Chapter 17

Bar Counting: High and Low 1, 2, 3, and 4 Patterns and ABC Corrections

All markets are fractal. This is a mathematical concept that means that each segment of a market has the same general patterns as every lower and every higher time frame chart. If you remove the time and price labels from your charts, you will usually not be able to tell whether a chart is a 3 minute, 5 minute, 60 minute, or even a monthly chart. The only time that you can reliably approximate the time frame of a chart is when the average bar is only one to three ticks tall, because the chart will be mostly dojis and that only happens in small time frames or in markets with only minimal volume, and you should not be trading those.

Since every move on every chart will tend to be two-legged and every correction will also tend to be two-legged and every correction of every correction will tend to be two-legged, a trader who understands this tendency will find lots of opportunities.

A reliable sign that a pullback in a bull trend or in a trading range has ended is when the current bar's high extends at least one tick above the high of the prior bar. This leads to a useful concept of counting the number of times that this occurs, which is called “bar counting.” In a sideways or downward move in a bull trend or a trading range, the first bar whose high is above the high of the prior bar is a high 1, and this ends the first leg of the sideways or down move, although this leg may become a small leg in a ...

Get Trading Price Action Trading Ranges: Technical Analysis of Price Charts Bar by Bar for the Serious Trader now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.