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www.tradersworld.com | May/June/July 2014
How to Trade Like W.D. Gann
Signals for Traders
Are We in A Bubble?
Using Float Volume
Analysis for Better
Stock Traders
Momentum
Trading Advances
over Trend Trading
Issue #57
My
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Larry Jacobs - Winner of the World Cup Trading
Championship for stocks in 2001. BS, MS in Business
and author of 6 trading books.
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Contents
AMAZON
J.P.M.
FUTURES: GOLD - SILVER COPPER - T-BONDS
CRUDE - COFFEE SOYBEANS CORN OJ
STATEMENT OF INTENT
WALKERS
&
WWW.SACREDSCIENCE.COM/WALKER/HOWTOTRADELIKEWDGANN.HTM
FEEDBACK SEE:
STATEMENT OF INTENT
This course presents a detailed analysis of the entire
sequence of 322 trades from 1915-1931 presented in WD
Ganns US Steel trading course. The specifics of these
trades and of Ganns Mechanical Method provide profound
insights into the mind of one of the greatest traders of
history.
WWW.SACREDSCIENCE.COM
turns as possible.
However, it took a lot of study and work to
master his forecasting systems, and so for some
years he devoted his energies to designing a
mechanical system which he could teach to
traders with little or no previous experience.
In 1930 he published this mechanical system
for the first time, calling it the Method for
Trading the Overnight Chart.
The rules of the trading system itself were
fairly straightforward, covering 4 pages and
consisting of 9 rules and an explanation of
how to draw a swing chart. But he then went
on to illustrate the system by applying it to
US Steel, at the time the largest stock on the
board. He covered over 300 trades spanning
a period of more than 16 years.
At that time, it was not practicable to
sell a course accompanied by daily charts
covering such a long period, and so all the
explanation had to be given in the text. This
makes for pretty dry reading, to put it mildly.
But it occurred to me that he must have had
a reason for going over so many trades, and
so I decided to search for the price data to
construct the charts.
This was easier said than done. The archivist
at the NYSE replied that they didnt have
data back that far. The US Steel Corporation
itself, which is still listed, had data from 1950
onwards, which they happily shared. But this
wasnt a help, because Ganns lesson covered
the period from 1915 to 1931. Eventually the
only solution was to go to the library and look
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Chart 1
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Chart 2
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10
that price.
Although the market went a fraction lower
on 5 February, Ganns rule for stops would
have kept the long trade intact, and we are
placed to take the full benefit of the strong
rally that followed. An extra contract is bought
at 1786 and another again at 1836. All 4
contracts were stopped out at 1860 on 12
March. Total profit 346 points.
Total profit on 3 trades is 572 points or
$28,600. Thus the return on our $50,000
capital over the first 3 months of the year,
without deductions for commissions, was
57%. But dont forget that we are only trading
with 10% of our capital in this example, so the
returns on the actual at risk investment are
much higher. If we consider that our initial
investment was approximately $5,000, and
we generated a $28,000 return, we actually
produced 570% on our initial investment in
only 3 months! Not bad for a relatively simple
mechanical system
Currently we would be short 2 contracts at
1860. Again being careful not to move stops
too close in a see-sawing market, the initial
stop above the 7 March high would now be
moved down above the two swing tops on the
13th and 21st.
This, of course, is a paper-trading example
only, but it serves to illustrate that the rules
Gann wrote almost 90 years ago can still
be applied profitably by a trader in the 21st
Century.
[How to Trade Like WD Gann is published
by the Sacred Science Institute,
www.sacredscience.com/Walker/
HowToTradeLikeWDGann.htm]
11
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12
or a downswing? Is it in an uptrend or a
downtrend? Is this trend about to end? How
can I manage risk?
How do the OT Signals technical analysis
tools answer these questions?
First consider the BSH (Buy, Sell, Hold)
indicator which comes in two varieties: BSH Line
and BSH Bars. Our trading algorithm examines
every trading bar in three different time frames:
intraday, daily and weekly. Then it assigns a
buy, sell, or hold rating for each timeframe. Buy
bars are painted green, sell bars are red, and
hold bars are blue/white. (Chart 1)
For both line and step charts, the BSH Bars
indicator displays the buy, sell, and hold ratings
below the chart in bar format. A buy rating is
assigned a value of 1, a sell rating is given -1,
and hold rating is 0. (Light green bars in the
middle panel on chart 1.)
The BSH Line Indicator displays the same
information but on a cumulative basis. For
Chart 1
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13
Chart 2
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14
Chart 3
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15
www.OddsTraderApps.com
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17
IN
7 YEARS!
TO
PRODUCE
2012 TOP
18
Are We In a
Bubble?
By Daniel T. Ferrera
19
20
In order to make a future forecast, one must visually inspect the available data for recurring
price patterns, number intervals, cycles and so on. Looking at the market from this type of
perspective also reveals a strong seven-year interval. The market has pronounced lows in
1988, 1995, 2002 and 2009.
Additionally, the market also has noticeable tops in late 1993, 2000 and 2007. Thus as
a simple arithmetic exercise, one could estimate that from a historical perspective it seems
probable that there should be a top in the year 2014 and a low near 2016, if this sequence
continues.
While there are historical examples where speculative stock market peaks have crashed
and collapsed in relative short order, it is more typical for a market peak to be an unwinding
www.tradersworld.com May/June/July 2014
21
process as opposed to an event. This can be seen presently via diverging indexes.
For example, the Dow Utilities peaked on April 30, 2014; the Nikkei peaked on December
30, 2013; the Dow Industrials peaked on December 31, 2013; the Dow Euro Stoxx 50 Index
peaked on January 15, 2014; the German DAX peaked on January 17, the London FTSE peaked
on February 24, the Russell 2000 peaked on March 4; the NASDAQ 100 peaked on March 5;
the NYSE Composite peaked on March 6; the S&P 500 and Dow Transports peaked on March 7.
Considering that the current price advance from the March 2009 low is equal to the entire
bull market run of 1995 to 2000 (log scale), investors should understand that the present level
of risk has also reached new high levels as well. That is, of course, only true if readers believe
the simple logic that the risk of falling increases incrementally as prices escalate to new highs.
