Table of Contents

Praise

Title Page

Copyright Page

Dedication

Acknowledgements

Introduction

THINGS CHANGE

THE CONUNDRUM

HISTORY SHOULD REPEAT ITSELF

DELAYED REACTION

TRADING FOR A LIVING

THE NEW AGE TECHNICIAN

CHAPTER 1 - Trading Vehicles, Stock, ETFs, Futures, and Forex

IMPORTANCE OF A RULE-BASED APPROACH

START TRADING AS A BUSINESS

EDUCATION IS THE KEY TO SUCCESS

TRADERS NEED TO ASK MORE QUESTIONS

RISK PER TRADE

NUMBER ONE TRADING FOCUS—RISK MANAGEMENT

DIVERSIFICATION IS THE KEY TO SUCCESS

HABITUAL WINNERS FOLLOW TRADING PLANS

INVESTMENT VEHICLES

FX—FOREX

STOCK TRADING OPPORTUNITIES

SPREAD TRADING TIPS

BECOME THE NEXT WARREN BUFFETT

LONG-TERM INVESTING OR SHORT-TERM TRADING

EXCHANGE TRADED FUNDS

FUTURES MARKETS: LEVERAGE SYSTEM

FUNDAMENTAL EVENTS INFLUENCE PRICE DIRECTION

NOT ALL NEWS AFFECTS MARKETS EQUALLY

FOLLOW THE MONEY FLOW

FOREX, THE CURRENCY CASH MACHINE

FOREX TRADERS BENEFIT FROM FUTURES MARKETS INFO

INSIDER TRADING INFORMATION

WHAT EVENTS MOVE THE CURRENCY MARKETS?

STUDY THE “MACRO” ISSUES

CHAPTER 2 - Determining Market Condition

WHAT DEFINES MOMENTUM?

WHAT MAKES A SUCCESSFUL TRADER?

WHERE’S THE CATCH?

FIND THE CLUES!

BE ON GUARD FOR CHANGES

FOREX MARKETS FALL PREY TO REVERSALS

MOVING AVERAGES HELP!

FILLING IN THE GAP

CHAPTER 3 - How to Read Oscillators to Spot Overbought or Oversold Conditions

STOCHASTICS

RULES TO TRADE BY

STOCHASTICS CONFIRMS THE TURN

TIPS AND TRICKS TO HELP

MACD

RELY ON THE PATTERNS

SUMMARY

CHAPTER 4 - Momentum Changes

VOLUME IS THE BEST PRICE CONFIRMATION TOOL AND TREND INDICATOR

OVERBOUGHT MARKET CONDITION—A DEAD GIVEAWAY

THE “COMEBACK” KID STOCK

BLOW-OFF TOPS ON VOLUME SPIKES

INTEGRATE VOLUME AND INDICATORS

BULLS TAKE CHARGE

TRADERS NEED TO ASK MORE QUESTIONS

CHAPTER 5 - Pivot Points

SUPPORT AND RESISTANCE IN DISGUISE

MATHEMATICAL CALCULATIONS

THE LEADING INDICATOR

POSSIBLE OUTCOMES WHEN PRICES ARE NEAR PIVOT AREA

DETERMINE THE RANGE

MULTIPLE TIME FRAME ANALYSIS

FILTER OUT INFORMATION OVERLOAD

THE IMPORTANCE OF CONFLUENCE

CONFLUENCES WORK AT TOPS

SUMMARY

CHAPTER 6 - Pivot Point Moving Average System

DETERMINING TREND DIRECTION

BEAT THE STREET

THE SIMPLE MOVING AVERAGE

TRADING TRIGGER STRATEGY

CONDITIONAL OPTIMIZED MOVING AVERAGE SYSTEM

TRADING TIPS

HOW DO I START?

CHAPTER 7 - Candle Charts and Top Reversal Patterns

CANDLESTICK CHARTING

CANDLE FORMATIONS

TRADING TRIGGER STRATEGY

CHAPTER 8 - Setups and Triggers

HIGH CLOSE DOJI

LOW CLOSE DOJI

THE JACKHAMMER

SUMMARY

CHAPTER 9 - Risk Management

PLACING STOP ORDERS

GENERAL USES OF STOP ORDERS

THE BOTTOM LINE

CHAPTER 10 - Projecting Entry and Exit Points

STEPS TO SUCCESS

DO SOMETHING GREAT

SCALE AND TRAIL

INTEGRATE PIVOT POINTS TO HELP TIME OUR EXITS?

