theotrade scottsdale live trader's retreat september 2017

THEOTRADE SCOTTSDALE LIVE TRADER’S RETREAT SEPTEMBER 2017

© Copyright 2017 TheoTrade, LLC. All Rights Reserved 1

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Copyright Disclaimer All rights reserved. This Material may not be reproduced or distributed, in whole or in part, without prior written permission of TheoTrade, LLC. Any other reproduction or distribution, in whatever form and by whatever media, is expressly prohibited without the prior written consent of TheoTrade, LLC. For further information, please contact:

TheoTrade, LLC 16427 N. Scottsdale Rd. # 410 Telephone: 1-800-256-8876 Email: [email protected]


About TheoTrade • Theotrade, LLC is a trading education firm based out of Scottsdale, AZ, specializing in education for options, futures, and stocks. TheoTrade was started by veteran professional traders who are first and foremost experienced trading educators. We are not a registered advisory service or a brokerage firm. Although TheoTrade provides the best trading education in the business, your results and ultimate responsibility are your own. Individual trading results will vary. Trading has risk. Trading involves real money. TheoTrade is here to help you mitigate the risks in the market, while learning a skill that can last you for life.


Don Kaufman §  Co-Founder TheoTrade

§  Lead Instructor at TheoTrade

§  Industry-leading options strategist

§  Derivatives Risk Manager

§  19 year trading career

§  17 years of thinkorswim® platform experience

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Jeff “Professor” Bierman

§  One of the industry's leading technical analysts with more than 24 years of experience under his belt.

§  Prior to joining TheoTrade as an Instructor, spent 8 years at TD Ameritrade serving as the company's Chief Market Technician, working along side Don Kaufman in the Trader Group.

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Doc Severson

§  Options, Technical Analysis, Fractal Energy Instructor at TheoTrade

§  21 years professional trading experience

§  Teacher and Trading Mentor 12 years

§  11 years of thinkorswim® platform

§  Author of “Hacking the Holy Grail” on Amazon

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Tony Rago

§  E-mini NASDAQ Instructor at TheoTrade

§  20+ years professional trading experience

§  Specialization in E-mini NASDAQ Futures

§  Extremely active in the TheoChat room, providing actionable ideas for futures…both long and short.

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Table of Contents – Day 1 Introductions/About/Logistics (with Jeff Roth) Volatility Trading at Extremes (with Don Kaufman) Building a Better Market Bias (with Jeff Bierman) Fractal Analysis Intensive (with Doc Severson) IntraDay Trading the E-mini NASDAQ Futures (with Tony Rago) Unscripted and Unleashed Q&A (with Don Kaufman)


Table of Contents – Day 2 Quants and Charts (with Don Kaufman and Jeff Bierman) Constructing Your Unique Trading Plan (with Doc Severson) Perfecting Your E-mini NASDAQ Intraday Trading Style (Tony Rago) A Technical Analysis State of the Markets (with Jeff Bierman) Get Your Hedge On: Risk Management 501 (with Don Kaufman) That’s a Wrap! Closing and Thank You’s (with Jeff Roth)


VOLATILITY TRADING AT THE EXTREMES With Don Kaufman


Are you willing to put forth the effort? The following course material can be demanding to learn. If you really want to learn this business you need to be willing to put forth some effort… this is not instant coffee or instant tea, this is a skill set based on statistical data. The good news is that it IS indeed a skill set that can last you for life. I’ll make you a deal. I’ll do my part and bring you the educational piece of the puzzle and you do your part by keeping an open mind, asking questions, and not beat yourself up if it doesn’t click instantly. Who knows, you might even have a little bit of fun in the process! What we are about to discuss involves trade logic, strategy, and probabilities in trading. Let’s get started…


Into the Extreme… •  Yes we are starting the live class off with the most intense topic ever!

•  Allow me to kick off this live session with a discussion involving the most extreme trading vehicle ever devised.

•  Volatility products!

•  The VXX, UVXY, Volatility Futures Contracts, the VIX…you know them, you love them, now learn how to harness the power of the extreme!


Why so Extreme? • Why are volatility products considered so extreme?

• Well it’s a bit of a brain twister but here goes…

•  The volatility of the volatility products is generally speaking INSANELY HIGH.

• Here is a crash course refresh in in volatility!


Trading Volatility Products •  Trading volatility products seems straightforward enough however, have you viewed

the VXX or UVXY over the past 5 years?

•  Buying any volatility product outright is a recipe for disaster.

• Most volatility related products have lost over 99% of their respective values in the last 5 years!


Understanding Volatility Products • We need to understand the nature of volatility in order to create viable trades

within these products.

• Given 1 year what can the markets do?

• Given 1 month what can the markets do?

• Markets can MOVE more given a longer period of time. Why? Well there is a higher probability of turbulent markets given a longer period of time.


Time Impacts Volatility Products • Before we ever pull a quote on the screen it is imperative to understand a volatility

product is in fact effected by time.

•  Even shares of ETF products based on some volatility concept will be effected by time.

• Most traders call the time component of volatility contracts or volatility ETF’s “DRAG” however, drag is most closely associated with the idea of how options decay.


All Factors Equal Volatility Decays •  A way to envision this concept: if the market volatility stays constant for a 1 year

period of time the contract will diminish as the chance of wild or outlandish market moves decrease.

•  All other factor being held equal; less time equates to less volatility.


Volatility Drops •  In the aforementioned slide assume the markets stay rather consistent over a

period a 1 year.

•  As time passes the volatility of the farther term options begins to drop as time passes.

•  Eventually a 365 day option will become an 30 day option, that accounts for a massive drop in volatility as time passes.


Impact of Volatility Over Time

•  This precise concept is what causes volatility products to continue to drag over any period of time.


Volatility Futures Contracts •  Volatility ETF’s or Volatility ETN’s are effectively based upon and constructed from

volatility futures contracts.

•  Therefore, the VXX, UVXY, are using the volatility futures as the backbone of the product.


Getting it DONE! •  Clearly we recognize we do not want to go out and outright BUY a volatility ETF or

we shall suffer the fate of the UVXY (recall that would be a horrible death by 1000 paper cuts).

•  VXX, UVXY, /VX futures…all have a serious DRAG coefficient.


The Big Tamale! •  The question everyone ponders…

• How can I take a Long Volatility Position however, not get crushed in the drag?

•  Let’s explore a few trade ideas and concepts LIVE!


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BUILDING A BETTER MARKET BIAS With Professor Jeff Bierman


Learning Objectives

•  Establish your trading style/strategy type •  Select your underlying product type for trading •  Identify your preferred time frame(s) •  Ascertain your chart style •  Determine technical indicator combinations for preferred time

frames whose categories include: •  Trend •  Momentum •  Volatility •  Overbought/Oversold


Trading Style Overview

•  Product Type: •  Equities •  Options •  Futures

•  Time Frame: •  Medium-Term •  Short-Term •  Intraday


Medium-Term Indicator Combinations

•  Time Frames •  Greater than or equal to 2 weeks •  Less than or equal to 2 months

•  Trend Indicators •  Linear Regression Trend Line •  Parabolic Stop & Reversal (PSAR)

•  Momentum Indicator •  Momentum SMA


Medium-Term Indicator Combinations

•  Volatility Indicators •  Linear Regression Channel 50%/100% •  Standard Deviation Channel

•  Overbought/Oversold Indicator •  RSI (Wilder Average)

•  Chart Types •  Bar •  Candlestick


Short-Term Indicator Combinations •  Time Frames

•  Greater than or equal to 1 day •  Less than or equal to 2 weeks

•  Trend Indicators •  Simple Moving Average •  Exponential Moving Average

•  Momentum Indicator •  Moving Average Convergence Divergence (MACD)


