Felton Trading Course Manual

TRADING COURSE
MANUAL
2012 Felton Trading
Table of Contents
1. Introduction to Felton Trading
page 3
2. Your Trading Tools
page 4
3. Trading Electronically
page 6
4. Trading Preparation
page 7
5. Candlesticks 101
page 8
6. The Felton Trading Chart (DivPro)
page 10
a. Chart Features
page 11
b. Chart Indicators
page 12
c. Chart Types
page 14
7. Understanding the Felton Trading Method
page 17
8. The Felton Trading Signals
page 19
a. Finding the Correct Correspondence
page 19
b. Counter-trend Signals
page 22
i. Basic Divergence
page 22
ii. Extended Divergence
page 25
iii. Turn Signal
page 27
c. With Trend Signals
page 29
i. Hidden Divergence
page 29
ii. The Lump Trade
page 31
iii. The Break Out Signal
page 34
1. The IB Island Bar Signal
page 35
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iv. The Stub Signal
page 38
9. Trading The Felton Trading Method
page 40
a. The Four Market Conditions
b.
page 40
i. Sideways Cycling
page 41
ii. Trending Cycling
page 42
iii. Trending Congested
page 43
iv. Sideways Congested
page 44
The Signal Filters
page 44
i. Using the FT Bands
page 45
ii. Using the FT Momentum
page 46
iii. Using the FT Cycle
page 47
iv. Using the FT MM Lines
page 48
v. Using the FT Large Channel
page 50
vi. Using the FT Turbo Twisters
page 52
vii. Using the FT TrendMA
page 54
viii. Using Blue Ice
page 55
10. The DivPro Software
page 57
11. The SignalPro Software
page 63
12. The Mental Side of Trading
page 65
a. The Vicious Emotional Cycle
page 67
13. Becoming a Professional Trader
page 71
14. Online Training, Mentorship and other Support
page 72
15. Glossary of Terms
page 75
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1. Introduction to Felton Trading

Welcome to Felton Trading and we hope you find this manual to be a great
start on your learning journey toward long term trading success. The Table of
Contents as well as much of the terminology we use incorporates hypertext.
You can click on anything you see highlighted for convenience and clarity. Well
be working closely with you in many other ways, too, including regular live online
training and live market trading every day. No one can learn to trade effectively
from studying a book or manual because its not interactive. You cant ask
questions of printed text. So this manual is intended to just get you started as you
begin to understand what Felton Trading is all about. The other training
layers will be bringing it all together for you in a clear and concise manner. In
this manual, we will cover the basic elements of the methodology to give the
student a good foundational understanding of the Felton Trading method.
Becoming a professional trader will take time, study and lots of practice.
Trading professionals know there really is no end to the learning process. So our
goal is to get each student started correctly and then provide ongoing training
and individual mentorship to get them to their goal objectives and keep them
there. Our step-by-step approach to learning, combined with our state-ofthe-art
live market training and online mentorship, will give you the greatest opportunity
to quickly reach your maximum trading potential. Most successful traders spend
years honing their skills and they agree the effort is worth the rewards. The
Felton Trading Training Course is designed to enable you to greatly shorten
the learning curve and avoid many of the pitfalls which cause others to fail.
However, you must be willing to put forth the time and effort necessary to
achieve your financial goals. You must also make the commitment to follow the
rules of your trading plan completely.
Think of your trading as a business. It follows the same rules as any other
business, though trading also offers certain unique advantages. To succeed in
any business, you must not be under-capitalized. Your trading account should be
funded with money that would not adversely affect your current lifestyle if you
were to lose it. That is not to say you should begin a trading career with the
expectation of losing, but you should never attempt to trade with scared money
either. Next, make sure you have a good business plan. For the trader, that
means that you should have a proven trading strategy that fits your trading
personality. Finally, you will need expert guidance and training. You would not
think of starting any business without knowing a great deal about your product,
marketing and competition. Make the commitment to become a professional
trader and to continue learning to stay on top of your game.
You are about to embark on an exciting journey of
knowledge designed to open personal and financial
opportunities that may surprise you. Our goal is to help you
achieve a high level of success as a professional trader.
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But, being a successful trader means more than just the money. As you become
proficient and your trading skills increase, prepare to grow individually as you
become more disciplined, more patient and more focused in your personal life.
Trading offers personal benefits that few other businesses can match. We are
anxious to share with you a wealth of trading knowledge and help get you on the
road to consistent and lasting trading success. Lets begin by taking a look at the
trading tools youll need.
2. Your Trading Tools

In order to trade effectively, you will need the right tools. These are all relatively
inexpensive when compared to what youd need to begin a brick and mortar
business. First, you will need a computer. It is not necessary to have the latest
high-end system but a quad-core CPU or greater is recommended. Having two
or more monitors will really help, too. Plan to invest in plenty of RAM (Random
Access Memory), preferably 4GB or more (more is better). Adding RAM is a
great investment in computer performance and fairly inexpensive, too. A
dependable broadband Internet connection is essential (high speed cable
modem or DSL are most common).
Next, you need to be able to graphically see the market(s) that you plan to trade.
We do this by using a chart, which we will discuss in detail a bit later. Charts
are constructed from data received from a charting service such as
NinjaTrader. Because of its high performance, low cost and unlimited coding
capability, Felton Trading uses NinjaTrader exclusively. You will also need to
set up a brokerage account where you place your trading capital. Your broker will
also get you set up with your NinjaTrader platform for charting and order
execution. You will do this easily and completely electronically with your online
order execution platform. You will also need a dependable datafeed.
What youll need:
Good dependable and well-maintained

computer Get the best computer system that
you can afford. We recommend that your
trading computer be used only for trading.
Computers used for email, Internet surfing and
other non-trading uses can be subject to a
large number of pesky issues (in addition to
viruses) that can cause the entire system to
slow down or crash.
Multiple Monitors Most traders find that
having more than one monitor is pretty much
essential for trading. Youre probably going to
be looking at a couple of charts at the least and then having your order
execution platform all on one monitor gets pretty cramped.
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Good dependable broadband Internet connection This is your

lifeline, your access to your broker and the markets you will trade. It must
be as fast and reliable as possible for your area.
UPS Uninterruptible Power Supply - for protection against storm and
other power outage occurrences.
Brokerage Account & Execution Platform Necessary for acting on the
profit opportunities you find in the markets. Click here for a complete
listing of NinjaTrader Brokerage Partners. Be sure to ask one of our
representatives if you need help selecting a broker. Your Execution
Platform is provided by NinjaTrader but you can also execute your trades
using any other platform of your choosing.
Charting service Your charting service must be fast and accurate and
our strong recommendation is NinjaTrader. All of our trader assist
software is coded in that platform.
Datafeed Just as you need electricity to power your computer, you will
need a datafeed service to power your charts or you would not have any
idea what the markets were doing at any given time. Most brokers who
are partnered with NinjaTrader will also provide a datafeed service such
as Zen-Fire at no charge but you might also consider using a faster
datafeed service such as Kinetick or IQFeed once you begin trading
your live account and use Zen-Fire as your backup service.
A professional Felton Trading student with exceptionally nice trading tools.
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3. Trading Electronically The Order Execution Platform

Since electronic trading is the single most revolutionary concept in trading, now is
a good time to learn about an important trading tool, the Order Execution
Platform. If you had to pick up the phone and call your orders in to your broker
(or send them by email), you would be trading under a huge handicap resulting in
lots of slippage. Controlling slippage is vital and todays powerful Order
Execution platforms allow us to do just that. Here is an example of what a
modern trading platform looks like.
Figure 6-1 shows a NinjaTrader order
execution platform called the Dynamic
SuperDOM. You can see the current price
value of the S&P 500 E-Mini index highlighted
in yellow and you can also see the other
working orders traders have placed above
and below the market. You will learn the
simple mechanics of using electronic order
platforms in the online E-Course training as
well as in our live market instruction.
Additionally, NinjaTrader provides you with
downloadable training videos and printable
manuals that explain the complete operation
of your trading platform. Additionally, they
offer a platform simulator mode which allows
you to gain complete order execution mastery
without risking any of your actual trading
capital in the process. We strongly urge you
to start your practice trading using a simulator
and, if you are consistently profitable and not
making mistakes, then proceed to the actual
real money mode.
NinjaTraders online order execution platform
is very powerful and user friendly. It is
essential to master the many powerful
functions of your execution platform. No
matter how well you master the Felton
Figure 6-1
Trading method, if you make entry and exit
mistakes in your order executions, you cannot be consistently profitable. Make it
a goal to master your trading platform as well as your trading method.
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4. Trading Preparation
Once you execute a trade and enter the market, you have turned that trade over
to the market and you have no control whether it wins or loses. No amount of
hoping or praying will change the markets direction but you do have control over
how much it wins or loses. Thats called Trade Management.
Its important to understand that over 90% of your work is done before you
actually enter each trade. Its all part of Trade Preparation and good preparation,
both mechanically, physically and mentally is essential.
Trading preparation begins with checking your trading tools. Make sure your
chart datafeed and order execution platform are functioning properly. Since we
do not live in a perfect world, things can go wrong. Sometimes the fault lies in
your Internet Service Provider (ISP). Dropouts and disconnects can happen even
with the best of services, but it will happen much less often if you choose a
broadband (high speed) service such as cable modem or DSL. Do not trade if
you are experiencing connection difficulties or you notice the data connection is
slow. It is a good idea to test your Internet connection speed often using a free
service such as http://www.speakeasy.net/.
Your physical condition can affect your trading. If you are ill, tired or needing
sleep, do not trade. Successful trading requires a clear mind undistracted by
physical issues. Getting good regular exercise is strongly recommended to keep
you in good physical shape. Be sure to get sufficient sleep before starting your
trading day.
The most essential part of trading preparation is your mental
state. Never trade when you are upset, distracted, nervous,
fearful, anxious, impatient or do not feel well. Trading takes
supreme focus, great patience and discipline. Negative
emotions work against you and will sabotage your trading
success. Of all the emotions that traders experience, fear is
the most destructive and the hardest to control. The best
way to combat fear is by building confidence in your system
and in yourself. It takes time because confidence is only
gained through experience.
If all is well emotionally and mechanically, your next preparation step is to study
the markets you plan to trade. See what they have been doing overnight. What
you want to accomplish is to see if you can logically develop a market bias that
might complement or discourage a signal you are considering. Be sure to get a
good grasp on the markets overall health. Small, choppy sideways movement for
extended periods can suggest that you may want to wait until conditions improve
before trading that particular market.
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5. Candlesticks 101
Well be discussing several indicators but, before we do that, lets start with Price.
The term price refers to the value of a market (instrument) which can change
quite rapidly. On our chart, we use candlesticks to represent market price. You
can squeeze a lot of market information from candlesticks, which is why we use
them. Plus, they are very visual. You can tell what is going on in the market from
a quick glance several feet away. Let us take a closer look at the anatomy of a
bullish and bearish candlestick.
Figure 8- 1
Figure 8- 2
These two candle examples represent the majority of bar types you will be
seeing on your charts. The green one (Figure 8-1) is a bullish candle, meaning
the market traded upward overall during the candles time period and closed
above the price that it opened. Whenever the market trades or closes above the
open, the wide part (or body) of the candle will automatically be colored green,
blue or any other color of the traders choosing to represent bullish up candles.
We look for bullish colored candles when we are ready to place a buy order to go
long in the market.
The other candle (Figure 8-2) shows a red down market candle. It means the
market was bearish because the market traded and closed below the market
open and the body will automatically be colored the default red color. We look for
bearish colored candles when we are ready to place a sell order to go short in
the market.
Another thing you will be paying close attention to are the candles wicks and
tails which are the thinner lines that protrude from the tops and bottoms of the
candle body. These tell us if the market actually traded outside of the range of
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the candle body. For signal purposes, we always want to consider the total
trading range of the candle instead of just the open and close.
At a glance we can see exactly how high the market traded and precisely how
low. Whenever a red or green candle forms a long wick, it means sellers are
entering the market and may cause the market to come down. A long tail on red
or green candles can mean buyers are coming in and the market may go up.
There is one other candlestick variation called a doji. Doji is Japanese for
same thing or same price. That is a perfect name for them because they form
when the market opens and closes at the same price for any given candle. If
there is no difference between the open and the close, there is no candle body
and, thus, no color. Doji formations can be a dash (-) or a tee (T) that can be right
side up or upside down. Dojis may also be in the form of a cross. The tees and
crosses indicate that the market actually did move up, down or both, but ended
up closing at the same price it opened. Doji clusters in the market often indicate
low volume and lack of supply or demand.
Note that some chart types such as the Line Break and the Renko (Figure 9-1)
cannot close in a doji formation due to the way the price bars are structured.
Figure 9-1: Example of a Renko chart: These Price Bars can have wicks and tails but
cannot form doji type bars at the close of any bar.
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6. The Felton Trading Chart (DivPro) Features

