Module 2
Module 2 Introduction Welcome to Module2 In module 2, I want to cover the “setups”! BBJP has an array of setups that allow you to pinpoint extremely low risk opportunities. You have 1 basic trend and direction indicator, and then signals and triggers off of that “fan” as it trends. Remember your blue and black moving averages. They dictate trade direction. When the 55 EMA (Black) crosses or bounces off of the 200 EMA (Blue) this is often the beginning of a large move in whatever time frame you are viewing. Remember also that your 55 and 200 EMA’s are your mid to long term indicators. Your Bollinger Band mean, and your 21 period EMA are your short term indicators. The bands themselves are the shortest term indicator. This is what makes this method so unique – a visual cue continually of exactly where price is in the overall trend, a virtual “red light” indicator on when a trend may be over and low risk triggers along the way! Page 1 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
This just takes a little practice but once you get the hang of it you’ll never look at a chart the same way again! There will always be untradeable time periods on the chart. So learn to avoid these times by keeping an eye out for a “wide gate” where price ignores your 55 EMA, and prints wild highs and lows outside of both sides of that moving average. Also look for when your upper and lower bands get jagged and are no longer smooth. This is always a sure sign of unpredictable price action. Sometimes you’ll notice that one time frame is fluid and predictable and another is jagged, wild and unpredictable. Be sure to peek at relevant time frames for maximum accuracy and to avoid high risk areas on the chart. Our ultimate indicator is price action. Basic double bottoms, tops and breakouts and bounces are our primary method for entry, but those are just signals. Those signals combined with crosses, bounces on our EMA’s and Bollinger Band Expansion are our triggers. YES we keep it real simple! Keep in mind there are thousands of stocks you can trade and even more opportunities when you consider Forex, Futures and various time frames of each. So anytime you are sitting in what might be a low risk opportunity, but its slow going and it’s just taking way too much time, remember there is something out there that is likely moving much faster. This should be you’re only major challenge as you move forward. Simply putting in the effort in an instrument that is slow as molasses. Page 2 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
Pay attention to time vs. price! How long does it take to move $10?… OK 1 month! Sounds good for a $40 stock, but what if its $100 stock… Not as good then is it? So we need to pay attention to 3 things when it comes to a viable instrument to trade… 1. How much it moves. 2. How long it takes. 3. The price of the stock. This will answer the question.. “How much can I make?” Getting good at being on top of the right instruments at the right time has to do with asking yourself this question, but it also depends largely on your ability to search and scan and pinpoint the low hanging fruit. You need a way to find the cream of the crop without spending hours combing through opportunities. Ill cover this process with you in module 4. Also as we touched on in Module 1, be sure to look at your two types of entry for the lesser risk, swing low entry or swing high. Ask yourself “does the prior swing high get violated on the pull back?” If so you might have less risk with a swing low entry! Same goes for shorting, but you would ask yourself, “Does the swing low get violated on the pullback?” – If so consider a swing high entry! So with that said lets watch Module 2 and check out the trading opportunities we look for! Page 3 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
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The first thing to look at is price action, zoom out to a higher time frame and be sure to look at the system as a whole to gauge Page 6 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
what the trend is what the direction is how new or old it is how strong it is
before looking at individual parts such as
Triggers Signals etc (The individual components of the system)
One of the things that sets this system apart from anything else that’s out there, is the ability to zoom out on your chart & get a big picture view of what’s taking place.
Look at your 2 main MA’s, your 55 & 200 o Look at them relative to each other Look at price relative to your 2 main MA’s Look at what the Bollinger bands are doing And take a zoomed out approach (i.e. look at a higher time frame) to get a feel for the o Maturity o Length of the trend Is it new Is it exhausted
By doing this when you zoom back in you have more information on what is transpiring & taking place in the trend that you are in.
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Both views, the shorter time period view & longer time period view are important.
Your larger time frame is your first filter. Page 8 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
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Always keep this point in mind. If the risk is small and the trade is 50/50 consider doing the trade.
