Thursday, September 15, 2011

Price action Basics III - 1st Reversal or Opening Reversal

When the day opens, one option is to treat the first bar as a trading range and watch for fBO and BP of b1. If the BO or  fBO looks compelling, it may lead to a trend and you should take a strong signal bar such as b8 or b19. The larger the distance to the other extreme of the day, the higher the chances of a trend developing. Therefore, its perfectly fine to ignore something like b3 and wait for a break above the HOD (b1 at this point) and wait for a failure or BP.

When the move is possibly a trend move (b8-b19), no matter how small, its reversal is a 1Rev and is likely to lead to the primary move of the day.

Since 1Revs can fail, conservative traders can take a 1PB if the fBO or BO succeeds. In other words buy only the HL after a bullish reversal and a LH after a bearish reversal. Today's 1PB would be b24, which is not well formed, so its acceptable to skip it and wait for the next setup. You should only take with-primary trend setups until the other extreme of the day is taken out.

This strategy works for almost any day except tight trading ranges with tiny bars. On those days, very few things work and price action entries have a high failure rate, so its best to skip trading if the range of the first hour or two is very small, especially if there was no gap on open.


  1. Hi cad, a few questions if you don´t mind ;-)
    - are b14/15, 50/51 and 72/73 opp. twins
    - the tail of the RVB 19 is more than 50% - is this o.k. because of the strong C
    - is b32 a RVB that overlapped too much and would not have been traded
    - what are bars 63 and 77

  2. yes, they are all opp twins, correct about b19

    b32 is not really a rev bar, its more a strong entry bar. I have edited the tolerance so it will no longer show up.

    b63,77 are inside bars.

  3. Cadaver,
    Thank you for explaining the "first bar" trading range option. How does that differ from the Opening Range (I thought b1-b2 was the Opening Range on today's chart). Would you mind sharing with us your definition of the Opening Range? --Thanks!

  4. obx, The first bar is the opening range and every breakout and failed breakout extends the range until a trend breaks out.

  5. Cadaver,
    Thank you for clarifying what is the Opening Range. -- obx

  6. Hi cad,

    would you take b8 as 1REV in real time? If yes, isn't b16 First Pullback?


    1. b* is an excellent signal. The close of b16 is a limit sell (1st opposing trend bar in a channel or strong move)

  7. where can i get the basics of the abbreviation. im really lost. thanks