Video 08B: Candles, Setups, and Signal Bars
Reversal bars
1. Buy Reversal Bar
Minimal Requirement
Buy signal bar: to buy pullback in bull trend, is a buy reversal bar. Minimum requirements:
Bear bar: close above its midpoint.
Bull bar: close above its open. (If it closes above its midpoint, it increases higher probability).
Placing a buy stop above the signal bar, to bet the market will continue up.
A bear bar, could also be a buy reversal bar, because it is reversing an attempt to reverse the bull trend. It means, the bulls are reversal the market back up again.
Buy Reversal Bars NOT always have bull bodies
Buy Reversal Bars don't have to be Bull Reversal Bars.
Buy Reversal Bar has a bull body, always has better probability leading to a better trade than that does NOT have a bull body.
Not ideal bar (those two bars above) still lead to a profitable trade.
Bull Reversal Bar is the strongest Buy Reversal Bar
Context:
very strong bull break out (prior)
double bottom with slightly higher low.
Bar:
it has bull body.
it has big body.
it closes above its open.
it closes near its high. (Small/None upper tail)
Lower tail is 1/3 -- 1/2 height of the bar.
It did NOT overlap the bar before
Good entry bar (after the Signal Bar)
Good follow-through after the entry bar.
These things increase the probability of a profitable trade.
Place a buy stop above the high of the signal bar to go long.
2. Sell Reversal Bar
Minimum requirement
Sell signal bar: to sell pullback in bear trend is a sell signal bar.
Minimum needed either:
Close below its midpoint
OR close below it's open (bear body)
Sell reversal bar reverses the attempt of bull reversal.
Sell Reversal Bar: Not all are bear bars
Context:
The bull trend is very strong.
More bull bars with little bear pullbacks.
Bear bars in the context are doji bars.
The Sell Reversal Bar is not quite strong (highlighted). Not much sell pressure at the top.
The better to wait until 2nd Entry Short. (micro double top with lower high)
Two Legs up One Pullback.
Bar
Place sell limit order:
Sell Reversal Bars are contextually not strong, the bar itself is also not quite strong. So usually wait for 2nd Leg Up 1 Pullback (micro double top with lower high) and sell limit below the prior bear bar.
OR, wait for 2 Bar Reversal, place a sell limit order below the 2nd bear bar. Because in the higher time frame, two bars becomes one Bear Reversal Bar.
OR, wait for Consecutive Bear Bars after the Sell Reversal Bar, which has completely reveresd the strong bull bar at the front.
Best Sell Signal Bar: Bear Reversal Bar
Context:
Bear trend
Bull trend with buy climax
Double top with slightly lower high
Two legs up in the Trading Range (2nd Leg Trap)
multiple consecutive bear bars on top of the trading range.
Bar:
Open new or above close of prior bar.
Close well below prior bar's close
Upper tail 1/3 -- 1/2 height of the bar.
Small or No lower tail
Not much overlaping with prior bar, or bars
Sometimes, the signal begins with small sell reversal bar, but after several bear bars, the bull traders fianlly give up.
Place a sell limit below the close of the signal bar to go short.
3. Conclusion
If you are looking for an early entry, early entry, the risk is small. But so is the probability.
A later entry after you've seen the reversal happening (e.g. Bulls give up, or Bears give up), enter after the reversal attempt, there is a much higher probability lead to a profitable trade. But the trade off is risk. Your stop is the same.
Multi bar reversals
1. Breakout on the next bar
Sometimes, the reversals take place over more than one bar.
Multi Bar Reversals: Every signal bar in a pullback or a flag, is a reversal bar. When reversal takes place over 2 or more bars, it's a 2 Bar Reversal, or Multi Bar Reversal.
This is not always happening, on lower time frame, two bars becomes a single reversal bar on a higher time frame.
It's a good buy after the higher buy after that bar.
2. Breakout Reverses 2 or more
It does not have to be consecutive. Just think of it as a reversal.
Going up, then going down -- the market reversed.
There were a strong bull breakout.
Then there were a strong bear breakout (reversal)
On higher time frame chart, all these bars forms a single Signal Reversal Bar.
You don't have to find the timeframe chart.
You just think of it, and focus on the current timeframe chart.
Likewise, if you look at a strong reversal bar in HTF, you know that on a LTF, there is a Multi Bar Reversal.
3. Treat 2 Bar Reversal like 1 Signal Bar
4. Multi Reversal Bar on HTF
Focus on the chart, all you care about is "ah, it's a reversal". No need to care about which time frame.
Inside and outside bars
1. Inside Bar (IB)
Current bar is "inside" the prior bar.
High is at or below the prior bar high.
Low is at or above the prior bar low.
2. IB: Buy Signal Bar (with good context)
It's not much reversal of prior bar, however, it is a start of reversal.
IB needs a good context to be a Buy Signal Bar.
Strong breakout (the strong bull bar)
AND a pullback stay above prior low
AND creating a Double Bottom with a higher low
3. Outside Bar (OB)
Current bar is "outside" prior bar.
High is above or at H of prior bar.
Low is below or at L of prior bar.
It can be Breakout and Entry Bar.
Place a buy stop order above the bull bar, in this chart. Not buy stop above the bear bar.
4. Big OB in 1st Hour: start of a swing trade
Place buy stop limit at close price of the follow through bar.
The follow through bar has a non-top tail. Very strong.
After that bar, there's a small Trading Ranging, seems bearish.
But the pullback was not strong, and then breakout again.
The measure move is about 1:1.
5. Big OB: Breakout and Entry Bar
Place order:
Sell limit at break out the Trading Range
Sell limit at close (because it closes over 30 bars in prior)
Sell limit at pull back when it break out again
Sell limit after another strong bear bar (after the pullback)
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