Surely, the higher prices go, they must be getting closer and closer to the final extreme price,
just as the inverse would be true for falling prices and a final low.
If the 7-year interval is anticipating a high for 2014 and a low for the year 2016, what other
evidence supports this scenario? For starters, the comparison of prior parabolic markets yielded
the 5-year 2-week measurement that suggests a top for March 21, 2014, which coincidently
also happens to be the 14-year anniversary of the tech bubble of March 2000.
Other evidence that supports the potential for a low in 2016 besides the 7-year cycle
includes the 42-year cycle running from 1932 low to the 1974 low and then from 1974 to
2016. In addition, since 1982, stock market lows have occurred at Fibonacci intervals (1, 2,
3, 5, 8, 13, 21, 34, 55.) giving the years: 1984, 1985, 1987, 1990, 1995, 2003, 2016 and
2037. Thus if these numerical patterns continue, then the year 2016 would be expected to
bring in a notable stock market low, which logically must be preceded by a stock market top.
Given the present time frame, that only leaves 2014 or 2015.
Statistically speaking, the year 2014 already gave a strong bear market signal this past
January when all the major indexes traded below their lowest levels of the month of December
2013. While not infallible, when this situation does occur, there are greater odds of ending the
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22
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GOULDENS
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38
39
Graphic-1 shows: The trader, who executes the orders, does not stand alone; there is a
support- and control network for him/her to rely on.
Analysts: They prepare the base information, where money moves and in which assets to
participate in.
Back Office: The data miners are putting statistics together on trades that worked and did
not, producing a track record for the trader to study and improve in his/her score card.
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40
Risk Manager: Gives clear guidelines, makes an agreement and monitors with the trader;
what to trade; when to trade; how to access and accept risk; position sizing; when to enter,
exit or protect trades.
Trader: Executes and monitors the orders, decides to reduce or add to a trade, applies
position sizing.
As a private investor, you are on your own and somehow you need to build up this pro-tradernetwork at your home office.
How can you do that?
Point 1: Find or build your high probability trading system with defined trade entries and
exits.
Point 2: Define rules for acceptable risks and position sizing.
Point 3: Subscribe or build a trade alert service, for knowing which assets are on the move.
Point 4: Record your trades on a score card to check what worked, what did not and how you
complied with your own rules.
Constantly work on improving your trading.
Before we start building a trading system with you, let us ask a key question:
How often can you trade?
Possibility A: 3-times per Day or about 600 times per year.
Possibility B: 3-times per Week or about 150 times per year.
Possibility C: 3-times per Month or about 30 times per year.
If you can participate in 100 1000 trades per year, this article will give you an exciting
opportunity to better your trading. In case you can only produce around 30 trades per year,
we would rather focus you on making constant income from your positions and how to hedge
and leverage your investments; however, this is not part of this publication.
Why to use a Momentum Based Trading System?
In the following, we want to share with you, how to build a momentum based trading system
step-by-step; however, there is a little prelude:
41
If trading was easy, nobody would ever go to work. Hence, it will be an investment for you,
in time and effort to evaluate, validate, and put what is shared into action, considering that:
The majority of the private investors want to trade their style and sacrifice money rather than
applying a proven method for trading the financial markets.
With this repeated, let us dive into the world of Momentum Trading:
Definitions:
A momentum trade is oriented towards a short-term directional price-move; with or against
the prior direction; closing the trade when the set short-term price goal or stop level is
reached.
A trend trade has a longer-term perspective, setting its price goal further out; assuming that
the price-move in the chosen direction will continue for a longer time period.
Time Perspectives:
Momentum Trading: The average time in a trade is 1-5 bars with a pre-defined exit.
Trend Trading: The average time in a trade is 10 50 bars with a trailed exit.
Conclusion: You can realize 10-times more momentum trades than trend trades per time
period observed.
When we assume that a momentum trade has a $1 target, then every trend trade has to
produce $10 to put the two trading methods at par:
Alternative 1: Momentum Trades: 100 trades x $1 = $100
Alternative 2: Trend Trades: 10 trades x $10 = $100
Trend trading in general enjoys a very high popularity, assuming that a trend trade has the
same risk as a momentum trade, while it aims for a much higher target.
Table-1: Base Assumption to Favor Trend Trading over Momentum Trading
Method
Momentum Trading
Trend Trading
# Trades
100
10
Target
$ 1.00
$ 10.00
Win
70%
70%
Loss
30%
30%
Expectation 1
Risk
$ 1.00 $
40.00
$ 1.00 $
67.00
If the calculation of table-1 holds true, trend trading produces a 68% higher return than
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42
momentum trading.
Let us check, validate or falsify this hypothesis:
Assuming that we find a trade setup, which produces a $10 move on a $1 risk, is not highly
probable, else every trader would be a billionaire. Studying the price move characteristics of
various asset classes and norming them on the basis of a $1 risk, we found the following:
Action A: 50% of the price moves retrace after the first price-increment-move.
Action B: 65% of the price moves retrace after the second price-increment-move.
Action C: 85% of the price moves retrace after the first price-increment-move.
Action D: The remaining sample continues its price move; however a 1:10 move is very
unlikely.
Comparing trend- and momentum trading, we use the following conditions:
Condition 1: Applying a high probability trading system with a 70% win rate (seven out of
10 trades).
Condition 2: Comparing trend- and momentum trading at the same asset and time frame.
Condition 3: The initial stop is at the high/low of the trade initiation candle, losing what we
aim for.
Condition 4: For trend trading, we trail our stop to entry, after the initial price move in the
desired direction (column with the word Entry) or even more brave: We trail the stop to
realize at minimum -momentum-move, which equals a $0.50 return (column: -Return)
Trend Trading Statistics with Trailing Stops
Trades
50% of the price moves retrace after the first price-increment move
65% of the price moves retrace for the second price-increment move
and use this result after the trading system comparison.