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A Bollinger band extreme, AND with a bounce in price
So we don’t get a point of ridiculous low risk and then wait to enter. We enter right then, at the point of ridiculousness. This is what makes it low risk. If we wait for confirmation of the move then we have changed the entry completely. If the confirmation consists of Page 14 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
Expanding Bollinger bands or A break of support or resistance Then it is a completely different trade.
There are a couple of ways to enter at the point of ridiculous low risk. We will cover one way at the end of this presentation.
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Lets evaluate this price action for any triggers we might find.
Initially we get consolidating price action. This is the beginning of a trend where we find price & our moving averages consolidating – this is the cream of the crop type of trades we look for.
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So far nothing has taken place to give us a reason to enter the trade. We have a double top (actually more like a channel but we can call a double top), and then price gaps down on expanding Bollinger bands. Technically we have a short EXCEPT that our black is above our blue which means we are only allowed to go long based on our moving average rule. But there are times when we are allowed to ignore rules. So technically we could have gone short after the break of the previous low, & just below the blue (200) EMA, and we would have then been stopped out. But technically that is a valid trade.
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And then we get a clue that something might give.
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We get a double bottom below our moving averages. Page 20 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
And then a break above the blue and then a break above the black and then massive expansion in our Bollinger bands as price takes off to the upside.
Huge curve
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So we have price breaking critical resistance and expanding bands, which gives us a nice long entry in the area of expanding bands. Where would our entry be?
It just depends.
We would enter at the green line. That is where we have confirmation of our price action and our expanding bands. And then we get a nice move up.
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The first surge up is followed by a breather. Page 24 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
We get sideways price action Consolidating upper & lower Bollinger bands
As we break above the channel resistance, and as the upper band expands and the lower band expands, we get another long entry for another nice move.
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The blue circle marks the beginning of a very nice trend. A new trend. Pullbacks to the black EMA (55) mark entries to a continuation of the trend. But the trend is not new but rather a maturing trend. The longer price remains above the blue EMA (200), the more mature the trend becomes. The more mature a trend, the more potential risk there is at new entry signals. This does not mean that we ignore entry signals in a mature trend, but it does mean we pay closer attention for our trend to be exhausted and it can then either reverse or take a sustained breather.
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The next thing that follows is a Bollinger band pull-a-way from the mean. Keep in mind that Bollinger bands are dynamic, and both the bands are 2 standard deviations from the mean. The upper and lower band will contain price action 95% of the time at 2 standard deviations. Page 27 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
So any time price changes direction at one band, and moves suddenly to a point outside the opposite Bollinger band (see above), there is a very high probability that price is going to revert back to the mean. The mean is like a magnet, always attracting price to it. So when you get a situation where we are in an uptrend like above, price pulls back and goes outside the lower Bollinger band aggressively & fast, we have a probability reversal on our hands, that price will move up to the mean at least. What strengthens the probability of a reversal is the 3 candle reversal pattern that becomes a swing low.
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Price must go above The high of the 1st candle
On our chart we have a 3 candle reversal pattern. Candle 1 & 3 have higher lows, than the low of candle 2. The standard entry is when price takes out the high of candle number 1, that is when you will go long. Notice that when we exceeded the high of candle 1 on the chart above, we also broke above the 55 EMA. Page 29 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
This made our long entry extremely high probability.
Another possibility that would have also made this a high probability long entry would have been if the 3 candle reversal had formed on the 55 EMA. We would then additionally have had the 55 EMA acting as support.
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Lastly on this chart we have price finding support in the area on the right. We have a higher swing low, but it is lacking any other confirmation. For example we don’t have Bollinger band expansion. But remember from module 1, our Bollinger bands are slightly bullish. We have both price and Bollinger bands slightly bullish, but this is not enough to justify entry. We need more justification to enter. Page 32 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
We need more justification to enter, unless we determine in advance that a swing low is more appropriate for risk. Generally you are not going to get Bollinger band expansion at mean support, and that is where this swing low is located. We are too far away from the mean here to get Bollinger band expansion. So if we decide to enter here, one method would be to enter when price exceeds the high of candle number 1 as described above.
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Another possibility for entry here is if we had a long tail on our 3 candle reversal pattern.