We begin our Felton Trading training by studying our trading chart. Actually, in
trading, you will probably be looking at several charts, but this example will allow
us to look at some of the common features and indicators of a trading chart.
Figure 10-1
Figure 10-1 is a chart example of the Crude Oil futures market shown by the
symbol CL at the A orange arrow. It is a chart type called the Line Break. There
are lots of ways to look at markets depending on the chart type you use. Well
discuss those in this section. If you look closely at the small wicks at the top
and bottom of the red and blue price bars, you will quickly see why they call
these candlestick charts. The bars resemble candles. Candlestick charting was
actually invented over 500 years ago in Japan where it was used to chart the
trading of commodities, such as rice. This particular chart (produced by
NinjaTrader) shows the many common chart features you will have on your
trading charts plus many of the indicators that you will probably use.
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Lets study each feature and indicator individually noted by the large white letters
A through U with the corresponding orange arrows:
Chart Features
(A) The A arrow shows the instrument (market) that you are trading. There are
numerous markets to trade including stocks, commodities, etc. At Felton
Trading, we choose to trade the futures markets which generally offer the
highest profit potential with less risk in a shorter period of time. The
instruments we trade include the E-mini markets such as the ES (S&P 500),
the YM (DOW) and the NQ (NASDAQ). We also like trading the currency
futures such as the 6E (Euro), 6J (Yen), 6B (British Pound) and the 6A
(Australian dollar). Other excellent commodities include the CL (Light Sweet
Crude Oil) and GC (Gold futures).
(B) At the top of this chart example, the B arrow shows the type of chart we are
using. Although this chart is looking at a Line Break chart, we could also
choose to study the market with a time-based chart such as the 1-minute, 5minute, 30-minute, etc. or we might want to use a Tick chart which measures
the number of transactions that have occurred in a bars formation. There is
also the Range chart, the Volume chart and the Renko chart just to name a
few. We recommend that the trader become familiar with the various chart
types to see which ones they personally prefer using. The Felton Trading
method works on any chart type or timeframe.
(C) At arrow C we have the many various trading tools offered by the
NinjaTrader charting platform including line drawing tools, crosshair selection,
Zoom in/out, bar type selection, etc. If you arent already familiar with
NinjaTraders tools, you will need to take advantage of their extensive training
aids and learn what each is for and their usage.
(D) This arrow indicates when a trade potential exists for entering the market. It is
a warning only indication and is not intended to show whether any particular
signal is better than another. Thats covered thoroughly in your Live Training
sessions.
(E) This arrow shows the Order Execution platform that NinjaTrader provides
users to trade right on the chart. Here you can enter Buy and Sell orders in
the form of Market or Limit orders as well as program the platform to
automatically enter your profit targets and your protective stops at the instant
you enter a trade.
(F) Arrow F shows the Price Scale. This scale shows the current market price
(green highlighted 98.98) as well as other measured values such as Cycle
and Large Channel values.
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(G) This is the Bar Counter that shows how many ticks are left in the current
count. Bar Counters can also be used on non-tick based charts to measure
time seconds, for instance.
(H) This is the Counter Bar which is related to the Bar Counter. It shows how
much time or ticks are left. It can also show the information as a percentage.
(I) This is a confirmed trade signal. That means that the signal completed its
formation and closed with the Bar Counter changing from gray to yellow and
counted down to zero with the counter numbers remaining yellow.
(J) This is an unconfirmed trade signal. That means that the trader should wait
until confirmation occurs with the bar completing its formation and closing.
With this chart type, the bar cannot close until the Bar Counter changes from
gray to yellow and counts down to zero.
(K) Arrow K is the Indicator scale which shows the measurement of an
indicator (such as an oscillator) relative to the mid (zero) line.
(L) This arrow shows the Time Line indicating the precise time of the current
market activity as well as the exact closing time of each historical Price Bar to
the second when the crosshair tool is placed on any bar. Using the Time Line,
Price Scale and Price Bars (candles) you have an exact record of everything
taking place in any given market for as far back as you have data.
Chart Indicators
(M) Arrows M point to our FT Large Channel. Notice the top line is red and the
bottom line is green. This indicates that we are okay to enter both long or
short positions if they meet our additional filtering requirements. These colors
can change to green/green, for instance, which would tell us to avoid taking
any short positions until the lines return to red/green or, better yet, to red/red.
Yellow/yellow lines indicate a market too choppy to trade.
(N) N arrow is the top supply line of the indicator we call the FT Small Trend
Channel constructed by plotting a pair of trendlines. Its purpose is not to try
to define the overall longer term Price direction. Instead, it tries to give an
early indication of a market change of direction from downward to upward, for
instance. It can also help provide small profit targets for scalping trades.
(O) O arrow is the bottom support line of the indicator we call the FT Small
Trend Channel. It is the counterpart to the N line. It can help provide small
profit targets for scalping trades.
(P) This arrow shows the FT Bands indicator used to detect changes in price
direction as the color changes from Red (bearish) to Blue (bullish).
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(Q) The Q arrow points to the wavy red, blue, pink, white and yellow line we call
the FT Cycle. Its actually an indicator called a Stochastic. Stochastics are
part of a large family of indicators used in Technical Analysis. We use the FT
Cycle indicator to tell us when price direction is strong or weakening as well
as to confirm when a retracement has confirmed.
(R) Arrow R shows another indicator that we use shown with the gold and
white wavy line at the bottom of the chart called the FT Trigger. It is built
using an oscillator called the MACD. The MACD is an acronym for Moving
Average Convergence Divergence. Many good trading methods utilize a
MACD in one way or another. The Felton Trading method incorporates a
powerful set of parameters that, when applied to our FT Cycle and Price,
often produces a very consistent and accurate signal result using Divergence.
(S) This indicator is called the FT Momentum - often referred to as momentum
change.
We use this indicator to help indicate market directional
strength/weakness, market directional change and to help filter certain signal
types.
(T) The T arrow points to the FT TrendMA indicator. This is a very versatile
indicator that can show several types of Moving Averages with unlimited
parameter settings. We use the FT TrendMA to help filter signals by helping
to define early stages of a market trend.
(U) The three U arrows point to some thin horizontal lines we call the FT MM
Lines. They are actually lines taken from a trading system called Murrey
Math. Note that there are several of these multi-colored lines on this chart.
Although we find the Murrey lines to be useful as potential Support and
Resistance (S&R) levels (discussed later in this manual), we find the rest of
the Murrey Math system to be complicated and quite ineffective. There are
other types of S&R levels that can be determined using indicators called Pivot
Points and another called Fibonacci Retracement but these are just three
examples of the many ways S&R levels can be found.
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Chart Types
For many years, time-based charts were pretty much what all technical analysis
chartists used. Like their name suggests, the bars open and close according to
some measure of time such as a minute, 3-minutes, 5-minutes, etc. but they can
also be measured in days, weeks or even years.
The Time-Based Charts Figure 14-1 is an example of a
1-minute chart of the S&P 500
E-mini. Each red and blue bar
begins its formation in sync with
your precise computer clock. As
each new minute begins, so does
a new bar. It might be a blue up
bar or it could be a red down bar.
The bar will rise and fall according
to the market activity. When the
minute ends, so does the price
bar as it instantly closes at
whatever price it was at and a
new bar is born. On and on it
goes throughout the trading day.
Figure 14-1
The Tick Chart Figure 14-2 is a great example of

another popular type of chart
called the Tick Chart. Tick charts
have no relationship to time. One
bar might take only seconds to
form while another could take
much longer.
It does not
measure the number of contracts
traded. Instead, tick charts
measure the pre-determined
number of transactions that have
taken place at the Exchange on
that particular bar. For instance, if
Trader A placed an order to Buy
or Sell 5 contracts, Trader B
placed an order to Buy or Sell 2
contracts and Trader C placed
an order to Buy or Sell 10 Figure 14-2
contracts, that would register
on a Tick Chart as 3 transactions (or ticks). The Tick Chart trader has an infinite
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number of timeframe choices. If a 100 Tick Chart is chosen, for instance, then
exactly 100 individual transactions will take place before a new bar is
startedand so on. Tick charts can provide a wealth of information about the
details of the trading activity, but it can also create a lot of noise.
The Line Break Chart
Traders are always looking for
ways to recognize market
direction and market trends.
Figure 15-1 is an example of
a chart type called the Line
Break. Its a little bit more
sophisticated than the two
previous examples but its
also very useful in pointing out
market trends. This chart
example shows a 3 Line
Break chart of the Euro dollar
(6E symbol) with candlestick
type price bars. Most Line
Break charts dont show the
wicks and tails but ours does
because they help the trader Figure 15-1
and are essential for backtesting. The 3 Line Break is probably the most popular,
but we could choose any other number such as a 2, 4 or 5 Line Break. You might
also notice that this is a 150 tick chart of a 3 Line Break. What do all those
numbers mean? The explanation is actually fairly simple.
In one respect, this chart type is similar to a Tick Chart in that it is counting the
number of transactions taking place and when the pre-determined number (150
in this case) is reached, a new bar would normally start. That would be the case
on a 3 Line Break chart but only if the current bar had exceeded the range
(either the highest point or lowest point) of the preceding 3 price bars excluding
the wicks and tails. Only the colored bodies of the bars are considered. If the
3-bar range low is exceeded, even by one tick, a red candlestick can close and a
new bar can start. Conversely, if the 3-bar range high is exceeded by any
amount, a blue bar is then closed and a new bar beginsbut only if the tick
count has been reached!
In other words, before a red or blue candle can close and a new bar begin, two
important conditions must be met: (1) the transaction tick amount must have
been met (150 in this example) and, (2) the top or bottom range of the preceding
3-bar bodies must be exceeded. These two conditions must be met at the same
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time or the bar cannot close. In addition to counting ticks, Line Break charts can
be set to count minutes, seconds, volume, etc.
The Renko Chart
Here in Figure 16-1 we have a chart type called the Renko in Crude Oil (CL).
More specifically, this is a 5 Renko chart. Lets examine this useful type of chart
and find out more about it.
Figure 16-1
As of this printing, NinjaTrader provides users with a Renko chart although it

does not provide the wicks and tails that we see in this example at arrow B.
Most traders prefer to see the entire trading range of each bar so we created a
Renko Bar version we call the FTSupremeOHLC. Using this unique, proprietary
Renko, you see all of the Price movement data (OHLC) which is essential for
backtesting, but you can also create any Renko bar type you choose.
On this chart example, arrow A shows us that we have selected a 5 Renko.
What does that mean? Well, it means that once a price direction is established,
each bar body (the colored area between the open and close) will be 5 ticks in
size and we can see some examples of this at arrows C.
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On a FTSupremeOHLC chart, in order for Price the change direction (bar color)
the market must travel twice the tick number setting measured from the close of
the previous bar. With our tick number setting at 5 in this example, a turning
bars target distance must then be 10 ticks every time Price changes from a
down to up bar or vice versa.
Renko charts give us a way to detect Price trends that is superior to time-based
or regular tick charts. They also allow us to know ahead of time the exact price
that any current active bar will close. When trading, this is a big advantage.
There are several other types of charts that you can research to find out what
they offer the trader. These include the Range, Kagi, Point and Figure, and the
Volume Chart just to name a few.
7. Understanding the Felton Trading Method

If you are an experienced trader, the first thing you should do is try to rid your
mind of any excess trading baggage you may have accumulated. Unfortunately,
much of the trading information given out in books, magazines, forums and chat
rooms is practically worthless. If the information was really valuable, you can bet
they would not be giving it away for free. And, unfortunately, most trading
courses being offered are either too complicated, too rough in drawdowns or they
just never worked to begin with. If what you learned and tried in the past did not
work for you, then toss it aside. For some, that is difficult because they remember
the time a hot tip worked and they forget the 50 times it didnt. Clear your mind
of trading trash so you can focus on what really works and works consistently.
Find a method that you know works, that fits the kind of trader you are, then
make it work for you. Most students say letting go of bad habits from old,
worthless trading knowledge is the single hardest part of becoming successful.
Felton Trading utilizes some simple
and accurate tools and techniques and
combines them in a very powerful way.
The method is based on years of study
of what the markets will do most of the
time in a given set of conditions. This
includes some specific Technical
Analysis training in the use of Volume,
Support & Resistance, Momentum,
Trend Channels and Price Patterns. By
using Technical Analysis and Price, we
have produced several sets of
conditions that generate a potential entry signal. We say potential because it
must always be the trained and skilled traders job to make the final decision to
enter or not enter a trade. Thats because humans think and computers dont.
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Humans can see things easily that even the most elaborate and sophisticated
code will miss.
To trade successfully, it is your choice of weapons and how you use those
weapons that matter. You may have seen the popular cartoon with a Roman
General about to lead his army into a great battle against a large enemy army
with swords and arrows. The General is very irritated by a pesky salesman trying
to sell his wares. The Roman General curtly says he does not have time to talk to
the salesman, that he has a war to fight and quickly dismisses him. Too bad, the
salesman was selling machine guns! The point is, to win consistently as a trader,
you must have an edge. That means that you must stop doing what everybody
else does and find a unique weapon (method) that allows you to see signal
entries that most others do not.
Be aware that there is a big difference between a trading method and a trading
system. A Trading System generally refers to a codes software that greatly
assists the trader by taking over much of the tedious dog work of measuring,
calculating, identifying market entries and crunching data. Thats best left to the
computer. Skilled humans, on the other hand, are best at Trade Management.
So we believe in utilizing the best of both worlds by letting computers and
humans do what they each do best.
No trading system or method in the world will make anyone a dime without a
trained, experienced and skilled trader behind it pushing the buttons. Once you
understand that statement and accept it as logical and true, youll stop looking for
the holy grail system and that ultimate indicator and start to get on the right
track to finding the trading success you are looking for.
We have found that, for training purposes, a manual alone is not sufficient to
make someone a successful trader. Misunderstandings can easily occur, and
they can be difficult to correct in the students mind. You will learn more by
watching and doing than you ever will by reading. Therefore, we will not attempt
to go into great method detail in this manual, but will familiarize you with the
basic method concepts. The actual method details will be covered in extreme
detail in the online training, live market trading, as well as other learning aids we
provide that will make your understanding of the Felton Trading method crystal
clear over time.
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8. The Felton Trading Signals

