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.

B.F.; There is a very basic flaw in this idea: Not all situations are equal. That is, not all price action is created equal. In keeping with the blackjack idea, you need to include card counting. Card counting basically says, while there is a "set" way to play each hand, the best play actually needs to take the "count" into it. Simply, while hitting a 12 vs. a dealer's 7 is correct. It is not correct if the count is -5. The -5 means more face cards to bust you and thus one should do the opposite of what basic strategy says. So 95% of the time you may follow basic strategy and hit your 12, there are those times 5% when standing is better. Card counters can be banned by casinos. Casinos will gladly teach basic strategy. Simply, Basic strategy. only gets one to close to a 50/50 proposition. Knowing when to deviate gets one the real edge and puts fear in the hearts of the pit bosses. Not every moving average cross is created by the same price action or volume or volatility. One's edge comes from being able to discern the differences.

From another site but wisdom is wisdom. Mark, we all wish you would impart more of it here. P.S. BrownsFan. While the definition of a WRB can be hard coded, it still can be visual. WRBs appear more than you think when you use the basic definition above.

Narrow range bars with Ultra High Volume are very important. However, with a narrow range bar it is less likely that a signal with appear within its range. That is, because the bar IS narrow, it is "harder" for a signal to appear within its range. Of course that depends on how narrow the range actually is. It is better if the narrow range bar comes within the range of a WRB or Long Shadow. But if a low volume signal does appear within the range of a narrow bar with Ultra High Volume, it is surely worth taking. (as long as everything else is in alignment).

Great stuff. Really appreciate it, please keep it coming. You know that I like the trailing stop method, but let's talk about the options you have mentioned. First, it is pretty clear that regardless of method employed, a situation (more than one) will appear where the opposite method would have been more optimal. That may seem like a "captain obvious" statement and many would say that is why trading is so hard..... I do not want to speak for Mark, but I believe he would say that an understanding of the price action would determine which method is best at any particular time. That is, since every situation differs, the more one understands the individual situation, the better each situation can be individually managed. Now I have not tried this and am really just "thinking aloud " here, but what about a combination like this? Start out with exiting on the close of the WRB as you have previously mentioned. However in special cases exit on the appearance of a WRB if it is say, greater than 3 x's the average WRB on the chart. The special case IS the size of the WRB. But you might note that the size of certain WRBs are related to news events and other types of events. Therefore, you could still have the "Blackjack" idea. BTW would love to hear more about this, where can I find It?

Sounds interesting. Please tell me (us) more.

Thanks Flatwallet. Would it be possible for you to post a 15 min chart of the same timeperiod? P.S. are you sure this is the same chart? The test bar is not on the "extended" version. AND THAT CHANGES EVERYTHING. Without that candle, the upthrust (last candle on the origianl chart may be the key candle). Maybe I am looking at it wrong, but it looks like the entire shadow of the test bar is gone. Which makes a for a less worthwhile test. Especially,as mentioned in my first post, since the volume is not less than the previous two bars. At any rate, I have no problem with my first post and the negative results. So long as that one candle is correct. But again, please post a 15 min of this period if possible.

Hi Flatwallet. We are all interested to know how you see it. The more perspectives given, the more we all can learn. Thanks for the chart and keep 'em coming. The key bar is obviously the Ultra Wide Spread bar with Ultra High Volume. I notice that the volume is painted powder blue. So I am sure this catches you attention. I can not look a this bar without using the Highly related concepts in WRB & Long Shadow Analysis. Thus, forgive me for some non-VSA ideas that follow. First note that this bar closes down from the previous bar, has Ultra High Volume and closes in the middle (or slightly above). As soon as this candle is created, one should think Transfer of Ownership bar. That is, the strong hands are buying (demand) from the weak hands. The Smart Money is either buying back their shorts, or simply buying in anticipation of a future rise in price. Next we get a No Demand bar. This tells us that while the Professional Money was buying on the Wide Spread Candle, they are not yet interested in higher prices. It is also possible, that all that High volume meant that there is still supply (sellers) in the market. Price does indeed continue south. Now, even though there was buying (demand) on the Ultra Wide Spread candle, there is such a thing as momentum. It does appear that the trend was moving down at this point, so the momentum created by the move can take prices lower even in the midst of demand. Nevertheless, I am looking to go long. To go short, I would want to see a No Supply sign in the shadow of this Long Shadow and then either the No Demand or an Upthrust. The market heads south, the we get a No Supply sign. For me, still not a point to get long. Note that this candle is up against the support/resistance zone created by the Long Shadow, but not within it. It is, however, within the body of a large dark WRB. I WOULD LIKE TO SEE A LOW VOLUME SIGNAL WITHIN THE RANGE OF THE SHADOW. The market starts moving up and we get a Test bar. This is a low volume test in the ideal area for me. Again, we have a low volume sign within the range of a previously high volume candle. Note that the volume on the test candle is not less than the previous two candles. It is, however, lower than the previous bar and the second lowest since the Wide Spread candle (Long Shadow). Also note that this Test is within the body of a large dark WRB.

