Chapter 1 - Chart Setup Rules
Pinball Rules
There are eight rules for the Pinball Set-Up. These rules are grouped into two categories (1) chart set-up and (2) trade set-up. There are four rules for the the chart set-up and four rules for the trade set-up. The rules are sequenced so that you look for stocks that meet the chart set-up rules before you consider setting up the trade. Once you have a list of stocks that meet the chart set-up rules, you can select the best Pinball Set-Up stocks and proceed with the trade set-up rules for your choices. This chapter focuses on the chart set-up rules.
Chart Set-up Rules
1.
Downtrend. Price must be in a definable down trend on the daily chart. Price moves lower and makes lower lows and lower highs. As a result of this price action, the 8 period Exponential Moving Average (8 EMA) that Rick Saddler has designated as the Trigger Line or ‘T-Line’ is below the 20 Simple Moving Average (SMA), the 20 SMA is below the 34 Exponential Moving Average(EMA), and the 34 EMA is below the 50 Simple Moving Average (SMA). In many cases the T-Line, 20 SMA and 34 EMA are parallel to each other and all are pointing down. The 50 SMA may or may not be parallel to the other moving averages depending on how long the downtrend has been in progress. All of these moving averages are below the 200 Simple Moving Average (SMA).
2.
Bottoming Formation. Price reaches a low point and stops dropping. Evidence of this behavior is reflected in price patterns or bullish candlestick patterns and signals. Examples of these patterns are double bottoms, low high higher low higher highs, and bullish “reversal” candlestick patterns and signals.
3.
“Day 1” - First Close at or above the T-Line (8 EMA). Price closes over the T-Line for the first time. Call this “Day 1”.
4.
Profit Potential. Profit potential is measured by the distance between the close on “Day 1” and the 34 EMA. It should be at least 10%.
Downtrend
The first part of the chart set-up rules requires that price be in a definable downtrend. look ANV.
**For Allied Nevada Corp (ANV), notice how price starts to drop further below the 200 SMA starting in the upper left hand corner of the daily chart.
** Price drops below the T-Line and the 20 SMA which eventually causes the T-Line to cross down through the 20 SMA. This is a bearish event that warns of lower prices
ahead.
**Price falls below the 50 SMA and keeps falling. As price falls, it makes lower lows and lower highs along the way.
**The T-Line and 20 SMA point down and run parallel to each other as price falls. Eventually the 34 EMA and the 50 SMA start to point down and are almost parallel to the T-Line and 20 SMA
Bottoming Formation
During the bottoming process, after a downtrend, price typically forms the following patterns or signals
- Double bottom
- Rounded bottom
- Flat bottom
- Bullish “reversal” candlestick patterns and signals
Double Bottom
A double bottom is when price reaches a low point after being in a downtrend, it then rallies briefly and then falls back down to the low point but does not drop lower than the low point. Price then rises. A double bottom typically forms over several days. Below is an example of a double bottom
Double bottoms can actually be a part of a larger bottoming formation such as the rounded bottom or flat bottom
Rounded bottom
The rounded bottom forms as price heads down to the lowest point, it flattens out slightly and then price starts to move higher. This formation usually happens over several days and you can literally draw a shallow bowl type line under the price action.
Flat bottom
Price is falling and drops to a low point and stays in a very narrow range for days and sometimes weeks.
Low High/Higher Low/Higher High Sequence
Price is falling and drops to a low point. It then rallies and falls back to put in a higher low. It then rallies again and price rises to a new high. Price then falls to a higher level than the previous low and puts in a higher low. Price then rallies and continues higher putting in higher highs.
Visually, this is what the pattern looks like.
Here is how it looks on a chart with candlesticks.
