The Deep Pullback strategy identifies trends in the market using three moving averages (200, 100, 50). It only enters trades that are in the direction of the longer term trend. It waits for a pullback in price to the 100 MA or deeper, accompanied by a pullback in the Stochastics indicator. It uses a stop-loss at the last swing high/low and targets a profit of 2-3 times the risk. Position sizing is limited to 2% of equity per trade. Profits are locked in by trailing the stop-loss at predefined intervals. The strategy aims to control risk through defined stop-losses and position sizing.

1. Deep Pullback Strategy
James Chen, CTA, CMT
Director of Technical Research and Education
FXDD

2. Key Principle: Trade T.P.B.
Identify the TREND. Watch for PULLBACK. Trade the BREAKOUT.
2) Pullback
Reward
Risk
3) Breakout
1) Trend
Underlying Principle: RISK CONTROL through stop-loss

3. Strategy:
Deep Pullback

4. Deep Pullback: 3 MA Pullback Trade
• Three moving averages (simple: 200, 100, 50)
• Only trade with the trend when three are in correct
order
• Enter only when Stochastics pullback coincides with
price pulling back to 100 MA or more.
• Stop-loss at last swing.
• Target 2-3 times RISK or better.
• (Optional) Trail SL to lock in breakeven and further
profits.

5. Position Sizing and Taking Profit
• Stop-loss is right above/below the last swing high/low. Measure
the number of pips from entry to the stop loss. Call that 1T.
• Size trading position so that the dollar amount of 1T does not
exceed 2% of your overall trading equity.
• Set your overall profit target at 2T-3T.
• (Optional) At 1T profit, bring stop-loss to breakeven.
• (Optional) At 2T profit, bring stop-loss to 1T profit.
• (Optional) At 2½T profit, bring stop-loss to 2T profit.
• (Alternatively) Enter trade with 3 positions and stagger exits.

6. James Chen, CTA, CMT
• Director, Technical Research and Education at FXDD, a global forex
broker
• Active forex trader/analyst since inception of retail forex, using
primarily technical analysis. Traded equities and futures.
• Chartered Market Technician (CMT)
• Registered Commodity Trading Advisor (CTA)
• Publish daily and intraday currency analysis at
TradersLog.com, FXDD.com
• Authored numerous articles in Forbes.com, Futures
Magazine, Technical Analysis of Stocks & Commodities Magazine, SFO
magazine, etc.
• Quoted by Reuters News, Dow Jones, Bloomberg, Associated Press
(AP), International Herald Tribune, etc.
• Author of Essentials of Foreign Exchange Trading (John Wiley &
Sons, 2009), Essentials of Technical Analysis for Financial Markets
(John Wiley & Sons, 2010), and High-Probability Trend Following in the
Forex Market (FX Street, 2010) DVD set