Price Pattern Indicator: Big Bar Here is a Trader Tip concerning “price patterns” that may help you. We often are watching an instrument that is trading along. All the bars on the chart look fairly similar in length – perhaps 10 to 15 pips in length. Then boom! All of sudden you see a “Big Bar” of 40 pips. Perhaps it may even coincide with a news event. So what do you do? Counter trend trade it? Are you prone to suicide? Hope the next bar continues? Hope is not a strategy. In this Trader Tip, we shall discuss what one might do. We call this the Big Bar price pattern phenomenon.
First off, what has happened at the point of the Big Bar? Most likely the volume has increased and force the market to drastically reprice the instrument creating the Big Bar. The issue is, is this just a fat finger or one-off volume spike – where the price will soon recover as before or is this signaling a trend. Perhaps we don’t care. If we can understand the price movement and trade it skillfully, there is a 50% chance we will be correct, where the PSR (Profit Stop Ratio) is 2 to 1. Under these odds with this PSR we will make money over time.
Let’s get into some specifics. Prior to the Big Bar, we should see 10 to 20 bars that have an average length that is at least 1/3 the size of the Big Bar. Remember your candlestick addition where the Big Bar could be 1 to 3 bars of all the same color. Understanding that this Big Bar was created by a volume spike in a short period of time, it is natural that price has exaggerated and will like a rubber band snap back somewhat. However, if it does snap back, this indicates the price change was temporary and the price pattern should be ignored. So the retrace of the Big Bar must be slow, or at least 4 times the time it took to created it. Typical retracements of these Big Bars is 50 to 66% before continuing the trade in the direction of the 20 period moving average. Sometimes one does not get a retrace at all – so tough luck, ignore and wait for the next one. Where it does retrace, this point could be a good place to place a Trigger for a trade in the direction of a new possible trend.
This price pattern trade strategy indicator can be done on just about any time series, so long as you scale the pip sizes accordingly. I will leave it up to you to place this indicator into a Trade Plan with proper Stops and Targets accordingly. Click here, or watch below a video presentation of this Blog post.
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