Triggers on Stocks

Triggers on Stocks

In Chapter 1, I gave an example of how an exchange traded fund may not react as much or at all compared to a stock in that group or sector. One such stock I showed was in Figure 1.15—Toll Brothers. If you broke that monthly chart down to a weekly and then a daily time frame and used the combination of the techniques taught so far with pivot point analysis in conjunction with these specific candle patterns, you would have been alerted to a top in the market in the summer of 2005.

Why don’t traders act on these signals? Most traders do not realize what pivot point calculations are and how the markets react to them. The resistance target levels are “hidden,” meaning you cannot see a projected high because it is not drawn from a past chart pattern; rather, it is derived from a mathematical calculation. This gives a projected price expansion on a measured-increase based on the previous time period’s range according to the pivot point formula. Using the monthly pivot point method, taking the trading data for Toll Brothers from June would have helped predict the high for July. Figure 8.25 shows the Pivot Point Calculator with the high, the low, and the close from the month of June. Notice that the R-2 target number was 58.12. The exact high in July was 58.67!

The chart in Figure 8.26 illustrates the low close doji trigger. In addition, we had the moving averages cross over, and prices traded beneath both moving averages to help confirm that the market had lost its bullish momentum.

To some traders, the tall white candle at the top may have appeared to look like a buying opportunity, especially as the market made a slight correction. The low close doji against the longer-term monthly pivot point resistance told a different story.

 Identifying the doji at or near a pivot point is a great guideline to alert you almost every time that there is a potential price change or reversal coming. Once the market makes that lower closing low, that is the trigger to sell. That will hold as a valid statement until the market closes back above the doji’s high.