Finding the Correct Signal Correspondence
Before we begin our actual discussion of the various signal types that make up
the Felton Trading arsenal we need to explain a technique that the system
uses to correctly identify the Basic and Extended Divergence signals and, to a
degree, the Stub Signal.
In order for us to say with certainty that we actually have a Double Top, for
instance, we must know exactly which two bars we are referring to that form the
first and second price highs. You cant just guess. The same goes for the FT
Cycle and the FT Trigger. We need to define exactly what points (or locations)
correspond to each other. This is the technique we use:
Here in Figure 19-1, we have
a simple chart showing only
the FT Cycle (arrow A), FT
Trigger (arrow B) and Price.
No other indicators are
necessary.
For Basic and Extended
Divergence signals, we are
always on the lookout for
double bottoms and double
tops in Price. But to find the
precise price bars involved
we start by finding the
highest and lowest peaks (or
points) in the FT Cycle turns.
Notice at arrow C that the FT
Cycle has bottomed out and
a cyan dot is indicating the
lowest point reached by the
FT Cycle before turning up.
This is our starting point to
find
our
other
two
corresponding points to this
Figure 19-1
C location. C is the first and
there will be another one in Price (D) and a third in the FT Trigger (E).
From the FT Cycle point C, we look to the Price bar directly in line with it (shown
with the blue arrow). This is what we call the Zero Candle. Now, we consider
the Zero Candle and the four (4) price bars preceding (shown in dark red
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highlight) it and we want to find which price candle reached the lowest price
including the price bar tails in this 5 bar group.
In this example, the corresponding candle to the FT Cycle low (C) is the Zero
Candle because its tail reached a lower price than any of the preceding 4 bars
did.
Now that we have identified the corresponding price bar, we simply follow it
straight down to the FT Trigger to see where it intersects. It may intersect the FT
Trigger as it slopes down, slopes up or reaches a low or even possibly a high. It
will intersect it somewhere. From this intersecting point, we can look forward up
to 3 bars and we can look backward up to 3 bars only. This gives us a 7 bar
range and our job is to find the location of the lowest point that the FT Trigger
reached. Here, we see that the FT Triggers lowest point was at the intersecting
point shown with the red arrow and the cyan dot marked E. It is often the case
where all three corresponding points C, D and E line up exactly. Now lets look
at another set of corresponding points where they do not line up.
Figure 20-1, shows the

same chart as the preceding
example but now were
looking at our high peaks.
Notice at arrow C that the
FT Cycle has topped out
and a bright red dot is
indicating the highest point
reached by the FT Cycle
before turning downward.
This is our starting point to
find
our
other
two
corresponding points. C is
the first we identify using the
FT Cycle and there will be
another one in Price (D) and
a third in the FT Trigger (E).
From the FT Cycle point C,
we look to the Price bar
directly in line with it (shown
with the blue arrow). This is
our Zero Candle to the FT
Cycle peak C. Now, we
consider the Zero Candle
and the four (4) price bars
Figure 20-1
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preceding it and we want to find which price candle reached the highest price
including the price bar wicks in this 5 bar group.
Notice that an untrained trader would probably mistake the Price high at F to be
the corresponding high and this would be incorrect. We cannot consider any
price bars that occur after the FT Cycle reaches its peak. These price bars are
considered to be noise and are ignored except for the purposed of measuring
volatility.
In this example, once again the corresponding candle to the FT Cycle high (C)
is the Zero Candle because its tail reached a higher price than any of the
preceding 4 bars did.
Now that we have identified the corresponding price bar, we simply follow it
straight down to the FT Trigger to see where it intersects. It may intersect the FT
Trigger as it slopes down, slopes up or reaches a low or even possibly a high. In
this example, it intersects the FT Trigger at an up slope. From this intersecting
point, we can look forward up to 3 bars and we can look backward up to 3 bars
only. This gives us a 7 bar range and our job is to find the location of the highest
point that the FT Trigger reached. Here, we see that the FT Triggers highest
point was at the red dot marked E.
We have identified the 3 corresponding points in the FT Cycle (C), FT Trigger (E)
and Price (D) but they did not all form in a straight line.
So, whats the purpose of this exercise? Well, as we just saw in Figure 19-1, the
actual corresponding Price high to the FT Cycle was not where we might think it
is. If we are looking for a technical double top, we might be mislead into
thinking that the second price high did not reach within 20% of the first high
when, at the true corresponding price high, it actually did. In order to code a
signal into a software program, you must be able to tell the code exactly what
you mean by a double top or bottom and be able to teach it how to find the six (6)
corresponding points in a Basic or Extended Divergence signal.
In Figure 20-1, you can see the green dots in Price and the cyan dots in the FT
Cycle and FT Trigger that Divergence Pro identified. When we draw the blue
lines G, H and I, we see that this is not a Basic Divergence long (Buy) signal and
well find out why next.
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The Counter-Trend Signals

Basic Divergence Long We previously mentioned the term Divergence. It is easily identified by using
our FT Cycle (Stochastic) and the FT Trigger (MACD) indicators along with
price. They are very important in the formation of our buy and sell signals.
Basically, what we want to see them do is move in the opposite direction from
what the market (price) is doing.
Here is an example of Basic Divergence in a signal to go long in the market:
Figure 22-1 shows the
divergence we would
look for in a Buy signal
to go long in the
market. A Buy signal
requires that
Price
make a double bottom
(or lower low) formation
while both of the
indicators
form
a
corresponding higher
low. Look at the white
down sloping line and
notice
where
the
candles hit the two
price lows at points A
and B. It does not
matter what particular
price is hit as long as
the market makes two
separate lows.
A price low (or high)
can only occur if the FT
Cycle confirms it. That
means that, if price
appears to have made Figure 22-1
a low (or high) but
correspondingly the FT Cycle did not, then there is no price low or high at that
point.
In Felton Trading, double bottoms can be formed in 3 ways: (1) The two price
lows A and B can be exactly equal. (2) The two price lows can be skewed
downward as the second low B does in this example and is lower than A. This is
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called a lower low price formation. (3) The two price lows can be skewed
upward from left to right with B being slightly higher than A. This is called a
technical double bottom. It is required that price must be within 20% tolerance
of the distance from A to the highest price high in the middle between A and B.
Whether equal, lower low or technical, it is immaterial since all three formations
are still a double bottom.
With our double bottom requirement met, let us find the necessary oscillator
divergence of the FT Trigger and the FT Cycle indicators. Look at the red line
connecting the two lows of the Gold and White FT Trigger (MACD). Notice the
second corresponding low at point D is higher than the first low of the FT Trigger
at point C. This must occur or there cannot be a Buy signal.
Finally, look at the blue line connecting the two corresponding lows of the multicolored FT Cycle indicator at points E and F. They must do what the FT Trigger
did. That is, the second low (F) must be higher by any amount than the first low
(E). All corresponding indicator lows have the required divergence and we have a
Buy signal to go long.
The entry to a Basic Divergence long signal is taken when the FT Trigger first
turns up to complete its double bottom formation at the second low and the
corresponding price bar is the correct up color. In this example, the price up bar
is blue and the entry trigger candle is noted with a green up arrow and yellow
BD (Basic Divergence) label.
The powerful software program called Divergence Pro will identify all of these
low points for you automatically with small red and cyan dots in Price, FT Cycle
and FT Trigger and will warn you that a signal is imminent.
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Basic Divergence Short Here is an example of Basic (Bearish)

Divergence in a Signal to go short in the
market in Figure 24-1.
To illustrate a Sell signal (short), we simply
turn our Buy signal structure upside down.
The price candles should form a Double
Top. Similar and inverse to the Long
signal, a double top could be exact, a
higher high or a lower high in price. In this
example, we have a lower high type
double top because the second high at B
is lower than its previous high at A.
For a short (Sell) signal, we will need the
FT Trigger (MACD) to form a required
Lower High. That is, our second FT
Trigger high at D should be lower in
elevation by any amount than the first high
C indicated by the down sloping red line.
Now, we check our FT Cycle and see
Figure 24-1
with the down sloping blue line, that the
second high F was indeed lower than the first high E. These conditions must
occur or we would not have a Sell signal to go short in the market.
The entry to a Basic Divergence Short signal should be taken when the FT
Trigger first turns down to complete its double top at the second high and the
corresponding price bar is the correct down color. In this example, the price
down bar corresponding to the FT Trigger turning down is red and the entry
trigger candle is noted with a red down arrow and a yellow BD (Basic
Divergence) label.
The powerful software program called Divergence Pro will identify all of these
double top points for you automatically with small red and cyan dots in Price, FT
Cycle and FT Trigger and will warn you that a Short signal is imminent.
For this example (and the previous Buy signal), we would not see any of the
white, blue or red lines we have drawn in here for reference. Divergence Pro
can, however, draw the corresponding line in price to help you see the double
tops and double bottoms. Usually, price will make the double top (or double
bottom) first, then the FT Trigger will complete its lower high (or higher low for
Buy signal). Finally, the FT Cycle will complete the signal with its lower high
(Sell) or higher low (Buy).
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When we get one of these Buy or Sell signal formations, we do not necessarily
act on it and enter the market. It simply gives us something to consider for its
profit potential. But, before we would actually enter the market, there are a few
more things we would like to see. We will discuss other dynamics later in this
manual and in the E-course training.
Extended Divergence Long Let us take the divergence of the FT Cycle and the FT Trigger one step further
and look at some often powerful formations we call Extended Divergence
signals. If you understand the three things we look for in our basic divergence
signals previously discussed, then extended divergence will be a snap. Extended
Divergence simply means that we look at more data between two major lows or
highs of the FT Cycle and FT Trigger. We ignore less significant indicator lows or
highs in between the two larger outside ones...thus we are extending the
divergence formation over a larger amount of data. These are structured similar
to the Buy and Sell signals previously shown, only bigger.
Look at Figure 25-1 to see what an Extended
Divergence Buy signal would look like.
We have drawn in the red, blue and black
lines of our Extended Divergence (Buy)
signal here and alphabetically labeled the
corresponding points. Notice the obvious
structural similarities to the basic divergence
Buy signal discussed previously. Here, the
price, FT Cycle and FT Trigger lows are
spread out over a longer time frame. Some of
these Extended Divergence signals can take
over an hour to form on a 1-minute chart.
Note that in between the FT Cycle lows
labeled E and F, there were three smaller,
less significant lows.
We ignore these since they are not part of the
signal. It is important, however, that the
outer lows of the FT Cycle (E and F) be of
significant size. Usually they will be
noticeably larger than the inner FT Cycle
lows like we see in this example.
Figure 25-1
Signal formational strength can also be enhanced if Price and FT Trigger both
have large significant corresponding lows.
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If there is formational weakness in Price, FT Trigger or even the FT Cycle, it does

not mean it is not a signal. It would simply indicate a weakness in the signal and
its performance could be affected. We would certainly want to consider other
market factors carefully before taking any divergence signal that is showing
weakness in structure.
Fig 25-1 is a perfect example of an Extended Divergence Long (Buy) signal with
the required A to B double bottom (or lower low) in Price and the higher low at D
vs. C on the FT Trigger and the higher low at F vs. E on the FT Cycle. Price, FT
Trigger and the FT Cycle all showed good, strong, significant lows.
Extended Divergence Short Now, let us take a look at an Extended Divergence (Sell) signal in Figure 26-1.
Notice that we are using the significant FT Cycle highs E and F and not the
smaller ones in between.
The
FT
Trigger
made
great
corresponding highs at points labeled
C and D. F had to be lower than E,
and D had to be lower than C
(which they were) to make the bearish
divergence signal. Remember, price
does not have to make an exact
double top (or double bottom).
Technical tops and bottoms are OK.
Higher highs (B higher than A by any
amount) is fine and most often
preferred.
Divergence, along with Extended
Divergence, is a powerful trading tool
we often use, but it is by no means
the only thing we would need to enter
a market trade.
Figure 26-1
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The Turn Signal

Figure 27-1 shows two good examples (Long and Short) of the entry we call the
Turn Signal. It is aptly named because it is designed to identify when Price is
actually turning rather than just producing a small pullback with little to no real
profit potential. This is our third and final signal type for going counter to a trend.
Figure 27-1
Turn Signals are best found on a Line Break type chart. A 3 Line Break setting
works well. Here, we are using a 300 tick 3 Line Break setting but we could use
other settings too, including volume or any time-based selection as long as it
shows good clear trading condition according to the Four Market Conditions we
will be discussing later.
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In Figure 27-1, we have a Turn Signal (TS) long (blue arrow) and a Turn Signal
(TS) short (red arrow). Their structures are identical, only reversed.
Let us start with the Turn Signal long (Buy) at about 9:30am on the Time Line.
Its formation requires three things to occur simultaneously with the FT Cycle, FT
Bands and Price. In order for a Turn Signal long to trigger, the FT Cycle must be
turning up and be blue in color indicating it is strongly bullish. We can see that
this condition has been met with the orange arrow marked A.
Next, we must have the FT Bands indicator color to be blue indicating that Price
has now shifted from bearish (red) to bullish. Arrow B shows this condition to be
correct.
The third component necessary for a Turn Signal long is to have a blue bullish
bar in Price which is seen to be correct at arrow C.
We see that Divergence Pro has identified all three conditions to be correct
and it places the small green up arrow with the yellow TS label in plenty of time
for the trader to spot the opportunity to enter the trade and take profit.
The Sell (short) version of the Turn Signal is just the opposite in formation. At
about 9:02am on the Time Line, we have a Turn Signal (TS) short indicated with
the larger red arrow. Its formation also requires three things to occur
simultaneously with the FT Cycle, FT Bands and Price.
In order for a Turn Signal short to trigger, the FT Cycle must be turning down and
be red in color indicating it is strongly bearish. We can see that this condition
has been met with the orange arrow marked D.
Next, we must have the FT Bands indicator color to be red indicating that Price
has now shifted from bullish (blue) to bearish. Arrow E shows this condition to be
correct.
The third component necessary for a Turn Signal long is to have a red bearish
bar in Price which is seen to be correct at arrow F.
We see that Divergence Pro has identified all three conditions to be correct
and it placed the small red down arrow with the yellow TS (Turn Signal) label in
plenty of time for the trader to spot the opportunity to enter the trade and take
profit going short.
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The With-Trend Signals