Bullish Candlestick Patterns and Signals
The most common bullish “reversal” candlestick patterns and signals found with the Pinball Set-Up are the
- Bullish Engulf
- Bullish Hammer
- Bullish Harami
- Bullish Kicker
- Bullish Piercing Candle
- Bullish Tweezer Bottom
- Morning Star
Continuing with the ANV daily chart below, notice how price falls to a low point on November 5. Price then opens higher on November 6 and closes lower on the day. The low on November 6 does not drop below the low on November 5. This two candlestick pattern is called a Tweezer Bottom.The bullish candlestick on November 7 confirms the bullish intention of the Tweezer Bottom candlestick pattern.
In general, candlestick patterns and signals need confirmation. Bullish confirmation can be bullish candlesticks or higher closing prices in the days that follow the candlestick patterns and signals.
Day 1 - First Close at or above the T-Line (8 EMA)
In the example below for Allied Nevada Corp, price closes over the T-Line for the first time on November 14. This is the best day for traders to start watching the stock.
Profit Potential
The fourth part of the chart set-up is that the profit potential must be at least 10%. The profit potential is the distance between the close on Day 1 and the 34 EMA on Day 1. In the Allied Nevada Corp (ANV) example, there is a 42% profit potential as shown in the daily chart below. The first four parts of the chart set-up have been met for ANV.
Summary - Chart Setup Rules
The four chart set-up rules for the Pinball Set-Up are
1.
Downtrend. Price must be in a definable down trend on the daily chart. Price moves lower and makes lower lows and lower highs. The T-Line (8 EMA), 20 EMA, 34 EMA and the 50 EMA are below the 200 Simple Moving Average (SMA).
2.
Bottoming Formation. Price reaches a low point and stops dropping. Evidence of this behavior is reflected in price patterns or bullish candlestick patterns and signals. Examples of these patterns are double bottoms, low high higher low higher highs, and bullish “reversal” candlestick patterns and signals.
3
. “Day 1” - First Close at or above the T-Line (8 EMA). Price closes over the T-Line for the first time. Call this “Day 1”.
4.
Profit Potential. Profit potential is measured by the distance between the close on “Day 1” and the 34 EMA. It should be at least 10%.
Chapter 2 - Trade Set-up Rules
The last four Pinball Set-Up rules are the “Trade Set-up” rules. Once you have identified stocks that meet the chart set-up rules, it is time to plan the trade using the trade set-up rules. In total, there are eight set-up rules for the Pinball Set-Up.
Trade Set-up Rules
5.
“Day 2” - Trade Entry. Buy if price opens above the T-Line after “Day 1”. OR Buy if price opens below the T-Line and moves above it during the day. Price must close above the T-Line in order for the Pinball Set-Up to be in tact.
6
. Exit the Trade - Take profits on at least 1/2 of the position at the 34 EMA daily chart or 200 SMA 60 minute chart, which ever is lower.
7.
Stop on Close - Exit the trade if price closes below the T-Line. This is not a hard stop. Check price fifteen to thirty minutes before the end of the day to determine where price will close.
8.
Safety Stop - Place a hard stop somewhere below the T-Line giving enough room for intraday swings. This may be a stop below the low of a candlestick before “Day 1” or below a support level.
“Day 2” - Trade Entry.
The first trade set-up rule is to go long if price opens above the T-Line or if price opens below the T-Line and moves above the T-Line during the day. In the example on the next page for Allied Nevada Gold Corp (ANV), the largest profit potential is to go long as close to the opening price as possible.
Exit the Trade
The second trade set-up rule is to take profits on at least 1/2 of the position at the 34 EMA daily chart or 200 SMA 60 minute chart, which ever is lower. For this trade set-up rule we have to look at two different time frames to determine the exit. The reason for this is that traders often take profits at the 200 SMA on the 60 minute chart if it is lower than the 34 EMA on the daily chart. Remember that the Pinball Set-up is a very short term trade and it is just a counter trend bounce in a down trend. First, let us look at the daily chart 34 EMA. The 34 EMA target on the daily chart is around 1.95.
