Combining Candlesticks, Indicators, and Pivots

[Soultrader 12]

Technical indicators such as stochastics and the RSI can be applied to confirm pivot point setups.

 

When price reaches a pivot point, look for candlestick patterns such as doji's, shooting stars, harami's and engulfing patterns. This can add further confirmation to a pivot point setup.

 

If you trade with indicators, you can look for bullish and bearish convergence/divergence using the stochastics or RSI.

 

I do no trade with indicators or watch for certain candlestick patterns, however, one powerful trading setup that I have noticed recently occurs when pivots cluster up with technical price patterns. For example, in a head-n-shoulders pattern, if the neckline is in line with a pivot point this can offer a high probability trading setup.

 

When the breakout resistance level of an ascending triangle is in line with a pivot, this also offers a high probability trading opportunity.

 

If you are currently trading with indicators only and want to learn to trade with pivots, plot the pivot points and see if your indicators offer clues when price reaches the pivots. The more confirmation you get from the markets, the higher the odds are for a successful trade.

[jacobnbr1 10]

being a trader from technicals for 3 years, i have never explored piviots or even tried to learn how...

where would one begin to learn how to use them and what they are????

 

also, is there a software that plots piviot points for you? i have seen some of your charts from tradestation and see them on there. how can i plot them on say Bigcharts or another program.

 

chris- new member.

 

p.s- great site, wish i would have found this sooner.

[Soultrader 12]

Hi Chris,

 

Welcome aboard. Glad you like the site. Regarding pivot points, try doing a search in this forum. Most of my posts are based on pivots and market profile and you should find numerous charts, videos, and threads based on it.

 

Here is a link for the formulas:

 

http://www.traderslaboratory.com/forums/derivatives/35-pivot-point-formulas.html?highlight=pivot+points

 

I would assume most data vendors offer floor trader pivots as a tool in their indicators. If you are looking for a good pivot point tool for Tradestation, pm me. I know of a great commercial indicator but costs around $230. I plot the pivots by hand manually. I keep an excel spreadsheet with all my daily data and have a table setup just for pivots. All I do is plot the close, high, and low and gives me all the values.

[jacobnbr1 10]

I hate to be a stick in your side... But, what do all the r's 1-4, pp and s's 1-4 mean??

 

What is the differance in formulas? ie.. classic, woodie and camarilla?

 

And one more. what advantage does this give by knowing where the piviot points are v's support and resistance?

 

I got a tight distant friend that i chat daily with as we toss things back and forth, he seems to come up with future calls of prices stopping and turning when a certain price is breached. Although often right, he will never reveal his secret.

I always come up with a support and resistance differant than him. He always tells me he got the real support and resistance prices from price actions... I wonder if he is using this method right here? I mean piviot points. He always make himself out to be like he is the grand-puba of traders???

 

I asked him today and he said he was not using this method.Y-R.

 

thanks for all the help..

chris

[Soultrader 12]

Pivot points are simple support and resistance points derived mathematically. They originated from floor traders who trade based on these numbers.

 

The reason why floor traders use them is because they do not have the luxury to trade with monitors and look at every technical indicator in the world. They trade strictly on price and order flow.

 

I don't believe there is any secrets in trading unless you have developed a super system guaranteed to win. If trading discretionary, like I do, there are no secrets. What I do is nothing fancy. A trader can tell his methods to another trader; but if the trader does not know how to use it correctly he will not profit from it.

 

There are many methods you can use to obtain support and resistance points. Some use fibonacci levels, fibonacci clusters, moving averages, Gann analysis, etc... I am sure your friends methodology is nothing new. He is just good at applying the methodology into this analysis and trading.

 

Also.. make sure you never follow anyone's advice blindly. No man on this planet can predict where stock XYZ will be trading in the future. If he claims he can predict prices, he is lying. He can easily go long and reverse as soon as he senses danger. However, unless you are with him 24/7 watching his trades, there is a good chance you will hear new information about his position after the markets have moved against you.