Short-Term Indicator Combinations •  Volatility Indicators

•  Bollinger Bands •  Keltner Channels

•  Overbought/Oversold Indicator •  Slow Stochastic

•  Chart Types •  Candlestick •  Heiken-Ashi


Intraday Indicator Combinations •  Time Frame

•  Less than or equal to 1 day (Time-driven) •  Less than or equal to 1 day (Price-driven only)

•  Trend Indicators •  Impulse

•  Momentum Indicators •  DMI Oscillator •  Momentum Percent Differential


Intraday Indicator Combinations •  Volatility Indicators

•  Pivot Points •  Volume Profile

•  Overbought/Oversold Indicator •  Fast Stochastic

•  Chart Types •  Range Bars •  Momentum Bars •  Renko Bars


Building a Better Market Bias Summary •  Define your trading style and time window as a primary first step •  Select a combination of indicators that is consistent with your

trading strategy and comfort zone •  Set your initial indicator settings according to your desirable/

acceptable lag, not as a function of curve-fitting •  Keep track of your trading performance on a timely basis •  Adjust your indicators settings in accordance with trading results

if deemed necessary for optimization •  Exercise discipline and patience under all market conditions •  Set realistic expectations for yourself and don’t use your

indicators to project profitability outcomes


FRACTAL ANALYSIS INTENSIVE With Doc Severson


Who Am I and Why Am I Here? •  Trading the Markets since 1996 • Dedicated myself to derivatives and TA in 2004 • Walked out of a 20-year Telecom career in 2005 •  Started mentoring options students in 2006 •  Prop Trader in Chicago 2007, Private Fund Manager 2013-2014 •  Survived and Thrived during some of the most challenging markets seen in last

100 years. •  Learned of the strong connection between Subconscious Mind and Trading,

became SME on this topic out of necessity. • Wrote “Hacking the Holy Grail” (Amazon) in 2015 to help traders understand that

the Market is not their strongest opponent.


My goal: I have 90 minutes to convince you to adopt a more fundamental, price-based approach which I believe will yield lifetime benefits regardless of your chosen style of investing. This is what I call “Fractal Analysis.”


The subject matter in today’s presentation took me about eight years to fully master. I had to figure out everything by myself, using fragments of lessons learned from mentors along the way. I’m not going to get you to the same level in 90 minutes, but I can help shortcut years off of your learning curve if you’re open-minded.

PART I: The WHAT and WHY (WIIFM)

41 © Copyright 2017 TheoTrade, LLC. All Rights Reserved

What is FRACTAL ANALYSIS? Why should you use it? Which trading methods can you use it for? What timeframes can you use it with? What are the Pros and Cons of using it?

WHAT is Fractal Analysis? •  Fractal Analysis is the application of MULTIPLE TIMEFRAMES, PRICE ACTION, and

ENERGY ANALYSIS to determine more accurate entry and exit points. •  Fractal Analysis assists the trader with understanding how to better manage a

current position and manage risk. •  Fractal Analysis allows the trader to understand how price actually moves, with

smaller timeframe moves aggregating to form larger timeframe swings. •  Fractal Analysis works off of the principle that EVERY TIMEFRAME in the Fractal

Series will show some value on the continuum between “Range Expansion” and “Range Contraction.”


WHY Should You Consider Using Fractal Analysis? • One SINGLE framework that can handle all of your trading needs. • Reading Price Action is an extraordinarily valuable skill that will never “go away”

and change with different markets. • Understanding the two states of “Expansion” and “Contraction” and how they rule

price movement in markets. • Using multiple timeframes allows you to see the “propagation” of reversals into

higher timeframes, or just pullbacks/mean reversion. •  Allows you to “see” the bigger picture of what’s going on, and watch the Herd

destroy themselves overreacting to normal movement…or you can anticipate explosive movement before they do.


WHAT Trading Strategies Can You Use It For? • DIRECTIONAL: Allows you to spot higher-probability conditions where “contraction”

should lead to “expansion.” • NON-DIRECTIONAL: Allows you to identify conditions where the chart has a higher

probability of pausing/consolidating. •  POSITION TRADES: Allows you to spot “sleepers” before they trend, or allows you

to stay in positions for longer portions of the trend because you understand the structure.

•  INTRADAY TRADES: The same principles work the same intraday as they do for longer timeframes.


WHAT are the PROS and CONS of Fractal Analysis? •  PRO: Accuracy and responsiveness. •  PRO: Adaptive to ANY type of market condition or underlying instrument. •  PRO: Adaptive to any timeframe from “position trading” to “intraday trading” •  PRO: If you do ONE THING and do it over and over again, using it in different

applications, would you agree that you’ll continue to get better at it? •  PRO: Simplifies your approach to the basics of what’s important without adding

new techniques for different strategies that “break” when conditions change. •  PRO: Using Fractal Analysis will let you “see” what is going on with the price

structure. •  CON: Multiple timeframes will put more burden on your PC hardware. •  CON: If you don’t attack this in a very structured manner, it can become confusing.


If it was easy, then everyone would be using it.


It’s not easy, but if you follow a very specific progression and understand the basic point of what you’re doing, you can attain much better accuracy with a reasonable amount of dedication

and work.

PART II: The WHAT to Fractal Analysis


What is the purpose of it? How do we use Price? Why and How do we measure Energy? What are the Four Rules of Fractals?

The Purpose of Fractal Analysis •  Is a chart trending? If so, in what dominant direction? Is knowing this useful? •  If the chart is currently trending, what is the likelihood that it will remain so? Have

the probabilities increased for a reversal? Are you “chasing?” •  If the chart is currently range-bound, can we determine conditions that show us

when a higher probability of moving to “trending” movement will occur? •  Can we actually understand what the current state of price movement is WRT

trend and direction, to know what the next “highest probability” setup is? • Being PROACTIVE to know “what” would have to happen with the price in order for

the trend at any timeframe to change “state.”


The very FIRST thing that we need to focus on is PRICE.


We will select one timeframe which we will look for entry signals from; this is our “signal” chart.

We will then add separate “anchor charts” or “parent timeframes depending on our application. Those will be a multiple of 5x the original Signal Chart timeframe. i.e. Monthly/Weekly/Daily or 125min/25min/5min or even 10,000t/2000t/400t.

Step One: Start by identifying your Signal Chart timeframe in which you will take your entry signals, and then add larger timeframes in multiples of 5x the Signal timeframe.


25x Anchor 5x Anchor 1x Signal

25x Anchor 1x Signal

5x Anchor 1x Signal

Step Two: Identify the Trend at every timeframe.



The easiest trades that you’ll make are those when all of your various Fractal Timeframes are lined up in the same direction, and you allow this “current” to float your position in the path of least resistance, downstream.


Uptrend Uptrend Downtrend

Definition Time: An Uptrend is a series of HH and HL on that timeframe…


Like This Weekly Chart… Notice that this

Daily chart has actually

changed polarity to a downtrend

with Lower Highs and Lower

Lows…

So while the Weekly chart is still in an uptrend, the Daily chart has transitioned to a downtrend. The Weekly chart is only in a “swing down” and not a downtrend until it too puts in a LH/LL.


Downtrend Downtrend Downtrend

Downtrends are just the inverse of uptrends.


A series of Lower Highs/Lower Lows.

Usually much more violent/emotional and more difficult to detect “structure.”

Step Three: Apply the Two Major Rules of Price Action to the Charts


Rule #1 of Price Action: Larger Timeframes Dominate the Trend


Rule #2 of Price Action: Reversals start from the Inside-Out

Larger timeframe charts do not reverse until the reversal propagates up to its level. A virus starts its attack with one cell, and multiplies from there.

While in a larger timeframe trend, the signal chart will often run counter to this trend, but it gets “yanked back into line” by the stronger trend of the larger timeframes. Think “small dog being walked on a leash”…who wins?


