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The inventory retracement bar (IRB)
The inventor of the IRB is trader Rob Hoffman. Rob Hoffman has won numerous real money trading competitions. This bar, or candle if you prefer, attempts to identify the point in time when a trend, which was interrupted, is ready to take off again. Specifically, trader Rob Hoffman, tries to recognize when the countertrend movement is drying up and the institutions are likely to trade again in the direction of the trend.
The advantages of the Inventory Retracement Bar are:
The IRB is one simple candle.
The IRB can give trading signals.
The IRB can be a complete trading strategy if Rob Hoffman’s stop management is added.
To qualify as an IRB a candle must open and close at least 45 percent below its high. When the market is in a positive trend and an IRB has been identified it is time to ... wait. An entry signal only occurs when the market rises above the high of the IRB. The concept applies vice versa when the market is in a negative trend.
This example of a day chart shows three IRBs and a positive trend. In the first case the market does not rise above the high of the IRB. No signal occurs. The second IRB is replaced by the third IRB before a signal occurs. The third IRB generates a buy signal four days later. A signal is indicated by the grey background in the chart.
Given that Rob Hoffman’s logic is based on the behaviour of institutions with large orders, the time frame of the chart is usually 1 day. In most publications, however, time frames of 60 minutes or less are also used.