TOOLS AND TACTICS FOR THE MASTER DAY TRADER

By Oliver Velez and Greg Capra

ECN = ELECTRONIC COMMUNICATION NETWORK Successful trading is the art of finding an idiot. Day trading is not investing 85% of the trading game is psychological in nature. WHAT METHOD DO YOU USE TO PICK YOUR STOCKS? Our approach is a technical one, it is based on number of very reliable chart pattern that represent key short term shifts in market psychology, Charts are the footprints of money. Stocks experiencing a great degree of momentum tend to correct ( or Rest) for 3 to 5 days before they resume their upward moves. This 3 to 5 day decline typically sets up a unique opportunity for the educated swing trader. When the trader should strike, WHERE THE TRADERS should place his protective stop, and WHAT the trader should look for in the trade. Proper trading is proper thinking. Develop a plan, find a mentor who will teach you, and NEVER SURRENDER. Knowledge is power, but only if it is the right knowledge. It only takes 2 to 3 workable techniques to rise to the top of this game we call trading. Learned a secret rule of Thumb: WHEN UNCERTAIN AND CRIPPLED BY DOUBT, GIVE YOUR 6 TO 8 MONTH MARKET OUTLOOK. The real talent on the street doesnt need to hide behind a 6 to 12 months gap in time. As far as we are concerned, our domain, as traders, is the HERE AND NOW. As active market players, our entire lives are perpetually spent in the next 2 to maybe 10 days. In other words, we look forward by breaking up the market into a very digestible 2 day to 2 weeks period. Such as proven price patterns, support and resistance, volume characteristics, institutional accumulation, distribution, break- outs and break down, etc., are the tools of choice for short term traders, because they are based on the HERE AND NOW. Technical setups and chart patterns are only guides. They help the trader to access the odds of a particular play. They are not guarantees. They are not foolproof. The trader has only to learn how to listen. Charts dont lie they display footprint of money. If the chart of the stocks is rising faster than its industry group, you can confidently say, THAT ANALYST IS MY FRIEND. P/E [ Price to Earnings] Charts are true friends. Money is your ultimate friend. So why not have a map of it?

Stories or fundamental information have no value. When it comes to short term trading. Every one of our actions should be dictated by a well thought out trading plan, not rumor or stories. Listening to and focusing on the only thing that counts: The movement of the stock. Trader once they establish where they will sell the stock based on the technicals, thats it. The Master traders adhere to the technicals and their predetermined stop loss at all costs. They act when the technicals and their stops tell them to. Questions should be asked before the battle and after the battle, not during the battle. In the degree of importance, knowledge must always come first, always seek for knowledge and understanding. The short term traders have the luxury of turning on a dime. BELIEVE IN THE FOLLOWING POINT 1. 2. 3. 4. 5. 6. 7. When in doubt, it is best to get out. You can always get back in Selling out also clear the mind Times when the Market reward the cowards A 5% loss on a stock that drops 20% is a win not a loss A good defense is at times the best offense Stepping aside guarantees that you live to play another day

There is only one power on planet Earth that can make a stock rise, and that is simply, MORE BUYING THAN SELLING! Use charts well enough to detect when the buying was beginning to overwhelm the selling. TIP: High debt levels, absurd book to bill ratios, and negative cash flows became pleasing music to my ears, when they did not prevent the stock from advancing. Stocks prices move before Wall Streets fundamental numbers do. Chart reading, combined with a few technical rules, is the only form of analysis, which answers the following question. WHEN DO I BUY? Every trades must guaranteed the failure of countless trading novices is the inability to see the difference between a GAMBLE and a PROFESSIONAL TRADE. FOCUS ENTIRELY ON MAKING: 1- The proper entry 2- The proper position management 3- The proper exit. Smart trading involves executing a plan. In order to win, you must lost. Professional fully recognize that the entire art of short term trading really boils down to a game of eights and quarters, and at times quarters and halves. TIP: The Master Trader goal, in every moment of their trading lives, is simply to gain the spread or the difference between the bid and ask prices of the stocks they trade. The true professional is after the smaller but surer gain. The truth is revealed in sets of 10. Remember this.

When we are testing the effectiveness of a particular strategy, we must look for the results after 10 trades. Money or profits cannot be allowed to influence one' opinion of a certain strategy. Progress emerges in sets of 10. A stock can only go up if there is more buying than selling. Whenever we find ourselves looking for the WHY versus the WHAT , we know with absolute certainty that we are in big trouble. What a stock is doing is far more important than why its doing it. The moment you begin doubting your plan, that is your cue to exit. When you are in the throes of battle, action is the only option, not questions. Get your reasons ahead of time, or find them after you are back in the safety of your fox hole. There is a danger in doing this on the field of battle, unless you like collecting sniper bullets. THE ENTRY IS 85% OF THE TRADE: By entering a stock inappropriately, a trader can actually turn a sound trade into a loser. It is the entry that serves as the foundation of short term trading. Master the art of the entry and you wont have to concern yourself as much about where to exit when you want to cash. Stocks rise and fall base on beliefs not facts. We buy people and the belief they have about the underlying stock. The real professionals tend to buy rumors and sell the news. When the majority is content and there is not a cloud in the sky, your best course of action is to run for cover, for history tells us we have just experienced the calm before the storm. Trader First develop from within. Number one reason for failure is a lack of knowledge. Knows how important waiting for the right entry point is , how important not chasing the stock is. SIGNS THAT WE ARE CONTAMINATED BY OUR PRIOR LOSSES ARE: 1234Chronic hesitation, which is really the hidden desire for certainty Fear of pulling the trigger, which is nothing more than the need to know more Grabbing at profits too quickly Failure to take a loss ( STOP) must many and, TOO

It is important that traders not be affected by their results. We not only want the win, we must crave to be a winners. The problem traders face is that they are applying the wrong techniques therefore, developing the wrong instincts. FEAR IS BORN OF IGNORANCE, BUT THE BEGINNER WHO FEARS NOT SI IGNORANT TO KNOW HE IS IGNORANT

A winner is more defined by mental make up than by method or money. DAILY FOOD FOR THOUGHT: 12THINKING: too much is not good, moved beyond the need for thought IMAGINATION: dont imagine, guess, or hope. Just process and react to the facts, second by second, minute by minute, with little to no imagination or opinion. FEAR: It erodes the intuitive faculties that become so important to seasoned traders GREED: Bulls and Bears make money, but pigs make none

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INFORMATION: EXPECTATIONS: Reasonable expectations are always OK. But they must be safe one. too much tinkering will prevent action and EXCESSIVE ANALYSIS: increase uncertainty HOPE: Hope is a dangerous thing, especially for traders. Hope is like a dope that robs one of the very ability to reason intelligently. Those who hope become blind to the facts, and they will always be at the mercy of those who sell hope for a living.

