Monday, September 19, 2011
Overlapping bars produce poor signals
Somewhere bear b11 was a fBO or 1Rev. Unfortunately, the bars were overlapping and full of tails, so my indicator could not catch them. On such days, I look to see if the 3m chart has clearer bars. Today it did:
The risk of trading 3m chart is that they are unreliable after the first hour. For example, 3m b68, b72 and b105 entries failed even though there were reasonable bars. However, in the first hour and only if the 5m chart has overlap overflow, the 3m can be used.
Often setups that are unclear on the 5m are clarified on the 3m. For example the LOD reversal was a inside doji bar inside a bear bar on the 5m, but an ii FF on the 3rd push on the 3m. This may enable a great entry on an otherwise poor day.
The psychological risk of trading time-frames smaller than 5m is that you get addicted to the small risk and good prices and trade them beyond the first hour. This is usually dangerous, esp. during lunch hour where even the 5m chart is dangerous.