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Crown patterns can form in any market and on any time frame. However the longer the time frame, the more risk you must assume.

When day trading the S&P 500 E-Mini (or other E-Mini futures contracts), try using either one-, three- or five-minute charts (55-, 233-, and 377-tick charts) to find trade setups.

The TIKI chart should always be a one-minute chart, in order to identify the pattern completion on as timely a basis as possible. Once a crown pattern presents itself, it is important the TIKI have a reading of +24 or higher (-24 or lower for bear crowns) to complete it. (The horizontal lines on the TIKI chart at the bottom of Figure 4, p. 63, are set to +22 and -22 to make it easier to see extreme readings of +24/-24.)

Trade entry

Enter the trade (at the market) when the most recent price bar closes lower and the HiLo Activator flips in the direction of the trade just after point E. The initial stop placement is above the last pivot high; if the risk presented by the trade is higher, pass on the trade.

Exit half the position when a TIKI reading of -24 or lower occurs (+24 or higher for a long trade after a bear crown), as shown at point F in Figure 4. The HiLo Activator then functions as a trailing stop on the remaining contracts. (Covering the entire position after a TIKI reading of -30 is another viable option.) If you do not have the HiLo Activator, you can calculate a 20-period moving average of the highs and a separate 20- period moving average of the lows. Alternately, you can use a simple 20- period moving average and enter a trade when price closes below or above the average (others may choose to wait until the entire bar is above or below the average). Of course, everyone should backtest to find what works best within the context of his or her overall trading style. Figure 5 (below) shows a bear crown in the S&P 500 E-Mini futures. Trade entry occurred just after the pullback to point E when the HiLo Activator flipped below the price series and the TIKI hit -24. Half the position was liquidated when the TIKI registered a +24 reading at point F, and the remainder of the position was exited on the close.

Improving the odds

Bull and bear crowns combine several analytical tools: By adding Fibonacci calculations and market internals to this chart formation, you can improve the odds of capturing a reversal when the market retests its most recent high or low. When the pattern has fulfilled its Fibonacci requirements, the TIKI shows whether the market is "giving its all" when price has stalled. When the TIKI fails, a trade is signaled.