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Thank you for downloading Ultimate Guide to Trading and Investment. This book is designed
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The Game Plan An introduction to a charting technique. The strategy is then
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Some of the things you will learn in this book are:
The patterns and habits that are common to all successful traders
How to effectively use Market Profile for trading Futures
A simple 1-2-3 strategy for trading Forex currency pairs
An all-hours Options strategy for Naked Put writing
A rule-based method for trading with the trend
How to spot when Big Money is entering the market and how to trade on their side
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Table of Contents
Market Perspectives
07 Successful Traders Handbook
by Rick Saddler, Hit & Run Candlesticks
17 30 Trading Insights to Help You Overcome Your Trading Fears

by Tom Busby, Diversified Trading Institute
STOCKS
28 High Profit Candlestick Signals and Patterns
by Steve Bigalow, Candlestick Forum
39 A Simple Method for Trading with the Trend
by Jeffrey Gibby, MetaStock
47 How To Buy Low for Bigger Profits, Less Stress,and More Enjoyable Trading
by Geoff Bysshe, Market Gauge
60 Mastering the Perfect Pullback: Five Steps to Improve Your Trend Trading
by Corey Rosenbloom, Afraid To Trade

FOREX
72 A Simple 123 Forex Strategy
by Jody Samuels, FX Traders Edge
81 The London Breakout Session

by Josh Martinez, Market Traders Institute
86 What Is the Best Time to Trade Currencies?
by Ricardo Menjivar, Phoenix Trading Strategies
OPTIONS
97 How to Add Weekly Options to Your Trading Arsenal
by Andrew Keene, Alpha Shark Trading
105 Naked Put-Writing: A Strategy for All-Hours

by Lawrence McMillan, McMillan Asset Management
116 Trading Earnings Straddles

by Kim Klaiman, Steady Options
NADEX
127 Getting Started with Nadex Binary Options
by Cam White, TradingPub
137 Using Nadex Spreads as the Ultimate Hedge Strategy

by Darrell Martin, Apex Investing Institute
147 Creating Nadex Trading Plans

by Sean Jantz, Binary Trade Group
153 How to Find High Probability Trades Using Nadex Binary Options
by Mark Hodge, Rockwell Trading
FUTURES
163 How to Use Market Profile to Trade Futuress
by Greg Weitzman, The Trading Zone
171 6 Essential Ingredients for Winning at Stock Index Trading

by Mohan Wolfe, Day Traders Action
177 Trading On The Side Of Strength

by Peter Davies, Jigsaw Trading
186 If I Had to Choose Only One Trading Indicator

by Mark Helwig, ValueCharts
200 Trading the Trends

by David Katz, Trading Fibz
ultimate guide to trading and investment
Market Perspectives
Successful Traders Handbook

By Rick Saddler, Hit and Run Candlesticks
HABITS OF A SUCCESSFUL TRADER

Every trader has bad habits that they would like to change. Some habits are buried deep within and
need to be brought to the surface so they can be identified and changed.
A good way to identify and change habits that are affecting your trading is to look at the habits of
successful traders. While reading this chapter, do a self analysis of your habits by comparing them
against the habits of successful traders. As you identify habits that you would like to change, write
them down and describe what action you will take to change these habits. Then take the actions that
you describe.
Have a plan for every trade. This means that you write down your entry, exit and stop loss strategy
for every trade. Then execute the trade and stick with the plan. If your trade is based on a daily
chart, then follow the daily chart when monitoring your position. On your trade plan write the chart
frequency you will use to monitor the position. Some traders may decide to plan and monitor trades
on a daily basis but use a lower time frame chart such as a 60 minute chart to monitor a position that
is getting close to an exit area.
Watching intraday charts for trades planned on daily charts can cause you to react emotionally and
is one reason traders may close positions too early and not according to plan.
This can have a detrimental effect on profits. Base your trade plan on what you see and not what
you predict. What you see on a chart is fact. What you predict is fiction. No one has a crystal ball that
accurately predictsprice action but we all have charts that give us information that contain the facts
about price. One way to test yourself using predictions is to pay attention to your choice of words.
Words like I think, I feel are most likely predictions.
Know who you are as a trader and be your own trader. Do you have the personality for swing, day or
long term trading? Stick with the type of trading that fits with your lifestyle and personality.
Be your own trader and dont be a follower.
You need to be confident in the trades you execute and this means understanding the trade and
believing in the trade. Just because someone else takes a trade doesnt mean it is right for you.
Focus on the best trades for you. Study stock charts and identify high probability setups. Start with
one or two trade setups, master them and then add more setups.
Have a Trading Business Plan. Every successful business owner has a business plan. Since
trading is a business, traders should have a business plan. There is a lot of information out there on
designing business plans. A suggestion is to keep it short and simple. A one or two page business
plan is sufficient for most traders. You can always add to it as you go along. The point is to have a
business plan that is convenient and you will use as a reference to certain aspects of your trading.
Important topics to address in the
business plan are
Describe what kind of trader you are. Are you a day, swing or long term trader.
What time frames during market hours will you be trading?
How much capital do you have for trading and how much of that capital will you
commit to any one trade?
What trade method and trade setups will you be trading? If you are trading price
patterns, indicate what chart time frame and what patterns you will be trading.
For each trade setup, describe the entry, exit and stop loss strategy. Include a
description of when you will add to a position, raise your stop and scale out of a
position.
Under what conditions will you stop trading for the day, week or month. For example,
You (the trader) will stop trading for the day or week if you have 3 losing trades.
What is your trading goal?
Describe any psychological rituals you will use to stay focused or get focused. Some
traders will use tapping sequences, meditation or other form of behavior modification
technique.
Document every trade. Use a spreadsheet/log to document your trades. In addition, you may want
to mark up a stock chart for each trade. On the stock chart, you indicate your entry, target and stop.
You can also mark resistance and support areas along with trendlines and other notations to help
manage the trade. Many stock trading programs have an annotation feature that helps you mark up
charts. Save these marked up charts in a file or print them off for review.
Review your trade journal/log and identify areas of improvement. This is one of the best ways to grow
as a trader. You may want to write a weekly summary of what you will do in the next week to improve
your trading.
Know when to trade and have the discipline not to trade. Trade only when the market gives you clear
direction. If you are confused, have trouble finding trades that meet your rules or do not know what to
do, these are signs that the market may be in a state of flux and not conducive to your style of trading.
There are times to stay in cash or just manage the positions you have working. It is okay not to trade
every day. In fact, forcing trades in an undesirable market often leads to losses. Have patience and
wait for your setup!
Accept your losses. No one is right all of the time and trade setups do not always go the way you
want them to. That is why you place stops with every trade entry. A stop is what you plan in advance
and are willing to risk for the reward you specified in the trade plan.
Traders that dont want to accept losses or set stops frequently let their losing trades run. They may
even average down as price is falling only to watch the loss grow. Eventually, these traders are so
devastated financially and emotionally that many quit trading. Copy the sentence below and post it
where you will see it.
It is not whether you are right or wrong on a trade it is how much profit you accumulate in your
account!
Take action! You may have the best intentions by developing a plan for every trade and documenting
every trade. The most important thing is to execute the trade according to plan and to review your
documentation with a critical eye and make changes in your trading behavior that will improve your
trading results. Be honest with yourself when evaluating your performance and take responsibility by
taking action to improve that performance.
Have a trading goal. Set a realistic goal so that you have a benchmark for measuring your improvement
and trading success. Some traders establish a daily, weekly or monthly monetary goal. You may also
consider a daily, weekly, or monthly percentage goal such as 2% return on capital per week. Set the
goal that makes the most sense for you. The point is set a goal and keep track of your progress in
meeting this goal.
Develop the right attitude about your trading business. What does this mean? Take a proactive
approach to achieve positive results. Actions you can take toward developing the right attitude are:
Identify what you may need help with and get help. This can be finding a trading coach,
signing up for a webinar, reading written material.
Persevere! Dont give up because you make mistakes. Learn from your mistakes by identifying
them, writing what you will do to correct them and then act on what you write.
Follow and execute all plans that you make. You constructed these plans for a reason so
keep these plans handy so you can refer to them often and take the planned action.
By taking these actions you are being proactive to making the necessary improvements to keep your
trading business moving in a positive direction. There will always be rough times. Successful traders
use these times as an opportunity to learn and to grow their business.
Thomas Edison once said: "Many of life's failures are people who did not realize how close theywere
to success when they gave up."
SUMMARY
Habits of a successful trader are
Have a plan for every trade
Base your trade plan on what you see and not what you predict
Know who you are as a trader and be your own trader
Focus on the best trades for you
Have a Trading Business Plan
Document every trade
Review your trade journal/log and identify areas of improvement
Know when to trade and have the discipline not to trade
Accept your losses
Take Action!
Have a trading goal
Develop the right attitude about your trading business
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"The difference between who you are as a trader

and who you become as a trader is what you do!"
DEVELOPING THE RIGHT MIND SET FOR TRADING
Achieving the right mind set for trading is the result of a long process. It goes hand in hand with
developing the skill for trading and building confidence in yourself and your trading.
Dont expect this to happen overnight. The mechanics of trading is a skill that develops over time.
Along with that, as your trading skills improve so does your confidence. Confidence is a state of
mind and what helps traders to execute trades.
Think of it this way, when you dont have confidence you are fearful and hesitant to take action. If you
have confidence, you are brave and take prompt action. How do you develop the skill and confidence
that relates directly to developing the right mind set for trading?
SKILL - Education is the foundation in developing trading skills.

