Tuesday, September 13, 2011

Price Action Basics I - Bar selection

The very first thing to learn about price action trading is signal bar selection. If you do nothing else but trade every well formed bar, you will make money on most days. If you trade well-formed bars only with-trend, you will make money consistently. Enter above a bull signal bar with a stop below it and vice-versa for bear bar. If the bar is too large or too small or has lots of overlap, use a money stop of 8 ticks.

The indicator above plots a red dot above any reasonable bear bar and a blue dot below any reasonable bull bar. Naturally, this means it misses some of my important setups such as OR/1Rev at b3 and possibly some 1PB setups.

If you did nothing but trade these bars, most of your trades would be wins. Your losses would only be from b45-47 chop and possibly b74 L1. If you swung any contracts for any of your previous trades, you probably earned money overall.

Lets add some common sense to the mix and eliminate counter-trend trades and H1/L1 against strong moves. This gives only b45 as a losing trade of the day. Add a second common sense rule and do not take shallow H1/L1 with-trend unless its close to ema or trendline and you already have an all-winner day.


  1. I love the simple way you explain low risk trades. Your red/blue indicator is similar to the Fractal indicator in my Fibonacci Trader software. Is there a name for it?

  2. I like your little dots. Is there a possibility to get this indicator. I think you are useing Ninja trader too. Would be very kind of you!

  3. Hi Cad, could you explain your criteria for "well-formed bars" a little more (size, wick/tail pct, body pct, close etc.)?

    I think the steepness of the EMA also plays a role not only for WT trades. The steeper the EMA the more CT trades are successful. IMHO

    Would you agree with this definition of BW?

    Cheers Thomas

  4. The steeper the EMA (e.g. a hard trend) the more successful are the WT SBs further away from the EMA.

  5. Donn, Jones, this is a BPA indicator Im actively developing and is rapidly changing every day. I have no plans for making it public as yet. Will announce any plans on the blog.

  6. TD, well formed bars is very well documented in Al Brooks book but basically average size bars with strong close and no overlap is the most concise explanation I can give.

  7. Hi Cad, Were b12, 30, 47, 58 II by bodies?

  8. TD, strictly speaking most of them were not. However, many of them were second attempts and are therefore more likely to be successful.