WRB Trading Strategy

WRB (Wide Range Bar) Trading Strategy

In this write-up, I’ll dive into the WRB (Wide Range Bar) Trading Strategy with comprehensive detail. Before proceeding, I recommend reading our previous article, where we explored the Trendline Trading Strategy. WRB refers to Wide Range Bar, a key concept in trading. This article will cover the following topics in-depth:

• What is the WRB Trading Strategy?
• Criteria for identifying a Wide Range Bar (WRB).
• What Does a Wide Range Bar Indicate?
• Applications of Wide Range Bar in Trading.

Note: The terms Wide Range Bar and Trend Bar refer to the same concept, so don’t get confused. In the explanation below, I’ve used these terms interchangeably, including in the accompanying image.

What is the WRB (Wide Range Bar) Trading Strategy?

A Wide Range Bar (WRB) indicates a trend within a shorter time frame. For a bullish WRB, the candlestick opens close to its low and closes near its high, signaling upward momentum. Conversely, a bearish WRB opens close to its high and closes near its low, reflecting downward momentum.

Criteria for Identifying a WRB

A Wide Range Bar is essentially a candlestick with a body significantly larger than those of the surrounding candlesticks.

What Does Wide Range Bar (WRB) Trading Mean?

It's important to note that for every bar, an equal number of contracts are bought and sold.

• A bar closes at a higher price only when buyers are more aggressive and committed to driving the price in one direction. Conversely, for a bearish WRB, sellers dominate and push the price lower.
• Wide Range Bars hold significance because they are among the few areas on a chart where supply and demand can be both identified and measured. These bars typically form within supply and demand zones, making it easier to pinpoint these zones by observing trend candles.

Let me break this down for you.

Did you know that every single candlestick inherently represents a zone of supply and demand, or support and resistance?

Take, for instance, a bullish Wide Range Candle. It signals that there were more buyers than sellers during its formation (a concept you’re likely familiar with). However, this information reflects past market activity. The real question is, how can this knowledge guide us in making trading decisions moving forward?

Answer

A bullish candle indicates the price level where a pool of sellers might emerge in the future (as buyers exit their positions). Does that make sense?

Now, imagine you’ve entered a BUY trade, and prices start rising, giving you a profit. However, as time passes, the price begins to decline, approaching your entry point. What would you do? Most traders would hold on, hoping the price will recover and move back up.

But if the price continues to fall closer to the entry point, traders are likely to act. Many will either manually exit their positions at breakeven or rely on a stop-loss they’ve already adjusted to breakeven. This means traders who initially bought along the bullish Wide Range Candle are now selling to close their positions.

In this way, a bullish Wide Range Candle represents the price range where prior buyers are now likely to become sellers. The same principle applies in reverse for a bearish Wide Range Candle, where sellers turn into buyers.

How to Use WRB in Your Trading

WRBs can be utilized in trading in the following ways:

• Breakout
• Climax
• Change of Character (ChCo) Candle

Breakout

A trend candlestick often acts as a breakout candle, signaling the end of a sideways market or the start of a new trend. This indicates strong market momentum. In this section, I’ll provide a detailed explanation of the breakout trading strategy.

Climax Pattern

A climax pattern occurs at the end of a well-established trend. It signals the conclusion of the current move and may indicate an impending trend reversal or the transition of the trend into a trading range.

ChCo Candle (Change of Character Candle)

The Change of Character (ChCo) candle has two key uses in trading:

• Identifying Swings: It helps traders identify swings, which are the price movements between the highest and lowest points in the market.
• Stop-Loss Placement: The ChCo candle provides a reference point for strategically placing stop-loss orders to manage risk effectively.
• 
  

Identifying Swings Using the ChCo Candle

To identify a swing, start by locating the most recent Wide Range Bar (WRB). Then, look for a reversal candle that closes either above or below the range of the identified WRB. This marks a potential swing point in the market.

Placing a Stop-Loss Using the ChCo Candle

There are rare instances when prices reverse without forming a clear reversal pattern. So how can you distinguish between a temporary retracement and a genuine reversal? Here’s the key:

Start by identifying a Wide Range Candle. If a subsequent candlestick closes beyond the opening price of the Wide Range Candle, it indicates a likely reversal. If this does not occur, the movement is likely just a retracement.

Why Does This Matter?

Traders who overlook profit-taking behavior may misinterpret market moves, leading them to place trades with a low probability of success. Understanding this distinction helps avoid such traps and improves trade positioning.

If you observe carefully, the closing price of the last bullish candle didn’t surpass the opening price of the previous Wide Range bearish candle. This suggests that much of the buying activity could be coming from sellers exiting their positions. To confirm a potential reversal, we would need to see stronger buyer commitment. Let’s wait and see how the market develops.

.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 pay close attention, you’ll notice that the price did not close beyond the opening price of the Wide Range candlestick. This indicates that it was a strong retracement rather than a reversal. Here’s another example to illustrate this.

By now, you should have an understanding of how to place a stop-loss above or below the Wide Range Candle to protect yourself from unexpected reversals. Let me walk you through an example to demonstrate this.

The WRB strategy is a valuable tool for traders, but like any strategy, it’s not without its limitations. Market conditions can fluctuate, and what works in one type of market may not work in another. Ongoing learning and refining your strategies are essential for achieving long-term success in trading.

In the next article, I will cover the 5 Candlestick Patterns Every Trader Should Know. I hope you found this detailed explanation of the WRB (Wide Range Bar) Trading Strategy helpful and enjoyable.

Trendline Trading Strategy

Next Course