Video 08C: Candles, Setups, and Signal Bars
Tight Trading Ranges (TTR) as setups
1. Small TTR wait for Breakout (BO)
If the context is bad for a Breakout, more likely, the Trading Range will continue.
Traders should NOT trade this, shoud just wait for Breakout.
Especially when the Trading Range is extremely tight.
It's really difficult to make money within a tight Trading Range even if doing scalp.
2. Signal Bar: IB, II, III, IOI, OIO (Small Tight Trading Range Patterns)
IB: bar that is inside prior bar
II: 2 consecutive inside bars
III: 3 consesutive inside bars
IOI: inside outside inside bars.
OIO: outside inside outside bars.
3. II: Inside-Inside bar
Breakout mode pattern, usually lead to a reversal.
4. IOI: Inside-Outside-Inside bar
Any Tight Trading Range can be a Signal, but the context has to be good.
Tight Trading Range like the purple circled, the probability of Break Out (BO) is small.
If it's occuring late in a trend, you have a better chance of a reversal.
Most of the time, when you get II Patterns or IOI Patterns, or any of these Small Tight Trading Range Patterns, They're occuring within bigger Tight Trading Ranges, or Extended Tight Trading Ranges, they are meaningless. 这些II模式、IOI模式、等窄区间交易模式，如果出现在更大的交易区间里面，他们通常毫无意义。
5. OB: Outside bar
OB outside bar engulfs prior bar's range.
They don't have much meaning, don't have any predictive meaning.
They are a sign of market will go sideways.
They usually part of a Trading Range. And they lead to more Trading Range.
6. IB, II, IOI, OIO, OB: Good context otherwise TR
Small TTRs can be Signal Bars for Reversal Signal Bar, or Breakout Signal Bar.
But they need context. The key is the context.
7. Small TTR: Trend Reversal setup
The context must be: it's reasonable to expect a swing, or reversal.
The context above:
There was a bull trend.
Then it starts a Expanding Triangle (LL, HH)
Then the market Breakout above the expanding triangle, it might be failing.
Both II Bars are closing on their lows.
This is a reasonable sell setup.
Place an sell limit order below the 2nd II Bar close.
8. Small TTR: Trend Resumption setup
It's an IOI Bar, signal of Bull Flag.
Because we have a bull trend,
not enough bars to be 50/50.
The odds still favor the bulls.
So whenever a Trading Range is:
small,
and it's occuring in a trend,
Chances are it's a pullback in that trend.
The pullback testing the breakout point, creating a gap.
but it is not below the high of prior bars
The market is trying to reverse up here.
9. Small TTR: Bad context
The biggest bull bar coming late in the bull trend.
And there is a gap in the late trend.
Is this more likely a measuring gap?
or is this more likely a exhaustive end gap?
Traders will place a sell limit order below the 3rd III bar, and order filled on the next doji bar.
10. Small TTR: Bad Context in 10+ Bar TTR
Meaningless patterns since:
BO not likely soon, there are even more 20 tranding range bars after this IOI Bar.
Nothing to reverse
Chances are going to be more sideways.
11. OB: often is a trap
This is NOT a good context.
It is a BIG Outside Bar,
this is just the 1st pullback, after 5 consecutive bear bars.
5 consecutive bear bars close below or at their midpoint.
Your stop is also far, because you need to put your stop below the low of the entire bar. The risk is big.
Chances are, bears will sell at 50% again. This OB bar is a trap for bulls.
12. OB: often better to use limit orders
OB are very common in Trading Range. Trading Range is often attempted to be breakout. Sometimes the breakout can be a single bar, and ends up like an Outside Bar.
Buy below the Bear OB, if it's a TTR or Bull Trend.
Sell above the Bull OB, if it's a TTR or a Bear Trend.
Because OB is usually a single bar trading range. And it is an attempt to breakout the Tight Trading Range.
If it's a Bull Trend, then followed by a Tight Trading Range. Bears attempted to breakout the TTR, but failed, so it comes to a OB. You don't want to sell below the Trading Range. In opposite, you prefer to buy below the OB, it will lead to at least a profitable scalp.
13. OB: can be part of 2 Bar Reversal
If the Outside Bar is a part of 2 Bar Reversal.