85% of the price moves retrace after the first price-increment move
Table-2:target (not Trading with Trailed Stops and Reversals
Rest goes to Trend likely)
Expected Result
3
2
1
1
7
Entry
$
$
2.00
$
2.00
$ 10.00
$ 14.00
1/2 Return
$
1.50
$
3.00
$
2.50
$ 10.00
$ 17.00
Surprise: Considering retracements, in the best case, we only produce an average return of
$17 from seven positive trades. Assuming a 30% loss rate from trade initiation, produces a
$3 negative impact and a total return of $14. When we compare the results of trend trading
to momentum trading, we see a relation of a $14:$40: An about three-time higher return of
momentum trading under the same conditions (Expectation 2).
43
# Trades
100
10
Target
$ 1.00
$ 10.00
Win
70%
70%
Loss
30%
30%
$
$
Risk
Expectation 1 Expectation 2 Advantage
1.00 $
40.00 $
40.00
286%
1.00 $
67.00 $
14.00
This is why Momentum Trading has an edge for the private investor:
Trade setups found, have a high probability to retrace after a first momentum move and thus,
trend trading has a lower expectancy than momentum trading.
Let us help you in building a momentum based trading system, with focus on frequent trading,
where the cross average positive trade outcome has a higher priority than the individual trade.
Building a Momentum Based Trading System
If you trade frequently, trade participation costs need to be considered:
Consideration 1: Commissions for entering and exiting a trade.
Consideration 2: Bid/Ask spreads for getting your orders filled.
In every trade, we have to cover those costs and calculate the minimum price move and
related probability for success to aim for:
Calculating Minimum Price Moves for Stocks
with a 1:1 Reward/Risk Ratio:
Assumption 1: You pay about 1-cent Commission/Share= 2-cents for a round trip.
Assumption 2: For getting filled, we usually sacrifice 1-cent at Entry and Exit = 2-cents
round trip.
Result = 4-cents of Trading Costs per Investment.
Conclusion 1: A $0.17 target then relates to a $0.13 Gain and a $0.21 Risk. For reaching
profitability, a trading system, which produces an above 62% rate of success, is needed.
Conclusion 2: When we increase the target to $0.25 and deduct the 4-cents, we attain a
$0.21 Gain and a $0.29 Risk. Hence, you need a trading system with a probability above 58%
to produce positive results.
44
45
On graphic-2, you recognize examples of clearly spelled out trade entry rules: Buy>426.29
for example; only if this price threshold is surpassed a trade entry is validated and happens.
In addition: Calculate an average expected price move after a trade signal is validated, which
helps you to define your trade target and the relating reward to risk setup. Various methods
can be used. A very basic way of formulating the momentum based trade target is to take the
high-low-difference of the trade initiation candle.
To test the win/loss ratio of your trading system: Take a sample of 100 trades, with specifically
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46
spelled out entry and exit parameters, count your winners and loser; if you achieve more than
60 winners you trading system is suitable for momentum trading.
Action-2: Find favorable trade setups through building or subscribing to a trade alert service.
As a momentum trader, you want to trade where the money moves; hence, do not stick to a
limited set of assets, expand your view and fish, where the fish are.
Many traders like to focus on one asset or asset class only:
Example 1: I am trading the S&P Emini; however, you might be missing out on major price
moves in Gold, Crude Oil, Wheat, Corn, Euro or Stocks.
Example 2: I am only trading AAPL; however, you might miss great opportunities in BIDU,
NFLX, F and many others, while the AAPL share is sitting idle, not giving you a trade signal.
This is where market scanners and price move seekers come into play. NeverLossTrading for
example, provides you with detailed overviews of assets on the move:
Offer 1: Day Trading Alerts: Stocks, Options, ETFs, Futures, Forex.
Offer 2: Stock Trading Alerts: Stocks for Short-Term Trading, Swing Trading, Long-Term
Investments.
Offer 3: Long-Term Investor Alerts: Receive a 1-5 week perspective for, Stocks, Options,
Futures, Forex.
Action-3: Build a Momentum Trader Mindset
Feel, think and trade in probabilities
The individual trade does not matter:
Matter 1: Your trade setup triggers your entry and exit.
Matter 2: You decide the position sizing by a risk approximation.
Let us give you an example of a momentum based trading system, where you trade on price
breakouts and reversals from a specified price range:
Action 1: Trades are initiated when prices break out of the cyan zone and revert to the zone.
Action 2: The average trade gain is what matters.
47
Black arrows on the chart identify trade entries at specific conditions, when the price leaves
the cyan color price range. The dashed line sets the target for breakout- and reversal trades.
Stops are set at the high/low of the trade initiation candle, giving you the relation from risk
to reward. Next, we build an investment scheme for position sizing.
Action-4: Risk Handling
At every trade initiation, we act under ambiguity, estimating an uncertain outcome; however,
by knowing the strength of our signal, considering support/resistance points, we can combine
the approximated likelihood for success with the reward/risk ratio and decide for our position
size:
Action 1: -Postion or no trade at risky setups: higher risk than reward.
Action 2: 1-Lot at usually setups: Signal with risk/reward at par.
Action 3: 2-Lots at favorable setups: Lower risk than reward.
Action 4: 4-Lost at home run setups: Very little risk to accept
At this point, you might ask: Why to even take a 1/2-position trade when the risk is too high?
The -positon mentioned, relates to a setup, where the maximal risk shall be 1.2-times
the assumed reward and thus provides you at an above 60% probability for success with an
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48
Lot Equation
Account Size
Assumed Active Positions to Hold
Average Lot Size (calculated):
2-Lots of AMAT equates to:
Investment Amount:
Trade Reward at 250 Shares
Trade Risk at 250 Shares
$
$
$
$
AMAT
up
Dark Green
0.72
39.99
39.39
40.62
$
$
0.63
0.60
1.5%
1.6%
1:1
Input
Select
Select
Input
Input
Input
Input
Stock Symbol
Put or Call Option
Time to Expiration (days)
Delta (enter positive values)
Price for the Option
Bid/Ask Spread
Calculated
Calculated
Calculated
Calculated
Calculated
$
$
$
$
$
50,000
10
5,000
250
9,998
157
150
Input
Input
Calculated
Shares
Calculated
1.6%
1.5%
Lot Equation
Dedicated Option Budget
Assumed Active Positions to Hold
Average Lot Size
1-Lot of AMAT equates to:
Investment Amount
Trade Reward at 20 Contracts
Trade Risk at 20 Contracts
AMAT
Call
$
$
$
$
Calculated
Calculated
Calculated
Calculated
Calculated
Acceptable
Enough Time
1.5:1
1-Lot
$
$
$
$
$
10,000
10
1,000
20
1,000
484
596
1.5
Input
Input
Calculated
Contracts
Calculated
48.4%
59.6%
The AMAT example shows that the trade setup more favorable for trading stocks: Proposing two lots, while
the option trading setup has a one lot proposal.
