Published on

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide


  1. 1. Trading Triggers - Part 1REVERSAL BARSReversal bars are an objective technique used to time the entry of a trade. When pattern, price and time allcome together at a suspected major pivot, and you hesitate while wondering if the prior trend will continueagainst your new position, a reversal bar can be the objective trigger to prompt you to take action. Theexamples demonstrated below have many variations. The example given is not the only possibleconfiguration for that reversal bar type. The important concept is that with every configuration, prices makea new high (or low) but close opposite the direction of the open and the trend. The reversal bar is telling youthat the trend for that time frame has run out of gas and that no new buyers or sellers are coming into themarket. For bullish reversals just substitute low for high.Not every reversal bar is significant. This is especially true for intraday charts. Reversal bars take onimportance when they occur at a coincidence of pattern, price and time. • Reversal Bar - Makes higher High and closes below Todays Open and Yesterdays Close • Key Reversal Bar - Opens below prior bar close, makes new High. Closes below prior Close and Todays Open.
  2. 2. Outside Key Reversal Bar - Opens belowprior bar close, makes new High. Closesbelow prior Close and Todays Open.Signal Bar - Opens above prior Close, makesnew High. Closes below Todays Open
  3. 3. Gap Signal Bar - Opens above priorClose, makes new High. Closes belowTodays Open but Gap is not filled.Snap Back Reversal Bar - Day 1 makesnew High, opens bottom 1/3 of the bar,closes top 1/3. Day 2 opens top 1/3 of thebar, closes bottom 1/3, does not have tomake new High.
  4. 4. Reversal Confirmation - First day thatClose is below Open. Better signal if itmakes lower Low.
  5. 5. Trading Triggers - Part 2CONTINUATION BARSNot every major pivot point is marked by a reversal bar. Continuation set-ups can still get you in a traderelatively close to the pivot point. Continuation bars are easily identified on a bar or candlestick chart. Theyalways start with either an inside bar or an outside bar.Inside Bar - Todays high and low do not exceed yesterdays high and low.Outside Bar - Todays high and low both exceed yesterdays high and low.Inside Bar Outside Bar
  6. 6. Outside Plus BarSTOP LOSSESLosses are part and parcel of trading. Successful traders learn to manage their losses, or shortly findsomething else to occupy their time.Trade entries are relatively easy. You have an objective set of criteria and when those conditions are met youenter the trade. Stop losses are more difficult because now you are in the trade. The cool hand that pulledthe trigger to enter is now firmly wedged between the rock of fear and the hard place of greed.Just a few ideas for objective stop loss points. There are many more.Pattern stops occur when price moves to an extreme that negates the working Elliott Wave scenario. Forexample, a Wave 2 entry is stopped out if prices violate the pivot price that initiated the swing (Wave Zero).All the pattern stops that we use are set out in the Trading Signals section.Robert Miner, a successful trader and teacher, posits that three, two and one day bar extremes are logicalstops. For example, for a long trade that is in the early stages of a Wave 3, the lowest low of the most recentthree daily bars (including today) is an objective stop loss point. As Wave 3 progresses into its later stagesthe stop is moved to two bars or even to one bar. Miner does not count inside bars when computing theextremes.Another method presented by Williams that ties into Miners one day stop is the Zone Stop. When price barshave run for five consecutive bars in the same zone (shown as five consecutive red or green bars) place a oneday stop and move it every day until it gets hit.The important concept is to let the market, not your emotions, take you out of the trade - with a profit if thetrade works out for you, and with a manageable loss if it does not. You dont know what the market is goingto do next. Dont anticipate. Youll experience a lot less stress and probably make more money too.
  7. 7. When Disaster Strikes…Holding trades overnight has certain benefits and risks. We consider it a necessary part of a trading plan tohave a "Wealth Building Account" for swing and core trades, which would all be overnight holds. Sofollowing your trading plan and playing the proper share size are very important. Properly handled, overtime the benefits should outweigh the risks. However, no matter how careful you are, you will have amorning where a position you have is gapping open against you.Remember, overnight there are no stops. Let us say you are long XYZ at $30.00, and at 7:00 a.m. EST thenext morning company XYZ makes some announcements. Let us say they are going to miss their nextearnings number, and that the CEO just resigned, and that they suspect they have accounting problems.There is a good chance (about 99.99%) that when trading starts the next morning at 8:00 a.m. EST (pre-market trading starts with ECNs at this time) that your stock will be trading much lower. Lets say at 8:00 itstarts trading at $26.00. From 8:00-9:30 it ranges from $26.00 - $25.00. Then at 9:00 it opens at 25.10. Itwill not matter that you have a stop in place at $28.50. During pre-market, stops are not in effect. Then whenthe market opens, your stop will be filled (if it is GTC, or if you re-entered it at open) at the best price at thetime, $25.10, not your desired price of $28.50.So, how do you handle these disaster situations? Here are some tips to put the odds in your favor to managethese situations in the best way over the long term:First, do not panic. Easy to say, but hard to do. However, it will not be hard to do if you have a strategy inplace out for these situations.Second, ignore the pre-market trading. From 8:00 until 9:30 only ECNs are trading; some stocks dont tradeat all. If your stock is gapping down like this, it will likely be trading, but will likely be trading erratically.Third, when it opens officially at 9:30 EST, do nothing for five minutes. That is right, just watch it. After fiveminutes, mark off the low and put a stop for half your shares $.05-.10 under that five-minute low.Fourth, let it trade for 30 minutes. Then put a stop for the other half of your shares $.05-.10 under that 30-minute low. At this point, if the stock did not violate the five-minute low, you will still have all your shares,half with a stop under the five-minute low, half under the 30-minute low.You will find on many occasions, that you may still have all your shares, or at least half. Often, after a largegap, the opening half hour puts in the lows for the upcoming days. If your shares do stop, you are usuallyrisking a relatively small amount extra.From there, you can treat the trade as a swing with a one-day trailing stop, or the stock may rebound to priorlevels and you can follow your prior plan. While the example given was for a gap down on a long position,the exact same rules hold true for gapping up on a short position. Use 5- and 30-minute highs as stops.Having this as your plan for disaster will help you minimize the losses over the long term.