Jacobs Ladders is a trading system that provides perspective on high quality, profitable trade setups for day traders. The purpose of this blog is to educate day traders on this trading system and provide links to the levels on a daily basis. You may wish to bookmark this page.
The Subscription Service for Jacobs Ladders pivot system is now available. A subscription includes a 14 day free trial and includes all instruments and indicators that we cover and new indicators and instruments in development. It also includes our Think or Swim indicator. We are now working on a Ninja Indicator which we hope to finish later this year. Please post any questions you have to this blog.
Click HERE to subscribe to the Jacobs Ladders Pivot System.
The objective of the Jacobs Ladders is to help day traders identify and capture a minimum price movement between any two adjacent pivot points. This system when used correctly will improve the consistency of winning trades and helps minimize risk and losses.
In this weekly blog series, I will point out set ups that occurred during the past week that are illustrative example of how to use Jacobs Ladders for day trading. These examples have been tweeted out on our public twitter feed, you can follow along here @the_artofchart.
For more educational information, please see the previous introductory post introducing Jacobs Ladders day trading system which can be found here
Blind fade levels
A blind fadeable level is a price where you can place a limit order in advance. It is because they have extremely high likelihood of getting a reaction to get a risk out after taking a small profit ($75-$100 per contract depending on instrument). Once you get that much profit you immediately book it on at least one contract and move your stop to break even.
These are the only blind fade levels:
Extreme High 3
Extreme High 2
Extreme High 1
Extreme Low 1
Extreme Low 2
Extreme Low 3
A hard stop is required on all of these levels. This is because price has not shown that it is going to reverse here. They are blind fade because of their statistical history. But on extreme trend days level high and level low can get blown past without any reaction at all. Especially when price move is driven by news events.
Objective of trader is to go with the trend and not fight the trend. So letting yourself get stopped out for a -1 handle loss is a good thing. It prepares your mind to look for entry into the trend by watching for conversion of these levels.
How much stop room should be given? I trade with extremely tight stops and re enter a trade if the trade is valid. Personally I do not give more than 1 handle room for level High and Low I give 2 handle room for Extreme levels . But I am always prepared to get right back in the trade if they levels are still exhibiting support or res there.
I want to stress this aspect. Re entry is very important aspect of using Jacobs Ladders system. Sometimes price may do one spike candle to stop you out and close right back within the level. So watch the price and get right back in the trade.This really protects your account and your mindset . If you are staying underwater in a position with 5 handles drawdown it affects your mind and judgment of future trades.
Jacobs ladders have many levels for this very purpose. Getting stopped out of level Low may get you a better entry in Low1 for examples.
All extreme levels High and Low are exhaustion areas of a major sell or a pop in price.
They are very likely to get risk out. They may dip first but it is very rare to not get at least $100 worth of risk out on a single contract from this level
Remember these patterns
If price move is stopping at Extreme level 1, natural reversal is to level Low or High
If price move is stopping at Extreme level 2, natural reversal is to Extreme level 1
If price move is stopping at Extreme level 3, natural reversal is to Extreme level 2
So if you catch one of these levels, it would be prudent to leave a runner to the level next.
Often you will see Extreme levels are key trend reversals. It may continue reversal for several days.
Making the max out of a runner
It requires minimum two units of contracts to get the full benefit out of the Jacobs Ladder systems. A unit may be one contract or 10 depends on your account size, number of contracts does not matter. The first uinit should be booked for getting the risk out and entry should be moved to break even. The second unit is ideally booked at the next level unless you see reasons to keep it for more because of your situational awareness as a trader.
However you can take that second unit at next level and put it back on when next level is converted as entry into your original trade. This way you can keep that second unit and use the levels as price to keep booking profit as price keeps moving up. If your account is trading in 3 units position, then the second unit is ideally booked at the next level from entry and keep the third unit for keeping you in the trade booking profit and re entry.
No one knows how far price will go on trend days. Using the levels system gives you notches in that price ladder to take maximum profits. It is better than blindly trusting the trend only to see price retrace and your unrealized profits vanish.
Incorporating swing outlook into runners and entry
If you are also a swing trader and have a entry and exit area, use Jacobs ladders to:
(1) Improve your entry so that you can avoid entering at bad price point and holding underwater positions.
(2) Exit runners at right price points and re enter at right price as good swing move does not go in a straight line. It helps you book profits at right levels and re-enter trade.
I am providing three trend examples from last week which illustrates the key points I explained above
Example ZB Nov 30 Thu Extreme Low 1 at 150’30 with 40 tics bounce immediately and run up continuation
Strong reversal: Extreme Low1 potential for reversal level, it made 3 handles by Friday
Low was broken down hard. A small hard stop would prevent a bad loss.
Maximizing runner: If you exited runner at Low, it showed you that Low is now converted as support and you could put the runner back on
Similarly, if you miss the Extreme Low 1 entry it gave subsequent entries on Low 2 and Low
Example CL Nov 29 Inventory Report day
Combine swing outlook: Stan called CL to go low 57s and bounce into 58s
Low 2 was 57.1
Extreme Low1 was 56.85 Seeing that there is no support at 57.10 you got better entry at Extreme Low1 which bounced really hard giving 100 tics profits
Example ES Nov 28 Tue- Importance of stop and going with trend
See level high as crushed. A -1 hard stop would have avoided a lot of pain
Also getting out for -1 stop prepared for entry into trend when High1 was converted as support and gave perfect entry
Extreme High1 was res dead on and gave 10 handles pull back
During pull back, Level High back tested now as support and gave another entry into long
Example ES Dec 1 Friday V day, new sell off on Flynn pleading guilty
News related sells have a habit or reversing after initial reaction and then let real technical price action take place. How far sell last? How far it will bounce? How to get a good entry? Avoid the guessing. Look at this chart.
Extreme Level1 first would have stopped out but the 5 min candle closed right on level giving you sign of level holding and re entry
Low level broke straight away; a one handle hard stop would have avoided severe pain
On the bounce up, three additional entry set ups or re entry of runner are given
Jacobs Ladders TOS Study
If you are a Think or Swim user you can see all the levels loaded into each of the instrument’s chart by copying and pasting code for a study each morning. The link for the study is included where the levels are published
Here is how TOS chart will look like where you have a 9 cell grid for various instruments with levels loaded. You only need to update the study on one chart. Levels will load automatically on all other instruments for which Jacobs Ladders levels are available.
I hope this educational post helps you understand how to use Jacobs Ladders. Please look for our educational posts on our public twitter feed at @the_artofchart.