Zonetta Trading

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The candlestick course · lesson four of six · Zonetta Trading

Entry, stop and target

A formation tells you where the market might turn. It does not tell you what to do about it. This lesson is the part that does: five steps, in the same order, every trade.

Written lesson · about nineteen minutes · free, and it asks for nothing

01 / The gap

A formation is not a trade

By now you can read a candle, name the shapes that mean the market could not decide, and pick out the six formations worth keeping. None of that is a trade.

A formation tells you where the market might turn. It says nothing about when you click, where the stop goes, where you get out, or when the correct move is to leave the chart alone. Those four questions are the whole of this lesson, and the fourth one is the one that gets skipped.

The difference between clicking on a pattern and running a protocol is that a protocol is the same every time. Five steps, in order, with a number or a rule attached to each. One entry rule, two stop numbers, one target method, one ratio, and one rule for walking away. The walking-away rule is the one people skip. It is also the only one in the list that costs nothing to obey.

02 / The protocol

Five boxes, every trade

Here is the whole thing before it gets broken up.

Step one — establish the trend, with lines you actually drew rather than a feeling about the chart. Step two — wait for one of the six formations to complete, in the right location. Step three — enter at the open of the next candle, never before the formation closes. Step four — place the protective stop a fixed distance beyond the formation’s extreme. Step five — set the target at past structure and check the ratio before you commit to anything.

Five boxes. All five tick, or there is no trade. Step two is the one the previous three lessons were about, and it is one box out of five.

Diagram · the five boxes

Diagram headed The protocol, five boxes, every trade. Five teal-outlined boxes sit in a row joined by short amber links and are numbered and labelled: 1 TREND, draw every line; 2 FORMATION, one of the six, closed; 3 ENTRY, next open, at market; 4 STOP, 15 above, 10 below; 5 TARGET, past structure, 10 in front. Below the row one wide amber-outlined bar reads MINIMUM RATIO 1 to 1 and a half, or no trade. A footnote reads check all five boxes, or there is no trade.
The two numbers printed inside boxes four and five came off a spot foreign exchange chart. Section 05 explains why they do not travel to a futures instrument unchanged, and what does travel.

Diagram only · no instrument, no price, no outcome claimed

03 / Trend

Step one, and where you are allowed to look

15M → 1H
30M → 2H
1H → 4H

Draw all your trend lines. Inner, outer, long-term. Not one line — all of them. They answer three questions: is the market in an uptrend, is it in a downtrend, or has a line just broken. The third answer is the reason you draw the ones that look redundant, because a broken line is the earliest warning of a reversal you will get from structure alone.

Then the reading. Candles trading above the uptrend line means the market is on the bullish side of its own structure, and the trade you look for is a long one. Candles below the downtrend line means the bearish side, and the trade is a short one. You take the side the lines say the market is already on.

The script this lesson is written from puts a percentage on that — an eight-out-of-ten. I have taken it out, and I am not going to replace it with a different number. I have never seen the sample it was measured on, over what period, on which instrument, and neither has anybody who repeats it. The same position is on the page that sells my paid course: I will not tell you how much money you will make, and I will not quote you odds I cannot source.

The rule survives the deletion intact. The lines tell you which side the market is currently on. Taking the other side means being right about a turn before the chart is, which is a harder trade to be right about — and you do not need a statistic to know that. Draw the lines, and stop arguing with them.

The bigger chart votes first

Same step, second rule: trade only in the direction of the most current trend on the larger timeframe. The ladder is fixed and it is in the margin of this section. Trading the fifteen-minute chart, you follow the one-hour. Thirty minutes, follow the two-hour. One hour, follow the four-hour.

Once the bigger chart has voted, your shopping list is set for the session. Trend down and you are hunting Evening Stars, Tweezer Tops and Bearish Engulfing candles, and nothing else. Trend up and it is Morning Stars, Tweezer Bottoms and Bullish Engulfing. Half the catalogue from the previous lesson goes in the drawer on any given day. That is not the method being restrictive. That is the filter doing the job you built it for.

Diagram · the timeframe ladder and the shopping list

Diagram headed The bigger chart votes first. On the left, a ladder of three pairs, each a navy box with an amber arrow pointing to an amber-outlined box: 15 min to 1 hour, 30 min to 2 hour, 1 hour to 4 hour, under a note reading you trade the small chart, the big chart picks the direction. On the right, two stacked lists. TREND DOWN, hunt: EVENING STAR, TWEEZER TOP, BEARISH ENGULFING, in navy-outlined bars. TREND UP, hunt: MORNING STAR, TWEEZER BOTTOM, BULLISH ENGULFING, in teal-outlined bars. A footnote reads half the catalogue goes in the drawer, that is the filter working.
The ladder is not a suggestion about which chart is better. It decides which half of the list you are allowed to act on today, before you have looked at a single candle.