I encourage you to start a journal of losers. Write down every losing trade, starting with the symbol, the day, the entry point, the exit point, and the reason for both. Once youve accumulated five or more losses, revisit them. Study them. Search for the common denominator in them all. Believe me, it will be there. Once youve found it, in no uncertain terms, KILL IT! Losing is an art, and it must be mastered if we are to ever reach a high level of proficiency. Never enter a trade without having a predefined place at which we will cut our losses. Judging how frequently you lose the same way is a better way to measure your growth. Are you learning from your errors? Are you analyzing each and every one of your mistakes? The goal is to surpass your teacher. When seeking out a teacher, make sure you have firm answer to the following questions: 1234the DOES THE INSTRUCTOR TRADE EVERY DAY: If yes, find out if instructor is a profitable trader. IS THE PRICE FOR THE FIRMS EDUCATION UNUSUALLY CHEAP? AFTER THE SEMINAR OR TRADING LESSONS, CAN YOU STICK AROUND FOR A DAY OR TWO TO WATCH THE INSTRUCTOR(S) TRADE? DOES THE CLASS TEACH TRUE TRADING TECHNIQUES OR IS ITS PURPOSE TO TEACH YOU HOW TO USE A SPECIFIC PIECE OF TRADING SOFWARE? When we speak of trading education, we are not speaking of software training. CAN YOU STAY IN TOUCH WITH THE INSTRUCTOR TO MAKE SURE THE FIRE OF KNOWLEDGE DOES NOT DIE? DEADLY SINS OF TRADING 1- Failure to accept and take losses quickly, taking fast, but small, losses is the only approach, the only tool. HOW TO ELIMINATE IT 1- Never place a trade without first determining where you will bail ship if things go wrong 2- Always adhere to your predetermined stop loss. 3- If you are having a tough time adhering to your stops, start off by getting into the habit of selling half of your position.

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# 2 DOLLAR COUNTING HOW TO ELIMINATE IT

Focus on technique, not on profits or losses 1. For each trade, establish 2 potential exit prices, at which you will sell your entire position. 1st. below the current price called STOP LOSS. 2nd Above the current price called OBJECTIVE. 2. Sell only if the stocks you are in violates the stop loss point or hits your objective, whichever event occur first. 3. If the urge to exit before either sell point is met becomes overbearing, satisfy the urge by selling only half and letting the remaining half sit until the strategy says exit. #3 SWITCHING TIME FRAMES The error of buying in one time frame and selling in another. The problem with this switch is nothing more than a rationalization to ignore stops. HOW TO ELIMINATE IT! 1- If you enter a trade in one time frame, make sure to construct your exit point(s) in the same time frame. Based on a daily price chart make sure you use the daily price chart to construct your exist strategies. Each trade should have one entry point and 2 exit points 2- Do not adjust your stop loss (exit point one) downward when long (upward when short). Adjusting upward to protect profits is fine when done correctly.

#4 NEED TO KNOW MORE: The brass ring goes to those who can act intelligently without the need to know more. Traders who cant act until all the facts are known will never be successful. HOW TO ELIMINATE IT! 123Be very reluctant to buy immediately on the heels of good News. Use charts to form your buy decision and sell decisions. If you find yourself hesitating because youd like to know more, stop and ask yourself, Is what Im looking for necessary for the trade, or am I just looking for more comfort? #5 BECOMING TO COMPLACENT: HOW TO ELIMINATE IT 1Reduce your lot size by half. If you typically trade 1,000 share lots, drop to 500 shares. TIP: We have found that the best time to put action 1 into practice is after experiencing four to five winning trades in a row Reduce the frequency of your trades. TIP: Action 2 is best put into practice after two consecutive losses have followed an enduring winning streak. #6 WINNING THE WRONG WAY: Stay debt free. Make sure you are winning the right way.

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After winning trade, review each component of the trade, the entry, the initial stop placement, the waiting, the money management, the exit, etc, TIP: One of the key problem is associating the feelings of a winner to those trade that really are hot wins. Recognize that the two evil. As, hoping and holding, will be the major culprits that most frequently lead to winning the wrong way. #7 RATIONALIZING:

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Switching time frame Planning the trade and failing to trade the plan Rationalizing HOW TO ELIMINATE IT:

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First the traders must realize they are rationalizing

KEY SIGNS Asking WHY a stock is acting a certain way. The reason behind a stocks behavior should have no bearing on a traders planned course of action. Exit First, ask the questions second. B) Checking for news, when the real purpose behind checking the news is to postpone an action that was planned, it is nothing more than an exercise in escapism. C) Thinking in terms of MAYBE Exit the position, if you are trying to find a reason to stay in a position, it is obvious no reason is apparent. Searching for a reason means you dont have one. And a trader whos in a stock without a firm reason will be a loosing trader. A)

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FACT: There are 2 types of mistakes or losses. 1. Those that are due to the law of averages and therefore unavoidable. 2. Those that are the result of the 7 deadly sins and/ or the faulty execution of the trading plan. 1. 2. 3. Take a page in your Pristine trading journal and divide it into 2 columns. Title the left columns: YOU CANT WIN THEM ALL Title the right columns: KILL THESE OR BE KILLED SEPARATING THE GOOD LOSSES FROM THE BAD LOSSES 1Thoroughly review the individual components of each losing trade, the entry, the trade management, that is, the initial stop placement and the trailling stop method, the exit. If, after the review, you decide that no errors were commited list it as of those YOU CANT WIN THEM ALL trades, and move on to the next trade. Kill these or be killed.

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12 TRADING LAWS OF SUCCESS #1 KNOW THYSELF: 1. 2. 3. Am I patient? Do I feel safe in the hands of time? Does the increase in time make me grow more nervous?

