Elephant Bar: Understanding the Concept and How to Trade Efficiently

Hey everyone! In this article, we’re going to talk about the Elephant Bar, an old concept rooted in the Marubozu candlestick pattern, but popularized by trader Oliver Velez, who coined the term “Elephant Bar.” Regardless of the name, what’s important is understanding that some Elephant Bars are tradable while others are not. Let’s explore how to identify and trade them effectively.

What is the Elephant Bar?

The Elephant Bar is a long-bodied candlestick that stands out compared to previous candles in terms of both size and impact on the chart. For instance, in the mini-index, it appears frequently, though not in every session. The main characteristic of an Elephant Bar is its larger body compared to other candles, even if it has small upper or lower shadows.

When to Trade an Elephant Bar

To successfully trade an Elephant Bar, it’s crucial to understand when it appears. Elephant Bars at the start of a movement are the most tradable. For example, if the market was sideways, threatening a drop, and suddenly forms an Elephant Bar after a higher low and a curved moving average, this is a good entry opportunity. However, if the trend is already extended and the Elephant Bar appears after the price has moved far from the moving average, this indicates exhaustion, and that bar should not be traded.

How to Trade the Elephant Bar

Trading an Elephant Bar is straightforward: enter on the break of the candle’s high. There’s no need to wait for confirmation from the next candle. However, it’s important to note that the stop loss will be large, as it should be placed at the low of the Elephant Bar.

This is a crucial difference from other trend trades, where stops are generally smaller. Even though the stop is larger, it’s worth considering this trade, as over 80% of Elephant Bars work when they are in the correct position on the chart.

Risk Management

Due to the large stop size, it’s essential to adjust your position size. Trading with a smaller position helps mitigate risks and protect your account balance. This is particularly important for traders who prefer working with small stops and long targets, as is common in trend trading.

The Role of Volume

Another critical factor in trading Elephant Bars is volume. An Elephant Bar accompanied by low volume can indicate a market anomaly, such as a sudden reduction in sell orders, rather than strong buying pressure. Therefore, it’s important that the Elephant Bar is accompanied by volume above the recent average to be considered a good entry opportunity.

Conclusion

Trading Elephant Bars can be highly effective if you know how to identify the right conditions. Remember to adjust your position size due to the larger stop loss and always check if there is enough volume to validate the movement. By following these guidelines, you can trade more professionally and increase your chances of success in the market.

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