Larger Timeframes dominate the trend…

...but reversals begin from the

inside-out.

Step Four: Look to Trade in the Direction of the Anchor Chart, and use the Signal Chart for entry.


Anchor Chart Signal

Chart


5x Anchor 1x Signal

Uptrend Entry


25x Anchor

The former uptrend has started to move to a

downtrend. I would like to move to the signal chart to look for an entry into a

short position.


1x Signal

Short Entry as the 1x Chart starts trending in the direction of the Anchor Chart.

Trading in the direction of the Anchor Chart Trend/Swing, and using the Signal Chart to look for the first instance of the 1x Trend to match the Anchor chart trend. You’re just trying to align the two trends, think “Father and Son.”

Price Action and what it’s doing at the various fractal timeframes always over-rides any other form of analysis that I use.


It’s that important. It’s the most authoritative form of analysis that there is. NOTHING supersedes price!

Now, once you learn to “put the jigsaw pieces together” then you could trade with nothing more than fractal price charts. You would have all the tools that you’ll ever need.


There is one additional tool, however, that I will use for Fractal Analysis. That relates to the concept of “energy” per timeframe.

We all know from Nature and daily life that we go back and forth between “exertion” and “rest.”

© Copyright 2017 TheoTrade, LLC. All Rights Reserved

We don’t basically SPRINT all day long. We would be completely exhausted in minutes.

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How is Everest Tackled?

•  One does not simply run up Mount Everest and “summit” in a day.

•  Base camps are there for a reason, so the body can acclimate itself to the decreased oxygen levels, and rest from the climb.

•  You ascend as far as you can, then rest. Repeat.

•  It’s very common for climbers to tire or get sick at one of the higher camps, and be forced to go back to a previous camp to “rest.”


Isn’t that how Markets move?

Advance as far as possible, and then rest for a while.


Can we measure Market Energy?

•  We remember our grade school physics lessons where we “add” energy to a mass to give it “Potential Energy.”

•  Which is then expended into “Kinetic Energy” through movement.

•  The process repeats itself over and over again with a body in motion.

•  Like a Price Chart!


Potential vs. Kinetic?

The Green arrows are where Markets convert Potential to

Kinetic Energy.

And the Red arrows are where Markets are storing Potential Energy again.


Potential vs. Kinetic Energy

•  Trends burn up a lot of “energy” from a Market. •  It takes a lot of new participants, or “fuel” to keep a trend

going a long time. •  This is Kinetic Energy being expended, and there is only a

finite supply. •  Trends cannot go forever before refueling.


Potential vs. Kinetic Energy

•  When trends burn up all of their “energy”, that means that no new energy is coming in from the sidelines.

•  This is where the chart must “rest” and build up Potential Energy for the next trend.

•  It can do this “recharging” in three different ways:


Three Ways to Recharge

•  Fastest – a quick, sharp pullback that immediately stokes up too much negativity.

•  Medium – a sideways coil…”railroad tracks.” •  Slowest – a continued upside “grind.” •  Most “recharging” patterns will be a combination of these.


How Do We Measure Energy?

•  Using standard physics units of Joules isn’t possible with financial Markets.

•  We need something different… •  But we can approximate the expenditure of Energy if we look

at the Linearity of a trend.


Linearity of a Trend

•  A long, straight uptrend or downtrend is an example of a very linear trend.

•  It takes a great deal of energy out of a Market to keep price moving in the same direction constantly.

•  Conversely, choppy sideways movement is an example of non-linear price behavior.

•  This type of price action restores energy to a Market.



Linear

Non-Linear

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We measure “energy expended” based on the linearity of the current trend on each timeframe.


We use the Choppiness Index/FE Study to measure this linearity value.

This is available through either the FE study itself, or the Embedded FE in the RSILaguerre study.


Notice that very high values of the chop index >61

correspond with imminent movement.

Values below 38 imply that the trend will end soon.

And values at 25 or below imply immediate

consolidation.

Step Five: Apply Fractal Rules Three and Four.


Fractal Rule #3: Markets are Fractal in how they move.

Fractal Rule #4: Expansion leads to Contraction, and vice versa.

Smaller-timeframe charts create similar structure inside of the movements of the Anchor charts, but ultimately go in the direction of the Anchor charts. Think of how the Moon maintains an orbit around Earth and does its thing, all the while ultimately following Earth’s orbit around the Sun.

This is a never-ending oscillation at every timeframe. Price moves as far as it can until exhaustion at that timeframe, then contracts in range to build up energy for the next move, in whatever direction that might be. The cycle then repeats.

Markets are Fractal, Like This Tree…

You can see in this picture how the larger “tree” is made up of many smaller, identical limbs, larger to smaller.


Markets are Fractal, Like This Romanesco Cabbage .

Each “cone” is made up from a series of progressively smaller, identical cones.



Each 25x swing

Is made up of a 5x trend

And each 5x swing has its own 1x trend.

Learn how the puzzle pieces

fit together!

Energy Values – Confirming and Filtering • The most important thing to follow is the price action/trend at each timeframe.

• These are the first three Fractal Rules (Larger TF’s dominate, Reversals start from the inside-out, & Markets are Fractal).

• Rule Four (Expansion and Contraction) now comes into play last. •  I can use this from an Offensive (get me into a trade) or Filtering (keep me from entering) application.



Application: Calendar Spread Looking for the price to exhibit a high probability of consolidation

in a range for about a week

Notice the strong, linear trend higher which put the Daily chart energy to a low, unsustainable level. High Probability of range-

bound behavior to follow.

Application: Calendar Spread Entered a SPY 244 Put Calendar Spread for $1.31 debit on 6/5


Application: Calendar Spread Looking for the price to exhibit a high probability of consolidation

in a range for about a week

Closed the position on 6/9 for $1.48 credit or 10% net return after commissions in four days. Note the flat, sideways behavior

since entry.


Application: Intraday Trade Filtering

The price is breaking higher and I want to trade long in the direction

of this anchor chart.

25X Anchor

5X Anchor Application: Intraday Trade Filtering

Notice how the 5x energy is “exhausted” so this is a VERY low probability trade and I

would be “chasing” price.


Application: Intraday Trade Filtering

The aftermath….see how filtering on Fractal timeframes can keep

you out of “chasing” bad trades...

PART III: The “HOW TO” of Fractal Analysis


What are the rules and principles again? How should we get started?

Summary Steps •  Step One: Determine Signal Chart timeframe, and then apply 5x and/or 25x charts

as “Anchor” •  Step Two: Identify the trend at every timeframe; how do the pieces fit together? •  Step Three: Apply the two major price action rules

•  Larger Timeframes dominate the trend. •  Reversals start from the inside-out

•  Step Four: Look to trade in the direction of the Anchor chart, using the Signal chart to enter the trend (Fractal Rule Three).

•  Step Five: Use the Energy levels at each timeframe to confirm or filter your entry. (Rule Four)


How to Get Started •  Learn to create Fractal “Grids” on your charting platform; all necessary

timeframes must be instantly accessible to make decisions. •  Start with TWO timeframes to begin. This is extremely important! Starting with

three or more right off the bat will create overload and confusion. Depending on what you trade, this can be 5x/1x or 25x/1x.

•  Focus on price action FIRST. Get screen time (live, hard right edge, OnDemand, etc) and learn how the smaller timeframe moves fit within the larger timeframe trends. Also see how reversals originate from the smaller timeframes.

• Once you become proficient with price and Fractal timeframes, start to layer in the dynamic “energy” read through either the FE study or the RSI in Laguerre Time.

• Using one “setup” regardless of application means that you deepen your exposure and understanding by default.


