A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
Never Miss a “Money Bar” Set-up
06/20/2012 4:20 pm EST
The appearance of a “money bar” on the charts can give traders valid confirmation that a high-probability momentum set-up is being presented, says Greg Capra, who uses it himself.
I’m here today with Greg Capra and we’re going to talk about how to trade the markets without using indicators, but using price action. So, give us a few examples or something you can think of that would point out what you do.
One of my favorites is what I call a “money bar” set-up. I call it that because it works the vast majority of the time and it produces money.
One of the things that I struggled with—and I know many traders struggle with—is trying to get into a momentum move.
The buyers come in; they drive prices up quickly; and most strategies are based on getting in on the retracement. We have a strategy based on that as well, however, when the momentum is there, a lot of times, prices don’t pull back. I struggle with how to get on board.
I need to require some type of corrective price action. What I look for is a strong move where prices still have room to run, meaning there is what we call a “void of overhead resistance.”
There is really no reference point as to why anybody should really sell. Prices stall and may go sideways for one or two periods—and this is applicable to any time frame—then prices spike down, and I’m looking at a long set-up where prices have gone up.
They spike down on one bar, and they’ll take out one or two bar’s lows. Then buyers come in, and they’ll drive it right back up, and it will form what we call a “bottoming tail bar.” That’s the money bar, or correction bar. I buy it above that bar’s high, put a stop below the low, and I let it run.
And it can be a very long-standing momentum play at that point?
It depends on the time frame. If this was a weekly chart, I’d expect it’s going to run for weeks. If I’m trading it off of a five-minute chart, it might last a half an hour.
Very interesting. Do you watch volume as well?
I watch volume as it relates to the past. Volume is never something in the present moment because we’re all part of it. So, if you’re looking for the volume confirmation in the moment, you miss the trade.
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