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X-Rated IBs & OBs

  • #1
  • First Post: Edited Dec 11, 2007 11:11am Dec 10, 2007 9:21am | Edited Dec 11, 2007 11:11am
Hi everyone!!

I am going to introduce you all to a very handy IB/OB strategy. All you need is a naked chart with only one indicator (Average Directional Movement Index, ADX).

What are IBs and OBs??
-IB or Inside Bar, is a bar which is completely within the range of the preceding bar, i.e. it has a higher low and lower high than the bar immediately before it or when it is has a lower high and an equal low and vice-versa.
-OB or Outside Bar, is a bar which has a higher high and a lower low than the bar immediately before it. A bar with a higher high and an equal low is also acceptable, and vice-versa. (For example, see post #40)

--------------------------------------------------------------------------------------------------
System Explained

Time frame: 1 hour
S/L: 30 pips (including Spread)
T/P: 40 pips + Spread
Currency Pair: GBP/USD (you can try other pairs, but I only work with this)
Ideal time for trades: 6:00am - 5:00pm GMT
ADX Indicator settings: Default for MT4 users.
ADX line - Yellow
+DI - Green Dotted -DI - Red Dotted


Provided an IB/OB has formed, to go:

Long
Wait till the next candle (confirmation candle) has fully formed and is a bull candle. Then, a good entry point would be when the 1st or 2nd candle following the confirmation candle moves 5 pips higher. Also, at this entry point ONE of the following criteria should be met:

  1. ADX line (Yellow line) above 40.
  2. +DI line (Green dotted) crosses above -DI line (Red dotted) & ADX line (Yellow line) curving upwards at entry.

Short
Wait till the next candle (confirmation candle) has fully formed and is a bear candle. Then, a good entry point would be when the 1st or 2nd candle following the confirmation candle moves 5 pips lower. Also, at this entry point ONE of the following criteria should be met:

  1. ADX line (Yellow line) above 40.
  2. -DI line (Red dotted) crosses above +DI line (Green dotted) & ADX line (Yellow line) curving upwards at entry.


EXCEPTION RULE (LONG): Only time you can enter the market without the confirmation candle is when an IB/OB has formed and during the formation of the confirmation candle, the ADX line is above 20. And +DI crosses above -DI. Look to enter 10 pips above the high of the IB/OB.

EXCEPTION RULE (SHORT): Only time you can enter the market without the confirmation candle is when an IB/OB has formed and during the formation of the confirmation candle, the ADX line is above 20. And -DI crosses above +DI. Look to enter 10 pips below the low of the IB/OB.

--------------------------------------------------------------------------------------------------

Pheww!! I know that was long, but once you read it a few times, it is not so difficult to follow.

Okay. Time for some examples of this system in action. I know my drawings aren't the best. :


This was a trade I made today:
http://img217.imageshack.us/img217/2...een1mn0.th.jpg


This was a trade I made on Friday:
http://img217.imageshack.us/img217/3...een2yn7.th.jpg



That about sums up this post. I am always looking to improve the system, so please feel free to give me your views on this system.

Thanks and I look forward to the replies!!

  • #2
  • Dec 10, 2007 9:27am Dec 10, 2007 9:27am
Nice. I will try it later.

Btw theres similar IB system by James on babypips.com but your adx indi looks good compare to slow stoch.
  • #3
  • Dec 10, 2007 9:39am Dec 10, 2007 9:39am
Quoting Balflear
Nice. I will try it later.

Btw theres similar IB system by James on babypips.com but your adx indi looks good compare to slow stoch.
Yeah that looks good too. But I am not a huge fan of Stochs.
  • #4
  • Dec 10, 2007 9:44am Dec 10, 2007 9:44am
Quoting mazdaz
Yeah that looks good too. But I am not a huge fan of Stochs.
for the adx yellow line, for Long and short, both of them the yellow line must be above 40? or long above 40, short below 40? For the curve also both must point upwards?

For today trade on cable , if using IB with stoch, I'll go short but the pending order didnt hit, lucky me. This because stoch already showing overbought. Compare with adx, you already get a long signal.
  • #5
  • Dec 10, 2007 9:46am Dec 10, 2007 9:46am
Quoting Balflear
for the adx yellow line, for Long and short, both of them the yellow line must be above 40? or long above 40, short below 40? For the curve also both must point upwards?
Yes. Same for both since ADX line indicates how strong the trend is, and not the direction of the trend. To know the direction of the trend, look at the +DI and -DI lines. If +DI is above -DI, then it is an uptrend, and vice versa.
  • #6
  • Dec 10, 2007 9:59am Dec 10, 2007 9:59am
Trade made on 26/11/07

This is to show how you can enter the market without +DI/-DI cross and just based on ADX line provided all the other criteria are met.

http://img526.imageshack.us/img526/2...een3ik1.th.jpg
  • #7
  • Dec 10, 2007 10:51am Dec 10, 2007 10:51am
Okay more examples.

Trade made last Thursday!
http://img137.imageshack.us/img137/7...een4qg0.th.jpg

Trade made last Wednesday!
http://img524.imageshack.us/img524/5...een5ei0.th.jpg
  • #8
  • Edited 11:28am Dec 10, 2007 11:13am | Edited 11:28am
Hello and thanks for sharing

The question I would like to ask what is your trading time? Because I can see many times IB's are forming during Asian session when the market is not so active for this pair..As for your charts it's seems like trades are taken place somewhere between 4-6 a.m. , but maybe I'm blind a little so what is your tme zone or do you trade at night?

