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Large bars could turn into spike and channel.

The bar b49 can be read in many ways. Its possibly an entry bar below b48, which was an A2 short second entry (with b45 as first). Its possibly a failed H2 with b44 as H1. In any case, its a trap bar that results in acceleration of the trend.

When a disproportionately large bar pops from nowhere as is the case with news related events, there is a very good chance it will turn into a spike and channel type of move. The exception is if it was a trend bar that triggered off a 2-legged pullback and has follow through.

Once the spike is determined, wait for a pullback and trade only in the direction of the channel. The channel (b58-69) will be in the same direction as the spike (b49) unless the pullback also had a large spike in the opposite direction.

Channels typically but not always consist of three pushes and will give a W termination (b70) and will test the begin of the channel (b75). They will then go to the mid-range of the channel (b81).

There is a good chance you missed out on the spike but the pullback and channel often go to a measured move of the spike.

Extremely strong trends

Soft trends and hard trends are two types of extremely strong trends. These should never be traded counter-trend. When you see a large up gap on the open and the first bar has a 1tf giving a fade entry near the low of the bar, there is already a very good chance it will turn into a soft-trend day.

When the second pullback is also a 1tf (b5), its a sign of a very strong trend. This essentially means bulls are buying the low of every short signal.

A well formed two legged pullback that does not quite reach the ema at b17 is another indication of strength. Often the first deep pullback is your best bet for a day long swing on a day such as this. However, any deep pullback such as b52 or b77 could be swung.

Folks who missed entering the first deep pullback can fade every L2. A soft-trend is the easiest to trade and you should take every deep 2 legged pullback even if you are conservative.

Avoiding counter-trend trading is very important. The first successful counter-trend trade was off b48. You should normally skip the first one and take the second one (b64 or b67). In general never attempt counter-trend trades until you see a one-legged move to ema such as b48-51

The most recent reversal determines direction of 1PB

Everytime there is an opening reversal (OR) after a trend move (b3-b5, b6-b7), you should expect a 1PB in the direction of the latest reversal. This is because 1PB is the first pullback in a trend and when the trend reverses, the expected direction also changes.

1PB is usually reversible. This means that if your 1PB entry immediately gives a signal counter to your entry, you entered incorrectly and should probably reverse your position. For example, if you missed the inside bar reversal at b8 and took a 1PB long at b10, you should reverse short at the 1PB short on b12. This way, your 1PB entry is usually self-correcting.

5tf, 9tf and 1tf

When traders take a with-trend setup, they expect to take profits at certain discrete number of points. The most popular targets are +1, +2, +4, +8, +10. Counter-trend traders know these locations and will place counter-trend entries at these locations, hoping the additional trades will cause a mini-pop that will allow them to take a profit.

When the number of contracts placed by counter-trend traders far exceeds the with-trend contracts, the price will refuse to tick beyond it. For example, breakout traders below b24 sold at 1218.25 and expected to cover at 1217.25. Counter-trend traders know this price point and will place their buys at the same price. If the price refuses to tick below 1217.25, then it is a good indication that many of the buys did not get filled. That includes the bears who shorted and the bulls who wanted to buy below the low of the day. So when the bar closes strong as in b31, both bulls and bears who did not get filled will place buy orders right away. This is clear from b32 which did not tick below its open. Such a failure is called a 5 tick failure or 5tf. A similar failure can be seen on b27 since the buy above b24 also turned into a 5tf.

Analogous to a 5tf is the 9tf for targets of 2 points as can be seen at b70 for the short below b65. 9tfs often occur near large bars since larger signal bars cause traders to expect larger targets.

Unlike 5tf and 9tf, a 1tf is caused by traders buying the bottom of a bar in a bull move or selling the top of a bar in a bear move. For example, when the price refuses to tick below b6 on what is so far a strong day, traders will treat the overlap b5-7 as a trading range and place buy orders at the low of b7. This causes the price to pop above the bar after ticking below the prior bar giving a 1tf. 1tf is usually the result of a counter-trend trade especially the first attempt before a trendline break.

Rationale of the first reversal

From the chart, its clear that today's bar is a doji on the daily chart. There were swings up and down and the price closed close to the open. Although this is a typical trading range day, it has a sort of upward primary trend. Lets call this the primary move.

The first reversal trade in general attempts to get the most of the primary move. When the market attempts to make a trend move in a direction and reverses, there is a very good chance on a trading range day that it will attempt to go about twice this range (as it did today) and then move back near the open.

In real time, you never know if the move from b1 to b4 will reverse and lead to the primary move down or another reversal below will take it all the way up. This is why any decent reversal signal in the first hour or so is a great setup. The larger the initial move, the larger the doji range and therefore, the larger the primary move.

On trend days, the opposite is true. The initial move is small and the reversal leads to a protracted trend.

Poor 1PB setups on soft-trend days

1PB is usually the best opportunity for a swing trade on a trend day and I normally take it even if it looks poor. A great example of a poor setup was this day. b6 and b8 are not really 1PBs because at that point, we are probably in what appears to be a trading range. 1PB is a setup in a new trend and it will usually fail in a trading range.