Diagram only · no instrument, no price, no outcome claimed

Trade the wave, never the box

And one place where the protocol says stand down. Do not trade candlestick formations in consolidation. When the market is moving sideways inside a box, every shape you find is noise trapped between two walls, and the formation you recognise is a coincidence of where the walls happen to be.

Trade the wave instead. A trend breathes as it moves: it waves back, it retraces, it gives ground and takes it again. That retrace is the moment. Watch for one of your six formations to print at the end of the pullback, pointing back in the direction the bigger chart already voted for.

Formation, at the end of a retrace, with the larger timeframe behind it. That is the sequence this method is built around, and everything else in the protocol is a way of pricing it.

Diagram · the box and the wave

Diagram headed Trade the wave, never the box, split down the middle by a vertical rule. On the left, headed CONSOLIDATION, stand down: a grey rectangle holding nine small candles of mixed size, struck through corner to corner with a large red cross. On the right, headed THE WAVE, your moment: an amber trend line climbing from bottom left to top right, three teal candles rising along it, then a run of small candles drifting downward below the line as a pullback, then one teal candle and an amber arrow resuming upward. A footnote reads pullback ends, formation prints, trend resumes.
The two halves contain similar candles. What separates them is whether the shape is standing at the end of a pullback inside a trend, or floating in the middle of a range with nothing behind it.

Diagram only · no instrument, no price, no outcome claimed

04 / Entry

Step three: closed candles, next open

Two conditions, and there is no flexibility in either.

First, the formation must be closed. Every candle in it. A Morning Star with the third candle still printing is not a Morning Star; it is a hope with a name attached. Half of what looks like a formation while it is forming turns into something else in the last minutes of the period.

Second, the u-turn. This is the one threshold this lesson adds, and it is worth saying plainly because the same number appears in the previous lesson doing a different job there: sixty percent decides whether a Tweezer counts, and sixty percent decides whether a reversal has turned. Same number, two rules. The final decision candle has to close beyond sixty percent of the first candle’s body. Fifty-five is not sixty. This is a threshold, and a threshold you move once is not a threshold any more.

Both conditions met, you enter at market, at the open of the very next candle. Not three candles later when it looks confirmed — by then the part of the move the formation was pointing at has already happened. Not before the close, because that is committing to an unfinished sentence.

Candles closed, u-turn cleared, next open. That is the entire entry rule.

Diagram · the entry, one candle late on purpose

Diagram headed Closed candles only, enter at the next open. On the left, a tall teal candle with an amber rule drawn across its body and labelled sixty percent in amber. Above and to its right, a small doji. To the right of that, a tall navy candle whose lower body carries a short amber line captioned close beyond the u-turn. Further right, a faint vertical rule marked next candle, with an amber-outlined label reading SELL AT MARKET, NEXT OPEN and an amber arrow pointing down to that candle. A footnote reads unfinished formation equals a hope, not a signal.
The amber rule across the first body is the measurement, not decoration. If the third candle’s close does not get past it, the whole plate is just three candles.

Diagram only · no instrument, no price, no outcome claimed

05 / Stop

Step four: the two numbers, and what they actually mean

Selling a bearish formation, the stop goes fifteen above the formation’s high. Buying a bullish one, ten below the formation’s low.

The asymmetry is deliberate. Sell-side stops sit above, where the spread on a bid-quoted chart works against you, so the ceiling is given more room than the floor.

Diagram · above and below, and not the same distance

Diagram headed 15 above, 10 below, non-negotiable, split down the middle by a vertical rule. The left panel, headed SELLING a bearish formation, shows a teal candle, a small doji above and between, and a navy candle, with a red horizontal line drawn above all three and labelled STOP equals HIGH plus 15. The right panel, headed BUYING a bullish formation, shows a navy candle, a small doji below and between, and a teal candle, with a red horizontal line drawn beneath all three and labelled STOP equals LOW minus 10. A footnote says the numbers are in whatever unit the market you trade is quoted in.
Read the two panels as one statement. The stop is never at the formation’s extreme; it is always a fixed distance beyond it, and the distance above is wider than the distance below.

Diagram only · no instrument, no price, no outcome claimed

Before you write those two numbers down

Fifteen and ten came off a spot foreign exchange chart, measured in that market’s own minimum increment. They do not travel. Fifteen of anything on a Nasdaq-100 future is not the same distance as fifteen on a currency pair, and a number carried across instruments without conversion stops being a rule and becomes a superstition.

