Wide Range Bodies or 'big' candles

[wrbtrader]

Originally Posted by brownsfan019 Update here on the WRB front - as the charts I've posted have shown, when there is a WRB, it should at the very least get your attention. How you interrupt that info is up to you. There is one serious flaw with WRB's and using them for exits however - when they don't show up! :mad: In other words, if you have a trade that moves in your direction but a WRB does not appear, the question becomes what to do. That has been causing some frustration on my end. For example, I had an ES short on 5/4/07 that moved approx 4 pts in my direction. One WRB appeared that provided a good exit. Since I am trading multiple lots however, I was looking to exit at different levels and all that showed up was one WRB. Of course the argument is to simply exit on the first WRB you see. The rebuttal to that being it's not uncommon to see more than WRB appear. So then it's simply a matter of taking most/all off at a certain point (however you determine that) or try to catch the bigger moves (when they are there).

Hi brownsfan019,

There are several different ways of using WRBs as profit targets.

Lets use your Short in Emini ES futures on May 4th Friday as an example even though I don't have access to the type of chart you were using:

* You wait for a Dark WRB to form below your Short Entry

* You use a prior White WRB s/r zone as a profit target

* You use a prior Long Lower Shadow that produced a swing point as a profit target (long shadows at one point in time were a WRB).

* You use a prior pattern signal that produced a swing point as a profit target.

* You use the s/r zone of a prior key market event (economic report, regular schedule event like a FED speech, geopolitical event et cetera) that produced a swing point as a profit target.

* You use the s/r zone of a GAP between today's Open and yesterday's Close (gap fill is the profit target).

My point is you need to pick a profit target trigger price prior to your entry that tells you if a Dark WRB doesn't form below your entry while price continues dropping in your favor...

That's when you use one of those prior WRB events as profit targets because they are shifts in supply/demand that produces support/resistance zones.

Another solution is intermarket analysis.

You will use a highly correlated trading instrument or index to Emini ES and if it develops a Dark WRB while ES does not...

You treat the trade in ES as if it did reach a Dark WRB.

The worst case scenario for WRB as a profit target is if you find yourself in a situation where you didn't manage the exit properly when those prior WRB targets were reached...

Exit the position at a profit on the next White WRB retracement against your Short position.

I think for May 4th Friday many of the above possibilities occurred.

Last of all, you need to have what I call a Max Profit Target for your trade prior to entry.

That means if no WRB's appeared and you decide to ignore all prior WRBs or s/r zones as profit targets...

You exit your position at the Max Profit Target.

For example, I currently trade the Russell Emini ER2 futures.

My Max Profit Target is 10 points and on a few occassions I have hit that target and exit my position eventhough it was not a WRB exit.

These types of price action scenarios needs to be mapped out prior to your entry to prevent trade management problems and for you to document in all so at a later date you can determine which type of Profit Target Contingency Plan solution is suitable for your trade management style.

Mark
(a.k.a. NihabaAshi) Japanese Candlestick term

"Volatility Analysis is an open door to consistent profits."

[Anonymous]

B.F. has spent much time talking about profit targets and WRBs. I have tried to show the other numerous aspects of their use and the information they impart to the trader.

I have shown a chart about this idea before. What we have here is the use of WRBs as a contingency plan trigger.

A contingency plan basically is a set of rules that state if Price does A,B,C, then the current trade is not valid and one should look to position himself on the opposite side. That is, if long, get short.

This not the same thing as a simple stop and reverse. One does not have to be stopped out of the long, for example, to get short via a contingency plan (Price Action).

I have attached a good example from Thursday. Note this chart was taken prior to Mark's Post .

What we see are two valid tests. While the time of day would be reason enough to stay out of the market, we will ignore that fact.

The key concept here happens after the second valid test. As soon as we get a valid test bar, we see a large dark WRB engulf it. The WRB closes below the low of the test bar. At this point, we have "no result from a test" or more generally, "Negative Action". Negative Action is when the market does the opposite of what is "expected". That is , after testing for supply (sellers) and finding none, we would expect price to rise. Instead, it falls.

Note that this second test is a "test in a rising market" and therefore a strong sign of strength.

If a trader places his stop just below the test bar, he would be stopped out and then re-enter short on the close of the WRB or next open. If the trader is not stopped out, he would short twice as many contracts to get net short.

ADVANCED CONCEPT:

What is not shown here is a 15 min chart. The 15 min chart was in a down trend. There were also no obvious signs of strength (demand) entering the market. In other words, a trader using multiple timeframes would see no reason to get long on either test. Yet, once he sees a dark WRB closing lower than the test bar (long entry signal), he has the weakness confirmed by the shorter timeframe and can get short. Here the trader is not using a contingency plan, but the lack of result (negative action) as the primary entry.

