Trading techniques: the best strategies by John Person – Combine profitable tools of technical analysis
This is the final article in the four-part series that combines person-pivot system with other indicators and a concrete bullish candlestick pattern called High Close Doji (HCD). The use of the right trading tools, the pursuing of a sensible trading methodology and discipline and emotional balance are of crucial importance. Under these conditions, John Persons Pivots and his trading methodology have proven their worth in the past. In this article we wish to go into the depth of the strategy and look at a couple of setups and triggers, where our main focus is on the high-Close Doji pattern (see box). The original rules are: is a doji (closing- and opening-price are close to each other) after a price-drop formed, then indecision in the market is signaled. The momentum changes for the better when the price closes within three candles on the high of the Doji.
Trading example Biotech ETF
The first example in Figure 1 shows the biotech (Pharmaceutical) -ETF (XBI). Using the weekly chart and the monthly person-Pivot indicator (TRADERS' 07/2016; in the Store www.traders-media.de available) as well as the data from the end of April for the highs, lows and closing prices, we were able to draw for the month of May the objectives for support (green lines) and the resistance (red lines). The person-Pivot (blue) projected as a target for May a higher high and a higher low, which is why the system predicts a bullish environment for this month. One had then just to watch how the market reacts when (and if) it moves down to the support-line. In this case, the correction actually occurred. Once the market had reached a low, a Doji pattern was formed. Already in the next week the price was quoted higher and closed above the high of the Doji. With this early signal we could build a long position at the closing price of that Friday. By following the entry rules and being aware of the risk you could plan your exit so that a reward / risk ratio (RRR) * of at least 1 resulted – assuming that the market tests the projected resistance of the person-pivots. In this trade, a gain of eight per cent was generated using a RRR of 1. In addition, there are other possibilities, such as closing only part of the position (scale out) and tightening the stop at the entry level (break even) or working with a trailing stop. We should see results within three candles right after the Doji-trigger because it is a reversal pattern. If the price is getting nowhere or has no positive development, one should get out of the trade.
Other indicators
We now want to include additional indicators. In Figure 1, we use the On-Balance-Volume indicator (OBV) *. The OBV corresponds to a simple volume-chart which is set in relation to the daily change in rates. In a rising market, the volume is added to the previous day's OBV, in a falling market subtracted. The calculation depends on the current closing price. A trend-change in the market can be anticipated by a trend change in OBV. For this purpose, you can use divergences between OBV line and the market. If a new market high or lows is not confirmed by a new high / low in the OBV line, a speedy change of the trend is likely. In Figure 1 is shown how the blue OBV line increases similar to the courses. This suggests that the market is very stable and the trend continues further with high probability. The next tool is a seasonal trend indicator (orange line). Thereby, the HCD-buy-signal is further confirmed because the historical trend in average price has a tendency to move upwards during this period.
Trading example gold
In Figure 2 we see gold in the hourly chart with the drawn person-daily-pivots. In addition one of the favorite tools of John Person: the stochastic oscillator*. This compares the last closing price of a security with the development of its trading range within a specified time period. The% K line compares the last closing price to the price range of the last 14 days. The% D line is a moving average of% K line. Values over 80 are considered as overbought; Values below 20 as oversold. In our case, the courses at point A were in a downward trend which was slowed above the projected support (green line). a HCD patterns (green marking) was formed and the Stochastic Oscillator showed an oversold situation: Both the% K (blue line) and the% D line (purple line) were below the 20 percent mark. The vertical dotted line at point A shows the confirmation of both buy-signals. Now align your attention to point B. A similar setup resulted here four days later. The special thing about this trade: The special thing about this trade: day traders were able to establish a long position in the early stages of the turnaround, whereby they reduced their risk and so were able to scale before the start of the explosive rally and / or could tighten stops. The long green candle shows the announcement of the Federal Open Market Committee (FOMC) that interest rates remain unchanged.
Trading example at Seagate Technologies
In Figure 3 we see the weekly chart of Seagate Technologies (STX) and the person-Pivot-support-targets on a quarterly basis (green lines). In early April, the poor earnings situation became known, which resulted in a significant fall of the shares. However, the markets tend to exaggerate price movements, but return again to average at the end. In this case, a weekly HCD (green marker) was revealed, and the OBV indicator (blue line) showed an increase in volume. The seasonal trend indicator (orange line) confirmed from the historical rate perspective that the share price at this time tends again to rise. According to the rules, we would see immediate results – as the chart shows, this was indeed the case, because the market gave a price-increase of over ten percent.
Trading Example at 3M
In Figure 4 we see the daily chart of 3M (MMM). The monthly person-Pivots in conjunction with the additional indicators indicated on a great trade (red marking). The two lines of the stochastic oscillator rose at point A on the 20 mark, which spoke for a purchase. The OBV also rose sharply which confirmed the HCD-entry signal. The Trade was made in late January, when it was still feared that the overall market is in the midst of a crash. The technical analysis signaled us exactly at this time buy-signals with high probability of success, while the media and market experts still widespread fear and strongly recommended selling. As a trader, you are in control, if you are informed about current events, winning numbers, important dates and announcements of economic reports. But of course we have no control over unforeseen circumstances or important votes – such as the anticipated Brexit-referendum.
Trading example GBP / USD
Weeks before the referendum the British pound lost against the US dollar significantly in value. Figure 5 shows the "before"-picture of 17 June 2016, which reflects exactly the situation until shortly before the vote. Although the price moved below the estimated monthly support of the person pivots (green line), but note here the doji with its long wick and the following HCD, which was triggered by the closing price on Friday (green marking). While Forex traders do not have access to the OBV and cannot use the indicator, but they can very well use the data from the futures markets. Without paying attention to the current event and using the person strategy, a long entry at 1.44360 with a stop-loss order at 1.4020 would have been possible. In an exit with a CRV of 1, the profit-target would be at 1.4700. That seems a bit much demanded by the market, but is definitely in the realm of possibility, because the high reached in May was at 1.4782. From the perspective of the chart-technique, the alignment of the Stochastic indicator at point A (exceeded the 20 mark) and the significant increase in the volume using the OBV indicator at point B (blue line), were the setup for this trade.
Conclusion
When you apply Trade-Management you should indeed follow the trading rules, but do not turn off your common sense. Technical analysis is subjective and not perfect. The indicators used are of high value; but if your profit-target is not yet achieved and at the same important messages lie ahead, it is acceptable to get out of the trade. The saying "Better a bird in the hand than two in the bush" is true in trading.
John Person. John Person has worked for 36 years in the futures and options trading. In 1979 he started at the Chicago Mercantile Exchange and has since then been an independent trader, broker, analyst and managing one of the largest companies in Chicago. He was the first, who combined the Candlesticks- and Pivot- analysis. Person is author and respected speaker at events.
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