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Hi All,
I'm watching the video on ii, ioi and oo patterns. With Al talking about bulls being trapped and exiting below bar 1 or bar 2, I realized that I didn't understand why an institutional trader would do that as I tend to think of them as using wide stops.
Having now thought about it a little, I can imagine at least one reason why an institution might exit there:
Given the context for these patterns is when the market is trending rather than already in a TR, I suppose the trader may have, say, been buying on the way up and after seeing that outside down bar decides to take full or partial profits.
Does that make sense? Any other possibilities?
Thanks
Matt
You separated out some important points. Wide stops are more applicable in trading ranges vs trends because of the higher unknown probability. That is what allows for higher probability than 50% ----> trend components (not using scaling in to offset of course).
However, OO is a a little different amoung the consolidation patterns as it is 2 consecutive breakout attempts. there have been times when OOO with larger bars form, which can be very dangerous, so additional observation is warranted.
These patterns are consolidation patterns, so depending on context, the bars are showing you how the range and stop loss edges are setting up for either breakout or breakdown.
Good trades to you!
Additionally you can imagine that OOO might be an ET = expanding triangle. When you take a look what is happening in such ETs including more bars on the screen you can get a better imagination of what Al is talking about.