With a momentum based trading system, the markets always move enough to provide you
with an income opportunity, regardless if you want to:
Goal 1: Produce supplementary income.
Goal 2: Build a retirement budget.
Goal 3: Trade for a living.
Goal 4: Generate wealth.
Action-5: Have the instruments on hand to trade the markets to the up- and downside
For momentum based trading, you cannot only rely on trades to the upside. You need to find
yourself applicable trading strategies, which allow you to short stocks and other assets, even
in an IRA account.
Education and training in applying option strategies with or without holding the stock are
essential. To learn this practice a books is a start but usually not good enough to put you in
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49
action. If you want to read about simple option strategies you can apply from the get-go,
check this book published by the author of this article at Amazon: My Stock Market Income.
Q&A Session
When things sound too good to be true, we are usually looking for a way to falsify the given
concept by changing the conditions:
Q: What, if you dont find a new momentum trade?
A: If there is no trade, there is no trade. We only trade when we have a favorable setup with
the odds are in our favor. Never force a trade; however, with the amount of assets floating, it
is unlikely that we do not find an instrument to invest in after we closed a momentum trade.
Q: Did you check the system under a different condition, like: Four momentum trades versus
one trend trade instead of a 10:1 ratio?
A: Yes, we did and we can give you an example, where we were looking in particular for this
constellation; however, before we go there, one of the prime conditions of momentum trading
is: Do not stick to one asset or asset class. Assuming, in hundreds of considerable assets,
you cannot find one with a new trade setup, is close to impossible. Hence, you will have a
reinvestment opportunity that increases our participation rate to the 1:10 ratio, between trendand momentum trading. You will see in our MSFT example that the average momentum trade
lasted for 2 days in an observed period of 20 days, where only one trend trade substantiated
itself, which brings us back to the 1:10 ratio of trend- to momentum trading.
The MSFT example, which we evaluate, shows four momentum trades and one trend trade.
Taking the given price moves, we calculate the balance for just trading MSFT, while in reality,
the moment we had our money back, we do not wait for MSFT to throw us another signal.
In the MSFT trade constellation, you see:
Observation 1: Four momentum trades, with a calculated $0.60 gain each.
Observation 2: One trend trade, with a trailed stop at the red line, capturing a $1.75 gain. All
other attempts to initiate a trend trade failed and the trades got stopped at entry, producing
a zero loss, costing only commissions.
Observation 3: All trades were taken from the NLT HF Dark Green Signal, which indicates
a momentum- and volatility change of the stock in the observed time period of one month.
Trades were initiated from a daily chart, with an average expected move of the MSFT by $0.60
= 1-SPU (Speed Unit, a term used in NeverLossTrading).
50
Observation 4: All other trade signals besides the dark-green ones were disregarded in this
example.
Graphic-5: MSFT Momentum and Trend Trades
In our MSFT example, we will calculate the results on a cash-basis (no margin applied). The
capital involved in this example is $28,500, applying a 1-cent per-share commission.
On table-4, the Momentum section shows four momentum trades. In the table below (Trend),
we had four attempts to initiate a trend trade: Three got stopped and one trend trade concluded
and came to target, trailed by the red line on the chart (NLT Double Decker Line).
Table-4: MSFT Example for Momentum- and Trend Trading
Momentum Direction
Trade 1
Short
Trade2
Long
Trade 3
Short
Trade 4
Long
Entry
Shares Share Invest
$ 28.50
1000 $ 28,500.00
$ 28.90
1005 $29,044.50
$ 29.00
1022 $29,638.00
$ 27.20
1111 $30,219.20
Gain
$ 0.60
$ 0.60
$ 0.60
$ 0.60
Commission
$
20.00
$
20.10
$
20.44
$
22.22
Trend
Trade 1
Trade2
Trade 3
Trade 4
Entry
Shares Share Invest
$ 28.50
1000 $ 28,500.00
$ 28.90
985 $28,466.50
$ 29.00
981 $28,449.00
$ 27.20
1109 $30,164.80
Gain
$ $ $ 1.75
$ -
Commission
$
20.00
$
19.70
$
19.62
$
22.18
Direction
Short
Long
Short
Long
$
$
648.74
4
7,784.88
2.3%
27%
51
In the observed 4-weeks period, only trading the MSFT stock, momentum trading produced
a $648.74 higher return than trend trading. The average time in a momentum trade was
two days, which in reality would have given us the opportunity to re-invest immediately in
a different trading instrument, instead of sitting idle and waiting for MSFT to throw a new
signal; however, calculating the difference between momentum- and trend trading on an
annual basis, considering a 4:1 ratio: Momentum trading produces a 27% p.a. higher return
on capital than trend trading.
Do you like the edge of a momentum based trading system? Now, you have two choices:
Alternative 1: Build a trading system on your own.
Alternative 2: Come on board with NeverLossTrading, taking advantage of a ready to use
high probability trading system, you can apply to all asset classes and time frames.
Check out our offering at: http://NeverLossTrading.com
NeverLossTrading Mentorship Examples
Example 1: Are you interested in day trading, looking for a reliable algo- based trading
system where you stay in control of the ultimate decisions? Check: NLT HF-Day-Trading.
Example 2: Are you serious in online trading or investing and you want to scan and screen
the markets real time, using your own searches, watch lists and portfolio management? Then
check out NLT Top-Line.
Example 3: Are you looking for an introductory algorithmic trading system to spot and follow
institutional money moves for day trading and swing trading, applicable for all time frames
and asset classes: Stocks, Commodities, Currencies (FOREX), and Treasuries? In that case:
TradeColors.com is your choice.