Hidden Divergence (Long) -
Figure 29-1
Figure 29-1 shows an uptrend in Crude Oil futures (symbol CL) showing Price
making its typical higher highs and higher lows as it continues to climb. When
Price makes a higher low, notice that the FT Cycle usually does also. The FT
Cycle wants to mimic what Price does. Now notice that price made a normal
higher low at point B compared to A. Since price came nowhere near forming a
double bottom, we would suspect a possible market entry here on Basic
Divergence. However, notice that point D on the FT Cycle went lower than point
C. At the corresponding points, Price lows went higher while the FT Cycle lows
went lower and thats divergence by definition. This is a with trend formation
called Hidden or Reverse Divergence indicating that the uptrend is likely to
continue for additional profit.
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It is not necessary for the FT Trigger to participate in the Hidden Divergence

formation. The role of the FT Trigger is simply to turn up (shown at arrow E) and
trigger the entry with a blue up candle. Divergence Pro easily identified this
HD signal and placed a green up arrow and yellow HD label at F.
Whenever price is trending upward and makes a stair stepping higher low while
the FT Cycle makes a lower corresponding low, it is called Hidden Divergence
(HD). This allows for market entry on the first up (bullish) candle after the FT
Trigger hooks up but the FT Cycle can also trigger the signal if it turns up with a
bullish up candle before the FT Trigger does.
The FT Cycle does not need to be hooking up for entry, but it does need to have
established a lower low (D lower than C) before the trade can trigger with the FT
Trigger.
Hidden Divergence (Short)

Hidden Divergence sell (short) signals are structured exactly opposite of longs.
Figure 30-1
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Figure 30-1 shows a downtrend in the Euro dollar (symbol 6E). Price makes a
bullish pullback and peaks at point A. A little later, another bullish price pullback
and peaks at point marked B. Typical of downtrends, notice that price is stairstepping downward as these peaks are consecutively making lower highs from
one high to the next. In other words, B follows A and B is lower in price than A.
Since price came nowhere near forming a double top, we would not normally
suspect a possible market entry here.
Notice that point D on the FT Cycle went higher than point C. At the
corresponding points, Price highs went lower (orange down arrow) while the FT
Cycle highs went higher (orange up arrow) thats divergence by definition.
Hidden Divergence are with trend formations indicating that, in this example,
the downtrend is likely to continue for additional profit. Divergence Pro finds
the formation for you and, with warning, identifies the entry trigger bar with the
red down arrow and yellow HD label.
The Lump Trade (long) Heres a signal type

that is unique to Felton
Trading. It is a withtrend signal that has a
built-in
filter
that
indicates that the trade
could have reasonably
good profit potential.
Figure 31-1 is a look at
Crude Oil (CL) on a 5
Renko chart and shows
a clear example of the
conditions necessary to
form a Lump Trade
(LP) to enter a bullish
long trade.
Figure 31-1
In a Lump Trade signal, three main structural conditions must be met. Since
Lump Trades are with-trend signals we need to establish that a trend is either
established or at least beginning to form. In Figure 31-1, an uptrend is beginning
to form with a confirmed higher high and a strong probability of a higher low in
Price. Lump Trades actually attempt to test the strength of a price pullback
(retracement) using the FT Momentum indicator. But, before we can test a
pullback, we must first define it. For a Lump Trade pullback to occur, we need
both Price and the FT Cycle to both confirm that indeed a pullback did happen.
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In this example, we see that Price formed a series of red bars shown at arrow A.
The minimum number of bars required to define a pullback is one (1) but there is
no set maximum number. To re-confirm that a pullback took place, we also need
the FT Cycle to have turned down, in this example, by at least one bar which it
did as shown by arrow B.
Now we need to gauge how strong (or weak) the pullback actually was and we
do that by looking at the FT Momentum indicator. At arrow C we can see that,
although the FT Momentum indicator swung downward with a series of pink/red
bars, it did not go below the Zero Line shown with arrow D. If Price had gone
below the Zero Line, it would have indicated that the Sellers (Bears) were strong
at this point and we would not have a potential for a Lump Trade to go long
(Buy).
Since Price stayed above the Zero Line, we can enter the Lump Trade at the
close of the first blue (up) bar at arrow E that forms when the FT Trigger turns up
(arrow G). There is a secondary entry that can be taken by waiting for the FT
Cycle and FT Bands to confirm the bullish (up) direction if that dual condition
occurs no later than the next bar after the standard entry bar. This entry will
sacrifice some profit potential (slippage) in the hopes of gaining some accuracy.
At arrow H, we see that Divergence Pro has successfully found the entry bar
and placed a small green up arrow with the yellow LP label signifying a LumP
Trade signal to go long in the market. Additionally, in this example, Divergence
Pro has employed some of its tremendous signal filtering power by requiring
all Lump Trades to not cross their respective FT Large Channel midline as shown
here with arrow F.
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The Lump Trade (short) Figure 33-1 shows an example of a Lump Trade signal to go short in the E-mini
Crude Oil market. Notice that all of the necessary formation requirements
described in the previous example are met, only in reverse.
Figure 33-1
Both Price and the FT Cycle confirm that a bullish pullback occurred (arrow A)
once the market started a down trend with established lower highs and lower
lows showing in Price. Arrow B confirms that the FT Momentum indicator was
unable to rise above the Zero Line. We enter at the close of the first red candle
immediately following when the FT Trigger turns down, shown at arrow C.
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At arrow D, Divergence Pro finds the correct entry point and places the small
red down arrow and the yellow LP label. Notice that the FT Large Channel filter
was active in this example and that the entry bar did not cross the gray dotted
midline. Although not a required filter, it can offer increased accuracy and profit
potential to Lump Trade signals.
The Break Out Signal (long) Break Out (BO) signals are pretty much what their name implies. Price
establishes a trend direction or bias then starts to reverse but only manages to
form weak pullback noise and then breaks out of the weak reversal effort to
resume the initial trend. Figure 34-1 shows three good bullish examples of the
Break Out signal in Crude Oil futures (CL) on a 233 Tick 3 Line Break chart.
When trading Break Out signals, it is best to use a Line Break chart.
In this example, we see
Price making those higher
highs and higher lows
typical of an uptrend. Price
peaks at the blue (up) bars
shown with arrows B
before starting a small
pullback shown with the
arrows A.
For a good Break Out
signal, we want these
pullbacks to be of short
duration. On a Line Break
chart, we want them to be
no more than two bars.
Once the small pullback
ends, then a single blue
(up) bar will completely
exceed the range of the
preceding three bars and
break out to begin the
formation of a new higher
high. The FT Trigger is
shown but actually plays no
part in the Break Out signal
formation.
Figure 34-1
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Divergence Pro finds each of these three BO examples and places a small
green up bar and the yellow BO label on each entry (trigger) bar.
The Break Out Island Bar Signal (long) -
As we mentioned in the preceding example, the pullback allowance can be no

more than two price bars in a Line Break chart for a Break Out signal. Often the
pullback is only one bar. When that happens, we get a special type of Break Out
signal we call the Island Bar (IB) shown here in Figure 35-1. We call it that
because the lone red bar at arrow B is surrounded by a sea of blue bars. We
also sometimes refer to it as a slingshot due to the Y formation that occurs.
These Island Bar trades are best
used as with-trend signals and
here we see the uptrend
established in Oil futures (CL).
Price peaks at the blue (up) bar at
arrow A before starting the single
red (down) bar pullback at arrow
B.
Arrow C shows that the pullback
did not continue as Price began
climbing its way back up to close
at a new price high. Bars A, B
and C form the slingshot with the
red bar being the handle.
Notice the small dotted green line
at the body top of the first blue bar
at arrow A. This offers an entry
target price where you might
place a Limit Order to enter long
in the market. Generally, if Price
manages to climb all the way back
to that level, there is a good
chance the bar will close blue.
Since every blue (up) bar in a Line
Break
chart must close higher
Figure 35-1
than the (body) high of the last
three bars, you should get a good fill price by entering at the dotted green line
price. If price goes through the Limit Order and closes blue, we will get that nice
fill.
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Arrow D shows the trigger bar for entering the slingshot whether you choose
the Green dotted line or the trigger bar close. Divergence Pro places the
green (up) arrow and the Yellow IB label to denote this is an Island Bar type
Break Out.
The Break Out Island Bar Signal (short) -
Here in Figure 36-1 we simply reverse the structure and we get the Break Out
Island Bar short. We call it that because the lone blue bar at arrow B is
surrounded by red bars...stranded, if you will, like a castaway on a deserted
island.
These Island Bar trades are best
taken as with-trend signals and here
we see the downtrend established in
Oil futures (CL) on a 233 tick 3 Line
Break chart. Price peaks at the red
(down) bar at arrow A before
starting the single blue (up) pullback
bar at arrow B.
Arrow C shows that the pullback did
not continue upward as Price began
climbing its way back down to close
at a new price low. Bars A, B and C
form the slingshot with the lone
blue bar being the handle.
Notice the small dotted red line at
the body low (close) of the first red
bar (at arrow A). This offers an
entry target price where we might
place a Limit Order to enter long in
the market.
Generally, if Price
manages to climb all the way back
down to that level, there is a good
chance the bar will close red. Since
every red (down) bar in a Line Break
Figure 36-1
chart must close lower than the
(body) high of the last three bars, we will get a good entry fill by entering at the
dotted red line if price goes through the Limit Order and closes red.
Arrow D shows the trigger bar for entering the Island Bar Break Out whether you
choose the red dotted line or the trigger bar close. Divergence Pro places the
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red (down) arrow and the Yellow IB label to denote this is an Island Bar type
Break Out signal.
Island Bar (IB) Break Out signals can also occur on the Better Renko charts.
Here in Figure 37-1, we see two examples of IBsone short at yellow oval A
and one long at yellow oval B.
Figure 37-1
IB signals on a Better Renko chart usually have flat body tops on longs and flat
body bottoms on shorts, as we can see in these two IB examples. Theres no Y
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formation like there is in the Line Break charts so we do not nickname these to
be slingshots.
Notice the small arrow and yellow label entries that were found automatically for
us in Divergence Pro.
The Stub Signal (long)

The Stub Signal is structurally related to Basic Divergence but with one missing
component.
Remember in Basic Divergence that there were six (6)
corresponding points (locations) that made up the signal? We had two in Price,
two in the FT Trigger and two in the FT Cycle. A Stub Signal is almost identical
except that they are usually small in form and volatility and the final low (or high)
in the FT Cycle is missingleaving only a stub in its place.
Figure 38-1 shows the Stub Signal

formation requirements for a bullish
Buy signal to go long in the market.
As with a Basic Divergence, we must
have at least a technical double
bottom in Price and we must have a
higher low formation in the FT
Trigger. These conditions are both
met as we can see by the two blue
lines marked by the A arrows. So far,
we have two-thirds of a Basic
Divergence long signal by definition.
But now notice that there is no
higher low in the FT Cycle because it
contains only one low and we can
identify its location at the small cyan
dot at the bottom of the last red
candle.
In the place of the 2nd FT Cycle low,
we see a slight bend, or bulge, in the
wall of the indicator as shown by
arrow B. In effect, the 2nd low is
missing and only leaving us this
stub that the FT Cycle even tried to
turn down to form the 2nd low.
Figure 38-1
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When Stub Signals form, by not being able to make a 2 nd low, this offers
evidence that there is bullish market pressure exerting itself. It is so strong that
the FT Cycle is prevented from making its 2nd low. Logically, it follows that, if
strong market forces are exerting pressure upward, Price should then go up.
This is precisely what happens as Divergence Pro identifies the proper entry
point and places the small green up arrow and yellow ST (Stub) label for us at
arrow C.
The Stub Signal (short)

The Stub Signal is structurally related to Basic Divergence but with one missing
component.
Remember in Basic Divergence that there were six (6)
corresponding points (locations) that made up the signal? We had two in Price,
two in the FT Trigger and two in the FT Cycle. A Stub Signal is almost identical
except that they are usually small in form and volatility and the final low (or high)
in the FT Cycle is missingleaving only a stub in its place.
Figure 39-1 shows the Stub Signal formation
requirements for a bearish Sell signal to go
short in the market. As with a Basic
Divergence, we must have at least a
technical double top in Price (arrow A) and
we must have a lower high formation in the
FT Trigger (arrow B). These conditions are
both met as we can see by the two blue
lines. So far, we have two-thirds of a Basic
Divergence short signal by definition.
But notice that there is no lower high in the
FT Cycle because there is a 2nd high.
Theres only one high in the FT Cycle and
we can identify its location at the small red
dot.
In the place of the 2nd FT Cycle high, we see
a bulge in the wall of the indicator as shown
by arrow C. In effect, the 2nd high is missing
and only leaving us this stub that the FT
Cycle even tried to turn up to form the 2nd
high.
When Stub Signals form, by not being able
to make a 2nd high, this offers evidence that
there is bearish market pressure exerting
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itself downward. It is so strong that the FT Cycle is prevented from making its 2 nd
high. Logically, it follows that, if strong market forces are exerting pressure
downward, Price should then go down.
This is precisely what happens as Divergence Pro identifies the proper entry
point and places the small red down arrow and yellow ST (Stub) label for us at
arrow D.
9. Trading The Felton Trading Method