No Result from a Test "No immediate results from a previous test can show weakness is present in a bear market. However, you should remain observant for a second test in a strong market. If you can see a what appears to be a successful test, the market makers, or specialists will also have seen the indication. If there is not an immediate up-move, or the up-move fails over several days (or bars, if on a shorter timeframe), this now becomes a sign of weakness. The professional money has not responded because at that moment they are still bearish.", Master the Markets, Tom Williams, P. 155. A while ago myself and BrownsFan got into a discussion about "knowing when you are wrong, or at least early into a trade". He argued that he does not know he is wrong until his stop is hit. My point at the time was that one can see if he is wrong, or wrong on timing, prior to the stop being hit. Therefore, like the POP said, there is no need to wait for the stop to be hit. Don't wait for the market to prove you wrong, look for it to prove you right. What neither of us mentioned was something NihabaAshi is a proponent of: a Contingency plan. Basically, a contingency plan is a price action pattern used to tell you something has changed and the prior signal is no longer valid. Once this pattern appears, a long is reversed into a short. Note this is different than a simple stop and reverse procedure as it is possible for the contingency plan to be triggered before one's initial stop is hit. If you are interested in contingency plans, NihabaAshi is the one to talk to. What this chart shows is based on the concept however. First we see a good test. The volume is not low, but it is not high either. It is confirmed on the next bar with a close up. This is where you go Long. My stop would be just under the low of the test bar. Note what happens next. price moves down and a dark WRB is formed. From that point, another test candle appears. On this test, the volume is lower than the first test, and the candle is at the same range of the first test. Again, this test is confirmed on the next bar. Two bars later, we see a No Demand sign. Not a good sign for the longs. This No Demand is completely within the bodies of Two WRBs (hint). But the bar that confirms the no demand sign is key. It is another large dark WRB. What is most important is that this candle (Dark WRB) closes below both test candles' lows. A dark WRB closing below the low of the test candle should trigger a trader to at least re-evaluate the long position. Note here that it would have stopped many traders out, but not all. With the appearance of a No Demand and a dark WRB that closes lower than the low(s) of the test candle(s), we have no doubt that we are seeing No Result from a Test. Our contingency plan would thus be triggered and a short is placed on the next bar. Again, understand, these are not failed tests, they are good test with no results. Simply, we have negative action. Negative Action: "If you observe a positive indication, but you do not observe the expected results, then we refer to this as 'negative action'...." P. 152

Nice. Thank You for the reply. Please post some charts with examples, we can all benefit from your knowledge. First, Hello GG. I am glad you joined me here. You seem to be making good progress. Keep posting. *********** From a pure VSA point of view the ideal entry is when the No Demand is confirmed. We have a lot of weakness behind us in the form of a failed test and supply entering on up bars with high volume. For me, however, I like the No Demand within the two support/resistance zones: the WRB and the Long Shadow. For some it is a bit late, but note that here a stop just above the No Demand would never be in jeopardy. Moreover, here we are actually using the low volume sign that appears in the range of high volume candles.

Something different. I was going to post something but changed my mind. Instead, I would like to hear from some of you. Where would you enter (if at all ) and why?

