How to detect PULLBACKS in Pine Script

hey Traders hope you're doing well in
today's video I want to break down the
source code to a script I wrote a long
time ago that script is called the
aggressive pullback indicator and it's
designed to detect pullbacks in the uh
Forex markets that was its original
intent but of course it works on any
Market um this was actually the very
first script I ever published so if we
come to my trading view profile and
scroll to the bottom of my script list
this is the very first script I ever
published my aggressive pullback
indicator back in June of 2018 A lot's
happened since 2018 uh but the markets
haven't changed pullbacks are still an
effective way to trade and so in today's
video we're going to take the script
update it to version five syntax with
the latest Pine script features
including uh importing libraries so
you'll get to see a lot of different
techniques in today's video so if you're
interested in that stick around and
after the disclaimer we will get
[Music]
coding
none of the material in this video is
financial advice I'm experienced in
managing my own finances but I'm not
qualified to give anyone advice on what
to buy or sell everything I do in these
videos is purely to demonstrate coding
techniques and the code I write is
purely for example purposes you should
always do your own research and due
diligence before engaging in trading or
investing and please seek professional
guidance if you need it with that said
let's look at some code all right so as
mentioned the purpose of this script the
reason I created it in the first place
was to help me trade a pullback System
created by one of my very first trading
coaches or mentors Steven Hart from the
trading Channel Steven has come a long
way since then he's got 2.5 million
subscribers when I first found his
channel he had about 100,000 he's one of
the biggest um trading YouTubers on the
planet uh but anyway this system he
created called the pullback strategy he
has changed rules over the years but
this is the original incarnation of my
tool I created to help me trade this
pullback system now this isn't a trading
lesson so I'm not going to tell you the
rules you can use all kinds of rules
effectively to trade pullbacks um the
way I used to trade it was basically
this script will sometimes pick up false
positives so I wouldn't trade every
signal that detected but this signal
here would meet my rules we've got a 1
two 3 Move break above uh the EMA and
then a pullback that does not break the
prior low and we get a valid pullback
signal here I would back in 2018 when
when I started learning systematic
trading and rules based trading this is
the very first system I learned to trade
that made me a consistently profitable
Trader and how I used to trade it was
I'd enter long stop loss here one target
here once that was hit I would Trail my
stop loss on my open position until it
got hit by a price action so it was a
two target system very simple I traded
the 4-Hour time frame on the major Pairs
and it was quite effective back in 2018
it's probably changed now I don't trade
the system the same way anymore so so
again this is not a trading video this
is not trading advice this this is just
what I did back in the day so this
particular tool is an indicator so it's
not a strategy script what I would
normally do is Select my script it would
say API alert or aggressive pullback
indicator alert I would create my alert
and then whenever a signal was uh
generated I would get a push
notification to my phone and I would
come and check the charts and uh enter
my trades manually so today's lesson is
an indicator script it's a market
analysis tool um just a good example a
good template for you guys to work with
if you're interested in analyzing
pullbacks so with all that said let's
jump into the pine editor and get coding
all right so I've already written out
the code to the script but I'll delete
all that code so that I can build out
each section one by one and explain what
I'm doing the full source code as always
will be in the pin comment below in the
video description if you want to um Jump
Ahead copy it and and play around with
it but if you're interested in
understanding the code stick around and
I'll explain everything so first of all
uh I need overlay the TR so so that I
can draw over price action I'm importing
my zen Library so my zen
Library um I'll go over that later but
basically it's just a um it's basically
just a a script Library it contains a
bunch of code that I reuse in a lot of
my uh scripts like Candlestick detection
and certain um Market condition uh
filters it's all included in my library
and I can simply access them by typing
zen. control space and here is the list
of functions included in my library and
I'll use a couple of these in today's
script
so I'm going to copy over some code here
we'll start with some user inputs as
always now I could have added a lot more
um indicator uh settings here but I've
kept it really simple for today's lesson
so we've only got an EMA length a stop
size multiplier of the ATR a risk risk
reward profile and a signal type EMA is
just the EMA period stop distance is a
multiplier of the ATR so by default it's
a one ATR stoploss and the risk reward
is by default a one:1 risk reward so
very simple settings here next up uh I'm
just going to check create two
persistent variables here or constant
