Wednesday, February 8, 2012

A2 variants on small bar days

When bars are relatively small, A2 can form that are hard to read and enter. This is particularly true for the first pullback of a new trend since its hard to anticipate. There are two methods to attempt to read these.

The first is a fH2 or fL2. When a trend has just started and the first pullback is near the ema, if it attempts and fails to move against the trend twice, you have an fH2 or fL2. For example, b17-b19 was an fH2. If b19 was a smaller bar (even if it was an outside bar) it would be an acceptable entry. When the bar is larger, the risk of a large pullback reduces the probability of success of entering on an outside bar, even when its an fH2 near the ema.

The second is an A2 variant where the first attempt is an inside bar. For example, b33 was an inside bar with a higher low and higher close. This makes it an H1 and the next attempt above b35 effectively makes it an A2.

The most important precondition is that a trend should exist or have recently broken out. The DP at b13 is a trend generator, so the next fH2 is a high probability trade and the W at b27 reverses the trend and therefore the A2 at b35 is a high probability trade.

2 comments:

1. Cad, when does an outside bar reset the leg count? because, b13 ob didn't reset the fH1 count

thanks for your time

1. Manuel, in a strong trend fH2 and fL2 are often the only 2 legged pb you may see. The first pullback sometimes is so weak that the H2 or L2 collapses and turns into an outside bar. In this particular case, the H1/H2 has occurred above b16,18.

Similarly b13 was a DP both signal and entry bar.

Unfortunately, they were not clear in real time, so I missed the trade (and when in doubt, I always suggest you do not enter)