We would see a strong bearish candle that would make us think that price was really going to drop. But price then starts to move up within the same candle. As it reverses I would jump to an intraday 5 minute chart for a low risk entry & watch it closely. Price would have to rise and close above support for me to stay in the trade. That would put us into the trade towards the low of the long tail, and risk would be minimal as price continues to move up. This is one of my favorite entries. Look for it in support areas in an uptrend, where you have other confirmation that price is still moving up. You will always be startled by the long bearish candle initially. You will feel like the move up is really over. Page 34 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
But imagine what the candle would look like if it were to move up and close near its high. There are 2 caveats to this 1. The candle needs to reverse its downward thrust and close above support on that same candlestick 2. You have to drop to a 5 minute chart to work the trade and get a good entry You will know in advance the support level that price will need to rise above by the end of the day. If price exceeds this target you know that you are good. If price fails to rise above the targeted support level then you know to close the trade.
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Here we have a few things going on. Page 36 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
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To begin with we have successive lower lows. Our first clue that price maybe reversing is when we get a double bottom instead of another lower low. We are close to our 55 EMA and not too far away from our 200 EMA. Price then moves up with expanding Bollinger bands and trades above the 55 EMA The long candle that takes us above the 55 EMA is probably enough to take us up for a little, which it did. I would probably wait for the pull back to the Bollinger band mean, but you could enter on a break of the 55 EMA. It worked here if you had entered there. That does not mean it will always work. I would have treated the double bottom as an alert, but we do have 2 potential entries here. Our rule is
If black is below blue we go short If black is above blue we go long
But we are allowed to go long here based on what we see on the chart. This is one of those cases where you can skip a signal. The 55 EMA is a strong area of support & resistance. Anytime price breaks the 55 EMA along with Bollinger band expansion
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So we get our first clue that price may reverse with the double bottom. We get confirmation when price breaks the 55 EMA. It also takes out the prior swing high at the same time it crossed the 55 EMA. Couple this with the Bollinger band expansion and this makes an entry here a high odds entry.
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High odds entry because of the break of: 1) Prior swing high 2) 55 EMA 3) Upper Bollinger band
We could set our STOP below the prior swing high & 55 EMA (see “A” below), and trail it up below successive swing lows as they form. Page 41 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
C
A
B
When we set our STOP at “A”, we do not move it until we get our next swing low (“B”). Our risk is down to “A” until we get a thrust and a pullback to “B” and a confirmed resumption of the trend which takes place at “C” where price trades above the high of the thrust. Since the difference between “A” and “B” is not much you probably do not have to move it until the next confirmed swing high. Page 42 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
After the low at “B” we get Bollinger band expansion, followed by a minor swing high and a return to the Bollinger band mean. Our next buy signal is when price exceeds the prior minor swing high. With this signal we have upper band expansion with mild lower band expansion. Here is the analysis of our various entries.
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Here is a simple, easy clean break of an expansion long. Page 45 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
What we have initially is a consolidation of price and our moving averages. Everything is nice and tight and this often marks the beginning of a nice long move. Not always. But if we can seek good moves
in the past with these conditions, then our current action could follow suit.
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So to begin we have
a huge white candle that thrust straight through the channel & prior swing high a huge white candle that found support at the 55 EMA Expanding Bollinger bands A close above the upper Bollinger band
This is an easy simple trigger. We would enter near “A” with a stop at “B”.
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A
B
The stop is placed just below the low of the entry candle. Always be aware of the risk that the stop represents. Always know what your risk represents. If the stop translates into high risk, it does not mean that you pass on the trade. It means you adjust your position size to a lower position size based on your situation. Page 48 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
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C
A
B
The bigger picture of the chart above (stock = FEYE) shows that we are coming off of a downward trend Our first clue is that we have a low at “A” and a higher low at B. price then meanders sideways until we get Bollinger band expansion at “C”. had we entered at “C” we would have put our stop below the 200 EMA. Price action was then boring for months. It had a great initial burst but it did not take off.
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What we are going to do now is focus on the right hand side of the chart.
We have a confirmed long – black is above blue We have a channel
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Draw the horizontal channel high line where it makes the most sense.
