Before I highlight the pros of this method, let us have a look at 3Bar High/Low technique from the RBI Monetary policy announcement day.
Prior to 5th April, the position as per 3Day High/Low method was Long with SL placed at 16021. On 5th April, we saw wild fluctuations (as expected) and 3D Low of 16021 got breached immediately around 11 AM. So the position reverses to Short or if there was no position taken by a trader, Shorts should be initiated at this moment with SL now placed at 3D High of 16283.
So as a trader following this method the risk was around 260 pts. The profitability now is all that market gives. We as a trader must hold our position unless 3D High is not breached or chose to book reasonable profit if it is in offing. Choice is completely of a trader.
The low made on 5th April was 15660 and closed at 15695. Profit position of 300+ pts immediately on the same day of taking a trade. Sounds good. What does a trader do here? Does he book what ever he is gaining & to take a fresh look next day? Or should he hold still risking a SL loss of 250+ pts.? Nobody knows an answer to this. It purely depends on what kind of trader you are, and how eager you are to book your profit and take home your easy money.
If we continue to hold the position, then on 6th April, the SL @ 3D High is now at 16279, but market went down up to 15579 and closed at 15637. Our position is still in provide of 350+ pts.
Then on 7th April i.e. today our SL @ 3D High is still placed at 16279. Market made a low of 15458 and closed at 15531. Our position is still in profit of 475+ pts. Tomorrow on 8th April, our SL @ 3D High will come down to 16147. So now our risk in position is reduced to less than 130 pts (half of what it was when we took the position), and profit available is 475+ pts. Risk-Reward of 1:3
Now coming the the subject of this post, why is this technique good for a novice trader. As a first, not every trader is an expert in technical analysis or EW or NeoWave theory etc. Mostly a trader is a common man, attracted to the stock market for the simple reason of making easy money. And why not. There is plenty of easy money to be made here. But life becomes hard when one starts trading with lots of tools to find a holy grail. And experts as they say, there is no holy grail. The reason that a common man makes losses in stock market, is because he is often trading in the wrong direction then market. As a simple basic rule to stock market trading, always remember – If low is broken, trend is DOWN. If high is broken, trend is UP. Using this most basic rule of trading, learn to trade in the direction of market.
Yes, there are losses to be made on occasions when your SL is breached by a swift movement in opposite direction. But then SL is there to protect our trade. And what better way to place it a point which indicates a change in market direction. Hence 3Bar H/L method is easy way of making easy money. Either you do it in single lot and book your reasonable profit. Or you do multiple lots and keep booking partial profits at every interval and switch your position only when SL is breached.
Try to paper trade this for 15 days, or back test this on past month or two. You will know how simple it is to trade. Better part of this method, it can be used to trade on 30 Mins & 1 Hr time frames too. Use it to your advantage, make some money and TRADE EASY.
Wishing you all good luck in trading.