Jacobs Ladders Explained

Follow me on twitter @JacobsLadders , I post several examples each week to illustrate the system usage, typically at end of trading day

Jacobs Ladders™.  is day trading system. This system identifies support and resistance for each trading day using a 13 point price level system. The idea of the system is to identify when you are in a two sided day or a trend day and it helps identify the appropriate price levels to trade against given the current days price action. This is a short term trading system based on pivots. Each pivot is like a step in the price ladder that lets you go up or down the price.

These levels are provided for educational purposes to help traders make better trade entry or exit decisions. Jacobs Ladders™  is not a trading signal or trade recommendation service

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.

Jacobs Ladders™ pivot system  also includes our Think or Swim study.

Click HERE to subscribe to the Jacobs Ladders™ Pivot System.

 How the System Works

The levels are are published at 10:01am every day. There are 13 levels per instrument. The idea of the system if to identify when the instrument is trending, when the instrument is not trending and to identify price levels to enter a trade. I recommend paper trading this system to see how it works before attempting to use it live. The idea of day trading is to enter one of the levels below when support or resistance is demonstrated and when the next level is reached, take profit . A sample trading strategy is provided to learn the system.

Level Structure

Reason for 13 levels

If you day trade, one or two levels are not enough to minimize risk. A typical day’s worth of trading has many notches or pause/reaction areas. We see these as rungs in a price ladder. Using the ladder, you can keep losses small as exceeding the next ladder level will force an exit. It supports better entries as you will notice by watching the tape that price will tend to pause at the pivots identified.

It is recommended to take profits at the first ladder level exceeded after your entry and set your stop to even.

Eliminate guess work on how far market will go on a given day

No one knows for certainty how far market could go up or down or whether it will be a two sided day staying between level High and Low. If you entered a trade and have a profitable runner(s), the next question is how far you keep that runner? will it go 5 points? or 15?  Often you have ended up in days when you cashed in for 5 points and market went 20 up. You don’t want to re enter the trade at random level only to see price reverse the moment you entered.

The ladders system uses a simple model. If price is at one level and you are long, aim for next higher level and take profit and leave a runner. Then if price keeps going higher it typically back tests and proves support at the next higher level . You can then re enter the trade.  Whether you enter the trade with full size or a runner you just cashed in, it all depends on your account size, risk tolerance, daily goal etc. They key is that if you want to be in a trade that trends, this system gives a lay of the land in terms of price and gives re entry opportunity with getting a risk out trade again.

Feb 26 2018 Example of Level High converting as support into a trend up day

The opposite is true for a trend down day.

For a two sided day, price goes to the next level up (or down) and then stalls. A trader can then exit the trade and if desired initiate  a trade in the opposite direction

Trend Day Characteristics

Once the price cross into the trend zone, day trading takes on a different character. On a trend day price will often move in one direction until the end of the day. This system helps to identify the price areas that are trendy, which for a day trader is handy to know so that you can manage entries and stops appropriately.
On strong selling day, Extreme Low 1 or Extreme High1 are good targets to exit the trade if you were already in a trade in the direction of the trend as these areas tend to be stall of the trend. On exceptionally hard sell off days Extreme Low 3 is touched and breached. Such prices are seen typically two or three times a year.  They also tend to be strong reversal areas for days to come, often bouncing back 100 points – something to note for people who also do swing trades.

System Goal

The system is indented to help a day trader to make ES 4-5 handles in profit a day or equivalent in other instruments. Doing this consistently every day can be very profitable. When volatility increases, the system set ups routinely yields 10 to 20 handles but that is not the goal. The goal is to find 4 to 5 ES handles or equivalent consistently.  In CL that translates to 20 to 30 tics. In ZB, that translated to 10 tics and so on.

Focus on achieving an entire price move between two steps in the ladder. For example, most common move that can be captured is steps between Opening Price and Lower High or Higher Low.  The price range could be 2 points or four points depending on a days range.

A few notes on using the system that will come in handy

1.Level High/Low
On a two sided day, first touch of Lower High and Higher Low are high probability areas for a price reaction – a bounce from Low or a pull back from High giving an entry that gives an initial move that lets you take some profit and move your trade to a break even stop. Conversely if you are already in a trade, these are area to take profit.

On a trend day, watch as levels are converted into support and resistance to evaluate the trade. As levels convert, the next rungs higher or lower become the next decision point. High and Low pivot points are often key determinants of a trendy day. Example, when ES is up-trending, it breaks above High level and often back tests it as support which gives an entry into the trend.

When price does not pause at Level Low or High, it often revisits that price before continuation move. If price drops below Low without a bounce, it is highly likely to bounce back to Low first before selling below Low 1. If it sells below Low1 then it is an indication of stronger move down so Low 1 acts as risk marker for a trade against level Low.

Conversely, if price pops above level High without a pullback, it is highly likely to retrace back to High first before popping above High 1. If it moves above High1 then it is an indication of stronger move up so High1 acts as risk marker for a trade against level High

2. Level Low 2/ High 2
When Price sells from level Low, Low 2 level often acts as an initial bounce area. It often bounces to Low or at least to Low 1. This is especially likely when price sold from Low to Low 2 without a bounce at Low 1.
On a strong trend down day, watch where the bounce from Low 2 stalls close to a level. It could be Low 1 or Low. The stall often gives a high probability resistance set up.

On upward move, High 2 acts the same way

3. Extreme Low Level 1
This level is very often a reversal area and often gives a 10 handle bounce when trading ES. The reversal may come after hours or even next day, a a trader may want to leave a runner that has break even stop

Extreme High on the upside similarly is a stall area. It often back tests High or High1 as support. However it is not as lucrative as Extreme Low 1, considering we are in a long running bull market

4. Trading CL
Watch the Inventory Reports on Tuesday and Wednesday as these provide extra volatility as this system provides for good risk management. A second touch of a a level that tests as support or resistance should be watched for a reaction.

5. Watch Indices as a group
It helps to watch ES and NQ together or ES and RTY
Often you will see, either NQ or ES is a price leader of the day. Say NQ is the leading index on a day that started a sell from a clean test of Level High. ES may follow the lead and sell by front running the level High 1-3 handles so without giving a clean entry. But watching ES and NQ together you may still be able to understand the trend and enter an ES trade by taking into consideration a front ran stall by ES is a short set up.

6 Higher Low/Lower High

These levels will appear conditionally on the levels system. If they appear for a given day, a trader shall first watch for a price reaction before attempting to trade against this level pair. They are not blind trade entry levels. If trading long, watch for demonstration of support against this level. If trading short, watch for demonstration of resistance against this level.

Examples of Use (2017 charts)

See a growing library of additional examples here

 

 

 

Disclaimer
JacobsLadders price levels are published for EDUCATIONAL PURPOSES ONLY. These predicated price levels are not trading recommendations of any kind. They are not trading signals. If you use these levels, you assume all risks associated with trading using these levels. There is no warranty as to the completeness or accuracy of the levels produced here.There is substantial risk of loss of capital when trading and/or investing.