 

By the way, what methods do you use to obtain support and resistance? Are they working for you?

[jacobnbr1 10]

I use a method from a text book of john murphy where the peaks and throughs consist of the support and resistance levels..

And then the mental support and resistance levels of even dollar or 1/4 and 1/2 dollar...

 

Is this an incorrect way or is it out dated?

[Soultrader 12]

I dont think its incorrect. John Murphy has taught me alot of things as well.

 

But I do think those levels should be considered as levels to look for besides your main analysis. For example, I use pivots, previous days high/low, open gaps, and market profile. However, I do still look at pyschological levels of 14700, 14800, 1900, etc... (anything ending with 00)

 

Try identifying more levels that other traders may be watching. If only a small percentage of traders are watching your support level, there is a chance it will not hold.

 

Since I do not trade stocks, it would be difficult to recommend any trading methodology for you. But you should definitely look into various techniques that are used to derive support and resistance levels. My old mentor used moving average clusters and used it very effectively trading the ETF's. Some traders use fibonacci clusters. But they are also aware of other levels apart from their main methodology like the pyschological levels of 1/2 dollar, etc...

[jacobnbr1 10]

Ok i have found some things out here.

 

So i plot an example. was a very tight day- low-1.04 high 1.12 close-1.07.

 

This gave me a piviot point and four r lines and 4 s lines..

 

what exactly is this suposed to tell me?

 

the example is ticker tag and is closed at 1.07

 

seems all the r and s lines are within a few cents of themselfs.

 

I guess i am not understanding time frames?

 

I will play with this during market conditions to see what exactly goes on

[Soultrader 12]

Bad idea to use pivots when you are playing with penny stocks. You are dealing with the range (high-low) of only 8 cents. Use pivots with normal stocks.

 

For example lets take stock XYZ:

 

High: $51.50

Low: $49.75

Close: $50.50

 

You should get the following pivots:

 

R3: 53.17

R2: 52.33

R1: 51.42

PP: 50.58

S1: 49.67

S2: 48.83

S3: 47.92

 

Now, these levels can be used as support and resistance. It is now up to you to decide which levels you want to trade at. Will you fade these levels? Or will you play a breakout of these levels?

 

The PP is probably the most important pivot. Followed by the R1,S2 then R3,S3 and lastly the R2,S2 pivots. If you choose to use midpoints, simply divide the pivots in half.

 

I also use weekly and monthly pivots as well. Just get the weekly high,low,close and the monthly high,low,close and use the same formula.

 

Pivot points are not the holy grail or an exact science. This is one kind of methodology that traders use. Hope this helps.

 

Quick Note: I use a slightly different formula from the classic and woodies. I just updated this page so please take a look:

 

http://www.traderslaboratory.com/forums/derivatives/35-pivot-point-formulas.html?highlight=pivot+points

[jacobnbr1 10]

Ok..

 

Now i know you said it was a bad idea to calculate the penny dogs but what if you calculated the weekly chart thus giving a wider spread???

 

 

Also i have plotted a stock that i own and i have come up with mid points as well, what exactly is this telling me if the price is in between the mid point and pp in the negative?? ie. what is the pp function?

 

thanks again for all the help...

chris

[Soultrader 12]

Try to test it out using whatever stocks you plan to trade. I have found it to useful in my trading because I trade a market that respects pivot points. I have no idea how they are when trading penny stocks. Why are you trading them anyways? You don't find mid and large cap sized stocks attractive?

 

The pivots and midpoints are just a point of reference of support and resistance points. The midpoints I use only when there is great distance between two pivots. I use the midpoints mainly for exiting and not entering.

 

The pp is the most important pivot. The formula says it all: (high+low+close)/3. I like to fade this pivot usually. Some traders will only look for long setups when price is trading above the PP and short setups when price is below the PP.

[jacobnbr1 10]

I don't always trade the penny dogs but at this moment there are a couple of trades that i am working on that are penny dogs...