SKILL and CONFIDENCE - Practicing what you learn through education and by applying that
knowledge to chart reading develops skill in spotting trading opportunities. It also develops
the confidence to know that these trading opportunities are profitable.
CONFIDENCE - Selecting trading methods and designing trade setups for those methods
helps traders to confidently execute trades.
Following this approach to trading leads to achieving the right mindset for trading. In a nutshell,
SKILL + CONFIDENCE = Right Mindset for Trading. Whether you are new to trading or a skillful
trader who lacks confidence, the components described here will help you to develop and maintain
the right mindset for trading.
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Education
As with any new skill, the foundation is education. Ask yourself would you start to build a house if
you had no knowledge of construction concepts and applications? NO! Traders first learn the basics
such as technical analysis and fundamental analysis.
Read books and attend webinars/workshops. This is really the start of building your knowledge
base so you can later shape your trading style and philosophy. As you mature as a trader, education
continues to play an integral role in your success so you never stop learning.
Stock Chart Reading
This is where you start to apply what you have learned in the education phase. Choose a stock
charting platform, set up your charts using your favorite price display (e.g., candlesticks, bar, line)
and technical indicators (e.g., moving averages, MACD, Stochastics).
Then scroll through a series of charts drawing horizontal lines to notate support and resistance,
drawing circles around price patterns, drawing trend lines and notating the outcomes of price patterns
(e.g., this price pattern price advanced 5% before hitting resistance). Notating the outcomes of price
patterns will help you to determine which price patterns are most profitable.
Reading stock charts is like learning a new language, the more you practice reading the charts, the
more proficient you become. This is a very critical step in developing confidence in your trading which
leads to being in the right mind set. As you read hundreds and even thousands of charts you are
training your eye to see certain patterns. As you practice reading and flipping through charts, you will
be amazed at how quickly you will be able to spot certain patterns and trade opportunities.
Traders who are proficient at reading charts and have a list of profitable patterns often use scanning
software to generate lists of stocks with those patterns. These scans are great as a tool to narrow
down the selection of stocks to view. Traders still need to view each stock chart on the list generated
by the scan in order to select the stock with the best potential according to their rules.
Trading Methods and Setups
During the beginning phases of your educational journey, you are simply collecting knowledge and
exploring many different aspects of trading. You might say that you are collecting the ingredients
necessary to develop trading methods and setups. While practicing your chart reading skills you are
building confidence in identifying the chart characteristics you want to focus on.
Trading methods relate to what kind of trading you will focus on and the intricacies of those methods
that become part of your library of trade setups. These trade setups supply the framework for
executing your trades. Building solid trade setups is the key to building your confidence as a trader.
The more success you have with these trade setups the less fearful and less hesitant you will be to
execute them.
It is essential that you write down every trade setup in terms of your entry, exit and stop loss strategy.
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This way you always know what you are risking on each trade, where you will enter the trade and
what your potential profit is on that trade. This helps to minimize emotion and maximize discipline
and confidence.
To give you an idea of what a trading method is consider that you have decided to trade price
patterns using candlestick price displays on a daily chart.
Trading price patterns using candlestick price displays on a daily chart is a trading method. Within
this trading method there are various patterns such as the W pattern, Head & Shoulders pattern,
and J-Hook pattern.
Lets say you limit your trading to these 3 patterns because they are easiest for you to spot, understand
and through your stock chart research have found themto be profitable. The next step is to design a
trade setup for each of these patterns.
With each trade setup, you describe your entry, exit and stop loss strategy. In addition you add that
each trade must have a certain risk to reward ratio. For example, every trade must have a 3-1 reward
to risk ratio which means that if my stop represents a $.50 loss, my anticipated reward must be at
least $1.50.
Sample J-Hook Pattern with Trade Setup - Next Page
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Trade Setup
Entry - Enter on the day of the breakout if the candlestick looks like it will close above the breakout
level. Another entry is the day after the breakout on an opening price above the breakout level.
Stop - A price below the breakout level. Consider your risk tolerance when setting this
stop. If the stop price is more than you can tolerate, then move to another trade.
Exit - Determine resistance levels and use them as possible exit areas. When price approaches
one of these areas, look for candlestick sell signals and then decide if you will take all or part of your
profits. At the very least, raise your stop to protect profits.
Reward to Risk Ratio - The exit for profit must be at least 3 times the stop loss.
Personality Assessment
Traders determine which types of trading are right for them after they are well educated in the types
of trading. Traders who do not want to sit at a computer all day long may choose swing trading or
long term trading. Traders who like a lot of action and make decisions quickly and dont want to hold
positions overnight may choose day trading.
Assessing your personality may take some time and many traders try different types of trading to see
what they are best suited for. When starting out, it is best to focus on education, stock chart reading
and trading methods/setups using daily charts. Over time it will become clear as to which style of
trading best suits your personality.
SUMMARY
The Right Mindset for Trading is achieved by developing your trading skills and building your
confidence in executing trades. This is a process that involves education, stock chart reading, and
designing trade setups for the trading method you select. The bottom line is SKILL + CONFIDENCE
= Right Mindset for Trading
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ABOUT THE AUTHOR

Eight years ago Rick Saddler had a dream to quit his day job and trade
for a living. That is how he came about to start Hit and Run Candlesticks.
He felt that he was getting ready to replace his income from the job
he had at the time. This, however, didn't happen overnight, as he had
started trading 1993.
He had a dream to quit his day job and learn to trade the stock market and so his journey began
around 1989, when he started dabbling in the market.
At the beginning he would make a little money and lose a little money, but the bottom line was that
he was not profitable.While he continued to dabble with his trading strategies, it wasn't until May of
2002 that he became serious about his future as a trader. He was mentored by Stephen Bigalow on
how to trade with Japanese Candlesticks and his education paid off.Over the course of his trading
Rick has learned to stay committed to his strategies and trade with easy-to-spot patterns with clear
entry and exit points.
He has now put his ability to recognize the same pattern developing in hundreds of charts and could
enter with low risk on a short-term trade, grab any profits and sleep well at night. That is why he
started his company, so he can help other traders achieve that same consistency
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16
30 Trading Insights to Help You

Overcome Your Trading Fears
By Tom Busby, Diversified Trading Institute
Experience is a great teacher, and nothing is better than learning from the wisdom of traders who
have been in the trenches for years. Tom Busby started his trading career as a Vice President of
Smith Barney. He is a member of the Chicago Mercantile Exchange, and one of 50 people selected
worldwide for the first Globex terminals in the late 1990s.
He is the author of three books, Winning the Day Trading Game,, The Markets Never Sleep and
Trade to Win (all available on amazon.com). In 1996, he founded DTI - a brick and mortar trading
education business that provides classroom and online training for active traders.
With decades of trading experience, Tom has many insights that he has learned along his journey
trading the markets. What follows are 30 of his trading insights. Some of them are historical
observations of market behavior and some are common sense. When you are nose down trading
the markets, it can be very helpful to step back and review common-sense trading insights to help
maintain your focus.
DTI Headquarters in Mobile, AL
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Insight #1
Record prices on the first day of the year.
This helps you trade the winners.
On the first day of the year, record the prices of all the markets you trade. Do you know what the price
of gold was at the first of the year? If you trade gold and you knew that gold was trading at 1200, you
would know today whether to be long or short gold. Having an historical perspective of your favorite
market can help you identify long-term trends and can be an important decision-making tool. Record
the first day of the year prices of your favorite markets, and display them in a place where you can
see them every day.
Insight #2
When prices are trading at their highs,
they tend to make higher highs.
When prices are trading at their lows,
they tend to make lower lows.
When prices are trading at their highs, they tend to make higher highs. This was the story for the 2nd
quarter of 2014. The S&P 500 made one record high after the next. Be mindful of this insight when
you see your favorite market as it hits new highs or lows.
Insight #3
The market usually reverses its trend after July 4
If the market has been on an uptrend, it is common for it to reverse its direction after July 4, and the
reversal usually continues through Labor Day. It doesnt happen all the time but it happens quite
frequently.
Insight #4
When a stock crosses the $100 price, it will typically go to $110.
This is also true when stocks cross the $200 line, it will go to $220.
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This trend happens with surprising frequency. Take a look at any stock that has crossed the $100
line. What you will discover is that the stock will reach $110 within a relatively short period of time.
The same phenomenon occurs when stocks cross a major threshold, like the $200 line. This can give
you a trading edge when you see this happening.
Insight #5
The 6:00am CDT price on the Dax futures is the most important price
in the Dax for that day of trading.
It should be used as a pivot to gauge whether the
overall market will be up or down for the session.
Take a look at the hourly charts for the Dax. You will notice that the high or low of the day usually
reveals itself at the 6:00am bar. This can give you a very strong advantage when trading the Dax.
This information can be especially valuable if you trade Nadex binary options.
Insight #6
Think of trading as a journey.
Enjoy the trip and learn continuously from it.

Traders have a tendency to obsess on the trades they are currently making, but it is more important
to take a long-term view and take a look at todays trading as just part of a long-term journey. Enjoy
the ride, learn from all of your experiences, and focus at getting better at your craft. Study the
markets and study yourself.
Insight #7
The market is open 24 hours a day.
Learn to take advantage of it.
There are trading opportunities available the entire day. If you become familiar with the Asian,
European and U.S. markets there are opportunities available to you around the clock. Heres a chart
of the markets:
Trends can follow from Asia to Europe and into the US market, which is divided into a morning and
evening session. If you watch trends transition through markets, it can give you a trading edge.
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Insight #8
Dont worry about the direction of the market.
Go with the market.

If a stock or market is trending up or down, stay on the side of the trend. If you watch the steady rise
of Apple (NASDAQ: AAPL) you know it would be absolutely foolish to try to predict a downtrend. Go
with the market when its trending and dont fight it.
Insight #9
Markets respect news.
You should too.

There are eight Federal Reserve meetings per year, and you need to have them on your calendar.
The first Friday of every month there is a major news announcement about jobs and unemployment.
Thats 20 major economic news events. The markets are very sensitive to these events, and you
need to be aware of them.
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Insight #10
Know when important economic
data is being reported.
Then use that information to make money.