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What is my comfort level for risk? Am I one who is willing to take a bigger hit in exchange for potentially scoring bigger? Do I tend to be more comfortable going after smaller, less significant price moves, while keeping my losses at a minimum?

If the answer to this question is yes, you are a short term trader by nature. WHICH TECHNIQUES AND TACTICS TO FOCUS ON? 1234567Am I a gambler? Do I like to put my stake on the line in a big way? Am I the type who likes to score in tiny bits and piece? Am I cheap? Does price or quality mean the most to me? Do I hate even small losses? Is the thrill just as important as winning? #2 KNOW THY ENEMY Some of the Major Market Maker are Goldman Sachs ( GSCO), Merrill Lynch ( MLCO), First Boston (FBCO) 12Never place a trade without first asking, WHOS ON THE OTHER SIDE OF MY TRADE? Never look beyond yourself when laying blame.

#3 GET THEE SOME EDUCATION, FAST. 1Seek out a quality firm that offers a training program for traders. a) Pristine.com b) Cornerstone Securities, Inc. c) Traders edge net ( Day trading.com) 2- Read the trading books that really count. Recommended reading: How I made 2 million in the stock Market, Nicholas Darvas Trading for a living Dr. Alexander Elder. How to make money in stocks( William J ONeill) The disciplined trader ( Mark Douglas) Winner take all ( William Gallacher) Reminiscences of a stock Operator ( Edwin Lefever) The electronic day trader ( Marc Freidfewrtig) How to get started in electronic day trading (David Nassay) Strategies for the On Line Day Trader ( Fernando Gonzales)

#4 PROTECT THY MOST VALUABLE COMMODITY THE SWING TRADE: 12First, we enter based on one of 3 entry method. The specific entry price is typically based on the daily price chart. Once weve bought the stock, we establish a protective sell a 1/16 to 1/8 below the current days low, or the previous days low, whichever is lower. This initial protective sell price would stay in place for 2 complete days with the entry day counting as day one. After 2 days, we often make adjustments upward to protect some of our profits. THE INTRADAY TRADE

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FIRST: This entry price is usually based on the 5 or 15 min. price chart. Once weve bought the stock, we place a stop 1/16 below the low of the current 5 or 15 min. bar that was bought.

#5 KEEP IT SIMPLE Decide today that youll become a master of the basics. 1- Will your trading tactics and techniques thoroughly confuse an intelligent 12 year old? 2- Does your approach call for mathematical calculations? 3- Do you need a calculator to trade? 4- Are more than 3 pieces of software required to come up with your trades? 5- Will it take more than 5 min. to write out your trading strategy on paper?

#6 LEARN FROM THY LOSSES.

#7 KEEP THEE A TRADING JOURNAL. Ex: Date of Trade: Market Rating: Symbol: Share Size: Type of trade: Style of trade: Entry Price: Reason for Entry: Initial Stop Price: Objective: Sell Date: Sell Price: Reason for Sell: Result: Error 1:

Error 2: Error 3: #8 DONT MAKE LOW PRICED STOCKS THY MAIN FOCUS: Buy fewer shares in the higher price ranges, simply because the odds are much better.

#9 DONT DIVERSIFY: TIP: As an astute trader, you should question everything and put to the test of reality even the most fundamentally accepted axioms. Curiously, we found that being well diversified actually curtailed ones progress and cut short the potential profitability when a trader was right. Think about it. What traders need diversification when they can produce 8 winning trades to every two losses? # 10 REALIZE THAT NO ACTION IS , AT TIMES, THE BEST ACTION: Inaction is a very potent tool that only the mosts successful traders learned to use. # 11 KNOW WHEN TO BOW OUT GRACEFULLY: If one or more of the occurrence take place. ( Bow out) Youve lost 2 times in a row after an enduring winning streak. TIP: Traders often undo themselves by self-destructing immediately after a winning streak. 2- The market as measured by the S&P FUTURES contract violently turns negative. TIP: The S&P FUTURES contract is a key market leading indicator. It often give watchful traders advanced noticed of market turns. 3- You feel off base, uncertain, confused, disoriented, and you dont know why. TIP: Overtime traders tend to develop what is called a traders GUT . The Master Trader with a well developed gut learns to respect these HINTS. 4- Your pre-determined trade plan is shattered by some sudden market even. TIP: It is always best to step aside whenever a monkey wrench gets thrown into your trade plan. 5- You feel ill. TIP: Traders are like professional athletes. They must keep themselves in good physical and mental health. 6- Your frame of mind is frazzled. TIP: The traders s most potent weapon is a serene mind set. If mental equanimity is absent, sound- trading decisions will be absent. 7- You are dealing with a personal problem. TIP: Personal problems affect the mental equanimity, which in term affects trading decisions. # 12 DONT EVER MAKE EXCUSES THEY NEVER MADE ANYONE A DIME. 1-

Secret # 1: There is no gift on Wall Street Secret # 3: Professional sell hope; novices buy hope. Secret # 4: Home run are for losers. Secret # 7: Buying after the open is usually better. It should be remembered that stocks gapping open by more than 50 cents should be purchased based on our 30 min. gap rule. Secret # 8: It usually doesnt pay to take profit before the open. Teach traders to especially refrain from selling a stock before the open, if it is trading up in pre-market activity. NOTE: Whenever we have a trader, who is holding a rather large but profitable position that is trading up in pre-market activity, we instruct him to sell half before the bell, with the idea of letting the rest ride into the open. This is an excellent alternative if pre-market gain you have starts to burn a hole in your pocket. TIP: When in doubt about which one of 2 possible actions should be taken, try to do both, the truth is usually in the middle. Secret # 9: 11:25 to 2:15 EST is the worst possible time to trade. It is the 1st part of the day and the latter part of the day that have always offered day traders the very best trading odds. Secret #13: Paying up for stocks betters the odds. It should be clear that we specialize in two forms of trading. Swing traders who focus the bulk of our efforts on discovering stocks that are on the verge of a near term multi-day move ( 1 to 5 days) also professional intraday traders, who focus on discovering stocks on the verge of a micro-move over the next moments. Obviously, with such a short term time horizons, we cant afford to tie up huge chunks of our capital in stocks, which may linger on the launch pad for days, weeks or even months. As a result, we demand a stock to demonstrate its ability to move in the desired direction before we jump on for the ride. TIPS: Remember that all stocks are bad unless they go up.Just as important, our approach of buying a stock on strength has saved us more money than any other trading tactic ( besides the stop loss) in our arsenal. Isnt knowing exactly HOW to buy just as important as knowing WHAT to buy. The Master SWING TRADER, one looks for 1/5 or 10 day moves, typically looks to buy a desired stock once it trades above the prior days high. The Master MICRO TRADER or day trader looks to buy once the desired stocks takes out the high of a 2/5/15 min. bar on the price chart. THE MASTER MICRO TRADER: simply waits for the stock to signal that the coast is clear. That signal is the stocks ability to trade above the last periods high as described earlier. Only when it has gained the strength to do that does the Master Trader consider risking his familys financial future. Secret #14: THE BUY LOW SELL HIGH METHOD IS WRONG FOR DAY TRADERS. Concentrating on stocks that have already demonstrated their ability to rise is intelligent trading and investing. Focusing on stocks that are

