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.
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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
At its core, Jacobs Ladders provides a 4 handle ES or equivalent set up to trade everyday on multiple instruments. But on trendy or volatile day, the Ladders can be used to gain much more than the 4 handles. I will highlight these core uses
Since introducing Jacobs Ladders in September, there have been 14 weekly rewind blogs with many examples posted each week. If you are new to Jacobs Ladders I would recommend going back to past week blogs and reviewing 50 plus example charts. See the links to all the past weekly blogs at the bottom of this article
This week, I am going to focus on the basics rules of the system.
– How levels are arranged
– Levels that can be blind faded
– Importance of Extreme Levels
A day trader should be prepared to trade both two sided days and trend days. Most days are two sided days – prices close above Low or Below High. A trader can buy the level Low or Sell from Level High.
These levels also serves important purpose by identifying trending days. When price breaks beyond Level High or Level Low, it shows trending price. It warns trader not to hold under water positions. Trader can lean on the levels to trade in the direction of the trade
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 a 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 a one spike candle to stop you out and close right back within the level. So watch 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 draw down 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.
Example Dec 5 Tuesday
Price hits levels High.
– A blind fade would have caught a runner all the way to level Low worth 14 handles
– Level Low blind fade Long would have been stopped for a -1 per my own trading style
– Extreme Low 1 hits 15 min before Europe opens and bounces 10 handles by next morning session. Example of levels continuing to work after hours and example of Extreme Low 1 being exhaustion area
– Shows excellent example that combined with situational awareness that we are in very strong bull market, Extreme Low levels can be short term reversal area. Towards Friday price had bounced 40 points.
– It illustrates another usage that these levels can be leaned against for a swing entry or keeping a runner for longer move. Stan had called for higher prices from here.
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.
Links to past Weekly Reviews:
– Jacobs Ladders Weekly Rewind for Week of Nov 27