variables um these variables will never
change these are two Boolean variables I
can add Bull on the end here just to
make it clear what they are so this will
dictate whether or not this uh script
generates long and or short signals so
we're just checking is signal type set
to both or long if that's true true then
we are taking long trades and the same
for short trades so if I save my code
open up the
settings this would only detect long
trades this would only detect short
trades and both would detect both um
this is how I manag that setting here
and we reference these values later the
next thing I need to do is just get some
indicator values all so we're getting
our EMA value using the standard method
we pass in our EMA length and we're
generating it based on the closing price
uh our ATR is hard-coded as a 14 period
ATR again you could change these into
user inputs if you wanted to tweak them
um but since this isn't a system script
it's not a strategy script it's not
generating trades it's not a lot of
benefit to um adjusting that unless it
it suits um your trading uh rules and
system normally I just hardcode a lot of
these indicator values when I'm dealing
with an indicator um but with strategy
scripts you obviously want to see the
effective tweaking these values so yeah
that's just a matter of preference for
you guys if you want to expand the
script to add user inputs next we have
uh stop size so this is what generates
our stop loss size in Pips or points in
the in the stock market um so this value
is going to be the current ATR value
multiplied by our stop size or stop
distance input so if I set this to two
we'll have a 2 ATR stop loss you get the
idea
next up we need to calculate our
stop-loss and Target prices now because
this isn't a strategy script this is
very simple for an indicator script this
is a lot um less complicated than it
would be for a strategy script for this
I just need a single Trade Stop price
and a single trade Target price this
script doesn't take long and short
trades at the same time so we can just
store one stop and one Target price for
every traded uh detects however for our
long and short uh stop losses they
obviously need to be different because a
long stop is below price a short stop is
above price so the formula is a little
bit different for that long entry size
is actually in Pips so this should
probably say distance that's a little
bit confusing because I associate size
with position sizing so I'll change that
to distance and we'll have to tweak the
script as we go and this should say stop
really not entry I don't don't know what
I was thinking there
um to be fully honest with you when I
first started trading I was a stoner
musician so I was probably smoking weed
when I wrote the script I don't do that
anymore because uh it did not help me uh
with Focus as a Trader so that's a habit
I've dropped since I became a Trader you
have to make a lot of sacrifices as a uh
professional Trader so long stop
distance Short Stop distance now because
I'm calculating my long stop and short
stop distances Pips
um things are a little bit different
here this is subtracting the lowest low
from the closing price so let's say uh
this was an entry reason
here entry signal so I'm taking my
closing price and I'm subtracting the
low the lowest low that gives me this
distance here and then I add my stoploss
distance which is uh this multiplied by
the ATR so a 2 ATR stop would be down
here somewhere so I'm adding on that
extra
stop- loss distance and this gives me my
stop loss distance in Pips not a price
stop- loss A pip based stop- loss and
then I can use that to calculate my
stops and Targets later after we've
quote unquote entered the trade or or um
generated the entry signal I can use
this information to generate my
stop-loss and then I can use my
stop-loss distance to generate my
takeprofit distance so we we'll get to
that in a minute so next up I need my
signal rules so I've just written a few
comments here to explain the rules each
entry only has three rules or some of
these are merged together I simplify
this script a bit there used to be six
rules but I've Consolidated them down
into our three so the first rule is that
we need an engulfing candle that
engulfing candle must be above the EMA
for long trades or below for short
trades rule number two is that the entry
candle must be the current swing low or
high for a short trade so we're only
looking for Extremes in price action
we're looking for a swing low and then
an engulfing candle to occur or in the
case of a short trade uh we're looking
for a uh we're looking for a swing high
and then an engulfing candle below the
EMA so the EMA Keeps Us in the right
direction trend-wise and momentum wise
the engulfing candle is our entry signal
um the engulfing candle must be a
current swing high or swing low and the
engulfing candle must not be massive so
sometimes you'll see um situations like
this where maybe this was the swing low
and then you have a gigantic engulfing
candle which is clearly not tradable I
wouldn't I would never when I was
trading this system I would never enter
a candle this big and so I do have a
filter in this pullback detection to
eliminate detecting giant um engulfing
candles so with all that said let's copy
over my actual entry code and I'll
explain what's happening
so here I'm validating long trades and
short trades we're combining our three