However on a large gap day and a strong b1, there is still some chance its going to trend (as it eventually ended up doing) and what could possibly be a 1PB may be worth the risk/reward.

A deeper pullback to the ema at b21 or 25 is a far better entry since its at a support, 2 legged and below the trading range.

The second feature of a large up gap followed by a large b1 is that there is a very good chance it will turn into a soft trend. This means any fL2 such as b38 and b43 are valid setups. However, I often will only scalp them or pass them up and wait for a deep pullback such as b54. This is because a deep pullback is more likely to allow my swing stop at my entry price unmolested while it grinds higher.

Managing risk on days with huge bars

When bars are huge, I look to other options than the 5m chart. I have discussed volume charts and tick charts previously. In the first hour I also look at 3m charts for clarity.

 On the 3m chart to the left, the 1Rev is very clear compared to the 5m chart. Also clear is the FF made up of alternating bull and bear trend bars (3m b6-9).

An entry above b13 with a stop below is a canonical entry and has about 7 point risk. Since you can move the stop below the entry bar after the entry bar closes, an entry above 3m b14 is a valid entry with a stop below.  This reduces your risk to 4.5 points.

On a day such as this, when you are looking at a potential 20 to 40 point move thats a reasonable risk.

Another option is to buy the close of b14 with a stop below its close. This reduces the risk to about 2 points. This is very reasonable given the potential upside. However, its hard to do given that its a potential 1tf. Conservative traders will probably want to buy above a bull bar with a strong close. Remember, all the above are effectively buying above b13, you are just managing your risk based on subsequent bars.

Yet another option is to buy on the 1-minute chart. It should be noted that trading reversals on the 1-minute chart should absolutely never be done since it is possibly the fastest way to blow your account. However, two failures to continue the trend after a potential reversal (above 1m b45 after 1m b38 reversal) is a valid entry. Note that is should only be taken after the 3m and 5m charts have already shown reversals. A 1m chart on its own can never be trusted for a reversal signal.

The 1m entry above b45 corresponds to buying at 1141, one point below the top of 3m b15 or 5m b9. As you can see, the 1m did not give the most optimal entry, the 3m did.

What the 1m does is allow you to pretend its a very fast moving 5m chart on a day with huge bars. Note that even on the 1m, bars were 2 to 4 points. It gives more entries and smaller risks. Fading 1m reversals in a very strong trend is also a very good play but only when the trend is super-strong such as this day.

The best option for most new traders is to only read the 3m chart for the first hour and then switch to the 5m chart and not even look at 1m chart until a potential signal sets up on the higher timeframe chart. Once bars start getting smaller or overlapped (b23-b27), you should no longer look at 3m or 1m chart or you are likely to lose due to many poor setups on a lower timeframe chart.

Don't forget that the 5m chart is your staple and you have much less experience with other timeframes. Your reads should consistently be off the 5m chart and use lower timeframes only for entries during extremely large bars and only in the early part of the day.

A failed 1Rev can be a 1PB

A 1Rev or OR needs to be at a place where a reversal would make sense. If not, it is likely to fail. Today, the opening 2 bar reversal probably was the first reversal, but if it wasn't, then b3 is an attempt to give a first reversal.

The three minute chart on the left shows this much more clearly. 3m b5 attempted to reverse the opening move but since it wasn't near any place where a reversal would make sense such as ema or the extremes of the prior day, it failed.

Given that it was the first attempt to reverse three bear trend bars with strong closes, this probably was expected but what's more important was that a failure is often a 1PB (3m b6) in the direction of the original move. The risk to taking this of course is that a second attempt and the ema are very close.

However, when the second attempt to reverse it at the ema (b7) did not trigger, it was a confirmation of the 1PB and traders who were quick could probably sell below b7.

On hard trend days, the correct entries go far and go quick and there is really no latitude for delays. This is why new traders are better off trading off a single chart and try to focus on the best entries.

Fortunately, today we did get an A2 (b24), which is comparatively rare in a hard trend. Given the bar sizes, counter-trend trading was permissible after the trendline break (b17-23). On a normal sized day, fBOs should only be taken in the direction of the hard trend, since any counter-move is likely to fail or be otherwise unprofitable.

Confirming signs after weak signal bar

Sometimes, an otherwise obvious entry may have a poor signal bar such as b24 A2 or b33 W. In such cases, its best to look for a second entry. In the case of b24, a second 2 bar signal at b27 confirmed the entry. Often instead of a second entry, you get two failures in the counter-direction. For b33, there were 2 short entries that turned into 1tf (short below b34 and below b38). This is a very strong confirmation of b33 long. The price taking out b39 high also makes it a fL2, which is a reasonable signal in itself.

Similarly, the DP above the doji signal bar b62 was confirmed by the 1tf of the short below b64. A signal bar with a strong close should not need any confirmation.

