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I get it when a buy signal bar open below prior bar close, there are trapped bear traders fuelling the BO. And since most bars open at prior close, does it means that if a signal bar open above prior close(which suggest buying pressure), it actually lowers the probability of a successful BO? Does this applies in tight/broad bull channel, middle and even the top of a TR?
hello,
A bar opening above prior bar's close by default suggests buying pressure and urgency because it implies that the bulls hit the ask immediately on prior bar's close, but... whether it's true buying pressure or more likely to be a fakeout depends on context:
In Tight Bull Channels there is strong buying pressure already. A buy signal bar opening above the prior close typically continues the trend. The probability of a successful breakout remains high because the momentum is strong.
In a Broad Bull Channel the market has more two-sided trading. A buy signal bar opening above the prior close might still indicate strength, but the breakout might not be as reliable. Traders might look for additional confirmation before committing to the trade, slightly lowering the probability of an immediate successful breakout.
In the Middle of a Trading Range the market is in equilibrium. A buy signal bar opening above the prior close might not significantly impact the probability of a successful breakout. The market often needs more substantial catalysts to break out from the middle of a range, so the probability remains relatively balanced.
At the Top of a Trading Range a buy signal bar opening above the prior close can sometimes signal an exhaustion move. Traders might interpret this as a potential false breakout, especially if the move lacks follow-through. Therefore, the probability of a successful breakout decreases, as the market may be more prone to a pullback or reversal instead.
Hope this helps,
CH
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I wonder the usefulness of such things, because as I see it... on a 5 minute chart, you need more than bulls buying at the ask in order for the next bar to open a tick higher — you need to have perfectly timed finishing off all buyers at a given price at the end of the bar, and then the first order after the new bar starts happen to be a buy order. The other alternative is that all remaining bears at the close price decided in unison, at the perfect time, to withdraw their orders.
Perhaps one institution decided to put in a large buy limit order at the ask to ensure that all sell orders got filled at that tick right at the last second (or less) of the 5 minute bar. And then the fastest computer connection got a buy in for the first trade of the new bar. But do we know that is what is really happening?
Is some form of buying pressure I guess... but we already see the buying pressure due to price moving up... thus, the perfect timing required to get a gap up on the open of the bar I'd guess is more about luck than something intentional... though I would also have to say that the chance of that happening is greater when there is buying pressure.
Point is, with so many market participants buying/selling at the same time, I wouldn't put too much weight on a minor detail like that. Probably best to ignore such things on an intraday chart for a liquid market and just focus on other indications of strength and on context. Of course, if you have extensive data/experience to support basing actions on such indications, then by all means, go for it.
Doesn't that make a signal bar opening above prior close higher probability with good context(pic example/ maybe in bottom of a TR), and why does Al specifically exclude it?
Thanks My Dear Carpet for CLARITY.