We have covered quite a bit so far but theres still more to go as we now apply
some filters to our signals in order to try to enhance their effectiveness and
winning accuracy.
No matter which market you choose to trade, price can only do one of three
possible things at any given time. The market can trend upward (uptrend),
markets can trend downward (downtrend) or markets can simply move sideways
in a range. If that range becomes very narrow, we get a price condition known as
congestion. Signals that work great for one market condition do not necessarily
work well for others. For instance, if the market is in an extended strong
downtrend, we would not likely want to go counter-trend on a small, weak Buy
signal. Trading counter-trend can be quite profitable but it always requires a
combination of market factors to be in place or the risk becomes too great.
Always keep the winning percentages on your side by always trading according
to what the market does a high percentage of the time.
Lets begin our method training by studying the Four Market Conditions and
how we would trade them.
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Sideways Cycling -
This condition is characterized by good up and down ocean wave Price action
with little to no actual trend bias direction. Sideways Cycling market condition is
the only one that can be traded totally bi-directionally with little additional
consideration. Go long or short as your signals and filters dictate.
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Trending Cycling
Trending Cyclical can also be traded bi-directionally, long or short, but extra care
should be exercised when trading counter to the trend direction. Pay attention to
your entry in relation to the position in the FT Large Channel. If going countertrend, entry should ideally be in the lower half of the channel and small profit
targets would usually be desired.
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Trending Congested
Trending Congestion is commonly seen when Price is moving strongly in either

direction. This condition is characterized by very small, weak pullbacks in price
of short duration. These pullbacks offer almost no profit potential if any signal
were taken to go counter-trend. This market condition is for trading only with the
trend, never counter to the trend.
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Sideways Congested
Sideways Congestion is often referred to as consolidation and, as soon as this

condition is recognized, no trades should be taken until the market starts trending
or cycling again. Sideways congestion is recognized by short jerky up and down
price movement with no significant higher highs or lower lows being formed. Any
entry taken, long or short, would run into trouble almost immediately as Price
would quickly be going against us.
The FT Signal Filters Trade signals produced by the Felton Trading Method (or by Divergence
Pro) are not meant to automatically be taken, no questions asked. They are
entry suggestions and should only be taken if they meet our additional filter
requirements. Good signal filtering is essential. With each new version,
Divergence Pro is taking on more and more of the filtering duties but there are
just some things that computers and code cant see while humans easily can.
So let us go over our filter arsenal and discuss each one and how we use it.
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Using the FT Bands -
Figure 45-1 shows the smooth cycling turns (arrow B) and tight trend pullback
(arrow A) conditions of the FT Bands. The FT Bands appear as a red and blue
sheath which envelops the price bars providing a background color to identify
the bearish or bullish nature of the market at any given time.
Figure 45-1
The FT Bands act as a signal filter in a couple of ways. In a good cycling market,
the FT Bands help us identify when Price turns are likely to be occurring shown
in the arrows B area, and also help identify good with-trend entry points in
highly directional congested markets as seen in the arrows A area.
Using the FT Bands along with FT Momentum and FT Cycle gives us excellent
confirmation that a Price high or low has occurred. This can greatly enhance the
accuracy when a signal triggers in the new Price direction.
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Using the FT Momentum Indicator Figure 46-1 is the indicator filter we call the FT Momentum shown in arrow A.
Notice how its a histogram made up of basically two colorsred and bluebut
with three varying shades of each from light to dark. This is designed to show
varying degrees of strength or weakness in Price momentum. We sometimes
refer to the FT Momentum indicator as momentum change.
Figure 46-1
Any shade of red colored bars in the FT Momentum indicates bearishness in the
market and Price is usually going lower. Any shade of blue indicates bullishness
and Price usually rises. So, we want any signal to go long in the market to
trigger on some shade of blue in the FT momentum as shown with arrow C.
Arrow B shows Price reacting to two short signals and the corresponding shade
of red in the FT Momentum. The darkest shades of red or blue indicate areas of
strength in the bullish or bearish nature of Price at that time.
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Using the FT Cycle -
The FT Cycle is a type of oscillator called a stochastic. The Stochastic Oscillator

was developed by Dr. George Lane to track market momentum.
Figure 47-1
The FT Cycle is the multi-colored rising and falling line seen here in Figure 47-1.
The purpose of the changing colors is to indicate where bullish and bearish Price
action might be weakening or gaining strength.
Weve already seen how the FT Cycle produces a divergence signal relative to
Price as seen here at the diverging purple lines (arrows G). Now notice at arrow
A that the FT Cycle is blue. Thats the strongest color indication that Price is
bullish. Now, at arrow B, we see the oscillator turn green indicating that the
buyers are weakening. Then, at arrow C we see the color turn to white which is
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the weakest color for bullish market direction and indicates that a market turn
may be imminent. If we were long on the bullish Turn Signal, we might very well
be looking for an exit on the trade if we were scalping the turns.
Arrows D, E and F show just the opposite when Price is falling with red being the
strongest color for the bears (sellers), pink showing weakness coming in and
yellow indicating a bullish turn is likely soon.
The FT Cycle is a very useful indicator for finding divergences, indicating market
strength/weakness and for helping to confirm Price highs and lows (turns).
Using the FT MM Lines All robust trading methods incorporate some form(s) of Support and Resistance
(S&R) in order to enhance a trades potential to make a profit or to indicate
trouble ahead (and to avoid entry). In addition to trend lines and channels, the
Felton Trading system uses an indicator called FT MM Lines for finding S&R
levels.
Figure 48-1
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In Figure 48-1, we can see by arrows A that we have three (3) FT MM lines
shown as blue, cyan and magenta. There are actually an infinite number of these
lines possible since they are updated every hour. The MM is an acronym for
Murrey Math. Although we do not endorse the actual Murrey Math system of
trading due to its complexity and rampant subjectivity, we find that the MM lines
used are actually quite useful and seem to work better than other techniques
such as Pivot Points and Fibonacci Retracement. In actual Murrey Math, the MM
lines are labeled 0/8, 1/8, 2/8 on to 8/8 but we find this labeling to be
unnecessary. One MM level is just as useful as another in our studies of MM
lines.
Lets follow Price as it moves in relation to these FT MM lines. At arrows B, we
see that the previous bullish price movement was halted twice as it hit the blue
line. Price saw this MM level as resistance and headed downward in stair
stepping fashion as it headed for the cyan MM line.
Arrow C shows that Price actually pushed through the cyan line a bit rather than
stopping right on it. This is normal since the MM lines are not perfect predictors
of where Price will stop. No indicator can do that. But they are generally quite
close and that is sufficient for our purposes. As Price heads from one MM line to
another, it often produces some pullbacks which result in a signal. Arrow D
shows where Divergence Pro found a HD short to send Price back on its way
to the cyan MM line.
A common phenomena that we often see when Price is in a strong trend (such
as the downtrend here in this example) is what we call the MM kiss. In Figure
48-1, Price comes back down through the cyan line and halts at the bold
magenta BD long (arrow F) then heads up for a bit to kiss the cyan MM line
goodbye, so to speak seen at arrow E. Then, as Price forms the bearish IB
slingshot signal (arrow G) to indicate the probability that Price will continue
downward to the magenta MM line.
Price indeed does fall to that magenta level and abruptly stops and reverses
direction shown at arrow H.
The FT MM lines help us to predict future price levels where the market is likely
to halt, bounce or reverse entirely. This can assist us in picking price targets as
well as entry points for taking countertrend signals.
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Using the FT Large Channel

Trend Channels have long been used
by traders as a means of detecting
when Price is in a strong trend as well
as detecting when trends are coming
to a probable end. Felton Trading
uses a modified Regression Channel
that we call the FT Large Channel
seen here in Figure 50-1.
Although Price is in an obvious
uptrend, notice that the top and bottom
of the FT Large Channel is colored red
and green respectively. The red color
indicates that its OK to take any short
(Sell) signal and the green line says
we are fine to take any long (Buy)
signal. So, we have placed some
Figure 50-1
orange check marks at every signal to
show that Divergence Pro sees no problem in taking any of them.
Divergence Pro keeps track of not only the slope of a trending channel but also
the channel width. Both are important, especially when trading counter to a
trend. So, unless theres a problem with any of your other filters, you are free to
trade long or short when your FT Large Channel lines are red and green
regardless of trend direction.
Figure 50-2 shows a definite uptrend

in price.
The FT Large Channel
confirms this condition by showing
green/green on the channel lines.
This means you should only consider
taking long (Buy) signals and ignore
the shorts. In this example, we have
placed check marks at each tradable
long signal and an X to show the
short signals you should not take.
Figure 50-2
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Figure 51-1 shows the opposite condition. Here Price is in a downtrend and
confirmed with the red/red lines in the FT Large Channel.
Now you would only consider going
short in the market indicated here
with the check marks placed at the
Sell
signals
produced
by
Divergence Pro. Notice the X
placed at the TS signal to go long.
Notice the thin gray dotted line that
runs at the exact middle of the top
and bottom lines of the FT Large
Channel. We use this line as
another filter to avoid taking trades
that trigger too far on the wrong
side of the channel.
This is
especially important when going
countertrend. Trade the upper side
for shorts and the bottom half for
longs.
Figure 51-1
Figure 51-2 shows us two yellow lines in the FT Large Channel. This indicates
that Price is not giving us enough range (up and down volatility) to take any
trades long or short.
We have placed orange X marks
at every signal indicating no trades
should be taken.
In each of the previous examples,
the check marks and the Xs do not
appear in real market trading.
They are placed here for clarity. It
is up to the trader to note the FT
Channel
color(s)
and
trade
accordingly. Or, the trader may
choose to enter the input settings
for Divergence Pro and let the
software filter (remove) any signal
in violation of the channel colors or
the location of the entry price
relative to the FT Large Channel
gray centerline.
Figure 51-2
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Using the FT Turbo Twisters

Figure 52-1 shows the indicator we call the FT Turbo Twisters at work. Notice
how they turn and twist around each otherthus the name.
Figure 52-1
Each of these three twisting lines have a function. The main ones are the Fast
Turbo shown at arrow A and the Slow Turbo at arrow B. The smaller dotted line
at arrow C is part of a Keltner Channel (midline) and simply indicates price
directional strength/weakness as the colors shift from varying shades of blue
(bullish) to red (bearish). These color shifts are also evident in the Fast and Slow
Turbo lines.
Focusing now on the Fast and Slow Turbo lines, notice where the Fast Turbo,
which has been moving away from the Slow Turbo line, suddenly turns around
and attacks (heads toward) the Slow Turbo line as seen here at arrows D and
at arrows E. These are the exact points where the bearish Fast Turbo turned up
(bullish) or vice versa. We call these points Turbo Attacks.
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Next, notice at arrow F that the Fast Turbo line went down to the Slow Turbo but
was not able to push through. Instead, it turned and bounced off of the Slow
line and we call this event a Turbo Bounce.
At arrow G, notice how, following a Turbo Attack, that the Fast line passes
through the Slow Turbo and all three Turbo lines are spreading apart, or flaring.
We call this a Turbo Flair.
These Attacks, Bounces and Flares can add greatly to a corresponding signals
potential to make profit, but they are an added burden for the trader to keep track
of in addition to everything else. Divergence Pro to the rescue once again!
Figure 53-1
In this Figure 53-1 example, Divergence Pro makes having the Turbo Twister
lines on the chart unnecessary as it faithfully places the A (Attack), B (Bounce)
and the F (Flare) points right on the chart near the signals and price bars with
labels and red/blue triangle arrows.
Notice that some occur at the exact time a signal triggers but, if they appear,
most often it is one bar after a signal happens. These A, B and Fs often indicate
that conditions are good for continued price movement in the signal direction.
You can use Divergence Pro to filter signals using these Turbo A, B and Fs.
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Using the FT TrendMA

Traders have been using various Moving Averages for many decades to help
indicate trends, entry and exit points, etc. At Felton Trading, we have
incorporated a very versatile indicator called the FT TrendMA and we mainly use
it to help determine longer term price direction and probable strength.
Figure 54-1
Heres a chart of the S&P E-mini on a 233 tick Wicked Line Break chart shown in
Figure 54-1. The FT TrendMA is shown as a multi-colored line changing from
red to yellow to green. The red area, shown at arrow A, indicates that the market
is bearish and perhaps Buy signals should be avoided.
The green area at arrow B indicates the market has now turned bullish where
Buy signals would be in order and shorts (Sell signals) should be considered
carefully. The yellow area shown at arrow C, as an example, would indicate a
neutral condition that is neither bullish nor bearish. In this case, if other
indicators warrant, a signal could be taken in either direction.
The FT TrendMA can be set to use many types of Moving Averages including
Simple, Exponential, Hull and Weighted. But it should just be used as a guide
and not a standalone indicator for market entries.
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Using Blue Ice