Two legged pullbacks vs A2 vs G2

There are two legged pullbacks and there are A2s. The difference is that an A2 is around the ema, including just slightly above to overlapped. A shallow 2 legged pullback such as b13 or b36 is not an A2. An A2 is preferably deep and gives an entry near the low of the pullback. This is preferable since even a test of the high would mean a bigger payoff.

Shallow pullbacks such as b13 may be traded, but they should only be scalps. There is a very good chance that a shallow pullback entry's breakeven stop will be taken out except of course for soft and hard trends.

On the other hand, a G2 has relevance only in a very strong trend. An attempted sell-off gives a cheap entry for everyone who missed prior entries and they will rush to buy. If the trend is not strong, G2 cannot be taken on its own.

Catching the AM trend

Most new traders should not be surprised if their winning percentage is around 55 to 60% with-trend and 40 to 45% counter-trend. Essentially, they are at 50% with a 5 to 10% trend skew. This means that the more trades you take, the higher your chances of losing money and the more your broker loves you.

Holding for larger swings forces you to take fewer trades and make more points per trade. This also forces you to take quality trades and focus on the bigger picture, rather than be lost in the details of the most recent bar.

Most days are like the chart above. There is a trend attempt early in the AM and then a trading range. Trading the 20% of the days when the move is continually in the same direction is important, but that is easier since you do get multiple continuation entries.

On a typical day like today however, its very important to get in the AM trend and ride it till it terminates or reverses. If you missed b1 today, there was no real reasonable with trend setup until possibly b25. On the other hand, the market did give three counter-trend setups at b9, b30 and b38. These are much more modest in their wins than riding down the AM trend. This is why poor 1PB setups (b13) should often be taken and poor or weak 1Rev can be taken at support (b9).

If you do successfully catch the AM trend, its usually best to trade small or none for the rest of the day once the AM trend terminates and turns into a trading range. Compared to the very clear price action in the AM trend, the lunch and afternoon session are fraught with overlaps, traps and poor signal bars.

Most beginners are best served by:

• trading the AM trend only by trading the 1Rev and 1PB and nothing else
• adding on A2 only on trend days
• After some consistency, add H1/L1 on hard trends and fL2 on soft trends.

1Rev and 1PB have various edge cases and are much more complex to read but they provide the best risk to reward ratio of any setup before the AM trend has run too far. Once a trend day is established, A2s are fairly safe with some experience. All other setups require experience to read correctly and should be taken only on small size at first.

The trick to 1Rev and 1PB is to realize that on some days you will miss them and its fine not to trade on those days. Don't feel anxious to get into the market at any cost and enter on substandard setups.

Large Triangle Breakouts

I have previously written about trading Triangle Breakouts. In general triangles break in the direction of the most recent trend (b13-b26). The optimal entry point is usually hard to determine since the actual breakout often has no signal bar. The correct way to enter is to wait for a clear breakout outside the triangle (below b26) or at least the last two swing points (below b35) and enter on the first pullback. On this day, it would be below b55. However, when the day is one with large bars, an earlier entry may provide larger profits.

One optimization is to enter in the direction of the previous trend on any signal bar that may be a failure such as below b45 (b45 was 5tf of buys above b44) or below b47 (failure of reversal bar). The only reason this is acceptable is because failures usually lead to at least two legs and if the trade does not pan out, you should be at least able to exit at breakeven.

Trading large gaps

Small gaps narrow, large gaps widen. A currently experimental trade is to trade the open betting on the large gap widening with a 6t stop. The idea being the buy at open should not scalp out profitably. Today, this entry was stopped to the tick before the price reversed but overall this is worth the risk:reward since you are often getting the best entry of the day. However, this is still an unproven trade and not advisable for large size.

A1PB after a trend attempt is generally the safest trade and in the overall scheme of things, far better risk to reward ratio than entering on open. However when the signal bar is poor and news is pending, its often advisable to skip this trade.

Huge bars are trading ranges and at the close of b8, its pretty obvious that b7,8 form a large trading range and you should only buy in the lower 1/3 and sell in the upper 1/3. The only viable entries for the rest of the day were the DT at b35 and the W at b76. Honorable mention: b54 was possibly a W1P if you consider b41,46,51 a W rather than a channel.

Hard turn

Normally hard trends open hard but today, the trend turned hard after reversal above the prior day's high. Unfortunately, I did not identify it on time and I missed the down move entirely waiting for A2s. The fH2 at b17 was probably the earliest clue that the trend was turning hard but at that point could have been simple BW.

Being a hard trend, any shaved or 1t low could be shorted namely, b21, b29 and b39. Also any 1tf could also be shorted below, regardless of how the bar closed but b41 and b47 were possibly too large.

Hard trends break but do not usually reverse (i.e., unlikely to go back to the upper part of the range) and therefore there was possibly only a weak play after the TL break at b58.

Comparison of alternate charts

Today had some violent news related price action during lunchtime and unlike normal days when the lunch hour is the tightest, today's lunch hour had 'bars gone wild'. When there is a sudden increase in trading volume in a short span of time, time based bars are unlikely to provide meaningful signal bars.