Know when economic reports are due to come out. Barrons.com and Investing.com provide valuable
calendars of economic reports with indicators that rank their likely impact on the markets.
Insight #11
Every Wednesday, a Crude Oil report is released at 9:30am CDT
There are pre-market trading opportunities in the crude sector
during the morning of the announcement.
Crude oil has a tendency to be very volatile around the release of this report, and there are trading
opportunities in advance of the report and directly after the release of the report.
Insight #12
Crude oil tends to have a negative close
on the last trading day of the month.
Heres a little-known fact. Production checks for oil producers are paid out based on the closing price
for oil at the end of the month. This has a tendency to move the market down slightly.
Insight #13
Fed announcements provide opportunities to locate
trending opportunities in stocks, futures and options trades
for 3 days after the Fed announcement.
Theres a 48-hour window after a Fed announcement that allows people to have a good trend trade.
Find out when the Fed is going to have an announcement, and for the next 3 days afterwards, you
can identify a good trending trade opportunity.
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Insight #14
The night of the Presidential election offers
great trading opportunities after 7:00pm CDT.
If you go back to the year 2000, when the race was really tight between Bush and Gore, the market
rallied every time Florida went to Bush, and sold off when Florida went to Gore. There are a lot of
good trading opportunities on the night of the Presidential election.
Insight #15
The day after Thanksgiving tends to have
one of the largest percentage up days of the year.
If you get up at 6:00 and trade ahead of the markets open, you can make some very good money
the day after Thanksgiving.
Insight #16
Be open-minded, and continue to learn.
There are always new things you can learn about trading, regardless of how long you have been doing
it. Maybe its the 6:00am Dax rule. Maybe its the $100 stock rule. There is a wealth of information out
there that can give you a trading edge. Stay open-minded, be nimble and continue to learn.
Insight #17
The week of December 26 January 1 is the
best trading week of the year.
Most people take off this week, but if you ever want to catch a trend, there is no better week to do it.
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Insight #18
When overall market prices have risen
2.5 percent during any session,
DO NOT GO SHORT.
If the market goes down less than 2.5 percent it will probably bounce back up. If the market rises 2.5
percent, do not go short. If the market breaks through 2.5 percent going down, it will probably keep
going down. 2.5 percent is a good band to have around the markets.
Insight #19
Like your stock choices,
but dont marry them.
When they stop paying, its time to split-up.
If the markets are having a big up day, and your stock isnt moving, you might be in a bad relationship.
Insight #20
Chicken, fish or steak?
Make a decision and move on.
Dont beat yourself up second-guessing your decisions. When you made a decision to trade, it was
hopefully based on some type of analysis. Remember you are on a journey, and the choice you made
today could work in your favor even if it is moving against you a little.
Insight #21
If the general market is moving up
and your stock is not you have a problem.
More specifically, if the overall market moves up 2 percent,
and your stock is moving down GET OUT.
Your stock should never be moving against the market, especially if the market is rallying.
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Insight #22
Stocks that have been the most bullish
typically fall the fastest in a down-trending market
This is just the way markets seem to behave. Stocks with the greatest bullish momentum also fall
the fastest.
Insight #23
Take losses more quickly than profits.
Riding profits long and getting out of losses quick is a major key to successful trading.
Insight #24
Always use a STOP
Trading without setting a stop is the easiest way to wipe out an account. Knowing where to set your
stops and managing your risk is critical.
Insight #25
When you hear someone say
You dont go broke taking profits. RUN
Thats exactly how it happens
You dont take trades to make a small fraction of your potential profits, you take trades to reach an
objective. Thats why its important to have a plan when you trade.
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Insight #26
When entering a position, always know
where the exit resides.
This goes back to having a trading plan. Always know what you plan to risk and where your reward
lies. This also means you need to know when to get out of a trade.
Insight #27
Never risk too much in any trade.
No trade is worth potentially losing
more than 10 percent of your account balance.
How big of an account do you need to have to stay within this rule? If you are risking $300 on a trade,
you know you have to have at least a $3,000 account balance.
Insight #28
Learn how to win
from your losing trades.
Analyze your losing trades. Keep a log of them. What went wrong? Often times the answer lies in
timing, execution or not following the rules of a trading plan.
Insight #29
Overtrading will make you lose.
Dont lose.
There are lots of reasons why people overtrade, but it leads to losing money. Quit when youre ahead
and dont give your profits back. Give yourself some Time Out rules. Maybe if you have had 2
consecutive losses, its time to take a time out to prevent revenge trading from creeping in.
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Insight #30
Some days, your best trading decision
may be to stay in bed.
If
the
markets
are
not
moving
according
to
or if you just dont see the trade, then its best not to take the trade.
your
trading
plan,
CONCLUSION
The trading insights outlined in this chapter will help give you a trading edge. While many of these
insights are common sense, we sometimes lose sight of common sense when we trade the markets.
Tips like the 6:00am rule for trading the Dax, and other historical observations can definitely give you
an advantage. If you pay attention to these insights, you probably win more trades with confidence.
THE MOVIE
Tom Busby goes through the 30 Trading Insights, and shares some of his insights in overcoming
common trading fears. He also uses his trading method to demonstrate a live crude oil trade.
SEE FULL VIDEO HERE
SPECIAL OFFER FROM DTI

Get a free PDF and Video report for strategies to help you overcome fear in your trading,

SIMPLY CLICK HERE for your copy.
ABOUT THE AUTHOR

Mr. Tom Busby founded DTI Partners, Inc. in 1996 and serves as its Chief
Executive Officer. Mr. Busby spends his days teaching his students and trading
his own private account in futures, options and equities. He is a pioneer in
the trading industry as a world-recognized educator. His career started as a
money manager with some of the world's largest wire houses. He is also the
author of three books, Winning the Day Trading Game, The Markets Never
Sleep and Trade to Win. Mr. Busby served as an educator in weekly online
webinars for the Chicago Mercantile Exchange, where he has been a member
since 2002. He also served as a Member of the Chicago Board of Trade, who has also called on
Busby to trade live in CBOT sponsored events at some of the largest trade shows in the industry.
26
STOCKS
27
High Profit Candlestick Signals and Patterns

Stephen W. Bigalow, Candlestick Forum
As long as buyers and sellers have been trading the markets, two predominant sentiments have been
in play: fear and greed. Centuries ago, Japanese rice traders developed the candlestick method to
graphically depict trader sentiment. It has worked successfully for hundreds of years, and still works
today. Candlestick analysis can help you make better trading decisions about investor sentiment in
the markets.
The Japanese rice traders didnt just become wealthy using candlesticks, they created legendary
wealth trading a basic commodity. This method works for any trading instrument as long as the basic
human emotions of fear and greed are involved which pretty much covers every market.
Candlestick analysis prepares you to be ready for big price moves based on historic results of specific
signals and patterns. Its simply a graphic depiction of investor sentiment. The Japanese rice traders
gave us not only the benefit of knowing what the signals look like, but they also described what the
investor sentiment was behind each signal There are 50-60 signals to learn, but eight of the most
successful candlestick signals will be discussed in this lesson.
The most beneficial thing about candlesticks is that they help identify trends.
28
But first, to help identify trends, you need a few indicators. Heres what they are:
Red Line: 200 day simple moving average (SMA)
Blue Line: 50 day simple moving average
Gray Line: 20 day simple moving average
These indicators are important because every money manager in the world uses these indicators to
help them make decisions when trading their portfolios.
The most important indicator is the T-Line, which is the 8 Exponential Moving Average (EMA).
The T-Line has some very simple rules:
If you see a candlestick BUY signal ABOVE the T-Line, you are in an UPTREND
If you see a candlestick SELL signal BELOW the T-Line, you are in a DOWNTREND
Stochastics are used to indicate overbought and oversold conditions. If you see a candlestick BUY
signal in an oversold condition, there is a strong probability that you are going to be going into an
uptrend. Conversely, if you see a candlestick SELL signal in an overbought condition, you are likely
heading into a downtrend. The settings that I use for stochastics are 12,3,3. These settings have
worked the best for what I do most of the time, which is swing trading.
Summing it up, if you plot the 200, 50, and 20-day Simple Moving Averages, along with the 8
Exponential Moving Average, and stochastics set at 12, 3, 3 then you are good to go. Lets see
how these indicators work with candlestick patterns:
29
In this daily chart, the stochastics are in an overbought condition with candlesticks above the T-Line.
Once they turn red and break through the T-Line, a downtrend is established until a Morningstar
pattern at the bottom triggers a reversal to the upside.
The rest of this chapter will be devoted to the top bullish candlestick power signals. If you know them
and can identify them you will have a much better handle on identifying trader sentiment.
The Top Eight Bullish Power Signals
1. Your Best Friend
2. Left/Right Combo
3. Series of Dojis
4. Candlestick Patterns followed by Gap Ups
5. Kicker Signal
6. Bullish Flutter Kicker
7. Steady Eddie Trends
8. Magnitude of a Signal
Your Best Friend
30
A Doji occurs whenever the market opens and closes at the same level during a particular time
frame.
Doji Star: Small price movement.
Long-legged Doji: If the price movement is huge, but the bar closes where it opened.
Dragonfly Doji: Where the price opens and closes at the top of the bar.
Gravestone Doji: Where the price opens and closes at the bottom of the bar. It got its name
from Japanese soldiers pressing on in battle only to retreat back to camp.
A derivative of the Doji is the Spinning Top. Spinning Tops are characterized by short candle bodies
with short wicks, similar to the childs toy. Spinning tops signal indecision between the bulls and the
bears in the marketplace. When you see a spinning top or Doji at the top, you want to consider taking
profits. If you see them at the bottom, theres likely to be an uptrend.
A Doji in an oversold area, followed by a gap-up, gives you a very strong probability that you
are about to enter a strong uptrend. The beauty of candlesticks again is that they capture investor
sentiment. When you are at the bottom of the market in oversold territory, as indicated by stochastics,
and a Doji appears, it signals indecision. If it is followed by a strong gap-up, closing above the T-Line,
then a strong uptrend is building.
31
One caveat to this strategy is that when the candlesticks start moving well above the T-Line, they
are going to want to come back to the T-Line, so you want to be prepared to take profits if necessary.
To summarize, here are the optimal criteria for the Best Friend: scenario:
1. Look for the signals
2. Stochastics oversold
3. Gap-up from the Doji signal. The bigger the Gap-up the stronger the uptrend
4. Close above the T-Line
Note: At the end of this chapter, click on the YouTube presentation of this topic for many more
examples of the Best Friend bullish signals in action.
Left/Right Combo
32
The Left/Right Combo is a Doji followed by a bullish engulfing signal. The bullish engulfing signal
completely encapsulates the previous candle body. Since the Doji body is small, it represents a
moment of indecision followed by a clear bullish move. The Left/Right Combo is like a boxer setting
up a small left jab with a roundhouse right punch. In this example we have a small Doji, followed by a
bullish engulfing signal and a strong upward move in the stochastics. Notice there is a series of Dojis
in this chart. If one Doji signals indecision, a series of Dojis indicates greater indecision. If you see a
strong candlestick buy signal, followed by a series of Dojis and the next bar gaps-up significantly, a
strong bullish move is in play, and you want to be buying.
Series of Dojis
Remember that a Doji represents indecision. if you see a series of Dojis it represents greater indecision.
When you see a series of Dojis setting up, and stochastics start moving up, with candlesticks closing
above the T-Line, it signals a positive open the following day and trigger to buy.
Bear in mind, you still need to do your due diligence. Make sure to check the pre-market futures the
next day, and make sure there isnt any economic or geopolitical news that could adversely impact
your decision to buy. But if the futures are moving in the same direction as your trend, its a signal to
proceed and buy.
33
Candlestick Patterns followed by Gap-Ups
Any signal followed by a gap-up is a signal to buy. In this case, we have a hammer signal, followed by
a bullish gap up. Once the candles close above the T-Line along with a corresponding upward move
in the stochastic, it signals a strong buying trend.
When we see a gap-down in an oversold condition its just telling you that most people panic when
the market is at the bottom. How can you tell if the market is at its bottom? With candlestick patterns,
once you see a gap-down in an oversold condition, start looking for signs of a reversal. It could be a
Doji, a series of Dojis or a gap-up reversal.
Bullish Kicker Signal
The strongest of all buy signals is the Bullish Kicker Signal. This is when the market is in a
downtrend, and the following bar opens in a gap-up above the previous days high. This pattern
signals that investor sentiment has been kicked the other way.
34
In this example, there is a significant gap-up above the previous days downtrend. The gap-up is well
above the T-Line and theres a strong upward move in the stochastics. This signals a very strong
change in investor sentiment.
Some traders are afraid to buy after a significant gap-up. They are afraid that they are buying at
a high. Remember, if the stochastics are rising and the candlestick is above the T-Line, then the
upward trend is likely to continue. Bear in mind that the further the candles drift north of the T-Line,
the more likely they are to retrace and come back to it. Bullish kicker Signals dont require a gap-up
as long as it is a significant move in the opposite direction of a downtrend, and its moving above the
T-Line with supporting stochastics. As a rule of thumb, the bigger the Bullish Kicker Signal is, the
more significant the move will be.
Bullish Flutter Kicker
A Bullish Flutter Kicker occurs when the market has a down day followed by an indecisive gap-up. If
you see a Doji gapping-up over the previous days open, its a signal that the market is showing some
strength. If the market moves up the next day over the previous days close and starts moving above
the T-Line, its a signal that investor sentiment is moving the market into an uptrend. If you remove
the Doji from the picture, you would have a Bullish Kicker Signal with a strong gap-up.
35
Steady Eddie Trends
When you see a gap up through a resistance, in this case, the 200-day moving average, it signals
the start of a Steady-Eddie trend, and its a great place to be. The candlesticks will ride above the
T-Line for an extended period of time signaling multiple opportunities to let profits ride.
You can rest every night knowing that the market will continue to rise until you see a close below the
T-Line.
Once again, the further the candlesticks drift above the T-Line, the more likely they are to return to
the T-Line. Once the Candlesticks start crossing back below the T-Line is when you need to start
thinking about making a course correction
Magnitude of the Signal
36
The larger the signal, especially after a Doji, the more compelling the evidence is that there is
a change in investor sentiment. In this example, the candles formed a rounded bottom and broke
above the 50-day moving average resistance level, followed by a very large gap-up above the T-Line.
Once a gap-up like this happens, the market will more than likely form a 45-degree Steady-Eddie
pattern, where the market churns upward above the T-Line.
Whenever you see a large gap in candlestick patterns as shown above, its a sign of a strong move.
If you can identify it, your earnings will multiply.
Summary
Candlestick patterns are a historical gauge of investor sentiment. They were developed centuries
ago by Japanese rice traders and they still work today.
If you study these bullish candlestick patterns and can identify them, you will prepared to act on
decisive changes in investor sentiment.
You will be in a much better position to enter into an uptrend, set stop/losses and ride your profits to
the upside.
The tools you need are simple and straightforward:
The T-Line = the 8 Exponential Moving Average (EMA)
20, 50 and 200 Day Simple Moving Averages (SMA)
Stochastic Oscillator (settings are 12,3,3)
Follow the rules in this lesson, and you will trade with better certainty.
You will have a better handle on investor sentiment and will know when to enter and exit a trade.
37
THE MOVIE
If you like what youve read in this lesson and want more information, then you owe it to yourself
to spend an hour watching this free presentation, courtesy of TradingPub. There are several more
examples of these candlestick patterns in this video that will give you a better understanding how
they work. Watch the Video of this Presentation
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As a bonus, Steve is offering a special$12 Candlestick Precision Major Signals Education Package
that will include:
Stephens Candlestick Precision Major Signals Education Package comprised of 12
videos that dissect each of the major signals to illustrate where and when they work most
effectively in a trend, (a $581 value)
You will also receive 30 complimentary days in my Candlestick Forum Membership site,
granting you access to a wealth of trading information and training. (a $97 value)
PLUS, you will receive immediate access to over $335 worth of eBooks, videos and special
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ABOUT THE AUTHOR

