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Nial Fuller

NIAL FULLER
Professional Trader, Author & Trading Coach

6 Price Action Retracement Entry Types You Need To Know

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By in Forex Trading Strategies By Nial Fuller Last updated on | 38 Comments

You’ve probably heard the word “retracement” or “retrace” quite frequently if you’re interested in trading the financial markets. But do you actually know what price retracements are, why they’re so important and how to properly take advantage of them? Perhaps not, but even if you do, today’s lesson is going to shed new light on how to utilize these extremely powerful market events…

A retracement in a market is a pretty easy concept to define and understand. Simply put, it’s exactly what it sounds like: a period when price retraces back on a recent move, either up or down. Think about “retracing your steps”; going back the same way you came. It’s basically a reversal of a recent price move.

Why are retracements important? For a number of reasons: They are opportunities to enter the market at a “better price”, they allow for optimal stop loss placement, improved risk reward and more. A retrace entry is more conservative than a “market entry” for example and is considered a “safer” entry type. Ultimately, the goal of a trader is obtain the best entry price and manage risk as good as possible whilst also increasing returns; the retracement entry is a tool that allows you to do all three of these things.

This lesson will cover all aspects of trading retracements and will help you understand them better and put them to use to hopefully improve your overall trading performance.

Now, let’s discuss some of the Pros and Cons of retracement trading before we look at some example charts…

Pros of Retracement Trading

Let’s talk about some of the many “Pros” of retracement trading. To be honest, retracement trading is basically how you trade like a sniper, which, if you’ve followed me for any length of time, you know is my preferred method of trading.

  • Higher Probability Entries – The very nature of a pull back or retrace means that price is likely to continue moving in the direction of the initial move when the retrace ends. Hence, if you see a strong price action signal at a level following a retracement, it’s very high-probability entry because all signs are pointing to price bouncing from that point. Now, it doesn’t always happen, but waiting for a retrace to a level with a signal, is the highest-probability way you can trade. Markets rotate back to the “mean” or “average” price over and over; this is clear by looking at any price chart for a few minutes. So, when you see this rotation or retrace happen, start looking for an entry point there because it’s a much higher-probability entry point than simply entering “at market” like most traders do.
  • Fewer Premature Stop-Outs – A retracement allows more flexibility with stop loss placement. Mainly, in that you can place the stop further away from any area on the chart that is likely to be hit (if the trade you’re taking is to workout at all). Placing stops further away from key levels or moving averages or further away from a pin bar high or low for example, gives the trade a higher chance of working out.
  • Better Risk Rewards – Retracement entries theoretically allow you to place a “tighter” stop loss on a trade because you’re entering closer to a key level or you’re entering at a pin bar 50% level on a trade entry trick entry for example. So, should you choose to do so, you can place a stop much closer than if you entered a trade that did not happen after a retrace or if you entered a pin bar trade at the high or low of the pin, for example. Example: a 100 pip stop and 200 pip target can easily become a 50 pip stop and 250 pip target on a retrace entry. Note: you don’t need to place a tighter stop, it’s optional, but the option IS There on a retrace entry if you want it. The alternative, using a standard width stop has the advantage of decreasing the chances of a premature stop out.
  • A risk reward can also be slightly increased even if you use a standard stop loss, instead of a “tighter one”. Example: a 100 pip stop and a 200 pip target can easily become a 100 pip stop and a 250 pip target. Why? It’s because a retrace entry lets you enter the market when it has “more room” to run in your direction, as a result of the fact that price has pulled back and it thus has more distance to move before it retraces again as compared to if you entered at a “worse price” further up or down.

Cons of Retracement Trading

Of course I’m going to be honest with you and let you know some of the “cons” of retracement trading, there are a few that you should be aware of. However, this doesn’t mean you shouldn’t try to learn retracement trading and add it to your trading “toolbox”, because the pros FAR outweigh the cons.

  • More Missed Trades: Good trades will “get away” sometimes when waiting for a retracement that doesn’t happen, for example. This can test your nerves and trading mindset and will annoy even the best traders. But trust me, missing out on trades is not the worst thing in the world and it’s better to miss out on some trades than to over-trade, that is for sure.
  • Less Trades in General – A lot of the time, markets simply don’t retrace enough to trigger the more conservative entry that comes with a pull back. Instead, they may just keep going with minimal retracements. This means you will have less chances to trade overall as compared to someone who isn’t primarily waiting for retraces.
  • As a result of the above two points, retracement trading can be frustrating and takes incredible discipline. However, if you develop this discipline you’ll be WELL ahead of the masses of losing traders and so retracement trading can help you develop the discipline you must have to succeed at trading no matter what entry method you end up using.