INTRADAY TRADING THE E-mini NASDAQ FUTURES With Tony Rago


Intraday Trading the E-mini NASDAQ (NQ)

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Intraday Trading the E-mini NASDAQ

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Glossary and Terminology

●  Intraday Trading: Trading short term setups during regular trading hours (RTH).

●  Price action: Analysis of candles on our chart as price develops. Price is NOT subjective.

●  Entries: Executing the trade or getting involved.

●  Handle: One point or four ticks -- i.e. 56 to 57 = one handle

●  SPOTS: Levels on the chart we use for entries. They represent the entire handle.

●  Risk Markers: Levels on the chart used to “lean” against or watch price related to the level.

●  Risk Out: Taking profit on a portion of the position. Risk out means you cannot lose money.

●  Runner: Leaving a part of the trade to see if price can develop further in the direction of the trade.

●  Stop at even: Placing a hard stop on your runner once risk is out. ●  Day Done: Once your daily goal is met according to your trading plan.

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What members are saying about the strategy!

Tony,

I’ve been trading with you for a week and a half and was in webinar Saturday.

I’ve made profit every day but the first day (because I didn’t know your trading plan.

That’s six winning days in a row.

I’ve been trying to learn how to trade futures for a year and a half and never had any success.

I have used many indicators and hopped from room to room. This is the first time I think I get it.

I doubt I could do it on my own yet but I’m going to stay with this.

I like seeing the price action and prefer it over watching indicators.

Thank you very much!

Mark S

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Why Intraday Trading using Index Futures?

●  The main appeal to intraday trading is the ability to generate income during

regular trading hours (RTH) without any overnight exposure.

●  The index futures provide many trading opportunities throughout RTH.

●  By utilizing price action with key levels we are able to identify risk no matter where

the market may be trading.

●  The ability to identify risk is what gives us an edge.

96

Intraday Trading Futures - Capital

●  Although there are no capital requirements to intraday trade futures, like the

$25k minimum to intraday trade stocks, it is important to make sure your account

is capitalized for successful trading.

●  Each contract requires an overnight margin between $4k or so. Based on this you

need to establish what a “full position” is for you. i.e. 2-3 contracts

●  If you are trading in 3rds then I would recommend an account minimum of $20k.

That covers a full position with cushion in the case of a drawdown.

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Getting Started – Trading Plan

●  With any business you must have a plan. Failing to plan is planning to fail. As an

example a trading plan may call for 10 handles on a full position (2-3 contracts x

10 = 20-30 handles)

●  If you are working with limited capital and experience then scale the position back

to 2 contracts.

●  It is very difficult to be successful trading futures 1 contract at a time.

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Getting Started – Risk Management

●  The typical “Risk Zone” for any E-mini NASDAQ trade is 4-6 handles of risk.

●  By using SPOTS the typical Risk Reward ratio is - 4-6 handles of risk to make 10

handles.

●  The E-mini NASDAQ is very thinly traded and tends to have a wide trading range -

up to 100 handle range in a day is not uncommon.

●  Although I do not provide a “hard stop” methodology - it is crucial to your success

that you manage risk in any trade.

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Risk Management (continued)

●  There are specific rules to using the chart and reading price with SPOTS and Risk.

●  The E-mini NASDAQ can move fast so it is important to identify risk in the trade

and take action.

●  By using the levels that I have established and the rules around each entry, we

are able to mitigate big losses and stay in winning trades longer.

●  However, YOU need to establish your threshold for risk - when is too much too

much?

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The Chart - SPOTS and Risk

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SPOTS are for Entries

SPOTS are for Entries! #tradeSPOTSonly

●  SPOTS are levels on the chart that I use for entries. They represent the entire

handle - 56.00, 56.25, 56.50, 56.75

●  They were established after analyzing price on the E-mini NASDAQ over many

months.

●  Each SPOT has a risk zone established around it - you can ALWAYS identify risk by

using the risk markers from SPOTS.

●  By utilizing SPOTS as entries you are forced to let price come to you and will help

avoid overtrading. 102

SPOTS (continued)

●  I like to sell SPOTS against the upper risk marker on a test of the SPOT from

below.

●  I like to buy SPOTS against the lower risk marker on a test of the SPOT from

above.

●  SPOTS only owe you an ENTRY - they are not levels to lean on.

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SPOTS and Risk Markers

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Risk Markers - Defined

●  Risk Markers are areas identified on the chart that provide guidance and clues to

the overall direction of the tape. They represent the entire handle.

●  They are used to identify risk from an entry on a SPOT.

●  You can ALWAYS identify risk in ANY trade using the markers.

●  We “lean” against the marker respective to our entry. Once a 2min bar closes

below/above the SPOT you are coming from, it “OPENS” the corresponding SPOT

above/below.

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Risk Markers- Defined (continued)

●  They are the price level that you are using to support the trade you are in.

●  If you are long you are using the marker BELOW the SPOT as support.

●  If you are short you are using the marker ABOVE the SPOT as resistance.

●  Risk markers are NOT used entries.

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Risk Markers- Visual

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The markers around a SPOT (entry) Establish the risk zone

How To use a Risk Marker

●  Risk Markers are levels that you “lean” on for support in long and resistance in a

short.

●  Markers below SPOTS are used as support in a long trade.

●  Markers above SPOTS are used for resistance in a short trade.

●  As long as the risk marker holds price in above or below you should be able to

glean clues from overall price action.

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How To use a Risk Marker- continued

●  A marker is broken when a 2 min bar closes above/below the marker.

○  E.g. - from the 46 SPOT if a 2min bar that closes above the 52 handle (53 or

better) opens the 56 SPOT above for a test. Likewise if a 2 min bar close

below the 42 (41.75 or better) opens the 33 SPOT for a test.

●  When your marker is broken you must deploy an exit strategy.

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Long Setup

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Entry is on the SPOT (the entire handle represents the SPOT) Risk is identified by

the marker below a SPOT for a LONG

Short Setup

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Entry is on the SPOT (the entire handle represents the SPOT)

Risk is identified by the marker above a SPOT for a SHORT

How to trade the strategy

●  Use SPOTS as entries - You can ALWAYS identify risk in ANY trade

●  Put entire position on at entry (2-3 contracts)

●  Offer ⅔ once the trade goes your way +3, +4 or offer into the marker

●  Once risk is out go even stop

●  Let price develop and see if you can open the corresponding SPOT by breaking the

respective marker above/below

●  Offer your runner into the SPOT or trail stop

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Price is the ONLY constant in the Market!

●  Price in the ONLY indicator that is NOT subjective.

●  Price NEVER lies.

●  Learning price action is vital to your success as a intraday trader

●  Indicators can have a lagging effect before catching up to price

●  Technical Analysis (Chart Patterns) can be subjective.

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QUANTS AND CHARTS With Don Kaufman and Jeff Bierman


Quants It means Quantitively Geek…


What’s a Quant Trader? • No one says, “I want to be a Quantitative Analysis Trader when I grow up”….

• Generally speaking, the Quants are mathematically inclined traders seeking edges through detailed data analysis.

• Quantitative Analysis encompasses a vast array of strategies, allocation techniques, algo trading, pairs, statistical arbitrage…and many more.

• Rather than looking at a chart or a classical study Quant Geeks tend to look at statistical analysis; in other words we are heavily probability-related.


Quantitative Principles •  Several of the guiding principles of TheoTrade are based on a Quantitative

approach…

•  Shhh…don’t tell the chart geeks!

•  Allow us to review


TheoTrade Principles 1. Trade Logic 2. Capital Allocation 3. Directional Bias


Trade Logic •  Place Strategy and Trade Logic first. •  The vast majority of people involved in markets are infatuated with market

direction, attempting to predict the next move a stock is going to make. •  In reality, what you “think” a stock is going to do does not always translate into

profits. • Many investors and traders alike place far too much emphasis on being right or

picking the next move a stock might make. •  The right strategy coupled with established entry and exit criteria allows you not to

be “right” in picking a direction in a stock or the markets in order to be profitable.


