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MULTIPLE TIME-FRAME CONFIRMATION FOREX TACTICS
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Using multiple time-frame analysis will help you confirm a great trading op portunity. Through various time dimensions, if a buy signal is evident, you should see confirming patterns throughout these various time periods. If the 60-minute chart is showing a high-probability bullish reversal pattern, such as the equal-and-opposite candle, then if we break it down to a smaller time frame, we should see signs or bullish patterns as well. Look at Figure

3.23; this is a five-minute chart detailing how the low was formed. We are going to cover the high close doji pattern in the very next section; but for now, I want you to see the magnitude of this strong breakout and the fact that the lower time frame confirmed the higher time frame's bullish signal.

To summarize, there are many candle patterns that indicate reversals. Some are more potent than others, and some work better in various time frames. But many traders have trouble adapting; they get stuck in a rut looking for the same results and fail to exploit highly recognizable pattern failures, such as false breakouts. If you learn to understand the sequence

and the value of the open close relationship, then you will have a better than-average chance of making serious money. The best trades usually come in the form of blindsiding traders who are heavily positioned the wrong way or who have overstayed their welcome in a position. It is this rush for traders to get to the exit door in a panic that accelerates market moves. The equal-and-opposite pattern is a major sign of a false break out. Think about this: If a market does not do what is expected, such as when it breaks a long-term support and there is no follow-through, who wants to hold a short position in the hole? Not many people. Watch for the yin and the yang, especially at extenuated trend extremes or at conges tion points.

HIGH CLOSE DOJI SETUP

Out of all the candlestick reversal patterns, the high close doji (HCD) is the best and most reliable setup that I have encountered. Figure 3.23 showed a classic pattern on a five-minute chart period. It is based off a simplified morning doji star formation. Instead of looking for the traditional three candle pattern, this setup merely focuses on the doji and the event that fol lows the formation of the doji.

Figure 3.24 shows the exact sequence we need: the next one to three time periods after a doji forms to close above the high of that doji candle. That is the key; the close is the confirmation that a bullish transition took place. All that is left is for a trader to act when there is a shift in momentum. In this pattern, we are looking for a specific conditional change to take place in the market, namely, a higher closing high above a doji's high, es pecially when it occurs near a pivot point support level. This is the pattern I call the high close doji, or the HCD, method. It has dimensions of specific criteria that need to fall in place, which will help to eliminate and filter out false signals. It is a simple and basic approach that is a high-probability winning strategy.

Here are the rules to act on when this pattern develops:

• Buy on the close or on the next time period's open once a new closing high is made from the previous time period's bullish candle reversal pattern or if a doji forms against a pivot number.

• Initially, use a hard stop or a mental stop close only (SCO) below the low of the doji. Once the market begins to produce a profit and moves in the desired direction, then you can change to a hard stop and con tinually trail the stop. Whatever time you are trading, the SCO is spe cific for that time frame wherever the signal might occur. For example, if it is an intraday signal, then you need to use a mental stop that re quires you to wait until the end of the time period, whether that is based on a 5-, 15-, 30-, or 60-minute time frame. Most trading platforms do not have intraday SCO features, rather just the end-of-day SCOs.

• Sell or exit the trade on the close or on the first open of a candle that makes a lower low at or near a pivot point resistance calculation.

• Use a “filter” or backup process to confirm the buy signal, such as a bullish convergence pattern on stochastic or moving average conver gence/divergence (MACD).

The term extreme range expansion, or what I call overoverstretched and unsustainable valuations, is valuable information when it occurs near pivot point calculations. Especially in a runaway bull market, when I start to see a sudden loss of momentum and halting or reversing price action at a resistance level, I certainly consider that I have sufficient cause to begin taking profits from a long position or establishing a new short position.

If I see evidence that the move is getting drained by smaller ranges or subsequent closes closer to each low, or if I see a climax with a larger-than normal-size real body or other evidence that supply is returning to the mar ket, thus turning back price, I start to take several forms of action. I reduce my position by at least one-half to two-thirds and tighten stops.

