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Spotlight

Dynamic Trading Bars -- Color-Coded Bars

By Robot Trader of Dynamic Trading Bars

Color-coded trading bars are a revolutionary new concept for day trading.

For many years, day traders have been looking at colored bars that are green for "up" movements and red for "down". Dynamic Trading Bars has developed a system whereby the trader now uses a sequence of six colors: red, purple, yellow, black, blue and green. This sequence of colors gives the trader more detailed information about the direction the market is going and, therefore, enables him / her to make a more informed trading decision.

The color-coding highlights work as follows:

1. Oversold (green) and overbought (red) areas
2. Divergence (when colors are out of sequence)
3. Momentum (when colors move from the top range to a lower range, in a narrow points spread)

Click image to view larger screenshot

Red

Red bars indicate overbought areas. An overbought area is where the "Bulls" and "Bears" are fighting for control of the market, and a change in direction is likely to take place. Within these areas, the bars are numbered from 1 to 4, 1 being the weakest and 4, the strongest. This indicates that the red bar with the number 4 is the most likely place for a change of direction. 

Purple, Yellow,  Black and Blue

Purple, yellow, black and blue indicate the direction of the market -- whether it is a strong “up” day, “down” day or “sideways” day. When these colors go out of the default sequence, a divergence occurs.

For example, if you have a green bar to the left with a blue or black bar to the right (which is lower in price), this is the formation of the divergence. This occurs when the market makers take out stop limits, which is usually after an up or down move. Alternatively, it applies to the other end of the scale -- a red bar to the left and a purple or yellow bar to the right (higher in price) will again indicate that a divergence is taking place.

Green

Green bars indicate oversold areas. Just as with the red area, an oversold area is also one where the Bulls and the Bears are fighting for control of the market, and a change in direction is likely to take place. Within these areas, the bars are also numbered from 1 to 4, 1 being the weakest and 4, the strongest. Thus, the green bar with the number 4 is the most likely place for a change of direction. 

Momentum

During the trading day, the color-coded system will often show, for example, a movement from red to green bars (or even green to red) taking place over a short time frame and within a narrow points spread. This usually indicates an imminent change in direction of the market.

Pivot Points

Pivot points have been around for a number of years, and most traders will agree that they play an important part in highlighting support and resistance during a trading day. Pivot points are simply calculated from yesterday’s high, low and close. The red-dotted lines are the areas above and below all major pivot points, which act as support and resistance (where the market is likely to change direction) during the trading day.

The developers of Dynamic Trading Bars have studied pivot points for the past 10 years, and it has become apparent to them that the red-dotted lines on the screen are more precise to trade from than the actual pivot lines themselves.

Having all of the above-described information on one screen eliminates the need to look at multiple studies.

What's the Benefit to the Day Trader?

The Dynamic Trading Bars Color Coding System is an invaluable tool that will give day traders a more complete and transparent picture of what is taking place in the trading market. In other words, they can see what is going on "behind the curtain"!