BUY SUPPORT, SELL RESISTANCE

CHAPTER 11 - The Sample Analysis

SEASONAL STOCK SYSTEM

HISTORY LESSONS

WHICH STRATEGY TO SELECT?

WHAT ABOUT THE MACD?

WHAT IS THE BEST DAY TRADING CONFIRMATION TRIGGER TO PROGRAM?

SHOW ME THE PROOF

MONEY MANAGEMENT IS THE KEY TO SUCCESS

WHEN IS THE BEST TIME TO TRADE?

DOES THIS WORK FOR FOREX?

CHAPTER 12 - Confidence to Pull the Trigger Comes from Within

WAIT FOR THE TRADE SIGNALS

THE RIGHT FRAME OF MIND

TRACK AND CHART YOUR TRADES

TWO CASES IN POINT

SIMULATED TRADING

LIVE BY THE RULES

Glossary

About the CD-ROM

Index

For more information regarding the DVD, see the About the DVD section on page 335.

Additional Praise for

Candlestick and Pivot Point Trading Triggers

“Coming from the trading floor, it wasn’t until we started building charting software that I realized how little I knew about the retail trader’s passion for technical analysis. John’s latest book clearly defines many of the delicate intricacies of trading patterns and key turning points. I’m a junkie for this type of stuff and I learned a ton from this book.”

—Tom Sosnoff CEO, thinkorswim Group

“As a professional options trader and teacher, I have always told my students that to be consistently successful in the markets, you must first identify the opportunity and then apply the best strategy for you that fits that opportunity. Candlestick and Pivot Point Trading Triggers is the answer to the first step: finding and identifying the best opportunities to trade. John breaks down pivot points, a sophisticated form of technical analysis, in a surprisingly simple way, and then combines it with candlesticks to create a simple and easy-to-use system. This system, unlike most others, is consistently able to predict highs and lows of stocks and other securities for multiple timeframes with amazing accuracy. This is a great book for traders of all experience levels and I am making it mandatory reading for all of my students.”

—Ron Ianieri Chief Options Strategist, The Options University

“John Person has built his career on teaching investors how to understand and use technical analysis. The strategies described in Candlestick and Pivot Point Trading Triggers are employed by professional traders every trading session and are the lifeblood of futures and forex investors. If you want a complete guide to why the smart money buys at this level and sells at that, you must read John’s book. I heartily endorse it!”

—Jon “Doctor J” Najarian co-founder of www.optionmonster.com

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The Wiley Trading series features books by traders who have survived the market’s ever-changing temperament and have prospered—some by reinventing systems, others by getting back to basics. Whether a novice trader, professional, or somewhere in-between, these books will provide the advice and strategies needed to prosper today and well into the future.

For a list of available titles, visit our Web site at www.WileyFinance.com.

Copyright © 2007 by John L. Person. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

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Library of Congress Cataloging-in-Publication Data:

Person, John L.

Candlestick and pivot point trading triggers : setups for stock, forex, and futures markets / John L. Person.

p. cm.—(Wiley trading series)

Includes index.

ISBN-13 978-0-471-98022-3 (cloth)
ISBN-10 0-471-98022-6 (cloth)

1. Stocks—charts, diagrams, etc. 2. Investment analysis. 3. Futures. 4. Options (Finance). I. Title. II. Series.

HG4638.P468 2007

332.63’2042--dc22

2006011098

To my wife, Mary,
who is always by my side and who gave me
encouragement and assistance in completing this book.
Thank you from the bottom of my heart
and with all my love.

Acknowledgments

I want to thank Pamela van Giessen and Jennifer MacDonald of John Wiley & Sons for allowing me to share my work. I would also like to thank Cindy Cromwell, Mike Felix, Sarah Neis, and Joanna Pak fromto RealTick Software—what a great team! I also extend my sincere gratitude to Glen Larson and Peter Kilman from Genesis Software for testing my theories and for helping me to develop my trading library on their software. Between these two charting software companies, any serious trader will have the best support and the most advanced trading tools to succeed! I also wish to thank the folks at eSignal.com.