A comparison of alternative charts shows how you can still get a decent signal in times of heightened activity:

1m	3m	4500 tick	20K volume

Note how the 3m fails to give a tradeable signal. The 1m gives a weak ii doji which may be seen as a final flag. The 4500t is a lot better, its giving a 2 bar reversal. However the volume chart has given the best signal today with a clear shaved reversal bar. The stop at the entry price was not touched only on the volume chart, allowing a risk free swing trade.

The defects of a time-frame chart can only be addressed by a non-timeframe based chart and thats a necessity when bars are large or otherwise untradeable. I haven't collected a lot of data yet, but in my very limited experience, volume charts provide the best setups in such cases.

Failed breakouts and Breakout pullbacks

On a trading range day, a failed breakout such as b26 may be traded if the signal is strong. I often pass up the setup if the move I'm fading is channel like and wait for 2 failed attempts to continue the move first (b30,32). This is because the first attempt to fade the channel will usually fail.

On the other hand if the breakout gives a poor signal bar (b60) or does not trigger (b65) or otherwise fails twice to move back into the range, I will usually look for BP instead.

A second option is to recognize failed L2s as a soft trend move and buy above the next signal bar (b36 or possibly b38, b53, b73). The brave can buy the close of the second attempt on limit with a stop below the next lower bull bar or a tight money stop.

Trading plan: Trading Range day

Since most trading days are trading range days, its essential to have a plan to trade them well. Identifying a trading range day is a lot easier: If its not a trend day, it's very likely to be a trading range day. Rather than go with the default, I use a simpler heuristic. After the first two up and down moves (including any gaps), if you are back where you started from, its likely to be a trading range day. For example, today the first move up was the gap and the bull trend bar b1 and the second move down was b8. At this point, you are back where you started, so this is likely to be a trading range day with b1-b8 as the opening range.

   On a trading range day, the first few bars are likely to have a lot of overlaps and tails, preventing a clear signal bar. One way around this is to trade a smaller timeframe such as the 3m chart as shown here. The entries are mid-bar on the 5m chart and do not really make much sense but are much clearer on the 3m chart. Once the first hour or so is complete, you should no longer look at the 3m chart since the setups there are likely to be of lower probability of success.

Trading range days often have two legged moves in each direction followed by two legged moves in another without really moving too far from the range. Most swing entries are likely to fail and your breakeven stop is likely to be hit. So a valid plan is to take every two legged move and exit on the second push. For example, if you sold 3m b2 on the chart shown to the left, you would exit when the second push ended either on strength at the close of 3m b9 or when a bar ticks beyond a prior bar (above 3m b14).

However, I avoid trading this way, simply because I prefer larger moves. A viable plan is to buy near the low of the range and sell near the high of the range. Simply stated, trade the failed breakouts of the range and try to hold it till the other end of the range is tested. So for example, the 5m b32 gave a failed breakout of the HOD b1. The right approach is to short this and try to hold it till b9 low is tested.

To constrain yourself to truly taking trades only near the ends of the trading range, divide the opening range into three parts and mark out the central part. Take only buy signals below it and sell signals above it. Hold it till the price crosses to the other side (b27) or attempts to bounce back a second time (b50). Ignore all entries that would take place in the center. This should allow you to swing even on a trading range day and avoid most of the choppy entries. When a new lod or hod (b30) extends the range, adjust your box accordingly.

Using this system, you would have only taken the long above b17 and the shorts below b32 and b56. These also happen to be the best swingable trades today. Note that this may not work on TTR days, when the range of the day is 5 points or less. TTR days are best not traded at all, since any trade is low probability.

Just as you stop trading trends when the trend terminates into a trading range, you need to stop trading a range when it breaks into a trend. Take the first plausible pullback and ride the new trend and avoid trying to insist it to turn back into the trading range.

Along with the Trading plan: Trend days, you have 90% of the days covered. The remaining trends are hard trends, soft trends, Spike and channel and TTRs. Recognizing these and trading them correctly is the key to successful trading.

Trading plan: Trend day

Trading on trend days is relatively easy and trading only on trend days and sitting on the sidelines on the rest of the days is a viable trading plan. The only issue is that trend days occur infrequently (about 20% of trading days) but on sharp moves on the daily chart, trend days can occur a lot more.

The first step is to identify a trend day. Overall there are some common attributes but these do not automatically guarantee a trend day.

• A large gap (beyond the range of the prior day) and a large opening bar that widens the gap
• A large gap that fails to close in a 2 or 3 legged move
• A small gap that reverses the high, low or close of prior day
• A small gap that moves to ema and reverses
• First 3 or 4 bars make a trend move

In all the above, you can simply take the 1st pullback and swing for the rest of the day. The 1st reversal (b5 or b6) and the 1st pullback (b9) are often very poor bars so a conservative trader may simply wait for the first 2 legged pullback. On many days this means missing a large portion of the AM move but a 2L pb is far easier to enter.