Capital Allocation • How and where you allocate capital should be strongly considered as a viable

portion of your trading methodology. Capital allocation takes precedence over being “right” in the markets.

• Why you ask? Experience and watching order flow for decades has taught us invaluable lessons. Have you ever been stopped out of a trade or bailed out of a position only to see the markets turn around shortly thereafter?

• How and where you allocate capital can define not only losses, but it can be the defining factor in your overall success or failure in the markets. Our war cry is “duration over direction.” You need to be capable of sustaining trades long enough to be profitable.

•  Think about it: You need to survive long enough to be right!


Directional Bias • We are not anti-charts at TheoTrade. Rather, we recognize that where you “think” a

stock might go does not always mean the markets will agree with your sentiments. • Being right directionally cannot define us as investors or traders, for we may not be

“right” often enough. •  At TheoTrade we are realists regarding the marketplace, and we must place our

capital at risk ONLY with the correct trade logic and a comfortable allocation.


What Do Quant Geeks Look At? • Most of the Quantitative data you see at TheoTrade currently involves expected

moves; studying this data has led to some of most viable trading opportunities.

•  Let’s review a few of the concepts of Expected Moves prior to beating up the chart monkeys J


Implied Volatility and Expected Price Moves

• What Does Implied Volatility delineate? •  Implied volatility is the volatility that justifies an option’s current price.

• How can you use implied volatility in your day to day trading? •  Implied volatility can be extrapolated into stock price movement or what is termed “Expected Move”


Expected Moves


Where Quants Meet Charts


Charts I Chart, therefore I am…


What Do Charts Involve?

The other side of the coin is using Charts as another tool for your analysis. At a basic level…charts involve selecting the right indicator(s), choosing the right trade entry/exist points, and a post-trading management process. Actually there’s more to it…but we’ll start there. Let’s dive into the world of Charts!


Indicator Selection Process •  Select your charting package application

•  Ensure the availability/customizability of your desired indicators

• Recognize your information processing needs


Indicator Selection Process • What type of Trend indicator do you prefer?

• What type of Momentum indicator do you prefer?

• What type of Volatility indicator do you prefer?

• What type of Strength indicator do you prefer?


Indicator Selection Process • What type of Channel indicator do you prefer?

• What type of Volume indicator do you prefer?

• What type of Money Flow indicator do you prefer?

• What type of Chart Type do you prefer?


Standard Indicators •  Trend: Moving Average, Trend Line, Linear Regression, PSAR

• Momentum: Price Oscillator, MACD, Impulse

•  Volatility: Keltner Channel, Bollinger Bands

•  Strength: RSI Wilder, ADX, CCI


Standard Indicators •  Channel: Price Channel, Pivot Points, Linear Regression Channel

•  Volume: Volume Average, Volume Profile, Volume Oscillator

• Money Flow: Money Flow, Accumulation/Distribution, OBV

•  Chart Type: Bar, Candlestick, Heiken-Ashi


Establishing Trade Entry/Exit Points •  Trend: Enter/exit trade when price nears/touches trend line/dots

• Momentum: Enter/exit trade at the point of crossover intersection

•  Channel: Enter/exit trade if price holds/violates channel

•  Volume: Enter/exit trade based on volume patterns/trends

• Money Flow: Enter/exit trade money flow patterns/trends

•  Chart Type: Enter/exit trade based on candlestick configuration(s)


Post-Trading Management Process •  Tracking your Overall Performance

•  Tracking your Transaction Activity

•  Adjusting your Trade Size

• Reconfiguring your Indicator Mix

•  Tweaking your Indicator Inputs

•  Changing up your Security Mix


Post-Trading Management Process • Modifying your Time Frame(s)

•  Checking your Psychological Disposition


CONSTRUCTING YOUR UNIQUE TRADING PLAN With Doc Severson


Human Beings are irrational and emotional creatures, that execute flawed logic under stress.


We are taught from day one on how to handle risk by shutting it down and taking the safe path. Unfortunately, this guarantees failure in financial markets. So we have to learn to manage ourselves in a way that we never have been taught. This comes in the form of a Trading Plan. Over the next 70 minutes I’m going to show you how to build and maintain this plan, to

help overcome these liabilities.

Most traders that I talk to are not happy with their current performance, but they’re not really sure what the numbers are. They’d rather sweep the previous results under the rug and think optimistically about forward results.


The issue must be that we need SOMETHING NEW…either a new strategy or a new chart study! So, that’s our plan going forward because the “old study/strategy” must be defective.


We get that initial “rush” of PASSION for this new strategy, THIS is the one that is going to put us over the top!


You learn about this new strategy, take a couple of trades…and not surprisingly, they don’t produce profits

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New Strategy!


The problem must be that we picked the wrong strategy/mentor/broker again.


We’re confusing the root cause with the symptom. Our approach is faulty.

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And this is no different from our craze with setting New Year’s resolutions


Most of you probably have made some New Year’s Resolutions


45% of Americans usually make New Year’s resolutions.

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Only 8% of them are successful at achieving them.


Chances are that traders fall into the same statistical grouping. That implies that 55% are not even trying to set goals.

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Those who don’t set goals don’t even have an 8% chance; they have a 0% chance of achieving them.

.

So, it’s clear that most people’s approach to “achievement” is flawed. Let’s see why…


Goals are for Losers! Wait, didn’t you just say…?


Most of us are not really even setting up Goals. We are creating

“Wishes”

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“Wishes” create Passion which is a short-term source of energy. It fizzles like a sparkler and we need to find something else “shiny” to fuel our

efforts.


It’s kind of like the short-term rush that we get from eating a candy bar…we crash shortly after that.

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What we need is longer-term ENERGY to sustain us. How do we create a longer-term method of sustaining effort and energy that doesn’t fade in a day?


Enter Scott Adams, the creator of “Dilbert”


Adams: “Goals are for Losers” •  If your GOAL is to lose ten pounds • You will spend every moment up to that point feeling as if you are short of your goal.

• Goal-oriented people exist in a state of nearly continuous failure that they hope will be temporary.

• The feeling wears on you, becoming heavy and uncomfortable. •  If you achieve your goal, you just lost the one thing giving you purpose and direction.

• This is why so many goal-oriented diets “bounce” and fail.


Adams: “Systems are for Winners” • For weight-loss, think of people that have made a “lifestyle change.” • This is a system, not a temporary goal. • The odds are much higher that this system of lifestyle change will produce great, long-lasting results.

• Think of Warren Buffett with his system of buying undervalued companies (system) vs. the typical retain investor with a “buy and hope” (goal) mentality.


Example: Goals vs. Systems • Going to the gym 3-4 times/week is a GOAL. • This can be hard if you don’t enjoy exercise, especially if you overdo it trying to “catch up.”

• Eventually you associate discomfort with exercise and you create excuses to stop.

• Compare that goal with a System where you are active every day at a level that feels good.

• Pretty soon your body will be trained like a circus monkey to crave activity, no willpower required.


Behaviors Create Habits

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Habits, in turn, Create Desired Behaviors.

Change your Habits, Change your Life.


Does it now make sense why your short-term trading goals aren’t getting accomplished?

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We need to create repeatable SYSTEMS that are easy to maintain, and not just set up short-term goals that set us up to fail.

What we need to create is a

Trader’s Business System.


Start with Goals (Framed as a System)

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Yes, we need to start with Goals, but that’s where most traders stop, making it a “hit or miss” proposition. Our initial Goals are essentially the light at the end of the tunnel that we are shooting for. Don’t shoot for perfection! Just start with something that pulls you towards this number to begin with.


