Monday, November 14, 2011

The first two legged pullback

On many days, the open may constitute an opening range made up of erratic moves (b1-25) that finally break into a trend (b26-b38). Some traders may get repeatedly stopped out on the initial range and their later trades will barely make up for their initial loss.

The trick to avoiding being chopped up on the opening TR is to wait for a trend attempt and take a clear pullback on a strong signal bar. This is essentially the philosophy of the 1PB trade.

Determining if a leg is a trend attempt is a bit tricky. Any two or three trend bars are a possible trend attempt. One bar does not usually make a trend (unless its very large). Once a trend is attempted, it will either reverse and a new trend is attempted in the opposite direction or a pullback gives a possible continuation of the orignal leg. A strong reversal attempt is 1Rev. A pullback is 1PB.

Today, there was a trend attempt from b3 to b5 and a weak reversal attempt on b5. Then possibly a second trend attempt from b6 to b9. Note that this bar is made up of weaker bars and is unlikely to succeed, especially in the absence of prior bull strength.

b16 represents the first two legged pullback of the day and is a possible 1PB long entry of the long trend attempt. However, the signal bar was a doji and the reversal was fairly weak. However, this is still a viable long entry. When the long entry failed to take out the old high, it turned into a first 2 legged LH, turning into a 1PB short at b20 of the original short trend attempt.

Another way to read this is that b2 and b9 represent two failed attempts to close the gap leading to a bear trend. Even though many traders may have correctly read b9 as a possible 1PB short, waiting for a strong signal bar (b26) is usually the right thing to do for a profitable entry. This is because shorting below a bull bar is always subject to failure, regardless of the correct read of the market direction, especially on a choppy open.


  1. Cadaver I almost entered below B58. I had my stop on and took it off because even though the bar was 9 ticks it was large compared to that area & B59 did not trigger. I took it off on B60 when that bar did not immediatly trigger my order. At that poiont "B58" I viewed the day as still Bearish. Do you think this was correct way to look at that area?

  2. Overall it was the right play. After missing b58, you should not try to enter in the same leg anymore: wait for a pullback.

  3. Cadaver could you please explain how you take profits. Once you target of +2 has been reached do you move you stop to break even and then what do you do when +4 is reached? Also what is your advice for traders who can't afford 3 contracts, what is the best way to exit trades for maximum ticks?

  4. Did you already place a short order below b24 or did you wait for the second bear bar (2nd entry?) after the OB23? Was this (b26) an IOI?

  5. Does it make sense to trade wrong colored bars (like b57 DT bear flag and EMA Gap1) if we have a DT/DB and not so much overlap? B9 had much less overlap than b26 (although it was after four bull bars).