Wednesday, January 25, 2012

Trading large and outside bars


Outside bars often trap traders on both sides and since they have buyers below and sellers above, they are effectively a 1 bar trading range. Large bars are very similar. Any bar thats much larger than surrounding bars should be treated as a 1 bar trading range.

The correct way to trade such a bar is to look for a fBO or BP of the bar. When the outside bar's breakout is relatively strong, you should look for a breakout pullback. If the breakout is weak, look for a failed breakout.

b7 was an outside bar with a strong bull close. Its also a possible mW, so its a good candidate for a BP (b14). b37, which is a large bar also had a strong close but its BO was weak(b38) and could be shorted. However, it right away gave a BP (b40).

The context of the outside bar is also important. You want to buy low (b14) or sell high (b38). b62 is a poor short since its a sell low and also because you are expecting another leg up or at least a test of b54 after the strong move up.

6 comments:

  1. Good Morning Cad,
    Thank you very much for your analysis! Your blog is my daily must-read. Have a great day.
    Ray

    ReplyDelete
    Replies
    1. Glad its been useful to a lot of people.

      Delete
  2. I went short at bar 5 as a 1pb trade. What would be your analysis of that candle? I later took the same 1pb trade as yourself on bar 14,

    ReplyDelete
    Replies
    1. Omar, b5 is a bull doji bar inside another doji bar, which was an outside bar. This is a trading range and its fBO at b7 is the right entry.

      If b5 was a bear bar or if the bull doji gave an entry near the high of b4, it may be an acceptable entry.

      When in doubt, take only strong closes on a bar of like color with 0 or 1t on the entry side. You can be a bit flexible for 1PB, but it should have at least one thing going for it: good position, good close or 2 or 3 legged pb.

      Delete
  3. Good Morning Cad,
    I found out about your blog from someone at brookspriceaction.
    I look forward everyday to reading your inputs.

    Thank you very much.
    John

    ReplyDelete