Stephen W. Bigalowpossesses over twenty-five years of investment experience,
including eight years as a stockbroker with major Wall Street firms: Kidder
Peabody & Company, Cowen & Company and Oppenheimer & Company. This
was followed by fifteen years of commodity trading, overlapped with twelve
years of real estate investing.
He holds a business and economics degree from Cornell University, and has lectured at Cornell and
at many private educational investment functions over the past twenty years.
Mr. Bigalow has advised professional traders, money managers, mutual funds and hedge funds, and
is recognized by many in the trading community as the professionals professional. He is an affiliate
of the Market Technicians Association. (mta.org A non-profit association of professional technical
analysts) and a member of AAPTA, the American Association of Professional Technical Analysts.
(aapta.us)
38
A Simple Method for Trading with the Trend

By Jeffrey Gibby, MetaStock
"The trend is your friend." "Befriend the trend." "A rising tide lifts all boats." I'm sure many of you
have heard these and other clich phrases. The truth is that the trend is your friend, until it ends. I
love trend trading and I've found it to be a lot more consistent than trying to "catch the falling knife."
(Excuse me if I borrow another clich.)
The problem I find with most traders is the inability to successfully follow the trend and stay with it.
There are literally hundreds of indicators available to measure trend. It's very easy for new traders
to fall into the "Analysis Paralysis" trap.
For me simplicity is the key to trading. My parameters for a trading system that I am willing to use
are quite simple as well:
1. Must be Objective and Rule Based -- Systems and methods that rely on news, earnings,
or subjective items are disqualified. I will not be making guesses about what effect the new
Fed Stimulus package is going to have in the market! I am not in the business of trying to
measure the effect earnings will have on a stock. Having something that is Objective and
Rule based helps me employ discipline and removes emotions from my trading.
2. Must Employ Solid Money Management -- I remember Robert Deel's saying "You can win
90% of the time and still lose everything." There are old traders and bold traders, but seldom
are there bold and old traders. It's important to use solid money management in your trading.
Having defined entries and exits will help you stay disciplined in your trading. It will also
ensure you are trading for many years to come.
3. I must be able to understand the system. In the last 18 years, I've seen all types of systems.
I've seen and tested systems from very easy to systems that are very hard. I've seen systems
that use simple moving averages and systems that use (literally) rocket science. I've always
had better luck with systems that are easier. I'm not making the argument that complicated
systems don't or won't work. In fact, I'm sure they most likely do. My experience has been
better with systems I understand. I believe this is simply due to the fact that if I understand
a system -- I am more likely to trust it. If I trust it, I am more likely to follow it. It helps my
discipline and emotional management.
39
There are, of course, other things to consider in systems. It should make money over a broad
spectrum of instruments. The system should be frequent but not too frequent for you. I teach
classes on finding methods that will work with your time and risk tolerances.
One of my favorite systems that meet these criteria is a system built by Rahul Mohindar.
It is a simple trend following system, it employs solid money management, and it is very easy to
understand and teach.
In case you are not familiar with Rahul Mohindar, he is a market educator in India.
He's a regular contributor to CNBC in India and has trained thousands of traders.
He has been a long standing partner and distributor of MetaStock. Several years ago he was visiting
us in our Utah office and we asked him to show us what he teaches his clients to trade. He taught
us this method.
We were impressed. In fact, we set up an agreement with him to give the Rahul Mohindar Oscillator
or RMO to all our clients for free.
Since then, Ive been able to use his simple method and have been able to share it with thousands
of traders worldwide.
The system is simple and can be boiled down to three steps:

1. Identify the Primary (Long Term) trend.
2. Identify the Short Term Trend.
3. Identify your Entry and Exit triggers and Execute.
Let me walk you

Starting with step 1
through
this
simple
system
on
trade
example
with
Apple.
40
Identify the Primary (Long Term) Trend.
The first indicator we want to look at is the Rahul Mohindar Oscillator (RMO). It is the green indicator
identified and the Primary trend in the image. This indicator is designed to measure the primary trend
in the instrument you are using.
Rahul, in his teaching of this method, is very specific. Size and shape do not matter. The RMO is
either Above Zero or Below Zero. If RMO is above zero, then you are in a bullish phase. If it is
below zero, the instrument you are looking at is in a bearish phase. You will also notice the chart has
a Green/Red Ribbon on the bottom of the chart that identifies these phases for you. The rules for
these phases are similarly very simple:
Primary Bullish Trend (RMO Above Zero) :
You are allowed to buy long
You are not allowed to short
Not a trigger to enter the security
Primary Bearish Trend (RMO Above Zero) :
You are allowed to short
You are not allowed to buy long.
Not a trigger to enter the security.
41
In both cases, take careful note of the bullet that says "Not a Trigger." You won't place a trade
based on the RMO (or green indicator) alone. At this point we are looking at the trend to decide
our bullish/bearish bias. We'll get to trading -- remember there are three steps here. The goal is to
make sure that we are doing what we can to put the odds in our favor and trade in conjunction with
the defined trend. Combining multiple trends gives us a better view of the overall trend.
That's it for Step 1. Step 2 is also simple.
Identify the Short Term Trend.
Using the same screenshot from Step 1, focus on the purple indicator identified as short term trend.
It is called Swing Trade 2. You'll notice that it is also either above zero or below zero. You'll also
notice that it tends to be a lot faster to change from being above zero or below zero. This indicator
is measuring trend, but it is measuring a shorter term trend. As such, it tends to be faster to react to
changing market conditions.
The good news -- you read it in exactly the same way. If it is above zero, then the stock is currently
short term Bullish. If it is below--Short Term Bearish. One thing I'd like to point out is that the colors
of the bars on this chart match the short term trend. If we are short term Bullish -- the bars on the
chart are blue. If we are short term Bearish -- then the bars color red.
Of course, the Rules for this are simple as well.
If our Primary trend and our Short term trend are both Bullish (above zero):
You are still allowed to buy long
You are not allowed to Short
Not a trigger to enter the security.
If our Primary trend and our Short term trend are both Bearish (below zero):
You are allowed to Short
You are not allowed to buy long
Not a trigger to enter the security
If our Primary trend and our Short term trend do not match:
You are allowed to wait until they do.
If you really want to make a trade-- the MetaStock Explorer will allow you to scan and find
some better probability trades. Let's follow the rules. "The trend is our friend" after all.
42
Let's move to Step 3.

Identify your Entry and Exit Triggers. Execute.
For step number three we'll focus on the Blue indicator in the image below and its relationship to the
Swing Trade number two (Short term trend).
We've talked a lot about the Long Term Trend and the Short Term Trend. If you haven't guessed, the
Blue indicator is the Medium term trend and is called Swing Trade 3. With this indicator, we do not
care if it is above or below zero. What we want to look at is the relationship between the Medium
Term trend and the Short Term trend.
What we are looking at is the relationship between the short term trend and the medium term trend.
If we see a rise of the short term trend above the long term trend we have a bullish trigger. Rahul
calls this a change of momentum or a change of force. It means short term we have more buyers
than we have had and the price is getting more bullish.
If we have a fall of the Short Term trend below the Medium Term trend, we have the opposite. We
would have a bearish trigger.
43
These are triggers to enter a trade as long as the rest of the criteria
match up. Let's go through a few examples:
In this example, I've added a blue vertical line when we had a Bullish
Change of momentum.
We have a bullish trigger. Now we want to make sure that we follow
the first two rules to make sure those match a buy signal.
1) Do we have Bullish Primary Trend? Yes
2) Do we have a Bullish short term trend? Yes
3) Do we have a Trigger? Yes.
Since all of our criteria match, we can now structure a trade.
There are a few rules about execution, but these are very simple to
follow as well.
We want to identify where we will buy and we want to identify our
initial stop level. To do this we look at the price of the security.
The line marked A is going to be my entry price. To confirm an entry, I want to wait until the price
of the stocks confirms the move by going above this level. You determine this level just above the
higher of either (1) today's high or (2) yesterday's high. If the price after everything lines up travels
above your entry price, you have a confirmed buy setup. You would want to buy as close to this price
as possible.
44
Line B will be your first stop. You will identify the first stop and put it just below the most recent trough
in prices. If prices fall below this support you will exit your trade.
I love this method. It allows us to identify our potential risk on a trade before we trade and have a
very clear entry and exit strategy. We also know our game plan before we trade and not by making
our decisions in the heat of battle. In this example, we would have bought this security on the gap up.
We also caught a very nice move.
There are also some other rules to keep in mind. If we are in a long trade and we get all the rules
necessary for a short trade, we would want to get out of our long trade and setup a trade to the
short side. In my experience most trades with RMO are exited by a stop. Stop management is an
important part of any strategy and RMO is no exception.
Here's our chart of AAPL again.
This is the same example, hypothetically at the circled area, where we would be in
a long trade that just completed a nice move up. As is natural in stock cycles, the momentum starts
to expire in the upward move and you get a pullback. This pullback will usually be accompanied by a
change of momentum or a change of force. This is indicated on the chart by the red sell signal. This
is not a signal to exit. However, it is notice to start to pay closer attention. If we start to get a severe
pullback we will go into a Bearish cycle and will look to reverse.
45
In this example however, AAPL establishes a new support area and continues on its upward trajectory.
As the momentum shifts back to a bullish phase, we have setup a new support level. Since we have
a new support level we would move our stop to lock in profits from this trade:
THE SPECIAL OFFER

We do have some great supporting videos and I'd recommend that you watch our video to help
understand this simple trading system. Repetition and practice are important. You can view a training
video on RMO and even
SIGN UP FOR A COMPLIMENTARY TRIAL OF METASTOCK HERE
I'd recommend with all new methods that you paper trade it until you are comfortable. Then, as
anything else you use with your trading, ease into it with smaller positions until you feel you are ready
to go full scale.
ABOUT THE AUTHOR

Jeffrey Gibbyhas been working for MetaStock for over eighteen years. He is
currently in charge of new business development and works to create new
MetaStock distributors and partners worldwide.
Mr. Gibby works with training companies to help people learn the power of
MetaStock. He has spoken to traders from around the world and has trained
people on how to use the software and trade various markets. Among his
areas of responsibilities are the management of new products and services
for MetaStock and creating strategic partnerships.
46
How To Buy Low for Bigger Profits, Less

Stress, and More Enjoyable Trading
By Geoff Bysshe, MarketGauge.com
Bigger Profits Are Easier When Your Trades Are Immediately Profitable
Welcome, if youre a day trader, swing trader or options trader this book is for you because
Youre about to discover a focused approach to anticipating the markets next move, along with
trading tactics that lead to immediate profits and trade entries you can be confident in trading whether
you are a new trader or have years of experience.
Think about how you feel, and how you tend to trade, when a new trade is substantially profitable
immediately after you enter it.
Now contrast that feeling with how you feel, and tend to trade, when the market is about to close and
youve been in a trade for a few hours that is trading at a loss.
If youre like most traders, the immediately profitable trade creates a desire to trade this one right.
Your thoughts are on how to make the most of the apparent opportunity. Youre also enjoying trading.
The losing trade scenario, on the other hand, is disappointing. Youre more likely to be thinking about
how to change the trade, rather than confidently sticking with your initial plan. This is common even
among experienced and disciplined traders who know that losses, when managed properly, are not
a problem.
Regardless of our trading style or instrument (day trading, swing trading, investing, stocks, ETFs,
options, forex, etc.) I believe that we all enjoy trading more when our trades are immediately profitable.
More importantly, I also believe that immediate profitability makes it easier to be more disciplined,
which in turn leads to more trading success.
47
Immediate profits are only one important result of having great entry strategies and tactics.
Even more important than immediate profits is having enough confidence in your trade to ensure you
trade with discipline. When you have enough confidence in your trade, immediate profits becomes
a relative term. This means that even if a trade initially trades at an unrealized loss, you wont have
that feeling of disappointment.
How To Create The Confidence In Your Trade

That Eliminates The Frustrating Feelings Of Unrealized
Losses And Reduces Real Losses!
Successful traders confidently believe they are doing the right thing when they take a loss.
Since beginning my trading career in 1990 on the floor of the New York commodities exchanges, and
spending years in a multi-billion dollar hedge fund, Ive worked with hundreds of professional traders
and thousands of active individual investors. In this time Ive found that confidently taking a loss is a
common theme among successful traders at every level floor traders, fund managers, and active
individual traders.
One goal of this book is to show you how you can have the confidence of a pro in determining
and executing on your stop losses, so you can improve your profitability. There are several ways
to accomplish this level of confidence, but this book is narrowly focused on a very specific way of
identifying great trade entries with stops you can have confidence in.
A great trade entry is one that has a risk level (a stop loss)and three important qualities:
1. You believe that you should exit the trade when the stop level is hit. This leads to
consistently executing your plan.
2. The potential loss is small relative to the expected return when profit targets are hit. This
leads to more profitable system.
3. The frequency of getting stopped out is in line with frequency and expected return when
profit targets are hit. This leads to a more predictable equity curve and more confidence in
trade execution.
A simple starting point for selecting a stop level that can provide all three of these critical
qualities of a great trade entry is to have your stop loss be outside of the current days range.
48
The low or high of the day creates an emotionally powerful line in the sand that seems to naturally
command the respect of traders. Think about how you feel when markets make new highs or lows.
Are you more inclined to pay attention and respect the trend of the day at this point?
In my experience of working with successful traders, most traders are more likely to feel confident
that their stop is safe when its beyond the current days trading range. This alone can improve your
trading because it leads to less second guessing and moving stops prematurely.
Additionally, traders tend to feel more accepting of the fact that their trade is not working and exit the
trade as they planned when it corresponds with a break of the current days range. This leads to more
disciplined trading and less second guessing your stops when they are hit.
However, better trading is not simply placing your stop below the low of the day if youre long, or
above the high of the day if youre short! You need more of an edge to determine when the high or
the low of the day has been put in, and which days you should use this tactic.
In other words, you must identify the RIGHT DAY and TIME to use the days range as your
stop.
Youre about to discover a reliable way to determine the days high or low early in the day. This
creates powerful opportunities for all trading styles to use these levels for great stops that are quick
and easy to identify and, as discussed above leads to less second guessing.
For example:
If youre a day trader when you are able to buy near the low of the day, youll find many opportunities
for trades that will have very profitable reward-to-risk ratios that dont require the market to do much
more than simply return to the high of the day!
If youre a swing trader youll be able to pinpoint the exact days to take very low risk trades
that are more likely to enable you to avoid holding positions overnight that are not yet profitable. In
addition to having more of your first days in the trade be profitable, youll be able to identify trades
that have multi-day or more trend potential, creating huge profits relative to your initial stop level.
If youre an option trader youll be able to identify market turning points for precise timing of
directional option strategies, and enjoy the benefits just listed for the day traders and swing traders.
Use This Floor Traders Secret Charting Tactic To Anticipate The Markets Highs, Lows,
Trends & Reversals
It may seem hard to believe, but this trading tactic can be so simple that I used it to chart the market
without a computer! I didnt have a computer standing on the trading floor in the early 1990s.
Despite its simplicity, the principle works because it is based on the driving force behind the most
important price points of any trading day. That force is human emotion fear and greed.Remember
your feeling of excitement when the market in which you hold a position goes racing your way right
as the market opens? How about the feeling when the market gaps open in the direction of your
position? Nice way to start the day.
49
And have you also had the frustrating experience of the excitement from a market open in your
direction turn to disappointment as the market suddenly reversed? If youve traded for any period of
time then youve certainly felt the anxiety of a profitable trade swinging into a losing position in the
opening half hour of the trading day.
Fortunes and egos are inflated and burst during the opening several minutes in many markets all the
time. Even if you have or dont have a position in the market, the opening minutes of the trading day
can be an emotional roller coaster. This is exactly why the first 30 minutes of the trading day turns
out to be very statistically reliable in determining the days high or low.
In fact, 50% of the time the S&P 500 will make its high or low of the day within the first 30
minutes of the trading day.
Im using the S&P 500 as the example, but you will find other markets (stocks, ETFs, and futures) to
have a similar statistical bias that you can profit from and heres how
Stop and think about some of the implications of this data.
The first 30 minutes is only 8% of the trading day, yet 50% of the time it determines the
days high or low. This makes it a very significant time of the day for anticipating reversals
and setting price levels that will likely remain as the high or low for the entire day.
If you are going to set your stop below the low of the day, you give yourself a big statistical
edge by waiting for the first 30 minutes of trading to finish.
Plus, you can make this statistical edge even stronger by combining it with a few simple indicators.
Weve found easy ways to identify market conditions that indicate with 83% accuracy that the high or
low will be determined in the first 30 minutes of a particular day. Even more impressive is that when
these same criteria are used, you can determine that the low of the day has been set after the first 30
minutes 62% of the time. These are the best days to use the low of the day in your stop.
The Opening Range Defined
From this point forward in this book Ill refer to the high and low of the first 30 minutes of the trading
day as the Opening Range or the O.R. The Opening Range can be calculated using other time
frames as well. Common time frames include 2, 5, and 15 minutes, and even the first hour.In our
trading at MarketGauge we focus on the 2, 5 and 30-minute Opening Ranges. They all serve specific
purposes. For example, the 30-minute O.R. is the best place to start for buying against the low of the
day (or selling against the high) for day traders and swing traders.
Of course youll use charts on your computer to figure out the days Opening Range, but now you
can see how floor traders could use this tactic even without access to a computer. As illustrated in
Chart 1, the OR high is simply the high for the day after the first 30 minutes of trading, and the OR is
the low of the day at that time.
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Chart 1: O.R. Defined
How To Objectively Evaluate Any Trading Day To

Anticipate the Days Trend
For Bigger Profits & Avoiding Losses
Every day in the market is different. It presents its own trend, opportunity and challenge depending
on your perspective. The direction and magnitude of the markets moves from day to day can seem
random to the untrained eye, but the market does follow patterns and leave clues indicating its most
likely direction.
The Opening Range is a trading tactic that pros have used for decades to read the markets mood so
they can anticipate and profit from the markets intra-day moves.
When you chart the market or look at it through the lens of the Opening Range, youll have an
objective perspective on whether the bulls or bears are in control on any given day. This perspective
begins with a very powerful understanding that the O.R. high and O.R. low levels will be critical
support and resistance levels for the rest of the day.
With this understanding of market behavior you can anticipate that these levels will also represent
levels where markets will reverse or accelerate into big moves. If you look at the trading day with this
process you will be on the right side of the biggest market moves, and avoid getting hurt by them.
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How To Read The Market With The O.R.