Now, let's put these rules into practice by examining active trading markets, such as the foreign currency market. The first example, Figure

3.25, is a 15-minute time period candle chart on the spot British pound. Taking the data from September 29 and using the close from the 5 P . M . (EST) New York bank settlement, we have a high of 177.04, a low of 175.92, and a close of 176.13. Once we calculate our pivot points, we have our first support (S-1) figured as 175.68. Our first resistance (R-1) is figured as 176.80. As you can see, the market trades for almost two hours at the pivot support; but at 4:30 , a doji forms. Two time periods later, a close above the

doji's high occurs. Also note that the market closes above both moving-av erage values. In addition, the COMAS™ method shows the shorter-term moving average crossing above the longer-term average, confirming a trig ger to go long.

The trigger to enter a long position would be on the time period's close or on the very next session's open; the entry price would be 175.95. As the market blasts off into trend mode, you can see the money-making sequence of events transpire: higher highs, higher lows, and higher closing highs. As the trade matures, watch the reaction at the pivot resistance R-1 of 176.80. Observe the bullish momentum dry up; and for the first time, we have a lower closing low and price closes below both moving average values. The moving averages also form a negative cross, confirming a trigger to exit the long position. As a day trader, you have completed your mission to capture money from the market.

This example would have had you exit the position at 176.57. For each full-lot-size contract, that would be a 62-PIP profit, or $620 gain. Granted, we did not buy the low or sell the high, but we certainly did what you al ways want to do: capture a nice chunk of the middle of a price move. If you understand that markets move from trend mode to consolidation or con gestion phase, then you will realize that at this time it is best to walk away, as you are now vulnerable for getting whipsawed in the market. That is why most successful traders make their money and walk away.

As you look at the chart in Figure 3.26, notice how the pattern seems to look identical to the pattern in Figure 3.25. The market bases out in a con solidating sideways pattern, a doji forms, the moving averages cross over, and a high close doji triggers a buy signal. Almost instantly, we see positive results as the market makes higher highs, higher closes than opens, and prices are maintaining values above the moving averages. One thing about this particular chart is that the market did not trade down to the S-1 or quite make it to the midpoint between the pivot point and S-1. That is why I use pivot levels as a guide rather than the signal itself. I am interested in what the price action does at the pivot support levels. As we learned earlier, if the market is truly bullish, the pivot point will act as a support level on its own. That is the case in this example; and this is a very important point, so take note. In bullish conditions, the pivot will act as support.

Once again, as shown in Figure 3.27, we have a similar pattern as the doji forms at or near the pivot point support level. The pivot support helps target a potential low and a spot where the market may react by reversing direction. We have a few considerations in order to make a trade. For starters, we look for the doji pattern; but it is not until the market closes back above the doji's high that the trigger to go long is generated. As you see, the moving averages also cross over, and prices close above both moving average values. That is the true trigger to go long; once prices close above the doji high, a higher assigned value has taken place, and the market takes off for almost a 200-PIP move. This market moves immediately with no pressure on the trade whatsoever.

I want to now show you how the signals work using the Genesis Soft ware with my formulas plugged in, which identify the momentum shifts with the buy and sell signals indicated by the arrows as shown in Figure

3.28. The system gives buy and sell signals based on the moving averages and on the proximity of the pivot support and resistance levels. In addi tion, there is an algorithm designated for depicting when a high close doji occurs. As you can see, the buy signal triggers perfectly off the pivot sup port level; and the market trades right up to the pivot point resistance where a doji forms, alerting you to scale out of partial positions to lock in your gains and to tighten stops accordingly. This is a 15-minute chart; so you can see the system kept you in the trend the entire length of the trade, which was initiated by the high close doji. This trade worked out for $630 per lot or position.

To summarize, when you identify a doji at or near the pivot support tar get level, wait for confirmation of the next candle up to the next three candles to close above the doji's high. This event of the higher closing high constitutes a higher assigned value, and you should see immediate results to follow.

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