rules which are listed here so to keep
things simple I'll just focus on Long
trades for now so that we can easily
wrap our head around What's Happening
Here the short trade is identical it's
just flipped so we're checking if the
closing price is above the EMA and I'm
using my zen Library here to use a
function I created to count how many
bars have closed below the given ma
value over the given look back period
this function call here is checking how
many bars closed below the EMA over the
past three bars that number needs to be
less than equal to or less than one so
we can only have one bar closed below
the EMA over the past three bars if we
have more than that it's an invalid
trade because we're whip soring around
the
EMA and I'm detecting my bullish
engulfing Candlestick pattern using my
zen Library as well that simplifies my
code quite a bit um both both of these
two functions cut out I don't know maybe
20 lines of code maybe not quite that
many but um it cuts out a bit of
complexity um and I use these filters
quite often in a lot of my scripts so
that's why I created my zen Library if
you're interested in the source code to
this I already have a a lesson on the
channel um breaking down the source code
to the Zen Library script it's
completely open source um but if you
want to quickly see what this is doing
you can hold down control click on that
function here is the uh Zen light
Library script um here's the
documentation is a loose word for it
here's the description of each um each
function and what it does what
parameters it takes what it spits out or
returns it's more technical word for
that if I scroll down here um and expand
my source code if I find bullish
engulfing candle here is all the checks
for a bullish engulfing candle there are
some optional parameters that I'm not
going to touch in today's uh video you
can read through this documentation if
you're interested there are also other
Candlestick patterns we could detect
dois we could detect hammer and star
candles instead of engulfing candles
which look like this uh that would be a
hammer candle and a star candle the
opposite way you could uh these are
great entry reasons as well in pullbacks
they also make for good u mean reversion
Candlestick patterns but anyway back to
the scripts the next rule was that we
need to be a swing high or low so here
we're just checking is the current bar
the lowest low over for the past seven
bars or was the previous bar the lowest
low so in the case of this trade here or
this signal here the previous bar was
the the lowest low over the past seven
bars in the case of this bar here the
signal candle was the lowest low over
the past seven bars so we need to check
for both in order to accurately detect a
swing low next we have Ure and golfing
candle is not massive so we're making
sure that the closing price is lower
than the highest
opening price over the past five bars so
here we have 1 2 3 4 5 this is our
opening price over that five bar period
the highest opening price our close must
be below that this stops the script from
detecting candles like the one I showed
you earlier here this definitely closed
well above the highest open over the
past five bars so this doesn't count as
a pullback trade this is more of a
breakout trade at this stage because
we've broken highs um I'm not looking
for that with this particular signal
script I'm looking for pullbacks that I
can enter on and uh a candle that closes
above the pullback that's not a pullback
anymore that's a breakout so that's not
what the script is looking for the
second check here is that the current
bars true range is less than the ATR the
current ATR multiplied by two so the uh
candle size must be less than this value
time 2 so if I hover over that bar
that's 26 so we're looking at about a 52
53 pip um candle size so if the candle
size was any bigger than that uh we
would not enter it either because again
we need our stop loss um below the swing
low and this script shoots for pretty
tight targets so if the targets are way
up here it becomes more of a trend
following system rather than a uh
pullback system so or or strategy so
it's a matter of preference but that's
how I wrote the script because I didn't
want to capture signals that had really
wide stops and targets and that's it
those are our rules the conditions for
entry it's quite simple really if you
think about it the code looks
complicated if you're new to pin script
but it's really not that complicated
we're just combining a few indicated
conditions um and a few press action
conditions with a Candlestick pattern to
generate an entry and it's surprisingly
effective as I always say on my channel
uh I think simple is better when it
comes to systems and that's still true I
mean I started trading in
2018 about 7 years ago I now trade over
half a million I still keep it simple
I'm still keeping my uh my trading
simple and so that hasn't changed since
I began trading even as a broke
University Dropout um I've always kept
my trading simple to this day and it
works for me that's how I like to trade
again the short signals are the same but
just uh flipped so let's move on to our
entry or or signal generation code so if
I copied this
over here we're checking are all our
long and short conditions met these two
here combine all of our rules uh if all
of our rules are met for either trade
then we save our stop price and our