Next, let us look at the 60 minute chart 200 SMA. The opening candlestick on the 60 minute chart for Day 2 is just under 1.50 and the 200 SMA is at 1.92.
Since the 200 SMA on the 60 minute chart is less than the 34 EMA on the daily chart, the exit for the trade is 1.92. The target is adjusted in Example 2-3 on the next page. Keep in mind that as the trade progresses and price moves, the moving averages also move. So it is best to watch the 60 minute chart 200 SMA and the daily chart 34 EMA during the first hour of trading and the last hour of trading each day that the trade is in progress.
Stop on Close
Exit the trade if price closes below the T-Line. This is not a hard stop. Check price fifteen to thirty minutes before the end of the trading day to determine where price will close.
For trades entered on Day 2, compare the closing price with the T-Line. In this case, the closing price is above the T-Line so the Pinball Set-Up is still in tact.
Safety Stop.
Place a hard stop somewhere below the T-Line giving enough room for intraday swings. In the example on the next page, the hard “safety” stop is at the midpoint of the candlestick body of Day 1. Another choice is to place a hard stop just below the candlestick on Day 1. This is a decision that each trader makes for themselves based on risk tolerance.
To summarize the trade entry setup for Allied Nevada Gold Corp (ANV)
Trade Entry - on Day 2 between 1.39 and 1.49
Exit the Trade - 1.92 (Target is the 60 minute 200 SMA since it is lower than the daily 34 EMA)
Stop on Close - a close below the T-Line on any day the trade is open
Safety Stop - a hard stop at 1.27. This is at the midpoint of the Day 1 candlestick This is the trade from a Reward to Risk basis
Reward - Entry at 1.40 and Exit at the 1.92 target is .52
Risk - Using the safety stop of 1.27 the risk is 1.40 minus 1.27 or .13
Reward to Risk Ratio - The risk is .13 to make .52 which is a 4 to 1 Reward to Risk ratio. This is an excellent ratio when compared with a minimum 2 to 1 Reward to Risk ratio.
Summary - Trade Set-up Rules
5. “Day 2” - Trade Entry. Buy if price opens above the T-Line after “Day 1”. OR Buy if price opens below the T-Line and moves above it during the day. Price must close above the T-Line in order for the Pinball Set-Up to be in tact.
6.
Exit the Trade - Take profits on at least 1/2 of the position at the 34 EMA daily chart or 200 SMA 60 minute chart, which ever is lower.
7.
Stop on Close - Exit the trade if price closes below the T-Line. This is not a hard stop. Check price fifteen to thirty minutes before the end of the day to determine where price will close.
8.
Safety Stop - Place a hard stop somewhere below the T-Line giving enough room for intraday swings. This may be a stop below the low of a candlestick before “Day 1” or below a support level.
Chapter 3 - Trading the Pinball Set-Up
The best way to learn the Pinball rules and how to trade the Pinball Set-Up is to go through examples. We will look at Conn’s, Inc (CONN) and mark up the daily chart to display the Chart set-up rules and the Trade set-up rules.
Chart Set-up Rules
The chart set-up rules that are marked on the daily chart for CONN on the next page are
1.
Downtrend. Price must be in a definable down trend on the daily chart.
2.
Bottoming Formation. Price reaches a low point and stops dropping.
3.
“Day 1”. Price closes over the T-Line for the first time
4.
Profit Potential. The distance between the close on Day1 and the 34 EMA should be at least 10%
Trade Set-up Rules
Continuing with CONN’ Inc. (CONN), the four trade set-up rules marked on the daily chart are
5
. “Day 2” - Trade Entry. Buy if price opens above the T-Line after “Day 1”. OR Buy if price opens below the T-Line and moves above it during the day. Price must close above the T-Line in order for the Pinball Set-Up to be in tact.
6.
Exit the Trade - Take profits on at least 1/2 of the position at the 34 EMA daily chart or 200 SMA 60 minute chart, which ever is lower.