So take the shape of the rule and leave the digits behind. A fixed buffer beyond the formation’s extreme. Wider above than below. Sized against the instrument you are actually trading and its own recent range, rather than borrowed from somebody else’s chart. Measuring against the instrument’s own range instead of copying a distance out of a currency-pair textbook is the reason this course was written at all.

What is not negotiable is the part that survives the conversion: the stop is never at the extreme. There is always a buffer, and the next few paragraphs are why.

The market comes back and touches it

Why a buffer at all, instead of putting the stop one increment past the high? Because of what tends to happen immediately after you are in.

The market frequently comes back and touches the high or the low of the formation you just traded. It is a probe. After a bullish formation, sellers return to the low looking for leftover selling interest; if there is none there, the formation holds. After a bearish formation, buyers go up and probe the high for buyers; if nobody shows up, price rolls over.

So when price crawls back toward your formation right after entry, that is not automatically the pattern failing. Very often it is the pattern being checked.

The script puts a figure on how often — more than half the time, it says. Out it comes, for the same reason the eight-out-of-ten came out two sections ago. I cannot show you the sample, so I will not quote you the number.

What is left is more useful anyway, and you can verify it yourself. The return happens often enough that a stop placed one increment past the extreme gets taken out by the probe rather than by the trade being wrong. That is the entire job of the buffer: give the probe room to happen. Scroll back through a month of your own chart, mark every one of the six formations you can find, and count how many of them were touched again before the market went anywhere. That count is yours, on your instrument, and it is worth more than a percentage you inherited from a currency pair you have never traded.

06 / Target

Step five: past structure, then arithmetic

Before you can set a target you need the method’s definition of a past high, and it is precise rather than eyeballed.

A high is a candle whose wick reaches higher than the wicks of the two candles to its left and the two candles to its right. That is the whole test. Colours are irrelevant — a high can be a teal candle or a navy one. The four surrounding candles do not have to be consecutive either; gaps and overlaps do not break the definition.

Mirror everything for a low: two higher on each side.

Scan left across your chart and mark them. Those wicks are the market’s memory. Every past high is a place sellers turned up before. Every past low is a place buyers defended before. That is all a target is in this method — a place where the other side has already shown itself once.

Diagram · what counts as a past high

Diagram headed A high equals 2 lower left plus 2 lower right. Five candles stand in a row. The centre one, a navy body with a long upper wick, is labelled THE HIGH in amber above it. Amber brackets span the pair of candles on each side, labelled 2 LEFT, lower and 2 RIGHT, lower; all four of those candles, two navy and two teal, sit well below the centre candle's wick. Three footnotes read colours do not matter, the four candles do not need to be sequential, and mirror everything for lows.
Two lower on each side and the middle wick is a high. It is a mechanical test, which is the point — two people marking the same chart should mark the same wicks.

Diagram only · no instrument, no price, no outcome claimed

Four extremes, and the order sits in front

Now the exit itself. Selling, you find the four most recent past lows. Buying, the four most recent past highs. Number them, nearest first.

The target is a limit order placed in front of the past extreme, not on it — above a past low if you are selling, below a past high if you are buying, by a buffer sized the same way the stop was, in the instrument’s own unit.

In front, because the whole market can see that level and a wall of resting orders sits exactly on it. An order placed on the level has to wait for price to fight through the wall. An order placed in front of it does not.

And four rather than one, because the target has to survive the next test. You take the nearest extreme that satisfies the ratio; if the nearest one fails it, you check the second, and so on down the list.

One to one and a half, or nothing

The ratio is the last box and it is the one that decides. Minimum one to one and a half: risk one to aim for at least one and a half. Measure it before you click — the distance from entry to your stop against the distance from entry to your target.

If the nearest valid target does not clear one and a half times the risk, check the next one on the list. If none of the four do, here is the rule the entire method hangs off.

If the stop is so far away that no target on the list makes the arithmetic work, pass on the trade. Walk away from it. Then go and find a setup that does meet the requirement, on another timeframe or another instrument. There is always another trade. There is not always another account.

Diagram · the ratio, and the word that goes with failing it

Diagram headed 1 to 1 and a half minimum, or pass the trade. Two boxes sit side by side with the word vs between them: a red-outlined box labelled RISK, 1, and a teal-outlined box labelled REWARD, 1 and a half or more. Below them a line asks stop too far away, the math fails? Under that, a large red-outlined box contains the single word PASS in red capitals. Two footnotes read there is always another trade, on another pair or timeframe, and there is not always another account.
The plate spends most of its area on the failure case, which is the correct proportion. Passing is the outcome of the arithmetic more often than clicking is.

