Wide Range Bodies or 'big' candles

[brownsfan019]

We've discussed WRB's in a couple threads, but since this is something that has grabbed my interest, I was hoping we could discuss it here.

I've been watching WRB's or what I 'see' is simply a 'big' candle and from a perspective of exiting a trade, they appear to be good. Now, I may be oversimplifying how they are supposed to be used, but here's what I've noticed and have actually used this past week...

1. My entry and initial stop is the same as it's always been - using VBC's on 'shorter' timeframes. WRB's have NO impact on my trade setup.
2. After in a trade, go to a 'longer' VBC chart and use WRB for exit.

My version of WRB/Big candle exits is rather simple - when I see a big candle on my bigger VBC chart, I exit at the close of that candle. And I exit the entire position here using a market order.

Here's what I have seen - since I use smaller initial stops, by exiting everything on the first big candle I see, I am able to exit trades quicker w/o a threat to my initial stop. In a bigger move I simply look for another trade setup and repeat the process.

The other thing I have seen is that I am taking smaller gains more, but that is all the market was willing to 'give' me.... I believe we discussed this in another thread and I may be coming around... :p While getting 15 or 20 pts on the YM is nice, if I am able to get 12 with no problem, it may be best to take it while there. It's frustrating to want 20 and if it goes 18 and then reverses on you, was that 2 ticks worth it? Up until analyzing WRB's though, I did not have a good method for exiting trades.

I attached a chart to this purely for illustration purposes. These were NOT actual trades, I just grabbed a YM chart off of quote.com since my TS is shut down for the night. You'll see that exits are not perfect, but I think they are pretty darn good.

I'm curious to hear what is working for others who are using WRB's in their trading or at least watching them. Maybe we can even get the WRB guru (NihabaAshi) to share some ideas with us.

Here's my biggest question right now - what is the theory behing WRB's and their practical use in trading? I am proving to myself by looking at actual chart setups as to whether I like what I see, but I don't quite have my arms around why these work and why they make for good exits... My idea right now is that a 'bigger' move may be followed by some 'correction' due to the supply/demand imbalance that happened during the WRB - while the WRB is being formed, that would show us that either the bulls or bears took control during that timeframe and sooner or later, they will have to take a breather. That's not to say that the current move will not continue, but some sort of breather and/or correction could happen; which could take a stop that is snug (like mine) out easily.

SHORT HAND KEY:
VBC = VOLUME BASED CANDLES (more info here: http://www.traderslaboratory.com/for...ofit-1414.html)
WRB = WIDE RANGE BODIES (info scattered throughout some threads)
TS = TradeStation

[Anonymous]

	Quote:	brownsfan019
	......My version of WRB/Big candle exits is rather simple - when I see a big candle on my bigger VBC chart, I exit at the close of that candle. And I exit the entire position here using a market order. ..........The other thing I have seen is that I am taking smaller gains more, but that is all the market was willing to 'give' me.... I believe we discussed this in another thread and I may be coming around... :p While getting 15 or 20 pts on the YM is nice, if I am able to get 12 with no problem, it may be best to take it while there. It's frustrating to want 20 and if it goes 18 and then reverses on you, was that 2 ticks worth it? Up until analyzing WRB's though, I did not have a good method for exiting trades.

BF, have you thought about exiting a portion on the first WRB and then another portion on the next WRB. Mark (NihabaAshi) goes to a higher timeframe after the first WRB. This allows one to get the most out of the trade.

Currently, I am not moving up a timeframe but still look to scale out in thirds. That would mean 3 profit targets.

I take a portion off as soon as the bar becomes a WRB. As I become more skillful, I know I can wait a bit get a feel for the PRICE ACTION of the bar itself.

As far as what is going on during a WRB or what we can take away from them, I will defer to the master................

[TheBramble]

Apologies if I’m stumbling into an area that’s been discussed in greater detail in other threads, but personally I’d be really wary of attempting to interpret a single candlestick. Effective candlestick analysis requires the context in which it has developed for any reasonable assessment to be made. There’s also the vital issue of volume. Candles or bars, volume is key to unlocking the probabilities of development.

In relation to this specific WRB being discussed, all we are looking at is price action over one period in which the balance of commitment has shifted from one end of the spectrum to the other – for that period. If the move is in favour of your existing trade, I presume you wouldn’t be still using it as an exit indicator? And if the bar is moving against you, providing it hasn’t hit your protective/trailing/initial stop, why would you want to take it as a valid exit criteria?

You will often get corrections against your prevailing trade direction that will move 50-63% against the previous high/low. Whether this occurs as one WRB or over a number of consecutive periods is largely irrelevant all other things considered (volume pattern etc.). WRB as more likely to take the steam out of the subsequent few periods price action than it is to herald a reversal.

You comment that you’re getting smaller profits using this method which is understandable, you’re not letting them run. If by using this method you’re also getting fewer losing trades then I suspect it may be an issue with the underlying system itself rather than this bolt-on exit criteria.

