Intraday Triggers on Stocks

Intraday Triggers on Stocks

Let’s look at a 15-minute chart on IBM, a fairly popular stock, and see how this method applies for day traders. Figure 8.11 shows a double bottom formed with the primary low formed by a doji followed by a hammer. The higher close occurs at 81.24, with immediate results following. Prices peak at 12 noon around 81.50, only to fade back after the crowd decides to take profits before lunchtime. The initial risk target has not been challenged during that time frame. Then, as volume picks up as traders return in the afternoon, another doji forms, followed by a second HCD signal. See how the market hugs the daily S-1 pivot support as well. The market enjoys a nice gain with the very sequence we like when we are in a long position: higher highs, higher lows, and higher closing highs, right up to the daily pivot point R-1 target high.

Let’s look at another stock example. For those stock traders not looking to trade commodities but wanting to participate in the action, here is a novel opportunity. One consideration should be to buy stock in the Chicago Board of Trade. That way you will own a piece of the exchange! Figure 8.12 shows a 15-minute chart on CBOT holdings.

Notice that the HCD trigger is made by a higher close than open hammer candle pattern; and as you can see, the market reacted strongly as the trend sequence developed once again with higher highs, higher lows, and higher closing highs. This stock generated a buy at 91.70, closed at 93.00, and kept following the money trail into the next day’s trading session. In fact, the market kept trading higher up to 119 as of February 24, 2006, when I was editing this book. I would imagine that as volume increases, this stock can trade higher for years to come. It has a pretty good track record staying in business; it has been around for over 155 years.

Let’s look at another commodity-related stock; this one is Exxon. By now, everyone knows that this company generated the highest profit in a given quarter of any company in the world. As energy prices bounced around, so did this stock. In Figure 8.13, we have a 60-minute chart for a swing trade, showing the weekly and monthly pivot points that are helping to illustrate and uncover the hidden support value. As the market declines, the doji formations develop at these confluence levels of supports. Then, as the moving average crosses and as prices close above the doji highs, we have a confirmed buy signal.

There was never any pressure of loss on the trade; but even if you were bored with the trade, a secondary trigger was generated three days later at 57.00.

Notice the trending market condition and the sequence of events that we are looking for when in a long position; higher highs, higher lows, and higher closing highs. Also note that the white candles signify that the market is closing above the open on each time period, demonstrating that buyers are dominating the market. This chart pattern resembles a “W” bottom pattern, which is quite similar in formation to the IBM chart in Figure 8.11. It is interesting that these two stocks showed this formation on different dates as well.

I have illustrated how the setup and signal work for intraday time periods. Let’s take a look at how we can apply the methods combining all the techniques, including the pivot point moving average crossovers, pivot point support targets, stochastics, and the high close doji. In Figure 8.14 we are looking at Alcoa; the stock went into a nasty tailspin, as most markets did in October 2005. However, after long price declines, you do not want to get too bearish in the hole, so to speak, especially on high-quality companies implementing the longer-term monthly pivot point methods. We uncovered that there was support at 22.15 and a potential bottom or end of the decline. Granted, the low was 22.28, so we were off by a small margin. But notice how when using my methods, the signal to go long was triggered once the market closed above the moving averages; a high close doji trigger prompted a long position; and the stochastics confirmed the long trigger, as %K and %D both crossed and closed above the 20 percent line.

 If you follow the flow of the market, you will see that the sequence of events that transpire is higher highs, higher lows, and the most important feature: higher closing highs! Now, that was a gem of a move! The best part about this method is that it keeps you focused on specific targets and keeps your risk to a minimum, allowing you to be a more relaxed and a more confident trader, letting the trade mature and generating bigger profits.

So far we have demonstrated that dojis form more times than not at pivot point support and resistance targets. In most of the examples, we have not seen a classic morning doji star pattern develop at bottoms; however, high close doji setups have developed. As you have identified the “hidden” support target by calculating the pivot point target levels, you had a much clearer view of timing the market reversal. Stacking the odds in your favor by including analysis from other time frames, in addition to the aid of knowing the right way to read the confirming indicators, will continue to help you with your entries. Combining that with the knowledge of what to look for in identifying trending conditions and what signals a trend to run out of momentum will help you with your exits. That is what will increase your profits.

Figure 8.15 is a chart on Dell. As the market was plummeting, an exhaustion gap developed. For some traders, buying sharply lower gap openings, such as those that occurred at the end of October, is their bread and butter. Most traders buy the lower opens and look for the gap to be “filled” on the charts. In other words, they buy the market looking for prices to move back up to test the prior day’s settlement. In this situation, that would have been a bad strategy because the market remained on the defensive for another week and a half. In fact, the market made a lower low. However, instead of playing the “catch the falling knife” guessing game, if you were patient and practiced discipline by waiting to see what the market’s behavior was at the confluence of weekly and monthly supports levels, you would have seen a high close doji setup develop. Even the stochastics indicator confirmed the trigger to buy. As you can see, the %K and %D crossed and closed back above the 20 percent line at the same time as the high close doji trigger occurred.

The high close doji helps add simplicity to your trading. Aided by the use of pivot points analysis, stochastics, and MACD indicators and the moving average method, you have a beautiful system that should help generate reliable buy signals for forex, futures, and stock traders, whether they are short-term or long-term in nature.