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You can ignore the high at “A”. drawing the channel high at “B” makes more sense, and our risk will be lower.
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This chart (still FEYE) shows that we have reversed to the upside. Price is a little sloppy and then the channel on the right forms. Page 54 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
Draw in your highs at each high and choose the high that makes the most sense for the channel top. Page 55 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
We chose to draw our channel high here because that’s where it makes the most sense. Page 56 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
Price broke above the prior swing high We have expanding Bollinger bands at this price level
So this would have allowed us to enter the trade about here, with a stop at the level below
And price took off making $5 or $6 in a week or 2 While this price action is not as pretty, it is a little sloppy, we still have predictability & fluidity, which makes this a tradable instrument. Page 57 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
Should the price pull back to “B” and then take off, we would raise our stop from “A” to “B”.
B
A
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Recap
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C
d
B
A How did this chart have predictability? Page 60 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
We watched lower lows get violated by a higher low at “A”. Then we watched price rise above the 55 EMA but then get a little sloppy Price then broke out at “B” We watched the crowd jump in from “B” to “C” and then price failed
Perhaps we should jump in when we have the opportunity to make about $7
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When we break out at “D” maybe we should draw a projection box – a pattern for pattern projection target.
Set smart targets. We are working with daily charts. As you can see some of these patterns develop over a long time. It is my advice to you that
you use your initial triggers and signals as low risk places to get into trades participate in them for the duration of the move, until you see that the big trend is up & moving o you can do this by combining intraday charts with your daily charts Page 62 of 82
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look for targets that makes sense according to past price action
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A
B
C
In this example we begin by observing lower lows being made on the left and prior to Oct 2013 (off the chart). And then we form a higher low. This is our clue that price may change direction. Confirmation of the direction change is the 2 big candles at “B”. However we could have entered at “A”. At “A”
as price moves up the Bollinger bands expand we clear both moving averages the trend is in our favor
When do we close the trade? If we enter at “A” we do not know how far price will rise. Page 65 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
When we close the trade will depend. If we have determined that we can only get $5 or $6 from the move then we set a profit target to take us out of the trade. If we stayed in the trade, then we would exit after the weak thrust at “C”.
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After the weak thrust that ends at “C”, price drifts down & sideways until it makes that huge candle. At this huge candle, we have expanding Bollinger bands and could have easily entered a trade during the day and placed a stop below the candle. This huge candle is a multiple of the normal daily trading range, perhaps 3 to 10 times greater than the range over the last 3 months. This is a sure indication that price may just take off.
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C
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Original entry
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Second entry
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This is extreme Bollinger band action at support. This price action is for the same stock and follows on from the chart above. For this to work we have to enter at support. This is going to be an example of very low risk. Page 72 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
A
A typical entry would be at “A” after our 3 candle reversal pattern and a break of the high of the first candle. And this qualifies as a good entry. But if we are using a Bollinger band extreme entry & we want exceptionally low risk, that entry is just as good.
As price pulls back to the blue EMA (200) and preferably makes a pin candlestick (long tail)
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Whether we have a pin candle or a straight bounce off support at the blue EMA, we move to a 5 minute chart to look at the price action, and to look for an entry.
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Maybe on the 5 minute chart we have a support area and a resistance area, and on a break of the resistance we enter the trade. After entry we may see price continue to rise and we can follow its progress Page 75 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
as it moves higher and goes through its next important level. Or it may retrace and come back through the blue EMA (200) and we will stop out for a ridiculously low risk amount. Our entry is justified by a bounce off the blue EMA (200) and an extreme in the Bollinger bands. This Bollinger band expansion would leave you to believe that we have a short signal here but we don’t. We don’t because we are at support. Remember that expanding Bollinger bands don’t give you direction, they just tell you that there is going to be a move. Also remember that once price trades outside the Bollinger bands, there is a lot of pressure and pull, for price to return to the mean. And as you can see from the chart, price did return to the mean and then continued to rise. So what looks like a short trade, ends up being a good long trade.
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Had price already crossed below the 200 EMA before it bounced off its low, we could have gone short in that case.
