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