Felton Trading incorporates a powerful Support & Resistance (S&R) indicator
called FT Blue Ice. It gets its name from a 55 period Exponential Moving
Average (EMA) that we color blue to represent blue ice. So, imagine a Polar
Bear walking along breathing the nice crisp Arctic air and getting quite hungry.
So he attempts to knock a hole in the blue Ice to dive in and catch some fish for
dinner. Sometimes, no matter how hard he tries, he cant bust through the thick
blue iceso he moves on to try at another spot. Finally, he finds a weak spot in
the ice and is able to bust through and submerge. But, eventually, he needs to
breathe so he tries to poke another hole in the ice. Sometimes its just a small
hole big enough to just poke his nose through for a breath but too thick to make a
hole big enough to squeeze through. At some point, the Polar Bear finds a weak
enough spot in the blue ice to break and climb through to once again walk
along the ice and replenish his breath. If we remember this story, FT Blue Ice is
easy to understand.
Figure 55-1
Divergence Pro will automatically create the FT Blue Ice chart for you as seen
here in Figure 55-1. See the blue EMA line at arrow A. Its our blue ice.
Theres another SMA line at arrow B that we call the snap line.
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Now, from the far left side of this chart example, imagine our Polar Bear walking
along our blue ice and getting hungry. At arrow C, the polar bear charges at
blue ice and tries to break through but with little success. He might have
caught a small meal but the ice was just too hard and thick to really submerge.
So, at arrow D, the Polar Bear gives up and walks along the ice to try at another
spot.
Each time the Polar Bear turns and charges at blue ice, he must cross the Snap
Line (arrow B). When he does, the price bars turn opposite their previous
coloralerting us to a Price attempt to bust Blue Ice.
Arrow E shows us that the Polar Bear has finally made his way through the ice
and is now submerged merrily catching fish to quench his hunger. But,
eventually, the Polar Bear must surface to breathe and we see two attempts to
do just that at arrows G. Notice the bullish snap at arrow F as the bars
changed from red to green. One try later, at arrows H, the bear breaks through
and once again is able to walk along the thicker Blue Ice as he searches for a
new spot to submerge again.
Notice at arrows I that two bearish snaps occurred where our imaginary Polar
Bear decided to charge Blue Ice but abandoned the effort before he even got
there. These weak attempts indicate strength on the buyers side of the market
and that Price should continue upward. Price hitting Blue Ice and bouncing back
gives a similar indication.
Once Price penetrates Blue Ice, we look for strength on that side and watch for
failed and abandoned attempts for Price to get back to the other side again.
Each failed or abandoned snap attempt indicates good opportunities for taking
signals corresponding to which side of Blue Ice Price is on.
Notice the odd yellow price bar at arrow J. These are somewhat rare. They
show where Price on a particular bar closed right on the Snap Line. We do not
consider these yellow price bars to have made a Blue Ice Snap.
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10. The DivPro Software

Successful trading requires concentration and multitasking. Questions like Are
we in a trend? Is there enough volatility? Does this setup meet my criteria? or
Do my indicators agree? need to be addressed prior to entering a trade. In the
excitement of a fast moving market, such analysis can easily be mismanaged,
even by experienced traders. To help make such analysis during live trading, we
use a variety of specialized indicators. Among these are FTCycle, FTTrigger,
FTMomentum, FTBands, FTMarketCondition, FTTurbo, and FTTrendMA.
Foremost, however, is FTDivergencePro (DivPro for short) which organizes
all relevant information into a single signal generating software program. With
FTDivPro, we can, if we choose, remove all other indicators and use its
advanced filtering mechanisms alone to show Felton Trading signals.
Built-in Back and Forward Testing
FT Divergence Pro includes simulated trading functions that allow back and
forward test results to be displayed live on chart. (Detailed results are also
available in NinjaTrader's output window.)
Installation
Divergence Pro software, and all Felton Trading indicators, are written for
use in NinjaTrader. To install Divergence Pro and its associated tools, first
remove any previous Divergence Pro installation. To do this, in NinjaTrader's
Control Center choose File, Utilities, Remove NinjaScript Assembly, select the
previous assembly, and click Remove. Next, from Felton Tradings Box.net
location, download the latest Divergence Pro installation zip file. Then in
NinjaTrader's Control Center, click File, Utilities, Import NinjaScript, navigate to
your installation zip file, select it, and click Open. Once installed, FT Divergence
Pro and its associated indicators will appear in the indicators list accompanying
each chart. (Indicators are reached by right clicking on chart and choosing
"Indicators," or by pressing CTRL + I.) You should now be ready to add Felton
Trading indicators to your NinjaTrader charts.
In addition to manually selecting and adding FT indicators to your charts, you
may also download chart templates from Felton Tradings Box.net location.
Templates hold your chart colors, all chart indicators and their settings.
Downloaded templates should be placed in your Documents, NinjaTrader 7,
templates, Chart folder. Once there, right click on chart, scroll to the bottom of
the pop-up window, choose Templates, Load, and select the template of your
choice. Once done, a typical Felton Trading chart should look similar to Figure
58-1 below.
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Figure 58-1: Typical Felton Trading chart
Basic Navigation
FT Divergence Pro contains an extensive list of inputs giving it the ability to
adapt to a wide range of trading styles within the Felton Trading method.
These inputs are divided into ordered sections, each addressing a fundamental
feature of the software. To navigate these sections more effectively, we suggest
collapsing unused categories by clicking the boxed minus sign ("-") to the left of
those section headings. See the red arrow in Figure 59-1 next page. Clicking the
resulting boxed plus sign (+) re-expands the collapsed section.
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Figure 59-1: Collapsing Unused Input Sections Expanding Help Text Sub-Window
Beneath the input section of the Indicators Window is a small Help box (lower
right) describing the significance of the selected input line. In Figure 59-1 above,
the input line and corresponding help section is titled NT Sound and Text Alert
and marked by a yellow arrow. However, the help text is often only partly visible.
To see the complete text, drag the top line surrounding the Help box upward to
enlarge the box until it contains the remaining text. Also, note that the input line
itself is sometimes partially covered on the right. This text section can also be
expanded by dragging to the right the midline separating the input name and its
variable.
Override Primary Settings With...
The first input in FT Divergence Pro's primary settings is "Override Primary
Settings With...". This contains a drop-down menu of options used to reset the
primary settings in FT Divergence Pro. "UserSettings" displays by default. As
long as this is showing, FT Divergence Pro will accept any input showing in the
indicators window - typically involving changes made by the user. If anything
other than "UserSettings" is showing, then upon clicking Apply or OK, FT
Divergence Pro will adopt settings from a stored list corresponding to the
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selected override choice. ResetAllToDefault resets all primary settings to their

default values; ResetFiltersOnly resets only filtering options to their default
values (filtering options are those in the signal sections); ResetBackTestOnly
resets only back testing input values; and NoFilters sets all filter inputs to their
most liberal values, allowing the maximum number of chart signals. Color and
display options are not affected by these settings. They affect signal-generating
and back-test inputs only.
Section Z. Core Settings (Locked): Note that FT Divergence Pro is controlled
entirely separately from all other FT indicators. Changes to other FT indicators
have no effect on signals in FT Divergence Pro! For example, if settings in FT
Large Channel are changed to require more volatility in non-trending markets,
these changes will have no effect on signals, unless the corresponding settings
are changed in FT Divergence Pro. Section Z. Core Settings (Locked) holds
the primary settings for all signal-generating indicators contained within FT
Divergence Pro. It duplicates settings in all primary FT indicators, which are
typically displayed separately on chart. However, these settings are "locked" by
the first line in this section: "KEEP ORIGINAL CORE SETTINGS" must be set to
False prior to making changes in section Z.
Finally, in some cases, FT Divergence Pro inputs are not a single variable but
are a series of inputs separated by commas, such as "T, T, T, F, F, F" or 1.5,
1.5, 1.5, 1.5, 1.5, 1.5. In these cases, each element separated by a comma
refers to the input for a different signal type, in the order LP, ND, HD, ST, BO, TS
(Lump, Normal Divergence, Hidden Divergence, Stub, Break Out, Turn Signal).
When necessary, this allows each signal type to have different values. However,
if all signal types can have the same value, the comma delimited string can be
replaced by that single value. For example, the series of comma-delimited 1.5s
above could be replaced by a single 1.5 to indicate that all signals will use the
value "1.5". Further examples of this, and other input details, are available in the
training videos.
Divergence Pro Signal Alerts
In Figure 58.1 above, confirmed signals are marked with red and green entry
arrows accompanied by their appropriate signal labels. Note, however, that the
HD signal arrow on the far right is gray. Divergence Pro indicates a signal on
the first tick the signal becomes valid (intra-bar). Signals are not confirmed,
however, until setup conditions are met at bar close. The right-most HD signal
bar above has not yet closed, and hence the arrow is gray. If the bar closes while
the setup is valid, the arrow will turn from gray to green, indicating a confirmed
HD long. Conversely, at the moment the setup becomes invalid, it will be
removed, optionally leaving behind a gray marker to illustrate an unconfirmed set
up on that bar. (See "Keep Persistent Warning Label" in FT Divergence Pro
section B. Show On Chart.)
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Secondly, note the green message in the upper left corner of the chart. This is a
written alert providing additional information about each setup. This also alerts
intra-bar "pre-setups," those meeting basic criteria but not filtering choices.
Message box options are controlled in FT Divergence Pro Section C: Message
Box (Figure 61-1 below).
Figure 61-1: Message and Alert Options
Divergence Pro also provides audible alerts as part of NinjaTrader's Alerts

window. Audible alerts play sounds identifying the market, chart, timeframe, and
additional (optional) information. Audible alerts are controlled in Section D. NT
Alerts Window, with sound files downloaded and installed according to directions
on our Box.net website.
Visual Customization and Templates
All FT indicators can be visually customized to user preference. In FT Divergence
Pro, visual customization options are spread throughout various sections. The
primary visual choices for on-chart display are in Sections A: Signals, B. Show
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On Chart, K. Turbo Lines, and in the Plots section. Section A controls which
signals are displayed, along with a few filtering conditions for each. Section B
and the Plots section control most coloring options, and Section K controls Turbo
markers and background coloring.
After making color choices and setting display options to your preference, we
strongly recommend saving your selections as a chart template. To do this, close
the indicators window, right-click on chart, and choose "Templates... Save As"
from the bottom of the pop-up window, saving the template with a name of your
choice. Saving a template will save all user inputs, not just visual choices.
Consequently we suggest saving one template with color choices only to serve
as your default coloring scheme.
One further display option bears mentioning here: Show Filtered Signals in
Section B allows the user to see grayed-out markers on chart for signals filtered
by Divergence Pro. This can be especially helpful when changing filtering
options, allowing the user to see all possible setups from which Divergence
Pro is selecting signals.
Signal Filtering
FT Divergence Pro includes an extensive set of filtering options for each signal
type. Felton Trading signals each employ unique setup conditions and
consequently have their own filtering requirements. These can be found in
Sections E: Normal Divergence through J: Turn Signals. (A few general filtering
choices are also in Section A.) They include filters like "Confirm with Price
Channel" (i.e., FT Bands), "Confirm with TrendMA, and "Max Bars from
Agreeing Volatility Bar.
Changing the filtering conditions affects when the corresponding signal will
appear. For example, if Confirm with TrendMA is True in the Hidden
Divergence Section G, all HD signals will confirm only if the slope of the
TrendMA agrees with the signal direction. (This is typically a 20-period SMA, as
set in Section Z: Core Settings.) Similarly, if Max Bars from Agreeing Volatility
Bar is set to 15 in Section I: BreakOut, then no BO (or IB) signal will confirm
unless a volatility marker has occurred within the past 15 bars. (Note that the
volatility marker must match the BO volatility-bar setting in Section A.) Details for
the meaning of each filtering choice can be found in their corresponding Help
box, as described in Basic Navigation above.
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11.
The SignalPro Software
Introduction
In the beginning, Felton Trading methodology was primarily a divergence based
trading system with Basic and Extended Divergence for counter-trend and
Hidden Divergence for with-trend trading. As the method evolved into a coded
system, it was logical to give it a name that reflected this. Thus the name
DivergencePro, later shortened to DivPro. As the software evolved, several
new signal entries were introduced that had nothing to do with divergence at all.
So it became apparent that a name change was necessary to avoid any
misconceptions or confusion. As Felton Trading adopted more customized bar
chart types such as the LineBreak and, more recently, the Renko, the time was
right for a name change of the softwareand thus the name SignalPro was
born.
The SignalPro Chart
Since SignalPro incorporates everything that currently exists in DivPro,
there really isnt a single type of bar chart that SignalPro can use. However,
there is one that is exclusive and now is a good time to introduce you to it. In
Figure 63-1, you can see the FTSupremeOHLC on a CL 16 tick, 1 step chart..
Figure 63- 1
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The lighter blue and red uniform size bars are your Renkos and, in this case,
each one is exactly 16 ticks tall. The step setting is 1 and this means that each
Renko bar exceeds the previous by 1 tick if a trend is to continue. Trends stop
and market turns occur when Price cannot move another tick in a trend direction.
In Figure 63-1, you can see several red arrows pointing out some of the
features, signals and indicators of the chart.
Indicators - Arrow A shows a VMA (Variable Moving Average) which some
traders use to help identify increasing or decreasing market volatility. It can also
serve as a guide for stop placement when trailing. Arrow(s) B show the blue
bullish and red bearish FTOverlay to help gauge buying and selling strength.
Arrow C shows the FTMovingAverage which helps us to identify the SA signal
entry. Arrow D points to the FTSupremeMomentum Line. This line, when dark
red (bearish) or dark green (bullish), shows when the market is particularly strong
in the respective direction.
Signals Arrow E points to a SM (Supreme Momentum) signal. This occurs
when the Supreme Momentum line starts its dark color slope. Arrow F shows an
SA signal which is created when the FTMA line (C) changes from red or green to
yellow and then back to the original red or green color indicating strength coming
into the market. Arrow G shows us the BR (Bottle Rocket) signal, named for the
long tails on the OHLC bars (K). BRs are particularly strong and popular
signals among Felton traders. Finally, Arrow H points to a Turn Bar, noted by
the large red or blue body of the candle. Notice the yellow labels and colored
arrows associated with most Turn Bars. These labels are familiar signals youll
probably recognize from DivPro.
Features - Arrow(s) I show the potential target lines (bullish and bearish) of the
SM signals. These lines are automatically generated for you by SignalPro
often well in advance of an SM signal even triggering at the beginning of an
FTSM line slope. Arrow J indicates the background color of the FTSM indicator
and lets you know when the FTSM line is in a strong slope position on your
trading chart and also on any other FTSupremeOHLC chart timeframe you
choose as long as the step size is 1. Arrow(s) K point to the thin white lines
which are your OHLC bars. These accurately keep a record of what Price
actually did within each Renko bar. The data is accurate historically, also, for
whatever number of days that you have loaded. Arrow L shows the beginning of
a FTSM line slope and prints with a green horizontal line for bullish and red for
bearish. This means that you dont actually even need to have the FTSM Line
and Background running on your chart to know when a slope will begin and
where it will end in the future if Price is able to continue in the trend direction.
SignalPro is continually improving, with significant upgrades released every
month on average. Filtering choices and settings can change as the program
evolves; likely becoming simpler as testing determines which filtering options are
most effective.
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12.
The Mental Side of Trading
If we had to rank the major causes of student failure, negative human emotions
(and the havoc they cause) would easily rate #1. There is just something about
sitting and watching those candlesticks moving up and down all day that
completely mesmerizes us. It looks so devilishly simple. Get in and get out, right?
How hard can that be?
Quickly we find that the markets
are deceivingly difficult and
frustrating. No matter which
position you take, long or short,
the market is going to do its
best to make you feel like the
dumbest trader to ever look at a
chart. Your only protection is
the safety of your trading rules,
yet the market has a way of
lulling us into false security or
just plain scaring the daylights
out of us to get us to break our
rules.
The sad part is, about 90% of all traders blow up their trading accounts because
they cannot follow their own rules. Rules are crucial to successful trading. As a
car driver, if you choose to disregard the rules of the road, you probably will not
be driving very long. You can bend the rules now and then as a car driver but you
do not have that luxury in trading. Break your trading rules and the market will
break your trading account.
So, how do we become a truly disciplined trader? First, we start with a good
trading system or method. You must have total confidence in your trading system
and your ability to trade that system correctly or you can never become
disciplined. By disciplined, we mean you always have logical justification for
everything you do in the market, according to your rules, and never trade by
guesswork, intuition or gut feeling. Trading discipline means you are able to trade
without being paralyzed or influenced by fear.
The biggest cause of trader failure isnt because the system didnt work. Its
because they didnt work the system. Fear of loss and the fear of losing out
(greed) are the single most difficult demons to learn to control. Realize that your
goal isnt to abolish fear. That would be virtually impossible short of a lobotomy.
Human emotions are part of our being.
Our goal then is to control our emotions to the point where they do not interfere in
our decision making. When we rush to trade, place or run our stops too tight, exit
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winning trades too quickly while exiting losing trades much too late, we are the
victims of fear.
The most effective weapon against the devastating effects of fear is confidence.
Did you ever notice that all tasks requiring skill are done best by confident
individuals? Trading is no different. In fact, trading is one of the most
demanding and least forgiving of all skills you can perform sitting still.
People arent born confidentthey acquire it through knowledge and lots of
practice. When you can lose five times in a row and take a sixth trade without
any thought of previous loss, you are a confident trader. It comes from the
unshakable belief that trading is simply a numbers game once you have
mastered a good robust trading system. Do your job right and the numbers will
remain in your favor and you should enjoy a long and successful career as a
professional trader. Getting there takes work.
A good place to start building rock-solid confidence is in simulation trading.
Simulators such as the one offered in NinjaTrader mimic live account trading
extremely well. It allows you to put your emotions on hold while you master
your method and trading platform. Few traders can learn much of anything while
they are scared to death. So utilize a great resource and sim trade until you can
win on virtually any given day following your system rules religiously.
While you are building your skill level and confidence, youll need to pay attention
to some additional areas, too. Trading successfully also takes a great deal of
patience, focus and a positive attitude. If a trader fully understands his or her
trading system but is consistently losing when others trading the same system
are winning, the problem is nearly always mental. There are destructive negative
emotions at work and they must be fully understood and dealt with. They are:
Fear & Greed
Impatience
Recklessness
Attitude
Perfection
There are a few others, but these are
the main culprits that sabotage
trading success. Fear keeps us
mentally paralyzed and unable to
enter trades when we should. Greed
keeps us in trades too long and
causes us to snatch defeat from the
jaws of victory on a regular basis.
Impatience will not allow us to let
signals come to us. By the time a
signal properly forms, impatience
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has made us an emotional wreck. Recklessness causes good winning trades to