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C
B
A
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At “A” we have weak price action and a weak Bollinger band, and nothing to enter on. When we rise above a prior high I like to see some nice action, eg a large candlestick or more aggressive b bands. So I would take the trade at “A”, skip the trade at “B” and take the trade at “C”. The trade at “C” is great. Price moves up, pulls back, and forms a channel. When we break the channel high, we have expanding Bollinger bands, both the upper band and the lower band.
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3
Thanks guys. See you in the next module.
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This just takes a little practice but once you get the hang of it you’ll never look at a chart the same way again! There will always be untradeable time periods on the chart. So learn to avoid these times by keeping an eye out for a “wide gate” where price ignores your 55 EMA, and prints wild highs and lows outside of both sides of that moving average. Also look for when your upper and lower bands get jagged and are no longer smooth. This is always a sure sign of unpredictable price action. Sometimes you’ll notice that one time frame is fluid and predictable and another is jagged, wild and unpredictable. Be sure to peek at relevant time frames for maximum accuracy and to avoid high risk areas on the chart. Our ultimate indicator is price action. Basic double bottoms, tops and breakouts and bounces are our primary method for entry, but those are just signals. Those signals combined with crosses, bounces on our EMA’s and Bollinger Band Expansion are our triggers. YES we keep it real simple! Keep in mind there are thousands of stocks you can trade and even more opportunities when you consider Forex, Futures and various time frames of each. So anytime you are sitting in what might be a low risk opportunity, but its slow going and it’s just taking way too much time, remember there is something out there that is likely moving much faster. This should be you’re only major challenge as you move forward. Simply putting in the effort in an instrument that is slow as molasses. Page 2 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
Pay attention to time vs. price! How long does it take to move $10?… OK 1 month! Sounds good for a $40 stock, but what if its $100 stock… Not as good then is it? So we need to pay attention to 3 things when it comes to a viable instrument to trade… 1. How much it moves. 2. How long it takes. 3. The price of the stock. This will answer the question.. “How much can I make?” Getting good at being on top of the right instruments at the right time has to do with asking yourself this question, but it also depends largely on your ability to search and scan and pinpoint the low hanging fruit. You need a way to find the cream of the crop without spending hours combing through opportunities. Ill cover this process with you in module 4. Also as we touched on in Module 1, be sure to look at your two types of entry for the lesser risk, swing low entry or swing high. Ask yourself “does the prior swing high get violated on the pull back?” If so you might have less risk with a swing low entry! Same goes for shorting, but you would ask yourself, “Does the swing low get violated on the pullback?” – If so consider a swing high entry! So with that said lets watch Module 2 and check out the trading opportunities we look for! Page 3 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
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The first thing to look at is price action, zoom out to a higher time frame and be sure to look at the system as a whole to gauge Page 6 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
what the trend is what the direction is how new or old it is how strong it is
before looking at individual parts such as
Triggers Signals etc (The individual components of the system)
One of the things that sets this system apart from anything else that’s out there, is the ability to zoom out on your chart & get a big picture view of what’s taking place.
Look at your 2 main MA’s, your 55 & 200 o Look at them relative to each other Look at price relative to your 2 main MA’s Look at what the Bollinger bands are doing And take a zoomed out approach (i.e. look at a higher time frame) to get a feel for the o Maturity o Length of the trend Is it new Is it exhausted
By doing this when you zoom back in you have more information on what is transpiring & taking place in the trend that you are in.
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Both views, the shorter time period view & longer time period view are important.
Your larger time frame is your first filter. Page 8 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
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Always keep this point in mind. If the risk is small and the trade is 50/50 consider doing the trade.
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A Bollinger band extreme, AND with a bounce in price
So we don’t get a point of ridiculous low risk and then wait to enter. We enter right then, at the point of ridiculousness. This is what makes it low risk. If we wait for confirmation of the move then we have changed the entry completely. If the confirmation consists of Page 14 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
Expanding Bollinger bands or A break of support or resistance Then it is a completely different trade.
There are a couple of ways to enter at the point of ridiculous low risk. We will cover one way at the end of this presentation.
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Lets evaluate this price action for any triggers we might find.
Initially we get consolidating price action. This is the beginning of a trend where we find price & our moving averages consolidating – this is the cream of the crop type of trades we look for.