[Soultrader]

Interesting thread. I use WRB's as an exit especially if it occurs near a pivot. Sometimes full and at sometimes half my position depending on the current market environment. I personally like to wait until the close of the WRB and then stare at tape to see sellers. Profit taking will occur regardless but what I am trying to spot on tape is the additional shorts that may come in to reverse price. If not, the markets usually form a doji... may retrace a little and then take off again.

The reason why I like WBR is because of my entry. I like to enter in narrow range bars. Not necessarily the first one in the move but I enter based on price levels and to minimize my risk I focus hard on entries. (thought I find exits harder) WBR to me means that those buying it are chasing the markets. The late comers are extremely frustrated to watch price move without them that they rush in to buy. Now, knowing that 5% make money trading futures... my take is that the 5% are the ones that bought/sold in the previous narrow range bars. The WBR offers a good exit signal to sell into strength. I rely heavily on the tape to cut my last portion loose or hold. Something which is impossible for me to explain in words...

I am not candlestick expert so would love to hear from more experienced candle traders.

[NihabaAshi]

Hi All,

I just want to post some commentary about WRB Analysis before this thread gets to far or before its misinterpreted.

First of all, its something I developed while in High School (1980) when I did work (hand drawn charts of daily and weekly price action) for friends of the family that were floor traders at the exchange.

It involves many things that's nothing anybody has heard about but it does make sense of all these things when they work together:

* Support/Resistance Zones
* Shifts in Supply/Demand
* Trading GAPs
* Changes in Volatility

Many other things from entry to exit including Profit Targets.

Simply, there's no reinvention of the wheel here...just something that puts the puzzle together into something that's understandable.

WRB Analysis (primary) has absolutely nothing to do with Japanese Candlestick Analysis (secondary).

As mentioned many times by me at another forum in a thread called Trading Hammers (revisited)...don't use Japanese Candlestick patterns or anything else (including WRBs) without understanding the price action in context.

Therefore, TheBramble comments are dead on and should be apply to Japanese Candlesticks, WRBs or anything else involving technical analysis.

Effective candlestick analysis requires the context in which it has developed for any reasonable assessment to be made. There’s also the vital issue of volume. Candles or bars, volume is key to unlocking the probabilities of development.

(Note: Volatility is arguably a better replacement of volume and resolves some of the problems asssociated with volume analysis).

With that said and moving into using WRBs as an exit strategy.

PivotProfiler mentioned something that needs more clarification.

I scale out of my trades while other times I exit my entire position at the same time (no scaling) for whatever reason.

The only time I use a higher time frame after the first WRB for scaling out is if the entry signal (pattern signal) occurred as either a trend continuation signal or occurred as part of a market seasonal tendency (cycle).

Simply, most of the time I use the same entry signal interval as my exit signal interval (example - I went Long via a pattern signal on the 3min chart...I exit via WRBs on the 3min chart).

Thus, the price action involved with your entry signal has impact on how you manage your exits.

This reason alone is why two traders using different entry method but using WRBs to exit...will exit at different WRBs.

Therefore, the price action involved with a WRB has impact on how you manage the exit in the WRB.

Further, traders using different strategies may exit a WRB different.

For example...

* You can exit a WRB upon the close of the interval.
* You can exit a interval as soon as it becomes a WRB even though there's still time remaining in the interval.
* You can exit at WRBs that cross over a s/r level.
* You can exit at WRBs that form within s/r zones (there's a difference between levels and zones).
* You can exit WRBs to only breakout out of congestion.

Thus, before analyzing someone's use of a WRB as an exit method...

You must understand their entry method into the trade and this will prevent getting tunnel vision about the WRB.

Therefore, to properly use WRBs is to have a relationship with the Entry Method and the WRB.

Another way to look at it...the WRB is not an exit signal. The exit signal is the price action itself while the WRB is a big alert to check and see if this is the price action you like to exit within (ex. exiting WRBs that appear at s/r levels).

WRBs are like warning signs that something is about to happen (continuation of the trend or reversal of the trend) as in a big shift in supply/demand.

WRBs should be telling you its time to make a decision...to exit your position or to stay in your position.

Therefore, don't make the mistake of viewing WRBs exclusively as an exit signal or that the move is going to reverse against you.

To do such is to say that your ignoring the price action in which the WRB is forming within (tunnel vision).

As noted by brownsfan019 when learning about WRB's...

My version of WRB/Big candle exits is rather simple.

This is true about anything when you first began learning something in which you don't know exactly how to apply it or still exploring the basic concepts about it.

In other words, my WRB Analysis today is far more advance than the simple WRB Analysis I was using in the 80's.

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

[notouch]

I find WRBs are great entry points if it hits support/resistance on high volume then reverses. I wouldn't necessarily enter a position on the close of the bar but may wait for a little pullback before entering. Often they're caused by a knee jerk reaction to some news release (e.g. today's Existing Home Sales) or stops being triggered.