consistently fail due to mechanical entry and exit errors.
Recklessness has a sister named Anxiety

that constantly feeds it. Together, they
make sure you can never enjoy consistently
smooth and correct order executions and
winning trade management. In trading,
attitude is everything. Never trade when you
are angry, frustrated, upset or just not able
to stay focused.
Most traders understand and agree how the
previous emotions can cause problems for
the trader, but what is wrong with
perfection? Actually, it can be very
destructive because trading is not and never
will be a perfect science. It is an art, a skill
and losing trades will happen. But, by being
able to control the amount of loss as well as,
to some degree, the amount of wins, trading success can be enjoyed on a
consistently profitable basis.
Those who strive for trading perfection are always changing their strategy. They
comb the world and pack the trading chat rooms looking for the next ultimate
indicator. They could never be happy sticking to one trading strategy, even if it
consistently made money. To be successful as a trader, you must recognize
losing to be inevitable and an inseparable part of the game and eliminate the
desire for perfection in trading. Perfectionist personalities make terrible traders
until that trait can be recognized and overcome.
The Vicious Emotional Cycle
All traders, in the beginning, experience an emotional rollercoaster each day they
tradeeven with every trade they take. Were not just talking about sweaty
palms and knocking knees herethose are external symptoms of whats
happening between their ears. Take a look at the following graphic and lets go
through the cycle of emotions traders experience and most never overcome.
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Every trader who has ever

entered a live trade with
their real money account
can easily relate to Figure
66-1the Vicious Cycle of
Human Emotions that all
traders must learn to
control.
Notice we say control
and not eliminate. We
cannot help being human
and, as humans, we are
Figure 66-1
all emotional beings. We
cannot help feeling a wide range of emotions but we can learn to prevent
reacting to them.
Let us imagine a trader taking real trades in the
market using their actual trading account. Real
money must be at risk for these emotions to do
their greatest damage. The day starts off well
with a winner or two and the trader feels strong
Optimism about reaching his or her goal for the
day. They feel Excitement as profits increase
with only a small loss or two along the way.
Hey, trading is a piece of cake, they say to
themselves. With this system, Ill be wealthy in
no time.
Profits continue to rise and the excited trader starts feeling
the Thrill of finally having financial freedom within their
reach. A few more wins and our trader can hardly contain
themselves. Their heart is beating joyously as they reach
for the calculator to figure how many weeks it will take to
make their first million. They have reached the pinnacle of
human emotionEuphoria.
At this stage of the cycle the trader can easily fall victim to
overconfidence. This is a false sense of confidence. It
has no solid foundation. It was built on a few winning
trades and this type of confidence can easily crumble.
Now a trade is taken that doesnt go well.

Perhaps overconfidence caused the trader to
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become a bit greedy and stay in a trade too long. It turns against the trader and
loses. Perhaps the market condition has deteriorated or a string of losing trades
follows and the trader starts feeling their first negative emotionAnxiety. I just
need to relax my stop, the trader says. But the losses continueonly faster
now.
The trader is thinking, This just cant be happening. The market has to give me
those losses back. It owes me! Our trader cant believe how quickly losses can
happen. Not to me, the other guy is supposed to loseits called Denial.
The trader begins to rationalize. I think I just
need to increase my stop and lower my profit
target. But the losses pile on and turn into a
financial hemorrhage. As all of the previous
profits evaporate, our traders denial turns into
the realization that they werent bulletproof
after all. This is when the trader begins to
sweat as the feeling of real Fear begins to
take over.
Notice in Figure 66-1 that the Fear emotion is where the red dots first appear in
our Emotion Cycle graphic. This is the beginning of where most traders selfdestruct. It is where most mistakes happen. Trades are badly mismanaged,
rules are bent, broken or abandoned altogether in a frenzy of emotional turmoil
that completely destroys our traders ability to think clearly.
As Fear causes mistakes, more losses occur
and the trader quickly plunges through
Depression and into total Panic. More trades
are taken now with most of them being weak
or, worse yet, not even legitimate trades
according to the system methodology. They
are stab-in-the-dark guesses and they are
bound for failure. Oh, a few will win giving our
trader momentary hope but the majority will
not and the traders account will continue to evaporate.
Now the emotional cycle passes into an acceptance (Capitulation) that costly
mistakes have been made and disaster has struck our once euphoric trader. As
they begin to realize the extent of their losses in their frantic attempt to get whole
again, they hit the very bottom of human despairDesperation. From fear to
desperation, these red dot emotions are the ones that leave the deep mental
wounds and scars. Left untreated, these scars only serve to cause the trader to
continue to fail in the future as they exit winning trades much too early and exit
losing trades much too late. Here it is easy to fall into a vicious cycle.
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So, the desperate trader finally seeks help from his or her mentor. It is what they
should have done when things first started to go bad. But fear and panic clouded
their thinking and they only sought help when they became desperate.
So, together the trader and the mentor analyze
what went wrong and try to build a clear
understanding of the problem and a strategy to
help prevent a reoccurrence in the future. With
knowledge gained from their bad experience,
our trader sets out with new Hope and attitude.
They feel a sense of Relief as their wins exceed
their losses and their trading account begins to
recover.
Is our imaginary trader over the hump and headed for blue skies and rainbows?
Maybe. But the learning curve is never a straight line from any point in the
process. When you think about it, every difficult skill capable of producing a
healthy steady income is never mastered overnight. Its a process not an
event.
But, each downturn of the learning experience should trigger the realization that
something has gone awry. The trader should stop trading and analyze what the
culprit is. Have the markets gone soft? Has the trader become too aggressive?
Are rules being broken? Sometimes the trader (especially in the beginning) will
need to get with their mentor to sort out the problem. But the main thing is to
stop trading real money and fix the problem before continuing.
One of our very good trader students was once asked, What is your number one
recommendation for new students? Without hesitation, the trader replied, Stay
in simulation trading longer than you think you need to. Good advice indeed.
Sooner or later, every trader will venture forth and trade from their live account.
But many, if not most, do so prematurely. They are so eager to start making
money that they start trading their live account long before they are fully prepared
to do so. They lack the method mastery. They lack the experience. They lack
the ability to control emotions. They lack the level of real confidence that it will
take to see them through the rough spots. Itd be like putting a 3-month old colt
in the Kentucky Derby. It is just not ready and a lot of practice and training lies
ahead.
Trading is all about learning. Not just the method or the platformbut about
learning everything necessary to consistently win. That means learning about
patience, discipline, focus, emotions, attitude and real determination. It also
means learning from mistakesand mistakes will be made. Finally, it means to
never stop learning because the markets always have something new to teach
us. Thats why learning in a group of passionate traders under the guidance of a
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professional mentor is so effective. That way, the lessons of the markets are
never missed.
13.
Becoming a Professional Trader
The intent of this manual is to acquaint you with the Felton Trading system and
methodology and get you started on the road to success as a professional trader.
Many of you might already be enjoying profitability, but want to hone your trading
skills and add to your effective trading arsenal. Whatever trading level you are
currently at, novice or advanced, we look forward to a long-term relationship
through daily communication. This comes in the form of Live Trading Room
activity and commentary, regular Live Training sessions and one-on-one
personal mentorship whenever needed.
Although a manual is a good start, youre best source of knowledge and
understanding will be through the totally interactive training vehicles mentioned
above. Nobody ever became a successful trader by reading a book so take full
advantage of the excellent resources that Felton Trading offers. These are
unmatched in the industry and are designed for lasting trading success. Its great
to reach your trading goalsits even greater to be able to keep reaching them.
The best way to accomplish this is to have a master trading plan. It begins with
reading this manual. Once you have thoroughly reviewed each section and have
at least a fair understanding of the basics, the next step in your trading plan
should be to attend as many of our free online Live Training sessions as you can.
If you miss one, then review the recorded video of it as soon as convenient. Write
down anything you dont understand and need help with. Make sure all of your
questions are answered fully and you understand the answer completely.
Finally, even after you have been exposed to vast amounts of trading knowledge,
you will still need one more thing. An old Chinese proverb says, What I hear, I
forget; What I see, I remember; What I do, I understand. The point is, in order to
fully understand the method, you will need to do. So, be sure to attend the daily
Live Market Trading Room sessions that are held each weekday. Thats where
everything will all come together for you as you see the method actually
perform in the live market. Nothing beats having practical trading experience in
the live market with your instructor holding your hand, so to speak, and guiding
you to successful trading.
While you are learning and honing your trading skills, be sure to only trade in
simulation. Your broker can help you get set up with NinjaTraders simulation
trading platform that will allow you to place orders in the real market, but without
risking your real money trading account if you make mistakes (and, trust me, you
will make mistakes, but that is how you learn).
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Becoming a trading professional has little to do with how much money you are
making. It has everything to do with how well you can execute your trades
according to your method and its rules and thus reach your trading goals. The
object is not to win every trade. That is never going to happen. Your goal is to
win more than you lose, and you do that through sound Trade Management. It is
beyond the scope and ability of this manual to try to teach Trade Management,
but the topic is addressed and taught in the Live Market virtually every day.
Becoming a professional trader takes time, a lot of dedication and hard work. Too
many traders think that trading is a virtual money machine or a golden goose getrich-quick way to an unlimited paycheck. If it were that easy, everybody would be
doing it, right? You must make a solemn commitment now to do whatever it takes
for however long it takes. Trading success can be yours for the rest of your life
and Felton Trading will be there to guide you all the way.
14.
Online Training, Mentorship and Other Support
As a trader, you should never stop learning, but the knowledge you pursue must
be worthwhile. The value of divergence indicators, dual and multi-timeframe
confirms, support and resistance and everything else covered in this manual is
powerful stuff when used properly. Your trading system is your financial lifeline.
Dont allow your trading strategy to become corrupted by hyped fads that dont
work. The Internet is infested with them. Understand that there is no magic
indicator and no get rich quick system in trading. The true power of trading
success lies within you and you alone. You have the ability to make trading work
for you or against you. If there is a holy grail it lies within you.
But you cant do it alone and, with Felton Trading,
you dont have to. At Felton Trading, were just an
email (Beverly@feltontrading.com) or phone call (361578-7425) away for quick access to a vast universe of
excellent trading knowledge and mentorship. If you are
overseas or just prefer to use Skype, that can easily be
arranged, also.
All the manuals, trading books and articles combined cannot match the learning
power of having real-time trading experience and professional mentorship during
actual live market conditions. Nothing beats having a trading pro hold your hand
and keep you on track until you are ready to completely trade on your own. In
trading, it is truer than ever that knowledge is power. We look forward to sharing
our knowledge with you and give you the power to achieve your trading and
financial goals and keep achieving them.
The Story of the 3-Legged Stool - I knew a trader a few years back who
liked to trade counter-trend.
One day he tried to fight a particularly