Thanks for the update B.F. I was interested in seeing if there was indeed a change based on the fact that some of the TS bars actually had more volume than they should. I understand where you are coming from. As you know, my primary methods are Volume Spread Analysis and WRB & Long Shadow Analysis. VSA looks at volume in part from a relational point of view. Hence, time is kept constant to see changes in volume. This is why I do not like Constant Volume. I should say, I can't use constant volume candles. I do like the fact that the chart "speeds" up in proportion to activity. From a VSA point of view, volume is activity. Thus tick volume can be used where actual volume is not available. However, a tick based chart, still holds the amount of activity constant from candle to candle. So I have not even looked at tick based charts. But from a pure WRB standpoint, a WRB is defined as a candle with a body that is larger than the previous three (3) candles. OR coded HHV((open-close),4) -the WRB is included thus we are looking at 4 bars at a time. Of course there are other ways of defining a WRB. But my point is that despite the chart type they still do exist. So they would be on a tick chart as well. Since WRBs represent changes in supply/demand they should by definition have similar effects on tick charts. The Caveat I would add is that there are at least three things that make a WRB significant: 1. Volume. 2. Size (in relation to other WRBs). 3. Creation due to news events. It is the fist one, volume, that cannot be utilized when the volume (activity) is held constant via constant volume or tick candles. Nevertheless, WRBs exploit changes in supply/demand, exploit trends, exploit support and resistance, and exploit volatility. Simply, there use should not change too much especially if used primarily for market generated profit taking techniques as you do. P.S. to play devil's advocate myself, it is interesting that when you had bars with varying volume you could take advantage of WRBs. In other words, you actually had bars that were relational in nature, all be it unbeknownst to you. On a time chart, we know that volume and range are correlated............

B.F. You haven't posted a chart here in awhile. Still using them? Did the change to multi charts effect on the appearance of WRBs? Keep the thread alive.

This is a very tricky question. The short answer would be yes, however. What you need to keep in mind is the most basic definition of No Demand/No Supply. A bar/candle with volume less than the previous two bars/candles closing up (or equal) from the previous bar/candle for No Demand. And closing down or equal for No Supply. Using the base definition, many bars/candles fall into the category. This is one reason I look for those that fall within the body of a WRB or shadow of a Long Shadow. Also note that this is why TG only paints No Demand/No Supply on certain bars. The ones where the next bar confirms a No Demand, for example, by closing down. Yet, when Todd speaks of a bar, he will call it No Demand as soon as it closes. Joel Pozen paints almost every low volume bar (volume less than the previous two). These are the only VSA signs on his charts, but even still the chart can get cluttered with them. Many times a No Demand will paint but the next bar will be up. This does not change the fact that the bar was No Demand from a base definition point of view, but it does create multiple signs and belies the really important ones. But back to your question, they are going to show up in both reversal and continuation situations. Location and context determine which. Both. We look at volume in relation to the previous 1,2 or 3 bars. We also look at an individual volume histogram in relation to all previous bar on the chart that can be seen at the time. We also look at the individual volume histogram by itself. Here we are looking at actual size (amount does not matter). A 30 period moving average can be used to determine if volume is greater than average or less than average. If you put a 2.0 standard deviation of that 30 average on the chart as well, then you could call all volume histogram bars greater than that line high. You could also place a 3.0 standard deviation of the average on the chart and call all volume histogram bars greater than that Ultra High Volume. This is basically what TG does. Now, a volume histogram bar can be both Ultra High (greater than the 3 standard deviation line) and Low Volume (less than the previous two volume histogram bars).

