Trend Bar Failure (TBF): In this Trading setup we look for a trending stock, and then try to pin point areas where traders are trying to go against the trend (Counter-trend traders). Once they are trapped, we try to take advantage of this situation by trading in the direction of the prevailing trend as these counter-trend traders close their position. 

How to define a Trend? Apart from visual test where you see a certain stock going up, down or sideways - let us put a technical study such as 20 EMA (Exponential Moving Average) on the chart and see if it is sloping upwards or downwards. For example.

In the chart example above, we can safely conclude that the immediate trend is up.

What is a Trend Bar?

Also refresh your memory around what is the difference between a Trend bar and a Non-trend bar. Basically Trend bar is where the body of the candle covers more than half the length of full candle. And a non-trend bar is any candle body that is less than half of its full length. 

Next we will identify a spot where counter trend traders try to step in and trade against the prevailing trend to try to pick a top and short the stock. With the help of Price action, we will look for certain candle bars and time our entry accordingly. Continuing with the above $NVDA example, I am going to zoom in on the chart where such a price behavior is visible.

The Bearish trend bars are an indication of counter trend traders here.

 

Trade Setup

Our Trade setup is to find a pattern where counter-trend traders get trapped, and as they realize that shorting the stock is not working, they will buy to cover and create an additional buying pressure. And we will be ready to take advantage of that situation.

Long Setup for Stocks/Calls for Options: 

1. Look for a rising or upwards sloping 20 EMA stock that is trending nicely (any time frame).

2. Bearish trend bar appears and gets no follow through. The bar after the bearish trend bar is a non-trending bar (does not matter if it is bullish or bearish).

3. Place a stock Buy-stop order few ticks above the second bar (or get into calls as the criteria is met). Stop-loss will be the low of second bar.

4. If the third bar does not trigger the trade, cancel the order and wait for next opportunity.

On the other side, we can look for a stock that is trending down (20 EMA is sloping downwards), and short (or buy Puts) on any indication of trapped traders on the long side.

Short Setup for Stocks/Puts for Options: 

1. Look for a falling or downward sloping 20 EMA stock that is trending nicely (any time frame).

2. Bullish trend bar appears and gets no follow through. The bar after the bullish trend bar is a non-trending bar (does not matter if it is bullish or bearish).

3. Place a stock Sell-stop order or buy puts few ticks below the second bar. Stop-loss will be the high of second bar.

4. If the third bar does not trigger the trade, cancel the order and wait for next opportunity.

Any time such a setup appears in any particular time frame, I will mention that in my Trading setups or commentary on Twitter. For example $FB 15TBF will mean that Facebook stock is showing a Trend Bar Failure setup in 15 min chart. Of course you will be able to see if it is for a long or short side depending on the slope of 20 EMA and candle shapes. This will help you learn, and make an informed decision whether you want to take a trade or not. The stop-loss will be already pre-defined and members will know where to execute. Not only this will help in minimizing the slippage, but also align with my goal of making you an independent trader.

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