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Reversal Bars and Moving Bars... how to trade trend corrections
Trend following strategies are considered to be amongst the most profitable strategies in trading. The quality of these strategies depend on identifying the trend and identifying logic entry points. This is where the Reversal Bar and the Moving Bar come into play. The bars allow traders to find logic entry points during moments when the trend is temporarily interrupted. The entry points based on the Reversal and Moving bars allow the trader to open positions with an excellent Return/Risk factor.
Click here to buy Carsten Umland's Reversal and Moving Bars strategy in the store
This trend-based strategy identifies temporary trend reversals and positions itself for a return to the high in a bullish trend or a return to the low in a bearish trend. These points are also the profit targets. More about these later.
This example shows an instrument in a bearish trend but which is -probably temporarily- bullish. A Moving Bar will appear if the strategy considers the trend will return to bearish.
The strategy can be used for daytrading in intraday timeframes such as 5', 15' and 60'. In addition it is possible to use higher timeframes for positions which remain open overnight. The bars were originally developed for trading stocks overnight but it can be applied to all other instruments including forex and futures.
This trading strategy uses a traditional multi-timeframe screen lay-out divided into three charts, each in a different timeframe.
The strategy in detail
The strategy package consists of a pre-configured screen lay-out consisting of three charts in different timeframes. These charts serve to analyse the market and are used for trading.
Also included in the package are both the Reversal Bar and the Moving Bar. They are the basis of the trading signals. The Reversal Bars, which are marked green in the charts, give buy signals. The Moving Bars, which are marked red in the charts, give short sell signals.
Finally, the package also contains a special stop to protect the open positions. The stop is determined in such a way that the trades start with a good Return/Risk ratio.
The package can warn you when a signal occurs. You can choose one alarm (e-mail, sound alarm or pop-up window in the platform) or a combination.
When to open a position?
The trading signals are generated by the Moving_and_Reversal_Bar Express indicator which has been progragmmed especially for the NanoTrader platform.
The preconfigured lay-out consists of three charts: a 15' chart, a 60' chart and a day chart. The moving average (blue line) in the day chart indicates the overall trend. Signals are visible in all charts. It is, however, the signal in the 15‘ chart which is used for trading. The signal must be in the direction of the overall trend indicated by the day chart.
This example shows a potential Moving Bar signal (short sell signal).
The 15' chart (nr. 1) indicates a Moving Bar and its subsequent signal in red. The day chart (nr. 3) also indicated a Moving Bar previously. The blue moving average trend line in the day chart indicates that the main market trend is still bearish. The short sell signal could be acceptable. However, the optimal would be for the market to trade below the moving average line in the day chart. This is not the case. The signal can be rejected for this reason.
When to close a position?
The strategy uses a stop loss and a profit target. The stop loss is a 5-period HighLow stop. Hence the stop will be based in the beginning on the lowest (highest) point of the temporary trend reversal. When the market turns and moves again in the direction of the main trend, the stop will start to follow.
The profit target is determined by the trader based on the this general rule: the target should be put around the previous highest (lowest) point of the main trend movement. The combination of the stop and profit target results in trades with a very good Return/Risk ratio like so:
The advantages of Moving and Reversal Bars
- Clear signals at the point when the market may return to the main trend
- Risk and profit target based on key points in the chart
- Good Return/Risk ratios
- Trend-based strategy
- Strategy applicable to all markets and in numerous timeframes
If you are not yet familiar with the NanoTrader Full platform, please visit the quick start page.
Open the PageManager, select the WHS Store folder and go to Carsten Umland:
The preconfigured lay-out containing the three charts will open.
In order to change the symbol you can, for example, drag symbols from your account and drop them in the chart as illustrated below.
It is also possible to click the open folder icon and select the change symbol icon:
Make a quoteboard containing all instruments you are interested in. Link the quoteboard with the charts by clicking the link icon (overlapping circles) and selecting the same colour (red in this example). To check for signals, click each instrument in the quoteboard and the charts change.
Activate the TradeGuard via the chart and the platform will automatically place the strategy’s special stop order immediately after you open a position.