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So far nothing has taken place to give us a reason to enter the trade. We have a double top (actually more like a channel but we can call a double top), and then price gaps down on expanding Bollinger bands. Technically we have a short EXCEPT that our black is above our blue which means we are only allowed to go long based on our moving average rule. But there are times when we are allowed to ignore rules. So technically we could have gone short after the break of the previous low, & just below the blue (200) EMA, and we would have then been stopped out. But technically that is a valid trade.
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And then we get a clue that something might give.
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We get a double bottom below our moving averages. Page 20 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
And then a break above the blue and then a break above the black and then massive expansion in our Bollinger bands as price takes off to the upside.
Huge curve
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So we have price breaking critical resistance and expanding bands, which gives us a nice long entry in the area of expanding bands. Where would our entry be?
It just depends.
We would enter at the green line. That is where we have confirmation of our price action and our expanding bands. And then we get a nice move up.
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The first surge up is followed by a breather. Page 24 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
We get sideways price action Consolidating upper & lower Bollinger bands
As we break above the channel resistance, and as the upper band expands and the lower band expands, we get another long entry for another nice move.
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The blue circle marks the beginning of a very nice trend. A new trend. Pullbacks to the black EMA (55) mark entries to a continuation of the trend. But the trend is not new but rather a maturing trend. The longer price remains above the blue EMA (200), the more mature the trend becomes. The more mature a trend, the more potential risk there is at new entry signals. This does not mean that we ignore entry signals in a mature trend, but it does mean we pay closer attention for our trend to be exhausted and it can then either reverse or take a sustained breather.
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The next thing that follows is a Bollinger band pull-a-way from the mean. Keep in mind that Bollinger bands are dynamic, and both the bands are 2 standard deviations from the mean. The upper and lower band will contain price action 95% of the time at 2 standard deviations. Page 27 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
So any time price changes direction at one band, and moves suddenly to a point outside the opposite Bollinger band (see above), there is a very high probability that price is going to revert back to the mean. The mean is like a magnet, always attracting price to it. So when you get a situation where we are in an uptrend like above, price pulls back and goes outside the lower Bollinger band aggressively & fast, we have a probability reversal on our hands, that price will move up to the mean at least. What strengthens the probability of a reversal is the 3 candle reversal pattern that becomes a swing low.
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Price must go above The high of the 1st candle
On our chart we have a 3 candle reversal pattern. Candle 1 & 3 have higher lows, than the low of candle 2. The standard entry is when price takes out the high of candle number 1, that is when you will go long. Notice that when we exceeded the high of candle 1 on the chart above, we also broke above the 55 EMA. Page 29 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
This made our long entry extremely high probability.
Another possibility that would have also made this a high probability long entry would have been if the 3 candle reversal had formed on the 55 EMA. We would then additionally have had the 55 EMA acting as support.
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Lastly on this chart we have price finding support in the area on the right. We have a higher swing low, but it is lacking any other confirmation. For example we don’t have Bollinger band expansion. But remember from module 1, our Bollinger bands are slightly bullish. We have both price and Bollinger bands slightly bullish, but this is not enough to justify entry. We need more justification to enter. Page 32 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
We need more justification to enter, unless we determine in advance that a swing low is more appropriate for risk. Generally you are not going to get Bollinger band expansion at mean support, and that is where this swing low is located. We are too far away from the mean here to get Bollinger band expansion. So if we decide to enter here, one method would be to enter when price exceeds the high of candle number 1 as described above.
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Another possibility for entry here is if we had a long tail on our 3 candle reversal pattern.
We would see a strong bearish candle that would make us think that price was really going to drop. But price then starts to move up within the same candle. As it reverses I would jump to an intraday 5 minute chart for a low risk entry & watch it closely. Price would have to rise and close above support for me to stay in the trade. That would put us into the trade towards the low of the long tail, and risk would be minimal as price continues to move up. This is one of my favorite entries. Look for it in support areas in an uptrend, where you have other confirmation that price is still moving up. You will always be startled by the long bearish candle initially. You will feel like the move up is really over. Page 34 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
But imagine what the candle would look like if it were to move up and close near its high. There are 2 caveats to this 1. The candle needs to reverse its downward thrust and close above support on that same candlestick 2. You have to drop to a 5 minute chart to work the trade and get a good entry You will know in advance the support level that price will need to rise above by the end of the day. If price exceeds this target you know that you are good. If price fails to rise above the targeted support level then you know to close the trade.