Employ to Market with Rules

158

This is where we layer “Rules” into our system. No trading rules, no system. We will naturally end up trading with the Retail Herd if we can’t identify and prosecute “edge” in the market. Please note that your initial rule set is a STARTING POINT regardless of where you got these rules from! This is extremely important. This set of rules becomes your overall Trading Plan.


Analyze your Results

159

We have a tendency to celebrate our winning trades and sweep our losing trades under the mat. Analyzing results will give you the DATA in order to make concrete decisions from, and eliminate the “gut feel” from your trading which in essence is fear of risk. The majority of traders cannot tell you their performance numbers, because they are trying to ignore the losing trades.


Course Corrections

160

There’s a reason why airplanes have control surfaces and cars have a steering wheel – correcting your course is normal and an assumed function! We need to understand the root issues as to why our performance is not where we want it to be, and make the appropriate corrections. For the majority of traders, the “corrective cycle” means moving to another strategy after a couple of losing trades.


This is the WORST POSSIBLE THING that you could do! How will you ever create mastery if you bounce from one thing to another?

161

Losing trades are a GOLD MINE of information if you stop to examine the information


But that assumes that you have rules

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And that you’ve tracked your performance.

And you’ve identified key criteria to measure.

No?

Now most would assume at this point that you’re done. You’ve set up goals, rules, taken trades, measured your performance, and made corrective steps.


Keep Going!

163

Maybe after a cycle you’ll want to update your Goals.


Keep Going!

164

Your “corrections” should have identified possible rule tweaks to improve performance based on your analysis


Keep Going!

165

Do your NEW results show that the corrections are making any impact? Getting better or worse?


Keep Going!

166

Are there NEW corrections or tweaks that we need to make based on the new set of results?


If you are running a SYSTEM this effort never stops! Can you see the difference between a set of “New Year’s Resolutions” and a SYSTEM?

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Goals are for losers. Systems are for Winners. Be a Winner.


The Trader’s Business Plan Envision and Design your Business


You’ve done these before. You create one, and there it still sits on your shelf, collecting dust.

169

Most folks that I know would rather remove their fingernails than create a Business Plan.

You know that it makes sense to do one, but you’re not sure why AND you don’t feel any “connection” to it. So there it sits

As you’ll see, though, the Business Plan provides some very intangible benefits as well as the obvious ones.


Business Plan – What’s the Point? • Show me a viable business today that does not run via a Plan. • This is your chance to be STRATEGIC and plan your future. • What you focus on will manifest itself. • This is your chance to put your VISION into tactical plans. • With that said, this is not natural or easy for most people that have not tried to be “chief cook and bottle washer” in a small business.

•  In this section I’ll give you some ideas but understand that you don’t need to be PERFECT...just get STARTED!


A Business Plan should be your “compass” to keep your business on course. But that assumes that you’ve plotted a course to begin with!

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If nothing else, know that your Competition is using one and is using it to their advantage over unorganized, “shoot from the hip” traders like the majority of Retail is.


Start with Goals

172

Goals should be part of your Business Plan. Your goals should be measurable, specific, and attainable. They should inspire you! Think not only of Trading Performance goals, but other goals relating to education and achievement.


If you trade a lot of different instruments or styles, it can be daunting to get started. Sometimes it’s best to start with one segment of your trading and form your business plan around that. Let’s list out the basic elements of a Sample Business Plan outline…


Sample Business Plan Outline • Brief/Purpose of Business • Revenue/Performance Goals • Account Funding • Equipment • Education Funding • Performance Stages • Plan Maintenance • Disbursements and Charity Contributions


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How Do You Maintain It?

I’m a believer in writing things down to begin with. It tends to fuel the creative process and puts a stronger “imprint” and “connection” to your brain. Obviously you can’t do this if you’re just being handed someone else’s Business plan, which you do NOT want!


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How Do You Maintain It? I’m also a believer than anything that is to be maintained is stored in digital, cloud-based format. You want something that can be easily brought up from any device at a moment’s notice, and is not relegated to some dark shelf that will never again be seen.

Now that we’ve designed and defined our Trading Business, let’s get into the nuts and bolts of Trading Plans.


Your Trading Plan The structure behind your trades


Rules

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Trading Rules should be written in the form of Entry, Defense, and Exit. Under what conditions should you ENTER the position? Be very specific. Under what conditions should you take some form of action while holding a position? Under what conditions will you exit the position? Profit target vs. Stop Loss.

Your Trading Plan is the “Rules” section of the continuous improvement cycle that we’ve discussed.


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How Do You Maintain It?

Same as the Business Plan; if this is in paper format it’s more difficult to maintain and update. You want this available at a moment’s notice.


As we’ll see in a moment, your Trading Plan is something that you want to be CONSTANTLY adjusting to what the Market is giving

you, based on your analysis and adjustments.


Aggregating Trading Plans

181

Strategy 1 Strategy 2 Strategy 3 Strategy 4 Strategy 5

Overall Trading Plan


Each trading plan must be maintained separately. The performance of each should be judged separately so you can determine whether or not to “shelf” or “un-retire” a strategy.


Collecting and Analyzing Results Or “how to get the job done without creating a new job”


We have to collect data from our trades and make sense of the results.

184

There are many products out there to assist with this, however many of them are just there to aggregate tax information, not to assist with your trading.

I think that the best journal is the one you build yourself.


Results

185

There are two forms of Journaling that I use to track Results…tabular for the numbers, and “story-telling” for the narrative. Tabular results are best tracked in a spreadsheet where you can easily manipulate the data. Story-telling can either be done with pen/notebook, or something like Evernote/OneNote to copy/paste screen grabs.


What is EXTREMELY important is that you transfer your Trading Plan onto your results-collecting tool.

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This can be hand-written notes on a legal pad, this can be crayon on butcher paper, whatever you prefer.

My preference is to use the basic analytical and automation capabilities of a spreadsheet.


You have to give yourself enough information to be able to analyze it later...without becoming so cumbersome that

you give up.


Shorts vs. longs? Time of day success? Trend vs. Range? What elements are creating edge and success? What factors are creating friction?

189

Until you’ve been through many cycles, you “don’t know what you don’t know” yet. In time you will be able to streamline your efforts and define the “minimum necessary data set.”


Once more… …if we do not KNOW what the root cause of under-performance is, then we’re just likely to stir up some activity, ultimately getting frustrated and moving on to a new “Holy Grail” strategy.

190

And we know how well that works, right?


191

I use Evernote to create the “story-telling” narrative every day. It takes me about 5 minutes to create a record that I can refer back to later.


Going Old School

192

I will go old-school and dig out the notebooks if there is something important that I want to “imprint” on my brain in a way that digital media cannot. I used to do this with every trade but now save it for the important thoughts.


The other thing to keep in mind is that your journaling system will only be as good to your trading as it is an extension of yourself.

193

Look, journaling your trades is a PITA. I get it. A thought that rattles in the back of my head is “you can always tell the profitability of a trader based on how good their records are.”

Don’t waste your efforts by using someone else’s tool. Your subconscious mind MUST sense the effort that you’re putting in.


Making Adjustments Putting on your mechanic’s hat.


Adjustments 195

As part of the journaling process you added columns to track adherence to key performance criteria, ideally helping you make decisions with this process. Can you determine with accuracy WHAT changes need to be made to produce positive results? This is where accurate records will really help.

Well, now that you’ve journaled all of that data, you’re probably eager to do something with it. Now we get to do “adjustments.”


The “80/20” Rule

197

Let’s sort our key criteria into a Pareto histogram

What we’ll find is that 80% of our lost opportunity will usually be created by a few recurring errors or “features” of our trading system.

A Pareto chart is named after Vilfredo Pareto, and showed that 80% of the land in Italy was owned by 20% of the population.