[brownsfan019]

Good discussion guys, thanks for the comments.

Pivot - I have looked at exiting on a WRB based on my initial entry and VBC being used, but the problem I have found there is that since I am trading on a 'smaller' VBC, a WRB can appear rather quickly on this type of 'timeframe'. Which often causes a very quick exit. I bumped it to a higher VBC to stay in the trade longer. I've thought about multiple exits on multiple timeframes, but to be honest - that's a lot of charts to examine when trading 3-4 markets at the same time. I'm not willing to miss an NQ setup b/c I was starting at 3 different YM timeframes. The other thing I am noticing Pivot is that for me at least, the first WRB that shows is a pretty reliable exit level. What I mean is that since my stops are 'snug' there is a possibility that after I enter a trade and see a WRB form, price can retrace close to or at my stop level. Now, if my stops were larger I could possibly stomach that retrace (like the example you posted in another thread), but most often than not, my stop may be taken out. By exiting on the first WRB I see on a higher VBC chart, I'm not getting shaken out on my smaller VBC chart and still catching a good part of the move that is currently in front of me.

Bramble - we've discussed candlestick trading in other threads. I understand how effective candlestick analysis is done as I've been trading candlesticks for years. Your comment - "You comment that you’re getting smaller profits using this method which is understandable, you’re not letting them run. If by using this method you’re also getting fewer losing trades then I suspect it may be an issue with the underlying system itself rather than this bolt-on exit criteria." First, I am comfortable with my entry method, so there is no 'issue' with the underlying system. Second, if I am getting fewer losing trades by trading this way, how is that a problem? By exiting on WRB's in the very simple fashion I have looked at, the vast majority of my trades are profitable and even when a stop out is taken, my stops are usually not more than 7-9 ticks on the YM.

Mark - as always your posts are very welcomed here! I have no problem admitting that WRB's are new to me and I am learning here as well!

With all that being said guys, I like to keep things simple. I've expressed that a number of times here. I have always wanted to perfect my exits even better than what I was doing, and right now, it looks like WRB's can work for me. More analysis needs done, but I at least wanted to get a discussion going on the topic.

I should also mention that I am not trying to hit home runs here. I would love to hit singles and doubles all day. My goal in capturing a move is 30% - 50% of that move. Let me define that - I'm not talking about the entire move all day (partly b/c I only trade till Noon or so), but from my entry to the very low/high of that 'move' I would like to capture 30% - 50% of that. If that 'move' is 20 ticks, I'd like to take out 6-10. That's how I view my exits - what % of the move did I capture? And I think that's why WRB's may work for me. On higher VBC charts, WRB's happen to appear at the low or top of a move (or pretty close). That's all I'm going for each trade - I'm not looking to take one trade and ride it all day. I'd rather take multiple trades whether that is in the same direction all day or opposite directions all day.

[brownsfan019]

Question for Mark, Pivot and others using WRB's - how do you define what a WRB is? I've read a few things the last few days and some say purely a visual thing and others have a defined formula.

[TheBramble]

	Quote:	brownsfan019
	Question for Mark, Pivot and others using WRB's - how do you define what a WRB is? I've read a few things the last few days and some say purely a visual thing and others have a defined formula.

One of those things that's going to be different strokes for different folks, but where the Open-Close range is no less than say 95% of the High-Low range. That would do it for me.

({[(H-L) - ABS(O-C)] / (H-L)}*100) <= (100-95) {or whatever your preferred percentage is}.

[TheBramble]

	Quote:	brownsfan019
	Bramble - Your comment - "You comment that you’re getting smaller profits using this method which is understandable, you’re not letting them run. If by using this method you’re also getting fewer losing trades then I suspect it may be an issue with the underlying system itself rather than this bolt-on exit criteria." First, I am comfortable with my entry method, so there is no 'issue' with the underlying system. Second, if I am getting fewer losing trades by trading this way, how is that a problem? By exiting on WRB's in the very simple fashion I have looked at, the vast majority of my trades are profitable and even when a stop out is taken, my stops are usually not more than 7-9 ticks on the YM.

'Issue' was a bad choice of word, my apologies. You mentioned lower profits per trade when adding the WRB as an exit criteria and I obviously saw a connection between the two events.

Nothing at all wrong with fewer losing trades. Gets my vote every time. But if fewer losing trades do not compensate for the lower profits on winning trades (i.e if your W:L improves but your P:L decreases) then there would have been no point adding in the exit criteria. From what you're saying this isn't the case at all and your overall profitability on this system has increased. Which is great.

I think that was the point I managed so badly not to make the first time, And probably this time as well...

You're certainly keeping very tight stops which is absolutely one of my never-break rules. It's tough to go out of business when you're keeping costs low.

Good Trading.