Retracements Provide Flexibility in Stop Loss Placements

Placing your stop loss at the wrong point can get you knocked out of a trade prematurely, that you otherwise were right on. By learning to wait for market pull backs or retracements, you will not only enter the market at a higher-probability point, but you’ll also be able to place your stop loss at a much safer point on the chart.

  • Very often, traders get discouraged because they get stopped out of a trade that technically they were right on. Placing a stop loss at the wrong point on a chart can get you taken out of a trade before the market really has a chance to get going in your direction. A retracement offers up a nifty solution to this problem by allowing you to put a safer and wider stop loss on a trade, giving you a better chance at making money on that trade.
  • When a market retraces or pulls back, especially within a trending market, it is providing you with an opportunity to place your stop loss at a point on the chart that is a lot less likely to knock you out of a trade. Since most retraces happen into support or resistance levels, you can place the stop loss further beyond that level (safer) which is significantly less likely to be hit than if it was closer to the level. Using what I call a “standard” stop loss (not a tight one) in this instance will give you the best chance at avoiding a premature knock-out of a trade.

The Different Retrace Entry Types: Examples

Next, let’s take a look at some of the different retrace entry types so that you can get a clear look at what they might look like…

  • Retrace Entry Without Price Action Signal

In the example below, you can see price retraced or pulled back to the key horizontal level shown in the chart. There was no obvious price action signal here but we can see price quickly sold-off from that level after just barely pushing above it. This provided traders a very high potential risk reward scenario if they entered on a “blind entry” at the level with a tight stop loss…

  • Retrace to Key Level with Price Action Confluence

Perhaps my favorite trading strategy of all time is the following example: Wait for price to retrace back up or down to an existing key level on the daily chart time frame, then watch for an obvious price action signal to form there. In my opinion, this is the highest-probability way to trade…

  • Retrace to Moving Average (rotation to the mean)

Markets have a tendency to retrace to the mean or average price, which you can see by putting a moving average on your charts. Shown below is the 21 day ema, a solid short-term moving average to see the trend on the daily chart. When price retraces back to this level you should watch closely for price action signals forming there to get a high-probability entry and get in on a trending market…

  • 50% Area Retracements

Price has a tendency to retrace approximately 50% of any major move and often times even short-term moves. This is a well-documented phenomenon and if you look at any chart you can see it happens, A LOT. Hence, we can watch for pull backs to these 50% areas as they will very often be formidable levels for price to move beyond, and as a result, price moves back in the direction of the initial move from that 50% level. It doesn’t happen EVERY time, but it happens often enough to make it a critical tool in your retracement trading tool box…

  • Retrace Entry of a Signal Bar or Signal Area

Yet another way we can utilize retracements is also very effective yet a little different than those we have discussed already. What we are looking at below is what I call a “50% pin bar retrace“. Often, on longer-tailed pin bars, you will see price retraces around half the distance from high to low of the signal bar, providing you the potential to enter at a better price and get a safer or tighter stop loss.

Example 1: You can see below how a 4R profit was attainable by waiting for the retrace and entering near the pin’s 50% level.

Example 2: You can see below how a 2R profit was attainable by waiting for the retrace and entering near the fakey patterns 50% area.

  • Retrace Entry Back to an Event Area or Prior PA Signal

When price retraces back to what I call an “event area” it’s a very high-probability area to look for trades at. As you can see below, price retraces back to an existing event area where a pin bar signal formed and then forms another (bearish this time) pin bar before a huge sell-off takes place…

Conclusion

You now have a solid introduction and (hopefully) understanding of what price action retracements are, why are they important and how to trade them. Whilst there is a bit more to it than what I discussed here, this lesson gives you a good foundation to build from and provides you with some tools you can start putting to work in your trading routine this week and into the future.

If you want to learn more about retracement trading and get daily updates on any potential retracement trades, check out my professional trading course and follow my daily trade setups newsletter. This will both deepen your understanding of retracements and also help you apply these concepts to real-time price action signals then you can test and compare the outcomes between aggressive entries (like those in this article) and traditional entries that you’re probably more familiar with. Remember, I am always here to help you and share my knowledge with you, so keep learning and practicing.

Please Leave A Comment Below With Your Thoughts On This Lesson…

If You Have Any Questions, Please Contact Me Here.

