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In the TR video 47D, Al takes about BO from a TR. He says when there are two bars closing out side the range with medium sized bodies its highly likely the market has broken out of TR.
My question is what if price broke out only with wicks or only with one bar.
In the above picture, I have marked a big down big up with its top and bottom and think the market cycle is in TR.
After a few bars the market made an BO attempt up and down with wicks for BO above and one bar BO below.
So will the Top and bottom of TR change like I have upgraded in the above picture?
1
2
And out of the above picture which will you consider to be a BO from TR? 1 or 2.
Thank you for your answers in advance.
Hi Abishek,
I think for someone to label the charts as yes or no would be a disservice to the study of BPA and won't address the real issue that everything is a probability. Today this chart may do a successful BO, tomorrow same exact chart with exactly the same bars may fail to do the BO because of all the extraneous discretionary factors plaguing traders on that day (along with different HTF S/R levels). Best we can say is "this BO had a high probability to succeed" or "due to such and such factors this BO didn't have a high chance to succeed" and only after 100 examples will we know if our understanding of TR BOs is correct on average.
By default TR BOs have an 80% chance to fail. Some conditions move that probability up or down. For example, Al states that we want a BO bar followed by FT bar to improve the chance of a successful BO. BO+FT creates a gap and increases chances of going for MM (measured move). This doesn't mean 100% chance to get the MM. Maybe the probability of successful BO improves from 20% to 50% which enables swings (since has to be >40%).
However, as many of your charts show, there is a bear BO bar which is strong, but the next bar is often a horrible FT that's strong in the opposite direction and closes back inside the TR. Some bears will argue that it's just a BO PB and will look for bear trend resumption but bulls will argue it's a failed BO and will look to buy for a move back into the TR. What happens next depends on who has greater conviction. We can guestimate which side will end up successfuly defending their positions by observing the strength of BO bars and FT bars.
A bar attempting to BO but only creating a tail is a very weak BO attempt. For example, in this chart BO's above prior swing high all closed with tails, same for BO below.
A bar that closes below prior swing low improves the chances of a BO but then FT bar becomes important.
Best we can do is create rules for our trading such as "Only consider selling a BO from TR when BO bar closes outside, is strong and has good FT and then look for a pullback sell." This gives us maybe a 50% chance to swing for MMD (measured move down). Such rules improve the probabilities in our favor and hopefully we end up profitable over time. But even then no single chart will work every single time and we just have to accept that.
Hope this helps,
CH
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Thank you very much Mr. Carpet.
There is also another question in TR that I asked, will the top and bottom of TR change after a failed BO and like you said will you consider a BO and 50% chance for MM if the market makes a strong bar and a FT bar above the initial range or the range that the fake BO made(with a wick or a one BO bar with bad follow through)?
I suspect some traders will use bar closes to draw the TR because closes are more significant to institutions who don't use candlestick charts. I personally use the highest and lowest tails to bound the TR. It makes it bigger and is a more conservative approach because it makes me wait for longer to confirm that a BO is actually happening. Tops and bottoms of tails are also respected often so they're a significant concept of BPA to ignore.
Thank you very much for your detailed explanation for both the questions I asked.
Tops and bottoms of tails are also respected often so they're a significant concept of BPA to ignore.
Sorry, I meant tails are too significant in BPA to ignore.