I've heard that WRB(wide-range body) analysis is an useful way to understand price action. Can anybody elaborate more on WRB analysis? Thanks.
essentially a wrb is a volatility increase so you can expect the volatility to be similar in the next bar
Why should I expect the volatility to be similar in the next bar if I see a bar of WRB? My current understanding of WRB bars is that a WRB bar at key price levels indicates the severe imbalance of supply/demand at that price level. With that said, the function of WRB bars is more or less like gaps in stock's daily charts. An initial WRB bar is like a breakaway gap. The final WRB bar is like an exhaustion gap. Therefore we can use WRB bars to give us hints for the next possible price movement. Any other thoughts or comments? Thanks.
True False. Increasing volatility in one interval is not a reliable measure for determining the volatility of the next interval. Simply, a WRB all by itself is not a prediction tool for what will occur in the very next interval. Mark
Unless I misunderstood... You are suggesting you can use a WRB all by itself as hints to which direction price will most likely travel. I disagree because you're not explaining anything about the price action the WRB is occurring within. Simply, to analyze WRB you must also analyze the price action prior to the WRB and after the WRB to look for clues about the price direction. More importantly, you must know what caused the WRB in the first place to determine if it merits monitoring. If you don't understand what caused the WRB... It almost has no value unless you just want to use it as a profit target. Last of all, there are different types of WRB's just like there are different types of GAPs via using your analogy about GAPs. Mark
Mark, I agree with what you said that WRB-only is useless. What I mean is to put WRB in the price action context and then using WRB as confirmation tools for the next possible price movement (for entry) or profit targets (for exit). For example, the market has moved up substantially and looks like a double top forming. I'm anticipating a short trade. I wait patiently. Suddenly I see a WRB bar forms and at the same time the trendline also breaks. This price action gives me hint that a temp top may be in placed and I enter a short trade. In this example, WRB bar simply gives me more confirmation just as trendline break. What's your thought about my use of WRB bar in this context? Thanks.
Discussion here: http://www.traderslaboratory.com/forums/f34/wide-range-bodies-or-big-candles-1480.html with input from Mark. GF
Look at this concept with on principal. Effort and Result. Effort is volume behind that bar and Result is the range of that bar by your effort. Wide range bars at the end of an extended move up and on down volume is a a true sign of weakness and a high probability to sell the bounces. That same set up at the end of a down move that is extended is an exhaustion move and bullish is you get good volume to flow in on the upbars after this climax action.......so Effort and Result depending on where they happen in the market cycle is just as important as anything.
Thanks for the clarification. Lets talk about your example. If the trendline of a double top is broken by a WRB and you view it as a hint that a temporary top is in place... Why would you enter a Short position if this is only a clue (hint)??? Simply, what's your confirmation signal after that WRB to confirm its time to open a Short position??? Thus, if your confirmation is only a trendline break via a WRB... That's not enough info about the price action to prompt a trade decision. As to WycoffTrader comments about volume... His commentary concerns a different type of price action concerning Wide Range Bar. Also, the analysis of Wide Range Body replaces volume analysis. Simply, volume is not needed when studying volatility. Therefore, don't get confused about Wide Range Bars versus Wide Range Body. They are completely different. One involves the range between High and Low (Bar) while the other involves the range between Open and Close (body). A different way of looking at the above... Those that study Wide Range Bars tend to study volume. Those (like me) that study Wide Range Body tend to study volatility (not volume). Volatility contains more info about changes in supply/demand in comparison to Volume. Last of all, I'm not saying volume is useless. I'm saying that volatility analysis provides more information about supply/demand than volume analysis... Even more so when trading volatile trading instruments, trading within high volatility market conditions or trading something that doesn't have volume (ex. forex, market breadth et cetera). Mark