Disclaimer:
The risk of trading securities, options, and futures can be substantial. Customers must consider all relevant risk factors, including their
own personal financial situation before trading. In our teaching of how to trade the markets, in our newsletters, webinars and our
involvement in the Investment Clubs, neither NOBEL Living, LLC, the parent company of NeverLossTrading, nor any of the speakers,
staff or members act as stockbrokers, broker dealers, or registered investment advisers. We worked out trading concepts and share
them through education with our members and clients. Past performance cannot always be taken indicative for future results.
52
Reasons and
Excuses:
Giving Traders Back
their Power
By Adrienne Toghraie,
Traders Success Coach
Legitimate reasons
Have you ever had the experience of giving a
legitimate reason for not doing something only
to be met with skepticism and condemnation?
Your flight was canceled and there were no
more flights until the next day or you were
in the Emergency Room passing a kidney
stone, or your mother lay dying. These are
all real reasons for not meeting an obligation
or fulfilling a promise. And yet, you may still
have the unnerving experience of having your
word questioned and your motives impugned.
What do you do? And how do you deal with
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Conclusion
It is vital for a trader to be able to trust the
things that he says to himself in order to be
a great trader. For that reason, he needs to
be clear about the distinction between when
he is giving legitimate reasons and when he
is making excuses, between when a reason
is real or when he knows that it is a cover
for the real reasonthe one he does not want
to reveal. To prevent himself from resorting
to excuses, a trader has some powerful
strategies he can use, including asking himself
how real his reasons are, using affirmations to
neutralize excuses, giving himself permission
to be honest about how he feels and what
he really wants, using modeling to find a
template for action, and finding and building
the passion and motivation that will make
excuses unnecessary in the first place!
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Trading on Target
Free Newsletter
57
51
Managed/Created by Professionals
Both ETFs and MFs are created by
professionals;
ETFs are put together by
professionals but never managed, either
inside the 401k shell or out. All forms of ETFs
contain at least three levels of speculation, as
addressed in this article.
MFs have full time managers, but their
decision-making capabilities are restricted by
company investment committees. They may
not have the kind of discretion you would like
them to have when it comes to buy, sell,
hold decision-making.
Investment committees may have an
agenda that managers are forced to comply
with, as evidenced by performance around
the time of the dot-com-bubble... when the S
& P 500 rode the backs of a dozen or so hot
NASDAQ ponies.
What do you think will happen when this
bubbly stock market has the audacity to
go down for a few months in a row? What
can happen to 401k balances in the 30 days
between selection change or contribution
switch elections?
Unfortunately, participants are on their
own.... advisors are quick to say buy, but
gun-shy when it comes to sell decisions,
particularly those that involve profit taking.
And once the nest egg is lying cracked on
the ground, how will you know when to restart
your contribution engines? When the going
gets tough, or when the market goes greedy,
MF managers must do the opposite of what an
independent, investor/trader would be doing.
When the mob screams SELL (typically
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Retirement Programs
401k
programs
are
not
retirement,
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Low Cost
Cost is absolutely lower in ETFs than in
Mutual Funds, but Im convinced that it is only
misguided regulatory myopia that makes this
an issue... particularly in a trading environment
. If I buy a fund, an ETF, a common stock,
bond, or a sports car and make a net gain
on the sale of 10%, Scarlett, I just dont care
about how much anyone else may have made
along the way.
No 401k plan participant sees the
commissions, fees, & charges that work their
way into the NAV of the products they choose
for their programs. If the product price rises,
they can take the profit. If they dont trade
their securities, its on them.
So from a trading perspective, since portfolio
management is often in the inexperienced
hands of plan participants, both ETFs and MFs
should be traded within pre-set buy and sell
guidelines, so that market volatility in either
direction can be taken advantage of.
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Chart #1
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Chart #2
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one.
Summing things up
Chart #3
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VantagePoint 8.8
Software Review
By Darrell Jobman
Getting an edge
64
target market.
Global view
Reliable, consistent
65
TradersWorld Magazine
Premium Subscription
www.TradersWorld.com
www.TradersWorldOnlineExpo.com
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66
management.
Andrews is well known for the use of
median and parallel lines in trading. These
are used by many traders to determine the
trend and about how far prices are likely to
go. What is now known as the pitchfork,
utilizes three pivot points with the general
concept that prices are likely to reach the
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anticipated.
In this case prices either make it past the
median line, (as seen in Figure #3) or get
very close to it before making a swing in the
opposite direction. In the original video to
this indicator on you tube it showed the days
where the value is one or two. These may be
useful in conjunction with other indicators In
order to test out the indicator and perform
optimization test runs it will be included in
future versions of software given to members
of the Advanced Andrews Course.
How can it be used in conjunction with the
Babson lines, is a question asked by many. In
a prior article, this author showed how future
reaction lines are found with the Babson
technique. The Babson reaction lines are used
to determine a target area in the future. NAPI
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71
Candle Charting
Basics
Spotting the
Early Reversal
Signals
by Steve Nison, CMT President Candlecharts.com
Mr. Nison is the author of three books
including Japanese Candlestick Charting
Techniques and Beyond Candlesticks.
These bibles of candlestick analysis have
been translated into over 13 languages.
The article below is a sample of the free on
going education you get by becoming a student
at the FREE www.candlechartsacademy.com.
More details about this at the conclusion.
A good
beginning is the
most important of
things. (Japanese
proverb)
Candle charts:
Are easy to understand: Anyone, from the
first-time chartist to the seasoned professional
can easily harness the power of candle charts.
This is because, as will be shown later, the
same data required to draw a bar chart (high,
low, open and close) is used for a candle chart.
Provide earlier indications of market turns:
Candle charts can send out reversal signals in
a few sessions, rather than the weeks often
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Chart 1
Chart #2
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Exhibit #1
buy.
The candle chart, uses the same data as
Exhibit 1, (remember, a candle chart uses the
same data as a bar chart; open, high, low and
close.) Lets now look at the circled area on
the candle chart in Exhibit 2 (below). Note the
different perspective we get with the candle
chart than with the bar chart. On the candle
chart, in the same circled area, there are a
series of small real bodies which the Japanese
nickname spinning tops. Small real bodies
hint that the prior trend (i.e. the rally) could
be losing its breath.
