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Candlestick Charting Combined with Pivot Point Analysis

Presented By:

John L. Person III, C.T.A.

Trading Seminar Outline


Explanation of Pivot Point Analysis Construction of Candle Charts defined Popular & Powerful Reversal Patterns Doji Myths & Observations Setups & Triggers from Candle Charts

Trading Using Candlestick Charting and Pivot Point Analysis

Pivot point analysis is a famous technique that is used as a forecasting method for day traders,floor traders and professional traders. Some of the terms that are used to refer to it are support /resistance, price range forecasting, pin pointing tops and bottoms and target trading.

Pivot Point Analysis

Pivot Points are a mathematical model & is used to project ranges & trade break outs. Daily, Weekly & Monthly Time frames can be Calculated. They act as a leading price indicator for traders.

Pivot Point Analysis


Pivot Point analysis, unlike Fibonacci studies, relies on specific time frames for analysis. The calculations will give you the high the low or both for a given trading session. The same principle goes for the Weekly and Monthly calculations.

Pivot Point Formula

Here is the mathematical formula where P= pivot point; C= close: H= high: and L= low The pivot point number is the high, low and close added together and then divided by three. P=(H+L+C)/3= pivot point Now for the first resistance level take the pivot point number times two and then subtract the low. (Px2)-l= resistance 1

Pivot Point Analysis

For the second resistance, take the pivot point number add the high and then subtract the low. P+H-L= resistance 2 For the first support take the pivot point number times two and then subtract the high. (Px2)-h = support 1 For the second support, take the pivot point number subtract the high and then add the low. P-H+L= support 2

Johns Rule of Thumb for Pivot Points

Take the R-1 and the S-1 initially from all time frames for your analysis. Especially in low volume consolidating trading sessions. The Pivot Point can be used as an actual trading number in determining the high or low of a given time period especially in strong bull or bear market conditions.

Johns Rule of Thumb for Pivot Points

If in a given trading day if the market goes through my Daily target numbers the importance of the weekly and even monthly numbers is what gives me an indicator for the next major target levels of support and resistance.

Choose Correct Support/Resistance Points

Choose Correct Support/Resistance Points

Choose Correct Support/Resistance Points

Choose Correct Support/Resistance Points

In a Bullish market the highs should be higher and the lows may be higher than the preceding time period. Use S-1 up to the pivot point for the low and then R-2 for targeting the potential high or that time periods trading range.

Choose Correct Support/Resistance Points

Choose Correct Support/Resistance Points

Choose Correct Support/Resistance Points

Choose Correct Support/Resistance Points

In a Bearish market the highs should be lower and the lows may be lower than the preceding time period. Use R-1 down to the pivot point to project the high and then S-2 for targeting the potential Low for that time periods trading range.

Choose Correct Support/Resistance Points

Trading Using Candlestick Charting and Pivot Point Analysis

Most technical analysis is derived from mathematical calculations derived centuries ago. The common denominators used are the high, low, close and the open. This is what is used for plotting bar charts and candlestick charting.

Trading Using Candlestick Charting

Candlestick Characteristics

Relationship between Open and Close * body Real body colors Shadows and correlations to candle body Size of shadows Range or length of the candle Candles give us immediate identification of the markets current environment and the market participants acceptance or rejection or a support or resistance level in a clear visual manner..

Candle patterns To Know


Evening Doji Star Harami Doji Cross Bearish Engulfing Dark Cloud

Morning Doji Star

Bullish Piercing

Hammer

Bullish Engulfing

Doji Candlestick properties


DOJI Closes at or near open. Helps confirm reversals. Has different names. Helps form two or three candle pattern. More trusting at tops.

Characteristics of Dojis

Dojis indicate indecision and often signal change or continuation of trend!