Target price our stop price is
calculated by subtracting our longstop
distance from the closing price so so I
would typically enter on the closing
price of the signal back when I traded
this system so my stop loss would be the
distance from the closing price of the
signal candle down to um below the swing
low subtracting our long stop distance
in Pips from the entry price and for our
Target price we simply add our long-
stop distance multiplied by our risk
reward so if we've got a 10 pip stop
loss from our entry we would have a 10
pip Target from our entry um I change
this to two then we would have a 20 pip
Target and a 10 pip stop anyway we're
nearly done the last thing to do is draw
all of this information onto the chart
so let's do that next I can get rid of
this placeholder
plot um I'll scroll over for a second
and just show you guys you're not
missing out anything the fact that this
is cut off uh this is just descriptions
tool tips for the uh inputs and this is
just plot code I'm using plot style line
break yeah this looks a bit complicated
I'll break it down the first thing we're
doing is plotting our EMA then we're
using plot shape to plot triangles above
and below our entries and then we're
drawing our stops and targets the reason
this is so complicated this formula is
that because I'm not using persistent
variables to track our our Trade Stop
price and trade Target price these
variables reset on every bar that is not
a valid long or short trade so you don't
have to understand what's happening here
there's a lot of tary operators these
are called so all we're checking here is
do we have a valid trade on the current
bar or the previous bar if so then we
check is it on the current bar if it's
on the current bar we can just draw the
Trade Stop price because that was just
calculated on this tick on this bar
otherwise if we are not currently a
valid long trade that means that we must
have been valid on the previous bar and
so we draw the previous Bar's Trade Stop
price that way we get a slightly longer
stop loss drawing if I don't have this
then our stop loss if I don't have the
code written this way then I'll stop
loss and targeted is these tiny little
dashes which are really hard to see so I
made this plot code just a little bit
more complicated purely for visual
purposes so that we get a slightly
longer um stop and Target drawing um but
anyway I could consolidate all of these
down into just trade stop price and
trade uh Target price but I did choose
to separate all of these into long stop
Short Stop um and so over in the data
window here or wherever that is here
data window um
they're all separated into their own
boxes here anyway that's it for the
script the final thing I did was
generate alerts so let's copy that code
over and wrap this up um I'm using the
alert condition function I could have
also used the um if valid long then
generate an alert this
way I opted for this version because it
was simpler and also because back in uh
2018 the alert function didn't exist
test so I just left that in the way it
is um for this video so now have I saved
my
code we have an API alert for our alert
title and our message is pullback signal
4 and then this is a placeholder tag
that will be replaced with the symbol
that we set the alert on very simple
Let's uh zoom out and have a look at
some signals um it's a it's a pretty
effective pullback system let me make
sure all my settings a default as you
can see it uh detects some some decent
opportunities here uh again this is not
a trading video this is not a trading
lesson this is not Financial advice um
but this is worth exploring if you're
researching systems it's worth playing
around with have a look try try your own
um entry criteria market conditions
Candlestick patterns um but as you can
see this is Cherry pi picking just the
past dozen or so trades but we've had
more winners here than losers it's not a
complete waste of time to investigate
this type of system and again depending
how you trailed your stop- loss um or
managed your profit uh could have been a
lot more profitable than just one to one
if you'd like to learn more about
pinescript check out our website I have
a completely free 6-hour pin script
Basics course there which explains the
core fundamentals of Pine and if you
want to take your coding skills to the
next level check out my Mastery course
we have over 50 hours of content and 50
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you're new to pinescript go and check
that out too anyway that'll do it for
today's video I hope you found this
interesting if you did make sure to
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but I do read them all and I appreciate
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do and I love that I'm really grateful
for that uh you're all amazing I wish
you the best of luck with your trading
and I'll speak with you in the next
video I don't think there'll be a video
next week cuz my fiance and I Jade will
be going away on holiday she runs our
support team so there will be a little
bit of a blackout with support next week
unfortunately but we'll be back hitting
the ground running when we return from
our holiday so make sure to subscribe
check out our resources the website
theut trading.com we've got tons of
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anyway that's all take care I love you
all
goodbye