Buy low sell high, buy high and sell higher or sell low and buy lower. Whatever your method is, the results need to be profitable or a trader’s career will be cut short. Most investors, whether that is being a position trader, swing trader or the more popular, day trader, the key is to try and capture a portion of a price move in order to generate a positive cash flow (make money).
A traders search for discovering a method that generates consistency in positive results is the primary goal and should be a continuous learning event.
There is a method that may help those interested in a little work with the ability and ambition to want to succeed. Blending the strengths and characteristics of Candlestick chart pattern recognition with Pivot Point Analysis has had amazing results, as this article will demonstrate.
Let’s first introduce Candlestick charting which has developed quite a following over the years and is used in most charting software applications. I use Futuresource due to the reliability and accuracy of data combined with the crisp, clean visual appearance of their charts. Each candle pictured has a different characteristic that represents the difference or distance between the high, low, open and close. Candlestick charting techniques can be used from data for whatever time period you are looking at, hourly, daily, weekly or monthly. Another important point, candlestick charting does not tell you if the close is higher or lower than the previous time period, rather only indicating for each “candle” or bar whether the close is higher or lower than the open.
As for the advanced charting student, there are several books written on the subject with excellent descriptions of the different candles and corresponding meanings of the formations. If you are not familiar with the concepts involved and want to learn then you may want to try Steve Nisons first book, titled Japanese Candlestick Charting Techniques or if you are interested in strategies, try my book Pivot Point and Candlesticks Triggers.
There are nearly 60 to 70 different classification of named candlestick patterns from one, two and up to several candle components. They can signal reversal, stalled and continuations of a market’s price move. Day Traders want to focus on a small arsenal of the more consistent and reliable reoccurring formations. Several patterns that a trader wants to hone in on and recognize are the more powerful reversal formations at tops and bottoms of price ranges.
The more frequent occurring bearish formation’s that one can use to identify a top reversal signal are Doji’s, Bearish Harami’s and Harami cross’s, Dark Cloud Covers and Evening Star formations.
As for bottom formations, Names such as Bullish Harami Cross’s, Bullish Piercing Patterns and Bullish Engulfing patterns and Morning Star formations are the more reliable two and three candle patterns. They are distinctly recognizable.
When candlestick chart pattern recognition skills are learned and then applied with the use of Pivot Point Calculations, a host of benefits will be gained. Just to mention a few, consider the targeted support and resistance numbers like an early warning system. Becoming aware of an important price target level, when accompanied with a candlestick pattern one can then swiftly, and best of all, confidently act on, an informed, calculated, trading decision.
I wrote an 18 page booklet titled Swing Trading Using Candlesticks combined with Pivot Point Analysis. This booklet covers the top candlestick patterns as well as reveals the pivot Point calculations.
One important aspect that I find extremely important is the use of multiple time frame analysis. For those who are familiar with the “numbers” from the Pivot Point calculations the idea of applying them from any other time period other than the prior days session may make little or no sense. However, I propose that the Daily, Weekly and even Monthly target numbers can and should be incorporated in a traders “tool box”. Often traders will comment, “if I am a day trader what would I want to be concerned with a monthly or weekly market outlook”? Consider this in every month there will be a High, a Low and the Close will be somewhere in between. Right? In one week, a high or low will be established and in one day of the week the market will form that point of interest and potentially, more often than not, in an hour or so trades will take place that will establish that high and subsequently that low!
I always believed in three main ingredients are needed to maintain a successful futures market. One is participation by professional large traders, second is participation by Commercials, in this case Hedge Funds, banks or institutions and the third is activity-involving speculators.
Article by: John Person – 2004
About the Author
John L. Person is a 32-year veteran trader and commodity-trading advisor. He is publisher of the weekly Bottom line Financial and Futures newsletter and Head Financial Analyst at Infinity Brokerage Services. John also writes the Daily Dow Report found at the CBOT website under Traders Resource section under Traders learning Center.
John’s name is a familiar one, he hosts a weekly, one hour Radio program, Personal Investors Hour, on Money Watch radio network, a financial AM station. Johns guest list includes The industries premier trading experts like Linda Bradford-Rashke, Martin Pring, John Murphy, Steve Nison, Larry Pesavento, John Bollinger and others.
He also appears in many news articles as the world’s top journalists, such as Reuters, CBS, Forbes, The New York Times and Dow Jones rely on his market insights. He has written articles for Futures magazine and has just concluded writing a Book on Technical Analysis, soon to be released. John presents private seminars and Appears at the Industries top Expos as a guest speaker.