7.
Stop on Close - Exit the trade if price closes below the T-Line. This is not a hard stop.Check price fifteen to thirty minutes before the end of the day to determine where price will close.
8.
Safety Stop - Place a hard stop somewhere below the T-Line giving enough room for intraday swings. This may be a stop below the low of a candlestick before “Day 1” or below a support level.
Trading the Pinball Set-up
Presented so far is the Pinball chart set-up and trade set-up. Now let’s look at how to trade the Pinball Set-Up for Conn’s, Inc (CONN).
** On September 24, price drops to a new low and forms a bullish hammer. The next day, price opens and closes within the body of the hammer which can be accepted as confirmation of a bullish move.
**Day 1, September 26, price closes over the T-Line for the first time. On this day, the trade plan is to enter on a positive move on Day 2 above the T-Line. There is a 17.7% profit potential from the close on Day 1 to the 34 EMA on Day 1. Also the 60 minute 200 SMA on Day 1 is above the daily 34 EMA on Day 1. The daily 34 EMA is the profit target.
**Day 2, price opens below the T-Line but moves above the T-Line. The trade is entered at 29.70. The daily 34 EMA dropped slightly lower on Day 2 to around 33.45 but this trade still has a 12.6% profit potential. The 60 minute, 200 SMA on Day 2 is still above the daily 34 EMA so the daily 34 EMA is the profit target. A safety stop is placed at $27.17, which is slightly below the open of the hammer candlestick that appeared two days before Day 1. We will exit the trade on a close below the T-Line or the safety stop whichever comes first. Remember that price needs to close above the T-Line in order for the Pinball Set-Up to stay in tact.
** To summarize the trade
-Entry - $29.70
-Exit - daily 34 EMA
-Stop on close below T-Line
-Hard Safety Stop at $27.17
**Price starts to pullback the day after entry on Day 2 but closes above the T-Line so we stay in the trade.
**Price continues to fall two days after Day 2 and closes above the T-Line so we stay in the trade.
**On the third day after Day 2, price opens at the T-Line and closes higher on the day. Since price opens at the T-Line, we add to the position at $29.97. This addition doubles the size of our position so the average is now $29.84. The daily 34 EMA is still the target and is at $33. This could yield a 10.6% return.
**The day after we add to the trade, price opens higher and closes near the daily 34 EMA. 15 minutes before the close we exit the trade at $32.77. This trade gives us a 9.8% return which is close to our minimum 10% target for the Pinball Set-Up. Notice that the daily 34 EMA is lower than it was at entry. For the Pinball Set-Up, use the daily 34 EMA on the current day as the profit target even though it may be lower than when the trade was originally entered. 9.8% is still a good return for 4 days work.
**Could we hold our position for larger profits? Yes. But why? The chance of a pullback from the daily 34 EMA is high so why take the risk. Could we take profits on half of the position and let the other half ride? Yes. We need to be quick to exit the trade on October 6. Price closed just below the 34 EMA the day after we officially exited the trade on October 3. If we are able to watch the trade during the day, we could have made a little more on the trade. All in all, we are happy with our
9.8%!
**With the Pinball Set-Up, price call fall quickly after breaking down through the 34 EMA. So taking profits is extremely important.
Chapter 4 - Pinball Trade Exercise
The best way to learn the Pinball Set-Up rules is to look at a chart and identify them. For this exercise there are two daily charts and one 60 minute chart for Cliffs Natural Resources (CLF).
On Exercise 1-1a daily chart write the Chart Set-up Rules and on Exercise 1-1b daily chart write the Trade Set-up Rules for the Pinball Set-Up. Refer to Appendix 1 for a complete list of the rules. Answers appear after the exercise.
1. Price is clearly in a downtrend prior to October. The T-Line is below the 20 SMA, the 20 SMA is below the 34 EMA and the 34 EMA is below the 50 SMA. All of these moving averages are below the 200 SMA. Notice how price continues to make lower lows and price stays below the down sloping T-Line.
