Wide Range Bodies or 'big' candles

[brownsfan019 17]

I'm not trying to change your mind here. Just wondering if the essential shifts in supply/demand can be seen when volume changes are taken out of the equation and large candles or Long Shadows are muted.

 

This is a 5 min chart. Would love to see this as a constant volume chart if you have it.

 

Pivot - I will get some charts up later today or Fri since it's a holiday.

 

Regarding your question, the best thing I can suggest is simply pull up a VBC chart on your platform. Put them side by side and see how the chart dynamic changes. I think visually that the VBC charts stress the the importance of the WRB more. The reason being that since the volume is 'smoothed' out, in order for a WRB to in fact appear, there has to be some serious volume in a very short burst; whereas a time chart may simply be showing a temporary 'cooling off' period between the bulls and bears. That's not to say that one WRB is better than the other, but I think the WRB theory easily translates over to VBC charts. It would ultimately depend on how each trader uses the charts and the information in front of them, so what I 'see' may be of no use to you. Doesn't mean either of us is wrong, it just means that I see a very useful feature of WRB's on VBC's.

 

I attached an EC chart from just this morning on a long trade. As you can see, the exit was a matter of 3 ticks from the high of that move, which is coincidentally the high of the day as well. Not to say that will hold or is important, but here's another chart where the WRB was very good at finding the highs of the current 'move'. Now, how I define the 'move' is probably different than most here. I am simply looking to get the most bang for my buck quickly. The chart that I attached is about 45 min's worth of data, but the actual long trade was about 15 min's. The net result was plus 8 points, which is not huge, but if you look at that chart, that's all that was there in this move for me. Sometimes we will get a pullback and then continue back up, or we simply start a new move down as in this example. Either way, the WRB got me out at an ideal area with practically no threat to my stop loss area at all. I like those trades!

 

Note: There was some econ news at 7:00am EST which helped provide the EC a 'reason' to move. Before trading the EC, make sure you know exactly when econ announcements are as this market can be much more volatile during these releases than other markets, such as the indexes.

[Anonymous 11]

While your definition of a WRB differs from mine, I believe it was my first post on WRBs that got you to re-think them as a profit taking mechanism. So you can send my portions of the profits to ......................... :D

 

Thanks for the chart. One of the problems with static charts is you can not see the price action unfold (obviously), I think that is where you would say the real value in VCB comes in.

 

Is your focus restricted to profit targets or do you use the primary message they contain: something is or may be changing with the supply/demand dynamics. With the way they seem to appear near turning points, this would make sense.

 

You may have already said this, and I will take a look back, but did you look into using multiple pts (WRB profit targets) or just one?

 

Yes, Mark emphasis the importance of news related events and this is especially true with the currencies. VSA, btw, also places much import on when news comes out. As this is an opportunity for Professional Money to get weak hands into bad positions.

[brownsfan019 17]

While your definition of a WRB differs from mine, I believe it was my first post on WRBs that got you to re-think them as a profit taking mechanism. So you can send my portions of the profits to ......................... :D

 

Pivot - yes, you were the one that got my attention on WRB's and for that, I am eternally grateful. And that's serious.

 

Thanks for the chart. One of the problems with static charts is you can not see the price action unfold (obviously), I think that is where you would say the real value in VCB comes in.

 

Yes, with VBC charts, looking at them in hindsight is only so good. But watching real-time can be a real eye opener.

 

Is your focus restricted to profit targets or do you use the primary message they contain: something is or may be changing with the supply/demand dynamics. With the way they seem to appear near turning points, this would make sense.

 

I am using WRB's purely for exits and exits only. I understand the theory behind them, which is why I am using them as exits. I view the WRB simply as a temporary imbalance between the bulls and the bears, which most likely will be 'corrected' or brought back into balance; therefore, my exit is at the close of the WRB with a market order.

 

You may have already said this, and I will take a look back, but did you look into using multiple pts (WRB profit targets) or just one?

