High or low 3 bars strategy

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3 Bar Net Line Strategy – a Joe Stowell Price Action Strategy

The 3 Bar Net Line Strategy was made famous by Joe Stowell. The 3 Bar Net Line Strategy is a price action strategy to determine the change of trend. No lagging indicators are used in this strategy. And because price action is used as the only means to determine the change of trend, this method can be used alongside existing methods such as moving averages to confirm the trend change and thus allow traders to trade in the direction of the trend.

What is the 3 Bar Net Line Strategy ?

Existing trend: Down

Aim: Determining change of trend from ‘Down’ to ‘Up’

  1. Find the lowest low in price and mark the high of this bar as #1
  2. Compare this high to the most recent higher high and label this bar as #2
  3. Using the high of #2 bar, find the most recent highest high and label this bar as #3
  4. The high of the #3 bar becomes the three bar net line. When prices close above the high of the #3, it signals a change of trend.

3 Bar Net Line Strategy – Trading UpTrends

Existing trend: Up

Aim: Determining change of trend from ‘Up’ to ‘Down’

  1. Find the highest high in price and mark the high of this bar as #1
  2. Compare the low of the bar #1 to the recent lower low and mark this as bar #2
  3. Look for the lowest low of bar #2 and label this bar as #3
  4. When prices close below the low of bar #3, it signals a change of trend from Up to down

3 Bar Net Line Strategy – Trading DownTrends

  • When new highs or lows are formed, repeat the process
  • Ignore any inside bar that are formed

The above screenshots shows how using Stowell’s 3 Bar Net Line Strategy set up, you can anticipate potential change of trend as they happen.

How to trade the 3 Bar Net Line Strategy

As you can see by now, the trading strategy can be customized in different ways. For example, when trading with divergence, you can make use of the 3 Bar Net Line Strategy to confirm the change of trend and then take positions accordingly.

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Another way to trade the three bar net line strategy is to apply moving averages. First, wait for confirmation of a change of trend from the 3 bar net line strategy and then wait for the moving averages to confirm the same and then enter a position.

The chart below illustrates both a buy and a sell signal by combining the 3 Bar Net Line Strategy and the moving averages (20/50 EMA’s).

Notice how the three bar net line first gives us a signal of a potential change of trend on a break of the three bar net line. The change of trend is then confirmed by the moving averages confirming the trend as well.

In both the entries, the set ups were really smooth leaving no subjectivity. Another important factor is that by using the three bar net line, traders can gain more confidence in trading something as simple as moving average crossover.

3 Bar Net Line Strategy – Increased Accuracy when combined with Moving Averages

3 Bar Net Line Strategy – Simple and powerful

The 3 Bar Net Line Strategy is very simple and easy to master. There isn’t much of subjectivity involved when identifying the highs and the lows in prices. It might perhaps take some practice on your part but it’s all gonna be worth it as this will become a lifelong money making skill for you and your family.

We love to hear from you. Drop us your comments below…

3 bar high or low trailing stop indicator?

I use a 3 bar high/low as an exit strategy. (If I am in a long trade, I exit when price is lower than the previous 3 bars and vice versa for short).

Do you know of any indicators, ea’s, or alerts for this? I’ve searched, but haven’t been able to find anything.

Thanks to anyone that may be able to help!

  • Post # 2
  • Quote
  • Feb 22, 2020 5:27pm Feb 22, 2020 5:27pm

I use a 3 bar high/low as an exit strategy. (If I am in a long trade, I exit when price is lower than the previous 3 bars and vice versa for short).

Do you know of any indicators, ea’s, or alerts for this? I’ve searched, but haven’t been able to find anything.

The 3 Bar Counter Trend Strategy

There are certain kinds of traders who prefer to trade with a simplistic, no frills attached trading system. For the most part, traders tend to over complicate things when it comes to trading and it is very often that we come across a trading strategy or style where the indicators tend to overwhelm the charts, to the point that the most important element in the analysis, which is price, tends to be ignored.

Then there are trading strategies, especially multi-time frame approaches that require traders to consider many different variables, all in the effort to make profits.

