Tuesday, May 17, 2011

Barb Wire

Any three overlapping bars where one is a doji can be called barb wire such as b1-b3, b20-b24, b29-b32. There is no real way to trade barb wire except to fade it. This is because barbwire is a trading range and most trading range breakouts fail.

There are two possible ways to fade barbwire. One is to fade any trend close. A trend close in a barbwire is likely to breakout on the other end. So you could sell the high or close a bull trend bar or you could buy the low or close of a bear bar. However, this is dangerous since there could be a breakout that takes your stop out.

A simpler strategy is to wait for a trend bar breakout thats more than two ticks beyond the barbwire and fade it. The longer the barbwire runs and the stronger the breakout, the higher the chances of success.

If the barb wire is made of tiny bars ( smaller than 4t ) there is a good chance that you will get a failed breakout multiple times, essentially forming an expanding triangle breakout. You need at least 6 to 8t to the other end of the barb wire to be able to fade the breakout.

A barbwire after an extended move at an extreme of the day (b21-b24) often causes a reversal and you can swing some portion of your trade.


  1. Very useful post, thanks.

    Just some quick questions for clarification. What does FFF stand for, failed final flag? And do you distinguish between a final flag and a failed final flag?

  2. From what I understand a FF is a type of flag that ends a trend in a reversal, and a FFF is one that is expected to produce a reversal, but this fails and the trend continues in the original direction.

  3. Gabriel, Al Brooks has mentioned in his daily webinars that he could perhaps have avoid a lot of confusion if he had just called it "final flag" instead of "failed final flag".

    The "Final" in the description refers to the last flag in a trend and the "failed" refers to the fact that the with trend breakout of that flag often does not give a successful scalp.