 

Right now, just one and so far, no plans to change that. Since I am trading on 'smaller' VBC charts, getting multiple WRB's that do not threaten my stop level is not realistic. I'm looking for a quick pop and then out. I have no problem re-entering the trade, so this works for me. If looking for a bigger move or 'home run' as I would call it, they way I trade would not work. I look to hit singles and the occasional double all day long. And the reason I can do this is simple - my initial stops are very small to begin with, so to keep the risk/reward in check, most WRB's are great exits once they reach a minimum profit level.

 

I mentioned this in another thread, but I have a minimum level that must be reached before considering a WRB. This is the result of many hours of testing and research based on how I trade. For example, in the YM, price must go to a positive 8 ticks in my direction before a WRB can be considered for an exit. Once price touches +8, the first WRB that appears is the exit, even if that occurs in the process of reaching that +8. The reason behind this is that I found a 'technical' WRB may form right after I enter, but not provide enough acceptable profit at that time. This WRB does however provide the chance to move the initial stop. So, a good majority of my trades that 'lose' are at break-even +/- 1 or 2 ticks. I will take that risk/reward, aka odds, all day long.

[brownsfan019 17]

Here's an NQ chart from the last 15 min's of the trading session (4pm - 4:15pm EST).

 

As you can see, or at least what I saw, was a nice move up just before 4pm and the WRB gave you a great exit and that trade took approx 1 1/2 minutes. Then, if you short on the down move, a couple more WRB's appear... And that would have taken approx 1 1/2 minutes as well.

 

I've also attached a 3 minute chart of the EXACT same price action going during those 15 min's. I don't know about you, but I kinda like the VBC chart better. :p

 

Pivot - do those charts help seeing them side-by-side? To me, on the 3 minute chart, you had chop. We are only looking at a 15 min timeframe, so the 3 minute chart doesn't have the time to do anything really. On a 3 minute chart, the end of the day does not do anything for me. That EXACT same timeframe on a VBC chart however, produced TWO potential profitable trade setups....

[Anonymous 11]

BF;

 

You may have considered this, but I will bring it up anyway. How do you handle, if at all, Long Shadows? Long Shadow candles are the cousins of WRBs. That is, usually, during the interval they WERE WRBs but did not remain so by the end of the interval.

 

As you exit on the close, this could create "lost" profit taking opportunities. I know you are not concerned with the support/resistance zones they also can create, but do they offer the chance to trail a stop UNTIL the next WRB appears on the close?

[Anonymous 11]

This chart belongs in the VSA thread, but it deal so well with BF's last post.

 

Notice what can be seen in large candles when volume is used to understand the supply/demand dynamic.

 

Complete discussion of this chart in VSA thread.

[brownsfan019 17]

BF;

 

You may have considered this, but I will bring it up anyway. How do you handle, if at all, Long Shadows? Long Shadow candles are the cousins of WRBs. That is, usually, during the interval they WERE WRBs but did not remain so by the end of the interval.

 

As you exit on the close, this could create "lost" profit taking opportunities. I know you are not concerned with the support/resistance zones they also can create, but do they offer the chance to trail a stop UNTIL the next WRB appears on the close?

 

Pivot - since my entries have nothing to do with WRB's or long shadows, it's not an impact there. As for exits, that does happen and I may trail my stop based on the candle formation. Ideally the candle closes as a WRB, but it is possible for a retracement in that candle, which is what the long shadow represents.

 

I understand what you are saying about exits, but the charts that I have posted today and recently are VERY common for my trading - where 1 or 2 WRB's is about all I will get before any type of retracement may occur. I don't like sitting and taking heat on the retracement hoping price goes back in my direction, so I exit fully at the first WRB that meets my criteria and then I WANT price to retrace some and either give me another trade in the same direction as the first trade or a trade in the opposite direction. The WRB exit strategy that I use keeps me nimble and able to quickly adapt to changing conditions, such as that NQ chart that I posted. In a span of about 4-5 minutes price went up and then back down and closed at about the same level before this little pop up then down occured.

 

And, to be honest, I have never been good at trailing a stop. For me, it's a losing proposition each and every time - either you get out too soon or too late, and rarely ever get out at the most ideal spot simply b/c you are trailing behind the current price. WRB's on the other hand have been giving me exits at/near the high or low that move. Not the low/high of the day, but low/high of that move as I've shown in chart annotations.