2. From October 9 to October 13 price forms a morning star candlestick pattern. The morning star candlestick pattern is a strong bullish indication that a trend reversal may be starting.
3. Price closes above the T-Line for the first time on October 14. This is marked “Day 1” and this is the day to add this stock to a watch list for a possible entry.
4. On October 14 there is a 26% profit potential from the close on this day to the 34 EMA.
Answer to Exercise
5. On “Day 2”, October 15, price opens around the T-Line. At some point during the day price dropped below the T-Line but did not close below it. If you are watching the chart during the day, the best entry is as close to the T-Line as possible as marked by “Entry Area”. If you were only able to look at the chart 30 minutes or 15 minutes before the close, then your entry is higher and closer to the top of the candle on Day 2. This is okay because there is still more than a 10% profit potential in the trade.
6. Exit at least half the trade on the lower of the daily 34 EMA or the 60 minute 200 SMA. For the purposes of this example, the dotted line representing the 60 minute 200 SMA was plotted on “Day 2”. Remember that this stock is still in a down trend and sellers may be lurking at the daily 34 EMA or 60 minute 200 SMA and you don’t want to be in the trade when they start to sell. If you decide to stay in the trade with a partial position, then plan on raising your stop to cover the cost of that partial position so you don’t end up with a loss.
7. Exit the entire trade if price closes below the T-Line. For each day the trade is open, look at price 15 minutes to 30 minutes before the close to determine where it will close. You do not want to be holding the position over night if there is a chance it will close below the T-Line. Again, this stock is in a downtrend and a close below the T-Line could mean a continuation of that downtrend.
8. Place a “safety hard stop” somewhere below the T-Line. This is your personal choice based on your tolerance for risk. Try to pick a price based on a previous day’s candle or a support area. You can see that on the day after “Day 2”, price dropped below the T-Line and continued higher. If your hard stop was too close to the T-Line you would have been stopped out.
Chapter 5 - Special Topics
This chapter includes four special topics to consider when trading the Pinball Set-Up
** Alternate Chart View - using a different chart setup to spot Day 1 and Day 2 candlesticks
* Pinball Set-Up Behavior - an explanation of different aspects of behavior
**Common Sense - considerations when trading
** Be Your Own Trader - what it means to be your own trader
Alternate Chart View
Learning to see a new chart pattern can be challenging. One way to simplify “what we see” is to focus on the primary characteristics of the pattern and display chart information accordingly. With the Pinball Set-Up, the primary focus is on price and its relation to the daily T-Line and the 34 EMA. Identifying Day 1 and Day 2 are key to the Pinball Set-Up. Let’s look at a couple of daily charts where price is in a downtrend and only the T-Line and 34 EMA are displayed on the chart.
When looking at the daily charts, “find candlesticks that close above the T-Line” and for these candlesticks “is there at least 10% from the close of the candlestick to the 34 EMA?”. If both conditions are met you have just identified Day 1 with at least 10% profit potential.
Next, find Day 1 candlesticks and draw a circle around Day 2 candlesticks. Remember Day 2 candlesticks must close above the T-Line in order for the Pinball Set-Up to remain in tact. If you circle a Day 2 candlestick that opens above the T-Line and closes below the T-Line that is okay. Just know that the Pinball Set-Up is broken when the candlestick closes below the T-Line. Take a look at Example 5-1 Christopher & Banks Corp (CBK) on the next page and find
Day 1 and Day 2 candlesticks
Review Example 5-2 on the next page and compare it with your analysis of Example 5-1.
A - Day 1 candlestick. Price closes over the T-Line with at least 10% potential to the 34 EMA.
B - Day 2 candlestick. Price opens above the T-Line after Day 1. However, since the candlestick closed below the T-Line the Pinball Set-Up is broken. Traders wait for another Day 1.
