A doji first bar can give a diverse range of days from tight ranges such as today to large trend days and wide trading ranges.
A tight day such as today is extremely dangerous to trade if your first target is 2 points or larger. Halving your target is poor risk management since you cannot practically also halve your risk. So a 6t risk with a 4t profit potential requires far higher probability of success and even then the rewards are usually not worth the pursuit.
Any trend attempt that rapidly degrades into doji bars (b16-20) should always raise suspicions of poor trading action and you should sit out until the bars become normal or price breaks out. Most bars after the initial move were in a 3 point range and the probability of success of price action entries is extremely low so its best to sit out.
Hi Cad,
ReplyDeleteCan I ask you if a short off bar 3 trend bar is a good short after that one-tick failure to the upside?
This is really an area where I am not sure how to act generally - failures off the open bar with good trend bar signal bars. I know you said large trend first bars are TR but what about small ones, what about doji first bars like today, does the size of the gap matter...?
Seems to me i have seen today's setup work many times but can't be sure what criteria are important.
If b1 is a doji and b2 is an inside bar, a 1tf of the range and strong resulting bar (b3) will often work for an initial trend move. You just need to be aware that BO away from doji bars are often likely to reverse or pullback strongly after a few bars.
DeleteOk, thanks a lot Cad!
DeleteJust to try to generalize a tad more, what if we exclude the bar2 inside bar and we got bar 3 straight after bar 1, would that also be a good setup? And what if bar 1 was a strong bull trend bar of same size, would that also work? What are the critical criteria for setups of this kind?
Thanks!!
No, they wouldn't be high probability setups. Don't focus purely on bars. The setup is waiting for an opening range to define itself and then take its failure. If there is only one bar, an opening range is not clearly defined. For all you know, the first bar itself is an opening range and a 1tf and entry near its bottom is dangerous, especially if b1 was a bull trend bar. A second failure however, is a far better trade to take.
DeleteCad,
ReplyDeleteCan you please describe the signal bar for your OR trade?
b11 is too large to be an inside bar fade set up, highs are too different to be an down/up trend bar reversal, and DB Twin is a sell set up only. Not sure what kind of signal b11 is.
thanks for your time,
Manuel
b11 is an inside bar fade setup. While you correctly read that its a bit too large, for 1Rev/OR/1PB, you can often be a bit more liberal with bar quality, as long as there are other signs that strengthen the setup. (i.e. ema, test of close of prior day, second attempt and shaved bar.)
DeleteThis comment has been removed by the author.
Delete