Understanding WRB Analysis: How To Use Important Price Signals

In the market, traders always look for possible buying and selling indications to decide entry point in the market. What they want to know is which way the market is moving, for which, they use WRB analysis, because it represents a trend within a smaller time-frame. WRB stands for wide range bar, is candlestick pattern, which indicates where the buying and selling forces are in the market. Please be mindful, that WRB candlestick doesn’t belong to the Japanese candlestick family.

WRB candlesticks are bullish and bearish, indicating different sentiments in the market. A bullish WRB will open near the low and close near the high. Conversely, a bearish WRB candle will open near its high and close near its low.  A WRB candle has an elongated body than its surrounding candles in the chart, which helps with easy spotting. So, what does it do and how WRB analysis can help you trade?

What does a WRB candlestick indicate?

Candlestick bars are a visual representation of market support and resistance. The candle body represents a day’s high and low prices, whereas the wicks/shadows indicate support and resistance levels.

Now a bullish WRB closes higher than the previous candle because the buying forces were strong, which forced the market to move in one direction.

A WRB candle is the only place in the chart where both supply and demand can be visualised and measured. The highest point of the bullish candle indicates the price where the seller pool will reside in the future. How does it help you make a trading decision?

Let’s assume you enter a buy trade when the market is moving upward. You earn a profit when the market moves up. Now suddenly, the market starts to move in the opposite direction and slips even below your entry price. At this point, buyers who entered during the bullish phase will move their stop-loss close to the breakeven level. All the traders who entered the market during bullish WRB are now looking to sell. So, a bullish WRB also tells us where potential sellers are in the future. Similarly, a bearish WRB indicates a cluster of potential buyers in the future.

WRB Analysis

Traders apply WRB candles to a wide range of charts, like volatility analysis, gap analysis, or support-resistance analysis. The reason behind, WRB analysis combines a study of changes in volatility and supply/demand in the market. WRB helps traders identify key price areas where there is a significant change in supply or demand before other indicative trade signals appear in the chart.

WRB analysis identifies changes that are happening between buyer and sellers. It provides with a map for exploiting price action between one price point to another, regardless whether you are day trader, swing trader, or position trader.

A WRB has a real wide-body (a gap between opening and closing), which is larger than its prior three intervals. It is important to compare the size of the WRB candle to identify if there is a possible change in trend. In fact, you can consider more than three intervals as well for concrete analysis of changes in volatility and demand and supply.

WRB Hidden Gap

An important concept that often associates with WRB range body analysis is WRB hidden gap. The term ‘hidden gap’ is confusing to most traders. However, it indicates the price action that takes place between the high and low of the WRB candle. These candles close the important gaps in a chart when price action takes place.  For example, if we remove a wide range candle from the price chart, the price action before the WRB and after the WRB remains unexplained. It is the candles forming before and after the WRB that helps to determine the hidden price action happened in the WRB bar.

How To Use WRB In Trading

Now let’s come to the topic of how to use WRB in trading.  A WRB candle represents price actions that have already taken place, so how it can help you form future trading decisions.

To understand the usefulness of WRB analysis, we will look at three critical patterns that form in WRB trading chart – breakout, climax, and ChCo candle (change of character candle).

Breakout

During intraday, a single bar closing near day’s high or low carries a wealth of information to help intraday traders identify where the supply and demand equation is changing in the market. A WRB candle indicates a significant price development and a sharp increase in momentum where the absence of frictional force allowed one trend to become dominant. Similarly, when a breakout or breakdown happens, it must elicit at least one significant WRB candle because the asset price is pushing beyond the line of resistance. It acts as a confirmation. If there is no major WRB formed during a breakout it possibly indicates a divergence, warns traders to be watchful of a trend reversal that often deceives the trend-following crowd.

Climax

A large WRB candle forming at the end of an established trend indicates a climax. Although a wide range body analysis isn’t a trend reversal pattern but the candle forming at the end of an ongoing trend indicates possible trend reversal or the trend developing the new trade range.

Change of Character Candles

A change of character candle forms in the opposite direction during an established trend; like a bullish candle forming in an established downtrend.

The ChCo candles mainly help with identifying swings and placing the stop loss during a trade. The gap between the last WRB candle and a reversal candle, forming below or above the last wide range bar candle, defines the swing that the asset price has experienced during the period.

Placing a stop-loss after the occurrence of a change of character candle is a trick used by some traders to confirm a trend reversal. If the next candle appears in the direction of the change of character WRB, a trend reversal is confirmed; otherwise, it is just a temporary retracement. This trick comes handy when the market doesn’t give a clear reversal indication.

Conclusion

WRB analysis is vital to include in your trading strategy. Why? Because it gives you crucial price movement indications upfront before other trade signals appear. WRB candles give you visual representation where the price action is taking place in the trading chart. However, please be mindful that WRB analysis isn’t self-sufficient and must concur with other trading charts. To identify WRB and for its meaningful interpretation, you need trading experience in the market.