Trading techniques: the best strategies by John Person – The High Closing Doji
Part 2: The High Close Doji
This series of articles is intended to show different trading techniques that work on multiple time frames in liquid markets – especially in equities, equity-indices, commodity markets such as gold and crude oil, and in Forex trading. In conjunction with the right indicators these methods have been proven well. You will get a set of rules to the hand, which is intended to help you find a trade setup for opening a position at the right time, for placing wisely your Stop and for determining the Exit.
Patterns and indicators
John Person has developed the pivot method into Persons-Pivot-indicator. This is based on a mathematical model, which gives support-levels and resistance-levels. To achieve this, the Persons-pivots use a moving average, which identifies the events in the market as bullish or bearish. Depending on the time horizon of the traders, the prognosis can also be programmed so that it indicates the price targets for the next day, next week, next month or next quarter, based on the data for high, low and closing prices in this specific time frame. According to these criteria, the target range for the next session is filtered out. It is therefore a filtering method that indicates a bullish or bearish tendency and includes Moving Averages, which is why not all classic pivot support-levels and resistance-levels receive attention. This article deals with a pattern that is easily recognizable and helps us to specify the risk-management, the time of entry and the profit target. But what we can never predict is how each individual Trade exactly runs at the end. We can only keep the position in mind and limit the risk. Seen from this perspective, this system is a simple setup as an additional trading tool for your toolbox that you can use on the markets.
The High Close Doji (HCD)
Of all candlestick reversal patterns, the High Close Doji is one of the best bullish setups. According to the candlestick-teaching, a Doji is created when closing and opening price (almost) coincide. It is essential to look for a reversal after a confirmation and to take action with a change of the momentum. We are looking specifically for a change in market conditions after a sustained downward trend. After the Doji has been formed, we wait within three periods for a higher closing price than the doji-high (Figure 1). This setup is particularly promising, especially when it occurs in the vicinity of a pivot support zone. The strategy includes specific criteria that must be met in order to eliminate and filter out false-signals. The setup can be applied to all time frames and for various asset classes. It is not only suitable for day traders in the Forex or E-mini S&P-trading, but also for equities and Exchange Traded Funds (ETFs).
Trading Examples
In Figure 2 you see the Euro FX futures contract of 31 March 2016 in 15-minute chart. After a decline, the low – marked by the blue rectangle – has been established near the doji candle. According to the rule, one would enter a long position if the high of the Doji is exceeded. In this case, the entry would be at 1.1358 (blue line). The stop would then be placed below the low of the Doji or the lowest low of the last four candles, which in our case was at 1.1335 (black line under last interim low). Once one has entered on the basis of this setup in the trade, one would like to see within the next three to five candles a bullish movement (see higher highs, higher lows and higher closing prices as compared to the opening prices). As the chart shows within the next four candles, a strong positive performance took place. In most cases, the holding period is between eight and ten periods. We have also a risk / reward ratio of at least 1: 1, which means that we can expect, assuming a risk at least of 19 ticks or pips, to achieve the same amount within eight to ten periods from the time of entry. In this example, the Persons-pivots showed both a support near the point where the High-Close-Doji-Trigger triggered the Trade (blue line), as well as on subsequent high an upward movement (red line). Figure 3 shows another example of a trading-opportunity. After a downward trend, one should try to trade the Doji at or near the support zone (green Pivot line). This trade was placed on 05 April 2016. The candle immediately after the doji (blue rectangle) was the catalyst for a long entry at 1.1380 (Entrance at black line in the rectangle). The stop was put under the lowest low at 1.1358 (black line). With a risk / reward ratio of 1: 1 and in conjunction with the time factor of eight to ten periods the profit target could be achieved in a timely manner. One can and should include here a scaling-out method (partial Exit) and a trailing stop. More important is that the use of filtered Pivots in finding Long Setups in a support zone is very helpful and that we have clearly defined risk limits as well as a reasonable profit target.
A Doji occurs when the closing price coincide (almost) with the opening price. The dashed line is located at the high of the doji candle. Is there a closing price above this line within the next three candles, we have a high-Close Doji pattern.
Source: www.personalplanet.com
Outlook
In the next few articles, the author will deal more with the Persons-pivots and the underlying mechanisms. Moreover, the Last-Conditional-Change-Stop-and-Reverse-Strategy will be an issue.
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 since then was 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 also author and respected speaker at events.
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