When the first bar overlaps the prior day's last bar completely, it should be treated as a trading range. This means you can fade its breakout or take a breakout pullback if the breakout is strong.
An outside first bar, especially if its a large bar (and indeed any large first bar) is a fade candidate. You should never trade its breakout and if you do, take a fixed (scalp) profit. A breakout pullback, especially a 2 legged BP of a large b1 could be taken, but unless your entry bar is large, you are likely to encounter a deep pullback.
When the large bar's BO is large and gives a successful HL, there is a decent chance of spike and channel developing is high. Often the channel will be a measured move of the spike.
Hi Cad,
ReplyDeleteI am looking to add two-legged pullbacks to my primary setup toolbox. I have rarely been comfortable taking these so far and put very much demand on the signal bar being perfectly shaped.
However your emphasis on the importance of the 1st pullback, be it one-legged or (normally later) two-legged has made me look more in detail on these setups (where they are 1st pullbacks), and my conclusion is that the two-legged ones seem to work very well almost no matter how the signal bar is shaped.
Today is a good example at bar 16. So I would really appreciate if you could (maybe once again as I believe I read something about this earlier...) briefly summarize in which situations the quality of the signal bar is not very important. Seems to me the situation I explained is one of them...?
Thanks so much for your clarity and integrity of analysis!!
I have posted many times before, signal bars quality can be relaxed for 1PB, especially 2 legged 1PB.
DeleteHi Cad,
ReplyDeleteCould you explain your reasoning behind the first trade at bar 6? I think very few if us would have taken that trade. Bar 4 seems to be the more obvious trade FBO of bar 1 and strong candle.
Also did you actually take 10 points on the second trade? If you did how did you know not to take the 4 point target and move a lot further down?
Thanks
b1 was a trading range bar (large outside bar) and two attempts to go above it failed, making it a possible short at ema. b4 was a bit too large for me and I was waiting for a second entry.
DeleteHere is a screenshot I posted in the chatroom just before my target was filled: http://www.screencast.com/t/nGyiOkZe
I'm a bit more optimistic about my targets in a strong bear move and will often hold longer. I did not "know" it would go that far but I had a good idea it would be a large move.
Cad, which chatroom do you use?
Deleteirc.othernet.org #brookspriceaction
DeleteHi Cadaver,
ReplyDeletecould you tell me how you count b6 as H2? I am not sure why b6 is H2 and where is H1.
Thank you very much for your reply.
For the very first bar, the first attempt to break above it is an H1 and the second attempt is an H2.
Delete