 

Actually the stock in mention is- was a midcap stock that has been beaten down to the dollar range and against better judgement i took a small position of it and was just looking at it with this method to see if something of value can be used.

For the most part when i buy a stock i pretty much ignore all the noise and let the stock do as it needs to do and recheck it every 15 days or so to see if anything has changed.

 

Thanks for explaining the pp as my question was answered.

 

I have tried trading a break out of rissistance levels and have found that when i do this they fade back and few actually take off, maybe this is the method most traders are doing know...

 

 

chris

[Soultrader 12]

Pattern failures are common and catch a lot of new traders off guard. That is why I d o not play breakouts. Instead I will play pullbacks out of breakouts. I do not know exactly how breakouts occur in penny stocks. Breakout failures may be more common in penny stocks (no idea if this is the case or not).

 

I have met a trader years ago who traded penny stocks with a system he designed. I honestly had no clue what he was doing most of the time but he was making an average $10k a day.

 

You said you are trading a former midcap stock that is trading at pennies now. There is probably a good reason why it got hammered all the way down. In personally would not touch any of these stocks. The odds of it going back to its past price is low. The only setup I will play when stocks get hammered is to look for a dead cat bounce.

[jacobnbr1 10]

Pattern failures are common and catch a lot of new traders off guard. That is why I d o not play breakouts. Instead I will play pullbacks out of breakouts. I do not know exactly how breakouts occur in penny stocks. Breakout failures may be more common in penny stocks (no idea if this is the case or not).

 

I have met a trader years ago who traded penny stocks with a system he designed. I honestly had no clue what he was doing most of the time but he was making an average $10k a day.

 

You said you are trading a former midcap stock that is trading at pennies now. There is probably a good reason why it got hammered all the way down. In personally would not touch any of these stocks. The odds of it going back to its past price is low. The only setup I will play when stocks get hammered is to look for a dead cat bounce.

 

You have a very valid point to this stock that i have considered.

 

I have found on some small penny stocks that when massive insider buying is preasent they tend to break out and double the percentage, sometimes multiply.. most midcaps a 10% increase is great but i can do 50-100 on most trades but i have a 40% win rate. I need to get to at least a 60% win rate to be doiing nicely...

Which led me to this wonderful site to try new things and explore the options of technical trading. By the way, I am currently using a simulator for all tests therefore not using cash for testing purposes. The simulator will not accept stocks under 2.00, using midcaps in the sim will be for sure. I currenetly rank 4th with like 3.8% this month using value trades.

 

chris

[Soultrader 12]

Jacob,

 

Are you looking to trade long term? It seems to me that from your way of trading, you are looking more on the longer timeframe. Also I do not quite understand your current method of trading. Are you trading strictly of fundamentals and not technicals?

[jacobnbr1 10]

Currently i am long term fudamental trader based on insider buying preasure, I use some technical indicators as in - obv,dmi,and rsi and volume.

 

I am in search of a better method and quicker turn time. I really do not want $$ tied up for 6-8 months when there are big moves going on each day producing some of the gains i wait 6 months to get.

 

Aside from trading the usual way i do I would like to have a cash generating system that would consist of a portion of my port. for trades between 1-14 days that can generate moderate gains repeatedly.

 

Does that make scense??

 

So as i had stated in another post I tried breakouts, options, stock splits and have not found a sucsessful way yet. I try most of my methods on a simulator 1st but seems most trades go your way when using the sim???

 

chris

[Soultrader 12]

Chris,

 

Yes, it makes perfect sense. You are looking for a swing trading method. I am actually starting to pick up swing trading on my own. Try picking up Alan Farley's, Master Swing Trader. I have taken some of his home study courses in the past and found it to be of great help. I learned a great deal of volume and price analysis from him.