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stubborn trend and his first and second attempts failed miserably. On his
next attempt, he chatted, "Well, three's a charm". It wasn't.
For some reason, this old story got me to thinking about the old 3-legged
stool analogy. My, how rock-steady they are until you take away one
leg...and their "charm" comes crashing down. But, what does this have to
do with trading? A lot.
The goal of trading is ultimate, consistent and lasting success, right? But,
beyond that, "success" means different things to every trader. That is, we
don't all aim for the same amount of money (profit) in the same period of
time with the same amount of capital and risk using the same strategy. To
achieve our own individual definition of success, there are some
fundamental critical elements that can be considered to be the three "legs"
of a stool. They are: Method, Mindset and Mastery.
With an actual stool, each leg might be
made up of wood, plastic or metal. In
our "Trading Success" stool, each leg is
made of a subset of components. Let's
look at each one in more detail.
The Method leg is comprised of the
markets you trade and how you trade
them. The markets might be Equities,
Options, Futures, Forex, Nadex, etc.
The choices here are huge but not as many as the number of ways in
which we can trade them. I often remind my students that, "There are
several methods to consistently win and a million ways to lose". Trading
with the right methodology is important and it's even more important to
realize that the right method for one trader might be a disaster for you. For
instance, when choosing a method, careful consideration must be given to
the amount of complexity and the level of drawdown pain involved. Your
method choice, no matter how well it works for someone else, will never
work for you if it doesn't fit your personality and style. Many traders
mistakenly believe that, if they find a winning method that fits, that's all that
matters and vast riches are theirs for the taking. Nope.
The next leg of our trading stool is Mindset. This encompasses the entire
spectrum of trading psychology. It goes well beyond just having a winning
attitude and would certainly include patience, discipline, focus and
maintaining unshakable confidence in the heat of battle. Developing the
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proper trading mindset involves overcoming the negative (as well as

enhancing the positive) effects that human emotions play in assisting or
sabotaging trading success. No trader ever consistently achieved their
trading goals, no matter how good their method or system, without first
achieving good psychological control.
The final leg or our stool is Mastery. You can have the greatest trading
method in the world and have total emotional control but you will fail to
succeed if you are not totally knowledgeable and competent in what you
are doing. A golfer, for instance, can identify all of the great techniques
(Method) that the pros use and have total confidence in their ability to
become a Sneed, Palmer or Woods, but, before that's ever going to
happen, they're going to have to hit a lot of golf balls (Mastery). This
means more than just practicing, however. Practice doesn't make perfect
if you practice bad habits and a lot of traders do just that and never realize
it. This is where good professional mentorship comes in and it's the only
way a lot of traders are able to stay on target for the long haul.
So, next time you're getting ready to trade, ask yourself, "How many legs
are on your Trading Success Stool?" If you don't have all three, the
markets will charm you right out of your money in a hurry.
The moral: Dont be a fool on a 2-legged stool!
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15.
Glossary of Terms
Bear Market - A market in which prices generally are declining over a period of
time which could range from hours to months or even years. Opposite of Bull
Market.
Broker - A person paid a fee or commission for executing buy or sell orders for a
customer.
Bull Market - A market in which prices generally are rising over a period of time
which could range from hours to months or even years. Opposite of Bear Market.
Chart - The use of graphs in the technical analysis of futures markets to plot
trends and other movements of price and volume of trading for the purpose of
generating a signal to enter a trade.
Congestion - In Technical Analysis, period of time characterized by repetitious
and limited price fluctuations in which sellers attempting to cover their short
positions are unable to find an adequate supply of contracts provided
by buyers willing to liquidate.
Contract Month - The specified month within which a futures contract matures
and can be settled by delivery or the specified month in which the delivery period
begins.
Cycling - The up and down movement of market price similar to that of ocean
waves. Often referred to as market volatility.
Divergence - When the price of an instrument is moving in one direction, but an
indicator (or possibly another market) is moving in the opposite direction.
Divergence is most easily seen on a graphical chart when price is making lower
lows, for instance, while an oscillator is making corresponding higher lows.
EMA Exponential Moving Average
Exchange - A central marketplace such as the CME (Chicago Mercantile
Exchange) with established rules and regulations where buyers and sellers meet
to trade futures and options contracts or securities.
Futures - A standardized, transferable exchange-traded contract that requires
delivery of a commodity, bond, currency or stock index, at a specified price, on a
specified future date. Futures contain standardized terms, trade on a formal
exchange and are regulated by overseeing agencies such as the CFTC.
Futures Contract - A term of reference describing a unit of trading for a
commodity future. An agreement to purchase or sell a commodity for delivery in
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the future at a price that is determined at initiation of the contract and obligates
each party to the contract to fulfill the contract at the specified price .
Instrument - This refers to a particular market such as oil, gold or an index that
the trader is observing on their chart. They are represented by symbols such as
CL, GC and ES as respective examples.
Limit Order - An order placed with a brokerage to buy or sell a set number of
contracts (or shares) at a specified price or better. Limit orders also allow a trader
to limit the length of time an order can be in effect before being
canceled. Depending on the direction of the position, limit orders are sometimes
referred to more specifically as a buy limit order, or a sell limit order.
Line Break Chart - Line Break charts, such as the 3 Line Break, usually help
traders more accurately determine the current direction of a market trend and
alert them sooner when the trend has changed than do other methods (FT
Cycles, moving average crossovers, etc.). Line Break charts display a series of
vertical bars that are based on the closing prices. These bars are often seen
sans the wick/tail shadows but Felton Trading uses a specially created Line
Break that produces the wicks and tails which are necessary for backtesting as
well as helpful when trading. In a 3 Line Break chart, for instance, price cannot
close unless it has (1) exceeded the high or low range of the preceding 3 price
bars (not including the wicks/tails) and (2) price must be above or below this level
when the bar counter has completed its count setting. Every time there is a
higher close a new up bar is created. When the price closes below the low of 3
previous bars the trend shifts to down and we start drawing red (bearish)
bars. Every new closing low draws a new red bar and so on. Line Break charts
often can help a trader spot trend reversals quickly. There are many uses for
Line Break charts. You can use them for entries, exits and make wonderful
places to trail your stops to catch the majority of the move.
Long (Buy) - One who has bought a futures contract to establish a market
position in the hopes that the price will rise. Opposite of Short.
Market Order - An order that a trader makes through a brokerage service to buy
or sell an instrument immediately at the best available current price. A market
order is almost always executed quickly because it does not contain restrictions
on the buy/sell price or the timeframe in which the order can be executed.
Mini - Refers to a futures contract that has a smaller contract size than an
otherwise identical futures contract.
Momentum - In Technical Analysis, the relative change in price over a specific
time interval. Often equated with speed or velocity and considered in terms of
relative strength.
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Overbought - A technical opinion that the market price has risen too steeply and
too fast in relation to underlying fundamental factors. Rank and file traders who
were bullish and long may soon turn bearish.
Oversold - A technical opinion that the market price has declined too steeply and
too fast in relation to underlying fundamental factors; rank and file traders who
were bearish and short may soon turn bullish.
Position - An interest in the market, either long or short, in the form of one or
more open contracts.
Resistance - As markets move up and down, they encounter price levels that
cause the market to halt for a while or possibly completely reverse direction.
When a market is moving upward and encounters a price area where new selling
will emerge to dampen a continued rise, it is said to be finding resistance.
Retracement - A reversal within a price trend.
Scalping - A trading strategy where quick trades are taken for small profit
targets.
Short (Sell) - The selling side of an open futures contract. One who has bought a
futures contract to establish a market position in the hopes that the price will fall.
Opposite of Long.
Simulator - Also known as Simulation Trading, Sim Trading and Paper Trading.
This invaluable feature enables the trader to set up a simulated trading account
and actually trade real-time markets using it. With NinjaTrader, the effect is
extremely realistic and allows the trader to master their method and the trading
platform without risking any of their actual real money trading account as their
skill level increases.
Slippage The difference between where we wish to get filled in our trade
entries and exits and the actual fill price. Slippage can be positive but usually it
results in lost profit potential.
SMA Simple Moving Average
Stop Limit Order - A stop limit order is an order that goes into force as soon as
there is a trade at the specified price. The order, however, can only be filled at
the stop limit price or better.
Support - As markets move up and down, they encounter price levels that cause
the market to halt for a while or possibly completely reverse direction. When a
market is moving or trending downward to a price area where new buying is likely
to occur and stem further decline, it is said to be finding support.
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Technical Analysis - An approach to forecasting commodity prices that

examines patterns of price change, rates of change and changes in volume of
trading and open interest, without regard to underlying fundamental market
factors.
Tick - Refers to a minimum change in price up or down. An up-tick means that
the last trade was at a higher price than the one preceding it. A down-tick means
that the last price was lower than the one preceding it.
Transaction - The entry or liquidation of a trade.
Trend - The general direction, either upward or downward, in which prices have
been moving.
Trendline - In charting, a line drawn across the bottom or top of a price chart
indicating the direction or trend of price movement. If up, the trendline is called
bullish; if down, it is called bearish.
Trend Trading - A trading strategy where the trader attempts to capture larger
profit by staying in a market trend. Trend trading can produce trades that last for
several hours or even several days, weeks or months depending on the chart
timeframe used.
Volatility - A statistical measurement of the rate of price change of a futures
contract, security, or other instrument. Generally, this refers to the amount of up
and down price activity over a specified period of time.
Volume - The number of contracts traded during a specified period of time.
Working Order - This is a type of Limit Order to Buy or Sell that have not been
filled because the market price has not yet reached them. Price must actually go
through these orders in order for them to be filled. When this occurs, the working
orders become Market Orders and are filled instantly usually at or near the price
level they were placed. Also known as Resting Orders.
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TRADING COURSE

2012 Felton Trading

2. Your Trading Tools

6. The Felton Trading Chart (DivPro)

7. Understanding the Felton Trading Method

8. The Felton Trading Signals

a. Finding the Correct Correspondence

ii. Extended Divergence

iii. Turn Signal

c. With Trend Signals

ii. The Lump Trade

iii. The Break Out Signal

1. The IB Island Bar Signal

iv. The Stub Signal

9. Trading The Felton Trading Method

a. The Four Market Conditions

ii. Trending Cycling

iii. Trending Congested

iv. Sideways Congested

The Signal Filters

i. Using the FT Bands

ii. Using the FT Momentum

iii. Using the FT Cycle

iv. Using the FT MM Lines

v. Using the FT Large Channel

vi. Using the FT Turbo Twisters

vii. Using the FT TrendMA

viii. Using Blue Ice

10. The DivPro Software

11. The SignalPro Software

12. The Mental Side of Trading

a. The Vicious Emotional Cycle

13. Becoming a Professional Trader

14. Online Training, Mentorship and other Support

15. Glossary of Terms

1. Introduction to Felton Trading

2. Your Trading Tools

Good dependable and well-maintained

Good dependable broadband Internet connection This is your

A professional Felton Trading student with exceptionally nice trading tools.

3. Trading Electronically The Order Execution Platform

6. The Felton Trading Chart (DivPro) Features

The Tick Chart Figure 14-2 is a great example of

As of this printing, NinjaTrader provides users with a Renko chart although it

7. Understanding the Felton Trading Method

8. The Felton Trading Signals

Figure 20-1, shows the

The Counter-Trend Signals

Basic Divergence Short Here is an example of Basic (Bearish)

If there is formational weakness in Price, FT Trigger or even the FT Cycle, it does

The Turn Signal

The With-Trend Signals

It is not necessary for the FT Trigger to participate in the Hidden Divergence

Hidden Divergence (Short)

The Lump Trade (long) Heres a signal type

As we mentioned in the preceding example, the pullback allowance can be no

The Stub Signal (long)

Figure 38-1 shows the Stub Signal

The Stub Signal (short)

9. Trading The Felton Trading Method

Trending Congestion is commonly seen when Price is moving strongly in either

Sideways Congestion is often referred to as consolidation and, as soon as this

Using the FT Bands -

Using the FT Cycle -