To begin using the O.R. to anticipate the markets next move follow these simple rules.
First, let the market establish its 30-minute O.R. high and low. Even after the Opening Range period,
keep a neutral bias while the market trades within its O.R.. As you learn more youll know if an O.R.
has a bullish or bearish bias.
Dont Miss, or Get Hurt By Trend Days
Next, wait for the market to attempt to trend by breaking the O.R. range. A successful breakout
beyond the O.R. will indicate a trend day is forming. For example, if the market breaks below its O.R.
low, you should consider it a trend down day unless and until it rallies back over its O.R. low level.
Too many traders lose money in big down days because they dont have an objective method like the
O.R. rules to determine that the market is in a down trend which should not be bought, and in fact, it
should be expected to continue lower.
You will NEVER GET CAUGHT IN A Chart 2: Downtrend Day

MAJOR MARKET DECLINE if you only
initiate your long trades above the O.R.
low and stop out if a new daily low is hit.
Buying markets that are under the O.R. low is
equivalent to trying to find a bottom when the
bears are in control.
This is much riskier than finding a bottom when
the market is in a neutral to bullish mode (i.e.
over the O.R. low).
Additionally, any rally from below the O.R. low
will have to get through the resistance of the
O.R. low (see chart 2).
As you now know, the O.R. low is often
significant support until it is broken, and becomes a significant area of resistance once broken.
As a result, it is very common for rallies during a down trending day to roll over at the O.R. low, and
resume the days down trend.
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Use Opening Range Reversals To

Buy Near The Low, Or Short Near The High
When you combine Opening Range Reversal tactics with the emotional benefit, and statistical edge
of placing your stops outside the days range as discussed earlier
You have a very effective approach to entering low risk trades that have a high probability of
working consistently!
An Opening Range Reversal (ORR) describes a condition when the market has reversed against
an O.R. high or low sufficiently to anticipate that the low or high of the day has been set, and it can
therefore be used effectively as a stop for your trade.
The basic ORR trade setup that Ill cover here occurs when the O.R. low is touched or broken
followed by a rally back over the O.R. low. As you become more familiar with how markets trade near
their O.R. lows youll discover many profitable trading patterns, but to get started you only need to
know one simple pattern.
A Simple Pattern That

Puts Money In Your Trading Account Quickly
Because It Pinpoints Reversals
This pattern is so effective at spotting intraday reversals that
Chart 3: Higher Candle Close (HCC)
I use it for more than identifying O.R. Reversals, but right
now our objective is to understand when to buy markets
near their low of the day using the ORR and this pattern.
I use 5-minute charts for this pattern.
At MarketGauge we call this pattern the Higher Candle
Close (HCC). It occurs when a 5-minute bar closes over
the high of the prior bar.
Yes, the pattern is that simple, and it works extremely well.
But the secret to why it works so well is that were using it
when it occurs near the O.R. low!
WARNING: Like most good trading tools, this pattern works well
when used in the right market conditions. If you use this pattern
randomly it can be frustrating, and even be as annoying as turning on your cars windshield wipers when the
sun is shining! You must combine it with the O.R. Reversal setup.
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When I share this secret setup Im often asked

Does it work on 1-minute charts? (probably because traders are always looking to act quicker, and
cut risk tighter).
Well, at MarketGauge we also trade with, and teach how to use 1-minute charts for more advanced
O.R. patterns along with price and time confirmation, but we DO NOT use this HCC pattern on
1-minute charts.
So, to get started all you need is a 5-minute bar chart or candlestick charts, which you can find on
any charting platform, and the next step - a simple way to identify the best Opening Range to trade
with the HCC.
The Best Opening Range Conditions
For Consistent Profits
When youre looking at an O.R. for a potential trade think of it like finding a place to live. Youll ask
yourself 3 basic questions.
1. What does it look like?
2. Where is it located?
3. Whats the price?
A good looking O.R. for an ORR trade has a well-defined O.R. low price level. Remember
from earlier in this book, the O.R. works best when the market is active and emotionally charged with
either fear or greed.
This is demonstrated in the charts by the existence of volatility and/or big volume. Therefore, a welldefined O.R. low is one that has multiple 5-minute bar lows near it, or a big range bounce from it, or
big volume near the O.R. low level. All of these indicate that traders are reacting to the O.R. low, and
imply that if the market breaks the O.R. low, and then begins to rally (as defined by the HCC), it is
time to trade! Chart 3 above is a good example of this.
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Good location for an ORR has two considerations
1. The low of the day should be close to the O.R. low. The reason you want the low of the day
to be relatively close to the O.R. low is because a good ORR trade defines its risk with a stop
under the low of the day, and its entry over the O.R. low.
In an ideal situation the distance from the entry point to the low of the day should be a fraction
of the markets average daily range.
2. The O.R. low and/or the low of the day should be in a good location relative to important
daily chart key reference points. This is very easy criteria to use to filter out the best ORR
trades, and one of the most powerful determinants of the predictable profit potential.
Simply put The best ORR trades occur in the direction of the daily trend
and at support and resistance levels that can be identified on the daily charts.
Chart 4: AMZNs location lined up with support from the prior day and the important key
reference point of the Floor Trader Pivot (not visible on this chart).
The price is your entry price and your risk! It doesnt take long to become good at quickly
identifying good looking Opening Ranges in good locations.
This is a skill and tactic you can apply to almost any market and easily adopt into your existing trading
rules, or simply trade it as described here, which is to apply the HCC pattern to determine the trade
entry.
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The Simple Entry Trigger

Thats Been Hidden in Your Charts All Along
As you start looking at the markets using the O.R. along with the HCC pattern in the way Ive
described in this book, youll find that some trades are such obviously great opportunities that youll
want to be more aggressive, and get into the trade as quickly as possible.
Youll also find trades that look great, but youd like to have a little more confirmation before entering
(i.e. general market conditions may be bearish)
Now that you know what the HCC pattern is, and where to best apply it, we can focus on the actual
entry price trigger point for what Ill describe as the HCC-ORR trade.
There are actually 3 potential trigger points for an entry. They are all slight variations of the same
basic pattern of trading over the prior bars high, but they give you the ability to be more aggressive
vs. waiting for more confirmation that the market has turned up.
IMPORTANT: For the purposes of this lesson, it is assumed that any entry trigger point described
here is also above the O.R. low.
Maximum Confirmation
The entry trigger with most confirmation, and the one Id start with, is to wait for the 5-minute bar
to close over the prior bars high, AND then enter when the market trades over the HCC high. This
means your entry trigger is actually a trade over the high of the HCC bar.
I will almost always use this trigger if the close of the HCC is not convincingly above the prior bar high,
or if the high of the HCC bar is very close to the closing price. In these cases youre not increasing
your risk by very much, yet youre getting some extra confirmation the price is moving your way.
Chart 5 below shows an example of a big range HCC reversal with confirmation.
Chart 5: A good wide range HCC with confirmation
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No Confirmation
There are times where you will not want to wait for maximum confirmation described above. In this
case the trigger is simply the close over the prior bar high and the entry is on the open of the following
bar.
This is can be used for situations where the HCC bars close is significantly above the prior bars
high, and it may even have good volume. In other words, the market has clearly demonstrated a
reversal.
In fact, sometimes you will get this pattern, and have the opportunity to wait for a pullback in price to
the high of the prior bar to be able to enter a lower price.
However, if you do not have a good demonstration of range expansions and or volume this can be
risky. Chart 6 above is an example of a HCC at the ORR that did not confirm and continued lower.
Jumping The Gun
As the subtitle jumping the gun suggests, this is getting in before the HCC is complete. With some
experience in trading ORR patterns youll be able to get away with this, and get in early on some
trades, but be careful. I would prefer to have unusual volume in situations where I use this approach.
The trigger when you jump the gun is to enter when the market trades over the prior bar high. So
youre not waiting for the close in what you expect to be a HCC bar.
6 Steps To Identifying and Executing
Low Risk, High Profit Potential
ORR Trades With Confidence
Its time to pull everything together, summarize the key steps to initiating an Opening Range Reversal
trade.
1. Let the 30-minute O.R. form.
2. Focus first on the Opening Ranges that are in a good location relative to the daily charts
trend and support levels.
3. Identify the Opening Ranges in a good location that also look good for an ORR trade. This
means they have well-defined support at the O.R. low.
4. Use the HCC as your entry trigger.
5. Define your risk as being under the low of the day. Give the market room to break the low of
the day by a small margin and reverse without stopping you out!
6. Set your initial profit targets. If you are a day trader, take at least partial profits near the high of
the day, and move your stop to no loss after the market moves in your favor. If youre a swing
trader, youre initial target may be higher (and your stop may be lower).
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Identifying Trade Opportunities In Seconds

With This Simple Chart Display
In my charting platform I have a window that shows both the daily chart and a 5-minute candle chart
with volume. As you know the candles on the 5-minute chart are not required, but they make it easier
to see where a bar closes relative to the prior bar high.
With these two charts in plain view it only takes a few seconds to spot when the O.R.
low lines up with key daily levels, and when a HCC forms.Dont Sabotage Yourself
By Setting Your Trades Up To Fail
You can evaluate every days price action with the perspective of the O.R. to anticipate the markets
next move, but the key to profiting from it is knowing how to spot high probability setups like the one
Ive revealed in this book.
Remember my analogy from earlier You dont use your windshield wipers on a sunny day!
The ORR combined with the HCC entry is an incredibly powerful pattern, but every O.R. low will
not reverse. However, you now know how to select good looking ORR patterns. And you know that
the location of the O.R., in the context of a bullish daily chart, is the easiest way to identify the most
reliable and highest potential ORR trades for both the day trader and swing trader.
Be selective! If all the trade ingredients are not there, wait for the next one.
Chart 7: With a daily chart display next to the 5-minute you can see good location easily
58
SPECIAL OFFER: LEARN AND EARN MORE!

If youd like to learn more about trading reversals and trend day patterns that leverage the power of
the Opening Range, visit MarketGauge at the special link provided below.
MarketGauge provides free webinars, and more advanced O.R. training that will show you:
How to determine volatility based stops that help to
avoid frustrating stop losses
How to profit from big trend day breakouts, and
avoid false breakouts
Which indicators dramatically increase the statistical edge of the O.R.
Rules for more precise reversal patterns for quicker entries
Time and price confirmation rules to minimize failed trades
How to trade quicker O.R. time frames to
profit from gaps and moves within the first 30-minutes of the day
And more!
For a limited time, TradingPub members will find more training and a special offer here:
www.marketgauge.com/orr/tradingpub/
ABOUT THE AUTHOR

Geoff Bysshe, co-founder of MarketGauge, began trading in 1990 on the floor of the
NY commodities exchanges. He spent several years as an independent floor trader.
He left the floor to trade and develop quantitatively based strategies for equities at
Millennium Partners, a multi-billion dollar hedge fund in NY. In 1997 he co-founded
MarketGauge.com to provide market analysis and trading tools to professional
traders.
MarketGauge has since expanded into providing individual active traders and investors with trading
systems, tools, education and actionable market analysis.
59
Mastering the Perfect Pullback:

Five Steps to Improve Your Trend Trading
By Corey Rosenbloom, AfraidToTrade.com
Are you lured by the siren song of searching for an elusive trend reversal and fighting the price
action? It's understandable that many traders want to gratify their ego by pinpointing the exact spot
that a trend reverses, but unfortunately many trading accounts have been dashed in the process of
calling reversals.
Join me for a brief journey as we "go with the flow" with price action as it moves forward in a trend.
We'll focus specifically on identifying a trend in motion and perfecting a classic trade set-up that will
reduce frustration and - hopefully - build up your trading account consistently over time.
Trends - the Foundation of Trading
Technical Analysis and chart-based trading builds on the idea that trends, once established, have
greater odds of continuing than of reversing. It's such a simple principle but so many traders get
trapped in the allure of calling a market top or bottom - a trend reversal - and miss the easier profits
that can be made by trading with the trend and not against it.
In Technical Analysis Explained, Martin Pring defines the entirety of technical analysis with this quote:
"Technical Analysis is the art of identifying a Trend Reversal at the earliest stage possible and then
trading in the direction of that trend until the weight of the evidence proves that trend has reversed."
In this article, we'll focus on the portion of the definition that addresses "trading in the direction of
that trend" and specifically develop a trade set-up you can recognize in any market or timeframe.
You can use this as a building block to more complex strategies in your trading toolbox, or as a
standalone set-up.
Two Quick Ways to Identify a Trend in Motion
If our first goal is to "identify a trend reversal at the earliest stage possible," how exactly do we do
that? Let's build an official way to define a trend in motion.
1. Pure Price Method
The most basic method for identifying an official trend is to compare price highs and lows as they
develop over time. On a price chart, simply draw a line over each swing high in price and also on
each swing low. It can be helpful to draw small green lines over price highs and small red lines over
price lows so you can compare them easier.
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An uptrend is defined as a price movement having BOTH a higher high and a higher low
A downtrend is thus a price movement over time having BOTH a lower low and a lower high
A sideways trend occurs when the swing highs and lows closely overlap prior highs and lows
Many new traders simply "eye-ball" a trend and have no formal way of defining it.
Let's see this on the chart:
Figure 1: CME Group (CME) Identified by Simply Labeling Higher Highs (Green) and Higher Lows
(Red)
A Trend Reversal - by this definition - would occur when an uptrend develops BOTH a lower low AND
a lower high; by the same logic, a downtrend would reverse ONLY when price then made a higher
high and higher low.
2. Moving Average Crossovers

In addition to drawing your own highs and lows to define a trend, we can use two moving averages
to define a trend in motion. We'll need a short-term and intermediate term moving average to place
on our price chart.
There's no secret formula to which a moving average is the perfect tool to use, though in my
experience I've consistently used the 20 period Exponential Average (which I often color green) and
the 50 period Exponential Average (which I color blue).
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An uptrend is identified when the 20 period (short-term) moving average is rising steadily above the
rising 50 period (intermediate-term) Exponential Moving Average.
A downtrend is identified when the 20 period Exponential Average (EMA) is falling steadily beneath
the falling 50 period EMA.
A flat or sideways trend occurs when the moving averages repeatedly cross each other as they
take a sideways or horizontal slope. Trend Reversals occur when the moving averages cross each
other, especially after a lengthy uptrend or downtrend.
Here is CME again with the 20 and 50 day Exponential Moving Averages applied:
Figure 2: CME with 20 and 50 day EMAs Applied. Uptrends contain rising moving average and
crossovers reveal likely Trend Reversals
While there are many formal chart-based methods for identifying trends, often these simple methods
are easier to identify and can outperform complex methods with many variables.
New traders especially should begin with simpler methods, build success with them, and then only if
necessary move toward more complex methods of trend identification.
Now that We've Identified the Trend... What Do We Do with It?
A main goal of new traders is to identify a trend in motion and then trade in the direction of that trend
as long as it lasts. How exactly do we do that?
Just like there are multiple ways to identify a trend in motion, there are even more methods to align
your trades in the direction of the trend and profit from the trend continuing into the near-term future.
For this article, let's focus on pullback or retracement trades and maximize our efficiency with this
simple yet very powerful and consistent foundational set-up.
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There are three foundational trade set-ups as follows:

Retracement Trades trigger on a pullback in an established uptrend.
Reversal Trades trigger on a breakout or reversal spot from a mature trend that is ending (as a new
trend begins)
Breakout Trades trigger on the breakout beyond a new high or new low, or a clear support/resistance
level (or from a price pattern). Breakout trades may trigger in the direction of a prevailing trend, or
also against it.
For this article, we will only focus on the Retracement Trade identification and strategy.
The first step is to identify a trend in motion and thus the second step is to trade in the direction of
that trend as it progresses.
Retracement trades attempt to identify a short-term turning point when a counter-trend retracement
(price moving against the trend) ends and a new swing in the direction of the trend develops. Price
tends to move in "waves" or swings that are either with the current trend direction (also called
"impulses") or against it ("counter-trend reactions" or "retracements"). The goal is thus to enter as
close as possible at the end of a short-term retracement and join in the direction of the trend when
price resumes moving in the direction of the trend.
As you can imagine, there are hundreds of ways of accomplishing this goal, and there are just about
as many methods and indicators you can imagine to pinpoint the end of a retracement and the
beginning of a new uptrend price swing. Once again, new traders should start with simple methods
and build complexity ONLY if it is necessary (never start with the complex).
Three Simple Tools to Pinpoint the End of a Retracement
1. Hand-Drawn Price Trendline
Let's start with the simplest tool, the hand-drawn (on your computer screen or on a printed chart)
trendline. The goal when drawing trendlines is to connect as many price swing highs or lows as
possible. More is better if possible. By definition, a trendline requires at least two points and the
preference would be to connect three or more swing highs or lows. Extend trendlines into the future
and when price "pulls back" to a trendline, it can be a low-risk spot to enter the market.
2. Moving Averages
They're back! We can use moving averages both to identify a trend in motion and also to enter a
position into the trend once price "pulls back" or retraces to either our short-term or intermediate term
moving average. Look closely at the chart of CME above to pinpoint each time price touched - or
tested - the rising 20 or 50 day EMA and then rallied up off this "moving trendline." January 2015
reminds us that no method is perfect in trading a retracement, but each indicator gives us guidance
and clues as to when a retracement may end and price will then swing back in the direction of the
trend.
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Here's Apple (AAPL) to demonstrate both the Trendline and Moving Average Tactics:
Figure 3: Apple (AAPL) with Hand-Drawn Trendline (Black) which was touched four times and
successful Pullbacks (labeled "P") to the rising 20 (green) or 50 (blue) moving average
From April 2014, Apple shares burst into a strong uptrend on the Daily Chart and the series of higher
highs and higher lows continued into 2015 without any sign of reversal. After April, price "pulled
back" or retraced toward the rising 20 or 50 EMA.
Late 2014 saw a strong resumption of the trend but also a strong retracement against it. Instead of
"stopping" or reversing up off the moving averages as was the case in 2014, price reversed off the
hand-drawn black trendline to resume the strong uptrend in motion. The uptrend never reversed.
3. Flag Patterns
Sometimes the price trend is so strong that we never see a touch of a trendline or moving average.
In these cases, especially on lower timeframes, our only method for entering a strong trend is to do
so not at a support (uptrend) or resistance (downtrend) level like a moving average or trendline, but
on the breakthrough of a smaller, mini-trendline that we call a "flag" pattern. These would be your
classic Bull and Bear Flag price patterns.
64
Here's the same chart of Apple, only with the "Flags" highlighted:
Figure 4: Apple (AAPL) with Bull Flag Retracement Patterns Highlighted. Instead of aiming to buy
at a support level (like a trendline or moving average), the goal becomes to buy shares on a price
breakout above the smaller 'flag' trendline.
Here's a zoomed-in perspective of the first two flag patterns in mid-2014:
Figure 5: Apple (AAPL) with zoomed-in perspective of two pro-trend "Flag" retracement price patterns
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So now we have three simple ways to identify both a counter-trend retracement and when it is likely
to end - and thus resume moving in the direction of the uptrend (where we seek to make profit).
Let's create a specific strategy for entering and managing these Pro-Trend Pullback (retracement)
Strategies.
How to Trade a Retracement Play
It's one thing to recognize a retracement as it develops in real-time but we don't make any money
just watching patterns develop.
We need specific parameters for entry, targets, stop-loss placement, and management once we
recognize a set-up in motion.
Fortunately, retracement trades naturally develop these parameters and all we must do is enter,
manage, and exit as the trend resumes. We need to have a stop-loss strategy also in case the price
"surprises" us with a trend reversal.
Here are the simple, specific steps to trade a retracement play:
1. IDENTIFY a Mature Uptrend in Motion (using the Price and/or Moving Average Method)
2. MAINTAIN the stock in your watch list UNTIL price retraces lower in an uptrend to a support
level (trendline or moving average) in an uptrend or higher to a resistance level (trendline or
moving average) in a downtrend
3. BUY as price touches the moving average or trendline in a prevailing uptrend;
SHORT-SELL as price touches the moving average or trendline in a prevailing downtrend
4. PLACE YOUR STOP beyond the trendline or moving average (usually 1% to 2% away from
the level on a Daily Chart, but this varies depending on your timeframe and the volatility of the
stock). Ideally, TRAIL THE STOP under the rising 50 EMA (uptrend) or above the falling 50 EMA
(downtrend)
5. TARGET a minimum of a touch of the prior swing high in an uptrend and the touch of the prior
swing low in a downtrend (you can choose to exit your full position or exit half the position at the
achievement of the minimum goal)
6. HOLD the remaining position until price breaks under a smaller hand-drawn price trendline in an
uptrend or over a smaller hand-drawn trendline in a downtrend
Make a check-list from these simple rules and use them as guidance for entering and exiting positions.
66
The chart below reveals four small (yet profitable) pro-trend retracement trades in Monster Beverage
(MNST) and each trade developed and played out:
Figure 6: Monster Beverage (MNST) with Four Retracement Trades (Trendlines, Moving Averages,
and Flags Highlighted) as the Uptrend Continues on the Daily Chart
Here's a final glance at two simple Retracement Trades in Apple (AAPL):
Figure 7: Apple (AAPL) - two detailed (yet small) pro-trend retracement trades in a strong uptrend.
The Yellow Highlight indicates BUYING when price TOUCHES the rising moving average while the
Green Highlight indicates BUYING the "flag" or trendline breakout as price moves up off support. The
Target is the prior price swing high and the stop is located beneath the moving averages (not exactly
under the averages, as was the case at the end of June)
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Summing it All Up:

