Accurate measurement of bars – measure, and measure again

Accurate measurement of bars and the like.  Not appreciated by many retail traders, but accuracy provides the clue.

We are continually looking for that measure. It may be an explicit support or resistance level, or one that is not so obvious.

It may be within a channel, or a trading range may define the boundaries.

My favoured measuring tools are a simple mirror rule and an edited version of the Fibonacci retracement to provide a quick way to find the middle of something.

Below is an example from yesterday and this morning. Although we show only one measure per chart, in reality, many tests would be performed to find, what we think is, the best clue.

Our point of interest is the last significant bear bar (seven bars from the end). We feel this bar strongly supports the probability of a further reduction in price.

The question is at what point do we enter the trade? The bear-bar we are measuring is a trend bar but has a  prominent tail; this indicates either buyers below or, and more likely that sellers are buying back their trades – taking profits.

It provides some uncertainty and a stop immediately above our measured bar would be vulnerable. We, therefore, look for the workable trade solution that the majority of ‘institutional’ computers will employ.

We consider that the next premise point (marked by the red arrow) is a candidate. To provide a traders equation of reward and risk, we measure the halfway point between stop and target and determine our entry level; this we have marked with a yellow arrow.

Contextually it makes sense. In other words, we like what we see if we stand back and take in the bigger picture.

Below is how the trade developed over several hours.

From this morning we have an early, but a viable consideration. In this example, we are against the trend but contextually a probable scalp of 26.9 pips.

After the close of the third of the last four bull bars, we take our entry as marked by the yellow arrow.

Our measure is from the third bull bar, from the bottom of its tail to the close providing a measured extension above.

However, as before we feel that a viable stop position is the base of the recent low. Again our reward/risk is satisfied if we enter at the yellow arrow.

The trade concludes as shown below.

A point on the spread. As retail traders, we have to consider spread in our bets. That is, we allow for half spread on trade entry – if we had not in the last example we would not have been successful with our entry.

Our measurements, however, are a determination of what the institutional computers are taking, and they, by-and-large, do not have to deal with anything as distracting as spreads!

Published by Day Trader

I flew fast jets for 30 years of my life. I've traded full-time, more or less, for the last ten years, initially from fundamentals and over the last few years as a dedicated day trader. I live on the North Norfolk coast.

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