C - Day 1 candlestick. Price closes over the T-Line with at least 10% potential to the 34
EMA. D - Day 2 candlestick. Price opens above the T-Line. Since it closes above the T-Line,
Pinball Set-Up is in tact.
E - Candlestick closes above the T-Line but because there is less than 10% from the close of the candlestick to the 34 EMA there is no Pinball Set-Up developing.
F - Day 1 candlestick. Price closes above the T-Line with at least 10% potential to the 34 EMA.
G - Day 2 candlestick. Price opens above the T-Line. Since it closes over the T-Line, the Pinball Set-Up is in tact.
Pinball Set-Up Behavior
Not all Pinball Set-Ups work out on the first attempt. This is true for any price pattern set-up. The rules for the Pinball are designed to keep losses small and to keep the profits growing as long as price stays above the T-Line.
Look back at Example 5-2 at point B. Price opened above the T-Line at $6.53 and closed below the T-Line at $6.33 for a $.20 loss if the trade was entered at the open. The total loss on the trade can be managed by entering a partial position at the open and adding to that position only if price closes above the T-Line for that day.
Next look at point D. Price opened at 6.64 and the 34 EMA is at 7.34. There is .70 or 10.6% profit potential. Traders following the Pinball Set-Up rules entered the trade around 6.64 and stayed in the trade until price reached the 34 EMA around 7.18. The 34 EMA shifted while the trade was in progress but the profit in the trade more than made up for the .20 loss on the first try.
Savvy traders keep watching for another opportunity and one develops at point F. Traders enter the trade at point G around 5.18 with 17% potential to around 6.07 at the daily 34 EMA. (For the purposes of this example assume that the 60 minute 200 SMA is above the daily 34 EMA.)
Three important aspects are --Pinball Set-Ups may not always work on the first try. This is true for any price pattern set-up.
--The Pinball Set-Up rules are designed to keep losses small while optimizing profits.
--Savvy traders keep watching for the next Pinball Set-Up opportunity.
Common Sense
Not all Pinball Set-Ups look exactly alike. Some candlesticks will move slightly above the T-Line for Day 1 or Day 2 and others can gap up over the T-Line. For Pinball Set-Up Day 2 candlesticks that gap or move too far away from the T-Line, there is a possibility of a pullback. In these situations, either wait for a pullback or select another stock. What is too far away? Think about how far price has traveled up from the low to the Day 2 point. For example,
if on Day 2, price has moved 20%, 30% or more from its lows there is a strong possibility of a pullback. In this case, consider a partial position or wait for a pullback. If you think price has pulled too far away from the T-Line, remember these attributes Buy as close to the T-Line as possible. Your stop is a close below the T-Line. If the distance between the entry price and the stop price is more than you can afford, wait for a pullback or move on to another trade.
**If there is at least 10% to the 34 EMA at the point of entry and there is at least a 2-1 Reward to Risk ratio, this entry is acceptable under the Pinball rules.
Be Your Own Trader
When learning a new trading pattern stick with the original rules. This is extremely important. If others are modifying the rules, that is fine for them but not for you. Being your own trader means that you do what is best for you and your situation regardless of what others are doing. There are no guarantees in trading despite promises you may hear on how to make riches with trading. Trading is about probabilities and stacking the odds in your favor. By having rules for proven trade set-ups, you stack the odds in your favor. Over time you can master the Pinball Set-Up and perhaps even modify the rules to make it your own. Some traders may decide on slightly different entry strategies, safety stops levels, target levels, entry points for partial or additional positions. Some may even choose to enter a partial position on a close just below the T-Line in anticipation of a move over the T-Line.
Traders may choose to adopt other technical indicators to go along with the Pinball Set-Up. When you are learning, stick with the original rules!
Summary- Special Topics
** When learning the Pinball Set-Up, consider setting up the daily stock charts with the T-Line and 34 EMA. Then practice going through the charts and identifying Day 1 and Day 2.
**Pinball Set-Ups do not behave exactly the same way. Some are successful on the first attempt and others are not. The key is to stick to the rules in this eBook to keep losses small and maximize profits.
**Use common sense in trading. If price has gapped or moved too far away from the T-Line on Day 2, consider a partial position or wait for a pullback closer to the T-Line. Also, look to see how far price has moved off of its lows to determine the likelihood of a pullback.
** Be your own trader. When learning a new trading pattern stick with the original rules. This is extremely important. If others are modifying the rules, that is fine for them but not for you. Being your own trader means that you do what is best for you and your situation regardless of what others are doing.
APPENDIX 1
PINBALL-SET_UP RULES
Chart Set-up Rules
1.
Downtrend. Price must be in a definable down trend on the daily chart. Price moves lower and makes lower lows and lower highs. As a result of this price action the 8 period exponential Moving Average (8 EMA) that Rick Saddler has designated as the Trigger Line or ‘T-Line’ is below the 20 Simple Moving Average (SMA), the 20 SMA is below the 34 Exponential Moving Average (EMA), and the 34 EMA is below the 50 Simple Moving Average (SMA). In many cases the T-Line, 20 SMA and 34 EMA are parallel to each other and all are pointing down. The 50 SMA may or may not be parallel to the other moving averages depending on how long the downtrend has been in progress. All of these moving averages are below the 200 Simple Moving Average (SMA).
2.
Bottoming Formation. Price reaches a low point and stops dropping. Evidence of this behavior is reflected in price patterns or bullish candlestick patterns and signals. Examples of these patterns are double bottoms, low high higher low higher highs, and bullish “reversal” candlestick patterns and signals.
3.
“Day 1” - First Close at or above the T-Line (8 EMA). Price closes over the T-Line for the first time. Call this “Day 1”.
4.
Profit Potential. Profit potential is measured by the distance between the close on “Day 1” and the 34 EMA. It should be at least 10%.
Trade Set-up Rules
5
.“Day 2” - Trade Entry. Buy if price opens above the T-Line after “Day 1”. OR Buy if price opens below the T-Line and moves above it during the day. Price must close above the T-Line in order for the Pinball Set-Up to be in tact.
6.
Exit the Trade - Take profits on at least 1/2 of the position at the 34 EMA daily chart or 200 SMA 60 minute chart, which ever is lower.
7.
Stop on Close - Exit the trade if price closes below the T-Line. This is not a hard stop. Check price fifteen to thirty minutes before the end of the day to determine where price will close.
8.
Safety Stop - Place a hard stop somewhere below the T-Line giving enough room for intraday swings. This may be a stop below the low of a candlestick before “day 1” or below a support level.
APPENDIX 2
PINBALL SET-UP SCAN FORMULAS
Traders use scanning programs to find possible Pinball Set-Up candidates. This helps in reducing the number of charts to examine. Just because a program selects a stock does not mean that it is the best one to trade. Traders need to look at the chart and follow the rules for the Pinball Set-Up presented in this eBook.
Stockcharts.com
[type = stock] AND [Daily SMA(50,Daily Volume) >200000] AND [close > 1.0]
and [SMA(20,Close) < EMA(34,Close)]
and [EMA(34,Close) < SMA(50,Close)]
and [EMA(34,Close) >= Close * 1.1]
and [1 day ago Close < 1 day ago EMA(8,Close)]
and [Close > EMA(8,Close)]
Think or Swim (TOS)
-From the main Screen click on the SCAN tab
-In the SCAN tab select Stock Hacker
-On the left side there is a drop down box Scan In (select the All Stocks value)
- Leave intersect with as <none>
-Click on Add Study Filter
-From the “Study” Drop Down list select CUSTOM
-Select ThinkScript Editor
-Next to Aggregation above the ThinkScript editor label select “D” from the drop down list.
