DEV Community

Victorjia
Victorjia

Posted on

Trading Q&A Series: 01 Bull Trend Legs Within a Trading Range

#priceaction #trading #albrooks #technicalanalysis

Trading Q&A Series: 01 Bull Trend Legs Within a Trading Range

The trading manual series is basically complete, covering overall general concepts. For beginners, mastering the trading manual content is enough to start trading. But if you want to continue improving your trading skills, enhance profitability, and conduct deeper research, you need to study specific issues continuously.

For example, how to understand Always In Long: Price Action Trading System Manual (1)

If you have trading questions, you can leave me a message. I will select some good questions each week and write them up as special topics. I will try to explain as clearly as possible, rather than leaving things for you to figure out on your own.

If you have a better explanation for any question, even just one sentence, feel free to leave a comment.

Let's find the best explanation together.

How to determine whether it is a bull trend or a bull trend leg within a trading range?

This is one of the most critical judgments in trading. Incorrect judgment leads to:

Chasing rallies in a trading range and getting trapped at the top
Enter fullscreen mode Exit fullscreen mode

A true bull trend:

The market is in a state of imbalance
Enter fullscreen mode Exit fullscreen mode

A bull leg within a trading range:

The market is in a state of balance
Enter fullscreen mode Exit fullscreen mode

Criteria System

Criterion 1: Gap Analysis (The Most Important Indicator)

In a true bull trend, gaps remain unfilled

Breakaway Gap: A gap left when breaking through a key resistance level that remains open
Enter fullscreen mode Exit fullscreen mode

Verification method: Pullbacks should not drop below the low of the breakout bar; gaps typically produce strong bounces (support confirmation).

Step 1: Mark all breakout points
Enter fullscreen mode Exit fullscreen mode

In a bull leg within a trading range, gaps are quickly filled. If you see a pullback that completely fills the breakout gap, this is a clear sign of a trading range.

Gaps left by rallies are filled within 1-3 bars
Enter fullscreen mode Exit fullscreen mode

Criterion 2: High/Low Structure (Dow Theory). Al Brooks refined Dow Theory by distinguishing between "major" and "minor" highs and lows.

In a true bull trend, Major Higher Lows are defined as:

A clear low appears
Enter fullscreen mode Exit fullscreen mode

Once price drops below the most recent major higher low, the bull trend is over.

In a bull leg within a trading range, Minor Higher Lows have these characteristics:

Although there are higher lows
Enter fullscreen mode Exit fullscreen mode

Criterion 3: Follow-Through

In a true bull trend, strong follow-through:

After the breakout bar (large bull bar)
Enter fullscreen mode Exit fullscreen mode

Of the 3 bars following the breakout bar: at least 2 are bull bars, at least 1 makes a new high, and there are no prominent upper shadows.

If traders are willing to buy at market price at the close of a strong bull bar (believing it will go higher), this is a strong trend signal.

In a bull leg within a trading range, weak follow-through:

After the breakout bar (large bull bar)
Enter fullscreen mode Exit fullscreen mode

If you see: large bull bar → doji → bear bar, this is a typical "Disappointment" signal, meaning the breakout has failed.

Bad Follow-through: If the first bar after the breakout is a bear bar or doji, there is an 80% probability this is a false breakout.

Criterion 4: Bar Structure Analysis

In a true bull trend, strong trend bars dominate:

Large bodies (body accounts for 70%+ of the bar)

Scarce (bull bar count > bear bar count, ratio at least 2:1)

Little overlap between bars
Enter fullscreen mode Exit fullscreen mode

In a bull leg within a trading range, weak bars and overlap:

Prominent tails

Heavy overlap between bars
Enter fullscreen mode Exit fullscreen mode

If you see "Big Up, Big Down" — a strong bull bar immediately followed by a strong bear bar — this is a clear sign of a trading range.

Criterion 5: Microchannel is a tool for identifying the strongest trends.

A microchannel is a breakout phase
Enter fullscreen mode Exit fullscreen mode

In a microchannel, bears cannot even create a single bar (cannot push price below the previous bar's low).

