Reading Price Charts Bar by Bar_ The Tec ( PDFDrive )

Pullbacks 1 19

though a High 2 is bullish and a Low 2 is bearish. Since the market is
sideways, neither the bulls nor the bears are controlling the price action
for more than a brief period, so it makes sense that each will try to wrest
control, and as each tries to assert itself, bull or bear patterns will form.

There are variations on this numbering, but the goal is still to help spot
two-legged corrections. For example, in a strong bull, a two-legged pull­
back can form and have just a High 1 , but functionally be a two-legged
pullback. If there is a bear close (or two), this can represent the first leg
down even if the next bar does not extend above the high of the bear bar. If
that next bar has a bull close but its high is still below the trend high, it then
becomes the end of the first down leg if the next bar or so is again a bear
trend bar. If the next bar extends below its low, look for a bar within the
next few bars that extends above the high of its prior bar, ending the two
legs down. View each bar as a potential signal bar, and place a buy stop at
one tick above its high. Once filled, you now have a variant of a High 2. This
entry bar is strictly speaking just a High 1 but treat it as a High 2. That bear
bar at the start of the pullback was followed by a bar with a bull close. On
a smaller time frame, this was almost certainly a small down leg followed
by an up leg that became a Lower High, and then finally another push down
to where the High 2 ended the second leg.

There is also a variation for a failed High/Low 4. If the signal bar for
the High 4 or Low 4 is particularly small, especially if it is a doji, some­
times the entry bar will quickly reverse into an outside bar, running the
protective stops of the traders who just entered. When the signal bar is
small, it is often best to place your protective stop at more than 1 tick be­
yond the signal bar (maybe three ticks, but no more than a total of eight
ticks from your entry in the Emini), to avoid a whipsaw, and still treat the
pattern as valid even though technically, it failed, albeit by only a tick or
so. Remember, everything is subjective, and a trader is always looking for
something close to perfect, never expecting perfection because perfection
is rare. Finally, complex corrections on the 5-minute chart often appear as
simple High/Low 1 or 2 corrections on higher timeframe charts. It is not
worth looking at the higher timeframe charts since the trades are evident
on the 5-minute, and you risk distracting yourself looking for rare signals
and missing too many 5-minute signals.

The most reliable High 1 and Low 1 entries occur when there is a false
breakout of a Micro Trendline because Micro Trendlines are only present
in the strongest segments of trends. The one- or two-bar false breakout that
creates the High 1 pullback in a bull or Low 1 pullback in a bear is a high­
probability With Trend scalp. The other time when you need to take these
entries is when there is a strong move well beyond the EMA and then a
High 1 pullback (in a bull) or a Low 1 pullback (in a bear) to the EMA, even
without a Micro Trendline being present.

1 20 READING PRICE CHARTS BAR BY BAR

Trends have trending highs and lows. In a bull, each low is usually
above the prior low (a Higher Low) and each high gets higher (a Higher
High), and in bear trends, there are Lower Highs and Lower Lows. In gen­
eral, the terms Higher High and Higher Low are reserved for situations in
which a bull trend appears to be in place or in the process of developing,
and a Lower Low, and a Lower High imply that a bear might be in effect.
These terms imply that there will have been at least a minor trendline break
so you are considering buying a Higher Low in a bull (a pullback) or a bear
(countertrend but maybe a reversal) and selling a Lower High in a bull or
a bear. When trading countertrend, you should scalp most or all of your
position unless the reversal is strong.

In Figure 4. 16, a High 1 (HI) occurs in a down or sideways leg of a
bull move, and it is the first bar with a high above that of the prior bar. If
there is then a high that is lower than the prior bar, the next occurrence of
a Higher High is a High 2. A High 3 is the third occurrence and a High 4 is
the fourth. Counting beyond four does not offer reliable trades since it is
likely that the pullback has extended far enough to be considered a trend
in the opposite direction.

Likewise, a Low 1 (Ll) occurs in an down or sideways market, and
a Low 2, 3, and 4 are comparable to their High 2, 3, and 4 counterparts.

1,410.00
1,401.1 00

H4 1,396.00
1,394.00

1,392.00

1,390.00

H2 1,318.00
1,J�.00

1,314.00

1,382.00

1,.1BO.DO

,1,378.00

1:00 1:30 1:00 15:30 9:00 9::50 10:00 10;30 " :00 1 1:30 12:00 12:30 13;00
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FIGURE 4. 1 6 Bar Counting