Setups and Triggers

Combining Candles and Pivots

There are many methods you can employ to actively trade, including various mechanical trading systems and manual trading tactics. The constant changing of market conditions can require system traders to adapt and update the parameters for their trading decisions. I often prefer the hands-on visual approach, which is more of a manual method, while employing a mechanical trigger to both enter and exit a position with a specific risk management technique. The visual approach is aided by the use of candle charts.

The triggers discussed in this chapter are based on the methodology developed from my 26 years as a trader. I have continually strived to find clearer signals and triggers for short- and even longer-term trade opportunities. I have been doing extensive research regarding the combination of candlestick formations and pivot points; some of the proprietary signals that I have taught traders at seminars and in my course, I am sharing in this book. This chapter details the triggers designed by me, based on my research joining both specific candle patterns and pivot point analysis.

I am going to cover three setups: (1) the high close doji (HCD), (2) the low close doji (LCD), and (3) the jackhammer. Each one has a special set of rules by which to initiate a trade and to exit a trade. These strategies have done well in periods of both bullishness and bearishness, as well as in times of heightened volatility and periods of low volatility.

This is just a small sample of what is taught in my three-month intensive trading school. I have been asked why I would share such high- probability trading signals with the public. Well, I have taught these methods to many people, including my own father and son. Just as they have different results with the same signals, you will, too, due to the very nature of trading. Once my trading concepts are taught by the masses, I do not believe the signals will be diluted or absorbed in the marketplace.

I believe not every trader will implement my methods in exactly the same way as I do. For example, Larry Williams has his OOPS method, Mark Fishers has his method, and Tom Demark had his method let out to the public. And all these systems, to my knowledge, are still highly effective strategies. So I do not believe letting you into my “black box” will hurt or dilute the signals.

There are various markets and various time periods in which to enter a trade, such as a 60-minute, a 15-minute, and a 5-minute time period for swing and day traders. These signals work for futures and stocks, and they work amazingly well in the foreign exchange (forex) markets, as you will see in the coming examples. The premise is to help keep the trader focused on the now, to watch and study the current price action. The candle patterns give a visual confirmation of price momentum, and the pivot points forewarn you of what the potential turning points are. When you combine the two methods, you have a solid trading program. This setup may help you improve your trading performance and allow you to develop a consistently winning trading strategy. This could be your personal trading system that is based off proven and powerful techniques. For a moment, I want you to envision the concept of epoxy glue: It requires two compounds. Separately, they are not very reliable or, in fact, a very strong bonding substance. However, when combined, a chemical reaction occurs and forms an amazingly strong and powerful bond. Using the methods of candlesticks with pivot points can give you that same result if you know what to look for. The implementation of longer-term analysis using pivot points will give a trader a fantastic means by which to anticipate a point where a trend change could occur, thus helping a trader not only to prepare but also to act on a trade opportunity. One can implement this setup using different time frames besides daily analysis. You can include weekly and even monthly pivot point calculations. This method of analysis will alert you well in advance of a potential support and/or resistance level. In the setup process, you will heighten your awareness to enter in a long or a short position against predefined levels and will wait for the trigger or market signal at those levels. It can not only help you define or identify the target area to enter but also establish your risk objective. Another event that occurs with this setup process is that you now can set up your orders to buy on your trading platform with the selected contract amounts—in other words, pre-arrange the commands on the electronic order ticket. Now all you need is confirmation so you can pull the trigger or click the mouse to establish an entry in the market and establish a position.

In Chapter 7, we covered the importance of dojis and the statistical relevance of why I look for them at pivot point support targets. The primary importance in the study of the doji at a pivot is to understand that the doji indicates indecision and is a significant sign that changes are coming. In candle patterns, the morning doji star is one of the most reliable reversal formations that a trader can identify.

The problem is that there are about 12 variations, making it hard to write code to program in a trading software package. However, the main component about the doji is the trigger indicating when the next time period’s close is higher than the doji’s high. This can be a subtle change by just two PIPs in forex or ticks in futures. It cannot be at the exact high of the doji; rather, it needs to close above the doji high. This is a very important point, so make sure you are crystal clear on it. Figure 8.1 demonstrates the definition of a close above the doji high.