 The High Close Trigger

The High Close Doji Trigger

www.personsplanet.com by John Person  The High Close Doji Trigger

here are many trading methods one can levels especially when Dojis appear. The key is watching employ to actively trade including various for confirmation for a transition to take place and to act mechanical trading systems and manual when there is a shift in . We see a specific Ttrading tactics. The constant changing of conditional change take place in the markets behavior, market conditions can require system traders to adapt namely the market makes a higher high but establishes and update the parameters for the trading decisions. I a higher closing high above a Dojis high at the Pivot often prefer the hands on visual approach which is more Point support level. of a manual method while employing mechanical risk management techniques. The visual approach is aided In this article I want to share with you in detail this one by the use of candle charts. The draw back is one must specific trade setup and what it takes to confirm the buy have a basic understanding of this form of charting to signal or what’s known as a trigger to execute a trade. begin with. The upside is once you learn the basics, a new meaning of how markets act may open up to you. This is the pattern I call the High Close Doji or the HCD method. It has dimensions of specific criteria that need It amazes me that candle charting was one of the first to fall in place, therefore helping to eliminate and filter forms of tracking commodity prices some 400 years out false signals. It is a simple and basic approach that ago, today it has become more popular, however, is a high probability winning strategy. relatively few Futures traders implement it in their analysis. The myth surrounding this method is that This setup may help you improve your trading it is a highly complicated means of charting. The fact performance and allow you to develop a consistent is it is a relatively simple method and enhances the winning trading strategy. Consider this your own visual effects in charting. Candle Stick Charting isa personal trading system that is based off of proven basic building block method that immediately shows and powerful techniques. For a moment I want you a trader the important connection between the four to envision the concept of epoxy glue, it requires two most important aspects of price analysis. That is the compounds. Separately they are not very reliable or in relationship between the Open, High, Low and close fact a very strong bonding substance. However, when of a given session. It involves colors to differentiate the combined, a chemical reaction occurs and forms an relationship between the open and close referred to as amazingly strong and powerful bond. the real body, it acts as an immediate way to illustrate Using the methods of Candlesticks with Pivot Points and help identify the current markets environment can give you that same result if you know what to look and the current time frames acceptance or rejection for. The implementation of longer term analysis using of a specific support or resistance level in a clear visual Pivot Points will give a trader a fantastic means in which manner. If for example, on a given trading session prices to anticipate a point from where a trend change could move higher from the opening price, and close near the occur, thus helping one to not only prepare but to act highs, it shows strong buying interest. If after the open on a trade opportunity. the market trades up establishing the high and then fails, the distance formed from those points of interest The setup: is called the shadow, which clearly shows rejection from that high price level. One can implement this set-up using different time frames besides daily analysis. You can include weekly There is one more formation, called a Doji where there and even monthly Pivot Point calculations. Take for is no main real body formation as the market closes at instance the Weekly numbers. They are compiled from nearly the exact level from where it opened. That is the the previous weeks High, Low and Close. This method focus of this article of analysis after calculating the numbers will alert you In my Book “Technical Trading Tactics: How to Profit well in advance of a potential Support and or Resistance using Pivot Points, Candlesticks and other Indicators” level. If you have your calculations figured out on the I demonstrate many powerful ways to anticipate close of business on a Friday then you are prepared levels. The most reliable and before the weekend starts and now have a general common method used to determine those levels is guide of what may be the next weeks potential High, the mathematical based calculations from Pivot Point Low or both. Analysis. Through the years I have noticed that Doji In the setup process you heighten your awareness to formations form more often than not at these pre- enter in a long or short position against predefined defined levels. That is the focus we want to concentrate levels and wait for the trigger or market signal at those on. The markets behavior at support and resistance levels.

by John Person www.personsplanet.com  The High Close Doji Trigger

It can not only help you define or identify the target mouse to establish an entry in the market and establish area to enter but also what you wish to establish as a position. your risk objective. Another event that occurs with this setup process is you now can “set up” your orders to The chart below magnifies what you are looking for, buy on your trading platform with the selected contract notice once the market closes above the Doji’s high we amounts. In other words, prearrange the commands see an immediate reaction of positive momentum and on the electronic order ticket. Now all we need is a continuation of higher prices. confirmation so you can pull the trigger or click the

