John F Carter - How I Trade Fo

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How I Trade for a LivingHow I Trade for a Livingby John Carterby John Carter

Copyright © 2004 John Carter

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DISCLAIMER

Neither TradingMarkets nor its content providers are registered investment advisors or brokers/dealers. The Subscriber understands and acknowledges that there is a very high degree of risk involved in trading securities. Past results of any individual trader are not indicative of future returns by that trader, and are not indicative of future returns which be realized by the Subscriber. TradingMarkets and its content providers assume no responsibility or liability for the Subscriber’s trading and investment results. The Subscription service is provided for informational and educational purposes only and should not be construed as investment advice. The analysts, employees, affiliates and content providers of TradingMarkets may hold positions in the stocks or industries discussed here. The Subscribers should not rely solely on the Information in making any investment. Rather, the Subscriber should use the Information only as a starting point for doing additional independent research in order to allow the Subscriber to form his/her/its own opinion regarding investments. The Subscriber is also encouraged to seek the advice of a qualified securities professional before making any investment. Factual statements provided as part of the service are made as of the date stated and are subject to change without notice.

The NFA requires us to state that "HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN."

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Overview: What is This About?Overview: What is This About?

Taking advantage of shortTaking advantage of short--term price term price movements in the financial markets to produce movements in the financial markets to produce steady profitssteady profitsStaying profitable despite yourselfStaying profitable despite yourselfUtilizing the right trading methodology for the Utilizing the right trading methodology for the market you are tradingmarket you are tradingTrading the best markets for your personalityTrading the best markets for your personalityFormulating a business plan that suits your style Formulating a business plan that suits your style and keeps you trading for the long hauland keeps you trading for the long haul

Part I: Introduction

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Specifics: What We Will CoverSpecifics: What We Will Cover

Attitude of a Trader: The make or break factorAttitude of a Trader: The make or break factorBasic Mechanics of the markets I tradeBasic Mechanics of the markets I tradeDaily Market PrepDaily Market PrepIndicators and Internals: How to Read ThemIndicators and Internals: How to Read ThemMultiple Trade Setups for the Stock Indexes:Multiple Trade Setups for the Stock Indexes:

Gap Plays, Bunny Trail EMA Plays, Pivot Plays, Scalper Buys and Gap Plays, Bunny Trail EMA Plays, Pivot Plays, Scalper Buys and Scalper Sells, Tick Plays, Squeeze PlaysScalper Sells, Tick Plays, Squeeze PlaysPlus Doldrums Bond Trade and Euro Currency Box TradePlus Doldrums Bond Trade and Euro Currency Box TradePlus Reversal Breaks for swing trades on SSFs and indexesPlus Reversal Breaks for swing trades on SSFs and indexes

Trader’s Business PlanTrader’s Business PlanLive Trading: Bringing it all togetherLive Trading: Bringing it all together

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Getting the Most From This SeminarGetting the Most From This SeminarStay focused and pay attention. There is going to be a lot of Stay focused and pay attention. There is going to be a lot of material. Each section builds on the other and they all “tie inmaterial. Each section builds on the other and they all “tie in” ” together at the end.together at the end.Don’t feel overwhelmed. Just listen and let it sink in. Once tDon’t feel overwhelmed. Just listen and let it sink in. Once this his is over you will be able to contact me with questions.is over you will be able to contact me with questions.It’s more important to understand the big picture than every It’s more important to understand the big picture than every little detail, so don’t get bogged down.little detail, so don’t get bogged down.Take lots of notes on your manual:Take lots of notes on your manual: You can refer to these later You can refer to these later after your brain forgets.after your brain forgets.It’s okay to ask questions, but it’s usually better to wait untiIt’s okay to ask questions, but it’s usually better to wait until the l the end of a section. Most likely your question will be answered atend of a section. Most likely your question will be answered atsome point during the section, especially if it is about trade some point during the section, especially if it is about trade parameters. There is a method to the madness!parameters. There is a method to the madness!

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My BackgroundMy BackgroundI have traded actively for 17 years, starting as a I have traded actively for 17 years, starting as a sophomore in high school when my father, a broker for sophomore in high school when my father, a broker for Morgan Stanley, showed me how to trade optionsMorgan Stanley, showed me how to trade optionsFull Time Trader Since 1996Full Time Trader Since 1996A large part of my trading is my nightly preparation. A large part of my trading is my nightly preparation. Started posting nightly research in 1999 as it helped Started posting nightly research in 1999 as it helped bring discipline to my own tradingbring discipline to my own tradingCTA and Principal in Razor Trading, a private money CTA and Principal in Razor Trading, a private money management firmmanagement firmStarted working with Started working with www.tradingmarkets.comwww.tradingmarkets.com 11/03 11/03 Started off as stocks and options trader, now trade Started off as stocks and options trader, now trade mostly futuresmostly futures

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First 5 years were tough; no consistencyFirst 5 years were tough; no consistencyBig wins and big losses: I wanted more consistencyBig wins and big losses: I wanted more consistencyThis caused me to go on “the trader’s quest.” I threw This caused me to go on “the trader’s quest.” I threw out all of my indicators and started fresh with a clean out all of my indicators and started fresh with a clean chart. I visited with other traders, many of whom were chart. I visited with other traders, many of whom were profiled in profiled in Market WizardsMarket Wizards. The thing that struck me . The thing that struck me when visiting their offices is that they all had very when visiting their offices is that they all had very simple systems, simple systems, but where they excelled was in their trading but where they excelled was in their trading methodologymethodology. During these visits, there were two things . During these visits, there were two things that were pounded into me:that were pounded into me:You can know what you are doing, but if you apply the You can know what you are doing, but if you apply the wrong methodology, you will lose.wrong methodology, you will lose.You can know what you are doing, You can know what you are doing, but if you are but if you are trading the wrong market for your personalitytrading the wrong market for your personality, you , you will lose.will lose.

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This was a real eyeThis was a real eye--opener on both counts, and I opener on both counts, and I will talk more about this later. will talk more about this later. Took what I learned from them and developed a Took what I learned from them and developed a style that suited me.style that suited me.Today my trading is more calm and consistent, Today my trading is more calm and consistent, as opposed to having chaotic ups and downs.as opposed to having chaotic ups and downs.In addition to pure trade setups, I will discuss In addition to pure trade setups, I will discuss the habits that most consistently cause traders to the habits that most consistently cause traders to lose money.lose money.Quick Review: Seminar Participant Trading Quick Review: Seminar Participant Trading HistoriesHistories

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How I Trade for a LivingHow I Trade for a Living

Part II: Trader PsychologyPart II: Trader Psychology

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Emotion is the enemy of successful trading. Emotion is the enemy of successful trading. The markets are set up to naturally take The markets are set up to naturally take advantage of and prey on human nature.advantage of and prey on human nature.The tactics you use to achieve your goals in The tactics you use to achieve your goals in everyday life do not work in trading, and in fact everyday life do not work in trading, and in fact are one of the main reasons for failure.are one of the main reasons for failure.Traders who “play the markets” with a mental Traders who “play the markets” with a mental framework oriented towards how external framework oriented towards how external society rewards and punishes “good” and “bad” society rewards and punishes “good” and “bad” behavior are set up to lose.behavior are set up to lose.“Making money good, losing money bad.”“Making money good, losing money bad.”

Psychology: Rewire Your BrainPsychology: Rewire Your Brain

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This “society focus” on money instills the very This “society focus” on money instills the very habits that cause traders to lose money.habits that cause traders to lose money.For example, “Cutting losses short” is difficult For example, “Cutting losses short” is difficult when there is the possibility of the market when there is the possibility of the market coming back to the breakeven point. At coming back to the breakeven point. At breakeven, you are not a “loser.” HOWEVER, breakeven, you are not a “loser.” HOWEVER, removing a stop in the hopes of getting out at removing a stop in the hopes of getting out at breakeven is a LOSING HABIT in trading. breakeven is a LOSING HABIT in trading. The rest of the world views losing as a bad The rest of the world views losing as a bad thing. This is true in many parts of your life. If thing. This is true in many parts of your life. If you bring this same mindset to trading, you will you bring this same mindset to trading, you will never win. In trading, small losses are awesome!never win. In trading, small losses are awesome!

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After losing consistently in the beginning, After losing consistently in the beginning, traders start making trades based on a fear of traders start making trades based on a fear of losing money, fear of being wrong, or fear of losing money, fear of being wrong, or fear of missing an opportunity. This “start of phase II” missing an opportunity. This “start of phase II” also does not work.also does not work.By focusing on not losing, you will naturally take By focusing on not losing, you will naturally take small profits, and let losers run in the hopes that small profits, and let losers run in the hopes that they come back to breakeven.they come back to breakeven.At this point traders realize trading isn’t easy. At this point traders realize trading isn’t easy. They then go on the search for “The Holy They then go on the search for “The Holy Grail.” That is the “fail safe indicator” that Grail.” That is the “fail safe indicator” that never generates a losing trade. never generates a losing trade.

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Presenting . . . The Holy GrailPresenting . . . The Holy Grail

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FinancialNetworks AreEntertainment

Only!

If You Heard It First on

CNBC, Then You Are The Last to Know

This is usually a big problem for newer traders.If anything, look to “fade” news coming off thefinancial networks as it is already old news.

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After “Fear of Losing” both Greed and Euphoria are a After “Fear of Losing” both Greed and Euphoria are a trader’s worst enemies. Fear of missing a move also trader’s worst enemies. Fear of missing a move also causes lots of mistakes. (Jumping in too late.)causes lots of mistakes. (Jumping in too late.)$500 a day is very reasonable. But, when you then go $500 a day is very reasonable. But, when you then go for $750 or $1000, greed takes over and mistakes kick for $750 or $1000, greed takes over and mistakes kick in: overtrading, not sticking to parameters, rampant in: overtrading, not sticking to parameters, rampant emotions, yelling at screen.emotions, yelling at screen.“Home Run” mentality is the downfall of all losing “Home Run” mentality is the downfall of all losing traders. This is where you refuse to take a $500 profit traders. This is where you refuse to take a $500 profit because you “want a bigger trade.” This is how because you “want a bigger trade.” This is how winning trades turn into losing trades.winning trades turn into losing trades.Market is an allMarket is an all--youyou--cancan--eat buffet: no reason to eat buffet: no reason to overload your plate on 1 trip; you can keep going backoverload your plate on 1 trip; you can keep going back

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Euphoria is worse than GreedEuphoria is worse than GreedYou had a great day yesterday, so today you are You had a great day yesterday, so today you are over confident and you throw out your trading over confident and you throw out your trading rules. rules. Things are going great Things are going great –– so double up! Triple so double up! Triple up! Keep adding to your position!up! Keep adding to your position!This is like being in a fantastic relationship with This is like being in a fantastic relationship with a significant other. It’s going really great. a significant other. It’s going really great. So, to make your life even better . . .So, to make your life even better . . .You start to date someone else as well. You start to date someone else as well. This will only end in one way: BadlyThis will only end in one way: BadlyDevelop a business plan and stick to it!Develop a business plan and stick to it!

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Set up your parameters before placing the tradeSet up your parameters before placing the tradeBefore the trade you are at your most objectiveBefore the trade you are at your most objectiveAfter the trade is in place, you can talk yourself After the trade is in place, you can talk yourself into anything: like the alcoholic rationalizing one into anything: like the alcoholic rationalizing one more drink . . . the one that leads to the ditchmore drink . . . the one that leads to the ditchSuccessful traders have a habit of ringing the Successful traders have a habit of ringing the register. Get in and start scaling out. register. Get in and start scaling out. Overly bullish or bearish a bad idea: Do not try Overly bullish or bearish a bad idea: Do not try to impose your will on the market. to impose your will on the market. Discipline before Vision: know your exitsDiscipline before Vision: know your exits

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Professional traders focus on limiting risk and Professional traders focus on limiting risk and protecting capital. Amateur traders focus on protecting capital. Amateur traders focus on how much money they can make on each trade. how much money they can make on each trade. Professionals always take money away from Professionals always take money away from amateurs.amateurs.Amateur traders turn into professional traders Amateur traders turn into professional traders once they stop looking for the “next great once they stop looking for the “next great technical indicator” and start controlling their technical indicator” and start controlling their risk on each trade.risk on each trade.

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Embracing your opinion leads to losses. When Embracing your opinion leads to losses. When a traders rationalizes a decline by saying things a traders rationalizes a decline by saying things like, “They are just shaking out weak hands like, “They are just shaking out weak hands here,” or “I’m staying in because it’s just the here,” or “I’m staying in because it’s just the market makers fishing for stops,” then trader is market makers fishing for stops,” then trader is embracing his own opinion instead of listening embracing his own opinion instead of listening to the market. This is also called “being an to the market. This is also called “being an amateur” and leads to a oneamateur” and leads to a one--way revolving door way revolving door called financial ruin.called financial ruin.

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Professional traders actively take small losses, Professional traders actively take small losses, and they do so because they know their most and they do so because they know their most important job is protecting their capital. After important job is protecting their capital. After all, reentry is only a commission away. all, reentry is only a commission away. Amateurs resort to hope to save their trades. In Amateurs resort to hope to save their trades. In life, hope is a powerful and positive thing. In life, hope is a powerful and positive thing. In trading, hanging onto a trade based on hope is trading, hanging onto a trade based on hope is very similar to staying inside a burning car in the very similar to staying inside a burning car in the “hope” that the fire will go out. The end result “hope” that the fire will go out. The end result won’t be pretty.won’t be pretty.

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In reality, traders are not trading stocks, futures In reality, traders are not trading stocks, futures or options. They are trading other traders. Be or options. They are trading other traders. Be aware of the psychology and emotions behind aware of the psychology and emotions behind the person who is taking the opposite side of the person who is taking the opposite side of your trade.your trade.

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The most important lesson of becoming a The most important lesson of becoming a successful trader is learning how to accept a loss successful trader is learning how to accept a loss without any frustration, anger or shame.without any frustration, anger or shame.The key is to have two specific sets of rules: The key is to have two specific sets of rules: Trading Methodology Rules and Money Trading Methodology Rules and Money Management Rules.Management Rules.By following the rules, you learn to trust By following the rules, you learn to trust yourself. Once you trust yourself, you can then yourself. Once you trust yourself, you can then focus on the market’s opportunities (instead of focus on the market’s opportunities (instead of focusing on trying to not lose money).focusing on trying to not lose money).

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Focus on developing your skills instead of Focus on developing your skills instead of focusing on the money.focusing on the money.The markets move endlessly, with zero regard to The markets move endlessly, with zero regard to you. They are not “after you.”you. They are not “after you.”Traders become consistently profitable once Traders become consistently profitable once they learn selfthey learn self--discipline, emotional control, and discipline, emotional control, and the ability to submit their will to that of the the ability to submit their will to that of the market.market.The less you care about being right or wrong, The less you care about being right or wrong, the easier it will be to enter and exit positions, to the easier it will be to enter and exit positions, to take losses, and be ready for the next take losses, and be ready for the next opportunity.opportunity.

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Part III: Hardware and Software Part III: Hardware and Software ––Tools for TradersTools for Traders

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The amount of trading equipment you have, and The amount of trading equipment you have, and the type, will largely depend on your financial the type, will largely depend on your financial resources and the amount of money you are resources and the amount of money you are trading.trading.Too much information is usually a bad idea. Too much information is usually a bad idea. Many traders I know have been doing this for Many traders I know have been doing this for over 20 years and they have 1 computer over 20 years and they have 1 computer monitor, and call in their orders. monitor, and call in their orders. They are watching 1 market and are looking for They are watching 1 market and are looking for 1 to 3 setups.1 to 3 setups.I trade a variety of markets and time frames, so I I trade a variety of markets and time frames, so I need more tools.need more tools.

