Strategy on bars. A simple method of market analysis from John Benjamin
Human psychology is structured in such a way that as soon as we talk about big money, it is associated with work of enormous complexity.
Therefore, most traders approach the choice of strategy according to the principle - the more complex the strategy, the more money it can bring.
Such a distorted perception of reality leads to the fact that a newcomer who comes to the stock exchange immediately begins to drown in the mass of unnecessary things, which simply cannot be absorbed without professional knowledge and experience.
Therefore, whether you are an experienced market participant or just starting your journey as a trader, you need to remember a simple truth - the simpler the strategy, the more profitable and resilient it will be to sudden market changes.
The Bar Trading Strategy is a simple three-bar pattern trading strategy that was first published and widely promoted by renowned stock market analyst John Benjamin, who has over nine years of stock trading experience.
The strategy will be relevant for all categories of traders, whether you trade on five-minute or daily basis, since trends and their changes are visible on all time frames.
It is also worth noting that the bar strategy is multi-currency and demonstrates the same effectiveness on all trading assets, from stocks to currency pairs with indices.
Preparing a bar strategy
Before you start trading the strategy, it is very necessary to prepare your work area.
I would like to immediately note that the strategy can be used in any trading terminal that has a bar chart, as well as Fibonacci lines. In our case, we will use the MT4 terminal.
To begin, switch the display of your chart from candlesticks to bars. Then the next step, for your convenience, you will need to change the color of the bars, since by default they will be the same color.
To do this, go into the chart settings and change the color of the bearish bars to red, or to any other that is more convenient for you.
Then apply the Fibonacci Lines tool on the chart in a chaotic manner and enter the level properties and settings. You will need to make some changes to the levels and rename them.
So assign the name “Stop” to level 0, assign the name “Enter” to level 1, Profit 1 to level 2, Profit 2 to level 3, Profit 3 to level 4. After the preliminary preparation of the work area has been carried out, you can proceed directly to analyzing the pattern itself and its processing. Look at the picture below:
Characteristics of the pattern. Signal
Since the countertrend strategy, the search for a pattern occurs on clearly defined trends, and positions are lined up in the opposite direction.
You can use any technical analysis tool or trend line to determine the current trend.
The author himself recommends paying attention to the number of candles and local extremes, namely, if the price overwrites local minimums, forming new minimums - downtrend, and if the price rewrites the highs and forms new highs, the trend is upward, but there must be at least five bars in such segments.
Bearish trend reversal pattern
1. In a downward trend, a bar appears, the minimum of which is lower than the previous one, and the maximum is also lower than the previous bar (the bar itself is bearish and red).
2. The low of the second bar is located below the first candle, but at the same time the bar itself closed bullish and has a black color.
3. The minimum and maximum of the third bar should be located above the second bar, and the candlestick should close in black.
Then you need to draw Fibonacci lines from the high of the third bar to the low of the second bar. The entry point is the price crossing the high of the third bar or the Fibonacci level marked as the entry. We set stop and profit levels according to the corresponding marks Fibonacci levels
Bullish trend reversal pattern
1. In an uptrend, a bar appears, the maximum of which is higher than the previous one, and the minimum is also higher than the previous bar (the bar itself is bullish and black).
2. The high of the second bar is located above the first bar, but at the same time the bar itself closed bearish and is red.
3. The high and low of the third bar should be located below the second bar, and the candle should close in red.
Just like for shopping we pull Fibonacci levels from the minimum of the third candle to the maximum of the second. The name of the lines will correspond to the placement of orders.
In conclusion, it is worth noting that the “Strategy on Bars” is an excellent example of non-indicator trading strategies, which, despite their simple operating algorithm, are capable of demonstrating very high profitability.