A trader explains why buying pullbacks to a 10-period daily EMA beats chasing breakouts. Pullbacks offer tighter risk-reward because breakouts often fade in choppy markets. He uses a 5-minute chart to spot the initial pump, then enters when price retreats to the EMA and turns higher, with a stop just below it.
Buying pullbacks in the context of an uptrend gives you a very, very tight risk reward, much tighter than buying on strength. When I do notice that breakouts have a tendency to fade, although we're in the context of an uptrend, but then it's become more choppy. So rather than buying on strength through the breakout level, I would buy in anticipation into a moving average. What it would look on a 5-minute chart, price kind of opens, it gives you that first initial pump and then it starts to fade. And then on the daily chart, you have your 10 exponential moving average. So it would move like somewhat in a stair-step fashion. In the intraday, what I'm looking for is price to touch it and then start to turn higher. I would buy that pullback into the moving averages, buy it as it turns right here, and I would set my stop loss at the low of day or below the moving average.
