WRB (Wide Range Bar) Trading Strategy in Detail
In this article, I will discuss the WRB (Wide Range Bar) Trading Strategy in detail. Please read our previous article, where we discussed the Trendline Trading Strategy. The WRB stands for Wide Range Bar. As part of this article, we will discuss the following pointers in detail.
- What is the WRB Trading Strategy?
- Criteria for finding a Wide Range Bar (WRB).
- What Does a Wide Range Bar Mean
- Uses of Wide Range Bar in Trading
Note: Don’t confuse this with a Wide Range Bar or Trend Bar. Both are the same. In the following paragraph and image, I used both the Wide Range Bar and Trend Bar.
What is the WRB (Wide Range Bar) Trading Strategy?
A Wide Range Bar represents a trend within a smaller time frame. A bull Wide Range Bar opens near its low and closes near its high. A bear wide range bar opens near its high and closes near its low.
Criteria for WRB Trading
It’s basically a candlestick that has a longer body than the surrounding candlesticks.
What Does a Wide Range Bar (WRB) Trading Mean?
Remember that in every bar, the same number of contracts are sold and bought.
- The only reason for a bar to end up with a higher price is that the buyers were committed to one direction and more aggressive than the sellers. The reverse is true for a bear WRB.
- The importance of Wide Range candles is that they are one of the few places on a chart where supply and demand can be both identified and measured, i.e., Wide Range bars occur from the supply and demand zone. I mean, you can easily identify supply and demand zones by observing trend candle
Let me explain to you.
Did you know that a single candlestick (on its own) is, by its nature, an area of supply/demand (support/resistance)?
Let’s take the example of a bull Wide Range Candle: A bullish candle tells us there is a larger volume of buyers than sellers (nothing new here). But this information is based on something that had already happened. How does this help us make trading decisions in the future?
A bull candle tells us at what price there is a pool of sellers in the future (long exit). Does this make sense?
Let’s imagine you’ve just entered a BUY trade, and prices start moving up. Your trade is making money. Soon, however, you notice that prices are starting to move back down close to your trade entry point. What would you do? You’ll hang on to the trade. And wait for it to move back up again. But what happens next when prices continue to move down and down even closer to your entry point?
They will think of getting out of the trade at breakeven, or most traders would have already moved their stop loss to breakeven, or if not, they will manually get out of their BUY trades as soon as the market moves towards the breakeven price.
And so, all the traders who entered a BUY trade along this Wide Range bull candle are now looking to SELL to close the trade. A wide range of bull candles thus represents the range of prices where the previous buyers are now looking to sell to close their previous (buy) trade. Reverse for Wide Range Bar Candle.
How to Use WRB in your Trading?
- ChCo candle (change of character candle )
A trend candlestick occurs as a breakout candle in a sideways market, or as the beginning of a new trend. It represents strength. Here, I will explain in-depth the breakout trading strategy.
Whenever it occurs at the end of an established trend, it is a sign of climax. It represents the end of the move, possible trend change in the near future, or trend becomes a trading range.
ChCo candle (CHANGE OF CHARACTER CANDLE)
Use of ChCo candle
- For identifying swing (The distance between the highest and lowest points is a swing)
- For placement of stop loss
Identifying swing using ChCo candle
Identify the last Wide Range Bar. Look for a reversal bar that closes below/above the last Wide Range Bar.
For placing stop-loss using CHCO Candle
In a very rare situation, where prices will reverse without forming a clear reversal pattern. Then, how do we know whether a counter-trend move will be a temporary retracement or reversal? Here’s the trick.
You’ll first have to identify what I call a wide range of candlesticks. When a candlestick closes past the opening price of the Wide Range Candle, a reversal is likely to happen. If not, it’s just a retracement.
When traders don’t consider profit-taking behavior, they’ll often be tricked into placing low winning-probability trades. Here’s what I mean:
If you noticed, the close price of the last bull candle did not go above the open price of the last Wide Range bear candle. This means it’s entirely possible for most of the buying activity to be coming from the sellers who are exiting their positions. We’ll need to see more commitment from the buyers before we can say that prices will likely reverse. Let’s see what happens next.
