Monday, March 5, 2012

The first bar: Trend bar


The first bar, regardless of appearance should be considered to be a 1 bar trading range. Most traders would agree that two opposing trend bars make a trading range. This is true everywhere and when there is only one bar, you dont have information about the second bar to assume it would be continuing trend bar.

When the second bar is an opposing bar, regardless of appearance, chances are very high that what you have is a trading range. A buy above b2 would therefore be a buy mid-trading range, which is a low-probability trade. You need to buy near the low of b1 for a higher probability setup.

The right approach to trading two opposing bars would be to treat it exactly like any other trading range. Fade a weak breakout or enter in the same direction on a breakout pullback. So if b4 had a strong close near the low of b1, it would make a nice second attempt to fade b1.

5 comments:

  1. Is bar 8 a short setup? Or should you be thinking long after the high of the day is taken out?

    Omar

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    Replies
    1. Yes, b8 is a great fBO short setup

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  2. Hi Cad,

    during the webinar I believe you said something about what the implication is if the opening bar is inside or outside of yesterday's range - does this matter? If the open bar is outside of yesterday's range does it make it less of a trading range bar?

    Also a similar setup on 030612 worked find; selling the b/o of the 1st bar after a failure in the opposite end - is this also a low prop trade?

    Does the opening gap distance matter?

    Thanks a lot for your efforts man - great stuff!

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    Replies
    1. A large gap may mean a trend has already started, so a BO of a trend bar is higher probability, but only slightly. Usually, you are always better off taking a BP of b1. Being outside the range can mean the HOY or LOY may act as support/resistance.

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    2. Can i find this webinar anywhere? Would really appreciate it.

      Thanks

      Omar

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