That is what we are focusing on especially after a Cross, Bullish Piercing Pattern, A Bullish Engulfing decline in price and when the market approaches a Pattern or my favorite, but in most cases we want to predetermined support level based off of the Pivot act on a High Close Doji pattern. This pattern works for Point Calculations. most markets including , Forex and Futures. This is a high probability intraday trading pattern however it Trading Rules for the HCD setup: works very well for position trading. There is a higher frequency of patterns that develop for intraday trading. When the market approaches a key Pivot Point, buy on the close or on the next open once a new closing high is This pattern develops on various time periods, however made above the previous bullish reversal candle pattern I do not use less than a 5 minute time period. My especially a Doji formation. favorite time frame is using both the 5 and the 15 minute period. This helps me to catch trend runs Place your initial risk management stop below the low as they occur in the market. of the lowest low point of the bullish candle pattern. This can be on a Manual Stop Close Only basis. The example below is the CBOT electronic Gold contract taken from September 28th 2005. The first dimension Exit the trade on the close or the first open of a candle we need is the Pivot Point calculations. So we take that makes a lower closing low after a prolonged the prior days High, Low and Close and applying the uptrend. formula we derive at 466.50 as the first Support level known as S-1. Notice the price action at the support One can use a “Filter” or back-up process to confirm the level. The Doji Forms at the S-1 and two times periods buy signal against a major Pivot Point number such as a later, an engulfing green candle forms, which signifies bullish convergence stochastic pattern. the market closed above the open. Notice that it also closes above the Doji’s high. A bullish Candle pattern can be a Harami, Harami Doji

www.personsplanet.com by John Person  The High Close Doji Trigger

I want to illustrate the flow of the market price action, closing highs as defined by green candles, all the way up notice we never see, until the end of the trading session, just past the daily projected pivot Point R-1 of 472.50. prices make a lower closing low. The sequence of events This is a great example of a HCD trigger that results in a that transpire is higher highs, higher lows, and higher 6.00 dollar gain in Gold.

In case you were wondering if this set-up can be applied to Forex markets the answer is yes. This next chart is a spot FX British Pound from September 30th. If you apply the Pivot calculations derived from the prior days data you will have a predetermined support of 1.7568. Notice how the market bounces around and then the Doji forms. The trigger to buy initiates once the Green candle closes above the Doji high and the same sequence of events takes place, higher highs, higher lows and a continuation of higher closing highs all the way up until we hit resistance at the R-1 of 1.7680. That equates to nearly an 80 PIP or point gain.

by John Person www.personsplanet.com  The High Close Doji Trigger

This next example is the CBOT Mini-Dow contract, in this example notice how the Doji forms right on the Pivot Point Support Line. Remember that Dojis form more often than not at Pivot Point Support or Resistance levels. Here the candle right after the Doji not only closes above the doji’s high but see how it entirely engulfs the real bodies of the prior two candles of the Doji as well. That helps signal the power behind the reversal formation. As you can see we have a great run in the market testing beyond the R-2 number thus giving nearly a 100 point gain for the trading session.

This is a pattern that should show an imediate positive change as the reversal takes hold. Also notice that we see more green candles develop, which reflects the market closing above the open, thus confirming buyers dominating the market with better bullish momentum.

www.personsplanet.com by John Person  The High Close Doji Trigger

The rules also state that we can use confirming indicators. In the chart below we have three indicators, my favorite being Fast Stochastics, then MACD and CCI. As you can see Stochastics indicates a bullish convergence signal, validating that prices were near an exhaustion phase and ready to reverse, as the Doji formed.

The HCD trigger would have you long at the close or the open of the next candle near 10485. However, notice the MACD triggers late and would initiate a position near 10520.

The trigger in the MACD would be verified from the crossover as well as the zero line crossover method. Notice how MACD does not form a Bullish Convergence either.

