Basic Principles and Application of DIBS MethodWednesday, 18 October 2017 00:00
To have a stable income in the Forex market, one needs to build a strategy and follow it. Nowadays, there is a huge number of ready-made trading techniques that can be used in its original for
All of them are divided into subject groups, for example, new ones (not tested enough), risk-free, for scalpers, for long-term trade, etc. It helps traders navigate within a countless number of strategies and choose the most suitable ones. At the same time, some systems were tested by hundreds of traders - they feature minimal risks and don’t have profit limits. These are the advantages of the DIBS Method.
Trading on the DIBS Method strategy, it’s recommended to use small time frames like H1 and D1.
The Concept of DIBS Method
This approach is based on the "Inner Bar" pattern. This figure consists of the mother and inner candlesticks. On the graph, they are used as follows: the boundaries of the inner candle should not go beyond the limits of the mother one. In this case, it is recommended to select a small inner bar. You can see how it looks on the picture below.
As soon as such a pattern appears on the chart, sellers and buyers temporarily agree on the same price for a particular asset.
The trader's goal is to enter the market by the trend as early as possible, before the competitors, holding the positions longer. But you need to, so to speak, correctly catch the trend. That's why you need to use the DIBS Method.
First, you need to find out the direction of the trend, so you could not to trade in the opposite direction. To do it, for example, at 06:00 GTM (until the market changes actively), you need to determine the price line - the open point of the day. Further, if the price rises above the level assigned, you need to open a buy order, and if it falls below - a sale order. Accordingly, when the price crosses the reference axis from the bottom to top, there will be prerequisites for the uptrend, and in the opposite case, it will be a signal to the emergence of a downtrend.
In fact, trends born at the morning, so if you don’t oversleep the right moment, you can get a good profit for the day.
In addition to the fact that you need to pay attention to the position of the price relative to the control axis, don’t forget about the patterns - this is the basis of the strategy.
Starting from 06:00 am GMT, you need to monitor the hourly chart and wait for the "inner bar" to appear. As soon as you see the figure, pay attention to the price, and where it is relative to the control line. If the price is lower than the morning axis, correct the strategy to break down the inner bar. If it’s above the axis, one should trade at a breakdown.
Entrance to the Market and Stop Loss
So, if the current price is above the 6:00 GTM level, open a buy order, if it’s below – a sale order. Open the order at the breakdown of the boundary of the inner bar. Set the pending orders. Stop Loss shall be fixed on the picture:
Entry/Exit from the Market
According to DIBS Method, you need to enter the market at once with three orders of the same volume. For the first two orders, you need to set the Take Profit at the level of Stop Loss. For the third one, you don’t need to set the Take Profit. The third order will remain active until the moment of trend change.
The essence of such a system is quite simple, and, at the same time, useful:
- The first order will get the profit,
- The second one will show a probable Stop Loss of the third order,
- The third one is a potential source of super profits.
The Stop Loss of the third order needs to be adjusted by the trend, relying on a simple moving average with a period of 20.
Along with the emergence of each new candlestick, the Stop Loss level is moved closer to the current price. A restricting order is adjusted if the price goes to our side, and if it goes in the opposite direction, it will hold the position.
This tactic allows you to get more profit than restraining the stop. Pay attention that each separate position needs to be adjusted autonomously, without moving everything to a single place.
The Hot Hand rule
In addition to all the mentioned above, there is another important rule in the strategy: trade only with active pairs. On the figure below, the best trading days are highlighted in red.
How to follow the rule?
- Add a moving average with a period of 20 to the daily chart (D1);
- Make sure that the current price doesn’t coincide with the MA – it should be above or below it;
- Make sure that the Moving Average has a slope - this indicates the prerequisites for the price movement.
Trading on Long TF
The DIBS Method can also be used on longer timeframes, like weekly ones, H4 and D1. The rules, in this case, remain unchanged, but the control axis will add the opening price of the week, not the day.
Advice for Traders
- Don’t exceed the risk limit by one order of 0.3%. You can calculate the lot manually or with the help of special programs.
- Choose small inner bars - large patterns are useless;
- Use the support/resistance levels.
The strategy of DIBS Method is straightforward - this is its final advantage. Also, many traders have used the technique for many years, and the results are encouraging.
But there is also a negative feature that scares off newcomers. In theory, DIBS is easy to decompose, but it will be successfully applied only by traders who have excellent psychological stability. Not all the traders can keep the successful transactions not succumbing to the temptation to close them quickly.
If you follow all the rules, you’ll see a huge amount of money on your account due to the DIBS Method strategy.