I wish to thank all my past students for taking the initiative to apply these principles and for testing me while trading. I wish you all the very most life has to offer!

To my son John, you have made your father proud! Then to Mary, my wife of 19 years, your help in fixing all my computer and technical issues was instrumental in helping me finish this project, including completing the Pivot Point Calculator CD.

JOHN L. PERSON

Introduction

To all the individual traders reaching out to learn how to invest and trade wisely and to all those who are looking for new ideas and who have been around looking to learn a more positive approach, I say that after reading this material, you will find a great approach to trading and will learn the importance of or at least will expand your knowledge on how to develop your personalized mechanical trading system and learn why that is important. You will learn specifically what methods and parameters to use with time-tested material. My first book, A Complete Guide to Technical Trading Tactics, was released in April 2004. It was a great introductory on how to incorporate pivot point analysis with other forms of technical indicators and how it related to trading commodities. The foresight that book offered suggested that we would see resurgence in commodity activity and that commodity markets would soon be in vogue. I had chart examples of silver at 4.50 per ounce and gold at 350 per ounce. On page 211, I gave an example of a potentially great scale trading opportunity in coffee when it was as low as 49.00. Sugar was at 7.00. Crude oil was at 21.00. The 30-year bonds were at 111. The Federal Funds interest rate was at 1.0 percent. There were great trading opportunities, many of which I was able to take advantage.

THINGS CHANGE

Times changed, as did prices of these raw commodities. Other hard asset products, including housing and real estate, besides the commodity markets, skyrocketed in value. Things changed; global tensions mounted as we invaded Iraq trying to set a country free. Nations’ economies grew as new opportunities emerged in places such as China and India. Global economic growth pushed demand for products through the roof, creating spectacular price gains. Things changed alright, even intermarket relationships. Gold went up on fears of inflationary pressures in light of the Federal Reserve (Fed) raising interest rates. In turn, the U.S. dollar rallied as the interest rate differentials widened here in the United States against foreign central banks.

THE CONUNDRUM

One favorite word among economists in 2005 was conundrum, which was used by then-chairman of the Federal Reserve Alan Greenspan. This was the term he used to describe the event of Treasury yields declining while the Fed was raising interest rates. The Federal Reserve moved to raise interest rates 14 consecutive times in 0.25 percent increments in an effort to reduce inflationary pressures. Bond yields, instead of moving in tandem with the Fed’s rate hikes, declined. Short-term Treasury instruments were yielding more than longer-term, and what developed was known as a flattening of the yield curve. At some points, we even had an inversion effect, where longer-term interest rate instrument yields were lower than shorter-term. Throughout history, that is a sign that the economy will soon proceed into a recession.

HISTORY SHOULD REPEAT ITSELF

Often it is said that history repeats itself. Economies and the world move in cycles. Based on the market’s price behavior and the climb that commodity prices had, intermarket relationships were not moving in a traditional way in 2005, or at least not in a manner in which they had in the past. History should have repeated itself, but it did not; or if it does, it will be a delayed reaction. Due to this keen observation, there was one solid piece of advice I was constantly giving to people through our trading room or in my newsletter advisory service. It was, “Trade the markets independently of each other.” One reason for this advice was this: Not much was making sense at times in the traditional way. Let’s face it, when crude oil or energies shoot to the moon, it is inflationary and has a taxing effect on consumers. We would have expected stocks to sell off sharply, and they did not (they did not rally much either in 2005). When federal deficits soar, it creates inflationary pressures; when the Fed raises interest rates, yields should go up and Treasury prices should go down. The key word is “should go down.” What happened was just the opposite. Gold was the only mover that acted in response to investors’ demand for protection on resurgence in inflation. In fact, at times, price swings of gold interacted well with crude oil.