As such, while the bar chart makes it look
attractive to buy, the candle chart proves there
is indeed a reason for caution about going
long. The small real bodies illustrate the bulls
are losing force. Thus, by using the candle
chart, a trader or investor would likely not buy
in the circled area. The result -- avoiding a
losing trade.
This is but one example of how candles will
help you preserve capital.
When investing his own money, Warren
Buffet has two simple rules that he follows:
RULE
#1
Exhibit #2
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RULE
#2
Exhibit #3
Exhibit #4
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Exhibit #5
Exhibit #6
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commodity sectors.
Experience teaches that the 200-day MA
should be used primarily as a potential support
level following a market decline. When an
actively traded stocks price has become overextended from the 200-day MA, thus becoming
vulnerable to a correction, it usually pays to
watch as the stocks price begins falling and
comes closer in line with its 200-day MA. This
especially holds true if the stock in question
shows an historical tendency to bottom above
the rising 200-day MA in a bull market. When
the stock finally comes into contact with the
200-day MA, watch for signs of a selling climax
in terms of increased trading volume.
Also watch what happens in the 2-3 days
immediately after contact is made with the
200-day MA. If trading volume oscillates
wildly and price quickly reverses higher back
up to or above the 200-day MA theres an
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Chart #3 DRG
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Traders World
ONLINE EXPO #15
May 26th - June 29th
81
Chart #1
Chart #2
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Chart #3
In Figure 2:
Crude Light with
LogikVolumeWand, I have highlighted the
same entry point through to the top that was
formed at 99.45. This is exactly as it would
look on the live edge of the market.
Figure 2: Crude Light with
LogikVolumeWand
At Point A, a top was formed in a high volume
area and the Directional Volume indicator
clearly showed divergence as the top was
formed at Point B. Now instead of scaling out,
I exited all three contracts at the close of the
bar. The result was a gain of fifty-eight ticks
per contract or one hundred fifty-eight ticks,
increasing the risk to reward ratio to 1: 7.25
-- a substantial increase in income that will
offset my expenses (losses).
The next question was whether the
LogikVolumeWand could identify trades that
were potential losers because my original risk
to reward (1:2) would not be achieved.
Chart #4
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Chart #5
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TradersWorld Magazine
Premium Subscription
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85
Figure 1: proprietary software matches bull time patterns. Same Time patterns found coincide with strong
bullmarkets. Future occurences of the time pattern are already calculated as shown.
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Figure 2: Bull market Time patterns calculated in advance as shown by the shaded areas. As you can see every
pattern has 3 waves up and 2 down. Patterns with equal waves down in the 2nd and 4th wave are the strongest
bull markets, like 1985-87 and 1994-1997.
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Figure 3: Statistics- for the bull market time pattern in force from 2014/2016- show an average performance of
21.68% and a hit ratio (win/loss) of 86% from waves 9 to 29, historically and statistically the most interesting
time to invest.
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Figure 4 : bear market Time patterns and their performance in the shaded area..
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ATA
by Al McWhirr www.eminiscalp.com
The quest to find the perfect, or at least a
profitable trading method, has been allusive
to the majority of traders for years. A perfect
method does not exist, but profitable ones do.
Whether the method is based on indicators
or price action, human involvement is usually
required.
In order to understand how to incorporate
a method in to your trading, you must first
understand market movement. The market
goes up, down and at times, flat. The goal of
a trader is to determine whether the price will
be moving up or down and when the volume
has subsided resulting in the market going
flat. I believe that many traders complicate
their trading by reading a lot more into market
flow. It is either up, down or flat. It does not
matter what drives the market in its direction.
What matters is our ability to take advantage
of these movements. Attempting to guess
what news may do to the market is fruitless.
Chart A
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Chart B
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CHART A
In the chart above, you will notice the ATA
trade entry area, as depicted by the black dot.
I have also included the EminiScalp Intervals
on this chart. The goal of the Intervals
is to show trade entry and target areas.
More information regarding the EminiScalp
Intervals can be found on our website. Using
the Intervals with the ATA can enhance the
trade experience.
CHART B
Chart B above, also shows the ATA trade
entry areas as well as potential target areas.
Along with the ATA comes the EminiScalp
Intervals. The Intervals are a predictive study
that has shown to be very effective over a
variety of markets. A more detailed description
of our EminiScalp Intervals can be found on
our website at www.eminiscalp.com. All but one
of the charts displayed in this article show
our Intervals. You will notice the EminiScalp
Intervals on Chart C along with the ATA area
trade dots. The Intervals display entry as well
as target areas. Chart D is the exact same
Chart C
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CHART C
In CHART C above, the reader will notice
two ATA signal dots. The trader would enter
the trade as per the ATA rules. Then what
happens? If the trader is able to determine
target areas, then he or she would have a
good idea of where they may want to exit
or add to the trade. But, this is where many
traders fall short, as determining target areas
is difficult for many.
CHART D
CHART D above is the exact same chart,
but with the EminiScalp Intervals added. Now,
the trader has a very good idea of where price
may want to go. The EminiScalp Intervals are
placed well before price reaches them. More
information about our EminiScalp Intervals
can be found on our website.
In conclusion, the goal of the ATA is alert you
when there is a potential trade sets up as well
as assist the trader in building the confidence
needed in order to take the entries. Screen time
is essential in becoming a successful trader, but
in order to achieve the desired success, a trader
has to understand price action and market
action. This can only be accomplished with
screen time along with a method that enables
one to build confidence.
For those traders who took the time to read
this TradersWorld article, we have a web page
with special pricing on all of our methods. Go
to www.eminiscalp.com/specials for significant
price reductions for the ATA, LTD, PLUS and our
very popular EminiScalp Pilot Auto Trade.
Chart D
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95
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101
My World Today.
I was fired by the company I worked for as
an investment advisor in Vancouver, because
in the market crash of 2000 and 2007, I
moved all investor assets into interest bearing
investments and bonds. This meant that the
commissions I produced for the company
were next to nothing. The Company placed
itself first and clients second.
