Wednesday, September 12, 2007

Dummy Trading Tip - Two Inside Bars

In response to reader feedback asking for more coaching/training type posts, I am going to explain setups in a little more detail.

Two inside bars are better than one and we had a few nice setups from the watch list in the early going. In the first hour of the trading session I like to sort my watch list by % change which gives me the big movers at either end of the spectrum - long and short.

Today we had a number of strong starts and we don't want to chase winners because this can lead to big draw downs if the timing is off. So we wait for low risk dummy entries. I am very fond of two inside bars because I've had a lot of success with the pattern. Why is it successful?

Two inside bars are like a coiled spring. A sort of Jack in the Box. In the example above FWLT pops up on the open with a WRB. It consolidates on declining volume and carves out two inside bars, the second of which is inside the the previous inside bar. Thus the coiled spring is ready to pop once again. I prefer when the trigger bar is green for longs and red for shorts. Also, make sure that the 5 period ema is in very close proximity to the the second inside bar.

Another criteria I like to employ is proximity to the pivot level. A base at the cusp of R2 like we have on the FWLT and CROX charts is ideal because, in theory, there is less resistance. NTRI bases at P which is fine as long as we have sufficient distance between the next PP level.

The CROX chart below, also from the WL, meets the criteria perfectly.


NTRI, another WL stock is less obvious. Here we don't have declining volume on the two inside bars, so I strongly suggest that you drill down to a lower timeframe in order to properly assess if there is a viable setup here.

A quick look at the 5 min. timeframe below, and we see a low risk B&B entry with a series of higher lows leading into the base, so it is safe to take the entry.


Burn this simple setup to memory and then look for it to develop within the first half of the morning. On any given day, with a WL of approximately 50 stocks, you should be able to spot one, if not two, like setups. It works especially well on stocks coming out of a relatively flat or narrow base. Good Trading!

Edit: This post previously described the second inside bar on the FWLT chart as NR7, but it's actually NR5, so I've eliminated the reference altogether to avoid confusion.

16 comments:

Jerry said...

Another great lesson learned.

Thank you very much.

BTW, NTRI - you used last few bar from yesteray with today's bar. Is this the same reliable rate as of the regular B&B?

Ragin' Cajun said...

Jamie,

Thanks for this post, I am trying to learn all I can about candlestick charting, this helps.

thanks and keep up the good work!

Jamie said...

Welcome Jerry.

Yes, using yesterday's resistance as part of the B&B setup is even better. I did the same with my SGR trade. Long on the 3rd 15 min. bar B&B above yesterday's swing high. Stop below 2nd bar low. A real beaut if I say so myself.

Jamie said...

Thanks for the feedback RC,

I'm trying to put a few posts together so that collectively, we can easily identify good setups from a simple set of criteria.

GN said...

Thanks Jamie!! Looking fwd to more of similar posts

Jamie said...

Welcome GN.

Jim said...

Hey Jamie,

Great topic!

The 2nd IB on FWLT (3rd 15m bar of day) looks like a NR5 (narrowest range of last 5 bars), but not an NR7. Unless you are including pre-market data?

Anonymous said...

Thanks Jamie, this is a great post, keep them coming!

I saw a few stocks making great moves in the last 2 days. Wonder how you may have traded them or if there is any low risk entry at all:

Today: SYNA, AMZN, LVS
Yesterday: LVS, NILE

Thanks
YR

Jamie said...

Jim,

Thanks for the clarity on the NRB. The lazy Libra in me just calls all low volume NRBs "NR7". Hope its not too confusing for readers.

Jamie said...

YR,
LVS yesterday - 2 inside bars ( bars 2-3 on 15 min. Today on 5 min. after 10:00 I see some NRBs on 5 ema support. SYNA same today.

AMZN no - I think this stock will reverse soon and set up a nice short.

NILE no.

OONR7 said...

excellent post (bookmarked for sure) and great trading. To think of it, I may just create a WSW bookmark folder because there are so many.
I'm glad you brought up CROX because it was one of the stocks on your watchlist that caught my eye during the day. I thought there was a nice early entry off a break of the 10:20 bar (5-min). It looked like what you call a shallow rounded base with the entry bar closing strong above R2 on good volume. With your post today, the 3rd bar on the :15 (2nd inside bar) is strong as well.
I was also tracking NTAP which was testing S1 all day and finally broke through on the 12:20 bar (5-min). Ended up hitting S2 at the end of the day. I'd love to get your take on this as well.
I didn't trade these stocks as I want to track them real-time and understand the entries before going live but I can say that the first day was really great. I was able to easily integrate some of your watchlist stocks into my daily routine. Right now I'm trying to only focus on potential cup and handle or shallow B&B off stocks trading near R or S.
Thanks again for all your tips.

Jamie said...

OONR7,

Beautiful base on 5 min. CROX. It also combines your Fib. retrace methodology I think.

I was gearing up to pull the trigger on NTAP as well. I should have used a sell stop order like I did for CAL. In the end I missed the break by a few seconds and decided not to chase.

C&H and shallow base are smooth setups and generally give great R!

OONR7 said...

CROX did meet my intraday fib. criteria but it wasn't a gapper. Not sure I'll hesitate like that again :)

aldrin james said...

Those graphs are just so amazing. I can how it is working although I am not an expert about this stuff but I can say that it is a very good result.

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Allen Rodgers said...

Thank you so much for this article. It has indeed helped me to weep away the fear of complicated market chart due to congestion of multi-indicators

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