 

It's important for others reading this to understand that while we both use WRB's, we are using them very differently. I think our theories are the same, but implementing the theory into our own trading methodology is different. I am very confident in my setups - entry and initial stop. I have never found a good exit strategy, until studying the WRB's. And I've looked at MANY ways to exit - fixed target, trailing, fibs, high/low of current day/yesterday/last week/etc., pivots, etc. etc. etc. etc.

 

In my opinion at this point in time, nothing has compared to WRB's in terms of exiting trades. Nothing.

[Anonymous 11]

Just wanted to post a pic for the newbies.

 

Here we have 2 other WRB methods for stops/exits.:

 

 

1. The first method is one used by Mark. Although, he will at times move to a higher timeframe after the first Pt (profit target). The key here is that the position is scaled out a portion at a time on a WRB. In this method the exit is WHEN THE CANDLE BECOMES A WRB, NOT THE CLOSE OF THE INTERVAL.

 

If you did not move up or down a timeframe, there would be three WRB profit taking opportunities.

 

2. My preferred method combines both of my primary methods- WRB & Long Shadow analysis and Volume Spread Analysis.

 

I like to place a trailing stop 1 or 2 ticks below/above the low/high of the BODY of the WRB after it is formed. Trail 4 is via VSA. I would move the stop to just below the low of this bar. It is a narrow range bar that closes on its low, closes below the previous bar and has volume less than the previous 2 bars. Here I would actually wait until the close of the next bar. In other words, wait for confirmation that the bar is indeed NO SELLING PRESSURE.

 

So I am also looking for No Supply or No Selling Pressure bars and Tests(low volume) to move my stop.

[brownsfan019 17]

Good chart Pivot.

 

Here's what I see and correct me if I am wrong - when looking for multiple WRB exits, you are trying to catch the bigger move of the day. To obtain a 2-3 WRB exit move, you are looking for a fairly substantial move, as evidenced by the chart you provided. There's nothing wrong with that at all. And if you can catch the bigger moves when they are present and take small losses on the 'smaller' moves, it should yield a profitable result in the end.

 

My take is that while we all want to hit that home run trade - you know, the EC trade that goes for 60, 80+ ticks (at $12.50/tick) - that is not realistic over the long haul. What I mean is that if you simply miss just one or two of these huge moves, you now have the odds working against you making money. These type of moves do not appear every day, so you have to ride them when they do show up. And that sounds great, esp in hindsight, but miss just one of these and your results will dramatically vary on what you thought you were going to make.

 

Since I know that the odds of me catching the giant move all the time is slim (for a number of reasons), my game is much better suited to catching the 8-12 tick moves on the EC and then simply looking for a reason to enter the next trade. Keep the losses small (5 ticks or under usually) and do not get greedy. I remember when my dad was teaching me card games growing up and he always said to me - do not get greedy. As soon as you do, that's when a fatal mistake will be made. I believe that holds true in the markets as well - never think you got it figured out and never get greedy. Don't get me wrong, I enjoy trading and making money, but to think you are going to catch 20, 30+ moves on the EC with regularity is simply unrealistic in my opinion; however, catching an 8 pt move a couple times a day is very realistic. And catching an 8 pt move, three times a day = $300/contract. You can trade less than 10 contracts each trade and make more money per day than most people will. I think it always helps to put things in perspective. Yes, we all want that giant home run trade and be able to look back one day and think we just nailed that one, but that's no good if you cannot do that regularly.

 

Anyways, it's late, time for bed. If nothing else Pivot, we are giving two great arguments on how to possibly trade WRB's for our audience.

[Anonymous 11]

And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to say this: it never was my thinking that made big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine-that is they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade (sit) than hundreds did in the days of his ignorance.---Reminiscences of a Stock Operator.

 

BF, I think we have been down this road before : confused:

 

I will just state a few thoughts.

 

* I believe in surrendering to the market it. I want to let it take me where it is going. I want to want what it wants. Profit targets are about what I want, not what the market wants.

 

* Exiting a position at a profit target is speculating on the future when it is NOT necessary to do so.