.Here’s an example:
The market increased with a strong Wide Range Candle and then dropped again. This looks like a reversal… but is it really? Let’s see what happened next:
If you look closely, prices did not close past the opening price of the Wide Range candlestick. So, it was a strong retracement. Here is another example.
As you already got the idea for placing a stop loss below or above the wide-range candle to avoid unexpected reversal. Let me show you an example.
WRB Trading Strategy Summary:
The WRB (Wide Range Bar or Wide Range Body) trading strategy involves identifying and taking advantage of price bars/candles with a wider range than the preceding bars. This concept is used in various forms within the trading community, often in combination with other technical analysis tools. The wide range bars are considered significant because they may indicate a strong influx of buying or selling pressure, potentially signaling the start of a trend or a meaningful trend continuation.
Here’s a basic structure of how a trader might use WRBs in their trading strategy:
- Bar Size: Determine what constitutes a “wide range” by comparing the bar’s range (the difference between the high and low for the period) to the average range of the preceding bars. The common practice is to look for bars significantly larger than the average—often at least 150% of the average range of the previous bars.
- Volume: Confirm the significance of the WRB by looking for higher volume. This can provide additional evidence that the wider range has attracted much attention and could potentially lead to a stronger move.
- Context: Assess the context in which the WRB occurs. Is it at a key support/resistance level, following a consolidation pattern, or does it break a significant trend line? The context can provide clues about the potential significance of the WRB.
- Follow-Up Action: Look for follow-up price action after a WRB. A second wide range bar in the same direction could confirm a strong move, while a narrow range bar could signal consolidation before the next move.
- Breakout: Enter a trade if the price breaks beyond the WRB in the direction of the perceived trend.
- Pullback: Some traders wait for a pullback into the WRB’s range and enter when the price resumes the move toward the breakout.
- Place a stop loss either just beyond the opposite end of the WRB (for a tighter stop) or beyond a buffer zone that you consider safe, considering the volatility.
- Set take profit levels at significant prior levels of support or resistance or use a trailing stop loss to capitalize on potential trends.
- You could exit based on the appearance of a WRB in the opposite direction, signaling a potential reversal or other signs of trend exhaustion.
Risk Management in WRB Trading Strategy:
- Position Size: Calculate the size based on the distance to your stop loss and the risk you will take on each trade.
- Risk-Reward Ratio: Aim for a risk-reward ratio that makes sense for your strategy and win rate, such as 1:2 or 1:3.
- Daily Limits: Have a clear limit on daily losses to avoid emotional trading decisions.
- Backtesting: Before using a WRB strategy live, backtest it to see how it performs historically on the instruments you plan to trade.
- Adaptation: Be willing to adapt the strategy based on market conditions, as the significance of WRBs can vary across different markets and timeframes.
- Confirmation: Consider using additional indicators for confirmation, such as trend lines, moving averages, or momentum oscillators.
- Economic Releases: Be aware of times when economic releases or news events could artificially inflate the range of bars, which may not fit the typical pattern of interest.
The WRB strategy is another tool in a trader’s arsenal, and, like all strategies, it’s not foolproof. Market conditions can change, and what works in one market environment may not work in another. Continuous learning and strategy refinement are key to long-term success in trading.
In the next article, I will discuss the VWAP Trading Strategy in Detail. Here, in this article, I try to explain the WRB (Wide Range Bar) Trading Strategy in detail. I hope you enjoy this WRB (Wide Range Bar) Trading Strategy article. Please join my Telegram Channel and YouTube Channel as well as my Facebook Group to learn more and clear your doubts.
About the Author: Pranaya Rout
Pranaya Rout has published more than 3,000 articles in his 11-year career. Pranaya Rout has very good experience with Microsoft Technologies, Including C#, VB, ASP.NET MVC, ASP.NET Web API, EF, EF Core, ADO.NET, LINQ, SQL Server, MYSQL, Oracle, ASP.NET Core, Cloud Computing, Microservices, Design Patterns and still learning new technologies.