But what if there was a trading style that is so simple that takes just a few minutes to come to a consensus before you trade? And what if there was such a trading strategy that offers an inbuilt risk/reward system as well?

In this week’s trading strategy, I introduce you to one such method that is not only simple to trade but one that you will enjoy. But a word of caution, we don’t use any indicators and instead focus on just price.

Yes, you guessed it; this is a price action trading strategy. But don’t let that out you off and soon enough and with decent practice, you can find it comfortable to trade with this approach.

Setting up your charts

We make use of bar chart, which is simple. Just make sure that you color code the bars so you can distinguish between bullish and bearish bars. Feel free to set the color preference of your choice. Once you are done with this task, your bar chart looks like the one below (with, of course, the colors of your choice).

Bar or OHLC Chart, Color Coded

The trade management tool

For the trade management tool, we take the trusty Fibonacci retracement tool and simply re-configure the values.

To do this, select the Fibonacci retracement tool and plot it anywhere on the chart, right click on the Fibonacci tool to open the properties window. Click on the ‘Fibo Level’ tab and enter the following values.

Level Description

0 %$ – Stops
1 %$ – Entry
2 %$ – TP1
3 %$ – TP2
4 %$ – TP3

Reconfigure the Fibonacci Tool

Now that we are done, the next step is to define the trading pattern that occurs.

Trading Pattern and Trade Trigger

1. Identify the prevailing trend on your chart time frame

The trend can mean different things to different people. To remove this confusion, the trend in the context of this trading strategy is defined a series of consecutive highs or lows. Because this trading strategy is based on individual bars, look for 5 or more consecutive red or green bars.

Short term up and down trends based on individual bars

But the above set up is a text book pattern, and such occurrences (5 consecutive highs or lows) do not occur too often. Therefore do not be too strict about but at the same time look for a consistent pattern. For example, you can have just three strong bullish or bearish bars, which qualifies as well.

2. The reversal

For the reversal, we look for three bars that match the following criteria.

In a downtrend (and therefore for long positions),

  1. bar 1 must make a new low and a new lower high
  2. bar 2 must make a new low (breaking below the previous or bar 1 low), but should close bullish and at least above 50% of the previous bar
  3. bar 3 should make a higher low and a higher high above bar 1’s high
  4. Of course, it goes without saying that there should be a clear downtrend established of at least 5 bars or more

In an uptrend (and therefore short positions),

  1. bar 1 must make a new high and a new higher low
  2. bar 2 must make a new high (breaking above the previous or bar 1 high), but should close bearish and at least below 50% of the previous bar
  3. bar 3 should make a lower high and a lower low below bar 2’s low

Once the criteria is formed, use the Fibonacci tool and connect bar 3 high and bar 2 low (for long positions) or bar 3 low and bar 2 high (for short positions).

3. The trigger

For long positions, buy the breakout above bar 3 high or if you miss the move, set a pending long order at bar 3 high. Set stops to bar 2 low with TP1, TP2 and TP3 coming in as the three target levels for your trade.

For short positions, sell the breakout below bar 3 low or a pending sell order with stops at bar 2’s high with TP1, TP2, and TP3.

The chart below shows the long position, and also shows a second set up that was formed within the first one.
Long Entry based on the 3-bar reversal method

The next chart below shows a short set up formed, but here the trade progressed only to T2 before reversing. Still, we got out of the trade with no loss and with a profit of 1:1 and 1:2.

Short entry method

Final thoughts – 3 bar reversal

  • The strategy works on any time frame but limits it to H1 and higher
  • The strategy offers a good risk reward set up and doesn’t take too much of your time for analysis
  • The 3 bar reversal method is a counter trend method. But a strict stop loss ensures your trades are managed properly
  • The 3 bar reversal method doesn’t require much of analysis, and you get to trading quickly
  • With no indicators being used, this method is simple to trade

By John Benjamin, Orbex

John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

FOREX EU news, opinions, analyses, research, quotes, charts, or other information on this website is provided as general market commentary, and does not constitute investment advice. FOREX EU will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

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