The main thing to watch out for in a 2 legged pullback is the quality of the signal bar. Often the first signal bar is a trap. For example b24 was an outside bar and b33 was a doji. b47 had a tail on the entry side, was away from the ema and was strongly overlapped by prior bars. In such cases, you should simply wait for the next signal. You will know your entry is correct when your signal bar is strong (b37) and after it closes, the breakeven stop at your entry price will not be hit.

You should always be on the watch for possible trend terminations such as a double top, W (b75), TTR or a trendline break. After this point, there may be no more A2s.

Once you can trade trend days adding trading range days is easier. On the setup chart most setups are in trend moves. In trading ranges there are basically only breakouts and failed breakouts and those take a lot more experience to trade profitably. You can be a profitable trader without ever trading trading ranges if you are able to sit out on 80% days.

Large inside day

A small inside day would normally be a poor day but given today had a 40+ point range, riding a couple of swings can be fruitful. The trick on days such as these is to recognize a failed breakout and exit and possibly reverse off it.

The right move on the AM trade was to reverse long off the fBO on b20 and reverse short again off b60. The trouble with trading swings on trading range days is that a trader needs to develop flexibility regarding possible fBO. If I had correctly read b60 as a fBO signal, I would have reversed short instead of finding reasons to go long all the way down.

Risks and rewards of extreme volatility

As expected, today was also an extremely volatile day and I was forced to trade on a 20K volume chart. So a lot of the entries were mid-bar and may not make complete sense on the 5m chart. Rather than omit the non-standard and experimental trades, I have included them all here in the hope that it will be more educational than distracting.

Let me briefly discuss the non-standard trades today. The long on b1 was a possible 1Rev near ema and led to a 3 point loss. The G entry above b43 and 44 are not my standard trade but I expected a 2 legged move up to possibly a new high of the day. The G2 at b51 did not trigger on the 5m but triggered on the volume chart. The price action was so volatile that the short on b54 and b59 were simply mistakes caused by bars printing too fast. The BO at b76 was after assurance of low probability of pullback after taking out hod. Most of these trades looked reasonable on the volume chart and that's the flip side of using a chart that reduces your risk, it usually also reduces the probability of success. When the bars are printing quickly on the volume chart, its hard to look back at the 5m chart to verify before making entires.

The biggest mistake was flattening my long position from b64 near the low of b67 instead of letting it take me out at b/e. This made me miss out on 40 points of the move up.

Technically speaking, I could probably just ignore the fact that bars are the size of a weekly move and trade them just like any other bar with 18 point stops and have my normal success rate, but its very hard for me at this point and I'd rather take a few more small losses to get a defined smaller risk and a chance to swing for a big move.

Bear rallies

Often the strongest bullish moves occur as failed breakouts in strong bears. Moves such as b1-2, b14-21 and b60-70 look very strong but end up as failed breakouts.

b2 failed as a 1 bar bull move, b21 failed as an A2 and b71 failed as a gap bar. On a very wide range day such as this, its possible to swing a good distance even counter to the main trend. However, a swing with the main trend would have obviously fared much better.

When in a strong bear always watch out for a failed breakout. You an minimize your counter-trend position exposure by taking only 2 legged pullbacks. For example, b67 would be a 2 legged pullback after a possible reversal.

Other options on wide range days

On days when many bars are the size of a normal day, I look to other options than the five minute chart for trading. I have used 1 minute chart, 4500 tick chart and recently, 20K and 10K volume chart. The 1 minute chart has the advantage of a fixed time before the print of the next bar but often gives poor signals, especially reversal signals. Tick charts have lost some of their relevance since the exchanges changed how they reported tick data and are now similar to volume charts. Although I do not have sufficient experience with any of these, I prefer volume charts slightly over the other two because of fewer bad signals. Today's entries have been off 10K and 20K volume charts and the markers on the charts represent the canonical entries rather than actual entries. (To some extent this is true of every day).

The advantage of volume charts and tick charts is that you can adjust the count to whatever gives you a bar size that you deem acceptable risk. The disadvantage is that bars can print very quickly. During b5 today, some bars on the 4500t and 20K volume chart printed in under a minute, so you have very little time to act and the pressure may force errors.

The second option is to actually trade options on the underlying -- SPY in this case. Option positions do not move as quickly with the underlying as futures do and are best used for swinging positions over a few days, but on large days like today, they become very viable. I personally only trade options after the day has proven to be a large day and shows the signs of a strong reversal. If the close is strong (unlike today where it pulled back before closing) its often a good idea to carry it to the next day except on Fridays since the option loses 2 extra days of time value.

Day full of large bars

When bars are large, your risk is large and although in proportion to each other the bars may look reasonable, your monetary risk is larger per contract so you need to adapt by reducing size. The other thing you need to do is to only take trades where the risk of pullback is low.

A2 on trend days when correctly entered, tend to have low adverse movement (b49, b69). Even though b69 was 4.25 points, its adverse movement was only 1.25 points. Other low pullback setups are W1P and G2.

Its best to avoid setups with large pullback possibilities such as inside bar reversal (b29) and two bar reversals (b10,11).