Very interesting chart here. I makes these posts to help me learn as much as anybody else. I am really starting to see the relationship between High/Ultra High Volume areas and subsequent Low Volume signs within that area. If I had any doubt about the importance of volume, I certainly don't now. Many of the charts are repetitive but there are two main reasons for that: 1. Theses things repeat day after day and on all timeframes. 2. Pattern recognition. At any rate, here is a really cool chart with much of the same AND a new twist. First, we see a down dark candle line on Ultra High Volume. But the next bar is up. Therefore there must of been some demand (buying) on that dark candle line. That next up bar, in fact, has even more volume and closes off its highs. We know that the market does not like wide spread candles on High or Ultra High Volume. At this point, we also have a white (close>open) WRB. Thus by extension, we have a Support/Resistance zone. Remember, WRBs represent changes or shifts in the supply/demand dynamics in the market. The bar following this WRB is up, but the volume is less than the previous two candles and the range has narrowed. The candle following the No Demand is down. Now we can see that the WRB did indeed have some supply in it. (while this is after the fact, if we step back and look at what price did following the WRB is move sideways. Which means there must of been supply entering on the WRB. But this after the fact notion only confirms what we see during the fact.) Note that the bar following the No Demand is itself a No Supply bar. The volume is less than the previous two candles with price closing lower than the previous bar. On the very next candle we see a test. This test, however, is not a low volume test but rather a higher volume test. As usual, we look for the confirmation of the test to come one to two bars later. Here it does indeed come on the next bar. But this next bar is also a No Demand bar. It has a smaller range, closes higher, and has volume less than the previous two candles. At this point I would depart from VSA just to note that this is not a High Close Doji as the close is equal to the high of the doji, not higher. Before going into this bar a bit more from a VSA perspective, let's jump ahead two more candles. We see a narrow bar that makes a lower low, closes in its upper portion on lower volume This is a test. KEY THINGS: 1. This second test has a narrower range than the first test. 2. This second test has less volume than the first test. 3. This second test does not make a lower low than the first test. 4. This second test comes within the range of a high volume candle, more specifically, within the body of the High Volume white WRB. This second test is confirmed the next candle by a bar that closes higher than the close of the test bar itself. NOW WE HAVE A HIGH CLOSE DOJI, as the close is also higher than the high of the doji test candle. Note that the volume is higher than the test candle. In fact, the volume is very high on a wide spread. But this time we have PUSHING THRU SUPPLY (a sign of strength). The difference in the two confirmation candles after the respective test candles; Activity. Professional Money was more active on the second as evidenced by more volume than on the first.

Hello Ev1; A while ago I stated that one of the ideas weaved throughout my posts was context. There is another concept that is also in many posts. This idea is VERY important. In fact, in my opinion, this idea is the key VSA concept. The concept: Best entry/signals tend to be low volume signals that occur within the range of a previously high volume bar. First, it should be noted that the attached chart was taken as the market was in a normally low volume period: the Sunday night opening period. It should also be noted that I have shown some Result on the chart and that means that the candles discussed do not appear to have the amount of volume they actually have. What that means is After the appearance of these candles with high and Ultra high volume, more candles were created with even higher volume. This gives the impression that the candles discussed have less volume. But keep in mind, we look at volume both relatively (relation to the previous bar or bars) and absolutely (actual size of the bar in question). That said, let's see what we have here. Note that the very first candle highlighted is an inverted white candle with Ultra High Volume. This gives us a Long Shadow. Long Shadows signal changes or shifts in supply and demand and so too does Ultra High Volume. After the supply enters the market there is a No Supply sign a few candles later. Despite the supply that came in, the Professional Money is not yet interested in lower prices. Price thus moves back up where we see a narrow range bar with higher volume than the previous candle. This candle also is a Doji. Note that the close of the Doji is within the range of the Long Shadow. It closes at the high of the Long Shadow. But before we get to that point, we see a white WRB created with High to Ultra High volume. Now here is the key. We see a No Demand candle, which happens to be a Doji, created within the range of the large dark WRB. But notice that this low volume signal has traversed back into the shadow of the Long Shadow inverted white hammer line and the white WRB. So we are seeing low volume in previously high volume area. If any of that volume represented buying that buying pressure is no longer present. Simply, looking at where the volume was once high and now seeing little volume is a clue that the supply/demand dynamics have certainly changed.

Very nice. I did not mention this bar. If you notice this is a LONG SHADOW with Ultra High Volume. Just re-read any post and you will see that Long Shadows are important also. So we actually have the set-up occurring in the shadow of a significant Long Shadow as well as a WRB. First, see the WRB thread. WRB represent possible changes or shifts in supply and Demand. Your observation about them only underscores my point. In my opinion, there is no more focused area than a WRB. WRBs are market generated and therefore superior to a lot of other ways to generate S/R areas. Technically, you are correct. If the squat appears in new high territory it is a "end of a rising market" signal. Yet any narrow range bar with volume greater than the previous bar still may have some significance, especially if it occurs in the body of a WRB. The point is that the range of the bar is being kept small even as volume increases. If the Smart Money was interested in higher prices then the spread would NOT be narrow. The narrow range gives us insight into the actual perception of value by the market makers. My definition is based on Bill Williams' short-hand definition: narrower range than the previous bar with higher volume. But I add that the volume should be greater than average (preferably, high or Ultra high). And in this case, we have a close at the high. But a squat should not be taken in isolation. The background is important. I would place a 30 period simple moving average over volume. From that point one could place a 2 standard deviations average of that 30 period average on the chart. If volume is higher than 2 deviations, then it would be considered high. 3 standard deviation would be Ultra high. This is more along the lines of what is used by TG. However, one can just "eyeball" volume. The yellow lines are more to "add" a bit of color than anything else. Thank you so much for the post, please continue to post your thoughts. A few chart examples would also be nice.