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doing what we dont want them to do, in hopes that they will soon do what we want them to do, is nothing more than guessing and gambling. Secret #15: KNOWING WHATS NEXT CAN MAKE YOU RICH. Short-Term traders must not forget that a top down approach to the market ( macro to micro) can help us devise our short-term strategies with a greater degree of intelligence. The very best traders are constantly asking 2 questions: 1- How do I profit from what is happening in the present? 2- How do I prepare myself for the opportunities that will likely happen in the near future? DONT YOU DARE THINK THAT 2 PLAYS A WEEK ARE NOT ENOUGH ACTION DURING YOUR DEVELOPMENTAL PHASE

LESSON # 3: BUYING VERSUS ACCUMULATING Traders should buy stock that are in up trends while investors should accumulate those that are in the process of bottoming.

LESSON # 4: THE ULTIMATE DECISION MAKING TOOL

The ultimate decision maker must be predefined sell point, not the market. LESSON # 5:

your

stop

loss

order

or

your

SELLING THE DOGS AND BUYING THE DOLLS Quickly selling his losers ( dogs) to buy more of his winners ( dolls) LESSON # 8: TIME EQUALS MONEY Are you spending quality time after the closing bell, collecting your thoughts, reviewing your actions analyzing your trades, preparing for tomorrow, and/ or taking notes in your personal journal? If you want to be a winner, you must spend time planting the seeds of improvement each and every day. LESSON # 9 WINNERS MAKE IT HAPPEN, LOSERS LET IT HAPPEN In order to make success happen, traders must work study, review, practice, analyze, dissect, ponder, think, write, memorize, categorize, and organize HOURS after the close or HOURS before the open.

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MARKET TOOL # 1: S&P FUTURES (S&P) Standard & Poor 500 stock Index Future. The Master Intraday trades, would not even dream of trading without it as a guide. HOW MASTER TRADER INTERPRETS THE S&P FUTURES Key barometer of the overall market Often leads the direction of the entire Market Leading indicator for many individual stocks. Intraday moves in the S&P futures contract often precede similar moves in the preceding stocks. This fact frequently offers the alert intraday trader some interesting scalping opportunities. We monitor the S&P futures contract using , 2-5-15- min. charts.

HOW THE MASTER TRADER PLAYS THE S&P FUTURES Master Trader prefers to take intraday long position when the S&P is above its opening price and rising. Master Trader prefers to take intraday short positions when the S&P is below its opening price and dropping. Master Trader uses support and resistance analysis with the S&P to time intraday buys & sells Master Trader combines reversal periods with the S&P to anticipate potential market turns. Master Trader looks at 5 and 15 min. charts of the S&P with 200 simple moving averages (SMAS) surimposed on them. The 200 SMA often serves as significant intraday support and resistance for the S&P. MARKET TOOL # 2 NYSE TICK INDICATOR ($TICK) One of the most reliable market gauges available to the Intraday trader. Measures the number of NYSE stocks currently trading on an uptick (rising) versus the number of NYSE stocks trading on a downtick (declining) . An uptick is a transaction executed at a price higher than the preceding transaction while a downtick is the sale of a security at a price below the preceding sale. The $THICK helps the trader monitor the level of broard buying and selling in the market moment by moment. It also provides an instant snapshot of whos dominating the action, the bulls or bears. HOW THE MASTER TRADER INTERPRETS THE $THICK Reading between 300 and +300 indicate a generally neutral market environment. Reading near the +1,000 level indicates excessive bullishness, which is usually followed by a reversal to the downside. Reading near 1,000 level indicates an excessive bearishness, which is usually followed by a reversal to the upside.

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TIPS: A highly negative $THICK reading indicates that someone has yelled FIRE and those with the HERD mentality are all trying to simultaneously make an exit ( Sell) Spread reading of +1,000, often an enduring market correction typically puts in a significant bottom which often kicks off a multi-month rally. $ THICK spread measures the difference between the high $THICK reading of the day and the low $THICK reading of the day.

HOW THE MASTER TRADER PLAY THE $THICK: Master Trader prefers to take intraday long positions when the $THICK is rising. Master Trader prefers to take intraday short positions when the $THICK is dropping Master Trader looks for potential intraday longs when the $THICK reading reaches an extreme 1,000 or better. Master Trader looks for potential intraday shorts when the $THICK reading reaches an extreme +1,000 or better. Master Trader uses support & Resistance analysis with the $THICK to time intraday buys & Sells. MARKET TOOL # 3 NYSE TRADERS INDEX (TRIN) Description Formula: Advancing issues/advancing volume Declining issues/declining volume = TRIN

Know also as THE ARMS INDEX. Marvelous tool that helps us monitor the level of intraday TRADING risk in the market. HOW THE MASTER TRADER INTERPRETS THE TRIN: A rising intraday TRIN is short term bearish, indicating that risk for the intraday trader is increasing. A rising TRIN equals rising risk. This assumes a buy side bias. The short seller would consider a rising TRIN bullish. A declining intraday TRIN is short- term bullish, indicating that risk for the intraday trader is decreasing. Declining TRIN equals declining risk. Assumes a buy side bias. Trin also helps in determining the general health of the market TRIN reading below 1.00 generally means we are dealing with a healthy market environment. Assumes one is taking an intraday snapshot of the market environment. Its relevance from a longer term perspective is insignificant. A TRIN value above 1.00 generally means we are dealing with a riskier market environment. One more susceptible to an intraday decline or sell-off. TRIN lends itself to overbought and oversold analysis. If it drop below .35, the market environment has become too euphoric. A bullish intraday TRIN that drop below .35 tells us that

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the majority, the crowd, the masses have already commited to the market, and the market is in store for a strong intraday pullback. A reading above 1.50 would suggest too much bearishness, and a market that is poised to surprise the bears with a strong intraday rally. A closing TRIN at 1.50 or above shows a great degree of pessimism and late day bearishness. Panic selling has taken place right into the close, setting the market up for a reversal or snap back to the upside in the morning. TIP: A closing TRIN of 1.50 or greater, combined with a closing $TICK of 500 or more, increased the odds of a positive open the following day. HOW TH MASTER TRADER PLAYS THE TRIN.