Characteristics of Dojis

Doji indicates indecision, the market closes where it began. Confidence is lost. In a bullish or bearish trend, indecision is generally not good. Dojis show rejection or failure of the momentum and that is a significant sign that changes are coming. Doji tops patterns are more reliable than Doji bottoms.

Characteristics of Dojis

In a strong up trend, usually the market will close near the high as larger capitalized traders will hold or add to positions. If large money traders are not convinced the market will move higher in price, prices usually close back near the open. The opposite is true in down trends.

Hammer Reversal Candles

The characteristics required to form a hammer candlestick are that the lower shadow should be at least two times the length of the body. There should be little or no upper shadow and the color, meaning a lower close than the open or a higher close than the open does not matter. I believe a white (green) or hollow body, which will be a higher close than the open, is a better and more reliable indication that a bottom has formed.

Hammer Reversal Candles

Hammer Reversal Candles

Bullish Trade Set-up Strategy (HCD)

Buy on the close or on the next open after a new closing high is made from Doji especially against a key Pivot Point or Fib. Target number. Place stops below the lowest low point of the Doji.

Sell or exit the trade on the close or the next open of a candle that makes a lower closing low near an important Key Pivot Point target number. One can use a Filter or back-up process to confirm the buy signal such as a bullish convergence Stochastic pattern

The HCD pattern!

Stochastics %K & %D crossover confirmation!

Trading session 3-7-07

Doji Forms near Pivot Point Number

Low Close Doji (LCD)

Sell on the close or on the next open after a new closing low is made from a Doji candle pattern. One can use a Filter or back-up process to confirm the sell signal such as a bearish divergence Stochastic pattern and /or against a key Pivot Point or Fib. Target number.

Would you sell here?

Why?

The LCD pattern & Shooting star high!

ANSWER:

YES

A. Predetermined resistance. B. Boni-fide moving average system generated sell signal. C. Complete with a profit objective.

Candle Pattern Frequency Statistics

Candle Pattern Frequency Statistics

Confluences of Various time Frames


There are 5 days in every week There are 4 weeks in every month. Usually one day within a month will mark a high and one day will mark a low. The market will close between those points. That is the range.

Confluences of Various time Frames

The more confluences of different time frames that line up with Pivot Point Calculation values near or at a specific price level, gives a stronger certainty for a market reaction off of that support or resistance level.

Confluences of Various time Frames

The more Confluences or corroborating numbers adds to the significance of a specific target area. They work to pin point almost exact times and prices for trades in various markets and can be used to validate other analysis.

Confluences of Various time Frames

This next example was a featured article in the September 2004 Issue of Active Traders Magazine

Confluences of Various time Frames


March S&P High 1163.75 made on 3-5-04 Monthly R-1 = 1161.50 Weekly R-2 = 1162.00 Daily R-2 = 1159.25

Confluence or Average price level of numbers was 1161.00

The high for the year took less than 15 minutes to form

Confluences of Various time Frames

The yearly High at the time occurred near several Time frames resistance numbers and a Doji Formed! This is a 5 minute Chart

Confluences of Various time Frames

This trading example was in September Issue of Active Trader Magazine

Trading Using Candlestick Charting and Pivot Point Analysis

Candlestick charting techniques work for different time frames and markets. The next chart is a weekly dollar index. Lets examine it for a moment.

Trading Using Candlestick Charting and Pivot Point Analysis

Trading Using Candlestick Charting and Pivot Point Analysis

Trading Using Candlestick Charting and Pivot Point Analysis

Trading Using Candlestick Charting and Pivot Point Analysis

Combining the pivot point analysis with candlestick charting techniques and when you include western market indicator analysis such as Stochastics, MACD, or CCI it may give you better trading signals and verification so that you have more confidence and belief in your own trading abilities.

THE KEY TO SUCCESS


Unlock the door to knowledge and improve your trading skills. Trading is not only about price forecasting but good risk management. Losing trades will happen, it is alright to lose your shirts just dont lose your pants because that is where your wallet is!