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!