Intraday TRIN is rising, more defensive by curtailing intraday plays on the long side. When is declining, more aggressive by stepping up intraday plays on the long side. TRIN below 1.00 maintains a buy side bias. TRIN above 1.00 maintains a sell side bias. TRIN drops to or below .35, looks to sell out of all longs, and begins a search for potential opportunities on the short side. TRIN rallies above 1.50 , look to cover all shorts, and begin a search for potential opportunities on the long side. MARKET TOOL # 4 NEW LOWS (NLS)

The NYSE daily new lows [NLS] indicator reports the number of Big Board stocks that have hit a new 52 week low. It offers one of the quickest and most accurate ways to measure the markets health. SELLING is the only thing that can cause a market to weaken or a stock to reach a new 52 week low. It is crucial to keep close tabs on any abrupt changes in the degree of selling. HOW THE MASTER TRADER INTERPRETS THE NLS The Rising NLs indicate markets selling pressure is accelerating, and the environment will likely become increasingly diffecult! Declining NLs tell us that buying interest is increasing, as selling is becoming more sparse, and an improving market condition will emerge. Daily NLs less than 20 represent the most bullish environment imaginable. This euphoric state doesnt normally last long, it tends to quickly lead to an easing of the market. Daily NLs between 20 and 40 represent a positive market environment Daily NLs greater than 40 represent a neutral or cooling off period for the market NLs greater than 60 signal a sickening or somewhat troubled market NLs greater than 80 represent a bearish environment. Shorting opportunities will typically abound. TIP: Noted that th NLs reading can register much higher than 80, but these occurrence are not frequent. Monitoring this simple statistic will help you maintain

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your sanity in the midst of some very questionable times. Suggested that you use this guide week to week. It will help to keep your finger on the 5 dominant states of the Market. State of greed and extreme euphoria [NLs below 20] State of health [NLs below 40 above 20] State of rest [NLs below 60 above 40] State of turmoil and confusion [NLs below 80 but above 60] State of fear and pessimism [NLs above 80]

HOW THE MASTER TRADER PLAYS THE NLs. NLs under 20 represent an extremely bullish market environment. Look to play the long side exclusively, also you want to be more aggressive in term of size and profit objectives. NLs over 40 represent a cooling off phase, provides an early warning sign that the market is a bit fatigued. The market offer short term trading opportunities in both directions. Master Trader will want to trade in and out quickly, as more will be very short lived. NLs over 80 signal a sloppy market environment. Master Trader focuses exclusively on finding shorting opportunities, as rallies will be sparse at best, and the path of last resistance will most definitely be to the downside. MARKET TOOL # 5: MIGHTY 5 INDEX General Electric (GE) is the market one stock to use as a general proxy for the health of the entire market. Whatever the market does GE will eventually do. NO LONG TERM PORT FOLIO SHOULD BE WITHOUT IT. CitiGroup, Inc. (C) encapsulates the entire financial industry. In C , you have the whole financial picture. Microsoft, Inc. (MSFT) astute traders can easily do this by monitoring the day to day action of MSFT. The ebbs and flows of the entire technology sector can seen and felt. DONT STEP INTO THE TECHNOLOGY SECTOR WITHOUT CAREFULLY CONSIDERING WHAT MSFT IS DOING. America Online (AOL) keeping a tabs on it day by day is a must for astute trader. A very real sense, AOL is the granddaddy of all Internet stocks, and it can single handedly serve as a barometer of the entire Internet sector. General Motors (GM) Cyclical stocks are extremely important to astute trades because they serve as a near perfect barometer of the economy. GM is a key cyclical stock, and therefore a key barometer in and of itself of the entire economy.

HOW THE MASTER TRADER INTERPRETS AND

PLAYS THE MIGHTY 5 INDEX.

When all five stocks in the mighty 5 Index are up, The Master Trader focuses exclusively on the long side. When all five stocks are down, he will focuses exclusively on the short [SELL] side.

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When Microsoft Corp. [MSFT] and America Online [AOL] are simultaneously performing well, Master Trader look for most, if not all, trading opportunities in the key technology stocks. When MSFT & AOL are both down, no intraday long plays in technology stocks are taken. Short plays, however, are an option under this scenario. When Citi Group, Inc. [C] is performing well [up decently on the day] the financial sector is supporting the overall market. This will often mean that intraday pullback in the market are buying opportunities as opposed to reason to get worried. Trading opportunities in the bank, brokerage and insurance sectors can also be looked for. The same apply in reverse. When MSFT is down big, many technology stocks will experience selling. Intraday rallies in the techs will tend to peter out quickly when MSFT is down big. This offers prime shorting possibilities. The same applies in reverse. When AOL is up big, trading opportunities on the long side will proliferate in the Internet sector. The Master Trader assumes pullbacks in Internet stocks are potential buying opportunities. The same applies in reverse. TIP: Internet stock traders who try to fight the direction of AOL will be playing with fire. If General Electric (GE) is up decently, and the market is down decently, assumes the market will eventually follow. Looks for early buy opportunities using support & resistance analysis and other trading strategies techniques. The same work in reverse.

Historically the most bearish month of the year is September. The most Bullish is May in the last 12 years. The best 3 months period to fully invest or Margins is NOVEMBER, DECEMBER, & JANUARY. October historically ends the bear markets The very Best 5 day span of the month to fully invest in the market are, the last, first, second, third and forth day of the month. The second day of the month is the single historical best day of the month.