Trending dojis

Trending dojis (b35-41, b61-66) are mini-trends. They are small trend moves on a smaller timeframe and a large trend bar on a larger timeframe. When you see trending dojis, the right thing to do is enter with the trend on a pullback bar.

Obviously, most traders did exactly that since the low of b43 and b68 were bought without hesitation for an excellent run each. If you are queasy about buying the close of a bear trend bar on limit, its perfectly fine to wait and see of the next bar is bullish and buy its close or above its high if its not too large.

Inside bar after breakout bar

After a breakout in a direction, there is usually an attempt by the traders in the opposite direction to make a stand. This could result in a reversal bar, an inside bar or a small bar depending on the strength of the traders trying to fade the breakout.

A reversal bar after breakout usually implies a failure of the breakout and the failure is a decent with-trend signal by itself but is enhanced by being near a barrier such as ema (b59) or near a trendline (b36) or being a breakout test and so on.

A trend bar, especially a small trend bar after a breakout (b18) represents success of the breakout and may be entered with-trend if the bar size is small enough to represent moderate risk (around 2 points for normal day).

An inside bar after a breakout (b39, b51,b74,b76) represents a pullback and a possible failure and can be bracketed to trade either way. If both the breakout bar and the inside bar are bearish, its generally a good idea to take the trade only with-trend. If the inside bar after a bear bar is the bullish, it can be bracketed.

Small bars

Small trend bars are very important signals and you should pay close attention to them. In a strong trend, a small trend bar is a with trend signal. These are often visible right after a breakout bar(b6 after b5 and b62 after b61), and should be always taken since the following bar is often a large bar (b7) or is followed by a large move (b63-67). Such small bars are safe to short at LOD or buy at HOD.

A small trend entry bar off a strong signal pattern indicate weakness (b10,b41) unless followed by more trend bars in which case its a sign of strength.

The first counter-trend bar in a channel can be entered with trend on its close if the close is strong (b39 close), since it will be viewed merely as a pullback.

Inside bars

A small bar at one end of a large bar sets up a fade of the large bar, regardless of the color of either bar, but is a stronger signal when the entry is in the direction of the inside bar. For example b23 setup a fade of b22 and the price should be expected to at least take out the low of b22.

Sometimes, its perfectly fine to fade a large bar off an inside bar of the same color if the entry with in the direction of the overall trend. For example, b30 setup a fade of b29. While both were bull bars, the overall trend was already down (2 lower lows and 2 lower highs). The same with b39 fade of b38.

The most important criteria is that the inside bar should be less than half the size of the outside bar. For example, b9 and b45 are terrible entries simply because there is insufficient room to the low of the bar to eke out a profit. If the bars have more than a tick tail, you may wish to take second entry instead.

Small bars whose body is completely inside the body of the larger bar (b21 inside b20) also count as inside bars as long as their tails are not too long.

The simplest way to trade inside bars are to only take them where the inside bar is less than half the outside bar and only with trend (b30) or after a swing move or a third push up (b23).

Channel after a trendline break

A channel after a trendline break (b35-48 after b32-34) is often the first leg of a new trend. If it gives a 2 legged pullback (b49-53), it should be taken for a possible second leg, which often is a much stronger move (b55-62). Regardless of the direction of the original trend, the new channel is more likely to be the determining direction of at least one more leg.

If the two legged pullback is very strong, it may break the channel trend and ultimately reverse the channel. This usually rare but does happen on occasion.

Hard trend identification and trading

Hard trends are trends that begin strong and carry strong for many bars. This means minimal pullbacks and large moves. Such days are hard to trade for a few reasons. The first is they are comparatively rare, so the trader has no experience with it. Second, 2 legged pullbacks and pullbacks to ema are rare, and due to the large distance to the ema, a pullback to the ema is strong enough to appear to be a mini trend, possibly a reversal. The third and most important reason is that hard trends rarely reverse. They may break and go into a trading range or turn into a channel but reversals are rare and they almost always require a couple of hours in a trading range or TTR first.

The first clue that its a hard trend day is a large gap and an open beyond the range of the previous day. The second clue is a strong 1st bar. The first bar cannot be very large (2 to 3 points is ideal) or it could act as a trading range or turn into a spike and channel. The last clue is that any attempt to create a pullback turns into a doji or inside bar. So by b4, you should have identified a hard trend.

Trading hard trends is very simple yet hard to do. You can short below any bar that has a shaved or a 1t tail with a stop above that bar. So other than large bars like b8 (which give poor risk/reward), very few strong closes would disappoint.

When a hard trend is broken such as by the move from b16-25, the trend has ended and will either enter a trading range or channel. Today, we channelled (b28-50) and then had a BO attempt that failed and gave a second hard leg down. Often the hard trend break will simply channel till the end of the day, without any easy swing entries. This is why its important to enter early in the AM and swing some as far as possible.

Wedge pullback

A mid-day low momentum three push pullback is a wedge pullback (WP) and usually is a good entry. On a trend day, this move will usually end close to the ema. On a trading range day such as today, it will usually give a three push fBO of the previous swing low (b52 broke below b27).

