Decoding Rail Road Tracks and Ties in the Oil Trading Room

This article is based on observations and contributions by Robert in the room and the article is constructed from email conversations with him. Thanks Robert!

My study looked at all B-OTR Charts 2015 YTD posted in the Blog and only the Time Periods encompassing daily segments A, B, C, and D.  I ignored the Price Trend line in the study, and only focused on the pattern within the context of the Bloodhound color background.

I was able to find 43 samples total including 29 Railroad Tracks and 14 Railroad Ties.

For the Railroad Track Pattern:

1) After pattern formation completes, at least one more continuation bar in the direction of the trade occurs 97% of the time before a reversal bar prints.

2) From a cautionary standpoint, 34% of the time only 1 additional bar prints before the next reversal bar.  This may suggest an early entry would be helpful if the trade is properly managed with 2 contracts (T1, move to breakeven, and then runner to T2).

3) More than 1 bar (at least 2 or more bars) print in the direction of the trade before the next reversal bar at 62% of the time.  These are comfortable trades that will not lose money if they are properly managed with 2 contracts (T1, move to breakeven, and then runner to T2).

For the "dreaded" Railroad Ties Pattern:

1) The pattern appears 86% of the time when the first track and second tracks occur immediately after a BH color change.  The third track to complete the Ties is the third bar after the BH color change.

2) Only 14% of the time does the Ties pattern occur later after a BH color change.   It suggests that a Railroad Track Pattern is only 14% likely to turn into a Railroad Ties Pattern once the Track Pattern is seen after at least 1 or 2 bars after a BH color change.

3)  If you tightly manage your trade plan as in (2) above with 2 contracts, the Railroad Ties pattern is not a favorable event and should be avoided.  Its obviously also a sign of price consolidation not trend continuation which most of us are seeking as trend traders.

B-OTRChart20150107

 

You can also view the chart here: http://oiltradingroom.com/charts/B-OTRChart20150107.jpg 

Here are more detailed observations on the above chart:

  1. First I can identify in the chart below the following Railroad TRACK patterns that at least follow through for one additional bar in the direction of the trade.   These occur at approximately 7:05am, 7:19am and 7:31am.  Notice that the BH color background change occurred at least 3 bars back before the Railroad TRACK pattern begins.   These examples seem to suggest that the best trade trend continuation occurs in these cases consistent with other Railroad TRACK blog articles in the room.
  2. Second, let's look at the Railroad TIE that formed at 7:48am.  This is a good example of where 86% of all Railroad TIES occurred in my observation.   Notice how the formation begins immediately on a color change.  Another good example exists at 8:47am.  At 9:10am, another massive Railroad TIE consolidation occurs only 2 bars from the background color change.  At 9:59am, another Railroad TIE results in a minor retracement but this time after 3 bars into the color change.   This last one is in the 14% category of risk that a Railroad TRACK will turn into a Railroad TIE as 86% of the Railroad TIES form immediately at the point of background color change.
  3. Now in my opinion, the Railroad TIES seem to simply mark a point of consolidation within the context of a larger trend.  Each Railroad TIE in this chart retraced no more than 5-10 ticks beyond the pattern before continuing with the dominant trend.  So a Railroad TIE may not be a concern if you trade with larger stops.  But my trade plans tend to be very tight so I probably would not hang around during that retracement after the Railroad TIE formation.  With my luck most retracements turn into full blown reversals.
  4. So as one final example at 7:32am, according to the observations, this Railroad TRACK occurs immediately on the background color change where 86% of Railroad TIES form.   In this case, no TIE forms and it continues as a decent trend trade if you scalped out at T1.  But on percentages, its probably a trade to pass on particularly when absent of a strong existing trend.

 

 

One thought on “Decoding Rail Road Tracks and Ties in the Oil Trading Room”

  1. Good study. Just to clarify, your study of RRTs only included those instances where the first opposing reversal bar was inside an opposing background (background did not change but opposing candle did print). If both the candle and the background changed, it was not part of your study? It is my opinion that as of late, we have had fewer “good” RRT to trade. This might be because of the contract rollover?? I personally avoid RRTies unless there are overwhelming other reasons and don’t take RRT where the background has changed along with the first reversal bar. However, we will get back to the good old days soon where the good setups are more prevalent. Thanks for the research.

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