Narrow Spreads & High Volume (Squat): " This is very simple to see. The public and others have rushed into the market, buying before they miss further price rises. The Professional Money has taken the opportunity to sell to them. This action will be reflected on your chart as a narrow spread with high volume on an up-day. If the bar closes on the high, this is an even weaker signal.........." Tom Williams, Master the Markets, P. 77. Just wanted to show something a bit different. A few caveats: * As previously mentioned, Not a good idea to enter trades after 1300 and certainly not after 1400. * The above is even more so the case on a Friday. What I wanted to show here was the narrow range bar on high to Ultra high volume. Of course, this is the type of bar where WRB & Long Shadow Analysis skips over. VSA, however, does not. Again, the over-arching concept remains the same. We would be looking to see some type of entry signal within the body of a significant WRB or Long Shadow. What happens here is after an effort to rise we see a No Demand bar. This bar closes on its high and has volume less than the previous two bars. The very next bar has a narrow range, closes on its high and has greater volume than the previous bar. THIS IS A SQUAT. The above quote tells us the importance of the close on the high with this type of narrow range high volume bar: Weakness. So if we step back, we have just seen a No Demand bar. Which tells us the Smart Money is not yet interested in higher prices. The next bar we see has a compressed range on higher volume that closes on its high and closes equal to the previous bar. "..So by simple observation of the spread of the bar, we can read the sentiment of the market-makers, the opinion of those who can see both sides of the market.", Master the Markets, P.28. Some may note the No Demand signal a few bars earlier. This would be a good place to short if we were not in a naturally low volume period. More over, the reason this short could be considered is because of the Ultra High Volume seen as an effort to rise. Then the following No Demand/Squat sequence. Simply, volume as a whole increased during this time so while the time of day remains a reason not to enter, the lack of volume doesn't. What is important here though is the idea of the narrow range bar (narrower than the previous bar) on high volume, which is higher than the previous bar. In other words, the squat; Bill Williams' term, not VSA's term.

Hi Flatwallet. Thanks for the kind words. Keep reading the book. I just wanted to show something that might help. Originally, I was going to post this pic in the WRB thread and make the following point. Not all WRBs are created equal. While there may be many factors in what constitutes a significant WRB, the three main are: * Size in relation to other WRBs * Amount of volume * If the WRB is the result of some news related event NihabaAshi is the true WRB expert and may be able to enlighten us as to some of the more reasons that determine a WRB's significant. As I know you are looking at VSA, don't let what I just said about WRBs confuse you. There are three factors that constitute significant bars in VSA as well: * Size in relation to other wide spread bars * Amount of volume * If the wide spread bar is the result of some news related event Now in the chart below we see numerous WRBs or wide to Ultra wide spread bars. However, they are all not equal. Let's just focus on the very first one on the left hand side of the chart. We see an Ultra Wide Spread bar with Ultra High Volume that closes up from the previous bar. VSA teaches us that markets do not like Ultra Wide Spread or Wide Spread bars on high or Ultra high volume. Because they could hide selling (supply) within them. Although some times they are indeed strength. Which by the way, much time is spent on in the bootcamp. Because many people after hearing weakness (supply) comes in on up bars automatically assume all up bars are weak. We know this bar had some selling (supply) once we see that the next bar is down. If all that volume was buying (demand) then the next bar could not be down. What we often see next, if the market is strong, is either a No Supply or Test for supply bar. Here we see a test. This is a low volume test. Note that volume is less than the previous two bars. Note that the test makes a lower low than the previous bar and closes on its high. It hard for me to separate some things, so I must point out that this test bar is in body of the WRB. But from a pure VSA point, note that the test is within the range of the Ultra Wide Spread bar. SIMPLY, A LOW VOLUME SIGNAL WITHIN THE RANGE OF A PRVIOUSLY HIGH VOLUME BAR. Many concepts in VSA are logical. Here we see some supply enter the market. The next thing we see is a test of supply. The Professional want to take prices up, but are making sure that the supply is out of the market. If there were sellers underneath, then there would be more volume. And if a large amount of supply had entered (more than the demand present) then price would go down on more volume. The key(s) here are that the 'test' comes immediately after we see supply enter the market showing us market strength. Or, simply put, location and background information. An aggressive trader might enter once the test is "proven" on the next bar that closes higher than the close of the test. Shown here. The reason for the question mark is that not everyone would enter at this point. Some use multiple timeframes, some use price action patterns, and some even use indicators ( ). To be sure, the market did indeed move up and a quick profit could have been made. In fact, one could still be long as of this pic and in profit using only one timeframe and that repeatable and reliable pattern. Once you witness Ultra Wide or Wide Spread bars on High or Ultra High Volume, you want to then start looking for bars with low volume. This is where you find no supply, no demand, and some test bars. Sometimes there will be high volume tests or Upthrusts on high volume. An Upthrust is kind of like a high volume test but showing weakness rather than strength. That is, a high volume test will close on or near its high and an Upthrust closes on or near its low. Ideally a high volume test will make a lower low while the Upthrust will make a higher high. There is a lot more here, but it is enough to say that every No Supply or No Selling Pressure sign in this pic is within the range of a significant Wide or Ultra Wide Spread bar. More precisely, within the body of a significant WRB.