 

The problem with simulation or paper trading is that it takes the pyschological and emotional out of trading. In my opinion, our competition is not of other traders. The true competition is yourself. I am the biggest enemy to myself. When you have money on the line, your brain will play many different tricks. It is the abilitiy to control this that will help you succeed as a trader. Paper trading is good to test out a strategy. But you should get in the habit of trading live with real money. If you do not feel like you are ready, trade small. This way you can practice and not lose money that can hurt you financially.

[jacobnbr1 10]

Some day i will sell all these books i have bought over the years and get a hefty return...

 

I got three sets of cd,vhs programs of the "WADE COOK METHODs" , and pretty close to 85 books.

 

Anywho the book in mention is on the way to me, i got the audio version for 16.95 on e-bay. hope this is what you wanted me to get?

 

So what can i do til then if i wan't to be a swing trader? Is there an easy chart pattern i can be looking at?

 

I went to a few websites today and some had video feeds of how to swing trade and looks as if you are setting these things up as breakouts.

 

I had a few good insider trades this week as the markets retraced. most of the insider stuff has very little volume so a retracement does very little to the positions... Lucky me.

 

thanks again.

chris

[Soultrader 12]

Hey Jacobnbar1,

 

You got the audio version? Which means you will be unable to view the charts and setups Alan Farley has in the book. I also have the audio version and the book version. I did this so I can listen to some concepts in his book while working out. Either way, you will still find the audio version useful.

 

I posted a chart... this is the reason why I do not play breakouts.

[jacobnbr1 10]

I did'nt think about the chart setup photo's in the book...

I will buy the book also.

 

 

What other methods are there other than breakouts?

[Soultrader 12]

There are a variety of methods in trading. I recommend you start reading about the methods of other traders and find what may fit you. For example, some people use price levels based on fibs or pivots, Others use volume analysis, market profile, tape, etc..

 

It all depends on your style of trading, Do you want to be in and out in a matter of a few minutes? Are you looking to capture the bigger intraday swing? Would you want to make 20-30 trades a day? Self-understanding in trading is vital for success.

 

There is no simple solution in trading.... those who seek for a simple method to follow or their neighbors advice is destined to fail.

[jacobnbr1 10]

I totally understand. It simply is not me to day-trade intra day, i do not want to tie myself to thin as i have a full time job that requires a-lot of attention but does include computer internet work.

 

I was thinking that an idea would be 1-5 day hold time.

 

The reason i am asking for the advice is because i do not want to use the wrong tools for the right job.

[Soultrader 12]

If you have a full-time job other than speculation, day trading will be hard to do. I think your 1-5 hold time is perfect for your situation.

 

Look into studying technical analysis. Learn price levels of support and resistance. Identify high volume areas and trade the charts. Make sure you develop trading strategies for each pattern you decide to trade.

 

If you are interested, I recommend reading How I Made $2,000,000 In The Stock Market by Nicolas Darvas. He has a very interesting theory called the Box Theory which he applied to the stock market. His timeframe was also similar to the timeframe you are looking at. The book taught me alot about understanding price levels.

[Stockaddict 10]

jacobnbr1,

 

If you don't mind me asking, what stocks do you usually trade? Do you have a select group of stocks you prefer? Or do you go where the action is?

 

Thanks

[jacobnbr1 10]

jacobnbr1,

 

If you don't mind me asking, what stocks do you usually trade? Do you have a select group of stocks you prefer? Or do you go where the action is?

 

Thanks

 

Well i normally keep an eye on the form 4 sec filings daily, then when i find one that meets my criteria i will focus on the company to determine if the insider buys are " SMOKE AND MIRRIORS" or legit.

If the company seems to have a good fundamental background i will chart the last 6 month and then three months and then find a good buy point and start with a small position and add on pull backs etc.

 

One stock i will toss out as an example is TAG as being a earnings play turn-around. Massive insider buying on the direct markets..

 

MFLX is a stock that has smoke and mirrors, as insider buying is listed but not on the direct open markets. These buys that are going on are what appears to be a ira, trust, or some kind of individuals retirement plan.

Which would reflect nothing on price action in the near future.

 

 

chris