The main value of the Pareto list is to check the impact of each “error” to know what to focus on going forward.

199

The point here is not to get lost in the forest for the trees, but to focus on the bigger picture of what I’m showing you here

The POINT here is also that I would NOT have learned ANY of this had I not taken the time to first set up a plan with rules, then journal those trades, and then finally classify the key plan criteria and log violations.


Don’t just randomly apply “fixes.” Know the root causes for underperformance.

200

Can you also see how this strategy goes from being “some other guru’s strategy” to one that you and you alone maintain? This might be THE most important point that you can pick up today.

You and I now have clear direction going into the next cycle. Our brains do not have to interpret the “feelings” of what we should do.


Adjustments! 1)  Track Key Criteria from Trading Plan 2)  Journal every “violation” of those criteria 3)  Pareto-sort at end of cycle 4)  Perform analysis impact 5)  Determine corrective action for next cycle


A Suggestion: Do not try to fix ALL errors at once. You will not know whether or not your efforts had an impact, or whether you introduced new errors into the system. Pick on the top one or two issues for the next cycle


Summary and Next Steps

Where do you go from here? How do you start?


For many of you, the concepts introduced here seem like drinking from a fire hydrant compared to your current efforts.


That’s good! That means that there are gaps that you can fill. Go back over this material as often as you need to. Repetition is the mother of Skill.


Your To-Do List • Tear up your New Year’s Resolutions and see if you can build a system instead.

• Build your Business Plan including your Goals. • Do an inventory of your Trading Plans; are they up-to-date? • Can you identify measurable “key criteria” for each strategy? • Review your Journaling…can you Pareto? • Can you use different methods and techniques of journaling? • Can you get to the ROOT CAUSE of under-performance?


The most important thing to consider… Ask yourself:” How can I undertake this process in a manner that makes me WANT to do it?”

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In other words: “How can I make it FUN?”


PERFECTING YOUR E-mini NASDAQ AND INTRADAY TRADING STYLE With Tony Rago


Are you ready to start trading?

What we know:

1.  We need a trading plan.

2.  We must be able to identify risk to have an edge.

3.  Price action is key. Let the market set up.

4.  Identify actionable levels. Trade SPOTS only.

5.  Use risk markers to navigate price.

6.  Once a marker breaks, deploy an exit strategy.

209

Trading Intraday Set Ups

210

Using ThinkorSwim for Charts

●  All of my charts are built in ThinkorSwim (TOS)

●  By far the cleanest and easiest to use out of any others I’ve used.

●  The E-mini NASDAQ strategy using SPOTS and Risk were developed in TOS.

●  All TheoTrade members have access to our charts with key levels.

●  All charts are updated and I am in the chatroom to provide real-time assistance.

●  It is important that you have the same chart that is being discussed in the chatroom.

211

Using ThinkorSwim for Charts (continued)

●  The E-mini NASDAQ strategy is purely price action based.

●  Price is the ONLY constant in the market.

●  The E-mini NASDAQ chart utilizes a 2min time frame to read price.

●  We also watch the S&P E-mini price action with levels for clues.

●  The only other indicator that I like to use is the Adv/Dec for the $SPX ($ADSPD)

●  The AD can be instrumental in identifying trends early.

212

Using the ThinkorSwim Active Trader ●  Using the TOS Active Trader to execute orders.

●  Select (1) Contract so you can manage your positions based on the strategy.

●  Make sure it is on Auto Send.

●  Bid to buy and Offer to sell.

●  Once you are in a position - immediately offer ½ of the

position at +4 to take risk out of the trade.

●  Once the offer taken place a limit order at entry as an even

stop. You now have risk out of the trade.

●  Watch price develop to see if you can reach the next SPOT. 213

Price action is the ONLY constant in the market!

●  SPOTS and Risk markers act as Support and Resistance levels.

●  We watch price action around these levels.

●  When markers break, the corresponding SPOT is open for a test.

●  We use the SPOTS for the entry.

○  BUY the SPOT when they are tested from ABOVE.

○  SELL the SPOT when they are tested from BELOW.

●  We “lean against” the markers above/below the SPOT to support the setup.

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Reading Price using the levels

Potential Lower highs

Broken Marker

Risk Marker Resis & lower highs

SPOT Opens SPOT test from ABOVE

SPOT test from BELOW

Broken Marker

SPOT test from ABOVE

215

Using SPOTS as Entries

#1 Aggressive SHORT entry Marker breaks

COVER

#2 LONG Entry

Marker Breaks

EXIT

#3 SHORT entry Open SPOT

COVER Short and Buy #4 Double Bottom

EXIT into SPOT

Marker Breaks

#5 LONG Entry with SPOT open above

216

Winners vs. Losers 1.  SHORT

a.  Risk out +4 b.  Cover into SPOT test +10

2.  LONG a.  Marker breaks b.  Exit in the “Risk Zone” -2 on all (-2)

3.  SHORT (with SPOT open below) a.  Risk out +4 b.  Cover into SPOT +10

4.  LONG double bottom and SPOT test from above a.  Risk out +4 b.  Exit into SPOT test above +10

5.  LONG with SPOT open ABOVE a.  Risk out +4

Scorecard:

Based on trading two (2) contracts.

Trade #1 = +14 handles

Trade #2 = - 2 handles



Trade #5 = +4 handles__

Total: +44 handles

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Reading price using Risk Markers

The RISK marker BELOW the SPOT owes you Support

Lower Highs and Lower Lows

Marker Resis

From the SPOT, marker breaks & price resolves to the SPOT above

Marker Support

218

Setups and Reading price (continued)

Into the SPOT from below - Risk is clearly defined

From the SPOT once the marker is broken price resolves to the SPOT below

Lower highs and marker holding price in

219

Using the Adv/Dec on the SPX for clues $ADSPD

Extremes are in the +300 / +400 and the -300 /-400

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How to use the AD (Adv/Dec)

●  The only time that to fade (take opposite direction) the AD is at the open.

●  An AD of +330, at the open, tells me to look at the chart for a SPOT to enter SHORT. We are SELLING strength or fading the positive AD.

●  An AD of -330 tells me to look at the chart for a SPOT to get LONG. We are BUYING weakness or fading a negative AD.

●  After the first 30mins or so we want AD to support the trade that we are in.

○  A rising AD supports the longs

○  A declining AD supports the short side.

●  A persistent AD above/below the extremes(+/- 300) can signal a trend.

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Fading a Strong AD

AD opens strong is a fade or a short on your intraday trade chart.

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AD that signals a Trend day

No reaction from the lows(extremes) and a persistent AD signals a trend day. It is best to NOT fight price until AD is back above -300.

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Practice Practice Practice

●  I recommend that you trade the strategy and chart on the TOS simulator for at least two

weeks or until you have the mechanics of the strategy down.

●  Remember the E-mini NASDAQ is very fast and can move in large ranges.

●  It is very important that you understand how to navigate the Active Trader.

●  Execute orders, offer pieces of the position and setting a stop at breakeven once risk is out

of the trade.

●  The simulator is also helpful in learning how to read price action in the E-mini NASDAQ.

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We are our own worst enemy!

●  We tend to hold onto the losers for too long and let the winners go too early.

●  The strategy is based on “no hard stops at entry”.

●  When the marker breaks you must deploy an exit strategy.

●  YOU must be willing to take a small loss.

●  I would recommend a “disaster stop” that you can recover from.

●  The E-mini NASDAQ provides multiple setups throughout the day.

●  Set a loss limit for the day for yourself.

