The Dagger Entry Principle

The dagger is a chart-based entry tool developed by the author in the 1970s. I wanted an entry method that was consistent with a charting method (Goodman Wave Theory) and not ad hoc, such as a moving average crossover. I also wanted something consistent with Charlie's teaching that the 1-2-3 was the primary market component—two primary swings, with a secondary (corrective) swing in between them.

The dagger was first described in print in the June 1978 issue of Denver magazine, in the article titled, "A Conversation with the Gnomes" by Michael Duane Archer and R.

David Van Treuren. I am not interested in getting into who (Goodman or Ross) or what (the dagger or the Ross hook) came first.

Consider once again the basic market paradigm:

As you can see, the dagger is a microcosm, or echo, of the BMP. Do you see the analogy to propagation in GWT? "Everything is a 1-2-3," said Charlie!

Here's the dagger paradigm. All these items—the dagger, the PTS, the Goodman templates, and the basic market paradigm revolve around the primary 1-2-3 swing model.

The dagger is used to enter a market. In the Goodman Method, you watch for it to form at the EP of the Propagation 2 when that is in or near the return zone, shown in Figure below.

[caption id="attachment_13221" align="aligncenter" width="550"]The Dagger in Detail The Dagger in Detail[/caption]

Tip: Conservative traders may wait for the EP of the first swing to be taken out before buying or selling… . .Or, you can use both to enter. I prefer to enter one-half as soon as the dagger 3 swing forms and the other one-half when the dagger 1 EP is exceeded. (Yes, I know the formation doesn't look a lot like a dagger. Go out tonight and spot the Big Dipper for a comparison.)

To properly interpret a dagger from a bar chart, one must be able to convert bars to swings or lines—and that is part of the visualization skill one needs to develop for all the 1-2-3 formations; it is simply mandatory for using GWT effectively. We will start with the swings by converting to bars.

In Figure above (The Dagger in Detail), we saw the EP of the Propagated 2 swing of a PTS and the EP of the SPS in a 3 Template. Look ahead to Figure below.

[caption id="attachment_13222" align="aligncenter" width="550"]Crossing the Bridge Crossing the Bridge[/caption]

At the circled point, we have a trade candidate—on the left, a PTS and on the right, a 3A template. Assuming we've qualified the candidate with overlays, any other tools we use to make trading decisions—we are ready to buy and only await a dagger.

Because the dagger is a smaller formation than either the PTS or Template, we always drop down one time frame to watch for a dagger to form. If you want to get in tight', you can drop down two time frames. This double drop may be more useful if the trade candidate is on a larger time frame such as a 1-day or 1-week. But never drop down more than two time frames.

A complete schematic of the Dagger Entry Principle appears in Figure below.

[caption id="attachment_13223" align="aligncenter" width="550"]The Dagger Entry Principle The Dagger Entry Principle[/caption]

For a completed dagger you need four sequential conditions to occur in order:
  1. EP, which has stopped floating
  2. A bounce in the opposite direction (one)
  3. A test of the EP (two)
  4. The breaking of the bounce high (for a buy) or bounce low (for a sell) (three)

Crossing the Bridge

To catch overlap, trace the precise market action by crossing the bridge. The bridge is the move from the close of one bar to the open of the next bar. You can follow the path to the next bar close to see overlap. This is often enough to see which occurred first in a bar—the high or the low.

Crossing the bridge will encourage you to magnify or compress charts, expand or contract bars more often—always a great idea—and preferable to moving around multiple time frames whenever possible! You never know from what perspective the tumblers will fall into place for you! It will also encourage you to follow a chart as it develops, force you to think forward, and keep you from missing anything important. Crossing the bridge is shown in Figure below.

[caption id="attachment_13222" align="aligncenter" width="550"]Crossing the Bridge Crossing the Bridge[/caption]

In the preceding chart, you can see from crossing the bridge that the EP was almost certainly tested first and then the high was exceeded—prices opened, went to the low, then to the high. You want to be able to see that swing in a single bar. Seeing the swings in bars and converting the latter to the former in your mind's eye is a critical Goodman skill.

Tip: Keep it simple. Once your PTS is in the return zone, wait for a small 1-2-3 in the direction of the primary trend to enter.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2020. Content published with author's permission.

Posted in ...