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For software, I use Trade Station and eSignal. For software, I use Trade Station and eSignal. You can do more with Trade Station, but You can do more with Trade Station, but eSignal is a little easier to use. Both are very eSignal is a little easier to use. Both are very powerful. Others vendors are fine too.powerful. Others vendors are fine too.I have Trade Station setup on a stacked quad I have Trade Station setup on a stacked quad monitor with 4 19monitor with 4 19--inch flat screens. (Two on inch flat screens. (Two on top, two on bottom). I watch 233 Tick Charts top, two on bottom). I watch 233 Tick Charts on 3 of the screens, then my internal indicators on 3 of the screens, then my internal indicators on the 4on the 4thth screen. screen. I run eSignal on a TriI run eSignal on a Tri--Monitor setup. I watch Monitor setup. I watch bonds, euro, daily and 60 minute charts of the bonds, euro, daily and 60 minute charts of the indexes. Also quotes on options and stocks.indexes. Also quotes on options and stocks.

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I have a 3I have a 3rdrd computer that I use only for Trade computer that I use only for Trade Execution. For execution I use a platform Execution. For execution I use a platform separate from my quotes vendors. I like to have separate from my quotes vendors. I like to have that separation in case one goes down.that separation in case one goes down.I use a platform called Strategy Runner which I use a platform called Strategy Runner which runs on top of Jruns on top of J--Trader.Trader.I like it because you can put in your parameters I like it because you can put in your parameters before you trade. This way I can hit “buy YM at before you trade. This way I can hit “buy YM at the market” and it will automatically place an the market” and it will automatically place an order for a 20 point stop and a 40 point target, order for a 20 point stop and a 40 point target, or whatever you want.or whatever you want.

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This is an “Order Cancels Order” placement so when This is an “Order Cancels Order” placement so when one is hit, the other is canceled. I can adjust the stop one is hit, the other is canceled. I can adjust the stop and target, and, if I want, set up an auto trailing stop.and target, and, if I want, set up an auto trailing stop.This way it saves me a ton of time in entering a lot of This way it saves me a ton of time in entering a lot of different orders for stops and targets.different orders for stops and targets.It also addresses one of my trading weaknesses: It also addresses one of my trading weaknesses: Looking for more than a move can give. I can’t second Looking for more than a move can give. I can’t second guess it because the orders are already placed.guess it because the orders are already placed.I’m also covered if the market moves against me I’m also covered if the market moves against me rapidly. Any order I place automatically has a stop so rapidly. Any order I place automatically has a stop so there won’t be any markets getting away from me due there won’t be any markets getting away from me due to a sudden news event.to a sudden news event.

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44thth computer is for email, Internet, and Instant computer is for email, Internet, and Instant Messaging.Messaging.Have a 5Have a 5thth computer as a backup: It’s a laptop computer as a backup: It’s a laptop attached to a phone line in the event broadband attached to a phone line in the event broadband goes down.goes down.Have land lines and cell phone.Have land lines and cell phone.For land lines, be sure to have an oldFor land lines, be sure to have an old--fashioned fashioned “corded” backup. In the event of a black or “corded” backup. In the event of a black or brownout, a cordless phone won’t work.brownout, a cordless phone won’t work.Battery backup on the computers.Battery backup on the computers.

32233 Tick Charts of ES, YM and NQ and Intraday Indicators

EMAIL

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Hourly & Daily Charts of the Stock Indexes

Bonds &Euro Charts

Stock & OptionQuotes, Portfolio

Manager

Single MonitorPC for execution

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TradestationEmail eSignal Execution

Backup Laptop with fully charged battery and regular phone line(also used to work on this PowerPoint during the doldrums)

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Trading is the first priority. I don’t answer the Trading is the first priority. I don’t answer the phone or generally talk to people between phone or generally talk to people between 9:00 AM and 11:00 AM Eastern.9:00 AM and 11:00 AM Eastern.I tell friends and family I am not available during I tell friends and family I am not available during these hours. They know to email me.these hours. They know to email me.In the Trading Room, I will talk about what I’m In the Trading Room, I will talk about what I’m doing in the markets, but that’s it.doing in the markets, but that’s it.For my brokers, I expect them to answer the For my brokers, I expect them to answer the phone and/or be available by Instant Message.phone and/or be available by Instant Message.Have a TV but I turn off CNBC after 10:00 AM Have a TV but I turn off CNBC after 10:00 AM Eastern.Eastern.

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Part IV: Basic Mechanics of the Markets I TradePart IV: Basic Mechanics of the Markets I Trade

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In my experience, once you understand and then trade In my experience, once you understand and then trade futures, you never go back to day trading stocks. futures, you never go back to day trading stocks. However, if you have traded only stocks, the futures However, if you have traded only stocks, the futures markets are probably a mystery and a little scary. Yet if markets are probably a mystery and a little scary. Yet if you have already learned the importance of strict you have already learned the importance of strict money management, you will really appreciate what money management, you will really appreciate what futures trading has to offer. futures trading has to offer. Typically, once people try trading futures, they simply Typically, once people try trading futures, they simply stop trading stocks. The ease of entry, ability to focus stop trading stocks. The ease of entry, ability to focus on 1 market instead of 2,000 stocks, and the lack of on 1 market instead of 2,000 stocks, and the lack of market maker games makes them a refreshing change market maker games makes them a refreshing change to the world of stocks. Here is how they work:to the world of stocks. Here is how they work:

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First off, there are many types of futures First off, there are many types of futures contracts: Stock indexes, metals, grains, meats, contracts: Stock indexes, metals, grains, meats, bonds, currencies, etc. Don't worry about most bonds, currencies, etc. Don't worry about most of these for now.of these for now.During this seminar we are going to focus on During this seminar we are going to focus on four stock index futures, bond futures (30 year), four stock index futures, bond futures (30 year), Euro Currency, and Single Stock Futures (used Euro Currency, and Single Stock Futures (used for swing plays). for swing plays). Each contract has different parameters, which Each contract has different parameters, which you will want to become familiar with. They are you will want to become familiar with. They are as follows:as follows:

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Emini S&P 500 (ES) $50 per pointEmini S&P 500 (ES) $50 per pointEmini Nasdaq (NQ) $20 per pointEmini Nasdaq (NQ) $20 per pointEmini Russell 2000 (ER) $100 per pointEmini Russell 2000 (ER) $100 per pointMiniMini--Sized Dow (YM) $5 per pointSized Dow (YM) $5 per pointBonds (US) $31.25 per tick (Bonds (US) $31.25 per tick (Regular, not miniRegular, not mini))Euro Currency (EC) $12.50 per tickEuro Currency (EC) $12.50 per tickSingle Stock Futures (QCOM1C) $100 per pointSingle Stock Futures (QCOM1C) $100 per pointTo access these quotes, you will need data feeds To access these quotes, you will need data feeds for the CBOT, CME, and One Chicago.for the CBOT, CME, and One Chicago.You have to be aware of the P&L implications You have to be aware of the P&L implications of price movement for correct position sizingof price movement for correct position sizing

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Daily Range is typically between 8 to 15 points

Emini S&P 500 Futures (ES)

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Mini-Sized Dow Futures (YM)

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Emini Nasdaq Futures (NQ)

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Emini Russell 2000 Futures

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Daily Range is typically between 25 to 50 ticks32 ticks = 1 point

30 Year Bond Futures (US)

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Daily Range is typically between 80 to 150 ticks or “pips”100 ticks = 1 full cent

Euro Currency Futures on CME (EC)

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In general, if the S&P moves 1 point, the Dow In general, if the S&P moves 1 point, the Dow will move 10 points, the NQ will move 2 points, will move 10 points, the NQ will move 2 points, and the Russell will move ½ a point.and the Russell will move ½ a point.Pay attention to which index is strongest or Pay attention to which index is strongest or weakest on the day.weakest on the day.To buy 1 futures contract, you need $2,000 to To buy 1 futures contract, you need $2,000 to $4,000 in your account, depending on the $4,000 in your account, depending on the contract.contract.This is called “margin” and it is very similar to This is called “margin” and it is very similar to putting down 5% to buy a house. With a down putting down 5% to buy a house. With a down payment of $4,000, you can control an asset payment of $4,000, you can control an asset worth $50,000 to $100,000.worth $50,000 to $100,000.

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When you buy a futures contract, you are not When you buy a futures contract, you are not physically buying anything. This is simply a way physically buying anything. This is simply a way to participate in the price movement of the to participate in the price movement of the market of your choice. If you think a market is market of your choice. If you think a market is going to move 10 points, you can buy a futures going to move 10 points, you can buy a futures contract, long or short, and make money on the contract, long or short, and make money on the move if it goes in your direction. Also, if you move if it goes in your direction. Also, if you own a contract that expires, you are not going to own a contract that expires, you are not going to get a bunch of stock certificates dumped on get a bunch of stock certificates dumped on your doorstep. The expired contract will be your doorstep. The expired contract will be converted to cash, and you will see the cash in converted to cash, and you will see the cash in your account. (This is true except for Single your account. (This is true except for Single Stock Futures, as they are a deliverable.)Stock Futures, as they are a deliverable.)

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You can short on a downtickYou can short on a downtick----this makes a huge this makes a huge difference in trying to get filled during a breakdown. If difference in trying to get filled during a breakdown. If you short KLAC "at the market" on a breakdown, you you short KLAC "at the market" on a breakdown, you may not get filled for 50 cents until it has an uptick. If may not get filled for 50 cents until it has an uptick. If you short the futures "at the market" on a breakdown, you short the futures "at the market" on a breakdown, you get a quick fill at the current market price. With you get a quick fill at the current market price. With stocks, you had “bullets” for a while where you could stocks, you had “bullets” for a while where you could set these up with your broker and short a stock on a set these up with your broker and short a stock on a downtick. These were recently removed.downtick. These were recently removed.I used to be a big trader of OEX options. After trading I used to be a big trader of OEX options. After trading futures, I stopped trading OEX options. The spreads futures, I stopped trading OEX options. The spreads and premium of options now looks ridiculous.and premium of options now looks ridiculous.You can do most of your trades "at the market" and get You can do most of your trades "at the market" and get good fills, unlike stocks and especially unlike options.good fills, unlike stocks and especially unlike options.

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There are now futures on stocks. Using Single Stock Futures as There are now futures on stocks. Using Single Stock Futures as swing trades in combination with index futures is a great way toswing trades in combination with index futures is a great way totrade and hedge your bets. Although some of the symbols have trade and hedge your bets. Although some of the symbols have low actual volume, the “real volume” is based on that of the low actual volume, the “real volume” is based on that of the underlying stock. If you want to buy 100 contracts (1 contract underlying stock. If you want to buy 100 contracts (1 contract = = 100 shares of stock) and you put in a limit order in between the100 shares of stock) and you put in a limit order in between thebid and the offer you will get a nearly instantaneous fill. Thebid and the offer you will get a nearly instantaneous fill. Themargin is 20% of the value of the stock.margin is 20% of the value of the stock.With futures, at the end of the year you don't have to list eachWith futures, at the end of the year you don't have to list eachindividual futures trade like you do stocks for your tax return.individual futures trade like you do stocks for your tax return.You get a 1099 from your broker with your total profit or loss You get a 1099 from your broker with your total profit or loss for the year. All you put on your tax return is that number on for the year. All you put on your tax return is that number on the 1099. On this, 60% of the money is treated as long term the 1099. On this, 60% of the money is treated as long term gains (lower tax rate) and 40% at the short term rate. This is gains (lower tax rate) and 40% at the short term rate. This is the the “60/40” rule. This is even if you go flat at the end of every “60/40” rule. This is even if you go flat at the end of every trading day.trading day.

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•• You can trade futures in your IRA. This means you You can trade futures in your IRA. This means you can short stocks (Single Stock Futures) in your IRA or can short stocks (Single Stock Futures) in your IRA or the Indexes, which you are not allowed to do in a the Indexes, which you are not allowed to do in a regular IRA. To set up your IRA for trading futures, regular IRA. To set up your IRA for trading futures, you need to first go through a Trust Company set up you need to first go through a Trust Company set up specifically to do this. What you then do is open an specifically to do this. What you then do is open an account with the Trust Company, and then they will account with the Trust Company, and then they will wire the funds to your futures broker. This way it stays wire the funds to your futures broker. This way it stays classified as an IRA and you don’t have to pay taxes on classified as an IRA and you don’t have to pay taxes on any gains. Not every futures broker is experienced with any gains. Not every futures broker is experienced with this. If you are interested in doing this, be sure to work this. If you are interested in doing this, be sure to work with a broker that has done this before. It is one way with a broker that has done this before. It is one way to bring diversification to a portion of your retirement to bring diversification to a portion of your retirement funds.funds.

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Each futures contract that we are discussing has 4 contracts thaEach futures contract that we are discussing has 4 contracts that are traded t are traded each year: March (H), June (M), September (U) and December (Z). each year: March (H), June (M), September (U) and December (Z). You will You will want to trade the closest month, as that is where the volume is want to trade the closest month, as that is where the volume is concentrated. concentrated. For example, if today is October 15, 2003, then the closest montFor example, if today is October 15, 2003, then the closest month is the h is the December, 2003 contract. If it is January 14, 2004, then the clDecember, 2003 contract. If it is January 14, 2004, then the closest month is osest month is March 2004 contract. SSFs trade each month just like options.March 2004 contract. SSFs trade each month just like options.

To get a quote for the March 2004 contract on the miniTo get a quote for the March 2004 contract on the mini--sized Dow, you sized Dow, you would enter in the symbol, month and year. In this case, that wwould enter in the symbol, month and year. In this case, that would be YM ould be YM (symbol), H (Month = March), 04 (Year = 2004). (symbol), H (Month = March), 04 (Year = 2004).

TIP:TIP: The emini futures expire the same day as options expiration, onThe emini futures expire the same day as options expiration, on the 3rd the 3rd Friday of the month they are being traded in. Friday of the month they are being traded in. However, you will want to However, you will want to start trading the next month out about a week before expiration,start trading the next month out about a week before expiration, as all as all of the volume will switch to the next month a little early.of the volume will switch to the next month a little early. Also, because Also, because these are futures contracts, there is always a price difference these are futures contracts, there is always a price difference between 2 between 2 contracts. While the March contract will say 1032.50 for the Emcontracts. While the March contract will say 1032.50 for the Emini S&Ps, the ini S&Ps, the June contract will say something like 1031.25. Keep this in minJune contract will say something like 1031.25. Keep this in mind as you are d as you are switching contracts and calculating pivots. This only comes intswitching contracts and calculating pivots. This only comes into play as you o play as you near options expiration and start to trade the next contract befnear options expiration and start to trade the next contract before the current ore the current one expiresone expires

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Part V: Determining Short Term Part V: Determining Short Term Market Direction and Creating a Game Market Direction and Creating a Game Plan for Trading ItPlan for Trading It

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Each day I go through an “MPS” (Market Prep Each day I go through an “MPS” (Market Prep Session) to determine short term market Session) to determine short term market direction. This is a big part of my daily plan. direction. This is a big part of my daily plan. This is where you develop a plan so the market This is where you develop a plan so the market cannot beat you. Without a plan, you will be cannot beat you. Without a plan, you will be heading into the markets like a cowboy.heading into the markets like a cowboy.Without a plan, you don’t know what is going to Without a plan, you don’t know what is going to happen when you jump into the water, and you happen when you jump into the water, and you will not be prepared for the unexpected.will not be prepared for the unexpected.The market is a swamp and there are alligators The market is a swamp and there are alligators waiting to make a meal of you. The prepared waiting to make a meal of you. The prepared trader doesn’t get eaten by the alligators.trader doesn’t get eaten by the alligators.

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Daily market prep should be treated as if it were Daily market prep should be treated as if it were part of your job, and it is a report that is part of your job, and it is a report that is expected by your boss each and every trading expected by your boss each and every trading day.day.It is easy to get lazy and go back into “gun It is easy to get lazy and go back into “gun slinger” mode. Gun slingers do not survive in slinger” mode. Gun slingers do not survive in this business. This is a good way to know this business. This is a good way to know whether or not you are staying disciplined.whether or not you are staying disciplined.Part of your daily plan is knowing what to do if Part of your daily plan is knowing what to do if you start questioning a trade. The best thing to you start questioning a trade. The best thing to do here is reduce your position size. This keeps do here is reduce your position size. This keeps you objective and keeps the “alligators” at bay.you objective and keeps the “alligators” at bay.

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For me Market Prep starts on the weekend, For me Market Prep starts on the weekend, where I can take a few hours and look over the where I can take a few hours and look over the markets in a very detached state of mind.markets in a very detached state of mind.I start off with a “top down” approach and view I start off with a “top down” approach and view the key markets starting with the largest time the key markets starting with the largest time frames and drilling down to the smallest time frames and drilling down to the smallest time frames.frames.For me this means starting off with the monthly For me this means starting off with the monthly charts, then working my way down through the charts, then working my way down through the weekly, daily, and 60 minute charts.weekly, daily, and 60 minute charts.

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S&P 500 Cash Index Monthly Chart

Moving Averages & Oscillators

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Fibonacci Levels

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Support & Resistance + Trendlines

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Monthly Chart Analysis:Monthly Chart Analysis:S&P has rallied into the 50 EMA, which is S&P has rallied into the 50 EMA, which is decent resistance. The 13 is below at 1050 and decent resistance. The 13 is below at 1050 and the 20 is at 971.the 20 is at 971.Stochastic went into a buy in March 2003 and Stochastic went into a buy in March 2003 and the MACD went into a buy in April 2003. The the MACD went into a buy in April 2003. The last signals on these were sells in April/May last signals on these were sells in April/May 2000, so this was significant. Stochastic appears 2000, so this was significant. Stochastic appears to be rolling over.to be rolling over.Key Fibonacci Level is 50% at 1163.80 and this Key Fibonacci Level is 50% at 1163.80 and this has been tested.has been tested.

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Key structural resistance at 1175Key structural resistance at 1175Current high used to construct a new downward Current high used to construct a new downward channel. This is now “active” until and unless channel. This is now “active” until and unless we get new closing highs. Any rallies to this we get new closing highs. Any rallies to this level are shortable.level are shortable.Current upward channel is very steep and Current upward channel is very steep and narrow and easy to break on the downside.narrow and easy to break on the downside.Want to focus on setting up swing shorts into Want to focus on setting up swing shorts into rallies into key resistance levels.rallies into key resistance levels.Note on Oscillators: Overbought and Oversold Note on Oscillators: Overbought and Oversold not important. Looking at where they are not important. Looking at where they are pointing. Rolling up or rolling down.pointing. Rolling up or rolling down.

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S&P 500 Cash Index Weekly Chart


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Fibonacci Levels

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Weekly Chart Analysis:Weekly Chart Analysis:Cash index has fallen through the 13 and is Cash index has fallen through the 13 and is trading near the 20 EMA. If we get a close trading near the 20 EMA. If we get a close below the 20, look for a move to the 50 EMA at below the 20, look for a move to the 50 EMA at 1032.51.1032.51.The Stochastic and MACD have both recently The Stochastic and MACD have both recently crossed over into sells.crossed over into sells.The first key Fibonacci Level is the 25% The first key Fibonacci Level is the 25% retracement at 1070.63. If this falls the key retracement at 1070.63. If this falls the key 38.2% level is at 1021.24.38.2% level is at 1021.24.

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For support and resistance, there is key support For support and resistance, there is key support near 1060, which is a good downside target.near 1060, which is a good downside target.The current upward trendline is being violated.The current upward trendline is being violated.The Monthly downward channel is also drawn The Monthly downward channel is also drawn on the weekly chart to show a close up of on the weekly chart to show a close up of significant upside resistance.significant upside resistance.

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S&P 500 Cash Index Daily Chart


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Fibonacci Levels

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Daily Chart Analysis:Daily Chart Analysis:On the daily charts we are through the key 13, On the daily charts we are through the key 13, 20 and 50 EMAs. In addition, the 13 has 20 and 50 EMAs. In addition, the 13 has crossed below the 20 and the 50, and the 20 is in crossed below the 20 and the 50, and the 20 is in the process of pushing below the 50.the process of pushing below the 50.Any rallies to these MAs can be shorted until we Any rallies to these MAs can be shorted until we get a close above them.get a close above them.200 EMA is looming below at 1060.78.200 EMA is looming below at 1060.78.Stochastics and MACD are oversold.Stochastics and MACD are oversold.Sets up perfect “short the rally” play into the Sets up perfect “short the rally” play into the 1128 to 1138 level.1128 to 1138 level.

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On the Fibonacci Levels we have moved On the Fibonacci Levels we have moved through the 25% level off the September lows.through the 25% level off the September lows.Key 38.2% level is coming up at 1097.76.Key 38.2% level is coming up at 1097.76.If this fails look for a quick move to the 50% If this fails look for a quick move to the 50% level at 1077.34.level at 1077.34.For key support and resistance, there is a key For key support and resistance, there is a key support level at 1075 coming up. support level at 1075 coming up. The market is currently trading below its upward The market is currently trading below its upward trendline off the September lowstrendline off the September lows

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S&P 500 Cash Index 60 Minute Chart


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Fibonacci Levels

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60 Minute Chart Analysis:60 Minute Chart Analysis:All of the key moving averages trading below All of the key moving averages trading below each other, with the 13 leading the way.each other, with the 13 leading the way.Stochastics and MACD have slight bullish Stochastics and MACD have slight bullish divergences.divergences.200 MA will act as significant resistance on any 200 MA will act as significant resistance on any rallies.rallies.Key 50% retracement is 1133.46.Key 50% retracement is 1133.46.Key resistance is 1134.43.Key resistance is 1134.43.

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Themes across the 4 times frames? Key Themes across the 4 times frames? Key numbers that stand out on multiple time frames?numbers that stand out on multiple time frames?1060 to 1075 level offers a lot of different 1060 to 1075 level offers a lot of different support zones. There is a weekly support level support zones. There is a weekly support level at 1060, the 25% retracement off the March at 1060, the 25% retracement off the March 2003 lows is 1070.63, 1075 is a daily support 2003 lows is 1070.63, 1075 is a daily support level, 1071.96 is the monthly 38.2% levellevel, 1071.96 is the monthly 38.2% level1130 to 1140 offers a lot of resistance. The daily 1130 to 1140 offers a lot of resistance. The daily 50 EMA is 1138, the 200 EMA on the 60 50 EMA is 1138, the 200 EMA on the 60 minute chart is 1137. 1133.46 is the 50% minute chart is 1137. 1133.46 is the 50% retracement level on the 60. 1134.43 is a key retracement level on the 60. 1134.43 is a key level on the daily chart.level on the daily chart.

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When doing the “top down” drill down, I am When doing the “top down” drill down, I am looking for two main things:looking for two main things:What are the “pressures” on each time frame? What are the “pressures” on each time frame? To determine “pressure” I look at the To determine “pressure” I look at the relationship of the key moving averages as well relationship of the key moving averages as well as what the stochastics and MACD are doing.as what the stochastics and MACD are doing.The first thing I look at is the relationship The first thing I look at is the relationship between the 13 and 20 EMAs. Are they in an between the 13 and 20 EMAs. Are they in an upward cross or downward cross on these time upward cross or downward cross on these time frames?frames?I will then put them in a box like this:I will then put them in a box like this:

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13/20 EMA Pressures13/20 EMA Pressures

13/20 lower and 13/20 lower and through 50 EMAthrough 50 EMA

LowerLower60 Minute60 Minute

13/20 lower and 13/20 lower and through 50 EMAthrough 50 EMA

LowerLowerDailyDaily

Prices have fallen Prices have fallen to 20 EMAto 20 EMA

HigherHigherWeeklyWeekly

13/20 higher but 13/20 higher but below 50 EMAbelow 50 EMA

HigherHigherMonthlyMonthly

CommentsCommentsPressurePressureTime FrameTime Frame

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Oscillator PressuresOscillator Pressures

Slight bullish Slight bullish divergencedivergence

Lower/LowerLower/Lower60 Minute60 Minute

Getting stretched Getting stretched on the downsideon the downside

Lower/LowerLower/LowerDailyDaily

Fresh sell signals Fresh sell signals on the weeklyon the weekly

Lower/LowerLower/LowerWeeklyWeekly

Stochastic trying Stochastic trying to roll overto roll over

Higher/HigherHigher/HigherMonthlyMonthly

CommentsCommentsPressure Pressure ((StochStoch/MACD)/MACD)

Time FrameTime Frame

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Key Support & Resistance LevelsKey Support & Resistance Levels

Play long side up Play long side up to 1135to 1135

1097/11351097/113560 Minute60 Minute

Would like to Would like to short a rallyshort a rally

1075/11351075/1135DailyDaily

Support is 25% Support is 25% FibFib

1060/11641060/1164WeeklyWeekly

Hit 50% of 2000 Hit 50% of 2000 highs: top?highs: top?

1072/11641072/1164MonthlyMonthly

CommentsCommentsSupport/Support/ResResTime FrameTime Frame

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Key Moving Average LevelsKey Moving Average Levels

200 MA lining up 200 MA lining up with 50 on daily with 50 on daily and monthlyand monthly

13: 1109, 20: 13: 1109, 20: 1112, 50: 1125, 1112, 50: 1125,

200: 1137200: 1137

60 Minute60 Minute

Extended below Extended below these MAsthese MAs

13: 1129, 20: 13: 1129, 20: 1139, 50: 11381139, 50: 1138

DailyDaily

Testing support at Testing support at 20 EMA20 EMA

13:1121, 20: 1109, 13:1121, 20: 1109, 50: 105850: 1058

WeeklyWeekly

1135 coming up a 1135 coming up a lot as resistancelot as resistance

13: 1050, 20: 972, 13: 1050, 20: 972, 50: 113550: 1135

MonthlyMonthly

CommentsCommentsEMA LevelsEMA LevelsTime FrameTime Frame

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Once you have this information, the next step is Once you have this information, the next step is to formulate a trading plan for the next day.to formulate a trading plan for the next day.Based on this setup, the weekly charts are rolling Based on this setup, the weekly charts are rolling over, while the daily and 60 minute charts are over, while the daily and 60 minute charts are oversold and ready to bounce.oversold and ready to bounce.Intraday I would be looking to focus on the long Intraday I would be looking to focus on the long side, i.e., looking at buying breakouts through side, i.e., looking at buying breakouts through pivot levels.pivot levels.On a swing basis I would want to add shorts on On a swing basis I would want to add shorts on any rally to the 1135 level for a potential move any rally to the 1135 level for a potential move to 1070.to 1070.

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It is nice when a plan works out It is nice when a plan works out perfectly, but it doesn’t happen all perfectly, but it doesn’t happen all of the time.of the time.But by having a plan, you will be But by having a plan, you will be able to react better when the plan able to react better when the plan “goes awry.” “goes awry.” Once you have your plan, you then Once you have your plan, you then want to review your prewant to review your pre--market market checklist:checklist:

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Part VI: Daily PrePart VI: Daily Pre--Market ChecklistMarket Checklist

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Once I have my game plan based Once I have my game plan based on my “top down” approach, I on my “top down” approach, I have a checklist that I review.have a checklist that I review.The first thing I do is take my “top The first thing I do is take my “top down approach” analysis and put it down approach” analysis and put it into a one page format that I can into a one page format that I can glance at:glance at:

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Monthly, Weekly, Daily, Sixty Minute Time Frames

Key Support & Resistance Zones: (Write them in here)

Key Support & Resistance Zones: (Write them in here)

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Once this “top down” analysis is summarized, I Once this “top down” analysis is summarized, I then look at the following to help set me up for then look at the following to help set me up for the next trading day:the next trading day:

1. Volume: I like to view and comparethe NYSE and Nasdaq volume dayover day, plus compare it to their average volume levels over the past 50 days.Volume is the “gas” of the market. A movewithout volume is like a car on an empty tank.

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2. Key Levels: 3-Day Highs & Lows, Key Weekly and Monthly levels, and Open Gaps:

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3. Key Levels: Daily Pivots and Midpoints on the S&P 500, Dow, and Nasdaq Futures:

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4. Key Levels: Weekly and Monthly Pivots on the S&P 500, Dow, and Nasdaq Futures:

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5. Key Sentiment Readings:

• CBOE Put/Call Ratio (10 day MA): Over 1.00 is bullish, under 0.70 is bearish• Sentiment Readings: Contrary Indicators – Do the opposite of the crowd• Daily Arms Index:: Over 2.0 is bullish, Under 0.50 is bearish for the next day

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5. Key Sentiment Readings (cont):

• 10 Day Moving Average of combined equity/index put/call ratio: • Extreme put/call readings precipitate tops and bottoms in markets• Why? At 1.00 there are too many bears and no one is left to sell, so markets reverse• At 0.70 or below there are too many bulls and there is no one left to buy, so we rollover

Chart provided courtesy of www.decisionpoint.com

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5. Key Sentiment Readings (cont):• Investor Sentiment:• Extreme Bullish or Bearish readings typically precipitate a larger picture market turn.


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6. NYSE Member Net Buy/Sell:• When NYSE members are acquiring spikes in inventory, the market is going higher.• When NYSE members are dumping inventory, the market is going lower.


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7. Pre-Market Volume: Generally over or under 30,000 shares for each of the key stocks?This shows the “gas” behind the move and let’s you know if its real buying or a

stop fishing expedition. We’ll cover this more when we look at gap plays.

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8. Miscellaneous Key Points:

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Other things I’m looking for:Other things I’m looking for:Key Sectors: Banks (BKX), Brokers (XBD), Key Sectors: Banks (BKX), Brokers (XBD), Semiconductors (SOX), Retail (RLX), Semiconductors (SOX), Retail (RLX), Transportation (TRAN)Transportation (TRAN)Markets cannot have a sustained move without Markets cannot have a sustained move without the Banks, Brokers, and Semiconductors. Look the Banks, Brokers, and Semiconductors. Look here for early warning signs or divergences.here for early warning signs or divergences.Monthly, Weekly and Daily Pivot Levels: Do Monthly, Weekly and Daily Pivot Levels: Do any of these correspond with any of the key any of these correspond with any of the key levels from the “top down” approach process?levels from the “top down” approach process?

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How is the market reacting to news? It doesn’t matter How is the market reacting to news? It doesn’t matter if the economic or earnings news is good or bad. What if the economic or earnings news is good or bad. What matters is how the market reacts to the news.matters is how the market reacts to the news.If a market rallies on bad news, it is telling you that it is If a market rallies on bad news, it is telling you that it is really strong.really strong.If a market sells off on good news, it is telling you that If a market sells off on good news, it is telling you that the good news is already priced in, so you should be the good news is already priced in, so you should be selling the news.selling the news.Words away from Wall Street: Are non traders happy or Words away from Wall Street: Are non traders happy or scared when it comes to the market?scared when it comes to the market?You are now prepared for the day, and the market is You are now prepared for the day, and the market is about to open. Now what do you look at?about to open. Now what do you look at?

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Part VII: Intraday IndicatorsPart VII: Intraday Indicators

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A large part of what dictates my intraday trades A large part of what dictates my intraday trades is determined by the action of the key intraday is determined by the action of the key intraday indicators that I watch. They are as follows:indicators that I watch. They are as follows:TICK (measures net buying/net selling NYSE)TICK (measures net buying/net selling NYSE)TIKI (measures net buying/net selling DOW)TIKI (measures net buying/net selling DOW)Put/Call (measures the ratio of calls vs. puts)Put/Call (measures the ratio of calls vs. puts)TRIN (measures up/down volume on NYSE)TRIN (measures up/down volume on NYSE)TRINQ (measure up/down volume on Nasdaq)TRINQ (measure up/down volume on Nasdaq)Sector Sorter List (measures sector Sector Sorter List (measures sector performance)performance)

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TICK 5 Minute Chart

Audio Alerts at +/- 600, 800, 1000 and 1200 Ticks

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+ or + or –– 400 is noise and can be ignored400 is noise and can be ignoredPay attention over +600 or Pay attention over +600 or --600. If you are on 600. If you are on the opposite side of this close your positionthe opposite side of this close your positionIf you are long and you get a +1000 tick reading, If you are long and you get a +1000 tick reading, close out your trade and take your profitsclose out your trade and take your profitsIf you are short and you get a If you are short and you get a --1000 tick reading, 1000 tick reading, close out your trade and take your profitsclose out your trade and take your profitsUse +1000 or Use +1000 or --1000 readings to open new trades 1000 readings to open new trades in the opposite direction of the tickin the opposite direction of the tickLook for higher highs/lower lows to confirm Look for higher highs/lower lows to confirm trendtrend

TICK TIPS

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TIKI 5 Minute Chart

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+ or + or –– 20 is noise and can be ignored20 is noise and can be ignoredPay attention over +26 or Pay attention over +26 or --26. This is indication 26. This is indication of a buy or sell program. Highest are + or of a buy or sell program. Highest are + or –– 30.30.If you are long and you get a +28 or high If you are long and you get a +28 or high reading, close out your trade and take profitsreading, close out your trade and take profitsIf you are short and you get a If you are short and you get a --28 or lower 28 or lower reading, close out your trade and take profitsreading, close out your trade and take profitsUse +28 or Use +28 or --28 readings to open new trades in 28 readings to open new trades in the opposite direction of the tickthe opposite direction of the tickTIKI is faster than the TICK. Early indicator.TIKI is faster than the TICK. Early indicator.

TIKI TIPS

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Put/Call Intraday Chart (over 5 days)

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Look for extreme readings: Over 1.0 will put a “floor” Look for extreme readings: Over 1.0 will put a “floor” in the market in the market –– look to cover shorts and go long. look to cover shorts and go long. (Extreme put buying: Too many bears)(Extreme put buying: Too many bears)Under .50 will put a “ceiling” on the market. Look to Under .50 will put a “ceiling” on the market. Look to close longs and go short. (Extreme call buying: Too close longs and go short. (Extreme call buying: Too many bulls)many bulls)Trend is important: You want the Put Call to move in Trend is important: You want the Put Call to move in the direction of the market in order to confirm it.the direction of the market in order to confirm it.Rising put/call in a rising market confirms the trend Rising put/call in a rising market confirms the trend (traders buying puts into a rally, gives fuel for short (traders buying puts into a rally, gives fuel for short covering), while falling put/call in a rising market sets covering), while falling put/call in a rising market sets up a reversal (Vice Versa). up a reversal (Vice Versa). TS symbol is $WPCVATS symbol is $WPCVAWait until 10:00 a.m. to get an accurate reading as the Wait until 10:00 a.m. to get an accurate reading as the listed stocks need to all open for trade.listed stocks need to all open for trade.

Put/Call TIPS

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TRIN 15 Minute Chart (4 days)

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TRINQ 15 Minute Chart (4 days)

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$TRIN measures up/down volume (buying/selling $TRIN measures up/down volume (buying/selling pressure) of NYSE, $TRINQ measures Nasdaqpressure) of NYSE, $TRINQ measures NasdaqGeneral: Over 1.0 is bearish, under 1.0 is bullishGeneral: Over 1.0 is bearish, under 1.0 is bullishNot Important! What is important is the trend. Is it Not Important! What is important is the trend. Is it moving higher (increase in selling pressure) or moving moving higher (increase in selling pressure) or moving lower (increase in buying pressure) from where it lower (increase in buying pressure) from where it started the day? The “trend of the trins” is critical.started the day? The “trend of the trins” is critical.$TRIN close over 2.0 results in bounce next day 9 $TRIN close over 2.0 results in bounce next day 9 times out of 10. No bounce? Market is in trouble.times out of 10. No bounce? Market is in trouble.Close under 0.50 results in selling the next day. No Close under 0.50 results in selling the next day. No selling? Bears are in trouble.selling? Bears are in trouble.

TRIN & TRINQ TIPS

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SECTOR SORTER LIST

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Watch number of sectors that are green vs. red Watch number of sectors that are green vs. red (up vs. down) at any given time.(up vs. down) at any given time.Often times while indexes consolidate, the Often times while indexes consolidate, the number of sectors up or down on the day will number of sectors up or down on the day will change. This is a heads up as to the direction of change. This is a heads up as to the direction of the next move.the next move.Any move without the Banks (BKX), Brokers Any move without the Banks (BKX), Brokers (XBD) and Semiconductors (SOX) most likely (XBD) and Semiconductors (SOX) most likely will not last.will not last.Sort on a Net % change basisSort on a Net % change basisVery useful when playing gaps (see gap plays)Very useful when playing gaps (see gap plays)

SECTOR SORTER LIST TIPS

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Intraday Indicator Screen Setup

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Part VII: Intraday Trading SetupsPart VII: Intraday Trading Setups

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VIIVII--1: Gap Plays1: Gap Plays

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Gap Plays: The Right WayGap Plays: The Right Way

“Gap” in prices from “Gap” in prices from 4:15 p.m. to 9:30 a.m.4:15 p.m. to 9:30 a.m.Gaps are like open Gaps are like open windows: At some point windows: At some point they will be closedthey will be closedBest gaps are in indexes Best gaps are in indexes and in opposite direction and in opposite direction of previous day’s moveof previous day’s moveBest gaps are over 20 and Best gaps are over 20 and under 80 pointsunder 80 points

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Why Indexes and Not Stocks?Why Indexes and Not Stocks?

Stocks that gap “with the index” and don’t have Stocks that gap “with the index” and don’t have any stockany stock--specific news are good gap candidates.specific news are good gap candidates.However, stock specific news gaps should be However, stock specific news gaps should be avoided. Enron won’t be filling its overhead avoided. Enron won’t be filling its overhead gaps anytime soon.gaps anytime soon.Gaps in stocks that are not part of a major index Gaps in stocks that are not part of a major index should be avoided.should be avoided.Playing gaps on specific stocks that receive Playing gaps on specific stocks that receive upgrades and downgrades is not consistent.upgrades and downgrades is not consistent.

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Why Index Gaps Get FilledWhy Index Gaps Get FilledWhen an index gaps higher, there will be many sectors When an index gaps higher, there will be many sectors and stocks that move higher with the gap, but there will and stocks that move higher with the gap, but there will also be sectors and stocks that are down on the day also be sectors and stocks that are down on the day (vice versa for gaps lower).(vice versa for gaps lower).The initial pullback, combined with the already negative The initial pullback, combined with the already negative pressure on some sectors, causes the index to fill its gap pressure on some sectors, causes the index to fill its gap (vice versa for gaps lower).(vice versa for gaps lower).Many larger funds won’t commit until a gap is filled. Many larger funds won’t commit until a gap is filled. This lack of commitment often causes the markets to This lack of commitment often causes the markets to drift to their gaps at some point during the day.drift to their gaps at some point during the day.They like to “get the charts cleaned up” before They like to “get the charts cleaned up” before committing more money to the current market.committing more money to the current market.

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Live Gap Example

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When Gaps Don’t FillWhen Gaps Don’t Fill

There will be times when the gap doesn’t fill.There will be times when the gap doesn’t fill.This is called a “pro gap” and is designed to keep This is called a “pro gap” and is designed to keep ordinary investors out of the move, as it happens ordinary investors out of the move, as it happens overnight when they are sleeping.overnight when they are sleeping.When it doesn’t fill, write down the open gap price.When it doesn’t fill, write down the open gap price.The markets will usually take out that gap within the The markets will usually take out that gap within the next 5 to 10 trading days.next 5 to 10 trading days.Think of it as a “black hole” that will attract prices until Think of it as a “black hole” that will attract prices until that gap is filled.that gap is filled.Useful for setting up swing and intraday targets.Useful for setting up swing and intraday targets.

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Gap Play MethodologyGap Play Methodology

Watch preWatch pre--market volume in key stocks to get market volume in key stocks to get an idea of the “power behind the move.”an idea of the “power behind the move.”KLAC, MXIM, NVLS, AMAT, and other active KLAC, MXIM, NVLS, AMAT, and other active stocks. (I watch all the SSFs.) Less than 30,000 stocks. (I watch all the SSFs.) Less than 30,000 shares each, gap has a 90% chance of fillingshares each, gap has a 90% chance of fillingIf these stocks are trading over 80,000 shares If these stocks are trading over 80,000 shares prepre--market, the chances of the gap filling that market, the chances of the gap filling that day fall to 30% (Use as a breakaway gap signal.)day fall to 30% (Use as a breakaway gap signal.)PASS:PASS: When 95% of sectors moving with gap!When 95% of sectors moving with gap!

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Watch sector list at the open. On a gap down, if every Watch sector list at the open. On a gap down, if every sector is red, you want to wait until at least 5 are green sector is red, you want to wait until at least 5 are green to show that there is some buying interest before to show that there is some buying interest before adding a full position.adding a full position.On a gap up, if everything is green, wait until at least 5 On a gap up, if everything is green, wait until at least 5 sectors are red before adding a full position.sectors are red before adding a full position.Gap down and more than 5 sectors green, and the Gap down and more than 5 sectors green, and the volume pre market is light, take full position right away. volume pre market is light, take full position right away. Gap up and more than 5 sectors are red, and the Gap up and more than 5 sectors are red, and the volume pre market is light, take full position right away.volume pre market is light, take full position right away.

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Trading methodology is critical: Ten traders will Trading methodology is critical: Ten traders will play the gap, and 7 will lose money.play the gap, and 7 will lose money.Risk Reward Ratio: 1 ½ to 1.Risk Reward Ratio: 1 ½ to 1.Gap up 30 YM points, then stop is 45 points Gap up 30 YM points, then stop is 45 points from entry (not from previous close).from entry (not from previous close).Don’t trail stops.Don’t trail stops.Not all gaps fill on the same day, but 85% do.Not all gaps fill on the same day, but 85% do.Treat this position like a kid you are sending off Treat this position like a kid you are sending off to college: Set the parameters and leave it alone.to college: Set the parameters and leave it alone.

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VIIVII--2: Bunny Trail Plays (Or “How to 2: Bunny Trail Plays (Or “How to Use Exponential Moving Averages to Use Exponential Moving Averages to Stay on the Path of Least Resistance”)Stay on the Path of Least Resistance”)

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The finely tuned art of technical analysis involves a The finely tuned art of technical analysis involves a process similar to a jury weighing the presented process similar to a jury weighing the presented evidence during a trial and then deciding upon an evidence during a trial and then deciding upon an outcome.outcome. By the same token, my final trading decisions By the same token, my final trading decisions must be backed by evidence, not by emotion.must be backed by evidence, not by emotion. The The stronger the evidence, the greater the likelihood that a stronger the evidence, the greater the likelihood that a specific price action may occur.specific price action may occur. By contrast, the By contrast, the stronger the emotion, the stronger the likelihood that a stronger the emotion, the stronger the likelihood that a trader is about to imprint the dead high or the dead low trader is about to imprint the dead high or the dead low of the day. Based on this, I use a series of moving of the day. Based on this, I use a series of moving averages to make sure I’m on the right side of the averages to make sure I’m on the right side of the trend. I always start my day looking at the “bigger trend. I always start my day looking at the “bigger picture” and then drilling down to the 5 minute charts.picture” and then drilling down to the 5 minute charts.

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8 Period Exponential Moving Average (EMA) and 21 EMA on Daily Chart

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8 Period Exponential Moving Average (EMA) and 21 EMA on 60 Minute Chart

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Before the trading day starts, I always like to glance at Before the trading day starts, I always like to glance at the larger time frames first. The key to consistent the larger time frames first. The key to consistent profits is to trade on the path of least resistance. The profits is to trade on the path of least resistance. The path of least resistance starts from the larger time path of least resistance starts from the larger time frames and moves down through the ranks to the frames and moves down through the ranks to the smallest time frames. Think of the weekly chart as a smallest time frames. Think of the weekly chart as a thousand pound weight on your chest. Then think of thousand pound weight on your chest. Then think of the 5the 5--minute chart as a 2minute chart as a 2--pound weight on your chest. pound weight on your chest. Which is going to create more pressure on your body? Which is going to create more pressure on your body? It is ridiculous to try to move the twoIt is ridiculous to try to move the two--pound dumbbell pound dumbbell without taking into account the larger 1,000without taking into account the larger 1,000-- pound pound weight bearing down on top of it.weight bearing down on top of it.Moving averages measure simple supply and demandMoving averages measure simple supply and demand

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But how can this information be used, heading into the But how can this information be used, heading into the trading day? If we had demand (upward crossovers) trading day? If we had demand (upward crossovers) across the board, I would focus more on long setups across the board, I would focus more on long setups off the 5off the 5--minute chart, passing on most of the short minute chart, passing on most of the short setups. However, when the daily is pointing one way, setups. However, when the daily is pointing one way, and the 60 is pointing in the opposite direction, I will and the 60 is pointing in the opposite direction, I will focus on both the long and short setups. With the daily focus on both the long and short setups. With the daily charts down in our examples, and the 60 minute charts charts down in our examples, and the 60 minute charts turning higher, I know to play both sides of the market. turning higher, I know to play both sides of the market. I also have a heads up that the shorter term pressure I also have a heads up that the shorter term pressure has turned higher and I will be looking for potential has turned higher and I will be looking for potential moves through resistance. On a day like this, I would moves through resistance. On a day like this, I would take both long and short setups off the 5take both long and short setups off the 5--minute chart. minute chart.

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While moving averages keep a person on the right side of the While moving averages keep a person on the right side of the trend, they are lagging indicators. This means that if you trend, they are lagging indicators. This means that if you onlyonlyfollow moving averages, you will be getting in late and exiting follow moving averages, you will be getting in late and exiting late.late.On days where the markets are moving in a wide range, you can On days where the markets are moving in a wide range, you can follow just the moving average crossovers and make great trades.follow just the moving average crossovers and make great trades.On an upward cross, I will go long on the YM, and use a 50 On an upward cross, I will go long on the YM, and use a 50 point stop. I stay in the trade until the MA’s cross back down point stop. I stay in the trade until the MA’s cross back down again. again. I’ve actually never been stopped out. The MAs will cross back I’ve actually never been stopped out. The MAs will cross back down well above the 50 point stop is hit on a 5 minute chart.down well above the 50 point stop is hit on a 5 minute chart.Once my exit signal is hit, I get out of my position then reversOnce my exit signal is hit, I get out of my position then reverse.e.By cutting out the noise, turning off the TV and focusing on theBy cutting out the noise, turning off the TV and focusing on thecurrent supply and demand situation, the trader will be on the current supply and demand situation, the trader will be on the path of least resistance for the great majority of the time. path of least resistance for the great majority of the time.

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Wednesday, March 10: On strongly trending days, the EMAs will Wednesday, March 10: On strongly trending days, the EMAs will keep you in the market for the entire move (8, 21 & 50):keep you in the market for the entire move (8, 21 & 50):

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The Key to Moving Averages is to use them in The Key to Moving Averages is to use them in conjunction with other tools. conjunction with other tools. By understanding the nature of moving By understanding the nature of moving averages, that they keep you on the right side of averages, that they keep you on the right side of the trend, you can use other indicators to help the trend, you can use other indicators to help you anticipate market reversals before they you anticipate market reversals before they occur.occur.This way the moving averages become This way the moving averages become “confirmations” after you are already in the “confirmations” after you are already in the trade.trade.Moving averages will play a role in most of the Moving averages will play a role in most of the remaining setups we will study.remaining setups we will study.

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8 Period EMA21 Period EMA

Using EMAs with Fibonacci Levels

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Using EMAs with PivotsUsing EMAs with PivotsPivot & Bunny TrailPivot & Bunny TrailFriday, 2/13/2004Friday, 2/13/2004

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Using EMAs to gauge the strength of Using EMAs to gauge the strength of the trend in the current marketthe trend in the current market

MAs Trending MarketMAs Trending Market

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Using EMAs with TrendlinesUsing EMAs with Trendlines

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To catch bigger moves in the market, I like to To catch bigger moves in the market, I like to use a combination of the following:use a combination of the following:

Daily & 60 Minute ChartDaily & 60 Minute Chart8 and 21 Period Exponential Moving Averages8 and 21 Period Exponential Moving AveragesFibonacci Levels measuring swings highs/lowsFibonacci Levels measuring swings highs/lows7 Period RSI (Relative Strength Index)7 Period RSI (Relative Strength Index)

What I’m looking for are major turning points in What I’m looking for are major turning points in the markets. These usually take weeks or even the markets. These usually take weeks or even months to unfold, but once they do, they result months to unfold, but once they do, they result in very powerful moves.in very powerful moves.

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The first thing I noticed is that by the end of The first thing I noticed is that by the end of February prices had advanced on to higher February prices had advanced on to higher highs, but the 7 period RSI was making lower highs, but the 7 period RSI was making lower lows. This sets up a bearish divergence. This by lows. This sets up a bearish divergence. This by itself is not an entry signal, but it is a heads up.itself is not an entry signal, but it is a heads up.The next thing I’m looking for is the 8 and 21 The next thing I’m looking for is the 8 and 21 period moving average to cross and confirm a period moving average to cross and confirm a rollover.rollover.They do this nearly 5 weeks later on March 8. I They do this nearly 5 weeks later on March 8. I go short the next day at 10525.go short the next day at 10525.For a stop I use the highest prices of the past 3 For a stop I use the highest prices of the past 3 days, which is near 10640.days, which is near 10640.

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For targets, I will be watching how the markets For targets, I will be watching how the markets act at the key 38.2% and 50.0% retracement act at the key 38.2% and 50.0% retracement levels on the daily chart.levels on the daily chart.Then I will “drill down” to the 60 minute chart Then I will “drill down” to the 60 minute chart to look for bullish RSI divergences as a sign that to look for bullish RSI divergences as a sign that it is time to exit the play.it is time to exit the play.

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On the 60 Minute chart, the move to the 38.2% On the 60 Minute chart, the move to the 38.2% level doesn’t generate any bullish RSI level doesn’t generate any bullish RSI Divergences.Divergences.At the 50.0% level, the chart is showing very At the 50.0% level, the chart is showing very clear bullish divergences. This tells me that the clear bullish divergences. This tells me that the 50.0% level is going to hold and I exit my 50.0% level is going to hold and I exit my position near 10155, for a total of 370 points on position near 10155, for a total of 370 points on the trade, or $1850 per contract.the trade, or $1850 per contract.The key with Moving Averages is to use them in The key with Moving Averages is to use them in conjunction with other tools.conjunction with other tools.

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Bunny Trail Trade RecapBunny Trail Trade Recap

Visual reminder to go with the flowVisual reminder to go with the flowSnapshot of current supply and demandSnapshot of current supply and demandKeeps a trader from fighting the trendKeeps a trader from fighting the trendKeeps a trader on the path of least resistance Keeps a trader on the path of least resistance Gets rid of emotions and biasGets rid of emotions and biasPrevents a trader from catching a falling knife or Prevents a trader from catching a falling knife or holding back a freight trainholding back a freight trainUse with other indicators for maximum impactUse with other indicators for maximum impact

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VIIVII--3: Pivot Plays3: Pivot Plays

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The good news about this strategy is that the The good news about this strategy is that the trades are clearly setup before the day begins. trades are clearly setup before the day begins. The majority of the time is spent waiting for a The majority of the time is spent waiting for a particular price level to be reached in order to particular price level to be reached in order to initiate a trade. It is very useful if your weakness initiate a trade. It is very useful if your weakness as a trader is making “impulsive trades.” as a trader is making “impulsive trades.” The key is to get all of the details right. Which The key is to get all of the details right. Which formulas to use to calculate the pivots? Which formulas to use to calculate the pivots? Which time frames? How to enter and exit and trade? time frames? How to enter and exit and trade? Where to place stops? What to do before an Where to place stops? What to do before an economic report? When to use the Daily economic report? When to use the Daily Midpoints and when to avoid them? We will Midpoints and when to avoid them? We will cover that here.cover that here.

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First off, let’s talk about the pivots: how they are First off, let’s talk about the pivots: how they are created and how I use them. There is no big mystery or created and how I use them. There is no big mystery or secret to the pivots. They are readily available and have secret to the pivots. They are readily available and have been around for a long time. These are support and been around for a long time. These are support and resistance levels calculated by floor traders using a resistance levels calculated by floor traders using a simple mathematical formula. These levels became simple mathematical formula. These levels became widely known and have moved off floor. Today many widely known and have moved off floor. Today many traders are aware of them and try to use them, but in traders are aware of them and try to use them, but in my experience they are using them incorrectly. To add my experience they are using them incorrectly. To add to the confusion, there are different formula versions to the confusion, there are different formula versions and different time frames that are used when calculating and different time frames that are used when calculating pivots. So, to get started, let’s look at what I use:pivots. So, to get started, let’s look at what I use:

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Formula I Use to Calculate Pivots

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We’ll go through and make some calculations We’ll go through and make some calculations shortly so the formula makes sense. Once you shortly so the formula makes sense. Once you have the formula, then the key data that you have the formula, then the key data that you need is the high, low and close of the previous need is the high, low and close of the previous session. With this information you will generate session. With this information you will generate 7 important levels for the next trading day: a 7 important levels for the next trading day: a central pivot, then 3 levels above (R1, R2, and central pivot, then 3 levels above (R1, R2, and R3) and 3 levels below (S1, S2 and S3). The R3) and 3 levels below (S1, S2 and S3). The central pivot has the most weight of the 7 levels.central pivot has the most weight of the 7 levels.The process is repeated for weekly and monthly The process is repeated for weekly and monthly pivots.pivots.

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Where many people get this wrong is they use the Where many people get this wrong is they use the incorrect set of numbers for the high, low and close. incorrect set of numbers for the high, low and close. There is the cash session from 9:30 a.m. to 4:00 p.m. There is the cash session from 9:30 a.m. to 4:00 p.m. ET that will create one set of numbers. Then there is ET that will create one set of numbers. Then there is the regular session on the minithe regular session on the mini--sized Dow from 8:20 sized Dow from 8:20 a.m to 4:15 p.m ET that will create another set of a.m to 4:15 p.m ET that will create another set of numbers. And then of course there is the nearly 24 numbers. And then of course there is the nearly 24 hour electronic session. I use a combination of the hour electronic session. I use a combination of the both the regular and electronic sessions to get my high, both the regular and electronic sessions to get my high, low, close numbers. Specifically, I look at the following low, close numbers. Specifically, I look at the following time frames based on the exchange trading times for time frames based on the exchange trading times for the electronic and regular sessions:the electronic and regular sessions:

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To calculate the daily pivot numbers for Friday, I will To calculate the daily pivot numbers for Friday, I will use the following data to generate my high, low and use the following data to generate my high, low and close numbers:close numbers:YM: Start Wednesday at 8:15 p.m. ET, end 5:00 PM on YM: Start Wednesday at 8:15 p.m. ET, end 5:00 PM on ThursdayThursdayES: Start Wednesday at 4:30 p.m. ET, end 4:15 p.m on ES: Start Wednesday at 4:30 p.m. ET, end 4:15 p.m on ThursdayThursdayNQ: Start Wednesday at 4:30 p.m. ET, end 4:15 p.m on NQ: Start Wednesday at 4:30 p.m. ET, end 4:15 p.m on ThursdayThursdayThis gives me nearly 24 hours of price data, and allows This gives me nearly 24 hours of price data, and allows for both pre and post market price action to be for both pre and post market price action to be factored into the next trading day’s numbers. The factored into the next trading day’s numbers. The times are slightly different on the above contracts due times are slightly different on the above contracts due to the times they are traded on the exchange. to the times they are traded on the exchange.

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The easiest way to do this on Tradestation is to The easiest way to do this on Tradestation is to use the continuous symbol on a daily chart. For use the continuous symbol on a daily chart. For the Minithe Mini--Sized Dow, I have a daily chart with Sized Dow, I have a daily chart with the @YM symbol. The daily bars are then the @YM symbol. The daily bars are then created with the settings I described. Then, after created with the settings I described. Then, after 5:00 PM, I take the high/low/close of that day’s 5:00 PM, I take the high/low/close of that day’s bar.bar.Once I have the high/low/close, I apply the Once I have the high/low/close, I apply the pivot formulas and I get my levels for the next pivot formulas and I get my levels for the next trading day.trading day.

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High: 10578Low: 10458Close: 10552

R3: 10720.67R2: 10649.33R1: 10600.67Pivot: 10529.33S1: 10480.67S2: 10409.33S3: 10360.67

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Pivots play a role in a strongly trending market: Pivots play a role in a strongly trending market: they mark points of consolidation. The markets they mark points of consolidation. The markets will rally or fall to a pivot level, consolidate, then will rally or fall to a pivot level, consolidate, then continue moving in the direction of the trend.continue moving in the direction of the trend.Pivots also play a BIG ROLE in sideways Pivots also play a BIG ROLE in sideways markets, as floor traders gun for these levels. markets, as floor traders gun for these levels. On choppy days, you fade the pivots, and on On choppy days, you fade the pivots, and on trend days, the pivots act more as targets in trend days, the pivots act more as targets in which to scale out of a position.which to scale out of a position.Also use pivots in conjunction with any gap Also use pivots in conjunction with any gap plays that might be happening that day (i.e., did plays that might be happening that day (i.e., did we gap down into a pivot level?)we gap down into a pivot level?)

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It is rare when a market hits its daily R3 or S3 levels, as It is rare when a market hits its daily R3 or S3 levels, as that is the extreme of the range. This is important to that is the extreme of the range. This is important to know because if you get a rally to R2 or a sell off to S2, know because if you get a rally to R2 or a sell off to S2, that usually ends up being the dead high or the dead that usually ends up being the dead high or the dead low of the day. This knowledge will help temper a low of the day. This knowledge will help temper a trader’s emotions. When a market is going up, it is easy trader’s emotions. When a market is going up, it is easy to think that it will go up forever. On this same note, to think that it will go up forever. On this same note, when the market is heading down quickly, it is easy to when the market is heading down quickly, it is easy to assume it’s the end of the world. These emotions of assume it’s the end of the world. These emotions of greed are a disaster to your trading, causing you to pile greed are a disaster to your trading, causing you to pile up a bigger position and disregard stops all because of a up a bigger position and disregard stops all because of a surge of adrenaline running through your body. surge of adrenaline running through your body.

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The pivots help to keep a trader grounded. The pivots help to keep a trader grounded. Instead of getting overInstead of getting over--excited and hoping for a excited and hoping for a market crash, the pivot trader knows there is a market crash, the pivot trader knows there is a 90% chance that the markets will not close 90% chance that the markets will not close above R2 or below S2 on any given day. A above R2 or below S2 on any given day. A move to that level signals a time for the trader to move to that level signals a time for the trader to take profits instead of pyramiding into a bigger take profits instead of pyramiding into a bigger position that will lead to disaster.position that will lead to disaster.Even on days of extreme volatility, the daily S3 Even on days of extreme volatility, the daily S3 and daily R3 levels will stop a move.and daily R3 levels will stop a move.

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The Central Daily Pivot is important for The Central Daily Pivot is important for determining my bias on the day. determining my bias on the day. If we open above this level, I will be looking for If we open above this level, I will be looking for prices to head down and test the daily pivot. prices to head down and test the daily pivot. Thus if we open above this level, I’m generally Thus if we open above this level, I’m generally looking for short setups back to this level.looking for short setups back to this level.If we open below this level, I will be looking for If we open below this level, I will be looking for prices to head higher and test the daily pivot. prices to head higher and test the daily pivot. Thus is we open below this level, I’m generally Thus is we open below this level, I’m generally looking for long setups back to this level.looking for long setups back to this level.

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Weekly and Monthly Pivots are calculated in the exact Weekly and Monthly Pivots are calculated in the exact same fashion as the daily pivots, but they only change same fashion as the daily pivots, but they only change every week (for the weekly pivots) or every month (for every week (for the weekly pivots) or every month (for the monthly pivots). the monthly pivots). I take the previous week’s high, low and close, and use I take the previous week’s high, low and close, and use it for the current week. I also take the previous it for the current week. I also take the previous month’s high, low and close, and use those levels all month’s high, low and close, and use those levels all through the next month. These levels do not come through the next month. These levels do not come into play as often, as they are more widely spaced. into play as often, as they are more widely spaced. However, they are just as important as the daily pivots.However, they are just as important as the daily pivots.Many traders do not watch these levels. When they Many traders do not watch these levels. When they

don’t they wonder why the market suddenly stops and don’t they wonder why the market suddenly stops and reverses at some “invisible” support or resistance level reverses at some “invisible” support or resistance level in the markets. in the markets. When that occurs, it is usually because the markets have When that occurs, it is usually because the markets have reached one of their weekly or monthly pivot levels. reached one of their weekly or monthly pivot levels.

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In addition, sometimes the weekly or monthly In addition, sometimes the weekly or monthly levels overlay some of the daily levels. When levels overlay some of the daily levels. When this occurs, these levels become that much this occurs, these levels become that much stronger. stronger. Finally, for days on which the daily pivot levels Finally, for days on which the daily pivot levels are spaced widely apart (this happens when the are spaced widely apart (this happens when the markets traded the previous day in a wide markets traded the previous day in a wide range), I will also incorporate the “midpoints” range), I will also incorporate the “midpoints” between the daily pivot levels. between the daily pivot levels. The midpoints provide areas to enter trades and The midpoints provide areas to enter trades and also scale out of positions.also scale out of positions.

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The important thing to know about midpoints is you The important thing to know about midpoints is you don’t need to use them all of the time. I use them on don’t need to use them all of the time. I use them on days when the distance between two YM daily pivot days when the distance between two YM daily pivot levels is greater than 40 points (or ES greater than 4 levels is greater than 40 points (or ES greater than 4 points). This is a general rule, and it is ok to use them points). This is a general rule, and it is ok to use them if it is only 30 points. If the pivots are closer together if it is only 30 points. If the pivots are closer together than 30 points, the midpoints don’t play as much of a than 30 points, the midpoints don’t play as much of a role as the markets will move straight to the next pivot role as the markets will move straight to the next pivot as they are so close together.as they are so close together.When placing them on the chart, I use different colors When placing them on the chart, I use different colors and styles so I know at a glance what the lines and styles so I know at a glance what the lines represent. I use a thicker, solid line for the pivots, and represent. I use a thicker, solid line for the pivots, and then dashed lines for the R1then dashed lines for the R1--R3 and S1R3 and S1--S3 levels. I use S3 levels. I use a dotted line for the daily midpoints. I use different a dotted line for the daily midpoints. I use different colors for each to distinguish them from each other. colors for each to distinguish them from each other.

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To calculate the pivots, just plug the formulas To calculate the pivots, just plug the formulas into an Excel spreadsheet. (If you want to use into an Excel spreadsheet. (If you want to use mine, you can email me and I will send it to mine, you can email me and I will send it to you).you).For an example of this, see slides 87 and 88 on For an example of this, see slides 87 and 88 on this presentation. I have screen shot here of this presentation. I have screen shot here of what my Excel spreadsheet looks like.what my Excel spreadsheet looks like.All I do is enter in the high/low/close and All I do is enter in the high/low/close and everything else is calculated automatically.everything else is calculated automatically.

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The next painful process is placing the pivots on The next painful process is placing the pivots on your chart each day. It can take a while to do your chart each day. It can take a while to do this on all of the different charts.this on all of the different charts.There are autoThere are auto--pivot programs, but I don’t trust pivot programs, but I don’t trust the data as on some days it will take bad ticks the data as on some days it will take bad ticks into account.into account.I recently had a programmer set up a pivot I recently had a programmer set up a pivot program for me that would do it automatically, program for me that would do it automatically, but would also give me the option of changing but would also give me the option of changing the high/low/close manually.the high/low/close manually.

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This is the basic chart setup I use to trade pivots (more information on next slide)

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I like to use a 233 Tick Chart for Pivots. Each I like to use a 233 Tick Chart for Pivots. Each bar represents 233 Trades.bar represents 233 Trades.Not a particular reason except that I like how Not a particular reason except that I like how the charts setup and how the indicators I use on the charts setup and how the indicators I use on them work.them work.On the YM, its similar to watching a 3 or 5 On the YM, its similar to watching a 3 or 5 minute chart.minute chart.On the ES, its similar to watching a 1 minute On the ES, its similar to watching a 1 minute chart (more trades than on the YM).chart (more trades than on the YM).It is fine to use a 1, 3, or 5 minute chart instead.It is fine to use a 1, 3, or 5 minute chart instead.

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I personally like to use a black background.I personally like to use a black background.My daily pivots are yellow, with the central pivot My daily pivots are yellow, with the central pivot as a thicker, solid line. The S3 through R3 levels as a thicker, solid line. The S3 through R3 levels are a “dashed” line.are a “dashed” line.The midpoints between the daily levels are a The midpoints between the daily levels are a white “dotted” line.white “dotted” line.The weekly pivots are just like the daily pivots, The weekly pivots are just like the daily pivots, except the color I use is light blue.except the color I use is light blue.The monthly pivots are just like the daily pivots, The monthly pivots are just like the daily pivots, except the color I use is purple.except the color I use is purple.This way I know what level is in play at a glance.This way I know what level is in play at a glance.

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For indicators, I watch a 7 period RSI. I’m For indicators, I watch a 7 period RSI. I’m looking for bullish and bearish divergences.looking for bullish and bearish divergences.I will also watch an 8/21 EMA, usually on I will also watch an 8/21 EMA, usually on another chart, such as a 1 or 5 minute. You can another chart, such as a 1 or 5 minute. You can also place it on this chart.also place it on this chart.There are a few other indicators I use in There are a few other indicators I use in Tradestation that I will go over a little later. Tradestation that I will go over a little later. I’m also taking into account any open gaps that I’m also taking into account any open gaps that are on the chart from the morning’s open. are on the chart from the morning’s open. Initially I want to play any pivots in accordance Initially I want to play any pivots in accordance with the gap play we discussed earlier. with the gap play we discussed earlier.

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Why Do Pivots Work?Why Do Pivots Work?The first reason, and most obvious, is that a lot The first reason, and most obvious, is that a lot of traders watch these daily levels, so there is a of traders watch these daily levels, so there is a selfself--fulfilling prophecy involved. The same fulfilling prophecy involved. The same can be said for Fibonacci Levels, but they do can be said for Fibonacci Levels, but they do not hold nearly as well as the pivots. Why? I not hold nearly as well as the pivots. Why? I elaborate on this in the next two points. elaborate on this in the next two points.

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On the floor, it is a trader’s goal to grab two points in the S&On the floor, it is a trader’s goal to grab two points in the S&P 500 and get P 500 and get out, or 20 points in the Dow and get out. The floor traders allout, or 20 points in the Dow and get out. The floor traders all operate in a operate in a big circle, with the longer term players in the center of the cibig circle, with the longer term players in the center of the circle, and the rcle, and the newer players on the outskirts. In its purest form, the tradersnewer players on the outskirts. In its purest form, the traders in the center in the center will get in on a trade, let’s say it’s a long, and then sell thewill get in on a trade, let’s say it’s a long, and then sell their position to the ir position to the guys on the outside of the circle. What happens is that the traguys on the outside of the circle. What happens is that the traders on the ders on the outside, by the time they see the market moving, are the last onoutside, by the time they see the market moving, are the last ones in the pit es in the pit to get in on the move. If they are lucky, they will then be ablto get in on the move. If they are lucky, they will then be able to turn e to turn around and sell it to the public, as the public is typically lataround and sell it to the public, as the public is typically late in “jumping on e in “jumping on a move.” a move.” As the guys on the outside are selling to the public and closingAs the guys on the outside are selling to the public and closing positions, positions, the guys in the center are selling to the public and opening newthe guys in the center are selling to the public and opening new short short positions. And the cycle renews itself like this throughout thepositions. And the cycle renews itself like this throughout the day. This day. This causes a specific dynamic in the markets, generating specific cycauses a specific dynamic in the markets, generating specific cycles of cles of speed and rest on an intraday basis. They focus on the pivot lespeed and rest on an intraday basis. They focus on the pivot levels to base vels to base their entries and to also gauge market action. The pivots play their entries and to also gauge market action. The pivots play on this in on this in that they are spaced out to catch these “patches of momentum.” that they are spaced out to catch these “patches of momentum.” A Dow A Dow Pivot is usually 30Pivot is usually 30--50 points apart, and this is the type of movement that 50 points apart, and this is the type of movement that perpetuates the cycle I just described. perpetuates the cycle I just described. Like a hawk, the floor traders in the center of the circle are cLike a hawk, the floor traders in the center of the circle are catching half atching half this move, dumping it, and waiting for the next level to be hit.this move, dumping it, and waiting for the next level to be hit.

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One of the main reasons these pivots work has to do with the vasOne of the main reasons these pivots work has to do with the vast majority of t majority of inexperienced traders out there. The floor traders start a tradinexperienced traders out there. The floor traders start a trade, and the e, and the inexperience of most traders causes the momentum that finishes ainexperience of most traders causes the momentum that finishes a trade. How? trade. How? Because the average trader relies on a lot of different “indicatBecause the average trader relies on a lot of different “indicators” they are getting in ors” they are getting in and out of their positions way too late, which causes losing traand out of their positions way too late, which causes losing trades and a specific des and a specific cycle of market movement as their stop placement slowly and steacycle of market movement as their stop placement slowly and steadily increases the dily increases the velocity of market movement in the direction of their stops. velocity of market movement in the direction of their stops. Indicators are just that, an “indication.” This is like your giIndicators are just that, an “indication.” This is like your girlfriend slapping you rlfriend slapping you across the face, and you taking it as an “indication” that she macross the face, and you taking it as an “indication” that she might be angry with ight be angry with you! If it takes a slap across the face to realize this, then yyou! If it takes a slap across the face to realize this, then you are following the ou are following the wrong indicators. By the way, all market indicators are the wrowrong indicators. By the way, all market indicators are the wrong indicators, as ng indicators, as they are all lagging. Price action is pure. This over reliancethey are all lagging. Price action is pure. This over reliance on indicators by the on indicators by the majority of traders is what helps this system to work. majority of traders is what helps this system to work. By the time the average trader gets a buy signal, the pivot playBy the time the average trader gets a buy signal, the pivot play is almost over and is almost over and users of this system will be selling their position to the indicusers of this system will be selling their position to the indicatorator--based trader. Then based trader. Then the subsequent reversal that takes place is because of all the sthe subsequent reversal that takes place is because of all the stop losses sitting out top losses sitting out there, like trout sunning themselves on top of a lake . . . easythere, like trout sunning themselves on top of a lake . . . easy targets for the hawks targets for the hawks who come swooping down from overhead. The market pauses, driftswho come swooping down from overhead. The market pauses, drifts down, and down, and picks up steam and rips through all of the stop losses, pausing picks up steam and rips through all of the stop losses, pausing when the run is over. when the run is over. This “pause” generally happens at a pivot level. It’s where theThis “pause” generally happens at a pivot level. It’s where the floor traders are floor traders are beginning to accumulate their next position for the next cycle obeginning to accumulate their next position for the next cycle of play.f play.4 points on the S&Ps and 40 points on the Dow is usually the “ma4 points on the S&Ps and 40 points on the Dow is usually the “maximum pain ximum pain threshold” for day traders. When they can’t take the pain of lothreshold” for day traders. When they can’t take the pain of losing any longer, only sing any longer, only then do they close their position. This also falls in line withthen do they close their position. This also falls in line with the average distance the average distance between the pivots. between the pivots.

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To sum it up, the pivot levels work mainly because of To sum it up, the pivot levels work mainly because of the psychology pain/pleasure cycle that perpetuates the the psychology pain/pleasure cycle that perpetuates the markets each day. Traders who follow indicators will markets each day. Traders who follow indicators will buy a position when it is halfway to threebuy a position when it is halfway to three--quarters the quarters the way off its pivot, and it is these traders who provide the way off its pivot, and it is these traders who provide the stop losses to perpetuate the next cycle of market stop losses to perpetuate the next cycle of market movement. If you rely on indicators for your entries, movement. If you rely on indicators for your entries, instead of using the price action of the pivots, you will instead of using the price action of the pivots, you will get in and out of these cycles too late, and you won’t get in and out of these cycles too late, and you won’t make any money trading.make any money trading.That said, let’s take a look at my rules for trading the That said, let’s take a look at my rules for trading the pivots. In general, I am looking to fade moves against pivots. In general, I am looking to fade moves against these levels, BUT NOT ALWAYS! This is where these levels, BUT NOT ALWAYS! This is where watching the intraday indicators we discussed earlier watching the intraday indicators we discussed earlier come into play.come into play.

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In discussing these rules, I am going to use the In discussing these rules, I am going to use the MiniMini--Sized Dow futures for consistency Sized Dow futures for consistency purposes. You can also use these with the purposes. You can also use these with the Emini S&Ps and the Emini Nasdaq.Emini S&Ps and the Emini Nasdaq.Remember, a move of 10 points in the YM is Remember, a move of 10 points in the YM is like 1 point in the ES, or 2 points in the NQ. like 1 point in the ES, or 2 points in the NQ. You can convert targets and stops accordingly.You can convert targets and stops accordingly.

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I’m usually looking for “fades” against the pivots, but I’m usually looking for “fades” against the pivots, but this depends on what the internals are doing. When this depends on what the internals are doing. When the $TRIN is trending higher, for example, this the $TRIN is trending higher, for example, this means an increase in selling pressure. On these days I means an increase in selling pressure. On these days I will fade rallies to pivots, but I will not fade declines will fade rallies to pivots, but I will not fade declines to pivots. Instead, I will short breaks of pivots.to pivots. Instead, I will short breaks of pivots.If we are rallying up to a pivot level, then I am either If we are rallying up to a pivot level, then I am either already long and am looking for an exit, or I’m flat already long and am looking for an exit, or I’m flat and I’m looking to initiate a new position. This new and I’m looking to initiate a new position. This new position will be guided by the internals we discussed position will be guided by the internals we discussed earlier.earlier.In a choppy market, these internal readings are less In a choppy market, these internal readings are less important, and you can generally fade rallies and fade important, and you can generally fade rallies and fade declines to pivot levels. When there are TRENDS in declines to pivot levels. When there are TRENDS in the TRIN, you trade in the direction of that trend. the TRIN, you trade in the direction of that trend.

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1. As the markets rally to the midpoint near 10565, I set up a short, with my target being the daily pivot that is sitting below at 10529, “plus 3 points” – something I will talk about in my next trading rule.

2. On a move to the pivot, I close out my short, and end up going long, with my target being the midpoint.

3. After hitting the midpoint, I close out my long, and reverse and go short, with my target being the daily pivot once again.

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I get in and out of trades by placing limit orders or I get in and out of trades by placing limit orders or buy stops/sell stops + or buy stops/sell stops + or –– 3 points from the multi 3 points from the multi pivot levels. (For ES use 0.25 and for NQ 0.50).pivot levels. (For ES use 0.25 and for NQ 0.50).I will use limit orders when buying a decline or I will use limit orders when buying a decline or shorting a rally, and I will use limit orders to exit a shorting a rally, and I will use limit orders to exit a position. I will use buy stops to buy a rally through a position. I will use buy stops to buy a rally through a pivot, and a sell stop to short a break through a pivot. pivot, and a sell stop to short a break through a pivot. For the daily midpoint levels, I do not add + or For the daily midpoint levels, I do not add + or –– 3 3 points and use the level as it stands. points and use the level as it stands. I never use market orders with one exception:I never use market orders with one exception: to to exit plays I am still in at 4:10 p.m. ET that have not exit plays I am still in at 4:10 p.m. ET that have not hit my stop or my target. hit my stop or my target.

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1. At point #1, the markets fall to one of the weekly levels, but don’t quite touch it. I get into the market long because my limit buy order is the weekly level +3 points. The weekly level is 10532, so my limit order is place at 10535.

2. At point #2 we come up and ease just through the daily midpoint. I am out of my long on a limit order to this level. I try to reverse and short, but the market moves too quickly and I miss the short.

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3. For point #3 I am bidding long for a decline back at the weekly level +3 points. The weekly level is 10532, so my bid is that plus 3 points, which is 10535. When two levels like this are close together (at least by 10 points --in this case a weekly level and the daily pivot) I will place my bid with the level closest to the price action. I am filled on my long. The market eases through and trades around this level for half an hour. My stop is not hit (that is the next topic of discussion). We rally and it is not until over 3 hours later than my target is hit at the midpoint. This is an important note: Some of these trades will last a few hours in duration, while others can last 10 minutes. The key is to just wait for the levels to be reached and not trying to hurry things along or get out because you are getting anxious or bored.Although human emotions are a good idea in building relationships with other people, in trading, ignore them!

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4. I am out of the long over 3 hours later, at a daily midpoint level. I reverse and go short. Since we have already rallied to this level, I use a sell stop to get back in. My target is the next level below + 3 points. (For midpoints, you use the exact price, for all others you use the price + or – 3 points, in front of the level).

5. We come down to the level but don’t touch it. I’m filled because I’m “in front” by 3 points. I try to go long, but miss.

6. This is a good example of what to do into the close. I hold onto the position until 4:10 p.m.

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My initial stop is always 20 points, never less My initial stop is always 20 points, never less than that (2 points for the ES, 4 points for the than that (2 points for the ES, 4 points for the NQ). Sometimes I will make it a little larger if NQ). Sometimes I will make it a little larger if it is near the overnight lows or another key it is near the overnight lows or another key level.level.The stop is based on the entry level, not the The stop is based on the entry level, not the pivot level.pivot level.In trading multiple contracts, I am looking to In trading multiple contracts, I am looking to sell half at the midpoint level, then sell the rest sell half at the midpoint level, then sell the rest at the next pivot level. Once I sell half, I move at the next pivot level. Once I sell half, I move my stop up to the next pivot level, + or my stop up to the next pivot level, + or –– 3 3 points “on the far side of the pivot.” points “on the far side of the pivot.”

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In this trade, I enterAt point 1 and placeA 20 point stop.When we get to theMidpoint at point 2,I exit half, and trailmy stop up to the“Pivot -3 points” which is 6 points beneath my entry.

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On days where the pivots are greater than 40 points On days where the pivots are greater than 40 points apart, I treat the midpoint as an equal weighted level apart, I treat the midpoint as an equal weighted level to the pivots and set up plays against it. When the to the pivots and set up plays against it. When the markets are less than 40 points apart, I use the markets are less than 40 points apart, I use the midpoint more as a frame of reference. (4 points for midpoint more as a frame of reference. (4 points for ES, 8 points for NQ).ES, 8 points for NQ).On days where we have, for example, a TRIN that is On days where we have, for example, a TRIN that is trending lower (buying pressure) and the markets are trending lower (buying pressure) and the markets are trading in between two levels, and I am flat, I will trading in between two levels, and I am flat, I will place place two orderstwo orders. Since this would be a long, I will . Since this would be a long, I will place a BUY LIMIT on a decline to the next level place a BUY LIMIT on a decline to the next level below (+3 points), and a BUY STOP at the next level below (+3 points), and a BUY STOP at the next level above (+3 points). This way I just let the market take above (+3 points). This way I just let the market take me back into the action of the day.me back into the action of the day.

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After 2 losers in a row I quit using this strategy After 2 losers in a row I quit using this strategy for the day. for the day. With this system, I trade 1 contract for each With this system, I trade 1 contract for each $12,500 in my account. You can increase or $12,500 in my account. You can increase or decrease the volatility in your account by decrease the volatility in your account by adjusting this number. (1 per $5,000 will give adjusting this number. (1 per $5,000 will give you more volatility, 1 per $25,000 will give you you more volatility, 1 per $25,000 will give you less volatility).less volatility).Take advantage of the opening gaps to peel off Take advantage of the opening gaps to peel off contracts. Pivots and Gaps work very well contracts. Pivots and Gaps work very well together. Buy the gap down, then scale out as together. Buy the gap down, then scale out as pivot levels are hit on the way up.pivot levels are hit on the way up.

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Ignore new trade setups between 12:00 Noon Ignore new trade setups between 12:00 Noon ET and 2:00 p.m. ET. It is ok to manage ET and 2:00 p.m. ET. It is ok to manage existing positions through this period, but in existing positions through this period, but in general this is a slow and choppy time to be general this is a slow and choppy time to be trading.trading.In sum, this is a great set up to play if you In sum, this is a great set up to play if you don’t like staring at computer monitors all day, don’t like staring at computer monitors all day, or if you have a problem with “impulsive or if you have a problem with “impulsive trading.” trading.” This setup forces the market to come to you, This setup forces the market to come to you, instead of forcing you to jump into the market.instead of forcing you to jump into the market.

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VIIVII--4: Scalper Buys and Scalper Sells4: Scalper Buys and Scalper Sells

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I use the “scalper buys” and “scalper sells” in I use the “scalper buys” and “scalper sells” in the trading room chart I post during the day.the trading room chart I post during the day.This is a visual way to use tradestation to help This is a visual way to use tradestation to help determine whether to buy or sell against a determine whether to buy or sell against a pivot level.pivot level.White Paint bar marks a “pivot high” or “pivot White Paint bar marks a “pivot high” or “pivot low.” This is done after 3 higher highs or 3 low.” This is done after 3 higher highs or 3 lower lows.lower lows.Red dot above the bar marks a continuing Red dot above the bar marks a continuing downtrend confirmation. Blue dot below the downtrend confirmation. Blue dot below the bar markets a continuing uptrend bar markets a continuing uptrend confirmation.confirmation.

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Useful when the markets move into a pivot Useful when the markets move into a pivot level. Can use the signal to enter and exit the level. Can use the signal to enter and exit the trade.trade.It measures the price action of the market.It measures the price action of the market.I program alerts for the white bars. This way I program alerts for the white bars. This way if I am doing something else I can “hear” that if I am doing something else I can “hear” that a pivot point has been produced.a pivot point has been produced.Ignore signals that are not against a pivot level.Ignore signals that are not against a pivot level.Great signal for picking market turnsGreat signal for picking market turnsUndergoing continued tweaking and Undergoing continued tweaking and refinementrefinement

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VIIVII--5: Tick Plays5: Tick Plays

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This is a very easy play and will only take a few This is a very easy play and will only take a few slides.slides.As we discussed in the intraday indicators As we discussed in the intraday indicators section, there are times when the TICKS reach section, there are times when the TICKS reach extreme levels of over 1000. When this extreme levels of over 1000. When this happens, the market is expending all of its happens, the market is expending all of its energy and is running out of gas.energy and is running out of gas.When I see a +1000 or When I see a +1000 or --1000 TICK reading, I 1000 TICK reading, I fade the market.fade the market.For example, with +1000 I am shorting, and For example, with +1000 I am shorting, and with with --1000, I am going long.1000, I am going long.

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For TICK plays, here are the parameters:For TICK plays, here are the parameters:YM: 30 point target/45 point stop/30 minute YM: 30 point target/45 point stop/30 minute time limittime limitES: 3 point target/4.50 point stop/30 minute ES: 3 point target/4.50 point stop/30 minute time limittime limitNQ: 6 point target/9 point stop/30 minute time NQ: 6 point target/9 point stop/30 minute time limitlimitIf my stop or target is not hit after 30 minutes, I If my stop or target is not hit after 30 minutes, I exit the trade at the market.exit the trade at the market.TIME LIMIT IS IMPORTANT!TIME LIMIT IS IMPORTANT!

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VIIVII--6: Squeeze Plays6: Squeeze Plays

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Squeeze Plays are ways to measure the strength Squeeze Plays are ways to measure the strength and direction of the next market move.and direction of the next market move.Markets spend the day contracting and Markets spend the day contracting and expanding in terms of volatility.expanding in terms of volatility.Squeeze lets you know when the contraction is Squeeze lets you know when the contraction is ending, when the expansion is about to begin, ending, when the expansion is about to begin, and in general which direction that expansion and in general which direction that expansion will take place.will take place.When I get a Squeeze Play, I will generally stay When I get a Squeeze Play, I will generally stay in the play until the Squeeze is over in the play until the Squeeze is over –– meaning I meaning I will ignore the pivots for exit levels until the will ignore the pivots for exit levels until the squeeze STARTS TO RUN OUT OF GAS.squeeze STARTS TO RUN OUT OF GAS.

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The Squeeze is a measurement of the The Squeeze is a measurement of the relationship between the Bollinger Bands and relationship between the Bollinger Bands and the Keltner Channels with their standard the Keltner Channels with their standard settings.settings.It looks for the times when the Keltner It looks for the times when the Keltner Channels trade in between the Bollinger Bands.Channels trade in between the Bollinger Bands.They work on all time frames. I like the Two They work on all time frames. I like the Two Minute and Five Minute time frames the best.Minute and Five Minute time frames the best.Five minute signals are more powerful than two Five minute signals are more powerful than two minute signals, but happen less often.minute signals, but happen less often.

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On these charts, the black dots are the “heads On these charts, the black dots are the “heads up” that the Keltner Channels are now trading up” that the Keltner Channels are now trading inside the Bollinger Bands.inside the Bollinger Bands.The next “blue dot” is the signal that the The next “blue dot” is the signal that the Keltner Channels are now back outside the Keltner Channels are now back outside the Bollinger Bands.Bollinger Bands.This is the entry signal.This is the entry signal.Go short if the Histogram is negative, go long if Go short if the Histogram is negative, go long if it is positive.it is positive.Stay in the trade as long as the histograms keep Stay in the trade as long as the histograms keep making lower lows or higher highs.making lower lows or higher highs.

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When a squeeze play hits, I will disregard the When a squeeze play hits, I will disregard the pivots for targets as the market is setting up for pivots for targets as the market is setting up for a potentially bigger move.a potentially bigger move.When the signal starts to run out of gas When the signal starts to run out of gas (histogram isn’t expanding or even starts to (histogram isn’t expanding or even starts to contract) I will then exit the position.contract) I will then exit the position.Most of the time there isn’t a squeeze play on, Most of the time there isn’t a squeeze play on, so in these cases I just use the pivots “as so in these cases I just use the pivots “as normal.”normal.”When there is a squeeze play on, I will stay in When there is a squeeze play on, I will stay in the trade as long as the play is valid.the trade as long as the play is valid.

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VIIVII--7: Doldrums Bond Plays7: Doldrums Bond Plays

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This is similar to the TICK play in that it is very This is similar to the TICK play in that it is very simple and easy to use.simple and easy to use.Bonds trade in movements of 1/32. 1/32 is Bonds trade in movements of 1/32. 1/32 is called a “tick.” 1/32 = $31.25 per contractcalled a “tick.” 1/32 = $31.25 per contract32/32 = 1 full point.32/32 = 1 full point.If bonds are at 117 31/32, then the next uptick If bonds are at 117 31/32, then the next uptick would take it to a price of 118. would take it to a price of 118. 1 point = $1,000 per contract1 point = $1,000 per contractDon’t trade the “minis” as there is little volume.Don’t trade the “minis” as there is little volume.Bonds trade methodically during a specific Bonds trade methodically during a specific period of each day.period of each day.

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I trade the bonds between 12:00 Noon Eastern I trade the bonds between 12:00 Noon Eastern and 2:00 PM Eastern.and 2:00 PM Eastern.For this time zone to be valid, they need to have For this time zone to be valid, they need to have traded within a range of ½ a point (16/32) over traded within a range of ½ a point (16/32) over the previous half hour (from 11:30 to 12:00).the previous half hour (from 11:30 to 12:00).If the range is wider than that, I don’t play the If the range is wider than that, I don’t play the bonds that day.bonds that day.I am looking to use the quarter point levels in I am looking to use the quarter point levels in much the same way as I use the pivots.much the same way as I use the pivots.

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Quarter point levels in bonds are as follows:Quarter point levels in bonds are as follows:8/32, 16/32, 24/32 and “zero.”8/32, 16/32, 24/32 and “zero.”Example: 117 8/32, 117 16/32, 117 24/32, 118Example: 117 8/32, 117 16/32, 117 24/32, 118I fade sell offs to a quarter point level by using I fade sell offs to a quarter point level by using “quarter point + 1 tick” as my entry.“quarter point + 1 tick” as my entry.I fade rallies to a quarter point level by using I fade rallies to a quarter point level by using “quarter point “quarter point --1 tick” as my entry.1 tick” as my entry.Stop is 7 ticks, target is 4 ticks.Stop is 7 ticks, target is 4 ticks.4 ticks = 25 YM points ($125 per contract)4 ticks = 25 YM points ($125 per contract)If my first trade is a loser, I’m done with bondsIf my first trade is a loser, I’m done with bonds

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VIIVII--8: Box Plays on the Euro8: Box Plays on the Euro

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I trade the Euro Currency on the CME. You I trade the Euro Currency on the CME. You can also use this with Forex, but frankly most can also use this with Forex, but frankly most people will only get hurt trading that kind of people will only get hurt trading that kind of leverage.leverage.There is plenty of leverage on the CME There is plenty of leverage on the CME contract, and it trades with a tighter spread.contract, and it trades with a tighter spread.Forex is “commission free” but you are paying Forex is “commission free” but you are paying for it by paying wider spreads.for it by paying wider spreads.This is a great contract to trade when the stock This is a great contract to trade when the stock indexes are quiet.indexes are quiet.

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The Euro moves in increments of 1/100 of a The Euro moves in increments of 1/100 of a cent.cent.There are 100 “ticks” or “pips” in a 1 cent There are 100 “ticks” or “pips” in a 1 cent move.move.1 tick = $12.50 per contract1 tick = $12.50 per contract1 full cent (100 ticks) = $1250.00 per contract1 full cent (100 ticks) = $1250.00 per contractGreat market for playing breakouts and Great market for playing breakouts and breakdowns.breakdowns.The Euro is doing the exact opposite of the The Euro is doing the exact opposite of the dollar. If the dollar is rallying, the Euro is dollar. If the dollar is rallying, the Euro is falling, etc.falling, etc.

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For the Euro, I look for “box plays.”For the Euro, I look for “box plays.”A box play occurs when a market has been A box play occurs when a market has been trading in a horizontal channel, and has at least 3 trading in a horizontal channel, and has at least 3 tests of the highs and lows of this channel.tests of the highs and lows of this channel.When this happens, the market is building up When this happens, the market is building up energy for its next move.energy for its next move.If there is economic data coming out, I wait If there is economic data coming out, I wait until the reaction is done before entering a box until the reaction is done before entering a box play.play.The target is the “width of the box.”The target is the “width of the box.”

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If there is no economic data, I take the initial If there is no economic data, I take the initial breakdown or breakout of the box.breakdown or breakout of the box.Target is the width of the box.Target is the width of the box.Stop is a move back below the box.Stop is a move back below the box.Can be used on any time frame.Can be used on any time frame.One minute boxes are more narrow and are One minute boxes are more narrow and are better for beginning trades because the stops are better for beginning trades because the stops are not as wide.not as wide.

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VIIVII--9: Herding the Cattle: Swing Plays 9: Herding the Cattle: Swing Plays Using Single Stock FuturesUsing Single Stock Futures

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Mechanics: How SSFs WorkMechanics: How SSFs WorkTraded on Two Exchanges: Traded on Two Exchanges: Use One ChicagoUse One ChicagoOne Chicago backed by CME, CBOT & CBOEOne Chicago backed by CME, CBOT & CBOEOne Chicago is where the volume isOne Chicago is where the volume isMonthly Contracts: F, G, H, J, K, M, N, Q, U, Monthly Contracts: F, G, H, J, K, M, N, Q, U, V, X, Z (January through December)V, X, Z (January through December)February EBAY Futures: EBAYFebruary EBAY Futures: EBAY1C1CGG0404No “$25,000 Minimum” for Day Trading Rules No “$25,000 Minimum” for Day Trading Rules No Margin InterestNo Margin InterestNo uptick rule for short sellingNo uptick rule for short selling

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Mechanics: How They WorkMechanics: How They Work

1 SSF contract = 100 shares of stock1 SSF contract = 100 shares of stock1 point move = $100 per contract1 point move = $100 per contract5:1 Leverage (20%) 5:1 Leverage (20%) ---- Buy 100 shares of IBM at Buy 100 shares of IBM at $100 ($10,000) for $2000 per contract$100 ($10,000) for $2000 per contractBuy 10 contracts IBM1C at $95 ($95,000 worth Buy 10 contracts IBM1C at $95 ($95,000 worth of IBM) for $19,000of IBM) for $19,000Sell at $100 = 5 points on 10 contracts, or 5 Sell at $100 = 5 points on 10 contracts, or 5 points x $100 x 10 contracts = $5,000 gainpoints x $100 x 10 contracts = $5,000 gain$5,000 gain on $19,500 = +25.7% $5,000 gain on $19,500 = +25.7%

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Mechanics: How They WorkMechanics: How They WorkVolume Volume –– in some contracts it’s heavy (Dow in some contracts it’s heavy (Dow Diamonds, MXIM1C, QCOM1C) and other contracts Diamonds, MXIM1C, QCOM1C) and other contracts it’s light.it’s light.Fills have nothing to do with contract volume!Fills have nothing to do with contract volume!“Real Volume” is based on underlying stock“Real Volume” is based on underlying stockIf you are trading 1 contract or 1000, you will get filledIf you are trading 1 contract or 1000, you will get filledSpread widens when no orders are presentSpread widens when no orders are presentThis is a “deliverable” futures contract. If you don’t This is a “deliverable” futures contract. If you don’t sell it by expiration you will get shares of stock.sell it by expiration you will get shares of stock.

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General Trading Tips for SSFsGeneral Trading Tips for SSFsUse Limit Orders OnlyUse Limit Orders OnlySplit the difference between the bid/askSplit the difference between the bid/ask$70.10 x $70.14 use $70.12$70.10 x $70.14 use $70.12Use the underlying cash security to chartUse the underlying cash security to chartCash charts are going to be much cleaner and Cash charts are going to be much cleaner and give more accurate signalsgive more accurate signalsTo chart EBAY1C, just chart the cash stock of To chart EBAY1C, just chart the cash stock of EBAY, then have a bid/ask of EBAY1CEBAY, then have a bid/ask of EBAY1CThe closer you are to expiration, the closer the The closer you are to expiration, the closer the futures price reflects the cash pricefutures price reflects the cash price

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CASHSSF

BID ASK

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Herding the CattleHerding the Cattle

Using the 13, 20, 50, 100 and 200 Day Using the 13, 20, 50, 100 and 200 Day Exponential Moving Averages to find plays in Exponential Moving Averages to find plays in SSFs that last a few days to a few weeks.SSFs that last a few days to a few weeks.Start off with the main indexes: Dow, S&P 500, Start off with the main indexes: Dow, S&P 500, and Nasdaq, then drill down to the individual and Nasdaq, then drill down to the individual stocks.stocks.Takes about 20 to 30 minutes a night to Takes about 20 to 30 minutes a night to manually scan through the chartsmanually scan through the charts

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Herding the Cattle Trading RulesHerding the Cattle Trading Rules

Key Moving Averages act as a “fence”Key Moving Averages act as a “fence”Stock prices bounce along a fence during an Stock prices bounce along a fence during an uptrend or downtrenduptrend or downtrendStock prices back and forth between their Stock prices back and forth between their fences, testing their strengthfences, testing their strengthOnce it breaks a fence, it will come back and Once it breaks a fence, it will come back and “kiss it goodbye” before moving on“kiss it goodbye” before moving onGoal is to “fade” a move to a fenceGoal is to “fade” a move to a fence

228Goldman Sachs (GS) Weekly Chart

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Live Trading ExampleLive Trading Example

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First Play: (Hold time is 4 weeks)First Play: (Hold time is 4 weeks)Entry $74.70, exit $89.64 for +14.94 points, or +$1,494 Entry $74.70, exit $89.64 for +14.94 points, or +$1,494 per contract. per contract. Margin $1,495 per contract (20% of $7470)= 100% Margin $1,495 per contract (20% of $7470)= 100% gain. gain. Second Play: (Hold time is 5 months)Second Play: (Hold time is 5 months)Entry is $83.00, exit $99.60 for +16.60 points, or Entry is $83.00, exit $99.60 for +16.60 points, or +$1,660 per contract.+$1,660 per contract.Margin is $1,660 per contract (20% of $8300) = 100% Margin is $1,660 per contract (20% of $8300) = 100% gain.gain.Can Buy SSF a few months out or roll the contractCan Buy SSF a few months out or roll the contract

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Herding the CattleHerding the CattleStochastic: Ignore overbought in an uptrending market, Stochastic: Ignore overbought in an uptrending market, and oversold in a downtrending marketand oversold in a downtrending marketWhen 13 EMA crosses below 20 EMA on weekly When 13 EMA crosses below 20 EMA on weekly chart, focus on short side: otherwise it’s a futile effortchart, focus on short side: otherwise it’s a futile effortWith over 100 SSFs to choose from there is always With over 100 SSFs to choose from there is always something setting upsomething setting upBest scan with weekly buys is to search for low Best scan with weekly buys is to search for low Stochastic readings (below 35) readings on daily charts, Stochastic readings (below 35) readings on daily charts, then use closest EMA below current price as an entrythen use closest EMA below current price as an entryFor shorter term plays, exit when stochastic goes For shorter term plays, exit when stochastic goes overbought and flips back over into a selloverbought and flips back over into a sell

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Positions plays that last a few weeks to a few Positions plays that last a few weeks to a few monthsmonthsTrade in direction of trend on weekly charts in Trade in direction of trend on weekly charts in terms of the 13 & 20 EMA crossoverterms of the 13 & 20 EMA crossoverOn daily chart view Slow Stochastic 14, 3, 3On daily chart view Slow Stochastic 14, 3, 3And EMAs: 13, 20, 50And EMAs: 13, 20, 50Goal is 20% gain in stock price, starting with an Goal is 20% gain in stock price, starting with an 8% stop8% stopAt +10% move stop to breakevenAt +10% move stop to breakeven

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Part VIII: Business Plan for TradersPart VIII: Business Plan for Traders

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2004 Business Plan2004 Business Plan

1.1. Why am I trading again in 2004?Why am I trading again in 2004?

Financial RewardsFinancial RewardsFreedom to work from anywhereFreedom to work from anywhereFreedom to choose who I want to work withFreedom to choose who I want to work withFreedom to dictate my own scheduleFreedom to dictate my own scheduleContinuing mental growth and new challengesContinuing mental growth and new challengesWould miss it if I stoppedWould miss it if I stopped

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2004 Business Plan2004 Business Plan

2.2. Markets to TradeMarkets to Trade

MiniMini--Sized DowSized DowEmini S&PEmini S&PEmini NasdaqEmini NasdaqEmini Russell 2000Emini Russell 2000Bonds (30 Year)Bonds (30 Year)Euro Currency (CME)Euro Currency (CME)GrainsGrainsSingle Stock FuturesSingle Stock Futures

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Why These Markets?Why These Markets?

MiniMini--Sized Dow (YM): First choice for intraday Sized Dow (YM): First choice for intraday trading. Setups to use are Pivots, Gaps, and trading. Setups to use are Pivots, Gaps, and Squeezes. This contract offers a better spread Squeezes. This contract offers a better spread than the other mini contracts, and it is very easy than the other mini contracts, and it is very easy to get a handle on the Dow by watching the 30 to get a handle on the Dow by watching the 30 stocks on an auto sorting list. stocks on an auto sorting list.

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Emini S&Ps (ES): Intraday plays use Tick Fade and Emini S&Ps (ES): Intraday plays use Tick Fade and Moving Average Crossovers. Also use for swing plays.Moving Average Crossovers. Also use for swing plays.Emini Nasdaq (NQ): When this index is the strongest Emini Nasdaq (NQ): When this index is the strongest or weakest on the day, use pivot setups.or weakest on the day, use pivot setups.Emini Russell 2000 (ER): When this index is the Emini Russell 2000 (ER): When this index is the strongest or weakest on the day, use pivot setups. Also strongest or weakest on the day, use pivot setups. Also use for swing plays.use for swing plays.

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Bonds: 30 Year (US): Intraday trades, Doldrums Bonds: 30 Year (US): Intraday trades, Doldrums PlayPlayEuro Currency: CME (EC): Intraday trades, Box Euro Currency: CME (EC): Intraday trades, Box PlayPlayGrains: Corn (C) , Soybeans (S), Wheat (W): Grains: Corn (C) , Soybeans (S), Wheat (W): Swing PlaysSwing PlaysSingle Stock Futures (QCOM1C, etc): Swing Single Stock Futures (QCOM1C, etc): Swing PlaysPlays

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Notes on Markets to TradeNotes on Markets to Trade

Parameters are never to be changed once a trade Parameters are never to be changed once a trade is entered. An intraday trade does not turn into is entered. An intraday trade does not turn into a swing play. Parameters are determined before a swing play. Parameters are determined before a trade is entered.a trade is entered.For intraday trading, do not use all 4 stock For intraday trading, do not use all 4 stock indexes at once. If the Nasdaq is the strongest indexes at once. If the Nasdaq is the strongest market of the day, focus longs in that market. If market of the day, focus longs in that market. If the S&P is the weakest, focus shorts in that the S&P is the weakest, focus shorts in that market.market.

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3. 3. Account Size: Based on multiples of $100,000Account Size: Based on multiples of $100,000

Withdrawal 50% of profits at the end of each quarter.Withdrawal 50% of profits at the end of each quarter.Why? This is the best way to protect profits.Why? This is the best way to protect profits.This is also a reminder that the numbers on the screen This is also a reminder that the numbers on the screen are real and represent real cash.are real and represent real cash.Never add money to your account or meet margin calls. Never add money to your account or meet margin calls. “Feeding the Beast.”“Feeding the Beast.”OK to add money to a positive % account.OK to add money to a positive % account.

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4.4. Number of Contracts to Trade (per $100,000)Number of Contracts to Trade (per $100,000)

MiniMini--Sized Dow: 6Sized Dow: 6Emini S&P: 6Emini S&P: 6Emini Nasdaq: 6Emini Nasdaq: 6Emini Russell 2000: 3Emini Russell 2000: 3Bonds (30 Year): 3Bonds (30 Year): 3Euro Currency (CME): 3Euro Currency (CME): 3Grains: 3Grains: 3Single Stock Futures: $10 Single Stock Futures: $10 -- $30 = 7, $30 = 7, $40 $40 -- $60 = 5, $70 $60 = 5, $70 -- $100 = 3$100 = 3

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Allocations for $15,000 account would be 1, for Allocations for $15,000 account would be 1, for a $1,000,0000 account would be 60, etc.a $1,000,0000 account would be 60, etc.Contracts specified are full positionsContracts specified are full positionsMaximum total contracts for indexes, currencies Maximum total contracts for indexes, currencies and bonds: Intraday: 12 Overnight: 6and bonds: Intraday: 12 Overnight: 6Maximum total contracts for grains: Overnight: Maximum total contracts for grains: Overnight: 66Maximum total contracts for SSFs: Overnight: Maximum total contracts for SSFs: Overnight: 20% Margin or $20,000. $100 Stock = 10, $50 20% Margin or $20,000. $100 Stock = 10, $50 stock = 20, etc.stock = 20, etc.

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5.5. Execution MethodsExecution Methods

Gap Plays, scale in 2, 2, 2 and exit all at once at the Gap Plays, scale in 2, 2, 2 and exit all at once at the gap.gap.Pivot Plays, in all at once, scale out 2, 2, 2 on range Pivot Plays, in all at once, scale out 2, 2, 2 on range day greater than 100 YM points, 3, 3 on range day day greater than 100 YM points, 3, 3 on range day between 50 to 100 points and 6 (all out) on range between 50 to 100 points and 6 (all out) on range days below 50 points.days below 50 points.Squeeze, all in, all out on signalsSqueeze, all in, all out on signalsTick Fade, scale in 2, 2, 2 and exit all at once.Tick Fade, scale in 2, 2, 2 and exit all at once.

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6. 6. Drawdowns: Rules & RegulationsDrawdowns: Rules & Regulations

If you are down 12% for the month, cut If you are down 12% for the month, cut position size in half for the rest of the month.position size in half for the rest of the month.If you are down 16% for the month, stop If you are down 16% for the month, stop trading for the rest of the month.trading for the rest of the month.If you hit a 30% total drawdown, it is time to If you hit a 30% total drawdown, it is time to take a 4 week break from trading.take a 4 week break from trading.Maximum overnight exposure is 1/3 lot size.Maximum overnight exposure is 1/3 lot size.

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For overnights and swing trades, hard stop is = For overnights and swing trades, hard stop is = to 2% loss in equity.to 2% loss in equity.Daily drawdown max is 2% or $2,000 per Daily drawdown max is 2% or $2,000 per $100,000. If at the end of the day you exceed $100,000. If at the end of the day you exceed this level beyond slippage (down $2100, then this level beyond slippage (down $2100, then you take another trade and lose), you don’t trade you take another trade and lose), you don’t trade the next day. If you exceed this level again that the next day. If you exceed this level again that week, you are done trading the rest of the week. week, you are done trading the rest of the week. This is punishment for not following your This is punishment for not following your trading rules.trading rules.

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7.7. Profits: Rules & Regulations (per 100K)Profits: Rules & Regulations (per 100K)

After winning days and losing days, focus on making After winning days and losing days, focus on making an average of $500 per day. $500 per day = $120,000 an average of $500 per day. $500 per day = $120,000 per year, or +120%. Slow and steady wins the race.per year, or +120%. Slow and steady wins the race.T, W, TH are your best trading days, focus on making T, W, TH are your best trading days, focus on making $1,000 on these days.$1,000 on these days.If you are up over $2500 before 12 noon, stop trading If you are up over $2500 before 12 noon, stop trading for the day.for the day.If you made over 10% for the week, take Monday off.If you made over 10% for the week, take Monday off.If you are up 20% for the month, take the rest of the If you are up 20% for the month, take the rest of the month off.month off.Track daily profit & loss on a spreadsheetTrack daily profit & loss on a spreadsheet

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8.8. Rating Your PerformanceRating Your Performance

Write down the trades in a journal as you take them. Write down the trades in a journal as you take them. Track results of each trade.Track results of each trade.Note if you followed the parameters or changed them Note if you followed the parameters or changed them while you were in the play. If so, why?while you were in the play. If so, why?The results of each trade will add up to the total P&L The results of each trade will add up to the total P&L for the day.for the day.Any trade you take that is not listed label as an Any trade you take that is not listed label as an “impulse play” which is your weakness. Track its “impulse play” which is your weakness. Track its performance.performance.

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9. 9. Tracking Your Daily Ups & DownsTracking Your Daily Ups & Downs

Goal is consistent profits and smaller Goal is consistent profits and smaller drawdowns.drawdowns.How many days did you start off losing and How many days did you start off losing and end up in the plus side?end up in the plus side?How many days did you start off strong only How many days did you start off strong only to give it all back?to give it all back?What was going on today in terms of What was going on today in terms of interruptions, phone calls, family stuff?interruptions, phone calls, family stuff?

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9. 9. Tracking Your Daily Ups & DownsTracking Your Daily Ups & Downs

You get in trouble when you are doing well, You get in trouble when you are doing well, then you go for that “bigger plate at the then you go for that “bigger plate at the buffet.”buffet.”Keep track of the days were you let greed get Keep track of the days were you let greed get the best of you, then word on reducing the the best of you, then word on reducing the amount of those days.amount of those days.

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10. 10. Office SetupOffice Setup

1 Computer for Tradestation1 Computer for Tradestation1 Computer for Esignal1 Computer for Esignal1 Computer for Execution1 Computer for Execution1 Computer for Email, Internet, Instant 1 Computer for Email, Internet, Instant MessagingMessagingBroadband access with phone line backupBroadband access with phone line backupLand Lines and Cell for telephoneLand Lines and Cell for telephone

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10. 10. Office SetupOffice Setup

Battery BackupBattery BackupComfortable ChairComfortable ChairVirus protection softwareVirus protection softwareSpyware protection softwareSpyware protection softwareCommercial Free musicCommercial Free musicNo phone calls till after 11:00 AM Eastern.No phone calls till after 11:00 AM Eastern.

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11. 11. Rewards for PerformanceRewards for Performance

When you hit 60% for the year, take the next 4 When you hit 60% for the year, take the next 4 weeks off.weeks off.Take 2 weeks in Europe, 1 week in Bahamas Take 2 weeks in Europe, 1 week in Bahamas Upgrade home theatre systemUpgrade home theatre systemBuy more landBuy more land

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12. 12. Peak PerformancePeak Performance

When you have a 10% week, go do something When you have a 10% week, go do something to tame your Euphoria by taking Monday off to tame your Euphoria by taking Monday off and doing something that humbles you such as and doing something that humbles you such as golf, flying a plane, working out with black golf, flying a plane, working out with black belts in Tai Kwon Do, etc.belts in Tai Kwon Do, etc.Leave the markets between 12 PM and 2 PM Leave the markets between 12 PM and 2 PM Eastern and take a mental break.Eastern and take a mental break.

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Quit trading after 12 Noon on Fridays.Quit trading after 12 Noon on Fridays.Trade lighter during the last 3 days of options Trade lighter during the last 3 days of options expiration. Consider not trading at all during this expiration. Consider not trading at all during this time.time.Focus heavily on the first two trading weeks of the Focus heavily on the first two trading weeks of the month. Then take a 3 day weekend to get away and month. Then take a 3 day weekend to get away and recharge.recharge.If you reach $2500 per 100K by 12 Noon, continue If you reach $2500 per 100K by 12 Noon, continue to trade until you have a losing trade.to trade until you have a losing trade.

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Don’t answer the phone, Instant Messages, Don’t answer the phone, Instant Messages, Emails, etc., between 9:00 AM and 11:00 AM. Emails, etc., between 9:00 AM and 11:00 AM. Stay focused on the markets.Stay focused on the markets.Do not initiate trades during the overnight Do not initiate trades during the overnight sessions. Better yet, don’t watch the action sessions. Better yet, don’t watch the action either.either.If you are taking a day off as a reward day, If you are taking a day off as a reward day, physically get away so you can’t trade or watch physically get away so you can’t trade or watch the markets.the markets.

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Take off the entire week of Thanksgiving.Take off the entire week of Thanksgiving.Take off the last two weeks of the year.Take off the last two weeks of the year.Do something physical at least 4 times a week and 6 Do something physical at least 4 times a week and 6 is better. Taiis better. Tai--Kwon Do, Cardio, Weights, Core Kwon Do, Cardio, Weights, Core Strength Training, Waterskiing, Jogging, etc. The Strength Training, Waterskiing, Jogging, etc. The more the better.more the better.Traders and Vices don’t do well together: Watch Traders and Vices don’t do well together: Watch intakes of caffeine, alcohol, etc.intakes of caffeine, alcohol, etc.Stay healthy with good eating habits and vitaminsStay healthy with good eating habits and vitamins

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Part IX: ConclusionPart IX: Conclusion

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ConclusionConclusion

Trading the markets is the greatest job in the world. There areTrading the markets is the greatest job in the world. There areno bosses offering contradictory instructions and, even better, no bosses offering contradictory instructions and, even better, no employees to baby sit. Each year thousands of people flock no employees to baby sit. Each year thousands of people flock to the markets like lemmings to the sea. Yet, many fewer than to the markets like lemmings to the sea. Yet, many fewer than that manage to avoid flinging themselves over the proverbial that manage to avoid flinging themselves over the proverbial cliff. How does a trader break away from the herd and ease intocliff. How does a trader break away from the herd and ease intoa consistently profitable trading routine?a consistently profitable trading routine? The key to staying The key to staying profitable consists of sticking to the following concepts: profitable consists of sticking to the following concepts:

Staying in the right frame of mindStaying in the right frame of mindFinding the best market to tradeFinding the best market to tradeKeeping on the path of least resistanceKeeping on the path of least resistanceKnowing what to do when things go wrongKnowing what to do when things go wrongFocusing on a handful of setupsFocusing on a handful of setups

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ConclusionConclusionThere is a ton of information out there, and many traders get There is a ton of information out there, and many traders get easily confused on what to use and how to use it properly. By easily confused on what to use and how to use it properly. By getting in a professional state of mind and by focusing on tradigetting in a professional state of mind and by focusing on trading ng a handful of proven setups, a trader has the best of both worldsa handful of proven setups, a trader has the best of both worlds: : Simple setups to focus on in order to block out the noise, and Simple setups to focus on in order to block out the noise, and the right mindset with which to execute those trades.the right mindset with which to execute those trades.These plays and methodologies will keep the trader from second These plays and methodologies will keep the trader from second guessing his or herself, will keep a person on the path of leastguessing his or herself, will keep a person on the path of leastresistance, and will keep losses small while allowing winners a resistance, and will keep losses small while allowing winners a chance to run.chance to run.Feel free to contact me with questions: Feel free to contact me with questions: [email protected] [email protected] And that's about all the trader needs to make a living at this And that's about all the trader needs to make a living at this greatest business in the world. Good luck with your trading.greatest business in the world. Good luck with your trading.

John F Carter - How I Trade Fo

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