In a bull leg within a trading range, lack of microchannel:

Rarely do you see microchannels lasting more than 5 consecutive bars
Enter fullscreen mode Exit fullscreen mode

Typical pattern: A bull microchannel (3-4 bars) immediately followed by a bear microchannel — this rapid switching indicates the market is in a range state.

Criterion 6: The 20-Bar Rule. If a pullback in a trend lasts for 20 bars or more, it is no longer a pullback but a trading range.

Counting method:

Step 1: Mark the last new high
Enter fullscreen mode Exit fullscreen mode

This is a rule for a single time frame. If on the 5-minute chart there have been 20 bars, but on the 15-minute chart it is just a normal pullback, defer to the higher time frame.

Criterion 7: Pullback Depth Analysis

In a true bull trend, shallow pullbacks:

Pullbacks do not drop below the previous swing high (breakout point)
Enter fullscreen mode Exit fullscreen mode

In a bull leg within a trading range, deep pullbacks:

Pullback magnitude > 50-80%
Enter fullscreen mode Exit fullscreen mode

There is no buying support during rallies (vacuum rally), and no buying support during declines (vacuum decline). Once price touches the top of the range, buying immediately dries up.

Criterion 8: Moving Average Relationship

In a true bull trend, moving average support:

Price consistently runs above the 20 EMA
Enter fullscreen mode Exit fullscreen mode

In a bull leg within a trading range, moving average entanglement:

Price frequently crosses the moving average (back and forth)
Enter fullscreen mode Exit fullscreen mode

Criterion 9: Resistance Level Reaction

In a true bull trend, breakout and hold:

Price breaks above prior resistance (previous high)
Enter fullscreen mode Exit fullscreen mode

Verification method:

Step 1: Mark the previous high (resistance level)
Enter fullscreen mode Exit fullscreen mode

In a bull leg within a trading range, stalling or reversing at resistance:

Price rallies to the top of the range (previous high)
Enter fullscreen mode Exit fullscreen mode

Criterion 10: Market Context

In a true bull trend, higher time frame is bullish: If the daily chart itself is in a strong rally, then rallies on the hourly or 5-minute chart are more likely to be continuations of the true trend.

Is the daily chart in an uptrend?
Enter fullscreen mode Exit fullscreen mode

In a bull leg within a trading range, higher time frame is ranging or bearish:

The daily chart is in a downtrend
Enter fullscreen mode Exit fullscreen mode

Always defer to the higher time frame judgment. Do not assume the trend has reversed just because of a bounce on the 5-minute chart during a daily downtrend.

Always In Judgment Method

In a true bull trend, Always In Long lasts a long time:

The market is clearly in an Always In Long state
Enter fullscreen mode Exit fullscreen mode

In a bull leg within a trading range, Always In switches frequently:

Always In Long lasts only a few bars
Enter fullscreen mode Exit fullscreen mode

Leg Counting

In a true bull trend, trend continuation, leg counting fails. When leg counting fails (continuing beyond the third push), this is a sign of an extremely strong trend.

In theory, after the third push, there should be a reversal
Enter fullscreen mode Exit fullscreen mode

In a bull leg within a trading range, reversal after the 2nd or 3rd push:

1st push: Rally to resistance
Enter fullscreen mode Exit fullscreen mode

If you see a third push (wedge) at the top of the range, this is typically a bull trap, and you should look for shorting opportunities.

Practical Judgment Process (Decision Tree)

[Step 1] Check Market Context

→ Is the higher time frame (daily/hourly) trending or ranging?

[Step 2] Count Bars

→ Has the pullback lasted more than 20 bars?

→ Yes → Trading range (execute range strategy)

→ No → Continue

[Step 3] Check Gaps

→ Is the gap left by the breakout still open?

→ Filled → Trading range bias

→ Unfilled → Trend bias, continue

[Step 4] Check Breakout Quality

→ Is the breakout bar strong (large body, small shadows)?

→ Yes → Continue

→ No → Trading range bias

[Step 5] Check Follow-Through

→ Is there strong follow-through after the breakout bar?

