Having a strategy is essential. Let’s ponder one involving big 15-minute bars.
What is a big bar? Let’s say it’s when the body of a candle is 250% larger than the average body of the previous 14 candles. Let’s also say we don’t know if the candle qualifies until the next bar forms.
Lots of people use the 15-minute chart. The behavior of lots of people is worth noting because the masses bring volume that moves price.
Big bars stand out and thus demand an opinion from everyone watching. Anyone looking at a chart with a big bar on it is going to get hungry for follow-through or a way to trap people with this strategy.
A big bar means sudden action, regardless.
Do we care the reason for the action? Do reasons make big bars? Reasons are fuel for movement, and the longer you plan to be in the position, the more important they are. Could be a meme pump. Could be a big buyer.
Could be news. A catalyst. The thing about news is it either exists or doesn’t. Good news doesn’t always mean the price will go up. The market tends to have a shifty way of interpreting it. We might have to watch some volatility before direction is clear.
On short-notice, a jaw-dropping bar may be hard to know what is happening. Still it’s worth having a real-time and stock-specific news source handy to see if news exists at all.
Anything can happen after the big bar, but the chance of something good happening could be much better, especially if it is out of nowhere. Try to find that sudden jolt. Later I’ll show how to set up a scan in ThinkOrSwim to do this.
It doesn’t always work. In fact the chances are probably barely better than 50% if there isn’t news. The most important part of a strategy is setting a stop. Let’s say the stop is a penny below the big bar.
If the big 15-minute bar fails, and price retraces completely, it could be a good reversal trade because a lot of people will be getting stopped out.
Time of day matters.
A big bar in the morning is more common and may not be special. That’s where news may come in handy, or a way to detect that the bar was abnormally large based on ATRs. The morning is also known for over-reactions, so brace for reversion.
A big bar after the first hour could have a better win rate because it happened out of nowhere.
Here are more things to be careful of.
- The bar might just be running to a nearby obvious level. If it is close, you may not have a good risk/reward situation.
- The bar might be at the end of a trend.
- It could be a liquidity grab for a reversal.
We never know.
This being about strategy, some notes to self.
- Know when to stop out.
- Making money is not my job. Stopping out is my job.
- Don’t move the stop.
- Don’t add to a loser.
- Don’t risk more than 1%.
- Emotionally accept losses and the unknown.
These are just fun ideas, are not specific to any individual, and is not trading advice.