The CCI indicator is a 14 period setting. The Histogram feature does alert to a timely Bullish Convergence confirmation, but notice when we line up the zero crossover feature it also would trigger a buy at a much higher price entry similar to the MACD signal. One of the neat features of CCI is that it incorporates the Pivot Point formula in its calculation; it has great validity as a confirming indicator. It is non the less a lagging indicator and as the chart below shows signals an entry later than the HCD trigger pattern.

by John Person www.personsplanet.com  The High Close Doji Trigger

No matter which indicator you are comfortable in combine these calculations with the visual aid of certain using, when investors first discover Pivot Points, most candle patterns, it can give you superior guidance as to often their first impression is one of pure amazement. when and where to enter and exit positions. Traders Mainly due to its ability to predict what a specific who want every edge in their approach for the highest time frames overhead resistance or support might be. probability of success will benefit from this simple but Moreover, more times than not the High, Low or even yet time tested method. both are right on target as the exact number for that given session. Make no mistake Pivot Point analysis is This is just one of the strategies that I wrote about impressive. However, its real power and value does not in my book, A Complete Guide to Technical Trading end there. Pivot Point Analysis deals with pin pointing Tactics. Remember this technique works amazingly not only price but in a specific time period. well for futures, commodities and stocks; it also works especially in the FOREX markets. It is what I consider the “Right Side” of the chart indicator. It also gives you a method for identifying the The amazing fact is this pattern works equally well in trend and how to determine the typical price or fair value market declines, therefore I call it a Low Close Doji set- of a given time frame. After all, that is what the actual up. When I use pivot point analysis what I want to do Pivot Point number is. If prices deviate too far from is see how the market behaves at or near a pivot point that point the outer calculation numbers can help you target number. I also include a special moving average determine at what point a market is most likely to turn. approach which is taught in my trading course that One can also use this feature of the actual Pivot Point illustrates a conditional change in the market. Once we to develop a moving average system. But when traders identify that the current market price is turning direction

www.personsplanet.com by John Person  The High Close Doji Trigger we can establish a trading position as prices close below such as lower lows, lower highs and lower closing lows a Doji low, a moving average cross over occurs and to indicate a bearish trend. Once the market conditions prices close below both moving average values. I use a change and we have a series of opposite events occur I combination of a specific moving average of the pivot stay on the short side of the market. point combined with a simple moving average. I stay with the initial position until those particular conditions change. In bearish conditions I look for a series of events

In the chart above we have a Low Close Doji sell signal October 2006. I cover more on statistical occurrences triggered at the pivot Point, prices close below both when Doji’s, Stars and Hammers form in certain markets. moving average values and the moving averages cross Here is an example of the frequency of these patterns, signaling confirmation that a trend change has occurred. which was independently back tested by Genesis The profit target is the first Pivot Point support target Software. In the example below using the e-mini S&P level. If you notice that this method signals a short well 500 futures contract, the test results were based on before the MACD signal and even the Stochastics %K the US open out cry session using a fifteen minute time and %D 80% line cross method. As you will notice the period. We ran these statistics on many markets; the low is formed by a doji candle. In the beginning of this best part is some markets had even better results than article I stated the “Doji’s form more often than not what I am sharing with you now. Looking at this bar at Pivot Point Support and resistance levels”. Here is chart below we see that 30% of the lows are established another case in point. With that said, now you see why by a doji while 40% of the lows are made by Hammer I focus on these high frequently re-occurring patterns formations. Combined that accounts for a 70% chance and teach these specific patterns in my trading course. that the low is made by a Doji or Hammer based on a 15 minute time interval. At tops 36% of the time they I went and took this observation one more step in are made by Doji’s and 40% are made by shooting stars, my soon to be release book which is slated for sale in combined it accounts for a whopping 77% statistic.

by John Person www.personsplanet.com  The High Close Doji Trigger

The methods introduced here are used to help keep Pivot Points forewarn you what the potential turning the traders focused on the now, which means to watch points are. When you combine the two methods you and study the current price action. The Candle patterns have a solid trading program. give a visual confirmation on price momentum, and the

John Person is a 32-year veteran of the Futures and Options Trading industry and President of John Person Inc. He is the author of A Complete Guide to Technical Trading Tactics: How to Profit Using Pivot Points, Candlesticks & Other Indicators, looks at a candlestick formation that can indicate reversal points when used with pivot points and support/resistance levels.

John Person is also the author of Candlesticks and Pivot point Trading triggers, setups for , Forex and Futures Markets and Forex Conquered, high probability systems and strategies for Active Traders and many other publications

You can find more about John Person by visiting www.personsplanet.com

www.personsplanet.com by John Person