Outside followed by inside bar is one of the best pattern to trade.
What does outside bar means?
- Outside bar is when current candle high > previous candle high & current candle low < previous candle high
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What does inside bar means?
- Inside bar is when current candle high < previous candle high & current candle low > previous candle low.
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What to interpret from outside bar?
- When we get outside bar which means neither buyer nor seller are in control.
- When we get outside bar, we should wait for the follow through/confirmation in next candle.
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What to interpret from inside bar?
- volatility is getting compressed.
- both buyers and sellers are waiting for next trigger to create fresh position/ close their existing positions.
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What to interpret from OB+IB pattern?
- this is one of the best formation we can get to take a trade.
- Outside bar + Inside bar = Rejection on both side + compression of volatility.
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Once this formation happens, how to trade?
- When such formation happens all we need to do is buy above inside bar high with stop below inside bar low & sell below inside bar low with stop of inside bar high.
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When does this formation fails?
- this formation fails if we again get OB after formation of (OB+IB).
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Why this formation is better than inside bar alone?
- In (OB+IB) pattern we have already seen rejection on both sides before volatility compression so here chances of rejection of breakout is less compare to inside bar alone (as shakeout already happened before breakout)
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Understand one fact, market is supreme so whenever stops get triggered close the trade instead of holding losing position in hope.
Respect the risk and market will reward you.
For examples kindly scroll my timeline u would get it.
Every year Lacs of people appear for MBBS exam but only 5% gets admission. Out of those 5% hardly 1% becomes expert in their field.
People still never feel that doing MBBS is risky.
Same for engineering or any field there is hardly 5% who achieves something good.
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In any business there are thousands of start up businesses are happening but hardly 5-10% runs those businesses successfully.
Still people don't feel starting new business with their own investment is risky.
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Trading is no more difference here as well success ratio to achieve something is 5-10% as other businesses.
But Pure Indian mindset still believes that trading is very risky business and it's just gambling. Hardly very few people has financial literacy in INDIA.
"If there will be major gap down/up account will be wiped out!!"- that will happen only when u are over leveraged. I have face 15-18% moves and still losses in trade never went above 6% in a trade.
People argue that with reduced margin requirements we can generate more return and also get ourself protected with hedge!! - To make more return you need to increase qty and indirectly u are risking more with hedge to generate more return with same capital.
People argue mostly about huge gaps but they don't work on their position sizing.
Before punching naked option ask yourself that if stock opens next day at circuit how much i will be losing. Keep ur position size such that even at worst opening of underlying u won't lose > 5-7%
When underlying gives gap up above yesterday's range and sustains above that for one hour+ means market participants has accepted the new range and are willing to buy at higher price. So fresh buying and short covering are likely.
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If price opens gap up out of PDR but fails to hold on to hourly low which means market participants haven't accepted new range yet.
So in that case it's likely to test PDH first if that also doesn't hold then PDC and even PDC doesn't hold price then likely to test PDL.
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Similarly
When underlying gives gap down below yesterday's range and sustains below that for one hour+ means market participants has accepted the new range and are willing to sell at lower price. So fresh selling and long unwinding are likely.
Many people asks from where do i start learning about trading?
1. Start from learning candlestick pattern.
2. Learn theories behind how demand and supply works.
3. Learn how support and resistance works.
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4. Focus on larger timeframe first, never start with intraday trading.
5. Start with actual money once u understand above theories. Do infuse only 10% of ur planned capital first and practice with equity segment. Never touch derivatives atleast for first 1 year.
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6. Try to learn from ur trades, what are the mistakes you are doing and try to figure out reason behind that. And try not to repeat same mistakes again.
Some of the biggest mistake novice trader does
-average out losing trade
-don't place SL
-take out profit too early