 

* The more a trader can take himself out of the equation and faithfully mirror the market, the less stress involved and the better the results.

 

* Most of the "Market Wizards" made their money trading long term positions or swing trading. Because, they could be right and sit tight.

 

* If you make 5 xs as much on your winners than you lose on your losers, You don't have to be right 80% of the time. Most traders get caught up in being right and the take profits too early on the few times they are.

 

* Currencies have a high propensity to trend. As a retail trader, trend is one portion of the edge. Hence when this part of the edge is present, one needs to take full advantage of it.

 

* A trailing stop does not assume the market will trend forever, but taking a profit target does assume it wont. Again this is trying to predict the market and the future. Why bother?

 

* I liken myself to a salmon egg. The market will take me where it wants to go and I trust that if I allow it to do so the result will be where I NEED to be. Others are like the adult salmon, they fight the river and in the end find their demise.

 

* It is not about trying to hit Homeruns, but rather positioning oneself to take all of what the market is willing to give.

 

* Only when one learns that he can not conquer the market can he make a good living in the market. There is no need to try and outsmart the market.

 

* Be comfortable being IN the market. The market will provide, but not on the trader's terms. Rather on the market's.

 

* Markets tend to keep on doing what they are already doing. Newton’s law of motion. If the market is moving up the most likely direction it will move is up. Just keep moving the stop in the direction of the trade. At some point the market will stop you out. Overall, the amount made by staying in a market that trends beyond expectations will more than make up for those times when one gets stopped out at a lower profit level than a profit target would have gotten.

 

* WRBs signal possible shifts/changes in the supply/demand dynamic. If you simply move your stop to a position that signals that change/shift has indeed happened, you are both using market derived information and allowing your profits to run. In short, the market told you when to get in, shouldn't you let it tell you when to get out?

 

Like I said, we have been down this road before, so let's not do it again. Simply, I believe that trailing stops keep one in tune with the market. They are not based on the unkown and the unknowable (the future).

 

Be comfortable in the market and let your go of the ego (not directed at you, BF). Take care of the losses and let the winners take care of themselves.

[Anonymous 11]

Hello BF and others;

 

I was going to post this in the VSA thread, but while looking at it I got an idea that may appeal to some.

 

To be sure, this is a "perfect" example, and admittedly, that is probably why I noticed it. This version combines the variations used by BrownsFan, myself and NihabaAshi.

 

I do think it is more appropriate for time based charts, but BF will be able to say more about that. What you would do is take the trade on one timeframe. After the appearance of the first WRB on that timeframe, move your stop to just below the low of the WRB's body. This is a long trade so we are talking about a white WRB and thus the stop is moved to just below the OPEN of the WRB. Just below would be 1 or 2 ticks.

 

At that point, you move up to a higher timeframe. Here I have a 30 min chart. So we have moved up from the 5 to the 30. One would not have to move 3 timeframes up, but I was looking at this chart. Moreover, the amount one moves up would be based on the individual preferences and the price action which caused the trade in the first place. In other words, with certain types of news releases one might want to move up from 5 to 30, where the usual move might just be up to 15.

 

At any rate, that is for the trader to decide. If someone likes this idea, hopefully they will post what they end up doing.

 

Now once you have moved up to the higher timeframe, You look to exit on the close of the first WRB that appears.

 

Note how in this example, like so many of yours, the WRB gets you out very near the top of the move. What I like about this is it does allow one to get more of what the market is willing to give you, while still having some of that "get out at the first sign of change" mentality.

 

Just a thought. Hopefully, someone likes it and can provide more insight and examples.

 

BTW, notice the bar after the WRB. It has Ultra High Volume, almost as much as the WRB (3 ticks less in fact). Its range is much less however, and it closes in the middle of its range: THIS IS A TRANSFER OF OWNERSHIP BAR. The Smart Money is dumping supply onto the market. Note how price starts to move sideways. Also note the No Demand bar.

[brownsfan019 17]

Pivot - that's a great chart and had I been using that chart setup, I would have exited my entire position at the close of that WRB and then waited for another reason to enter a trade. As you can see, just a bunch of chop followed. For me, that is much easier than to exit some or none based on the first WRB and then wait to see what happens.

