THE OFFICIAL MAGAZINE OF TECHNICAL ANALYSIS
2009
Issue #46
Pinball Setup as an
ATM Machine
How to Write a
Trading Plan
Why Do People
Make Elliott Wave
So Complicated?
What Type of Trader Are You?
The Secret Strategies of the Master Traders
Anticipate Major Market Turns
Sonata Trading
Computer
Online Trading Academy
Pinball Setup
as an By Rick Saddler
Pinball setup? The name of this stock trade
setup was derived from similarities of the
action of a pinball
game. The pinball
(the selected stock)
is propelled upward
by the plunger on
the playfield
(the
technical
candlestick chart of
the stock). As the
pinball descends, a trader observes the setup
as a possible opportunity. Just as the flipper
is poised to redirect the ball up the playfield,
the trader enters the stock long. The trader
must be prepared to act defensively if the
stock encounters a bumper or saucer. Once
the target price is achieved the stock is sold
and another few points (dollars) are added to
the scoreboard (trading account).
During my trading tenure of 12 part time
years and 4 full time years, thousands of
charts have been analyzed. The pinball setup
is one of the most consistent and most
profitable short-term setups in my trading
arsenal. A member of my chat room, Steve
Merritt, a Denver based independent equities
trader, refers to the pinball setup as his daily
“ATM machine”.
The Setup
The elementary strategy is to grab the stock
off the bottom after a down trend, preferably
just above the 8ema (exponential moving
average) and exit the profitable trade at the
34ema. The pinball setup commences while
observing a stock’s bullish indication following
ATM
Machine
the downtrend. The bullish indication may
be a:
double
bottom
bullish
engulfing
bullish
harami
Swing Low Buy Signal or golden cross
stock’s short term moving average
breaking above its longer term moving
average...a favorite is the 2ema crossing
the 8ema to the upside) close above a
significant moving average (the 8ema
compelling
) To maximize the probability of
the bullish indication must be confirmed
by the next day’s candle. No rule exists
that strength always follows the bullish
setup; the bullish setup must be
confirmed. The next positive candle
should be based on your trading time
frame window. The setup is fractal
therefore it can be used on any time
frame, shorter or longer than the daily. I
prefer a daily chart, a 60-minute chart
and occasionally a 30-minute and15minute chart. My indication chart is the
daily. If the daily meets the parameters, I
will drill down to a 60-minute, 30-minute
and a 15-minute chart for validation and
suggested entry. The daily chart always
based only on the intraday
charts.
Another entry technique after witnessing
the bullish formation coupled with a stock
ascending is waiting for a pullback. Chasing a
stock for entry is too high risk. The pullback
may be to the 8ema on an intraday chart or
daily chart. The trade will then be entered.
resistance area. Occasionally
the 200sma and 233ema will
be used as exit points.
The risk reward principle suggests
that sufficient room exists on a
chart between the entry price and
the exit. A minimum 3:1 risk
reward ratio is desired, where I
will risk 50 cents to make $1.50.
Stop losses are used judiciously as
most trades are of short duration
and I do not want to be stopped
out during intraday ‘chatter’ or
‘noise’. End of day mental or soft
stops are used. Only if I plan on
being away from the trading turret
do I employ hard stops (a stop
loss entered on my trading
The Entry
Frequently it is challenging to enter at an
exact price. The majority of my pinball trade
entries are market orders. The movements
of the existing market have been volatile,
violent and tumultuous. And as a ‘for profit
trader’, I must pay myself weekly. As a
result my hold times are brief compared to
the more docile market conditions of 2002
to 2007. Most trades are now held between
an hour and 3 days. Refer to Figure 1 to for
an example of the pinball setup with entry,
targets and stop identified. See Figure 1.
Taking Profit
The hold period terminates when an earlier
identified target has been achieved. Prior
to executing the long trade, the exit target
is identified. A favored exit target is the
21ema, 34ema or 72ema. When market
conditions and my selected pinball stock
are acting well in unison, I may sell only
50% at the 34ema and allow the balance
of the position to run to the next target or
platform and placed with the
electronic broker). Identified stops, always
unique, are commonly placed below an ema
trend line e.g. 11 cents below the 8ema on
a $10 stock. Since the 8ema is the preferred
trend line, a close below, is of significant
concern and cause for an exit at a loss.
A comprehensive understanding of the
pinball setup coupled with cognizance of the
supporting technical indicators will identify
low risk entries and high reward exit targets.
Use the power of the pinball setup to book
profits!
Rick Saddler is owner of Hit and Run
Candlesticks
www.hitandruncandlesticks.
com and active trader. He moderates his
chat room during market hours. For a free
1 month trial with Hit and Run Candlesticks
– Trading for Profit. Use the following link: