1 The Trader’s Navigator Fundamentals Of FOREX & Futures Trading Fundamentals Of FOREX &...

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www.managed-4x.com The Trader’s Navigator

Fundamentals

Of FOREX & Futures Trading

Fundamentals

Of FOREX & Futures Trading

Steve Wheeler

www.navitrader.com

www.managed-4x.com

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Agenda April 29, 2006Agenda April 29, 2006• Futures/ FOREX

– Risk Management

– Developing a Trading Plan

– Test Your Plan and Yourself

– Psychology

– Potential Instruments to Trade

– Technical Analysis

• Interactive BrokersTWS

• TRADERS WORKSHOP

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The Trader’s Navigator

GRA- Setup Long: 6-14-04GRA- Setup Long: 6-14-04

GRA - Entry on 6/15/04

Trailing Stop @ 6.28

Gain 24.85% in 15 Days!

Buy Stop @ 5.03

$1,156.25 Profit! $1,156.25 Profit!

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The Elements of SuccessThe Elements of Success

RULES: High Probability

Stock Trades

RISK: Money

Management

Controlling Your Emotions

Your Trading Business

BROKERBROKER

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Why Trade The Futures/FOREX??Why Trade The Futures/FOREX??

•Narrows the Scope•Leverage 25 : 1 or greater•Slippage is minimal•Ease of going long or short•Lets you specialize•Not subject to day trading rule•Tax advantages

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Do Self-DevelopmentDo Self-Development

• The fastest way to get rich, and to stay rich is to develop yourself.

• Learn from those who are already masters in their field– Find a mentor

• The more you learn, the more you earn.

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Steps In the Learning Process… Steps In the Learning Process…

• Find People and patterns that Are Successful • Find Out What They Consider Most Important to Their

Success• Assess your own belief system• Test those beliefs on actual market data• Find Out What They Consider to be the Most Important

Elements of Their Success• Get Set up with Broker(s) • Get Set up with proper tools• Make sure you have a tested system• Now TEST YOURSELF by simulating trading!• Start Trading With only ONE contract (lot)• Add more contracts (lots) gradually as your capital builds

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Risk ManagementRisk Management

• Never risk more than x % of your equity in a trade• “It’s all about money management”• Essentially this means that you cut losers quickly

and let your winners run.– Sounds easy, right?

• Test this by setting up a system that goes for at least 2 points profit for every point risked

• Example: A system that trades the Russell 2000 with and initial stop of .6 points (6 ticks) and goes for a 2 point profit target, so you have a reward/risk ratio of 2.0 / .6 = 3.33 to 1

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Four Outcomes of An Investment or Four Outcomes of An Investment or TradeTrade

• Large Gain• Large Loss• Small Gain• Small Loss

• You Only Need to Eliminate The Large Losers and you will have made a major stride toward consistent profits

762.00

761.10

Entry Price

Initial Stop

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• Never Risk More Than X% in any One Trade

–YOU define X% (0.5-2%is Typical)

• Why is this important?

Universal Money Management RulesUniversal Money Management Rules

How many contacts/lots should I Buy How many contacts/lots should I Buy or Sell?or Sell?• Risk = Entry – Initial Stop

1266.50 – 1265.50 = 50.00/contract

• Position Sizing is Crucial– Risk should not exceed 1%

to 2% of your equity on any trade

• Account Equity = $20,000– Max Risk = $20,000 x 1% =

$200– Max contracts = Max Risk

Amount / Risk per Contract– Max contracts =

$200.00/$50.00 = 4 contracts

1,266.50

1,265.50

Entry Price

Initial Stop

Risk Management - Keeping It Under Risk Management - Keeping It Under ControlControl

Example 1 Russell 2000

• Equity = 10,000• Risk% = 2% = $200• Russell (ER2) = $100/pt• Price = 550• Technical Stop @ 548.50• Profit Target @ 554• 1.5 point stop x $100 = $150

per contract risk• Max. Contracts = 1 to not

exceed $200 maximum risk level

Example 1 Russell 2000

• Equity = 10,000• Risk% = 2% = $200• Russell (ER2) = $100/pt• Price = 550• Technical Stop @ 548.50• Profit Target @ 554• 1.5 point stop x $100 = $150

per contract risk• Max. Contracts = 1 to not

exceed $200 maximum risk level

Example 2 S &P E-mini

• Equity = 50,000• Risk% = 2% = $1000• S&P (ES) = $50/pt• Price = 1100• Technical Stop @ 1104• Profit Target @ 1089• Maximum contracts = 5• 4 point stop x $50 = $200

per contract risk• Maximum contracts = 5 to

not exceed $1000 maximum risk level

Example 2 S &P E-mini

• Equity = 50,000• Risk% = 2% = $1000• S&P (ES) = $50/pt• Price = 1100• Technical Stop @ 1104• Profit Target @ 1089• Maximum contracts = 5• 4 point stop x $50 = $200

per contract risk• Maximum contracts = 5 to

not exceed $1000 maximum risk level

Tools You Will NeedTools You Will Need

• Computer(s) with power backup, data backup and surge protection, anti virus– Redundancy is Always a Good Idea

• Back Test Software• Charting • Front End Software• Broker• Yourself!

Trading EnvironmentTrading Environment

• What Does My Trading Environment Need to Look Like?– Office Environment

• Based on my system or method, what Equipment do I need?– Multiple Monitors, Computers?

• What broker do I need? Talk to other traders for ideas…

ChartingCharting

• Find something that speaks to you

• There are many good indicators– Just find something that works for you that identifies your

preferred method of entry and exits

• Suggestion– Take a look at a price chart with only price bars. With only

price bars, try to find what would have been the best entry points, and then put on an indicator and see if it would have identified these great entry points

Charting Systems to ConsiderCharting Systems to Consider

• AIQ Systems– www.aiqsystems.com

• E-signal– www.esignal.com

• Qcharts– www.qcharts.com

• QuoteTracker– www.quotetracker.com

• Ensign– www.ensign.com

• Sierra Charts– www.sierrachart.com

• Aspen Graphics– www.aspenres.com

• Trade Maven– www.trademaven.com

Front End Software Front End Software

• Bracket Trader– www.bracket-trader.com

• Ninja Trader– www.ninjatrader.com

• Trade Maven– www.trademaven.com

• Others

Back testing SystemsBack testing Systems

• AIQ– www.aiqsystems.com

• Trade Station– www.tradestation.com

• Genesis Trade Navigator– www.genesisft.com

• AMI Broker– www.amibroker.com

• MetaStock– www.equis.com

Written Business and Trading PlanWritten Business and Trading Plan

• What It Needs to Contain….

• Similar to other business plans – Blue Print!– What do I need to do skill wise to trade?– What IS MY TRADING PLAN? HAVE I TESTED IT?

– What equipment do I need?– How many days a year do I trade?

– What kind of income do I need and how am I going to accomplish my objectives?

– What are my expenses?

– Projected P & L

What is a reasonable Goal?What is a reasonable Goal?

• Gain experience by just trading the futures and preserving your capital

• Learn how to execute orders• Learn how to control your own behavior• Patience!• Begin to trade profitably!

Unfortunately, there is no substitute for experience

• Six S & P points a week consistently will provide a nice income if you are trading enough contracts.–Example

5 contracts x 6 points x $50 = $1,500 per week = $78,000/ yr.

10 contracts x 6 points x $50 = $3,000 per week = $156,000/yr.

What is a reasonable Goal?What is a reasonable Goal?

Don’t start out with too many contracts, no matter how large your account is.

The Building of a Belief SystemThe Building of a Belief System

• Seeing Is Believing– You Can Start By Looking at Charts for Ideas– Test Your Ideas by Methodically Going Through Charts

and keeping Statistics– Use some type of computer system to back test strategy

and money management ideas

• Write Out Your Beliefs about Trading

• Trade In Simulated Mode to Test Your Beliefs– A good trade simulator will give you a very good idea if

YOU can trade the strategy consistently profitable

Planning is the Key to Planning is the Key to SuccessSuccess

•Pilots use a Checklist

•20-Year Pilots use the Checklist

•Memorizing It is NOT an Option

• If You Fail to Plan, You Plan to Fail

Predefined Procedures Make Planning Easy to DoPredefined Procedures Make Planning Easy to Do

Benefits of Having a Written PlanBenefits of Having a Written Plan

• Written Plans Clarify Your Trading– Predefine Risk– Predefine Reward

• You Will Be More Likely To Follow The Plan

• Forces You To Take Responsibility

• Creates Good Habits• Fosters Consistency

NaviTrader AutoPlannerNaviTrader AutoPlanner

Step 3: Develop a Profitable Trading PlanStep 3: Develop a Profitable Trading Plan

• Assess Your Beliefs - Write them Down• Test your beliefs with real data• Write Out Your Plan• Test yourself• Execute Your Plan

Planning / ExecutionPlanning / Execution

How To Develop Your Own SystemHow To Develop Your Own System

• Determine How Actively You Want To Trade

–Every 5 Minutes–Two Times A Day–Weekly–Monthly

• This Will Determine The Type of Chart You Look At and the indicators that you need to look at

EURO Futures - Setup on 02-10-2006

How do we plan this trade?• How to Enter? When? Order type?• How do we exit?

– With a loss? – With a profit? – With too much time?

• How many contacts do we buy?• Are we all in or all out or do we

scale entries and/or exits?• How do we manage the trade once

we are in? Moving stops.• How do we ensure we follow the

plan each day in the trade?

– WRITE IT DOWN!

• What do we do when we exit the trade?

• What will we learn the most from….winners or losers?

Elements of Your Trading PlanElements of Your Trading Plan

The Fundamental Math of TradingThe Fundamental Math of Trading

• From a mathematical standpoint, all you have to do to make money is the following:

• (Number of winners x average win) > (number of losers x average loss)

• It is important to understand this so that you know that you do not even have to be profitable more than 50% of the time to make money

Testing Manually for PlausibilityTesting Manually for Plausibility

• You Can Test intraday strategies manually by looking at charts– This will give you an idea of what will probably work

before spending time coding a back test

How To Evaluate Trading SystemsHow To Evaluate Trading Systems

• Number of Winners/Losers

• Average Trade Size• Reward/Risk Ratio• Annual ROI• Total Number of

Trades• Max Draw Down• Largest Winner,

Largest Loser

Without Testing You are Flying BlindWithout Testing You are Flying Blind

Principles of Price BehaviorPrinciples of Price Behavior

• Trend Continuation- BOOM

• Initial Momentum Precedes Further Momentum

• Price Movement is a Function of Supply and Demand

• Price Movement Cycles from Range Expansion to Range Contraction

Initial Momentum Precedes Further Initial Momentum Precedes Further MomentumMomentum

• Dynamic Materials - BOOM

• This Principle is Powerful and Gives You One of The Best LEADING indicators You can find

• You Will Normally See a Familiar Volume Pattern along with this Price Pattern

• Boom did 300 x normal vol on breakout

Go Back to Price Behavioral PrinciplesGo Back to Price Behavioral Principles

• Go With The Major Trend

• Look for Sudden Bursts of Momentum

• Look for Volatility Expansion and Contraction– These will make you money

• Look For Patterns that Occur with Probability– Double Tops & Double Bottoms for Reversals

Psychology - You Need To Rewire Psychology - You Need To Rewire Your BrainYour Brain

• None of These Parts Were Made To Trade.

• You must learn to think differently than the masses, because at least 95% of them lose money.

• In searching for trading success, most people spend their time solving the wrong problem–Looking for the perfect setup, finding a

guru, chart patterns with 100% winners

•The Problem Most Often Lies In Our Trading Behaviors

•There is much more to Trading Successfully than just Having A System

Why does Success Evade Most Why does Success Evade Most Traders?Traders?

DisciplineDiscipline

•To Master Trading, You will have to learn how to master yourself

•The one thing that all successful traders share is strict discipline

Trading Discipline Leads to Trading Discipline Leads to ProfitsProfits

• Mistakes have much more effect than successes–One mistake can easily wipe out 10 successes–Conversely, One Good Trade replaces 10 losers

• Sadly, most Trading Mistakes could be avoided–Discipline in Entries, Exits, Proper Sizing, Risk

Control can make almost any trader profitable• Unfortunately, most people do not want to do

ANY work to make money• Happily, with the help of computer automation

and the world wide web, less work is required–However, Discipline in doing what IS required is still

the key to success… it’s just easier now!

• Correct Trader Psychology simply means following your pre-determined Trading Plan– NO MATTER WHAT HAPPENS!

• First, You Have to Have a Plan• Second, You Have to Follow it• Eliminate emotional trades, the majority of

which lose money (amateurs)• You will find that the more automated and

simple your plan is, the Easier it will be to follow.

What is Trader Psychology?What is Trader Psychology?

It MUST Contain the 3 Elements of Successful Trading

Major Psychological Errors Made by Major Psychological Errors Made by TradersTraders

• Trading too Large of size• Trading too small of size• Trading Without a

Mathematically Proven System or a System of any kind

• Trading the Wrong Time Frame

• Not Having a Written Plan

Lead to a Falling Equity Curve!Lead to a Falling Equity Curve!

Errors to AvoidErrors to Avoid

• Do Not Add To Your Size after a Losing Streak

• Do Not Increase Size after a Good Streak– One or two bad trades with more size can wipe out weeks

of months of good trades with less size– Each Trade should stand on its own, and not Every trade

should NOT reflect the previous one

• Sorry for the repetition, but all we are saying is…Follow your Plan.

Stay Disciplined and Follow Your PlanStay Disciplined and Follow Your Plan

Psychological Suggestions for TradersPsychological Suggestions for Traders

• Put Losing Trades Out of Your Mind• Put Winning Trades Out of Your Mind Even Faster• Be objective, not subjective in your decision

making• Keep a Good Attitude, Even in the Face of Constant

2 Steps forward, 1 Step Back• Don’t change the plan in the middle of the trade • Do not put on too Big of a Trade…It will affect your

objectivity (FEAR)– Can cause you to switch to shorter time frames– Can cause you to become an investor (can’t take the loss)

Being Objective means Following a WRITTEN PLAN!Being Objective means Following a WRITTEN PLAN!

Tracking Performance Improves Tracking Performance Improves PerformancePerformance

• Profitability Every Quarter is another Goal– Profit for Quarter 2 2004 (April, May, June)– $7,409.65 starting with a $22,000 account

A Trade Journal Helps to Reinforce Good A Trade Journal Helps to Reinforce Good BehaviorsBehaviors

• Professional Traders keep a log of why they entered a trade, exited, errors made, etc.

• This Daily Routine reinforces good behaviors, and extinguishes bad behaviors

• Logs should be reviewed frequently, otherwise what good are they

• Keeping logs on a computer is convenient & can provide more details on the trade

Followed the plan on this trade. Setup was right & everything followed through.

Closed the trade too early. Should have followed the plan for profit target but got out sooner.

How Do I Make Myself Behave How Do I Make Myself Behave Successfully?Successfully?

• I Must Only Take System Trades

• I Must Buy the Proper # Contracts/Lots

• I Must Cut Losses Short

• I Must Have a WRITTEN PLAN

• I Must Learn from My Mistakes

Traders Action PlanTraders Action Plan•After the Market Closes

–Analyze Markets for new setups–Plan entries, exits, size the trade for

appropriate risk, write the trading plan with all this information

–Also needs to manage current positions–Enter orders for next day with your broker

•During Trading Day –If full time trader, use the day to learn a new

system, skill, or do research/recreation –If part time, focus on your job

Winners Get Out of Their Comfort Winners Get Out of Their Comfort ZoneZone

• Do The Hard Work now to Make Your Life Easier in The Future

• You can either develop your own systems, or find someone to code them for your

• Successful people say that “If I can learn just one new thing, then my efforts will be worth it.

• Do whatever it takes to move to the next level.

• TRADERS WORKSHOP

Maintain a Positive AttitudeMaintain a Positive Attitude

• Your Thoughts Are a Choice That You Make• Keep a Journal on Your Thoughts• Think about the Tests You Have Done On Your

Strategy and How It Has Worked In The Past• Have Some Patience and Give Your Trades a

Chance to Mature– If You Planted a Seed, You Would Not Dig Up The Seed to

see if it is growing– Accept The Fact That We are Playing a Game of

Probabilities, not Certainties…..Sometimes you get the elevator, and sometimes you get the shaft

Trading Vehicle – S & P e-miniTrading Vehicle – S & P e-mini

• S & P e-mini– Tick Value $12.50

– Minimum movement .25 point

– Point Value $50

– Example

– $10,000 trading account x 2% = $200– Assumption – Max. stop loss = 1 point ($50)

Maximum contracts = 4– Assumption – Max. stop loss = 2 point ($50)

Maximum contracts = 2

Trading Vehicle – Russell 2000Trading Vehicle – Russell 2000

• Russell 2000– Tick Value $10

– Point Value $100

– Example

– $10,000 trading account x 2% = $200– Assumption – Max. stop loss = 2 point ($100)– Max. Contracts = 1

Trading Vehicles – Euro Futures - EURTrading Vehicles – Euro Futures - EUR

• Euro– Tick Value $12.50

– Minimum movement .0001 tick Equivalent to 1 pip in the spot currency market

– Example

– $10,000 trading account x 2% = $200– Assumption – Max. stop loss = 16 ticks – Max. Contract(s) = 1 (16 x 12.50) = $200

Trading Vehicle – British Pound Futures - Trading Vehicle – British Pound Futures - GBPGBP

• GBP– Tick Value $6.25

– Minimum movement .0001 tick Equivalent to 1 pip in the spot currency market

– Example

– $10,000 trading account x 2% = $200– Assumption – Max. stop loss = 16 ticks – Max. Contract(s) = 2 (2 x 16 x 6.25) = $200

Future Orders w/ Bracket Order-1Future Orders w/ Bracket Order-1

Enter ES, select Future, Select Month/Yr

Once Future order is created,adjust price as needed

Click ASK Price for Buy,Bid Price for Sell to create order

RIGHT-Click on Order Line to get

LEFT-Click on Attach, Bracket Orders

Order has entered the Market as a Limit order, w/ associated Bracket orders

Click “T” to Transmit

ENTRY ORDERProfit TargetStop Loss

Benefits of Using a Front End Benefits of Using a Front End

• Less Entry Errors• Define your method and simulate trading it• Keeps record of your trades

– Wins vs. Losses– MAE and MFE

• Enforces discipline – Stop and profit target are placed automatically

• Helps with psychology– Teaches you to cut your losses and let your winners run

Bracket Trader - Use with IBBracket Trader - Use with IB

• Download Bracket Trader at www.bracket-trader.com

• In IB Trader Workstation–Configure, API, Enable ActiveX –Set Up Your Strategies

Bracket Trader - Use with IBBracket Trader - Use with IB

Ready For Next EntryReady For Next Entry

Bracket Trader – While In PositionBracket Trader – While In Position

Simulation of IB TWS ScreenSimulation of IB TWS Screen

Bracket Trader – After Trade ClosedBracket Trader – After Trade Closed

Trade Log In Bracket TraderTrade Log In Bracket Trader

Learn to Read the Momentum of the Learn to Read the Momentum of the MarketMarket

• Often, you will get a good read on the day by looking at the first 15 minutes of activity, which in many cases will be the best indicator of that days momentum

• Use Momentum Indicators such as CCI or Keltner Channel

What To Do With The Information….What To Do With The Information….

• Buy Support • Sell Resistance

• Going into the open, the most significant price points that you know are the previous day’s High and Low

• As You Get further into the day, you Know more and more, such as first hours high and low.

• Unfortunately, the further you get into the day, the closer you are to the end of the day!

Types of Days and How To Anticipate Types of Days and How To Anticipate ThemThem

• Consolidation Day–This is a day where trading stays within a fairly

tight boundary and usually trades within a few point of the open for most of the day.

• Trend DayRange for the day is relatively large, and prices

usually trades from Low to High or High to Low

• Reversal DayPrice starts out going in one direction and then

changes direction during the day.

How To Anticipate Trending DayHow To Anticipate Trending Day

•Trend Day–Opening Gap - –Prior Day was Narrowest Range day in N

days–Activity In First 15 minutes – What is the

range?–Tick Values + 1,000 for Up day or -500–Trin Values .5 or less for Up day–Trin Values 2.0 or higher for a Down day

How To Anticipate Consolidation DayHow To Anticipate Consolidation Day

•Just had a trend Day!–It is very uncommon to have a trend day

just after you have had a trend day.–Price activity in first 15 minutes. Only a

fairly small amount of price movement over the first 15 minutes.

–The longer you trade, the better feel you will have for this.

How To Anticipate Reversal DayHow To Anticipate Reversal Day

• You have had a series of days in a given direction (down) for example.

• The market opens down again today, and then goes to a known price area where the market has shown support in the past.

• A sudden change in tick values, for example from -800 to + 1,000.

What To Monitor During the DayWhat To Monitor During the Day

•Charts•Tick•Trin•Nasdaq, Dow, S & P •Where you are in relationship To Key

Levels

Why is it Important To Anticipate Type Why is it Important To Anticipate Type of Day?of Day?

• The trading methods you might employ will be determined by type of day.–Trend day Let your winners run–Consolidation day S & R Take smaller profits

• Symbol $tick = Net stocks up or down on NYSE

• The two ways to use the ticks are as follows:

– Fade extreme readings when in a trading range

environment.– Enter on retracements in tick readings in a trending

environment.

• Summary of Tick Value Behavior

Ways to use tick informationWays to use tick information

Summary of Tick BehaviorSummary of Tick Behavior

•Environment Range in Tick Readings

•Oversold/Overbought

•Up Trending 0 to +1200

•Sideways Trading -900 to +1200

•Down trending -1000 to + 400

What is a Good Reward Risk Ratio?What is a Good Reward Risk Ratio?

• For each dollar you are risking you should be able to capture 2 to 3 dollars in profits– We use 2.5 or greater

• Typically low risk entries occur as Volatility (range) decreases– Big move from Base greatly

increases volatility and ATR– During Pullback, Volatility and

ATR decrease

• This condition precedes the continuation of the Trend

REWARD

What is a Good Reward Risk Ratio?What is a Good Reward Risk Ratio?

• For each dollar you are risking you should be able to capture 2 to 3 dollars in profits– We use 2.5 or greater

• Typically low risk entries occur as Volatility (range) decreases– Big move from Base greatly

increases volatility and ATR– During Pullback, Volatility and

ATR decrease

• This condition precedes the continuation of the Trend

REWARD

High Probability SetupsHigh Probability Setups

• Trade with the Trend– Probability favors

continuance

• The Longer the Base the Better the Move

• The bigger the First Move, the Bigger the Second Move

• Price is a function of Supply & Demand– When S/D are unbalanced,

Price moves very fast– Imbalances take much

longer to correct than to create – this is what underlies the TREND

VOLUME

What Are We Really Looking For?What Are We Really Looking For?

• You Need An Edge so You must find a way to identify– The trend for the timeframe in which you are trading– A Method of Entry

PullbacksBreakouts

• What matters more than entries is that you know your risk going into the trade, and you adhere to that risk plan

ChartingCharting

• Find something that speaks to you

• There are many good indicators– Just find something that works for you that identifies your

preferred method of entry and exits

• Suggestion– Take a look at a price chart with only price bars. With only

price bars, try to find what would have been the best entry points, and then put on an indicator and see if it would have identified these great entry points

Charting Systems to ConsiderCharting Systems to Consider

• QuoteTracker• E-signal• Qcharts• QuoteTracker• Ensign• Sierra Charts• Aspen Graphics• Trade Maven

Daily PreparationDaily Preparation

• Know When Major News Announcements are taking place

• You may be trading five minute bars, but you may want to step back and look at daily charts or some longer time frame to give you the bigger picture

• Make sure you are rested and in top physical condition

• Make sure you are in top mental condition– Proper Diet and Exercise

Then best health insurance is free!

• If you are trading off of daily bars, do all of your orders before the market opens

Steps In Learning Process… Steps In Learning Process…

• Find People Who Are Successful Already• Assess your own belief system• Test those beliefs on market data• Find Out What They are doing• Find Out What They Consider to be the Most

Important Elements of Their Success• Get Set up with Broker(s) • Get Set up with proper tools• Make sure you have a tested system• Now TEST YOURSELF by simulating trading!• Start Trading With only ONE contract• Add more contracts gradually

Some Rules of Thumb -1Some Rules of Thumb -1

• The larger the opening gap, the greater the odds of a trend day

• The majority of the time, the opening play will be a test of the previous days high or low.

• If the previous day was a trend day, the odds favor the market trading on both sides of the open by 2 to 3 points in the first 30 minutes

• If the previous day was a trend day, today will very likely be a consolidation day.

• On consolidation days, go for smaller “scalp” type of profits

Stock Index Futures - Rules of Thumb Stock Index Futures - Rules of Thumb # 2# 2

• On Big Range Days, The Market Will Trade From Low to High or from High to Low

• The importance of knowing this is that generally you will want to have a runner on the big range days and your best exit will be at the close

• Avoid Taking Counter Trend Trade late in the day on big range days– This is important, because of the above phenomena of

markets trading from high to low or low to high on big range days. You can look at daily bars to see that this is true.

• Try to Avoid Biases Going Into The Day

Technical Analysis ExamplesTechnical Analysis Examples

• Pattern breaking out of long bases on relatively large volume

• Extreme initial move (forward momentum)– Relatively Large Daily Range

• Smaller countermove – Decreasing daily range

• Volume – Large on the Up Move, Smaller on the Countermove (shows the “Real Move”)

• ENTRY: At the end of the countermove– Resumption of the Momentum

Initial Price Momentum Precedes Continued Momentum

Indicators – What Are You Trying To Indicators – What Are You Trying To FindFind

• What are we really looking for with indicators?

• Major Trend

• Minor Trend

• Change of Trend

Look At Charts – Patterns and SetupsLook At Charts – Patterns and Setups

• When We Look At Charts, What is the one thing that we can all agree on?– Price

• Indicators– Stochastics– RSI (Relative Strength Index)– MACD (Moving average convergence/divergence– CCI (Commodity channel index)– Keltner Channel– Donchian Channels– Moving Averages– Trend Lines

EURO 02-10-06 8:30am – 9:00 am 15 min chart 40 point EURO 02-10-06 8:30am – 9:00 am 15 min chart 40 point movemove

MACDMACD

StochasticsStochastics

RSIRSI

Use of Trend LinesUse of Trend Lines

Russell 2000 02-10-06 - 3 min DB w/ MACD Russell 2000 02-10-06 - 3 min DB w/ MACD Diver.Diver.

MACD DivergenceMACD Divergence

5 Point Move Up After Double Bottom 5 Point Move Up After Double Bottom

Looking at Multiple Time Frames - Russell 2000 Daily Chart 02-Looking at Multiple Time Frames - Russell 2000 Daily Chart 02-10-0610-06

Russell 2000 30 min chart 02-09-06/02-10-06Russell 2000 30 min chart 02-09-06/02-10-06

StochasticsStochastics

MACDMACD

RSIRSI

Russell 2000 02-10-06 9:30 – 1:30 5 min Russell 2000 02-10-06 9:30 – 1:30 5 min chartchart

British Pound 11-15-05 3 min Channel British Pound 11-15-05 3 min Channel BreakoutBreakout

First Pullback

Break Below Channel

Use of CCI Use of CCI

Channel BreakoutChannel Breakout

Enter Short 1.1997

News Event at 8:30 a.m. ESTNews Event at 8:30 a.m. EST

Euro Futures 10-11-05Euro Futures 10-11-05Euro Futures 10-11-05 2:20 a.m.Euro Futures 10-11-05 2:20 a.m.

12 Hour Channel- Euro 10-13/10-14-200512 Hour Channel- Euro 10-13/10-14-2005

• 13 Minute Chart

Euro Futures 6-10-05 10 min chartEuro Futures 6-10-05 10 min chart

• Euro Futures 6-10-05• Break below the donchian channel

•Short on first pullback• Review charts to determine the type of stops that

you will need to keep you in these trades without creating undue risk

Short on Pullback

Break Below Channel

Euro Futures 6-10-05 10 min chartEuro Futures 6-10-05 10 min chart

Adaptive Moving Ave

CCI Zero Line Reject

Euro Futures 6-10-05 10 min chart - Euro Futures 6-10-05 10 min chart - KeltnerKeltner

Close Below Keltner

Exit on Close above MA

Enter on Pullback

British Pound 6-13-05 30 Min ChartBritish Pound 6-13-05 30 Min Chart

Technical Resistance

CCI below Zero Line

Trend?

Regression Channel

British Pound 6-14-05 60 Minute Chart British Pound 6-14-05 60 Minute Chart - CCI- CCI

British Pound Futures 01-25-06 15 min chartBritish Pound Futures 01-25-06 15 min chart

Russell 2000 02-06-06 1 p.m. 15 min.Russell 2000 02-06-06 1 p.m. 15 min.

Stochastics Low Buy above High of Lowest DownStochastics Low Buy above High of Lowest DownBar - Sell on Close Below Low of Highest Up BarBar - Sell on Close Below Low of Highest Up Bar

GBP 02-06-06 3 a.m. 15 Min GBP 02-06-06 3 a.m. 15 Min

Longer Term Trend is Down – Below Longer Term Trend is Down – Below Moving Average Moving Average

EURO Futures 02-06-06 15 min.EURO Futures 02-06-06 15 min.