 

Regarding the previous post, I get what you are saying and most of it makes sense, at least in a textbook fashion. The important component not being discussed though is how the trader's emotions impact the decision making process. As much as we all would like to say 'I am an emotionless trader' unless you are a robot, that's not the case. And I don't believe we ever really become emotionless. I think we get better over time and with repetition, but that aspect will never leave any trader.

 

With that being said, that is why I believe exiting on the first WRB, regardless of timeframe, should be a strong consideration when trading WRB's. In the end however, each trader must see what fits their personality and then test it, test it and test some more. You've shown us a 30 min chart here. I could not imagine trading on a 30 min chart. 2 candles every HOUR? I think I might fall asleep and then miss out on the one trade that day. That's not to say that there's a problem with the 30 min chart, I personally would have trouble trading off of it. I guess I just like more action and stimuli.

 

It's hard to put into words, but I enjoy the 'action' of the markets and enjoy being able to participate in that action numerous times in one day. Hence the reason for the smaller VBC charts. With that being said, I am comfortable trading on those charts simply b/c I understand how they react and move. By trading on lower VBC charts, I am able to take multiple trades in a day (which keeps my brain into it) and I am able to hit those singles all day long. Keep in mind as well, I normally just trade the AM session, which is now 7am - Noon EST. I say now, b/c I moved the open up an hour b/c the EC was providing some nice moves in the 7am hour that I did not participate in b/c I was not at my computer. So, by trading 5 hours a day, I cannot trade on a large timeframe or VBC b/c if the one golden trade shows up at 3pm, I am not here.

[brownsfan019 17]

Quick question for those that have read the thread - has anyone else looked at and/or implemented WRB's into their trading? Not sure how much more to really talk about from my point of view. I can post the occasional chart, but I think you guys get the idea if you read my posts.

 

Just wondering if anyone else is using the methodology.

[Anonymous 11]

BrownsFan's question could not be more timely. I too echo the sentiment. It would be nice to see if and how others are using WRBs in their trading.

 

As you know, my use of WRBs is wider than his (no pun intended).

 

WRBs give us insight into:

 

* Changes/shifts in supply and demand.

* Volume or activity.

* Volatility

* Support/Resistance Zones

* Gaps

* WRBs are independent of Japanese candlestick patterns; Japanese candlestick patterns, however, are NOT independent of WRBs.

 

While WRBs create very good profit taking opportunities, as seen by BrownsFan, this sole use only scratches the surface of the depth of usable information/techniques in my opinion.

 

The attached chart shows what happens when everything comes together I use them.

 

Here we see how the primary methods of VSA and WRB & Long Shadow Analysis create the context thru which a candlestick pattern (secondary method-entry signal) can be viewed. Remember, Long Shadow candles usually were WRBs within the interval, so they are a sub-set of WRBs. That is why a trader that exits on the apperance of a WRB during the interval may find that the candle is NOT a WRB at the end of the period. This is another method that can be employed, rather than waiting until the end of the interval as BF does. Hopefully, anyone using this method will post examples and insights.

 

The method I prefer is to trail a stop using the appearance of a WRB (or Long Shadow). Seen as the red lines on the chart.

 

It is my contention that VSA and WRB & Long Shadow Analysis have more in common than is first seen. By taking out the open, VSA, takes out much of the information that can be seen. Yet, if VSA did look at the open the conclusions would mirror those of WRB & Long Shadow Analysis. But even without the open, many of the conclusions are the same.

 

We see a Ultra Wide Spread bar that closes in the lower portion and up from the previous day on Ultra High Volume. This is a hammer line with a Long Shadow (upper). Supply entered the market on this bar. Why else would the close be on the lower portion with all that volume? Moreover, the next bar is down. If the Smart Money was buying on the previous bar, this bar should not be down. The next bar is down, engulfs the body of the hammer line and is a WRB. The Supply/Demand dynamic is changing.