[brownsfan019]

Mark & Pivot - thank for you sharing, I appreciate it.

In the spirit of keeping things simple (just how I am) there appears to be quite a bit of outside areas, WRBs, etc. that could take you out of a trade. The question I would then have is, how far back are you looking for previous WRB areas? I am just trading intra-day on a 5 minute chart, so especially in the AM there are not many WRBs to use, if any; unless using a previous day(s) WRBs. And then the question is which ones to use and why?

My concern would be having too many lines or possible exit areas to choose from. Of course one of them will look great in hindsight, but why would you exit at one level vs. another level?

[waveslider]

Hello, I am new to trader's lab. Happy to see quality discussions going on. I have read this forum and would like to bring up an idea regarding WRB.
My objective is to identify congestion here.
An example:
A bearish WRB and bullish WRB occur in the same price vicinity. Subtracting the open of the bearish WRB from the open of the bullish WRB, can this be established as a range, particularly if they overlap?
The way I am identifying the open of the bearish and bullish WRBs is as resistance and support respectively. Would this be a correct analysis?
I would consider the price held in this congestion as long as close remains below/above these levels.
Thanks for your input.
slider

[brownsfan019]

Slider - welcome to the discussion.

Give us some chart examples to look at. Pictures say a lot more than any of our words can. And it makes the analysis much easier! If you need a very user friendly screenshot program, I use this - http://www.techsmith.com/snagit.asp

[BlowFish]

Hey there WS. You might take a look at Joe Ross' law of charts. He has a way of rigorously defining congestion. He has what he calls a 'measuring bar' (a wide range bar as opposed to a wide body bar). Essentially all the time bars/candles have an open of close within this measuring bar you have congestion. Early recognition of the type of trading you are in is one of the several important concepts in trading imho.

I am not saying yay or nay on JR however his law of charts is an excellent place to start for a basic blueprint of price action. It defines pretty unambiguously trends, congestions, 'ledges' and corrections.

btw the formation you describe is an 'upthrust'/'test' in VSA/Wycoff speak or a long leg doji in candle speak.....before you say "BlowFish you are out of your mind" ...let me qualify that...it is one of those formations over two bars. Put another way the formation you describe on a 5 minute chart would be a long leg doji on a 10 minute chart

Cheers,
Nick.

[waveslider]

Hi, thanks for the responses. I am familiar with JR and have found him useful in a common sense way. What I prefer about WRB is that they show reactions on either side of price action, establishing where buyers and sellers are.
I see what you are saying about the doji part Nick. I use tick charts however and they seem to come out differently.
Keeping it simple, as you see in the chart I am posting, when close is between 2 wide range bodies (I trade YM and so I use a 20 pt. max between these two), I define it as congestion.
Look at the bar thing above price and you can see that when this happens it flips yellow. WRBs are denoted with purple spots. When price once again closes outside of the range, color turns to red or green.
So I am just trying to generate some ideas on this board here, sound off and get opinions.
While I'm on it, I have done some testing and found that by counting the number of bullish WRBs compared to bearish WRBs you have a pretty good trend/bias filter. Spark any ideas?
I attached a picture, not sure if it worked..
slider

[walterw]

Originally Posted by waveslider Hi, thanks for the responses. I am familiar with JR and have found him useful in a common sense way. What I prefer about WRB is that they show reactions on either side of price action, establishing where buyers and sellers are. I see what you are saying about the doji part Nick. I use tick charts however and they seem to come out differently. Keeping it simple, as you see in the chart I am posting, when close is between 2 wide range bodies (I trade YM and so I use a 20 pt. max between these two), I define it as congestion. Look at the bar thing above price and you can see that when this happens it flips yellow. WRBs are denoted with purple spots. When price once again closes outside of the range, color turns to red or green. So I am just trying to generate some ideas on this board here, sound off and get opinions. While I'm on it, I have done some testing and found that by counting the number of bullish WRBs compared to bearish WRBs you have a pretty good trend/bias filter. Spark any ideas? I attached a picture, not sure if it worked.. slider

Wave : could I know what software are you using and what time frame is your posted chart ? thanks Walter.

[waveslider]

Using tradestation and 89 tick charts ..

[walterw]

Originally Posted by waveslider Using tradestation and 89 tick charts ..

Ok Wave, so let me see, you get a SR area that is formed between two wrb one up other down, and if things go above or below that gives you a bullish or bearish bias... am I right ?