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Here we have a few things going on. Page 36 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
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To begin with we have successive lower lows. Our first clue that price maybe reversing is when we get a double bottom instead of another lower low. We are close to our 55 EMA and not too far away from our 200 EMA. Price then moves up with expanding Bollinger bands and trades above the 55 EMA The long candle that takes us above the 55 EMA is probably enough to take us up for a little, which it did. I would probably wait for the pull back to the Bollinger band mean, but you could enter on a break of the 55 EMA. It worked here if you had entered there. That does not mean it will always work. I would have treated the double bottom as an alert, but we do have 2 potential entries here. Our rule is
If black is below blue we go short If black is above blue we go long
But we are allowed to go long here based on what we see on the chart. This is one of those cases where you can skip a signal. The 55 EMA is a strong area of support & resistance. Anytime price breaks the 55 EMA along with Bollinger band expansion
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So we get our first clue that price may reverse with the double bottom. We get confirmation when price breaks the 55 EMA. It also takes out the prior swing high at the same time it crossed the 55 EMA. Couple this with the Bollinger band expansion and this makes an entry here a high odds entry.
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High odds entry because of the break of: 1) Prior swing high 2) 55 EMA 3) Upper Bollinger band
We could set our STOP below the prior swing high & 55 EMA (see “A” below), and trail it up below successive swing lows as they form. Page 41 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
C
A
B
When we set our STOP at “A”, we do not move it until we get our next swing low (“B”). Our risk is down to “A” until we get a thrust and a pullback to “B” and a confirmed resumption of the trend which takes place at “C” where price trades above the high of the thrust. Since the difference between “A” and “B” is not much you probably do not have to move it until the next confirmed swing high. Page 42 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
After the low at “B” we get Bollinger band expansion, followed by a minor swing high and a return to the Bollinger band mean. Our next buy signal is when price exceeds the prior minor swing high. With this signal we have upper band expansion with mild lower band expansion. Here is the analysis of our various entries.
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Here is a simple, easy clean break of an expansion long. Page 45 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
What we have initially is a consolidation of price and our moving averages. Everything is nice and tight and this often marks the beginning of a nice long move. Not always. But if we can seek good moves
in the past with these conditions, then our current action could follow suit.
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So to begin we have
a huge white candle that thrust straight through the channel & prior swing high a huge white candle that found support at the 55 EMA Expanding Bollinger bands A close above the upper Bollinger band
This is an easy simple trigger. We would enter near “A” with a stop at “B”.
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A
B
The stop is placed just below the low of the entry candle. Always be aware of the risk that the stop represents. Always know what your risk represents. If the stop translates into high risk, it does not mean that you pass on the trade. It means you adjust your position size to a lower position size based on your situation. Page 48 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
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C
A
B
The bigger picture of the chart above (stock = FEYE) shows that we are coming off of a downward trend Our first clue is that we have a low at “A” and a higher low at B. price then meanders sideways until we get Bollinger band expansion at “C”. had we entered at “C” we would have put our stop below the 200 EMA. Price action was then boring for months. It had a great initial burst but it did not take off.
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What we are going to do now is focus on the right hand side of the chart.
We have a confirmed long – black is above blue We have a channel
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Draw the horizontal channel high line where it makes the most sense.
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You can ignore the high at “A”. drawing the channel high at “B” makes more sense, and our risk will be lower.
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This chart (still FEYE) shows that we have reversed to the upside. Price is a little sloppy and then the channel on the right forms. Page 54 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
Draw in your highs at each high and choose the high that makes the most sense for the channel top. Page 55 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
We chose to draw our channel high here because that’s where it makes the most sense. Page 56 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
Price broke above the prior swing high We have expanding Bollinger bands at this price level
So this would have allowed us to enter the trade about here, with a stop at the level below
And price took off making $5 or $6 in a week or 2 While this price action is not as pretty, it is a little sloppy, we still have predictability & fluidity, which makes this a tradable instrument. Page 57 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
Should the price pull back to “B” and then take off, we would raise our stop from “A” to “B”.
