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.