift from a positive to a negative short-term trend.

The significance of the Pullback Low comes into play in the subsequent trading sessions. If the next day’s price action does not break below this Pullback Low, it suggests that the market sentiment has not shifted significantly enough to reverse the trend from the previous day. Essentially, the Pullback Low becomes a reference point that traders watch to gauge whether the market’s upward momentum is continuing or if the late pullback signaled a change in direction.

The presence of a Pullback Low is a common phenomenon in markets and is used by traders to understand market dynamics, plan entry and exit points for trades, and manage their risk exposure. It can be particularly significant when it appears as part of a larger bullish trend, as it may present a buying opportunity for traders who believe the overall upward trend will continue.

Rajandran R Creator of OpenAlgo - OpenSource Algo Trading framework for Indian Traders. Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Building Algo Platforms, Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in

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