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About Nial Fuller

is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught 20,000+ students since 2008. In 2016, Nial won the Million Dollar Trader Competition. Checkout Nial's Professional Trading Course here.
  1. Yakawonya Rutson September 16, 2019 at 4:44 am

    Always out with a winner post A teacher to cherish Thanks many thanks over

    Reply
  2. Nour September 15, 2019 at 11:45 am

    Nial, you are the godfather of the Forex trading.

    Reply
  3. NKAMA September 15, 2019 at 12:55 am

    You are too much sir. By this you have solved most of my problems.

    Reply
  4. Medi September 14, 2019 at 5:29 pm

    You tha God sent!

    Reply
  5. NGUYEN QUOC THANG September 14, 2019 at 1:28 pm

    Pls support me to explain more about ” Event area ” in the line ” Retrace Entry Back to an Event Area or Prior PA signal.

    Thank you
    THANG

    Reply
  6. Mahmudul Hasan September 14, 2019 at 1:32 am

    Super Nial bro…..

    Reply
  7. Diário de um Poupador March 5, 2018 at 1:32 am

    Hi, i am a brazilian guy who trades for years. I pause my trades during some years, and i came back about 2 months ago. I’ve been trying a strategy with short take, and it has given to me a lot of profits. I am trying to make my mind strong to ignore the market’s movement after i book profit. You have said a very right thing here: the market always makes a retraction.

    This article was very good, thanks. Keep it that way. God bless you.

    Reply
  8. Solomon Olusegun Oyeniyi December 13, 2017 at 9:24 am

    Thank you for this article.

    Reply
    • Liton khan September 16, 2019 at 12:14 am

      Very nice Boos.ok go forawd.

      Reply
  9. GANDUS December 4, 2017 at 6:10 am

    Great always to hear you big brooother Nail. God bless you. timely article for me. love

    Reply
  10. Noor Azman Abd Aziz November 26, 2017 at 2:10 am

    Nice and very interesting. This article answer the questions why i always close trades with losses while actually I have been profitting during the trading session.

    Reply
  11. Sboniso Malambule November 24, 2017 at 6:22 pm

    ive bee reading your lessons im impressed

    Reply
  12. Azmi Yusoff October 17, 2017 at 2:52 pm

    Interesting article. This happen everytime. The idea of wanting to wait a little more time may cause us to lose what is supposed to be a profit instead.

    Reply
  13. Ayanda Mabuza September 18, 2017 at 10:56 am

    reading such artecles really opens my mind.Thanks Nail

    Reply
  14. Roy Peters September 1, 2017 at 2:39 am

    This happened to me recently on Eurgbp. Up 200 pips and thought it’d go higher. Next day market came down and I booked only 40pips!
    I learn a big lesson.

    Reply
  15. Rafari July 31, 2017 at 1:29 am

    ok, its been almost 2 years since I start to learn how the market move. I can say most of your articles give me a vision about how to, what to do and don’t. It’s cool because I start move to learn draw some major snr, I got stuck on making it, but your articles show me some clever way to draw “a key level” and some short term. I’ll try my best to practice it everyday !!!

    Thanks Nial, You’re Awesome !

    Reply
  16. kgothatso July 28, 2017 at 6:00 pm

    U ar really a genus.sir u teached me that i should take a risk than to lose the chance **#great things come to those who hustle (lovely)$$$$$

    Reply
  17. Alan Gillanders June 25, 2017 at 3:25 am

    Hi Nial,
    Thanks for the lesson. This has been my problem for some time. Greed. Always waiting to take more with a small investment. My profits evaporate and majority of times end in a loss.
    In the last 6 weeks I have been taking the small profits. 100 – 200 points instead of trying to get 500-1000 points. seems to be working ok. Thanks again

    Reply
  18. oluwatosn Matthew June 23, 2017 at 5:50 pm

    That’s a good trading guide. Thanks nial.

    Reply
  19. Ages Justice June 22, 2017 at 5:40 am

    Keep it up Mentor. God bless you more!

    Reply
  20. Louis June 21, 2017 at 11:43 am

    This is exactly what was missing from my trading. Realistic exit plans. Thank you Nial.

    Reply
  21. endurance oki June 21, 2017 at 8:05 am

    thank you sir for your well prepared article. Im a victim of this very situation , i’ve almost hit my profit target then i said i should let the profit run but to my very face , the profits were evaporating until i closed the trade .

    Reply
  22. DAVID SHUBE June 20, 2017 at 7:48 pm

    Thanks Nial, booking profits on-time is right, cos too much emotional traits is involved when one realized that the trade is going to retrace unexpectedly.