Diagram only · no instrument, no price, no outcome claimed

07 / Worked example

One trade, box by box

The whole protocol on one chart, start to finish.

One-hour chart. Price is below the trend line in a downtrend, and the four-hour agrees with it. Box one.

The market waves back up into the line and prints an Evening Star: a strong bull candle, a small doji above it, a strong bear candle closing past the sixty percent u-turn. It is one of the three shapes on today’s list, and it is standing at the end of a retrace. Box two.

Sell at market on the open of the next candle. Not before the bear candle closed, not two candles after. Box three.

Stop above the star’s high, by the buffer, in this instrument’s unit. Box four.

The nearest past low on the list clears one and a half to one. Limit order in front of it. Box five.

Then the market does what it very often does. It rallies back, kisses the high of the formation a short distance under the stop, and rolls over. The probe went looking for buyers and found none. Price falls away and the limit fills in front of the old low.

Five boxes, no improvisation, and nothing decided while the trade was live. Notice where the pattern sat in all of that: box two of five.

Diagram · the same trade, drawn

Diagram headed One trade, five boxes, zero improvisation. An amber downtrend line falls from top left. Beneath it, small navy candles give way to a run of rising teal candles, then a small doji at the top, then a tall navy candle closing down, forming an Evening Star. A red horizontal line above the doji is labelled STOP equals HIGH plus 15. An amber arrow at the navy candle's right edge is labelled SELL, next open. A pale line runs up and right from the entry to a caption reading the test, 3 short of the stop, and from there a long teal arrow falls to a horizontal teal line labelled LIMIT, 10 in front of the past low, pays better than 1 to 1 and a half. Down the right-hand side stand five amber-outlined boxes with teal ticks: TREND, FORMATION, ENTRY, STOP, TARGET.
The pale line rising out of the entry is the probe, and the caption on it is the important part: it stopped short of the stop. That gap is the buffer earning its place.

Diagram only · no instrument, no price, no outcome claimed

08 / Practice

Four questions, answered out loud

Cover the right-hand column and answer each one before you read it.

Stop on a Morning Star
Below the formation’s low, by the buffer — never at the low itself. The probe lives in that gap, and a stop without the gap gets taken out by it.
Fifty-five, not sixty
The final candle closed short of the u-turn threshold, so there is no trade. Sixty or nothing. The number is only a rule while it is the same number every time.
Price returns immediately
Patience. That is the probe, and the buffer was sized so it would have room to happen without reaching your stop. Nothing has failed yet.
Stop too far for the ratio
Pass. Say it out loud. Then open another chart — looking for the next setup costs nothing, and the one in front of you has already told you its answer.

Four for four means you have stopped having opinions about trades and started having a procedure. That is the whole difference this lesson was for.

09 / Recap

The protocol on one page, and the end of the course

One
Draw every trend line — inner, outer, long-term — and take the side of them the market is already on. Let the larger timeframe pick the direction before you look at a single candle.
Two
One of the six formations, standing at the end of a pullback inside a trend. Never inside a sideways box.
Three
Every candle in the formation closed, the u-turn past sixty percent, entry at market on the next open.
Four
The stop a fixed buffer beyond the formation’s extreme, wider above than below, sized to the instrument. Never at the extreme itself, because the market comes back and touches it.
Five
Four past extremes, limit order in front of the nearest one that pays. One to one and a half, minimum — or pass.

That is the machine. Four lessons: what a single candle records, the shapes that mean the market could not decide, the six formations worth carrying, and the protocol that turns one of them into a decision you can write down before you take it.

What to do with it now. Take the protocol to a chart you already watch and run it backwards over the last month. Not to count winners — to count how many days had no setup at all that ticked all five boxes. That number is the lesson. Most of the work in this method is the work of not trading, and seeing it on your own chart is the only thing that makes it believable.

Then run it forward on paper until you stop having to look the steps up. The order is the part that matters more than the speed: trend, formation, entry, stop, target. Miss one and the other four do not matter.

Two lessons follow this one, and they are the two that make the protocol usable rather than merely correct. Lesson five is ten plates with the labels taken off: you name the formation before you open the answer, and find out whether you can actually see them. Lesson six answers the question every page so far has stepped around — whether the price a formation printed at is one anybody defends.

There is a printable companion to the course: five pages covering the candles that mean doubt, the six formations, this protocol, and the swing definition the rest of it hangs off. It is free, and it arrives by email, because that is the only way I can send you a file.

This lesson also exists as a video, published , if you would rather be talked through it: The Complete Trading Protocol (Entry, Stop, Target). It quotes two figures that this page does not, and the reasons are written into sections 03 and 05 above. The written version is the one that gets corrected, and those are two of the corrections.