T2W Trading Community

The chart below magnifies what you are looking for, notice once the market closes above the Doji’s high we see an immediate reaction of positive momentum and a continuation of higher prices.

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That is what we are focusing on especially after a decline in price and when the market approaches a predetermined support level based off of the Pivot Point Calculations.

Trading Rules for the HCD setup:

1. When the market approaches a key Pivot Point, buy on the close or on the next open once a new closing high is made above the previous bullish reversal candle pattern especially a Doji formation.
2. Place your initial risk management stop below the low of the lowest low point of the bullish candle pattern. This can be on a Manual Stop Close Only basis.
3. Exit the trade on the close or the first open of a candle that makes a lower closing low after a prolonged uptrend. 
4. One can use a “Filter” or back-up process to confirm the buy signal against a major Pivot Point number such as a bullish convergence stochastic pattern.
   

A bullish Candle pattern can be a Harami, Harami Doji Cross, Bullish Piercing Pattern, A Bullish Engulfing Pattern or my favorite, but in most cases we want to act on a High Close Doji pattern. This pattern works for most markets including Stocks, Forex and Futures. This is a high probability intraday trading pattern however it works very well for position trading. There is a higher frequency of patterns that develop for intraday trading.

This pattern develops on various time periods, however I do not use less than a 5 minute time period. My favorite day trading time frame is using both the 5 and the 15 minute period. This helps me to catch trend runs as they occur in the market.

The example below is the CBOT electronic Gold contract taken from September 28th 2005. The first dimension we need is the Pivot Point calculations. So we take the prior days High, Low and Close and applying the formula we derive at 466.50 as the first Support level known as S-1. Notice the price action at the support level. The Doji Forms at the S-1 and two times periods later, an engulfing green candle forms, which signifies the market closed above the open. Notice that it also closes above the Doji’s high. 

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

(click to enlarge)