1. Trading Triggers - Part 1
Reversal bars are an objective technique used to time the entry of a trade. When pattern, price and time all
come together at a suspected major pivot, and you hesitate while wondering if the prior trend will continue
against your new position, a reversal bar can be the objective trigger to prompt you to take action. The
examples demonstrated below have many variations. The example given is not the only possible
conﬁguration for that reversal bar type. The important concept is that with every conﬁguration, prices make
a new high (or low) but close opposite the direction of the open and the trend. The reversal bar is telling you
that the trend for that time frame has run out of gas and that no new buyers or sellers are coming into the
market. For bullish reversals just substitute low for high.
Not every reversal bar is signiﬁcant. This is especially true for intraday charts. Reversal bars take on
importance when they occur at a coincidence of pattern, price and time.
• Reversal Bar - Makes higher High and
closes below Today's Open and
• Key Reversal Bar - Opens below prior
bar close, makes new High. Closes
below prior Close and Today's Open.
2. Outside Key Reversal Bar - Opens below
prior bar close, makes new High. Closes
below prior Close and Today's Open.
Signal Bar - Opens above prior Close, makes
new High. Closes below Today's Open
3. Gap Signal Bar - Opens above prior
Close, makes new High. Closes below
Today's Open but Gap is not ﬁlled.
Snap Back Reversal Bar - Day 1 makes
new High, opens bottom 1/3 of the bar,
closes top 1/3. Day 2 opens top 1/3 of the
bar, closes bottom 1/3, does not have to
make new High.
5. Trading Triggers - Part 2
Not every major pivot point is marked by a reversal bar. Continuation set-ups can still get you in a trade
relatively close to the pivot point. Continuation bars are easily identiﬁed on a bar or candlestick chart. They
always start with either an inside bar or an outside bar.
Inside Bar - Today's high and low do not exceed yesterday's high and low.
Outside Bar - Today's high and low both exceed yesterday's high and low.
6. Outside Plus Bar
Losses are part and parcel of trading. Successful traders learn to manage their losses, or shortly ﬁnd
something else to occupy their time.
Trade entries are relatively easy. You have an objective set of criteria and when those conditions are met you
enter the trade. Stop losses are more difﬁcult because now you are in the trade. The cool hand that pulled
the trigger to enter is now ﬁrmly wedged between the rock of fear and the hard place of greed.
Just a few ideas for objective stop loss points. There are many more.
Pattern stops occur when price moves to an extreme that negates the working Elliott Wave scenario. For
example, a Wave 2 entry is stopped out if prices violate the pivot price that initiated the swing (Wave Zero).
All the pattern stops that we use are set out in the Trading Signals section.
Robert Miner, a successful trader and teacher, posits that three, two and one day bar extremes are logical
stops. For example, for a long trade that is in the early stages of a Wave 3, the lowest low of the most recent
three daily bars (including today) is an objective stop loss point. As Wave 3 progresses into its later stages
the stop is moved to two bars or even to one bar. Miner does not count inside bars when computing the
Another method presented by Williams that ties into Miner's one day stop is the Zone Stop. When price bars
have run for ﬁve consecutive bars in the same zone (shown as ﬁve consecutive red or green bars) place a one
day stop and move it every day until it gets hit.
The important concept is to let the market, not your emotions, take you out of the trade - with a proﬁt if the
trade works out for you, and with a manageable loss if it does not. You don't know what the market is going
to do next. Don't anticipate. You'll experience a lot less stress and probably make more money too.
7. When Disaster Strikes…
Holding trades overnight has certain beneﬁts and risks. We consider it a necessary part of a trading plan to
have a "Wealth Building Account" for swing and core trades, which would all be overnight holds. So
following your trading plan and playing the proper share size are very important. Properly handled, over
time the beneﬁts should outweigh the risks. However, no matter how careful you are, you will have a
morning where a position you have is gapping open against you.
Remember, overnight there are no stops. Let us say you are long XYZ at $30.00, and at 7:00 a.m. EST the
next morning company XYZ makes some announcements. Let us say they are going to miss their next
earnings number, and that the CEO just resigned, and that they suspect they have accounting problems.
There is a good chance (about 99.99%) that when trading starts the next morning at 8:00 a.m. EST (pre-
market trading starts with ECNs at this time) that your stock will be trading much lower. Let's say at 8:00 it
starts trading at $26.00. From 8:00-9:30 it ranges from $26.00 - $25.00. Then at 9:00 it opens at 25.10. It
will not matter that you have a stop in place at $28.50. During pre-market, stops are not in effect. Then when
the market opens, your stop will be ﬁlled (if it is GTC, or if you re-entered it at open) at the best price at the
time, $25.10, not your desired price of $28.50.
So, how do you handle these 'disaster' situations? Here are some tips to put the odds in your favor to manage
these situations in the best way over the long term:
First, do not panic. Easy to say, but hard to do. However, it will not be hard to do if you have a strategy in
place out for these situations.
Second, ignore the pre-market trading. From 8:00 until 9:30 only ECNs are trading; some stocks don't trade
at all. If your stock is gapping down like this, it will likely be trading, but will likely be trading erratically.
Third, when it opens ofﬁcially at 9:30 EST, do nothing for ﬁve minutes. That is right, just watch it. After ﬁve
minutes, mark off the low and put a stop for half your shares $.05-.10 under that ﬁve-minute low.
Fourth, let it trade for 30 minutes. Then put a stop for the other half of your shares $.05-.10 under that 30-
minute low. At this point, if the stock did not violate the ﬁve-minute low, you will still have all your shares,
half with a stop under the ﬁve-minute low, half under the 30-minute low.
You will ﬁnd on many occasions, that you may still have all your shares, or at least half. Often, after a large
gap, the opening half hour puts in the lows for the upcoming days. If your shares do stop, you are usually
risking a relatively small amount extra.
From there, you can treat the trade as a swing with a one-day trailing stop, or the stock may rebound to prior
levels and you can follow your prior plan. While the example given was for a gap down on a long position,
the exact same rules hold true for gapping up on a short position. Use 5- and 30-minute highs as stops.
Having this as your plan for disaster will help you minimize the losses over the long term.