Club EWI is the world's largest online community of traders and investors interested in learning how to make Elliott wave analysis work for them. Below is an excerpt from one of the many free Club EWI resources, "How to Make Bar Chart Patterns Work for You."
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How to Make Bar Chart Patterns Work for You (excerpt)
By Jeffrey Kennedy, EWI Senior Tutorial Instructor and Commodities Analyst
As a trader, it is important to know who you are. And what I mean by this is, “What is your trading style?” For instance,
- Do you like to picks tops and bottoms, or do you prefer trading with the trend?
- Is your discipline strictly technical (i.e., MACD, Stochastics), or do you incorporate price patterns?
If you haven’t already defined your trading style, I encourage you to do so, because it is a key to becoming a consistently successful trader.
My trading style is that of a trend trader. I use the Wave Principle as my primary tool, along with a few secondary tools of select technical studies that I designed to augment my approach. Since the Wave Principle is a pattern-based form of technical analysis, I also include single-bar and multiple-pattern-bar analysis to identify high probability trade setups.
One such bar pattern that I run across on occasion is the 3-in-1. It occurs when the price range of the fourth price bar (i.e., the setup bar) engulfs the highs and lows of the last three price bars. What exactly does that mean? Well, we all know what an inside bar is: It occurs when the high of the bar is less than the high of the bar from one period ago, and the low is above the low from one period ago. For example, if today’s high is less than yesterday’s high, and today’s low is above yesterday’s low, that would mean that today is an inside day.
A 3-in-1 bar pattern is somewhat similar in that it utilizes stagnant or contracting price ranges to identify high probability trade setups. Let’s use Coffee as an example:
The high of the engulfing bar or setup bar is 115.00, and the low is 111.00. And as you can see, the highs and lows of the following three trading periods are both below the 115.00 high and above the 111.00 low. This is a 3-in-1 trade setup: A move above or below the high or low of the setup bar signals that the larger trend is about to resume.
This 3-in-1 bar pattern fits my trading style nicely because it allows me to know when the larger trend is resuming. You can find similar tools to fit your own trading style that will work just as well for you. That is, once you define your trading style. ...
- 3 Bar Patterns To Help You Spot Trade Setups
- The Three-In-One Bar Pattern -- Jeffrey Kennedy’s Favorite Bar Pattern
- Forward and Reverse -- The 3-in-1 Bar Pattern Revisited
- How To Use An Outside-Inside Reversal to Spot Trade Setups
- More