Investors and traders must have a rule book -- or what is better known as a Trading Plan.

There are rules for patterns, multiple times frames, trade and money management, and more. 

Here is one rule that will save you a bundle.

My 3-Bar Rule is used with every tradable price pattern after entry.

The setup assumes a "quality pattern."  Quality meaning that every price pattern considered has been analyzed using multiple technical concepts taught in the Master Trader Technical Strategies Course or Swing Trading Course.

Those include Candlestick Analysis, Multiple Time Frame Analysis, Trend Analysis, Support and Resistance Analysis, Relative Strength or Weakness, Retracement Analysis, Tradable Void, and Volume analysis -- plus Position and Money Management and trade analysis after the trade. 

So with all that analysis, wouldn’t you think that every trade works?

I wish that I could tell you that was the case, but I cannot. While every entry has a pre-defined stop-loss before the entry is taken, reasons can and do develop at times to suggest exiting before the stop is hit.

So I came up with the 3-Bar Rule.

Not every Master Trader setup is going to work 100% of the time, but it can be hard to accept after checking that everything is in alignment.

3-bar rule

Human nature (emotions) gets in the way, so I came up with my 3-Bar Rule to keep that in check.

Even with the multiple technical concepts mentioned being aligned, something might have been overlooked or market conditions changed. Be open to other possible outcomes.

I also know that those who focus on just candlestick patterns alone are going to get caught on the wrong side.

Master Trader Tip: The use of candlesticks analysis without the consideration of trend analysis, multiple time frame analysis as well as price support and resistance, the odds are high that uneducated individuals will lose their money.

These reasons setup Failed Patterns in two ways using the 3-Bar Rule:

  • Knowing when you are wrong to cut losses.
  • Knowing when others are wrong to profit.

The Master Trader 3-Bar Rule gives you a “time-check” in the time-frame being traded. It says that after three completed bars after entry, do a re-analysis of the setup.


THE SETUP, THE TRIGGER, AND 3-BARS

Here are some possibilities:

Question if the setup is working as it should be based on the historical normal price action of the setup.

After doing this, you may consider that all is fine based on Bar-by-Bar Analysis, so hold.

You may consider that the price action is questionable because there are many overlapping bars and tails, so decide to reduce the position size.

Or it’s just not right based on a Breakout Bar Failure (BBF) or other price action, so close the position.

THE SETUP, THE TRIGGER, AND FAILURE

The price action will not be the same every time after entry, but it should not be making you rationalize why you are in the trade. You know the feeling.

Always have at least two scenarios when entering trades, no matter how bullish or bearish that setup may be.

The 3-Bar Rule will keep you open to other possibilities.

Remember, anything can and will happen at times.


Learn and Profit with MASTER TRADER Technical Strategies MTS and/or Swing Trading Course.


Master Trader and You Building Your Financial Future Together!

All the best,

Greg Capra
Managing Director of Master Trader

Follow Greg on Twitter and YouTube

Twitter: @GregCapra
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