Todd recently called the webinars by Gavin "Sales Presentations" and his webinars to customers "Educational learning.."". I think that says it all. And is one of my primary reasons for being so disappointed with TG. There was a time when a person could learn a lot of information from the free webinars held by Todd. Which was also the reason, so many software customers would attend. Now, however, Gavin is trying to hock software to the masses. He talks the "talk" about trading from price and volume and the perils of indicator trading, then proceeds to use indicators himself ( trading systems are indicators). He waits for the VSA signs and bars to change color before making trades. Simply, that is not reading a chart. TG is a software product. But there is a viable method to reading the charts at its core. This method, Volume Spread Analysis, is all worth using and need not be tied up with the product itself. As for the bootcamp, see above. Todd, one of the world's recognized leaders in VSA and Tom Williams, the creator of VSA, made the bootcamp. Could there be a better source to gleam some nuances? It brings some of the concepts of the book to life.

In a word, NO.

I do not use indicators and no not like them. I was merely trying to make a point to the likes of yourself. Price Action itself is enough to enter the trade, once you know the context that creates the price action. That is where VSA and WRB & Long Shadow Analysis come into play for me. And this is why I call VSA and WRB & Long Shadow Analysis primary methods and Japanese candlestick patterns (price action patterns) a secondary method.

This example is less than perfect, but still shows the concept. First, this is an entry based on Price Action patterns (Japanese candlestick patterns) as the secondary method. WRB & Long Shadow analysis is the primary method. The bullish white hammer pattern here is discussed in NihabaAshi's trading hammers (revisited) thread on Elitetrader.com. The first thing we see is a large dark WRB. Two bar later we get a down candle with a Long Shadow. Again, the long shadow shows price rejection and the WRB in general shows changes/shifts in Supply and Demand. While price does indeed trade lower than the low of the Long Shadow, notice that the white hammer line's body is within the range of that Long Shadow. You will also see a WRB just prior to the white hammer line. Because of this WRB, we need to look at the price action of the three prior candles. So, WRBs and Long Shadows create the zones for optimal entries AND they also can be part of the price action that creates a valid price action pattern. Note that the body of the white hammer is within the body of the previous candles body (the WRB). You should also see that the three candles prior to the WRB in the pattern have narrow ranges and lower volume. Simply, volatility is decreasing in this area. If you add some VSA into the mix, you can see that demand has entered in the background which adds context to the appearance of the bullish white hammer pattern. Thus, I have now shown a few ways to enter a trade where the common element is/are WRBs and or Long Shadows. Simply, if you see a WRB or a Long Shadow, it is time to start paying attention to the chart.

Same chart but with a twist. I do not use indicators, but here I have attached a MACD Histogram with default settings. Notice that there is a divergence signal in the area we would most like to see it: the body of a WRB and the shadow of a Long Shadow. So we have one entry option. Even if one waited for the histogram to go above the line, the entry still comes within the body of the WRB and the shadow of the Long Shadow. Again, I stress the point that the idea is to take signals in the S/R zones created by the WRBs or Long Shadows. Once in the trade, they can be used to trail a stop or take profits. Also note that in a perfect situation, price would not trade lower than the low of the Long Shadow. So the divergence would be even more subtle but nonetheless tradable for traders who use such things.