→ Yes → Continue

→ No (doji/bear bar) → Trading range, short the failed breakout

[Step 6] Check Microchannel

→ Has a microchannel of more than 5 bars formed?

→ Yes → Confirm strong trend

→ No → Continue

[Step 7] Check High/Low Structure

→ Has a major higher low been made?

→ Has the pullback broken below the major higher low?

→ Not broken → Confirm trend

→ Broken → Trend over (transition to range)

[Step 8] Check Resistance Level

→ Has price broken above the previous high and held?

→ Yes → Confirm trend

→ No (reversed at previous high) → Trading range

[Step 9] Check Bar Overlap

→ Are there gaps between bars? Or heavy overlap?

→ Many gaps → Strong trend

→ Much overlap → Weak trend or range

[Step 10] Check Pullback Depth

→ Is the pullback < 50%?

→ Yes → Trend

→ No (deep pullback) → Range

Final Judgment

When you see a rally, check each item using the following template:

[Observed Price Action]

Description: Price rallied from point X to point Y

[Checklist]

□ 1. Higher time frame context: (Trend/Range)

□ 2. Gap left by breakout: (Open/Filled)

□ 3. Breakout bar quality: (Strong/Weak)

□ 4. Follow-through bars: (Strong bull bar/Doji/Bear bar)

□ 5. Number of bars the pullback has lasted: bars (< 20 / ≥ 20)

□ 6. Microchannel: (Yes/No)

□ 7. Bar overlap: (Low/High)

□ 8. Pullback depth: (< 50% / > 50%)

□ 9. Has a major higher low been made: (Yes/No)

□ 10. Resistance level reaction: (Breakout and hold/Stall and reverse)

[Judgment Result]

If 7 or more criteria match "trend" characteristics → True bull trend

If 7 or more criteria match "range" characteristics → Bull leg within a trading range

If mixed → Stay out or treat as range (conservative strategy)

[Trading Strategy]

If trend: ____

If range: ____

Key Signal Combinations (High-Probability Judgments)

Signal Combinations Confirming a True Trend

Combination 1: Gap + Follow-Through + Microchannel

If all three appear simultaneously:

Breakout leaves a gap that remains unfilled
Enter fullscreen mode Exit fullscreen mode

High probability of a true trend (confidence 90%+)

Combination 2: Major Higher Low + Shallow Pullback + Always In Long

If all three appear simultaneously:

A major higher low is made
Enter fullscreen mode Exit fullscreen mode

Confirms a strong trend

Signal Combinations Confirming a Trading Range

Combination 1: Gap Filled + Weak Follow-Through + Deep Pullback

If all three appear simultaneously:

Breakout gap is quickly filled
Enter fullscreen mode Exit fullscreen mode

High probability of a range (confidence 85%+)

Combination 2: Resistance Reversal + 20 Bars + Always In Switch

If all three appear simultaneously:

Reversal at a clear resistance level (previous high)
Enter fullscreen mode Exit fullscreen mode

Confirms a trading range

Common Misjudgments and Corrections

Misjudgment Case 1: Mistaking a strong pullback for a trend reversal — seeing a deep pullback (50% retracement) and concluding the trend is over.

Check the higher time frame: If the daily chart is still in a strong trend, a deep pullback on the hourly chart is just a normal correction
Enter fullscreen mode Exit fullscreen mode

Misjudgment Case 2: Mistaking a false breakout within a range for a new trend — seeing a large bull bar breakout and immediately chasing.

Wait for follow-through confirmation (the 2nd-3rd bars)
Enter fullscreen mode Exit fullscreen mode

Misjudgment Case 3: Prematurely declaring a trading range — concluding the market has entered a range as soon as the trend pulls back.

Use the 20-bar rule: If the pullback is < 20 bars, it is still a trend
Enter fullscreen mode Exit fullscreen mode

Determining bull trend vs. bull leg within a trading range is essentially about recognizing whether the market is in a state of imbalance or balance.

Core Criteria (by priority):

Whether the gap remains open
Enter fullscreen mode Exit fullscreen mode

Top comments (0)