CHARTING TOOL # 1 NARROW RANGE BAR ( NRB) Bar smaller than normal range between the high and low. The appearance of an NRB indicates that a dramatic decrease in volatility has occurred, and strong moves tend to emerge from these periods of low volatility. HOW THE MASTER TRADER INTERPRET NARROW-RANGE BARS (NRBs) Signifies that buyers and sellers are near equal in power. NRB it is only significant when it occurs after several normal- to wide range bars NRB offers one of the clearest possible signs that a strong turn is close at hand. A turn [rebound or decline] after an NRB will tend to be more potent and reliable than from a more normal size bar.

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When an to turn When an to turn

NRB occurs after a several bar decline, looks for the stock to the upside. NRB occurs after a several bar advance, looks for the stock to the downside. HOW THE MASTER TRADER PLAYS NRB

Looks to buy above the high of an NRB after a several bar drop Looks to sell below the low of an NRB after a several bar advance Aggressively often buy an NRB following a several bar decline, if it is above the open. Aggressively often sells short on an NRB following a several advance, if it is closing below the open. CHARTING TOOL # 2 REVERSAL BARS (RB)

It is marked by an initial, and often sharp move in one direction, followed by an abrupt turn, which ends the period in the opposite direction, below the starting point. HOW THE MASTER TRADER INTERPRETS REVERSAL BARS (RB) RB signify that a sharp turn or change of trend is close at hand A turn [rebound or decline] after an RB will tend to be more potent and reliable than a turn from a more normal bar. RBs show where shakeouts have occurred The bullish RB indicates that control of the market has shifted from sellers back to the buyers The bearish RB indicates that control of the market has shifted from the buyers back to the sellers A bullish RB is most significant when it occurs AFTER a several bar decline When a bullish RB occurs after a several bar decline, looks for the stock to turn to the upside A bearish RB is the most significant when it occurs AFTER a several bar advance. When a bearish RB occurs after a several Bar advance, look for the stocks to turn to the downside. HOW THE MASTER TRADER PLAY RBs Looks to buy above the high of a bullish RB after a several bar drop Looks to sell below the low of a bearish RB after a several bar advance The agressif often buys on the bullish RB just prior to the close. The agressif often sells short on the bearish RB just prior to the close.

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CHARTING TOOL # 3 TAILS TAILS: Mark where shifts in the balance of power between buyers and sellers have occurred. TOPPING TAIL: Which points toward the high, is formed by an initial move to the upside, which suddenly gives way to a sudden drop to the downside. BOTTOMING TAIL: Which points toward the low, is created by a stock dropping, and then suddenly reversing back to the upside.

HOW THE MASTER TRADER INTERPRETS TAILS A turn [ rebound or decline] after a tail will tend to be more pronounced Tails show where shakeouts have occurred A Topping Tail reveals where professional sellers are hanging out dumping stock on the general public. A Bottoming Tail reveals where professional buyers are hanging out, accumulating stock inexpensively The Bottoming Tail indicates that control of the market has shifted from the sellers back to the buyers. The Topping Tail indicates that control of the market has shifted from the buyers back to the sellers. A Bottoming Tail is the most significant when it occurs AFTER a several bar decline. When a Bottoming Tail occurs after a several bar decline, looks for the stock to turn to the downside A Topping Tail is the most significant when it occurs after several bar decline. When a Topping Tail occurs after a several bar advance, look for the stock to turn to the downside. HOW THE MASTER TRADER PLAYS TAILS Look to buy above the high of the bottoming bar after a several bar drop. Look to sell below the low of a topping bar after a several bar advance

CHARTING TOOL # 4 GAPS One of the most watched for charting events among Master Trader group, as they form the basis for numerous trading techniques. GAPS FALL IN 2 GROUPS UPSIDE AND DOWNSIDE An upside occurs when the opening price of the current bar is above the close and or the high of the previous bar.

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A downside gap occurs when the opening price of the current bar is below the close and or the low of the previous bar. HOW MASTER TRADER INTERPRETS GAPS Gaps are normally filled shortly after they are formed, particularly intraday Gaps often serve as price support & resistance, meaning they can halt and/or reverse rallies and decline that move into them Upside GAPS occur AFTER several down bars are professional in nature. Upside Gaps from oversold conditions are typically signs of early professional buying. Upside GAPS occur AFTER several bars are typically amateur driven. Upside gaps from overbought conditions are typically signs of late novice buying. Downside GAPS that occur AFTER several up bars are usually professional in nature, downside gaps from overbought conditions are typically signs of early professional selling Downside GAPS occur AFTER several down bars are typically amateur driven. Downside gaps from oversold conditions are typically signs of late novice selling. HOW TO PLAY GAPS Look to buy above the high of an upside gap from an oversold condition. Look to sell below the low of a downside gap from an overbought condition. Intraday trader looks to buy the First pullback after an upside gap from an oversold condition Intraday trader look to sell the First rally immediately following a downside gap from an overbought condition. CHARTING TOOL # 5 SUPPORT AND RESISTANCE The concept of support and resistance forms the foundation for a whole host of day trading tactics. A price level or area at which the demand for a stock will SUPPORT: likely overwhelm the existing supply and halt the current decline. RESISTANCE: Is a price level or area at which the supply for the stock will likely overwhelm the existing demand and halt the current advance. MAJOR MAJOR prior MINOR prior and MINOR forms of support and resistance. SUPPORT: Comes into play when a stock is declining to retest a low. SUPPORT: Comes into play when a stock is declining to retest a high.

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Same for major & minor resistance. Major resistance once broken through, become minor support Major support, once broken through, become minor resistance.

HOW TO INTERPRETS SOPPORT AND RESISTANCE Major & Minor support and resistance are areas, not specific price points A prior low that has kicked off a sharp rally will typically serve as major support if and when it is retested. A prior high that has ignited a sharp decline will typically serve as major resistance, if and when it is retested. Low risk buying opportunities often present themselves in the area of major support Low risk shorting opportunities often present themselves in the area of major resistance In up trends areas of minor support become key potential buy points In down trends areas of minor resistance become key potential sell [ shorts] points Major and Minor support and resistance used in conjunction with any one or more of the other tools makes for powerful buy and sell opportunities.

