The stock market trading tips you’re going to learn today focus around a price pattern I don’t see many people teaching any more: Using “Squat Bars” for entries and exits.
This article and video demonstrate what a squat bar is, and now to determine in which direction to trade it.
You’re also learn how to use it for exits.
Enjoy the video and please leave your comments below.
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Welcome to this video on Stock Market Trading Tips. I’m Doctor Barry Burns with Top Dog Trading. And today we’re going to look at a particular technique and it’s called a Squat Bar. Now the Squat bar was, well I guess created or discovered by Bill Williams. In his book Trading Chaos he spills out all the details. But I am going to give you my take on it.
I like this pattern because it has what I call market logic to it. In other words there is a reason, reasonable reason if you will as to why this pattern will work. And it’s a pattern of price as related to volume. So basically here is what it is. It is a very simple concept, and again I am not going to go through all the things that Bill talks about in his book. I am going to give you my take on it.
STOCK MARKET TRADING TIPS #1: WHAT IS A “SQUAT BAR?”
You have an increase in volume. So you’ll see a volume spike. But there is a decrease in the range of price movement at the same time. That’s the basic concept. Now he uses it based on the market facilitation index or the MFI, not to be confused with the money flow index. And that’s great. So he’s got it down to a very precise science and formula and you can use that if you want to. Again his book is called Trading Chaos.
I look just for things that really stand out. And so let me show you what we’re talking about here. Alright so here we are, by the way this will work intra-day trading as well. Now normally when we have a spike of volume like here. So I am looking for these spikes that really stand out. So for me I can do this just visually. Normally what you’ll see is a wide range bar as well. That’s the norm. That’s what happens most of the time.
What we’re looking for with a squat bar is actually not that at all. It’s the opposite. So here again you’ll see a spike of volume. Really stands out from the previous volume. Right? I mean dramatically. It’s twice as much. Now if we go to, let me actually get my cross hairs. And if we go and look at the bar, the price bar did with that volume spike. You’ll see it’s this bar right here. Okay, so let’s go back and draw that, or circle that.
A NARROW RANGE BAR WITH AN INCREASE IN VOLUME
Now, so it’s a very narrow range bar. Even though there’s a dramatic increase in volume and that’s the basic point. That’s, what happening there is price is not moving. There is not a lot of increase to the high or to the lows. A narrow range bar. But there’s a buildup. A buildup of pressure. Lot of buying, lot of selling, lot of interest coming in. and yet, price isn’t moving. Very very interesting situation. So here’s how I would trade this setup.
Now again like most things you can’t trade this in isolation. You have to look out what the whole context of the chart is. So in this situation, we are in an uptrend. Alright and perhaps we were to buy this cycle low here. So it’s my cycle indicator.
STOCK MARKET TRADING TIPS #2: GET MY CYCLE INDICATOR
And by the way if you are interested in my cycle indicator, I do give that away for free to my YouTube subscribers. Just subscribe to my channel, send me an email. I’ll be happy to show you how to get this indicator for free, along with the tutorial on how to trade it.
But that’s the key, so let’s say that we took this. Now this trade failed. It did not work. It did not break this previous high. So this was a failed trade. Okay, but how could we avoid, if we trade this, our stop would be down here below that low. How could we avoid being completely stopped out? And taking the full loss on the trade.
Well the squat bar would have helped us. Because the squat bar show a built up of pressure. And then if it breaks up, great we expect to follow through to the upside. If it breaks down, we expect to follow through to the downside.
Once I see this squat bar. And this will often come at highs and lows. Cycle highs and lows. And see here now we got a cycle high already. We are at a cycle high but price didn’t really go very far. So there’s not any great reward here. But as soon as I see that, I could say oh, okay, we got to build up pressure. This thing is going to expand to the upside or the downside. If it goes to the downside, I want to be out right away. I want to be out there instead of below the low of that bar.
KEEPING YOUR LOSSES SMALL
What it does is keep my losses small, in fact that would even turn into just a break even trade. A scratch trade. Which is fantastic. Keeping your losses small is one of the most important stock market trading tips you’ll ever learn. Now it’s no longer a loss. So that’s one way that it can be used to protect you from situations like that.
Now it can also get you into trades so that’s getting out of a trade so here is another example. Big increase in volume. Right very dramatic. Stands out dramatically. And then the bar right above that I below is the green bar but let’s be sure, I don’t want to trust my eyeballs here after many years of trading, and having 7 monitors in front of me, it gets, eyesight’s not what it used to be. So yes it is the green bar.
THE FOLLOW THROUGH
So there is our dramatic increase in price. And a narrow range bar. Narrow range bar, so it’s a lot of build up here. Lot of buildup. And now it doesn’t really take off right away. Right and our trend is flat. So there is no trend. This is a trendless market right now. You might say, ‘Oh wait a minute no it’s an uptrend. Look at that.’
No that’s just an impulse move. Do not confuse impulse moves with trends there. Completely different things. So we have a trendless market but we’re having a buildup of volume, of people coming in. You could, liken this to accumulation. Accumulation distribution model understanding of trading.
TRENDING STOCK MARKETS AND CYCLES
But still just flat and then we look at the next cycle low. So we are always trying to buy cycle lows. That’s the other thing, by the way when we really don’t want to buy this, right because why? Because we are still in a down cycle here. This is a down cycle, I am not going to buy in a down cycle. So this from me, in my trading methodology would just be a signal that, ‘Oh hmm interesting.’ So the trend is flat but volume and narrow range price that’s giving me an indication that there’s buying coming in. Then I will wait for my next cycle low. And we get a cycle low coming in here.
I also like to see price confirmation. You could look at this one, for example. But again we just got these little narrow range bars. Here’s where we get our first, this little pattern here specially the green bar with our cycle indicator. We get a little increase in volume here. Line goes from there to there, little build up. But the main thing was we had the accumulation coming in here. Then we are going to wait for price to confirm the direction of the market. Because the indicator, the cycle indicator is giving us no direction. So we’re going to wait for the actual buying.
We got the volume here. And then I am going to away from me, from my purposes. Then I am going to wait for the candlestick pattern. I am going to look for wide range bar. This is not a real wide range bar which is great. I don’t like buying real wide range bars because then my risk is greater. But I like to see a little bit of energy.
If you wanted to you could even wait until it breaks that high there. And get in there, that will be a little bit more conservative entry, perfectly fine. And you know then we are off in that. We actually got trend going.
I hope you enjoyed these stock market trading tips, and if you did, then …
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