Pullback or Breakout? A Pre-Entry Checklist to Tell Them Apart

Traders are currently eyeing the EURUSD as it approaches a significant resistance level, facing the classic dilemma of whether to buy the breakout or short the pullback. The discussion centers around Thomas Lindbergh's pre-entry checklist, which aims to provide a data-driven framework for distinguishing between temporary pullbacks and genuine breakouts. The importance of context is emphasized, with traders needing to analyze higher time frames to understand the prevailing market regime.

The conversation delves into the characteristics of price movements, particularly the behavior of retail buyers during rapid price increases. It highlights that a sharp price surge can indicate exhaustion rather than sustained momentum, suggesting that buyers may be providing liquidity for institutional sellers to initiate a reversal. The hosts explain the concept of a "pre-breakout coil," where smaller, overlapping price movements signal institutional absorption of selling pressure, contrasting with the volatility of a V-shaped trap.

Additionally, the discussion touches on the use of tick volume as a proxy for market activity, especially in SpotForex where centralized exchange volume is unavailable. Traders are advised to look for expanding tick volume during a true breakout, indicating institutional support. The episode concludes with actionable steps for traders to audit their recent trades and consider how macroeconomic news events might impact their technical setups, emphasizing the need for adaptability in trading strategies.

Learn how to tell a pullback from a breakout using approach velocity, order absorption, and candle structure to stop trading false moves and improve entries.