WOW fellas, it's as if you can read my mind. I was just about to make this post. WRBs & Long Shadows contain so much information. They exploit: * Supply and Demand * Support and Resistance * Volume * Volatility * Trends While BrownsFans uses them as a means of exiting a position, and there is nothing wrong with that, they offer the trader much more. In fact, it is a bit ironic that they are used for Exists when they may be more powerful when used as part of Entries. For this example, I am using VSA as the basis of entry. That is, here I am not showing a Candlestick pattern (price action pattern) per se. First, this is a beautiful example and shows the power of the concepts being discussed. I did seek out a good chart, so this is after the fact as I do not trade this market. With that said, the ideas are valid and can be seen time and time again. The chart on the right is the large view. The area within the square is the chart on the left. One thing we must understand about WRBs & Long Shadows is they represent possible shifts/changes in the Supply/Demand dynamics in the market. Long Shadows in particular also represent PRICE REJECTION. The first thing to note is we have a Wide Spread Down Bar on Ultra High Volume that closes off its lows and with the next bar up. Clearly, for the next bar to be up, there had to be some buying (demand) on the first bar. The Long Shadow tells us that price moved down and then was rejected by the market. In other words, demand swamped supply as price reached that level. Moving price back up. Price does move up a bit and then we have No Demand. Professional Money is not yet interested in higher prices. This makes sense. With all the Volume on the climatic action bar (Long Shadow candle) there could still be more supply in the market. So the Smart Money would like to see price go back down and test for that Supply. Notice that the bar right after the No Demand is a WRB. Very often the bar after or the bar two bars after a low volume bar will be a WRB. This is because low volatility (as seen thru low volume and narrow bars) proceeds periods of high volatility. Now we get another larger WRB with very high volume. Again here the next bar is up telling us that there was some buying in the bar. WRB analysis also tells us that supply/demand is shifting. WRBs also create areas, or zones, of support and resistance. So here is the rub. The best entry signals occur within the body of a WRB or the shadow of a Long Shadow candle. But that makes sense as these are the areas where a shift has taken place. Note that we get a narrow range bar that closes near its middle on volume less than the previous two bars: No Supply. The next bar is up thus confirming the No Supply and this is entry point #1. This is an advanced idea, so pay attention : The No Supply bar itself formed within the shadow of the Long Shadow where price has already been rejected by the market. The prudent thing to do, therefore, would be to go long. This No Supply also forms within the body of the WRB, where we know the supply/demand dynamics changed. And from a VSA perspective, we have moved back into the lower range of an Ultra High Volume candle, and volume has dried up. So the buy signal was set-up by the appearance of both the Long Shadow and the WRB. Also note that while one candle does trade a bit lower than the low of the Long Shadow, neither the WRB nor the No Supply candles does. Entry #2 comes after the Test candle is confirmed by the next candle being up. Here again we see that the set-up begins with an Ultra Wide Spread bar or white (close>open) WRB. Because the next bar is down, we know that some of the volume on the bar was from supply entering the market. VSA also tells us that markets do not like wide spread bars with high or ultra high volume. Interestingly enough we also get another Long Shadow three bars later. The situation is reversed here. The test candle trades a bit lower than the shadow of the Long Shadow candle, but not lower than the WRB's body. Again, we are alerted to look for entries as the WRB and Long Shadow show up on the chart. Lastly, we have entry #3. This time we get a WRB. It is an up candle with Ultra High Volume-the kind of candle the market does not like. Now look at the next bar. It closes down from the WRB's close, has a narrow range, closes on its low and has volume less than the previous two candles. This is No Selling pressure. Next bar closes higher. Enter on close of this candle or open of next. And what happens next? We get the Largest WRB of them all as the market takes off.......... Optimal entry is #1. Not because it offers the most profit, but because of the pattern involved: demand entered, No Demand sign, No Supply/Test. btw, the Long Shadow candle is a WRB also and the No Demand is within the range of the body. We want to look for certain types of price action clues or set-ups within the bodies of WRBs and or the Shadows of Long Shadows. If you use, an oscillator, you want an overbought or oversold reading to occur when price is in these areas. Even though overbought and oversold condition do not really exist, but that's for another thread.