Wednesday, April 27, 2011

Trend strength is proportional to Bar size and Trading range size

I have previously discussed Breakout Pullbacks as Trend generators. Today was essentially the same move after a successful break above the high of the day at b54 followed by a 2L PB. The best BP is one that occurs after an actual breakout like b61, rather than one which almost breaks out like b50.

Since a trend birth from a BP often goes to a measured move (b74) of the trading range, it follows that breaks out of larger trends result in stronger moves with shallower pullbacks if the BP is a late move. Any large bars with a strong close such as b38 today give an indication of the potential move.

When the move is potentially large, there may be no pullbacks or very shallow pullbacks (b68,69). You can buy above any small bar, regardless of color until the MM is hit.

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