DELAYED REACTION

As of February 2006, the U.S. economy was in its third year of an economic recovery. It remained a stock picker’s market, as we did see stellar moves from Apple, Rambus, AMD, and other lost hopefuls. But there were other investors who were expanding their knowledge in trading other investment assets, such as foreign currencies. There were others who made fortunes in real estate. Unemployment in January 2006 was reported at 4.7 percent. Times were good and were probably going to remain good forever! Well, that’s where I must say, “You can’t cheat history.” As the old saying goes, if it’s got four legs and a tail, it’s probably an animal. I see a delayed reaction and an economic downturn. Will it be the end of civilization as we know it today? I doubt it. However, I believe we will go into a period of an economic slowdown. Why? For starters, usually we see energy and commodity prices rally near the peak of an economic upturn. Then, as the Fed fights inflation, they will continue to put the brakes on and continue to raise interest rates. Since no one knows for sure how soon or by how much consumers will adjust their spending habits, usually the Fed will go too far. That will slow borrowing and increase debt payments, especially on all those adjustable mortgage rates (ARMs) that so many people have. Yes, I believe an economic downturn will occur. I just believe it will be a delayed reaction. It seems that most cycles have stretched a little further than people believe. Just ask all the folks who predicted a stock market crash in 1999. They were right, but quite a bit off in their timing. That leaves one to wonder where to go to make money.

TRADING FOR A LIVING

If you don’t already know of my past, I started in the business as a runner on the floor of the Chicago Mercantile Exchange back in the late 1970s. I had the privilege of working with a true master trader, George Lane, the creator of stochastics. I had a knack for the financial markets and learned to trade the 30-year bonds. I also discovered how to use pivot points and how to incorporate longer-term time periods in my analysis. Then came options on commodities; and in 1986 I made a fortune for myself and others in the bond market. I gradually improved my techniques; and through the understanding of candle charts while using them in conjunction with pivot points, I have developed quite a methodology that shows a high frequency of recurring patterns. This is what I believe is one of the single best methods for identifying market moves for various trading vehicles. Trading for a living is a fabulous career. Now more than ever, we have global market influences, advanced technology, equal access, market liquidity, and, best of all, diversified markets investment vehicles. We have forex, or foreign currency exchange; futures products to day trade; and commodities that allow speculators to participate in a structured, regulated, open marketplace that offers leverage. Then we have stocks to participate in investing for long-term growth. And there is a new breed of investment asset, exchange traded funds. Most of these products offer options so as to hedge or speculate to fully capture a market opportunity and develop the right strategy to enhance rewards wile reducing risks.

THE NEW AGE TECHNICIAN

As a technician, one who practices the art of technical analysis, I have now more than at any time in the past a greater edge in the marketplace. Through electronic market access and charting software with the power of today’s computers, I can take my refined market analysis methods and implement these strategies and apply them to all markets. As long as there is liquidity and a structured environment, and as long as I keep my trading capital intact, follow specific trading rules to manage risk, there will be a bonanza of opportunities in the years ahead. I fully expect the techniques that I am sharing with you in this book to help you discover how to be a consistently profitable trader. This book opens the door to how you can learn to read charts and rely on price rather than on indicators. You will learn what triggers momentum and what to look for in order to spot when a market changes direction. Another important element of this book is that it will help you learn techniques to cut your losses quickly and to stay with the winning trend, to ride a winning tide.

CHAPTER 1

Trading Vehicles, Stock, ETFs, Futures, and Forex

Welcome to Trading Triggers. If you are an active trader or a first-time investor looking for a trading method that suits your personality, then you have the right book. Trading for a living is an amazing and yet risky business. There is more to trading than buying and selling. There are often-missed but important issues that many books do not mention, such as not only how to make money in the market but also how to keep it and create a positive cash flow. The purpose of this book is to take you to a new level of trading knowledge by giving detailed explanations of technical tools that will help you develop your own trading system so you can cultivate and extract money from the market, especially those traders who want high alpha (big returns) with reasonable standard deviation (volatility). I will explain some of the most obvious yet simple concepts of how to interpret technical analysis and improve your chart-reading skills so you can make money in the markets.

There are two theories on how markets perform: efficient market theory and random walk theory.

1. Efficient market theory lends to the belief that markets are always priced correctly because the current price reflects all factual information. If the markets are efficient, then no fundamental information will give an investor an edge in the market.

2. Random walk theory lends to the belief that price movements do not follow any pattern or trend and that past price behavior cannot be used to predict future price movements. In other words, the markets are completely unpredictable.

I fall in the category of believing that history can and does repeat itself. People can and do make money based on technical analysis, and I am here to help prove it.

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!

Lesen Sie weiter in der vollständigen Ausgabe!