Thanks!

Take care,
TheThing

Edit: Sorry, missed your trading zone at post #1..
  • #9
  • Dec 10, 2007 11:17am Dec 10, 2007 11:17am
Just wondering, can you show a trade that lost?

andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
  • #10
  • Dec 10, 2007 11:22am Dec 10, 2007 11:22am
Here is an indicator I found that marks inside bars and makes them much easier to detect.

I wasn't able to find one for outside bars, but I'll keep looking.
I'm sure there is one out there.
Attached File(s)
File Type: ex4 InsideBars.ex4   3 KB | 735 downloads
  • #11
  • Dec 10, 2007 11:34am Dec 10, 2007 11:34am
Quoting TheThing
Hello and thanks for sharing

The question I would like to ask what is your trading time? Because I can see many times IB's are forming during Asian session when the market is not so active for this pair..As for your charts it's seems like trades are taken place somewhere between 4-6 a.m. , but maybe I'm blind a little so what is your tme zone or do you trade at night?

Thanks!

Take care,
TheThing

Edit: Sorry, missed your trading zone at post #1..

You are right. Most of my trade entries are just before the Open of London session or soon after the open. Once I place the trade, I go back to bed.
Like you said, IBs and OBs don't form very often during high volatility, that is why I start looking for IB/OB 2 hours before the start of the London session. The earliest I have entered the market is at 7:00am.
  • #12
  • Dec 10, 2007 12:00pm Dec 10, 2007 12:00pm
Here is an example of how you can wait for the second candle if the first one following the confirmation candle fails.

http://img145.imageshack.us/img145/7...een6en8.th.jpg
  • #13
  • Dec 10, 2007 12:04pm Dec 10, 2007 12:04pm
Quoting andersenws
Just wondering, can you show a trade that lost?

andersenws
Sure. Every trading system has a loser.

http://img441.imageshack.us/img441/5...een7yd9.th.jpg

I learnt from that trade that the IB/OB must be the same colour as the confirmation candle (ie: bull in this case).
  • #14
  • Dec 10, 2007 12:09pm Dec 10, 2007 12:09pm
You only get one or two signals (at max) per day. But since you are trading in a longer timeframe, it would be hard to miss, especially those trading the London session. If not, you could try this with other pairs and let me know how it goes.

This system has a high WIN/LOSS ratio. That is why the TP/SL ratio isn't that high.
  • #15
  • Dec 10, 2007 12:12pm Dec 10, 2007 12:12pm
Mazdaz,

currently I'm forward testing a somewhat similar system, where I position myself into an increasing trend using ADX after an inside bar, much like you do.
What I do diffently is not to wait for a number of confirmation candles after the inside bar. Instead I look at the market direction (EMA60 on current TF and one TF up) and place a buy or sell order one pip above or below the high or low of the outside bar.
SL is the high or low of the outside bar plus or minus spread.
TP is not a fixed value, instead I trail the position, until a new inside bar (or a range of inside bars) breaks its new outside bar against my position.

Good luck with your system, I'll be following this thread with interest.

Ohka
  • #16
  • Dec 10, 2007 12:16pm Dec 10, 2007 12:16pm
I applied this trading system on GBP/USD, based on the shape and curve of the -d1 and +d1, I don't think it is a good entry. In addition, the ADX is below 40. When I tried this on EUR/CHF, it meet the criteria for an entry. I will check on it in the next five or six hours.
  • #17
  • Dec 10, 2007 12:16pm Dec 10, 2007 12:16pm
Quoting Ohka
Mazdaz,

currently I'm forward testing a somewhat similar system, where I position myself into an increasing trend using ADX after an inside bar, much like you do.
What I do diffently is not to wait for a number of confirmation candles after the inside bar. Instead I look at the market direction (EMA60 on current TF and one TF up) and place a buy or sell order one pip above or below the high or low of the outside bar.
SL is the high or low of the outside bar plus or minus spread.
TP is not a fixed value, instead I trail the position, until a new inside bar (or a range of inside bars) breaks its new outside bar against my position.

Good luck with your system, I'll be following this thread with interest.

Ohka
I also want to trail my stops as the price goes a long way with the same trend, more often than not. However, my broker (Oanda) don't do Trailing Stops.
  • #18
  • Dec 10, 2007 12:17pm Dec 10, 2007 12:17pm
Quoting anopueme
I applied this trading system on GBP/USD, based on the shape and curve of the -d1 and +d1, I don't think it is a good entry. In addition, the ADX is below 40. When I tried this on EUR/CHF, it meet the criteria for an entry. I will check on it in the next five or six hours.
About the GBP/USD

Actually, 17:00GMT candle is an OB. The confirmation candle is a Bear candle. So if the current bar goes 5 pips below the low of the confirmation candle, then it is a valid signal. Remember, you only have to meet one of the two criteria. And on this case, ADX line above 40.

But I don't trade this session, so I will stay out of this.
  • #19
  • Dec 10, 2007 12:57pm Dec 10, 2007 12:57pm
Define a confirmation bar.
Thanks
  • #20
  • Dec 10, 2007 1:16pm Dec 10, 2007 1:16pm
Quoting mazdaz
I also want to trail my stops as the price goes a long way with the same trend, more often than not. However, my broker (Oanda) don't do Trailing Stops.
for order execution I'm with the same broker, so currently I'm on manual... But they have an API and order volume would be large enough to not have to pay those API fees. The current plan is to continue forward testing and - if I want to take it any further - to develop an application for it.

Ohka
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