Tuesday, October 25, 2011

Huge open bars

Large bars on open are rare, but when they happen, your best bet is to enter early. One method to enter is on a 5t move from the open and only in the direction of the gap. So for today, you would short when the price hits the purple line shown above. On most days with large gaps, the price will not take out a breakeven stop at this point for the rest of the day or until there is a W or other reversal.

Large bars represent trading ranges and large bars on open are no different. A sequence of large bars is invariably followed by a pullback and a test of the extreme regardless of how deep the pullback is.

This is because the large bars represent a spike and with trend spikes are usually tested. A large range in one or two bars (b1,2) often sets up a narrowing triangle (LH,HL,LH,HL...) as the market tries to find a balance between the two ends of the range.

The safest way to trade a triangle is a triangle BP.  Basically, wait for 2 HL or 2 LH to be taken out (b41,23 taken out at b62) and then take the next pullback. If the pullback is 2 legged as in b68, its usually an excellent setup.

Until the triangle breaks out however, you can take with-prior-trend entries only and best if they violate a trendline. Trading a triangle against the prior trend is dangerous and should be avoided. Watch the poor entry bars and pullbacks for buyers above b8, b23 and b58.


  1. Excellent Cad. Good job. I was wondering about today and what kind of structure it was and your post is very good.

  2. One thing that I don't get though is how could you enter your first trade? Since obviously you did not know that bar 1 is going to be large at the time. A little more detail about how and why you entered would be helpful.

  3. Cad--
    You often say that large bars are TR's. I don't quite understand. They usually show a strong thrust if viewed at a shorter interval. So are you saying a TR will form following them? similar to a spike and channel?
    I've now printed every post you've made since December, 2010 and have read them at least once. Excellent resource.

  4. Shid, a trend may have just broken out the prior day (LL and LH). A gap in the direction of the new trend is a possible breakout bar.

    Yes, large bars are traded like trading ranges. You fBO weak breakouts and BP strong breakouts from the TR.

  5. Also Shideh, on the Globex chart it looks like the opening bar of the day may be a great L2 short.