Today I look after and trade my own portfolio
and that of my family, working from home. A
number of my previous clients and often their
friends phone for advice. I do not charge
for advice given but ask them to put a dollar
in the tin cup of a lady begging on a street
corner. One person from Spain told me that
my advice helped him so much, he put $1000
in a tin cup, then had to call an ambulance,
because the lady fainted.
Because I live on the Pacific coast, for me
my day starts at 5am. Once the market has
closed at 1pm PT, I then sit down and write,
either for a Technical Analysis magazine under
the name Koos van der Merwe, or stories of
people and events in my life. I have written
two books, BRAKENSTROOM and The VASE
with the MANY COLOURED MARBLES, the
latter under the name Jacob Singer. Both are
available from any bookstore or from Amazon
as a soft cover or eBook. My website is www.
jacobashersinger.com
102
Introduction
Let me start by introducing myself. I am
a full time trader and trainer in the futures
markets. I run a real time trading room four
hours each trading day. I have traded for
over 20 years, and concentrate primarily on
the currency (FOREX), crude oil, gold, and
stock index futures markets, such as the S &
P E-mini.
I have developed a full suite of charts and
indicators known as the Trendicators and a
market analyzer known as the TradeFinder.
What follows are the fundamental elements
you need to be consistently profitable in the
futures markets.
Making money in the market is a matter of
being on the right side of the market. Specific
to the futures markets, there are both up
and down moves each day that provide many
trading opportunities.
One approach to
the markets is to look for evidence of major
support and resistance levels based on chart
history. Many people ask me which time
frame that I look at for my trading, and by
best answer is that I look at all of them. A
good analogy would be that if you were going
to buy or short a stock, you would most likely
start by looking at a weekly or daily chart.
Why would you approach the futures markets
any differently?
To put the odds in your
103
trend, 60 minute trend, 240 minute trend, and the daily trend. Looking at one screen takes
the place of multiple charts, and it will analyze the specific markets much more objectively
than you will do without this tool.
As a first step we can choose markets with consistent up or down trending characteristics.
In the example above, you can see that the NQ, ES, an TF symbols have the most consistent
down trending characteristics.
Once you have selected the markets that have the most
consistent trending characteristics, you can then fine tune your entry by waiting for the specific
trade setup you are looking for on those markets with the trending characteristics you are
looking for.
We know that even within a trend, markets tend to move in a wave formation, so we can
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104
look for low risk entry points within a trend by waiting for pullback type entries within a
trend. The idea of waiting for a pullback allows for a logical stop to be place below the pullback
level in the case of long positions and above the pullback for short positions.
The tool below is the TradeFinder and it is designed to find these types of trade opportunities
for you.
105
Preparation for trading profitably consists of market observation over a period of time so
that the trader can build confidence in knowing what usually happens in the market, and how
to profit from the recurring market behavior that repeats itself every day. To take advantage
of cycles in the markets, observe the typical move that a market moves after it moves up or
down out of a range contraction pattern.
The real objective is to build a knowledge of probabilities of market behavior so as to take
consistent profits out of specific trading instruments. The following are observations of market
behavior that will help to put the probabilities in your favor.
Price behavior can be summed up by knowing how to determine the overall patterns in
varying time frames. See the chart example below of a move up out of a Range contraction
patterns of about ten points on the S & P Futures market.
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You can take advantage of this pattern of low volatility that will predict an upcoming
period of higher volatility. If the market breaks down from a period of low volatility, you will
likely have a down trending market. Down trends consist of lower highs and lower lows. Up
trending markets consist of higher highs and higher lows. Markets move in a wave formation,
and when each wave is formed, a pivot is formed. These pivots form Lower highs and lower
lows in a down trend, and higher highs and higher lows in an uptrend.
107
Velocity indicates the speed at which the market is moving. Trend indicates the overall
direction of movement.
If we have an extremely high velocity down moving market, then
the probabilities favor a continued down move. If we have an extremely high velocity up
moving market, then the probabilities favor a continued up move.
The examples below are trade setups or chart conditions that you can use to take your
trading to the next level. The examples below make use of the NaviTrader Trendicator
charts. The Trendicator charts will display a red price bar when the market is moving
down and a green price bar when the market has moved higher on that specific price bar.
:
Above chart uses the Trendicator Charts running in the NinjaTrader platform.
The above Trendicator chart shows you the current price direction for each price
bar. The short trade setup above includes the following elements:
1. Current momentum is down indicated by the red dots on the price chart.
2. Price has made upside retracement based on HiLo indicator (HiLo indicator moved
above 90)
3. Price is again moving down based on Red closing price bar color
4. Price target is lower velocity channel (blue line)
The long trade setup above includes the following elements:
1. Current momentum is up indicated by the green dots on the price chart.
2. Price has made downside retracement based on HiLo indicator (HiLo indicator
moved below 10)
3. Price is again moving up based on Green closing price bar color
4. Price target is upper velocity channel (blue line)
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Example 2:
Swing Trading Method:
Within a trend, the momentum will sometimes change or shift, for example we may have
had down momentum, and then the momentum shifts back to up momentum. This change
in momentum is what I refer to as a momentum shift. A momentum shift represents one of
the best trading opportunities, because it usually accompanies the beginning of a new trend.
Look for a shift in Momentum and trade in the direction of current momentum. If the most
recent momentum is down, then enter short trades. If most recent momentum is up, then
enter long trades. One of the best indicators of a trend change is when we get a momentum
shift.
In the example below, we previously had up momentum and then an extreme
momentum shift to the down side.
Use a momentum indicator such as the BigMo indicator and stay short when Red Dots
appear on the screen, and remain in the short trade until Green Dots appear on the screen,
indicating that you now have a momentum shift in the opposite direction. The red dots
indicate extreme down momentum and green dots indicate extreme up momentum.
Above Red and Green dots are the NaviTrader BigMo indicator
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Above Red and Green dots are the NaviTrader BigMo indicator
Risk Management
A primary downfall of beginning traders lies in not knowing how to manage risk. The
use of stop losses (known as stops); is one important tool in trading futures. An even more
important tool is known as position sizing. Position sizing answers the question of how many
contracts should I trade in the futures markets, and how many shares should I buy or short
in the stock market.
