Monday, August 13, 2012

The hard road to consistency VII – No good signal bars

One of the most frustrating things for a trader is the lack of a good signal bar in a trend. A good signal bar is any signal bar with a shaved or 1t tail on the entry side and at least a 2t body. Ideally, the signal bar is neither too small or too large compared to recent bars.

I always recommend entering on good signal bars for a couple of reasons. When the market is not ready to trend your way, a strong signal bar is unlikely to trigger (b12, b66). This will protect you from many poor trades. A second important feature of good signal bars is that they are likely to respect a fixed stop (5t/6t for ES) for any given instrument.

However, on some days, there simply is no good signal bar in the direction of the trend (b10,16,20,38,50,73) but the reverse direction will often give great looking signal bars (b12,27,30,44,53,66,76).

This is typical of channel type price action. A trader who insists on great signal bars is likely to take very few trades on a channel day – which is not necessarily a bad thing, since channels are very hard to trade for most traders.

One way around this is to valuate the strengths of a signal by 3 criteria: location, pattern and signal bar. If location and pattern are strong, take a poor signal bar with-trend. For our purposes, location is a support such as HLC of prior day, ema, trendline, breakout point (as in BT) etc. Pattern is any two or three legged pullback.

Therefore, take any two or three legged pullback to a support even on a weak bar. This enables us to take b50, b56 long for example. Note that this can only be done if the signal bar is small and you can use a price action stop (beyond signal bar) rather than a fixed stop.


  1. Cad, the daily range has got especially small under or around 10 points. I think this may be correlated to bar quality aswell. For a beginner trader this is a difficult environment to trade in. In your experience how long could we stay like this and should one completely avoid trading till we get normal volumes and range? Thanks

    1. Poor PA intraday is usually due to a channel on the daily and can last months. Usually some crisis breaks somewhere and the chart usually breaks down, rarely up. This usually happens in Mar or Oct. Summer is usually poor.

  2. A little off topic, but didn't see a better way to send you a message. Trying to learn PA, and have read Brook's book (the first one), and was starting with your earliest posts, but the charts are missing for blog posts earlier than Sept. 2011. Does blogpost only save 1 years worth of posts? Is there a way to get the posts from before Sep. 2011 with the charts? Thanks.

  3. I see charts from jan 21 2011. Charts prior to that were hosted on screencast and may have expired. Unfortunately, I don't have them saved.

    If any charts after jan 21, 2001 are missing, please let me know, I will fix them.

  4. Thanks. I can see from Jan. 21, 2011 as well.