It's good to buy above Bull OB in Bull Trend.
It's good to sell below Bear OB in Bear Trend.
2nd Bar, is the Outside Bar, it confirms the trend. So follow the trend. Buy above or sell below.
II Pattern and Breakout Mode
1. II Pattern
Whenever there is an II Pattern, there is 90% a Triangle on a small time frame chart. They ALL represents Breakout Mode (BoM).
2. II: Triangle on lower time frame chart
In the 60min chart, bears failed to breakout the triangle on the 5min chart.
3. TTR: higher probability if final bar is in correct direction
Anytime you see a tight trading range in the late bull trend, often it becomes a Final Bull Flag.
4. II: Can be disappointment in Buy the Close Bull Trend
Bulls see there is a bull breakout, pullback, then another bull breakout. So, it may lead to a 2nd leg up, and followed by a reversal or another pullback.
If Bull buy at the close on the Strong Bull Breakout bar, there's no good follow through, even these two are doji bars, they still don't have bull body.
Bulls are trying to get out of the trade, by break even.
5. II: Can be final flag
II Pattern is tight balance between bulls and bears.
Market tries to back to the balanced range, so, even if it pushes up another breakout, the market will pullback to here later.
But if this is a final flag, small failed Trend Breakout will lead to a big Trend Reversal.
6. Disappointed Bulls: try to exit at Breakeven
There are four consecutive bear bars, not able to reach the breakeven entry for those Bulls, who buy at close of the Bull Breakout Bar. They can't fill their breakeven exit.
This will lead them to give up, and sell soon.
They become nervous. They will set a limited order to sell their long orders.
7. Trapped Bulls: If give up, Can get a Bear Trend
Bulls can not fill their sell limit order to break even. They are trapped.
They will quickly exist to minimize their loss.
The Outside-Outside Bar shows the Bulls tried the end to fill their sell limit order, but not able to breakeven. Finally they gave up.
So it followed by another Bear Follow-Through Bar. And the Bear Trend started.
IOI Pattern
1. IOI: Can be Bull Flag
IOI Pattern in a trend, can be a flag. Buy below the Outside Bar.
IOI Pattern in a trend, and the pullback just onto MA, usually it will continue on the Bull Trend.
H2 is also a bull trend continue.
You can place Buy Stop order below PB to MA.
Or buy stop above the Bull H2 Bar.
Or buy when it Breakout the TTR.
2. IOI Bull Flag: Higher Probability If Bull Inside Bar
If there's an IOI Bull Flag, the Inside Bar is:
There is a HH HL Bull Trend
Bull Bar closed near its high
The Pullback Bar (the middle bar) close above MA
Bull Bar above the MA
3rd Bar is a Bull Bar
It's a good Buy Signal Bar. IOI means a pause of a Bull Trend.
Pullback does NOT have too many bars.
Trading Range (e.g. a Pullback starting to grow to 20 or more bars) the probability of a Bull Breakout falls the same as Bear Breakout.
As long as the pullback has only 3 or 4 bars, the Odds still favor Trend Resumption.
3. IOI and II Pattern: Can be bear flags
Context:
In a bear trend. So traders will sell breakout below bear flags.
Double Top beaf flag.
Low 1 and Low 2 bars
Micro Double Top.
Down Trend Channel, lower lows and lower highs.
Close below the Moving Average.
IOI has no bull body.
So it's a reasonable sell setup.
4. Any 2 -- 5 TTR with Small Bars: BOM
Context:
Three Bar TTR. It's a Small TTR in a Bull Trend.
It's not II Pattern.
It's not IOI Pattern.
The Bull Trend has 3 Push Ups.
Each push has a bad Follow-Through.
So you need to think that: this might lead to a Trend Reversal.
This 3 Bar TTR, probably is a Small Triangle on a smaller timeframe chart.
You can see on the lower timeframe chart, there's a 3 Push Down in the pink area.
Keep this thinking:
When you see a 2--5 Bar TTR, comes late in a trend.
You need to consider it may be a Final Flag (a triangle in a lower time frame chart)
When it Breaks Out, it will lead to a Trend Reversal.
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