    Reply
  23. PEERALLY June 20, 2017 at 6:21 pm

    Thank you, Nial.

    Reply
  24. Kate M June 20, 2017 at 6:49 am

    Thanks Nial, way to go. You keep writing evolving lessons like these, Ill always have something to learn. And again an opportune time to write this particular article, I think you are the Yoda of trading:)

    Reply
  25. Lucas Obiora June 19, 2017 at 9:07 am

    Thanks Nial, that’s an eye opener to me, I have that problem of letting profits run into losses, thank you very much for the article.

    Reply
  26. Kay June 19, 2017 at 8:49 am

    Thank you Nial, well explained and organized article. Definitively help me to prepare my Profit plan. Regards

    Reply
  27. smg June 19, 2017 at 3:17 am

    Thank you

    Reply
  28. richadi36 June 19, 2017 at 2:07 am

    Thanks Nial. I really got immense knowledge about booking profits.

    Reply
  29. Suleiman Bhadmus June 18, 2017 at 11:14 pm

    Amazing,am definitely going to include all this point in my trading plan. Though am still on demo, but what have learned from this article in very key to a successful trading.
    Thanks a lot Mr.Nail Fuller.

    Reply
  30. Matt June 18, 2017 at 5:25 pm

    This happened to me last week. Was up 700 proffit and closed with 700 loss because i had such an attachment to what i thought was a fullproof longterm move in one direction so i wanted to ride the waves but it looks like it wasnt the long term move in that direction i thouht it was.

    Reply
  31. akhtar butt June 18, 2017 at 4:44 pm

    Hi, Dear Nial Fuller, , excellent, well-explained with reality and experience. Thank, cheer

    Reply
    • Bebe April 30, 2019 at 7:57 pm

      Excellent article,Thanks Nail

      Reply
  32. Akpos June 17, 2017 at 6:46 pm

    Nice….this has been my bane in trading. Not booking profit….

    Reply
  33. John Promise June 17, 2017 at 6:02 pm

    Thanks Nial. My mentor.
    Remain blessed.

    Reply
  34. Thendo June 17, 2017 at 4:58 pm

    Thanks Nial.. great advise. Am looking forward to not closing or closing when the trade goes against you but hasn’t hit your stop loss…

    Reply
  35. Luis June 17, 2017 at 12:20 pm

    Thanks so much Neil as always, great article!, mm please i have a question, what about the case that all the other trading books and gurus says about let profits run until at least 1:2 Risk reward ratio? , because they say if i close before that 1:2 im cutting my profits and that can damage me in the long run! , but in the real life im bored to wait sometimes for a 1:2 and when im at 90% to achieve that profit target the markets turns down eliminating all my profits and making a loss for me, but when i book the profits i see my account growing, what you can reccomend me about that?.

    Reply
  36. Bruno June 17, 2017 at 10:48 am

    Before reading the whole article, I’m writing this! Just the header alone struck the cord. Toy, Nial, are a mind reading mentor! I’m at that stage in my trading where my edge is consistently delivering profits! But, yes, most times, these profits evaporate. Alot is happening around the political and business world and price is fluctuating between these events. Yes, price still does was it’ll do, but the whipsawing is alarming! I can’t say enough how soothing this article is to me because I make sizeable % of my Acct only to watch some diminish or disappear, even into losers.

    Thank you for this article.

    Reply
  37. Mavhungu Lufuno June 17, 2017 at 9:14 am

    Amen

    Reply
  38. Elpadrino June 17, 2017 at 4:54 am

    Thanks Nial #Legendary

    Reply
  39. Alin June 17, 2017 at 4:20 am

    I am one of those loosers who do not book much profits on the trades, because I’m setting
    way too large TPs. Thanks for the posting!

    Reply
  40. Shankara Motay June 17, 2017 at 3:59 am

    Thank you very much

    Reply
  41. Rongsquare June 17, 2017 at 12:44 am

    Amazing thank you Nail

    Reply
  42. Mike Coe June 16, 2017 at 11:27 pm

    Your articles just keep getting better and better, Nial! Great stuff! Thank you very much.

    Reply
  43. Siyabonga Mkhize June 16, 2017 at 11:10 pm

    Powerful thank you sir

    Reply
  44. KRISTOFA OKENTA June 16, 2017 at 9:37 pm

    Good Teaching As Always.
    Thank you For Sharing Your
    Heart With Us.

    Reply

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