I first started using this entry method back in the early 90's when I was testing the PPS Trading Strategy by Curtis Arnold. This entry is not part of that book, nor do I know its exact history. Testing the PPS patterns by hand for over 1800 hours showed me that this technique was a more definable way to enter the market and it offered a lower risk, higher reward proposition - if it was successful. However, it's not for everyone. It can, on occasion, be a frustrating technique and can lower the win rate. Many years after my initial research on PPS I noted Joe Ross was using a similar method, albeit in a different way, and as he'd named it already in his extensive body of work I also applied the same name.
The technique is known as the Traders Trick Entry (TTE).
In the Bendigo Bank (BEN) chart below we can see a great example of a PPS micro triangle that has 4 distinct pivot points. Standard practice is entering on penetration of the lower boundary with a stop loss cutting through the centre of the pattern extending from the apex. In my view there are two issues with this setup. Firstly, because the entry point is in everyday trading texts we can assume that any trader looking at this pattern will also be looking to enter at the same point. If so, then the competing orders may increase slippage. The second issue is that the initial stop loss is not really based on any solid technical point of reference, i.e. it's not above any dedicated resistance or pivot high. It's just sitting inside the noise of the pattern.
The TTE on the other hand attempts to remove both these concerns. Rather than awaiting a downside penetration of the pattern we look to enter the trade as soon as prices start to swing low, specifically once we have the 4th pivot in place we place an order to enter 1c below this bar. This alleviates being caught up in any congestion at the pattern breakout, and if there are other orders sitting there they'll actually help our cause. And the initial stop is placed 1c above the high of the 4th pivot, which will provide a better level of technical support should prices start to swing lower immediately.
Obviously we can never know if the pattern will complete. If prices move higher we can adjust the levels up until the pattern either invalidates or gets us into the trade. As mentioned above, the risk is an outside day, that is prices start lower triggering an entry, then reversing and taking out the initial stop. It happens. It is frustrating, but, the ability to join a move with the lowest possible risk will always offer a greater reward.
The following chart of Cinemark Holdings ($CNK) offers a picture perfect bearish A-B-C pattern straight out of our Playbook. Whilst the pattern is complete, note that the colours of the bars are Green, indicating a bullish trend and therefore a short side trade is not yet warranted.
However, over the next few days the trend turns to neutral and then bearish which then allows a position to be taken should downside follow through occur. The TTE is usually a single bar pattern, specifically where the entry level is 1c below the low of the entry bar, and the stop loss is 1c above the high of the pattern. Because we have a slight transition in the trend, we don't get the single bar entry here, but it's still extremely tight between entry and stop loss enabling the lowest possible risk without using intra day or smaller time frames.
Next we see that CNK drops in alignment with the broader market trend. The trade would now be managed accordingly.
The TTE is extremely versatile and can be used on all 17 of our Playbook setups, and can also be used when trading other types of patterns, including leaning on support and resistance.