-In the box that appears in ThinkScript editor type the following
Close > 1.00 and close < 90.00 and
Average(volume, 50) is greater than 250000
and Close > expaverage(close, 8)
and ExpAverage(close, 34) > ExpAverage(close, 8)
and ExpAverage(close, 34) < ExpAverage(close, 50)
and ExpAverage(close, 34) >= ExpAverage(close, 20)
and ExpAverage(close, 21) >= ExpAverage(close, 13) and ((ExpAverage(close, 34)) - (ExpAverage(close, 8))) >= ((ExpAverage(close, 8) * .10 ))
-Click on the OK button
- The next line has a selection for <show>. Select the number of stocks that you want to see in the scan list. Use 200 or less from the drop down list.
-In the second box use Stocks from the drop down list
-Choose your sort by symbol and then as ascending or descending
- Click SCAN. A list of stocks meeting the Pinball scan criteria will appear in a list. You can save the scan list to a watch list by clicking the save icon next to “Showing _of_”.
-Save your scan using the Save Scan Query item. Go to the top right of the scan screen click the menu icon (this menu icon aligns with the “Setup Scan label”) and then select “Save scan query”.
Alternate method to load code
-Copy the link below to your browser address line.
http://tos.mx/3VUVt0
-A web page appears. Select “Open Steady Eddie’s Scan query”. Click Scan now in Think or Swim. Follow the prompts.
Explanation of Code
The first line will select stocks in a range between closing price of 1 and 90 you can modify the numbers to fit your criteria.
Close > 1.00 and close < 90.00 and The next command uses a 50 day moving average of
250000 shares to be traded. If you are not concerned with volume place a hash tag at the beginning of the line or you can modify the numbers to fit your criteria.
Average(volume, 50) is greater than 250000 and Close > Expaverage(close, 8)
The next lines of code define the relationship of the closing price to the moving averages.
and ExpAverage(close, 34) > ExpAverage(close, 8)
and ExpAverage(close, 34) < ExpAverage(close, 50)
and ExpAverage(close, 34) >= ExpAverage(close, 20)
and ExpAverage(close, 21) >= ExpAverage(close, 13)
and ((ExpAverage(close, 34)) - (ExpAverage(close, 8))) >= ((ExpAverage(close, 8) * .10 ))
The purpose of this Appendix is to help you to recognize Pinball Set-ups and spot the ones with the best potential. On the pages that follow, there are six examples using daily stock charts. As you flip through the examples pay particular attention to the boxed area. The box is there to help you to focus your eye on the setup. Flipping through the charts in this Appendix is very similar to how you would flip through charts using your charting platform.
There are two charts for every example.
**The first chart is the Pinball Set-up as it is forming on “Day 1”. This is the day that you would place the stock on your watch list for a possible entry on “Day 2”.
**The second chart shows “Day 2” and the outcome of the Pinball Set-up. The examples include Pinball set-ups that are successful and those that fail. As you study the examples, pay particular attention as to how the Pinball Set-up is formed and what type of price action preceded it. This is key when choosing a Pinball Set-up with the best potential for success.
When flipping through the charts, notice how the successful examples originate from a strong base like a several day consolidation, rounded bottom, double bottom or W pattern The set-ups that are most likely to fail are ones that form a V bottom. This is not always the case but the Pinball Set-ups with the best potential are usually those that originate from a strong base.
The 20 SMA was left off of the example charts to make it easier to focus on the T-Line and the 34 EMA.
APPENDIX 3
TRAIN THE EYE EXERCISE
Notice the 10% price rise from the low to the T-Line. After a large rise price may
consolidate or pullback.
This Pinball Set-Up failed. In this case, price pulled back from the T-Line after its 10%
move.
Notice the Sharp V bottom and price moved more than 10% from its low to the T-Line
This Pinball Set-Up failed. After a greater than 10% move from the low to the T-Line,
price may consolidate or pullback. In this case, it pulled back below the T-Line.
