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Entry & Exit Clues
Part 2
Golden Rule
Candlesticks and patterns require three criteria
for proper interpretation:
1. A Completed Line
2. Shape of the line of pattern
3. The Preceding Trend
Basic & Best Candlestick Signals
Basic Candlestick Reversal Signals • Doji/Spinning Tops
• Engulfing Patterns
• Hammer/Hanging Man
• Piercing Line
• Dark Cloud
• Harami
• Shooting Star
• Morning Star
• Evening Star
• Inverted Hammer
• Kicker
Supporting Clues
Non Candlestick Supporting Clues
• Moving averages (8 EMA, 20 SMA, 50
SMA)
• Trends
• Support/Resistance
• Stochastics (12/3)
• Voided Patterns
• Daily & Weekly Charts
Doji
The trend is tiring or Indecisive
Tombstone after uptrend
Doji/Spinning Tops
The trend is tiring or Indecisive
Why Alternative Entry?
• Lower Risk - Higher Rewards
• Trade While You’re Away (Conditional
Orders with Tight Stops)
High Reward/Risk Patterns
• Continuation Patterns • Moving Average Pull Backs
• Moving Average Crunches
• Rounding Tops & Bottoms
• Windows & Gaps
• Failure Patterns
Moving Average Pull Backs (Bullish)
Daily Chart Weekly Chart
Pull Back to 100 Day SMA
Pull Back to 20 Week SMA
Moving Average Pull Backs (Bullish) Entries & Exits
Daily Chart
1
1. First Entry Doji at the 50 & 100 Day SMA—End of Day
2. Secondary Entry Breaking 8 Day EMA—End of Day
3. First Stop Loss Below Swing Low
4. Profit Stop: Close below 8 day EMA or Violation of the low of the close below
These Entry & Exits can be used in reverse for Bearish Trades
2
3
4
Moving Average Pull Backs (Bearish)
Pull Back to 20 Day SMA
Moving Average Crunches
Moving Average Crunch
Rounding Top
Gentle Roll Over Notice the number of Legs Up This was a late stage failed Based
Rounding Bottom
Rounded Bottoms & Tops Can Be Long Term
Rounding Bottom
Windows and Gaps
Candles are disjointed (do not
touch). Whole window/gap is
support/resistance. Opposite
side is strongest S/R. A close
through the window voids it.
Bullish Gaps
Bullish Gaps: Rules
1. Gap Up Entry—End of Day
2. Secondary Entry Breaking 8 Day EMA—End of Day
3. First Stop Loss Below Swing Low
4. Profit Stop: Close below 8 day EMA or Violation of the low of the close below
These Entry & Exits can be used in reverse for Bearish Trades
1
2
3
4
Bearish Gaps
Bearish Gaps: Rules
1
2
3
4
1. Gap Down Entry—End of Day
2. Secondary Entry Breaking Low of Day 1
3. First Stop Loss Above High of Gap
4. Profit Stop: Close above 8 day EMA or Violation of the low of the close below
Failure Entries & Exits For Swing Trades
o Breakout Failure
o Breakdown Failure
Breakout Failure
Early Entry when price falls back
below horizontal resistance after
brief breakout. Target is nearest
low or bottom of any channel.
T1
Breakout Failure Example: IWM
Breakdown Failure
Early entry when price rises back
above horizontal support after
brief breakout. Target is nearest
high or top of any channel.
T1
Breakdown Failure Example: DIA
Test Yourself
Take the trade?
Why or Why Not?
Take the trade?
Why or Why Not?
Take the trade?
Why or Why Not?
Too Late?
Take the trade?
Why or Why Not?
Close?
Why or Why Not?
Close?
Why or
Why Not?
Go Short?
Close?
Why or
Why Not?
Go Short?
Go Long
Close?
Why or
Why Not?
Go Short?
Go Long
Close?
Why or
Why Not?
Go Short?
Go Long
Close?
Why or
Why Not?
Go Short?
Go Long
Close?
Why or
Why Not?
Go Short?
Go Long
Close?
Why or
Why Not?
Go Short?
Go Long
1 4
3
2 6
5
1 = + 20.9% 2 = -26.56% 3 = +10% 4 = +42% 5 = -9% 6 = +9.8%
Summary
• Candle Lines & Technicals combined with a few easy to recognize patterns provide a very powerful trading tool
• Candle Lines show changes in momentum, potential reversals
• Technicals show potential reward and limit of potential risk
• Remember the Golden Rule and trading checklist.
• The buy of the year comes around about once every week!
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