B
A
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Recap
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C
d
B
A How did this chart have predictability? Page 60 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
We watched lower lows get violated by a higher low at “A”. Then we watched price rise above the 55 EMA but then get a little sloppy Price then broke out at “B” We watched the crowd jump in from “B” to “C” and then price failed
Perhaps we should jump in when we have the opportunity to make about $7
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When we break out at “D” maybe we should draw a projection box – a pattern for pattern projection target.
Set smart targets. We are working with daily charts. As you can see some of these patterns develop over a long time. It is my advice to you that
you use your initial triggers and signals as low risk places to get into trades participate in them for the duration of the move, until you see that the big trend is up & moving o you can do this by combining intraday charts with your daily charts Page 62 of 82
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look for targets that makes sense according to past price action
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A
B
C
In this example we begin by observing lower lows being made on the left and prior to Oct 2013 (off the chart). And then we form a higher low. This is our clue that price may change direction. Confirmation of the direction change is the 2 big candles at “B”. However we could have entered at “A”. At “A”
as price moves up the Bollinger bands expand we clear both moving averages the trend is in our favor
When do we close the trade? If we enter at “A” we do not know how far price will rise. Page 65 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
When we close the trade will depend. If we have determined that we can only get $5 or $6 from the move then we set a profit target to take us out of the trade. If we stayed in the trade, then we would exit after the weak thrust at “C”.
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After the weak thrust that ends at “C”, price drifts down & sideways until it makes that huge candle. At this huge candle, we have expanding Bollinger bands and could have easily entered a trade during the day and placed a stop below the candle. This huge candle is a multiple of the normal daily trading range, perhaps 3 to 10 times greater than the range over the last 3 months. This is a sure indication that price may just take off.
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C
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Original entry
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Second entry
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This is extreme Bollinger band action at support. This price action is for the same stock and follows on from the chart above. For this to work we have to enter at support. This is going to be an example of very low risk. Page 72 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
A
A typical entry would be at “A” after our 3 candle reversal pattern and a break of the high of the first candle. And this qualifies as a good entry. But if we are using a Bollinger band extreme entry & we want exceptionally low risk, that entry is just as good.
As price pulls back to the blue EMA (200) and preferably makes a pin candlestick (long tail)
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Whether we have a pin candle or a straight bounce off support at the blue EMA, we move to a 5 minute chart to look at the price action, and to look for an entry.
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Maybe on the 5 minute chart we have a support area and a resistance area, and on a break of the resistance we enter the trade. After entry we may see price continue to rise and we can follow its progress Page 75 of 82 Copyright 2015 Hatt Publishing Inc. Do not copy or share
as it moves higher and goes through its next important level. Or it may retrace and come back through the blue EMA (200) and we will stop out for a ridiculously low risk amount. Our entry is justified by a bounce off the blue EMA (200) and an extreme in the Bollinger bands. This Bollinger band expansion would leave you to believe that we have a short signal here but we don’t. We don’t because we are at support. Remember that expanding Bollinger bands don’t give you direction, they just tell you that there is going to be a move. Also remember that once price trades outside the Bollinger bands, there is a lot of pressure and pull, for price to return to the mean. And as you can see from the chart, price did return to the mean and then continued to rise. So what looks like a short trade, ends up being a good long trade.
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Had price already crossed below the 200 EMA before it bounced off its low, we could have gone short in that case.
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C
B
A
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At “A” we have weak price action and a weak Bollinger band, and nothing to enter on. When we rise above a prior high I like to see some nice action, eg a large candlestick or more aggressive b bands. So I would take the trade at “A”, skip the trade at “B” and take the trade at “C”. The trade at “C” is great. Price moves up, pulls back, and forms a channel. When we break the channel high, we have expanding Bollinger bands, both the upper band and the lower band.
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3
Thanks guys. See you in the next module.
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