●  Understand when it is “not your day” and stop trading. 225

A TECHNICAL ANALYSIS STATE OF THE MARKETS With Professor Jeff Bierman


Recall: Medium, Short-Term, & Intraday Indicators •  Time Frame •  Trend • Momentum •  Volatility • Overbought/Oversold •  Chart Types In review, we previously covered that there are a variety of indicators for Medium-Term, Short-Term, and Intraday trading. Now…let’s have some FUN and do a “real time” Technical Analysis State of the Markets with a variety of these indicators discussed in today’s presentation Building a Better Market Bias!


GET YOUR HEDGE ON: RISK MANAGEMENT 501 With Don Kaufman


Beyond the Basics • Many of you might know the basics of the strategies but do not feel behind the

curve if you do not understand a 1:3:2 butterfly! •  Strategy alone is not the entire picture. You also need portfolio management skills,

allocation technique, and learning how to take profits and losses with your trading.

•  This Mentorship goes beyond individual trades and looks at how to structure individual trades and create a portfolio of options.


Traders Are Strategy Centric • Retail clients learn about options then are usually guided towards specific

strategies. •  Anyone can learn a strategy but does strategy alone drive success? •  The vast amount retail traders tend to use “one off” strategies and manage each

trade autonomously. •  “One Off” is not a negative term, it basically means you are likely to build and

manage each trade rather than looking at your overall portfolio or cumulated risk.


Selling Out of the Money Options

If the stock expires below the short strike, you keep the credit.

100 Sell 110 call for 1.50 credit

Buy 115 call for .50 debit

Selling 110 call Buying 115 call Net Credit $1.00 Maximum Risk $4.00

Defined Risk Iron Condors

Sell an OTM short put vertical.

Sell an OTM short call vertical.

If the stock expires between the short strikes, you keep the credits.

Stock @ 200

Buy 225 Call Sell 220 Call

+.50

Sell 180 Put Buy 175 Put

+.50

10% lose / 90% win

10% lose / 90% win

20% lose / 80% win

Probability of Success?

Risk = 4.00 --- 4.00 / 5.00 = 80%

1.00 credit

Break-Even Point down is 179 Break-Even Point up is 221

Iron Condor Position © Copyright 2017 TheoTrade, LLC. All Rights Reserved 233

1 x Buy 225 Call

Sell 230 Call 2 x 1 x Buy 235 Call

+1.20 debit spread

Net Debit for Butterfly

Risk = 1.20

1.20 debit

Breaking Down Butterfly's © Copyright 2017 TheoTrade, LLC. All Rights Reserved 234

SPY @ 222

Break-Even Point = 226.20 Break-Even Point = 233.80

Risk Twist Spread Template •  To start with, use the SPY or other major ETF product!

•  SELL X 1 -.18 to -.22 delta put

•  BUY X 3 -.22 to -.27 delta put •  SELL X 1 -.35 to -.40 delta put


Probability of Touching Stop or I will Touch You…


Probability of Being Stopped OUT • Have you questioned what your probability of being stopped out of the trade might

be?

•  Probability of being “stopped out of a trade” can be calculated using Probability of Touching.

• Be Advised: you may never look at trading quite the same after this example.


Probability of Touching

•  Probability of Touching – the probability of an individual options strike being touched or surpassed ANYTIME between now and expiration.

•  Probability of touching has NO directional bias.

•  Calculations to solve for probability of touching are implemented from options implied volatility.


Probability of Touching and Stops •  You purchase a stock at $60.00 •  You set a STOP ORDER at $59.00 •  You set a target price of $62.00

• What's the probability in the next 29 days of being stopped out versus hitting your target price?


STOPS! • We don’t need no stinking stops! •  Spreads define your RISKS. • Why would we place a stop order on a trade with defined risk? •  Entering into a defined risk trade alleviates the need for stop orders. •  If you are considering a stop order don’t do it! •  Trade less contract size and be comfortable with your risk.


Touching concerns…. •  I have watched traders bail out of countless stock trades, short spreads, Iron

Condors and a thousand other trades time and again when the short strike is touched (or breached).

•  If your strategy entails exiting when the short strike is touched and the probability of touching is 50% or beyond, then your expected return over time is going to be negative!


Allocation Divide and conquer!


Allocation Matters •  Allocation technique can be the single largest factor in your effectiveness in the

markets. •  An overwhelmingly important part of success revolves around capital allocation.


Define Your Time • Duration Investment

•  Long or short investments, bonds. Expected time to maturity is over 3 months.

• Mid-duration Trades •  Swing trades, multi-leg options strategies, etc. Expected time to maturity is days to 3 months.

•  Intraday Trading •  Active intraday trades entered and exited in the same trading session.


Over-Allocation •  The issue on the trade you bailed out of was not timing or your lack of ability. •  The root of the problem is always the same. •  The issue stems from over-allocation within individual trades. • Generally speaking, retail traders simply, “trade too freaking large.”


Cut Your Trading Size •  Let’s begin our discussion of allocation by assuming everyone needs to trade

smaller size.

•  The easiest thing to do in this business is to scale up contract size later.

•  The toughest thing to do in this business is to get back capital you should never have lost in the first place.


What's Your Per-Trade Allocation? •  The first few steps of creating a more effective allocation is to recognize this

phrase: What is comfortable for me?

• Next, pick a precise DOLLAR figure you are willing to risk in any ONE trade.

•  Initially, forget about the allocation model I presented; just ask yourself, “What is comfortable for Me?”

•  For example, you are willing to risk $500 in each individual trade you put on.

• Only YOU can evaluate what your risk should be; pick a precise number and live with it.


Individual Allocation •  At this point, do not worry about how much TOTAL capital you want to allocate.

Focus on individual trades and what risk you can tolerate without hesitation.

• No stops, nothing of the sort.

•  If you choose to RISK $500 in a trade, you need to be 100% willing to part with that capital.

•  You need to be committed to each trade without fearing loss; only then can you

trade impervious to risk!


Don’t be Lazy: YOUR Capital is at Risk •  You do not want all of your TROOPS (capital) in one location when the bomb drops. • One big trade is ONE big calamity waiting to happen.


Risk and Success • How you handle your risk is directly correlated to your success in the markets. •  Too much risk and you will panic and close positions continuously at the worst

possible time.


Spread Your Capital Out •  Spread your RISK •  Achieve diversification via capital allocation • Multiple expirations • Multiple strikes •  Spread your capital in a minimum of 3 separate expiration cycles • Do NOT place large trades because it’s more convenient.


Spread Your Capital • We are going to trade smaller, break our trades up over multiple time horizons

(different expirations) and spread capital over a multitude of strike prices and products.

•  The phrase you will hear later is “Diversification via Capital Allocation.”


How Much Risk is Too Much? •  Expected move and position sizing tie directly back to allocation and time frame

for each trade.

• Be thinking in the back of your mind “what is the correct risk for me?”

•  Ask yourself the question: “What amount of capital can I lose without having to BAIL-OUT of a particular position?”

• No one likes to focus on what they can lose, but recognize dealing with losses can make you impervious to the types of moves that force you out of the markets.


Curse of Dimensionality •  Too much exposure with a directional bias or time frame can be the difference in

your capital’s survival. • Measure your risks along the way with one basic question. • What happens to my capital IF the markets crash and burn?


Systematic Risk •  Systematic risk is known as “market risk.” This is risk you cannot diversify away.

•  Traders rarely recognize systematic risk until it’s far too late.

• Many of the topics and allocation techniques we discuss today are more broadly designed to mitigate systematic risks.

•  The following will help to further alleviate risks in the event of a major market event.


Diversification via Capital Allocation •  If you plan to allocate 10k, for example, into a variety of vertical spreads, then

consider 10 individual spreads; each trade being 1 contract.

•  Examples could include; In/Out verticals, short vertical spreads, iron condors, etc.

•  Spread the 10 individual trades over a minimum of 3 or more expiration cycles.

•  Allocate your trades SLOWLY, over weeks and months.


theotrade scottsdale live trader's retreat september 2017

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