Often this may be a G or G2 trade as well and is usually a high probability trade given previous trend in the same direction. Often the WP makes part of a complex mid-day pullback.

Trading barb wire

While its normally excellent practice to avoid barb wire, experienced traders can and do trade it profitably. On the occasions I do enter on barb wire, its often because I have missed an earlier entry in a trend and the barbwire is another opportunity for me to enter with the trend. I usually avoid barb wire mid-range.

For example, today's BW between b24-28 had a trend breakout to the ema and it bounced off and gave an fBO entry that is also a fL2 entry (b27L1, b29L2) for anyone who missed buying above b22. This sort of BP usually produces very short BW lasting 4 to 6 bars. A similar BP occurred at b66. AStrong breakout at b62 was followed by two feeble attempts to reverse the breakout (b63 is a feeble attempt to create a reversal bar).

b73 was a similar is a barbwire A2 in a trend that should be read as a fH2 and therefore two failed attempts to reverse the trend. (If you expect the bar to trigger, its quite ok to short the close on limit as was done here)

The last but somewhat rare scenario is that BW can be shorted when it repeatedly fails to run stops as in b45-60. How many attempts equate to repeated? That's yet unknown, but two failed attempts to break out up after at least one successful attempt to break down should suffice.

TTRs break the trend

Any horizontal movement extended long enough will break a trend, including one bar trends and gaps. Its best to exit any positions near the top of the TTR and look for new entries after the next trend break.

A minor horizontal movement such b19-24 is simply a two legged pullback (b20 and b24 were two pullbacks) and should not be considered an extended TTR. On the other hand, when two up and down attempts failed (b46,47,49,50) There is good chance this is a horizontal flag and TTR.

Stop runs in a TTR (b54,55 and b56) should are not reversals and should not be taken. A breakout out of the TTR, especially a 2 or 3 legged BO can be faded (b69-75)

Double bottom pullbacks

An important continuation signal on a bull trend day is the double bottom flag (double top in bear trends). These are especially strong when they occur at supports. For example, today we had two double bottom bull flags. The first at b29,35 was at the BT of the 1PB entry above b6 and the next at b59,69 was at a trendline.

A DB after a deep pullback has a lot of significance, since it implies traders are buying again or adding on close to their entry price. A DB followed by a small pullback that doesn't quite touch the bottom turns into a DP. An inside bar such as b36 or a miss by a tick or two such as b74 constitute a DP.

DPs are a kind of failed breakout and are expected to go to the other end of the range (b12 high for b35 and b40 high for b75) and should be taken if the range is large.

Micro-channels

Extended micro-channels usually imply reversal and are often seen on both trend days and trading range days. After an extended trend move, a with-trend micro-channel represents a trendline break and and a higher high or lower low test and often will signal a reversal.

On trading range days, they represent a weak move to one end of the range, which usually breaks down and can break into a trend in either direction. A micro-channel beyond 20 bars loses any predictive value.

Micro-channels are traded like any other channel. A break and a 2 legged pullback is a with trend (in the direction of the MC) and a break and a 2L test represents a reversal.

Limit entries

After experimenting with limit entries, I have narrowed down a few prospective entries that work somewhat consistently and when they do work, they give a slightly better entry than a preceding or subsequent stop entry. While the key to trading is to take the best setups, limit trading on small bar days can improve your win per trade by 4t or more. On large bar days this approach may not be very fruitful, simply because the momentum of every move can easily trigger tight stops. In general, I dont look for limit entries except when there is overlap since overlapped entries tend to give deep pullbacks. Limit entries are primarily a means to enter late, often at a better price.

1st Channel breakouts: When the momentum is strong and no bar has dipped below the low of the prior bar, the first bear trend bar close (b4) can be bought on limit with a stop below a recent trend bar (b2). If the stop is too far away, do not take the trade.

Entry bar tests: When an inside signal bar (b13, mDP) triggers, the entry bar's high will often be taken out by 1t (b14, b39). This provides a very tight entry at the high of the entry bar. The stop can be as tight as 3t, but if a trend bar is nearby, you could place the stop beyond it (b12 high, b38 high).

Breakout tests: When the highest low of the day or the lowest high of the day are approached for the first time, there is a good chance it will fail from 0-2t away. A BT entry can be placed 3t away from the breakout point with a stop 4t above. For example, b37 high would have been a breakout test of b11 low if it was the first approach. In general, BT is for breakouts and should not be expected to work unless a trend move did break from that point.

Double bottoms: A double bottom off strong bar can be expected to bounce at least as much as the size of the bar. For example, b45 low made a double bottom with b33 and is a possible limit entry. The stop would be below a recent trend bar (not-existent in this chart, so its not a real entry). The trick to taking double bottoms is to always take them on the 2nd or 3d push. For example, although b37 low did give 4t, you really want to buy on the second leg down at b45.

Trendline breaks

Trendline breaks, especially of trends longer than 20 bars or so should be carefully evaluated for continuation, reversal or trading range action.