HOW TO PLAY SUPPORT AND RESISTANCE Look for any of the key buy setups in the areas of major and minor support. A key buy setup at or near support will trigger a buy Look for anyone of the key sell setups in the areas of major and minor resistance. A key sell setup at or near resistance will trigger a sell. CHARTING TOOL # 6 RETRACEMENTS Is one of the main keys that unlock the door to predicting price movements and picking low risk entry points. They give a reference point for predicting where price turns might occur, and they also serve as a way to measure just how strong the preceding move was. It also prevent the trader from projecting his or her hopes and Fears into expectations of the next move. Retracements is a price move in the exact opposite direction of the most recent price move. Most important retracement levels are 40,50,60, and of course 100% also known as a double bottom.

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HOW TO INTERPRETS RETRACEMENTS Key retracement level are general guidelines or areas, not exact points If a stock experiences a shallow retracement [ 40% or less] the prior move is considered to be strong, and as a result the counter move should be strong. If a stock experiences a deep retracement [ 60% or greater] the prior move is considered to be weak, and as a result the counter move should be weak. The first retracement after a strong up move is buyable nearly 100% of the time. The first retracement after a strong down move is sellable nearly 100% of the time A 40% retracement after a strong advance is typically followed by a move to a new high. A 40% retracement after a strong decline is typically followed by a move to a new low. A 50% retracement after a strong advance often leads to a move with a 50/50 chance of exeeding the prior high. Same for reverse. A 60% retracement after a strong advance often leads to a move with a 1 in 3 chance of exeeding the prior high. Same for reverse. 100% downside retracement which sets up a potential double bottom, is typically followed by a 50% to 60% rebound. 100% upside retracement is typically followed by a 50% to 60% decline. Excellent entry points present themselves at or near all key reversal point: 40, 50, 60 and 100%. However the objectives on each are quite different.

HOW TO PLAYS RETRACEMENTS Look for buying and selling opportunities at all key retracement level: 40, 50, 60 and 100% Look to take profits decently above the prior high on shallow retracements [40% or less]. Same apply in reverse. Look to take profits at or slightly above the prior high on 50 % retracements. Same apply in reverse. Look to take profits slightly below the prior high on 60% retracements. Same apply in reverse. After 100% retracement, look to take profits on the counter move between 40 & 50% levels.

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CHARTING TOOL # 7 REVERSAL TIMES It should be noted that these Reversal times are intraday in nature. They serve as a valuable tool for microtraders who constantly look to exploit small price moves throughout the day. THE KEY REVERSAL TIMES ARE AS FOLLOW: 1234567809:50 10:25 11:15 12:00 01:15 02:15 03:00 03:30 --------10:10 10:35 11:30 12:15 01:30 02:30 PM PM AM AM AM PM PM PM

HOW TO INTERPRETS REVERSAL TIMES. 9:50 - 10:10 AM EST. A stock that is moving up into this reversal time zone will either stall or reverse and head lower. The same is true for the reverse. It is by far one of the most reliable reversal times in existence. 10:25 - 10:35 AM EST: A stock moving down into this reversal time zone will also tend to either stall or reverse back to the upside. If a stock is moving up into this time zone, it will often halt its advance or reverse and head lower. Also one of the more reliable reversal time. 11:15 - 11:30 AM EST: Tends to accomplish 2 things. 1st tends to halt the prevailing trend preceding it. Same goes for the reverse. 2nd: kicks of the period we call the midday doldrums. This is an elongated period that spans from 11:15 AM to 02:15 PM. During this extended time zone, many stocks, as well as the market as a whole, often go into a major lull. 12:00 12:15 PM EST: The most important on days in which the morning has been quiet or directionless. It kick off some major moves in both directions, but only when the preceding period was very quiet. 12:00 - 12:30 PM EST: Reversals are far less common than the preceding 3 reversal periods. 1:15 - 1:30 PM EST: One of the more minor reversal periods. Most significant when it coincides with the retest of a prior high or low. Retest that occur in line with 1:15 - 1:30 PM reversal time can present some interesting trading opportunities. 2:15 - 2:30 PM EST: Puts and end to the midday doldrums period. It also serves as a very reliable reversal period for stocks and the general market as a whole. Most important thing to remember, it often marks the precise period when things start heating up again. 3:00 PM EST: Often brings change because it coincides with the close of the bond market. Once bonds are out of the way, they cant help or harm the market. Often it results in stocks or the market

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taking on a different, more accelerated character. Time to be most valuable as a guide for S&P futures. 3:30 PM EST: Time often reverses any move that was kicked off at the previous 3:00 PM reversal time, particularly when the market is in a sideways trading range. The same situation occurs in reverse. Keep in mind that the last half hour is one of the most active for many day traders, as it often represents the last flurry of activity. 4:00 PM EST: Shortly after 4:00 PM time, almost everything stops

HOW TO PLAYS REVERSAL TIMES Look to buy set ups and other low risk entry points at or near the key reversal times. The trader combines the other trading tools, like narrow range bar, tails, climatic volume, and support & resistance, with the reversal times to predict the probability, direction, and potency of the potential turns. Uses reversal times as profit taking guides. Numerous buy & Sell [SHORTING] opportunities will present themselves at the key reversal times.

CHARTING TOOL # 8 CLIMATIC VOLUME Climatic volume, is one of the most valuable keys to predicting price turns. The traders who masters the art of reading price / volume relationships will be able to pick reversal points in stocks with an amazing accuracy. Volume, in its most useful form, tells us when a stocks is running out of buying fuel or selling fuel. Climatic Volume, after a strong advance or decline, indicates that a near term price reversal is at hand. HOW TO INTERPRETS CLIMATIC VOLUME: Volume is considered climatic when it exceeds two times the average daily volume over the past 10 days. It typically brings an end to the preceding up or down move After a strong, multibar move to the upside, indicate a top. In this case, buyers have used up all their fuel. After a strong, multibar move to the downside, indicate a bottom. In this case, buyers have used up all their fuel. It is more powerful as a concept when it occurs in conjonction with other charting tools. HOW TO PLAYS CLIMATIC VOLUME. When it occurs after a strong move to the upside, gets into buy mode. When it occurs after a strong move to the downside, gets into a sell mode.

