Video 08A: Candles, Setups, and Signal Bars
Last updated
Last updated
You need to ask two questions to judge the bar:
whether bulls and bears are even on the bar, or one take dominance?
the the entire bar size will affect the on going context?
In the green zone, the bars entire size are relatively small. But:
We have an II pattern break out the top a little bit
Starting to have higher highs and higher lows
They are consecutively bull bars
They all close bove the middle (body has more than 1/2)
The tails are little, especially no tails at the bottom.
The context here is a trend.
These three bars are trend bars, and they are a signal of early bull trend.
In the blue zone, the bars entire size are quite big. But:
The bars in the blue zone, has body as big as the bars in the green zone.
The bars in the blue zone is very overlapping each other.
The bars have prominently tails.
The bars' body have less than half size of the entire bar.
The market everytime goes up, then it goes down; Everytime the market goes down, it back up. -- it is a sideways.
The context here is a trading range.
Trading range is made up by most of trading range bars.
The bar body has at least half of the size of the entire bar.
The bar is relatively big.
Big body, small tails.
The bar body is less than half of the size of the entire bar.
The bar is relatively small.
Big bar with tiny body: Sometimes the entire bar is big, but as long as the bar's body is relatively small, compare to the height of the entire bar, it is still a Trading Range bar.
Tiny bar with big body: Sometimes the bars have relatively big bodies compare to the size of the bar, but if the bar is small, I still call it Trading Range bar.
Small body, big tails.
| Trend bar | Trading Range bar |
|---|---|
Entire bar size is large, or relatively big with a trend context. | Entire bar size is small. |
Body size is over 50% of the entire bar. | Body sizi is less than 50% of the entire bar. |
Bullish bar has little or no tails at the bottom. Bearish bar has little or no tails at the top. | Promintent trails. |
Bars move up/down after close. | Bars are overlapping with each other. |
Consecutively bars (could be small size) in one direction | Pullbacks are mostly Trading Range, and consist of mostly trading range bars. |
Context is an early trend, early trend consist of mostly consecutive trend bars. | Sideways are trading range, and consist of mostly trading range bars. |
Market is in urgency of selling or buying. | Market is confused, or stalled. |
Every tail was once strong trend body
Big tail on the top only shows the market were trying to breakout, but failed.
It was a very strong bull bar, but at the end, it closed low.
In the low time frame, you may see many up and downs as a trading range. So the red doji bar is a "one bar trading range".
Every tail is therefore a failed breakout (BO) attempt
Every tail is an attempt to breakout, and it fails, and it reverses.
Market goes up/down in a trading range.
A failed breakout, doesn't mean you need to trade the opposite trend, because it is still in a trading range. What if it attempt another try?
Definitions:
The bar when you enter a trade, is entry bar.
You enter to a trade because of signal created by prior bar, is signal bar.
The best signal bars are Reversal Bars. And that's true ONLY IF the context is good.
If it is a strong bull trend, traders would buy below the low of this bar, and betting that the reversal would fail.
But in the chart, it is not a strong bull trend, the market went up and down, so the market may go down again.
In this chart, the reversal bar is a reasonable signal bar, because it is supported by the context.
Bad follow through in a previous trend, expect a reversal, or sideways expect a breakout, the Entry Bar usually 1 tick after Signal Bar.
If you see the signal of a trend has good follow through, and potentially going further, the Entry Bar could be the same as Signal Bar. You don't have to wait for next bar, and put 1 tick above/below the close of Signal Bar. Because there's nothing to reverse.
| Buy / Sell both Signal Bar and Entry Bar | Buy / Sell 1 tick above/below Signal Bar |
|---|---|
The signal bar is a Strong Trending Bar. | The signal bar is a Reversal Bar. |
If you see a strong trend. | If you want to see change of current trend. |
Consecutive bars close on more than midpoint, and become a strong trend. It is already a Strong Trend bar. | Usually because you need to wait for the real reverse of the current trend. Either change from bear to bull, or from trading range to trend. |
Buy/Sell at close of the Strong Trending Bar.
Buy/Sell at 1 tick above/below the Reversal Bar.
There is NO strong Reversal Bar.
Reversal Bar could be a small size bar.
Reversal Bar could have a relatively tiny body of the entire size of the bar.
But the signal can be strong based on the context:
The context could become wearker trend, so you don't need a strong reversal, to reverse the weak trend.
The context becomes to be a trading range, bull bar then doji bar, with a lot of tails at the bottom of bull bars.
Experience traders get signals from every bar, even though they don't trade on every bar.
Scalpers trade on a lot of bars, because the Signal Bars are everywhere.
Good and Strong Signal Bars are really rare. Maybe only 1% of the bars on a chart are really strong reversal signal bars.
If you wait for a really strong signal bar, it would be a waste of time.
If you know how to trade, you can probably enter any bar to a trade, also you know how to manage your trade.
The bars shown below are rare, but once you see them, you will feel high confident, and lead to a high probability trade. (ONLY IF the context is good)
"Close well below" means see a short or no tail at the bottom, also the close is below the prior bar's close.
Tail on top is about 1/3 -- 1/2 height of the entire bar.
Small or none lower tail.
Some bars reverse multple prior bars.
Sometimes the follow-through bar does NOT come immediately after the Strong Signal Bar. But as long as it comes soon, the odds are the market will go lower.
Follow-Through bar are not doji bar, not inside bar, not reversal bar. Unless there are more strong bars after the follow-through bar.
Need a good context.
Open near or blow close of prior bar.
Close well above prior bar's close.
Tail on the bottom is 1/3 or 1/2 size of the signal bar.
Small or non upper tail
Not much overlap with prior bars.
Follow through soon.
Ideally, you want to see not much overlap with prior bar or bars.
Ideally, you want to see close that reverses several prior bars closes.
Ideally, you want to see the market continue right away.
In the chart, there is a 3 push wedge, and it is a parabolic wedge.
It has too far over sold.
It has a huge consecutive sell climax in the context.
So, the context is really good for buying here.
Fewer strong signal bars as the Computers now trade the most of the volume, computers are more interested in the context.
Computers buy/sell at supports and resistances.
In results of that, more and more good trades comes after bad signal bars.
Abrupt reversals often create a big trend, without a good signal bar.
Use the Bar Chart to see the context ONLY, without fearing about the bear bar.
Candle chart will show bear/bull bar, but Bar Chart won't.
You can enter the trade:
at the close of the reversal bar
at the strong break out
at the pullback
If you see a reversal, and the context is good, there will always a good Signal Bar exists in lower time frame chart.
Do not go to these charts and hoping to look for a buy signal bar. You don't need to find it, you don't need to look at the chart.
All you need to do is to find the good context.
If there's a good reversal bar, in a good context, there alwasy be a Signal Bar in some types of charts.
If you spend a lot of time to find the good Signal Bar on other types of charts, once you find it, you probably lose the opportunity to take the trade.
Beginners desperate for assurance of the Signal Bar.
They are afraid to take the trades.
Finding a Signal Bar in a chart does NOT make the trade better.
ONLY the context makes the trade better.