A strong trendline break will go many points and many bars beyond the trendline, often closing above the ema in one leg. If this break occurs after a strong overshoot and reversal bar, its a very strong trendline break and reversal is likely. Any 2 legged pullback or any reasonable 1 legged pullback such as 1chbo should be taken.

A weak trendline break that occurs after a very large trend bar or a taily bar is likely to turn into a trading range. This is especially true if the terrible signal bar is followed by a 2 legged pullback to the ema that comes close to the extreme of the trend and fails to take it out or takes it out only by a few ticks and then reverses.

In between the two is a moderate break that gives a channel either in the same direction or the opposite direction of the original trend such as the one today. The break came off a 2 legged move (b30-34), after a doji bar and no real overshoot. However, the A2 that followed (b38) did not go far and started to move in a channel. Once you assess its a channel, you should trade it like a weak trend, buying 2 legged pullbacks to the trendline and ema and scalping most entries by exiting at the trend channel line.

BW midrange

A mid-range barb wire (BW) pattern is a very common occurrence on Trading Range days. Most traders get chopped up trying to trade these such as the ones between b22-29 and b41-53 today.

Facts you need to know about barb wire:

1. They almost always break away from the ema rather than thru the ema.
2. A strong breakout bar from BW(b31,54), no matter how strong it may appear, is likely to fail and turn around to go through the BW. This is especially true on trading range days since you expect moves to ends of the range to reverse.
3. 2 failed attempts to break through the ema(b25,27) can be traded as if it were a minor A2 if additional indications are seen (TL touch, 5tf, shaved signal bar b28). This should be done with care since taking the fBO is always the better trade and you dont want to miss it by being on the wrong side.
4. A BW fBO late in the day is likely to give a much stronger move than one mid-day.

Note that hard H1/L1 entries in a hard trend (b74,b78) do not constitute BW. This is because trending dojis are a trend and BW needs to be somewhat horizontal.

Trendline breaks end the trend but do not imply reversal

When the trend accelerates (b40-b46) after a sufficiently large move (b13-34), the resulting deep trend channel line violation (b46,47) will usually give a strong snapback move. The deeper the incursion, the stronger the snapback (b47-49).

When counter-trend traders are able to make a very strong move such as the snapback above, the result is a trend line break. Often, the break is obvious without the need for an actual trendline. This show of strength is usually sufficient to pause the trend for a while, however it may not reverse the entire trend right away. This is because at the point of the trendline break (b49 high), sellers will want to sell at a better price and the buyers who missed out will want to buy at a better price. The result is a test of the trend extreme (b47 low) or at least a test of the entry bar (b48 low). A second strong buying at this point will often but not always cause the trend to reverse.

This implies that most entries should exit when the snapback pauses and swing entries should wait for the test of the prior extreme.

TCL failure

A channel is normally a flag and after 3 pushes or so will resume the prior move to at least test the original trend extreme. Any movement of the price outside the channel tends to push the price action to the other extreme of the channel (b29 to b34, b40 to b46). The more extreme the violation, the sharper the bounce.

Very deep excursions can result in a very sharp snapback especially if the price action early in the day  (b7-13) showed strength in the same direction. However, if this snapback fails to rush to the other extreme of the channel and instead gives a 2 legged move (b60-67), then we have a TCL failure and the result is often a measured move of the extent of the channel (met at b75). This acts like a fH1 and usually is one on a higher timeframe.

The correct trade is to take both the expected snapback and reverse on its failure since both are likely to move around the same number of points (b16 hi to b24 hi is the same as b66 low to b75 low)

A Wedge reversal of a weak trend may generate a strong trend

Often trading range days are weak trends with deep pullbacks. The price continues to make higher highs (b11,b28, b59) and higher lows (b17, b22, b49) etc. When such a trend has a Wedge reversal (W11,28,59), there is a good chance it will reverse the entire wedge. A strong breakout (b55-58) from an essentially horizontal movement on failure will produce a large move down. The reason for this is simple: The horizontal movement acts like BW and the breakout like a BW fBO.

The most important reason however, is that every new breakout on a trading range day that did not open with a large gap is far more likely to fail than to succeed.

Trends dont turn around easily

With-trend traders are always at an advantage and the reason is that trends don't turn around easily. Especially strong trends that have a strong first leg. Today there was a channel like move from b6 onwards until an obvious trendline break (b19-b29). The channel like move very likely means there would be a second leg down, which would take out b19 low. This was met at b46. However, buyers of b46 or b47 were disappointed when the trend did not just reverse to bullish. They may have tried again at b61 (3 pushes down) ad then again at b65, b68 and b72. All those attempts failed because trends don't reverse very easily. Most faders are in too early and pay for it. The large gap and the channel like first leg is an indication of strength and without a strong overshoot, the likelihood of reversal is low.

In general, a 1 legged move to and close beyond the ema (b72) is a good sign that the trend may have ended or at least the counter-trend trades are likely to be profitable beyond the one and two point scalps. Until then, every entry is speculative and if you do enter, exit unless the entry takes you beyond the ema without pullbacks.