Eugene Auto Trader employs the concepts of consecutive inside bars to identify high probability entries. An inside bar is a candle whose range lies within the previous candle. The high of the inside candle lies below the high of its previous candle, and the low of the inside candle lies above the low of its previous candle.
In the first step, we identify an inside candle. If the candle is bearish it is termed as black inside the candle, and if it is bullish it is termed as a white inside candle. If the candle preceding the white inside candle is a bullish candle we have a ‘white bird’ trade setup. Likewise, if the candle preceding the black inside candle is a bearish candle we have a ‘blackbird’ trade setup.
Once either a ‘whitebird’ or ‘blackbird’ setup has been identified, we calculate the buy and sell trigger levels respectively. For the ‘whitebird’ setup, the buy level is calculated by subtracting 1/3rd of the open-close range from its close. For the ‘blackbird’ setup, the buy level is calculated by subtracting 1/3rd of the close-low range from its close.
White Bird Buy Level = Close – (Close – Open) / 3
Black Bird Buy Level = Close – (Close – Low) / 3
Similarly, we calculate the sell levels. The ‘whitebird’ sell level is calculated by adding 1/3rd of the high-close rate to its close. For the ‘blackbird’ sell level, 1/3rd of the open-close range is added to its close.
White Bird Sell Level = Close + (High – Close) / 3
Black Bird Sell Level = Close + (Open –Close) / 3
The Auto Trader then tracks whether the buy or sell level is triggered on a tick-by-tick basis. Once either the buy or sell level is triggered, the Auto Trader places a market order in that direction and then actively tracks that order for profit target and stop-loss. There can be only one open position at a given time. Consecutive inside bars exhibit a high probability of narrowing the trading range and then bouncing in the opposite direction. After bullish inside bar (whitebird), we typically see a bearish candle and then the price bounces off in the upward direction. Likewise, after a bearish inside bar (blackbird) is formed, we tend to see a bullish candle, followed by a downward fall.
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