Tag: Pinch Play

Invest Like A Pro! >
2 Time Frame Pinch Play with entry, stop and target.

2 Time Frame Pinch Play with entry, stop and target.

I have provided an example of a short sale signal using the 2 time frame pinch play from my book “Invest Like a Pro”. Risk management is of paramount importance when doing trades of this type. In order to be successful over time, you must be very strict about the loss side of the equation. If you just buy because a stock looks like it is going higher or you sell (short) a stock because it looks like it is going lower, i believe you will struggle to be successful as a trader. By refining your timing, you will improve your reward to risk equation which will increase the odds of success. The 60 minute and 10 minute charts of AT&T (T) below show how to improve your timing and entry as well as reduce your risk in a trade.

60-minute chart higher time frame:

Here is an example of how this approach can be used on two intraday time frames.  Above, we see the 60 min chart triggered on the gap down at the open.  If you shorted at the open you would need to put your stop above the peak from the prior afternoon around $24.70.

10-minute chart lower time frame:

I left the circled area from 60 min on the 10 min chart so we can see the timing of the trigger.  The timing and reward to risk equation improves dramatically by moving down to the 10 minute chart and waiting for a second pinch. Notice how the trigger took place before a big extended move.  That is important when the higher time frame qualifies via a gap.  Target was hit by .04 before turning up. So, by waiting for the lower time frame to provide a more timely trigger and stop, we were able to hit a 3-1 reward to risk target in just a few hours.

Pinch Plays

Pinch Plays

Linda Raschke wrote a book called Street Smarts with Larry Connors.  This is a great book.  One of their signals is called an Anti.  They use a different form of MACD or Stochastic to find this signal.  However, the concept is the same.  We want to find when the Signal line has turned or is trending and the MACD moves counter to it.  It causes the two lines to pinch together for a brief period without causing a crossover.  The weekly chart of Apple Inc.  (AAPL) from 1999 shows back to back Pinch signals

after price emerged out of its base.  Typically, price will pullback 2-3 bars or will drift sideways to alleviate the short term overbought condition.

Sometimes these signals will take place following momentum divergence (discussed next) or in conjunction with divergence patterns.  Once again, the best signals will usually emerge when there are signals from the price structure and the MA lines to confirm. 

The chart of Pepsico Inc. (PEP) from 2018 is above.  Price breaks the trendline (step 1) and then tests (step 2).  This process is also the 40 to 18 bounce pattern discussed prior.  During this rally to the 18 MA line, MACD is unable to regain its Signal line causing a minor pinch to develop.  This gives us enough evidence to sell as soon as 18 MA line is re-broken instead of waiting for step 3 or the break of the 40 MA line.  One of the keys to this signal is watching the price action.  Many times, the MACD line will only tighten to the Signal line slightly so focusing on the counter trend move in price helps this pattern to become easier to recognize.  In addition, the first two pinch plays are the highest probability and then the odds start to drop off somewhat due to the longevity of the trend.  In this example, the reward to risk improves dramatically using this entry trigger rather than waiting. 

All content is Copyright 2019, Invest Like A Pro, LLC.