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When long, look to take profits multibar move to the upside. When short, look to take profit multibar move to the downside.

when when

climatic volume climatic volume

follows follows

a a

CHARTING TOOL # 9 MOVING AVERAGES Moving averages are by far, the most superior trend following tools in existence. FIVE DOMINANT SIMPLE MOVING AVERAGE [SMA] 1- 10 SMA. A short- term used on stocks in the most powerful up and down trends. 2- 20 SMA A short to intermediate term. Our most dominant MA train our traders to regard the 20 MA as a permanent part of every chart, irrespective of time frame. 3- 50 SMA. An intermediate term MA. One of the more popular Mas, especially among institution. As a result of this professional attention, it should be preferred to frequently. NOTE: We have found that the 40 MA can be interchanged with the 50 MA. 4- 100 SMA. An intermediate to long term. Not a frequently used MA for day traders. 5- 200 SMA. A long term MA. One of the most reliable Mas in existence. We use it on daily charts and 15 min. intraday charts where its accuracy is unrivaled. HOW TO INTERPRETS MOVING AVERAGES No tool more reliable than Mas when dealing with stocks in up and down trends. No tools worse than Mas when dealing with stocks in sloppy sideways trends. Rising Mas particularly the 10, 20, and 50 SMAs, mean the stock is positive. As a result, declines will tend to be short lived and present very decent buying opportunities. Declining Mas particularly the 10, 20, and 50 SMAs, mean the stock is negative. As a result, rallies will tend to be short lived and present very decent shorting opportunities. The sharper the slope the more powerful the trend. Strong stock tend to halt their declines at or near rising Mas. Weak stocks tend to halt their rallies at or near declining Mas. The 10 SMA is best used on stocks in the daily time frame that are in very powerful up and down trends. The 20 SMAs is the traders most dominant MA, and should be used on virtually every chart, irrespective of time frame. The 50 SMAs should be referred to on a daily chart. The 100 SMAs should become a focus when a stock in an up or down trend has significantly violated the 50 SMAs. The 200 SMAs is best used on the daily chart and the 15 min. intraday chart.

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3 BROAD GROUPS: 1- Stock with rising 20 Mas, which represent a good starting point for buy candidates 2- Stocks with declining 20 Mas, which represent a good starting point for short candidates. 3- Stocks with relatively flat 20 Mas, which represent stocks in directionless trading ranges and or sideways consolidations. Other events, like NRBs, RBs, and climatic volume that set up at or near rising or declining Mas will offer amazing buy and sell opportunities. HOW TO PLAYS MOVING AVERAGES

When a stock in a strong up trends pulls back to retest a rising MA, traders go into buy mode. When a stock in a strong trend rallies back to retest a declining MA, the Master Trader goes into seel mode. CHARTING TOOL # 10 3 TO 5 BAR DROP

The 3 to 5 Bar Drop is the Master key to finding low risk entry points. The 3 to 5 bar drop is just that , a decline comprised of 3 to 5 consecutive down bars, the operative word being CONSECUTIVE a down is define by the following criteria: 1- Current bars closing price is lower than the prior bars closing price. 2- Current bars closing price is below the current bars opening price. 3- Current bars open is at or near the high of the current bars range. 4- Current bars close is at or near the low of the current bars range We have found that strong stocks [ those in an up trends] tend to rebound sharply after experiencing 3 to 5 consecutive down days. The strongest stocks will tend to rebound after 3 down days, while those, which are moderately strong, will do so after 4 to 5 down days. TIP: Any decline that exceeds 5 consecutive down bar is signaling weakness. It is after this simple but powerful event that the Master Trader steps into the arena to look for the right moment to strike [ENTER] . When is the right moment, you ask? AFTER A 3 TO 5 BAR DROP, THE MASTER TRADER BUYS THE VERY TIME THE STOCK TRADE ABOVE A PRIOR BARS HIGH. HOW TO INTERPRETS THE 3 TO 5 BAR DROP Stock in strong up trends will tend to halt their declines after 3 to 5 consecutive down bar. Excellent, low risk buy opportunities tend to set up after 3 to 5 bar drops. The best 3 to 5 bar drops are those in which each down bars opening price is near the prior bars closing price. 3 to 5 bar drops that involve gaps to the upside or downside generally weaken, if not violate, the pattern.

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A 3 to 5 bar advance, in the context of a downtrend, set up good shorting [selling] opportunities. The 3 to 5 bar drop combined with other tools and events, such as NRBs, Tails, Climatic Volume, Support & Resistance, and Moving Averages, set up near perfect buy opportunities. NOTE: The combinations form the basis for nearly all our trading tactics & techniques. HOW TO PLAYS 3 TO 5 BAR DROPS:

When a strong stock experience a 3 to 5 bar drop, look to buy above the prior bars high. When a weak stock experience a 3 to 5 bar advance, look to sell short below the prior bars low. TIP: After a 3 to 5 bar drop, buy the very next time the underlying stock trades above a prior bars high.

EXECUTION TOOL # 1 ELECTRONIC COMMUNICATION NETWORKS [ ECNS ] Nine ECNs have been formed. Island ( ISDL) Archipelago ( ARCA) Instinet ( INCA ) Bloomberg Tradebook ( BTRD ) Spear, Leeds and Kellogg ( REDI ) Attain ( ATTN ) Strike ( STRK ) Brut ( BRUT ) Next Trade ( NTRD ) HOW TRADER USES THE ECNS When traders are biding for a stock below the current offer {ask} price. Best results are achieved by placing the bid on the most liquid available ECN, which is typically ISLD. NASDAQ LEVEL II Watch where the size is being traded. Are the sizable prints occuring on the bid or the ask? Trader will always watch the size displayed by market makers and ECNs and the tape [ Time & Sales] to determine the major players real intentions. MARKET MAKER CHARACTERISTICS GSCO: Most formidable firm on Wall Street considered the most powerful and most honest meaning is bids and offers are real to survey will give a good clues. AX SBSH: One of the largest firm on the street, notice that the weight is far greater on the sell [ OFFER] side than on the buy [ BID] side. MLCO: The largest brokerage company in the U.S.A. AX

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NITE : SLKC: Largest NYSE specialist firm in existence. MASH: HMQT: Techno HRZG: Techno stocks PRUS: MSCO: FBCO: PWJC: MONT:

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