 

The next bar is key. It is a narrow bar that closes in its upper portion with volume less than the previous two bars and the next bar is down. This is No Demand. Ideally, we would want this bar to close higher than the previous bar. But in this case, the close is equal. Note that the close is at the close of the WRB and the high trades into the body of the WRB. This is why the Upthrust is a better signal of market context than the valid test that comes before it. The Upthrust happens within the body of the WRB whereas the test forms below it. True it forms within the range of the entire WRB candle, but the test bar was not within the body. Now the confirmation bar, the candle after the test is.

 

This is where the secondary method kicks in. The test does not form a valid candle stick pattern. Hence, even if you mistake the test as a sign of market strength, you would not want to enter. What does happen is a valid reversal pattern within the WRB that has an Upthrust in it. That is, the UpThrust is a Long Shadow Doji with the next bar closing lower than the low of the Doji. This bar engulfs the open/close of the Doji and is a dark WRB. Also note that the bodies and the shadows of the candles in the highlighted area are smaller than the depth of the shadow of the Doji. Except for the white WRB, which is ignored and the reason we look at the three intervals prior to it.

 

You should note that we are seeing decreasing Volatility in the price action then we see a WRB. Also note that the larger dark WRB after the Doji closes lower than the close of the white WRB. This dark WRB is also larger than the white WRB. In short, increased volatility to the downside.

 

Enter short on the close of the dark WRB (low close doji) or open on next candle.

 

There is a lot less here than may one may first think.

 

But there is a lot more to WRBs than just exits. If you are using them, even for just exits, both B.F. and myself would like to see how.

[brownsfan019 17]

Well Pivot, I guess this is a discussion for you, Mark and myself.

 

Here's a brief update on my use of WRB's - as shown in previous examples here, the WRB's are great exit points in my opinion. Here's the downside to how I was using them - exiting all at one point then can lead to over-trading, which has lead to getting into a new position at the low/high of a move and taking a full stop.

 

In other words, trade #1 would be a winner with a full amount of contracts. Trade #2 could end up being a full losing trade on a full amount of contracts. The overall result was positive, but not as much as I wanted.

 

So I made a conscious decision - I know exiting is more of an art than a science. No way around that.

 

In order to prevent over-trading and/or taking full losses, 1/2 of my position is exited at a level and the remaining 1/2 is trailed based on candles and/or WRB's. By doing so, I captured some much bigger moves this week when we had some nice volatility and it did not put me into losing trades. The catch of course is that when it pops in my direction briefly and then retraces, the trailing 1/2 is getting out around break-even. But, that was a conscious decision I had to make. Taking smaller wins on smaller moves and taking larger gains on larger moves is what it came down to. It also reduces commission costs as well.

[BlowFish 10]

Ok forgive me for being contrary here but I can't see the reason for exiting on a WRB. Quite the revere - price has just made a move and its at the highest/lowest point in that move (give or take a tick or two). If the momentum is still there why not stick with it? If the move is ending the chances are he next bar will be a hammer or doji. BTW I dont look at candles per se (just the price action behind them) but it is fairly rare to get a long white candle followed by a long black one. (A sliding window is it called? or maybe scissors, too lazy to look it up). Essentialy its an upthrust but over the course of two bars.

 

I can see where you are coming from from a discipline point of view. Also I know some people trade from quite high time frame charts compared to there holding period i.e. they look to enter and exit within the course of one or two bars. (actually I am prone to do that but that is an emotional issue in my case!)

 

Actually maybe I should try exiting on a WRB I tend to exit just before the big move bar which of course is even worse!!! Holding on to winners is stil something I often have issues with,

 

Cheers,

Nick.

[walterw 10]

Hello BF and others;

 

I was going to post this in the VSA thread, but while looking at it I got an idea that may appeal to some.

 

To be sure, this is a "perfect" example, and admittedly, that is probably why I noticed it. This version combines the variations used by BrownsFan, myself and NihabaAshi.

 

I do think it is more appropriate for time based charts, but BF will be able to say more about that. What you would do is take the trade on one timeframe. After the appearance of the first WRB on that timeframe, move your stop to just below the low of the WRB's body. This is a long trade so we are talking about a white WRB and thus the stop is moved to just below the OPEN of the WRB. Just below would be 1 or 2 ticks.