We know that trading is all about how to react to your successes as well as trades that
dont go your way. No discussion of trading would be complete without a discussion of risk
management. For futures trading, risk management is established with a combination of the
use of stop orders combined with position sizing.
You need to pair a proven strategy along
with risk management. Risk management is accomplished in general by never taking a big
loss on any one trade. I suggest that you start by making sure that on any one trade that
you do not risk any more than one percent of your trading account. You will need to calculate
before you enter a trade whether you would be risking more than one percent of your trading
account.
To calculate position size you need to know some basic information such as the following:
Account Size
Risk Percentage that you are assuming
Tick value of contract you are trading
Number of ticks of your initial stop loss order
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Trading in simulation mode will help you to develop your confidence and an overall
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CONCLUSION
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I prefer candlestick patterns that require more than one candlestick to flash a signal. With
more than one candlestick required, you are getting a confirmation of your theory. However,
I still require technical indicator confirmation such as MACD, RSI and Stochastic which are
probably the most popular. If you are using technical indicators that are not the most popular
or widely used, you might be early or late in the trade in my opinion. I firmly believe it is best
to use the most popular technical indicators and 3 indicators are adequate.
Candlestick Review:
Upper shadows or topping tails are the days high and lower shadows or bottoming tails are
the days low. Candlestick patterns do not always have shadows or tails. White candlesticks
are up days and black candlesticks are down days.
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In a downtrend, a small range bar (white or black) with a long lower shadow and little or
no upper shadow. In my opinion, the closer it is to support, the better I like it.
The Hammer and Hanging man are both the same type of candlestick pattern. Both are a
small range candlestick, either black or white, with little or no upper shadow and having a
very long lower shadow. In an uptrend it is a hanging man whereas in a downtrend it is a
hammer. In my opinion in an uptrend, the closer it is to resistance, the better I like it.
I prefer more than one candlestick pattern to flash a signal, however some small range
bars (SRBs) can be potent. The small range bars (SRBs) are indicated by the open price and
the close price being the same or almost the same. The open and close price being almost
the same are suggesting that the buyers and sellers are almost equal in power. Dont expect
this to last very long, it may mean that a significant price movement may happen soon. Small
range bars (SRBs) suggest that buyers are reluctant to take the price higher and sellers are
reluctant to take a lower price. Small range bars (SRBs) signify a tug of war between buyers
and sellers. They represent indecision by buyers and sellers but this wont last long. The
highs and lows are the tails of the small range bar and the high would be a topping tail and
the low would be a bottoming tail. I dont consider the highs and lows in defining the small
range bar only the open and close prices.
Some examples of small range bars are:
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I would like to make a few comments about two other candlestick patterns. The first is
three white or three advancing soldiers, which is considered a bullish signal. This pattern
is three white candlesticks with consecutively higher closes. The problem I have with this
pattern is simply this. If the next candlestick is a bearish candlestick meaning that the closing
price is below the third white candlestick, this is now a bearish kicker candlestick pattern
which is a very powerful pattern. The problem with three white soldiers is that youre betting
that the next candlestick will be higher (white) but that may not be the case, and if its a
bearish candlestick (black), its going to be a stronger signal for a bearish pattern which is a
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bearish kicker.
The other candlestick pattern is three crows
which is a bearish pattern. This pattern is
three black candlesticks each one lower than
the previous. The problem is that if the next
candlestick is a white candlestick, the pattern
is now a bullish kicking pattern which is also
a very strong candlestick pattern. I dont like
to bet that when I see three black crows or
three white soldiers that the next candlestick
will continue the trend and not be a kicking
candlestick. Therefore, I stay away from
these candlestick patterns.
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Example #1 MRO
Examples #2 MRO
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Example 5 HAL
Example 3 HAL
Example 5 TXN
The red candlestick
on each chart says
it all. (Showing price
going down)
Red Square is
the location
of the price
action, showing
the location to
destination
The closing in
red show it was
Example 4 HAL
Gsteele101@neo.rr.com
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Chart #1
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Chart #2
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be astronomical.
stop.)
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traders?
Simply put, ADAPTATION. Many of us have
heard the saying, the only thing constant in
life is change. This is also relevant in trading
and one traders frustration is another traders
gratification. So, how do we compete? The
key to trading success in this electronic age is
to better understand what you are up against
and make adjustments. The traders whove
failed and gave up, simply could not adapt.
They continually did the same thing over and
over and expected a different result. Weve all
heard that definition before: insanity.
To compete with and profit against the
quants we need to be focused, disciplined
and nimble in our approach. This also means
refusing to play the victim or letting them
psychologically damage our beliefs. On a
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Testimonials
www.SonataTradingComputers.com
417-882-9697 or 800-288-4266.
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from 3-5 days or do you like to hold positions for weeks and even months? Every trader is
different. You need to find your own trading method.
Finding out your trading method is extremely important to produce a profitable benchmark
that can be replicated in your live account. Perhaps the best way to find a successful
trading method is to listen to many expert traders to understand what they have done
to be successful. The best way to do that is to listen to the Traders World Online Expos
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which explains what they have done to find their own trading method.
If you have a trading method that gives you a predictable profit, then that type of objectivity
contributes to your trading edge. The problem with most traders is that being inconsistent
will never allow them to have an edge. After you find your trading method that you feel
comfortable with, you must have the following:
An overall plan to:
1) Set your rule set and plan and then stick with it in all of your trading.
2) To give you a trading plan for every day.
The trade plan then should:
1) Have an exact entry price
2) Have a stop price
3) Have a way to add positions
4) Tell you where to take profits
5) Have a way to protect your profits
By reviewing all the methods given in this book by the expert traders, it will give, you the
preliminary steps that you need to find your footing in finding your own trading method.
Reading this book and by seeing the actual recorded presentations on the Traders World
Online Expo site can act as a reference tool for selecting your method of trading, investment
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It took many of these expert traders in this book 15 30 years to finally come up and find
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So if you want help to find your own trading method to be successful in the markets then
buy and read this book.
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