Longer Term Trend is Down – Below Longer Term Trend is Down – Below Moving Average Moving Average

Risk Management – GBP (British Pound)Risk Management – GBP (British Pound)

• GBP– Tick Value $6.25

– Point Value $100

– Example

– $10,000 trading account x 2% = $200– Assumption – Max. stop loss = 1 point ($100)– Max. Contracts = 2

EUR 15 Min.02-03-06 Effect of News - See EUR 15 Min.02-03-06 Effect of News - See 8:30 a.m.8:30 a.m.

Russell 2000 02-06-06 15 min 2:09 p.m.Russell 2000 02-06-06 15 min 2:09 p.m.

Longer Term Charts are More Significant Longer Term Charts are More Significant

Russell 2000 02-06-06 - 5 min 2:10 p.m.Russell 2000 02-06-06 - 5 min 2:10 p.m.

Russell 2000 02-15-06 3 min MACD Russell 2000 02-15-06 3 min MACD DivergenceDivergence

MACD Cross

Double Bottom

Russell 2000 1 min 04-27-06 First 15 MinRussell 2000 1 min 04-27-06 First 15 Min

• Volatile

Russell 2000 - 5 min 04-27-06 Entire Day Russell 2000 - 5 min 04-27-06 Entire Day

Russell 2000 5 min chart – 04-27-06Russell 2000 5 min chart – 04-27-06

Dow Mini 5 min 4-27-06 Double Top w/ Dow Mini 5 min 4-27-06 Double Top w/ DivergenceDivergence

Challenge YourselfChallenge Yourself

• Simulate trading based on your plan• Make it a goal to be able to trade 15 consecutive

profitable days before using real money • Now start with one contract (lot) at a time, no

matter what your account size might be• After at least 15 consecutive days of profitable

trading with one contract (lot), consider adding more contracts one at a time, as your account size permits

Wipe Out Accounts only on PaperWipe Out Accounts only on Paper

• Any Pilots Here?• Have You ever Used a Flight Simulator?

– Why?

• If You are Going To Crash, Do it in A Simulator, not with real money!!!!!!

Benefits of SimulationBenefits of Simulation

• Good simulator will..– Show you the importance of managing risk

You will see that you could have 7 trades with 5 losers and 2 winners, and still make money, if you cut your loser quickly

– Show you whether or not you can follow our own rules– Keep a trading log

This is almost impossible to do manually, although even with the computer keeping a log, you may want to supplement with your own notes on what you were thinking, etc.

Benefits of SimulationBenefits of Simulation

• Simulation Plays a Huge Part in Your Psychology– Simulation Helps to Build a Profitable Belief System

Cut Your Losers Quickly, Do You Want to be Right or do you want to make money?

Let your winner runSee that when you follow your rules you make the most

money and when you invent trades that are not part of your plan, most often they will fail

Find Out the importance of having patience and waiting for the very best trading opportunities to come along

Thanks For Attending this SeminarThanks For Attending this Seminar

• NaviTrader• www.navitrader.com

• NaviTrader Managed Services, L.L.C.• www.managed-4x.com

• If you would like a copy of this presentation, send a request to :

profits@navitrader.com

• 800-987-6269

Upcoming EventsUpcoming Events

• Web cast seminars – Check our website for details:

• WealthExpo– www.thewealthexpo.com– www.worldforumexpo.comAtlanta, GeorgiaMay 4th – 6th

• Extreme Options Seminar– Renaissance International Plaza Hotel

Tampa, FloridaJune 10th

8:30 AM – 5 PMSpeakers will be Steve Wheeler & Dale Wheatley

Potential Brokers to Consider – Potential Brokers to Consider – Futures/FOREXFutures/FOREX

• Brokers to consider:

– Interactive Brokers www.interactivebrokers.com– TerraNovaTrading www.terranovatrading.com– OptionsXpress www.optionsxpress.com– Efx Group www.efxgroup.com– Global Futures www.globalfutures.com– Man Financial www.manfinancial.com– One World Capital Group www.1worldfcm.com– Interbankfx.com www.interbankfx.com

1 The Trader’s Navigator Fundamentals Of FOREX & Futures Trading Fundamentals Of FOREX &...

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