 

At that point, you move up to a higher timeframe. Here I have a 30 min chart. So we have moved up from the 5 to the 30. One would not have to move 3 timeframes up, but I was looking at this chart. Moreover, the amount one moves up would be based on the individual preferences and the price action which caused the trade in the first place. In other words, with certain types of news releases one might want to move up from 5 to 30, where the usual move might just be up to 15.

 

At any rate, that is for the trader to decide. If someone likes this idea, hopefully they will post what they end up doing.

 

Now once you have moved up to the higher timeframe, You look to exit on the close of the first WRB that appears.

 

Note how in this example, like so many of yours, the WRB gets you out very near the top of the move. What I like about this is it does allow one to get more of what the market is willing to give you, while still having some of that "get out at the first sign of change" mentality.

 

Just a thought. Hopefully, someone likes it and can provide more insight and examples.

 

BTW, notice the bar after the WRB. It has Ultra High Volume, almost as much as the WRB (3 ticks less in fact). Its range is much less however, and it closes in the middle of its range: THIS IS A TRANSFER OF OWNERSHIP BAR. The Smart Money is dumping supply onto the market. Note how price starts to move sideways. Also note the No Demand bar.

 

 

Hi Pivot : you quote on your chart this " If you Had" entered here... thats something I would like you to expand on HOW do you clearly open positions on that chart.... a WRB candle "after the fact" looks very nice, and that exit criteria has some logic... now the deal is to be on a position previous to that, would apreciate if you expand on that, maybe you can start a new thread on how do you open positions with xx technique.... cheers Walter.

[brownsfan019 17]

Ok forgive me for being contrary here but I can't see the reason for exiting on a WRB. Quite the revere - price has just made a move and its at the highest/lowest point in that move (give or take a tick or two). If the momentum is still there why not stick with it? If the move is ending the chances are he next bar will be a hammer or doji. BTW I dont look at candles per se (just the price action behind them) but it is fairly rare to get a long white candle followed by a long black one. (A sliding window is it called? or maybe scissors, too lazy to look it up). Essentialy its an upthrust but over the course of two bars.

 

I can see where you are coming from from a discipline point of view. Also I know some people trade from quite high time frame charts compared to there holding period i.e. they look to enter and exit within the course of one or two bars. (actually I am prone to do that but that is an emotional issue in my case!)

 

Actually maybe I should try exiting on a WRB I tend to exit just before the big move bar which of course is even worse!!! Holding on to winners is stil something I often have issues with,

 

Cheers,

Nick.

 

Nick - great points. I know what you mean. At first, I thought the same thing as well regarding exiting on the WRB, but watch them in real time and see how they look on your charts for exits. I mentioned this before, but I view the WRB as a temporary imbalance between the bulls and bears which will sooner or later be 'corrected'.

 

I have found that WRB's on a VBC are powerful simply b/c the chart itself is comprised of volume and volume only. For a WRB to appear, some serious volume has to come thru; whereas a time chart may be different. I don't know as I don't use time charts anymore.

 

It's worth looking at if nothing else in your own trading to see if there's something there that was staring you in the eyes all along...

[walterw 10]

Quick question for those that have read the thread - has anyone else looked at and/or implemented WRB's into their trading? Not sure how much more to really talk about from my point of view. I can post the occasional chart, but I think you guys get the idea if you read my posts.

 

Just wondering if anyone else is using the methodology.

 

 

Brown : I do trade this concept discounted in a diferent presentation... what I never understand is how do you OPEN your trades in this method....

[brownsfan019 17]

Brown : I do trade this concept discounted in a diferent presentation... what I never understand is how do you OPEN your trades in this method....

 

walter - good question. I do not use WRB's for entries at all, just exits. Maybe Pivot can help there.

[Anonymous 11]

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.

[Anonymous 11]

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.

[walterw 10]

Pivot : now you got a little more sense on your setup and the indicator usage its fine, you are not trading the indicator, you are using a fine setup criteria ( by itself) and the indicator is helping you to time the trade in the area of your criteria....

[walterw 10]

Pivot : should you specify what product and time frame your chart is and we should be completely happy.... cheers Walter.

[Anonymous 11]

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.