It all depends on your appetite for risk i suppose…
You cand trade against the trend in H1 but not against the trend in D1 & W1. Correct?
Hi ChuckNorris
You defined a higher high as:
Higher high is when price closes higher than previous day/week (depending on which time frame you use).
So I can deduct that a lower low is:
Lower low is when the candle closes lower than previous day/week (depending on which time frame you use).
But in this chart that you posted, the lower low candlestick closed at a price higher than the previous red candlestick.
Could you tell me what I am getting wrong.
Thank you
This kind of trading setup works pretty well in conjunction with S&R. Actual S&R, not fibs or pivot points (it prolly works with those too, but I’m an S&R guy).
I use S&R heavily and see this kind of pattern a lot as price will break through a line after a good directional trend/push, then it will stall out as it touches the “next” line, or pokes through it a little, then retrace. Nick B over at forex4noobs teaches a reversal pattern similar to this but not exactly the same. He has a few extra criteria to look for.
This pattern will match up with S&R often. For example, bullish trend… small “higher high” candle forms, then the “lower high/low” candle forms… the low of these two candles will often be around the S&R line that was just recently broke. Then as price comes back down past the “lower low”, it’s usually coming back down through that S&R line, or near it.
I personally am going to give this a try, but using S&R as added “confirmation” for entries – waiting for it to cross the line, instead of entering right away, because you never know for sure how price will react to a line even if it looks like a reversal is coming. And this may actually be the cause for some “fakeouts” generated by this system.
You can also use S&R lines as TP areas.
Also as a suggestion to anyone trying this: as some have said already, be very careful trading these patterns on lower timeframes. Candlestick patterns are generally more reliable on higher timeframes. 4h is a pretty good timeframe. I’m going to experiment with this on 1h.
Thanks for the post, will report back in a while after playing with it some 
–James
Hey Chuck:
This thread is pretty inactive but just to let you know I still grab some quick pips now and then. Nothing real big, rarely over 20 p. but it works well with another strategy I’m using and doesn’t need indicators. Thanks again.
Great thread Chucknorris… keep it up!
Hello Chuck,
In the attached chart, the highlighted area shows the valid short entry as per your trade and would have become just one of those which did not materialize. right?
I mean, I am asking just to make sure I understood your approach and not to poke holes are anything.
Thanks
TradeStar - I can’t tell from you chart but the low of the 3rd candle did not break the low of the 2nd candle by much (I can’t see the prices very well). So technically it was a V setup but after fumbling with setups like this I started usong the Limit Sell/Buy. I use the Limit order to get it after a move of 5-6 pips, even more if trading a Daily TF. Yes, I miss the early pips and over a month"s time this can add up but so can the stop losses such as the chart you posted. Just my .02 cts. d
This trading method has a candlestick pattern name. It is called the “3 inside down” (for shorts) and the “3 inside up” (for longs).
You can find out more about this pattern on the following hyperlink :
I dont think that is fully accurate. According to the definition on the site, the second bar of a “3 Inside Down” must be an IB (“The second day is a red day where the body is engulfed by the body of the first”). Candles 1 and 2 form a Harami. It doesnt seem that Chuck Norris’ method has the same requirement, rather he is specifically looking for the next lower high/low (Sell trade: “Our next step is then to look for the first candle to make a lower high. Once we see a candle that makes a lower high then we know a reversal is about to occur”).
Another difference seems to be that the 3 Inside Down/Up candlestick pattern requires consecutive candles where Chuck apparently does not (“Our next step is then to look for [I]the first candle to make a lower high[/I]…”). Thus, if I am reading it correctly, a V-formation set-up might have 2 or more consecutive candles with equal highs and then a lower high. This would not be a valid 3 Inside Down pattern.
If Chuck is still around, perhaps he can correct me. And maybe give an update?
ps – Have you seen this Chuck? They talk about you for pages Forums - Chuck Norris Trading Facts
Could somebody help me grasp the “higher high” and “lower low”…
I am starting to understand a good amount of the market, but I still get stumped on this idea.
For example if I am using a 1HR Chart…and waiting for a “higher high”…what is the previous High that I am comparing the current market price to…the last 4 hours, day, week…i just dont get that part of it.
It is easy to see when i look back at the price movements, but I am not sure how to tell a higher high from a small spike.
If anyone could give a basic example as to what I would be comparing the current price to, I would appericate it.
Thank you.
If you look at the thumbnail it shows the principal.
Higher highs (higher lows) are allied to an uptrend,
lower highs (lower lows)are allied to a downtrend.
See also peaks & troughs.
Would anyone believe that an arm just reached out from my monitor and slapped me across the face…OUCH. LOL, Thank you, the light turned on and I see what the “sticks” are saying
Wow, I did this last night…produced 20 Pips (which is actually 5 less than my weekly goal)
I am courious if anyone has used this “V” system on the 15 min chart…but add Bollinger Bands. Then only open a trade if you get a signal that agrees with the Daily Trend and is very close to the top/bottom line of the BB ??
Example (Daily trend is going up. Wait to get a buy set up that forms very close to the bottom band) ??
I would love to know if anyone has tried this.
Very interesting idea, I might try it as I like the shorter TFs. What were your BB settings? And I assume you had smaller TP/SL too. Good idea. d
I use default settings on MT4, I belive they are something like 20, 0, 2 (if memory serves) I do not have access right now.
when I was playing around with the idea, i only made 1 buy order, i set my stop loss to the last “lower low” before the buy signal was made, then i subtracted 5 from it. For a T/P i just doubled the S/L in the opposite direction of course and set the MT4 Trailing stop to 15.
I only have about 2-3 hours a night to watch the market so my target goal is 25 pips/week, very obtainable, so if I hit 1 or 2 good trades I have my goal, and of course the 2:1 risk reward ratio is just common place in the market.
Are you in the US and trading the Asian session? If so then your strategy is even more impressive. Actually, regardless of where you live, trading this during the Asan is an accomplishment because of lower liquidity. Good job M. d.
I’ve been demo’in this on the daily chart. Pretty much setting it up on how ChuckNorris did. I’m debating on changing up the take profit set up however.
As it stands, I’m up 400 pips over the last two days. I’ll keep you informed whether it be for good or bad.
Wow, from scalping to daily! Hey guys, leave some for us middle TF players. d
hmmmmm…I just got a crazy idea…I think I could actually write an EA that would follow these rules…I think i just found a weekend project
Hey people:
I have been trying to trade this on Oanda’s 3H TF with little success this morning. Question: which TF, the 3H or the Daily, would be better to use to indicate trend? I maybe am not screening out retracements very well so comments please. Thanks, d.