No trading strategy guarantees perfect outcomes. The goal is always to take high probability set-ups
and craft trades that aim for a higher profit relative to the risk of loss as defined by your stop-loss.
Retracements take advantage of the higher probability of a trend in motion continuing to extend
higher (or lower in the case of a downtrend) and provide a clear, low-risk entry where the stop-loss
is small relative to the larger target.
If price fails to hold support (or resistance when short-selling into a downtrend), take your stoploss and prepare for the next opportunity. Also, don't keep your stop-loss positioned exactly at the
reversal point - always locate it just beyond the trendline or moving average.
With experience, you'll be able to recognize trends, pullbacks, and opportunities more effectively and
can add additional parameters that can increase your probability of success or maximize the profit
(play for larger targets) relative to the risk. Start simple and grow from a solid foundation.
Taking it One Step Further...
For ambitious traders, the following strategies can help you further master your pullback trades:

Adding Fibonacci Retracements to pinpoint "hidden" turning points (and to manage stops)
Incorporating Reversal Candles that develop at trendlines or moving averages
Stepping inside the price action to a lower timeframe to pinpoint more accurate entries
Using Oscillators to quantify entries (especially when an oversold buy signal occurs at
support or an overbought sell signal occurs at resistance)
Incorporating Volume or Market Internals into the chart
Don't start with the complex; instead, build from successful trades you take using the simpler
methods described here. You can't improve upon something when you don't have a solid
foundation. The basic strategies here serve as building blocks you can use as a stand-alone
strategy or preferably as a core method to add your own personal improvements as you gain
experience as a trader.
68
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ABOUT THE AUTHOR

Corey Rosenblooms interest in the stock market began as a junior in High
School where his team won an investment challenge competition which
drew him into investing actual money in the market using basic fundamental
analysis. Later, the Bear Market of the early 2000s would challenge these
assumptions and force him into deeper study of market concepts There
had to be a better way than Buy and Hold strategies.
He was soon introduced to the concepts of price charting, or more formally known as Technical
Analysis and the pattern recognition, along with indicator combinations, drew his attention sharply
in that direction. As the market began its recovery, he was participating as a momentum intraday
trader, which soon gave way to broader swing-trading strategies. He describes one of many lightbulb moments when he was introduced to Sector Rotation Concepts which seemed to make the
price charts fit into a logical progression of expectations. From there, he deployed options trading
strategies which gave way to ETF trading, which itself finally gave way to active futures market
trading tactics.
Mr. Rosenbloom holds a bachelors degree in both Psychology (cognitive research focus) and Political
Science and later received a Masters Degree in Public Affairs with a Business concentration. He has
completed Levels I, II, and III of the Market Technicians Associations Chartered Market Technician
(CMT) program and is awaiting the official charter in early 2009.
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70
FOREX
71
A SIMPLE 123 FOREX STRATEGY

By Jody Samuels, CEO, FX Traders EDGE
Hello traders!
Welcome to this mini Forex Foundation course, your roadmap to trading the Forex Markets. My
name is Jody Samuels and my trading career began on Wall Street in the early 80s. Today I manage
fxtradersedge.com, a comprehensive website that offers courses and numerous coaching and
trading services specializing in Elliott Wave, Fibonacci and Harmonics analysis and trading.
Trading Pub asked me to explain what makes Forex a great market to trade so I thought I would
start with some basic terminology and history, to show you how the market has evolved as one of the
fastest growing markets to trade. I will then switch gears completely and talk about a strategy which
is very easy for a new Forex trader to grasp. (It is even good for advanced traders!) The strategy is
called the 123 continuation and reversal pattern and we will show how to use it during trend and end
of trend cycles.
What is Forex?
Foreign Exchange Trading is known as Forex, or by the acronym FX.
Today we are going to talk about the transactions of the foreign exchange market known as the spot
market. This market involves a worldwide electronic network of banks, brokers and other financial
intermediaries.Unlike the stock exchange markets, Forex has no physical location its completely
electronic. This ensures that transactions happen in seconds directly with the market makers. All
profits are settled immediately in cash.
Figure 1: The Forex Spot Market
The Lingo in Forex is about pips and lots. What is a pip? If we look at
the EURUSD at 1.0925, the pip is the last decimal place. When we talk
about a move in the EURUSD of 5 pips, we are referring to a move from
1.0925 to 1.0930.
The pip is 1/10,000 of a decimal place. A 100 pip move is from 1.0900
to 1.1000. If we look at the USDJPY at 122.50, the pip is also the last
decimal place. If the USDJPY moves 1 pip in the market, it moves from
122.50 to 122.51. The pip is 1/100 of a decimal place.
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Nowadays, brokers quote to 5 decimal places in the EURUSD and to 3 decimal places in the USDJPY.
For example, the EURUSD would be quoted as 1.09256 and the USDJPY would be quoted as
122.508.
Currencies used to only be traded in specific Lot or Unit sizes. If the unit is USD, a standard lot is
$100,000. A Mini lot is $10,000. And a Micro lot is $1,000. Today, brokers allow traders to vary the
Unit size without sticking to the standard Lot sizes. If you are wondering how a small investor can
trade $100,000 without depositing that amount of money, its because of Leverage.
The broker where you set up your trading account will require a margin to trade $100,000. That
margin will vary according to the leverage the broker is willing to offer. At 50:1 leverage, the amount
required to trade $100,000 is $2,000. The broker lends you the rest. Of course, any losses or gains
on the position will be added to or deducted from the balance in the account.
Why trade Forex?
The Forex market has evolved faster than any other financial market in history. According to the
Bank for International Settlements, the central bank for central banks, average daily turnover on the
world's foreign exchange markets reached almost $1.5 trillion in 1998, increased to $1.9 trillion of
daily trading in 2004, and skyrocketed to an unprecedented level of almost $5.3 trillion in 2013.
However, foreign exchange transactions existed a long time before that. Lets learn a little history
together.
Between 1876 and 1931 currencies gained a new phase of stability because they were supported
by the price of gold. The Gold Standard replaced the age-old practice in which kings and rulers
arbitrarily devalued money and triggered inflation.
The Gold Standard was a commitment by participating countries to fix the prices of their domestic
currencies in terms of a specified amount of gold.
The Gold Standard prevailed until WWI, was reinstated in 1925, and broke down again in 1931
following Britains departure in the face of massive gold and capital outflows.
Beginning in 1944, countries operated under the Bretton Woods Accord. A total of 44 countries met
in New Hampshire to design a new economic order.
The Bretton Woods Conference of 1944 established an international fixed exchange rate regime in
which currencies were pegged to the United States dollar, which was based on the gold standard at
a fixed value of $35 per ounce.
However, heavy American spending on the Vietnam War led to persistent U.S. balance-of-payments
deficits and steadily reduced gold reserves. Finally, on August 15, 1971, President Nixon announced
the suspension of converting dollars into gold, unilaterally devaluing the U.S. dollar and effectively
ending the Bretton Woods Accord.
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After the Bretton Woods Accord, the Smithsonian Agreement was signed in December of 1971. This
agreement was similar to the Bretton Woods Accord, but it allowed for a greater fluctuation for foreign
currencies.
The US trade deficit continued to grow, however, and the US dollar needed to be devalued beyond
the parameters established by the Smithsonian Agreement, and this resulted in its collapse in 1973.
In 1978, the free-floating system was officially mandated. This had occurred by default because
no new agreements surfaced. At the same time, Europe gained independence from the dollar by
creating the European Monetary System. This lasted until the introduction of the Euro in 1993.
Finally, the first online trade happened in 1997, which marked the beginning of the retail market.
Who Trades Forex?
An acronym I developed is the Be RICHeR network and this network trades Forex.
Figure 2: Who Trades Forex?
The Banks were involved in the Forex markets at its inception in the 1970s. The Retail Forex Brokers
came on the scene after 1997. Investment Management Firms have foreign exposures from their
stock and bond portfolios and they transact with the banks.
Corporations in their daily, monthly and yearly foreign exchange transactions deal with the banks. The
Central Banks are also key players managing their currency exposures and dealing with investment
banks. Hedge funds manage a variety of asset classes, including currencies, and they transact with
Banks.
Finally, we have eRetail, dealing electronically through a trading platforms of retail Forex Brokers.
When you take your first currency trade, you too will become part of this Be RICHeR Network!
Welcome.
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OVERVIEW
Tradable Markets on a Forex Platform
In the Forex market, there are a great number of currency pairs to trade, which include the USD pairs
and the Crosses. On the majority of Forex trading platforms, one can trade CFDs as well as currencies.
A CFD, or contract for difference, is a product whose price is based on the underlying instrument
and is considered an over-the-counter (OTC) product, which is not traded on any exchange. CFDs
include stock indices, metals and energy products. For most brokers, the lists of offered instruments
continues to grow. Now, Forex trading platforms are beginning to add CFDs on stocks and ETFs as
well. As retail traders, we have the ability to trade all of these instruments on Forex trading platforms.
The number of markets quoted will vary from broker to broker.
Capture the Flavor of the Day or Week
Once we understand which markets can be traded on the trading platform, how do we decide which
markets are trending? One way to do that, is to look at several markets at once to compare them. In
this example we are looking at the major USD pairs to see if there is a particular trend in these pairs.
Then we can do the analysis and decide which pairs to trade and when. Scanning charts like this is
done to capture the Flavor of the Day or Week in order to stay with the trend.
In the example below, all the USD pairs have clean price action and fall within defined channel lines with
the exception of the USDJPY, which is trading sideways and USDCAD, which is tracing out a triangle.
The four other pairs the EURUSD, GBPUSD, AUDUSD and the NZDUSD are trading nicely within the
channel lines which bodes well for either a trend continuation or a breakout to a new direction. Notice also
that the weaker currencies are the EUR and the GBP and the stronger currencies are theAUD and the NZD.
What do you think the trends are for the EURAUD, EURNZD, GBPAUD and GBPNZD? You would
be correct if you thought trending lower.In addition to scanning the charts for clean price action, it
is necessary to review the news releases to be prepared for events which could move the markets.
An understanding of the fundamentals is key to relating the price action to the economic backdrop
affecting the markets.
Figure 3: Scanning the USD Pairs for Opportunities
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The 123 Pattern as a Reversal Trading Strategy

Now we are going to move into the trading strategy section of this course. The simple trading strategy
that I have selected is the 123 strategy for continuation trades and end of trend trades. First we are
going to look at the 123 pattern as an end of trend, or reversal trading strategy, also called the 123
top and bottom pattern.
The 123 top and bottom pattern is a very powerful pattern that signals a trend reversal. It can also be
used as a trend continuation, which will be described shortly. First, the reversal pattern.
Scenario 1: In an uptrend, the market hits a new high, labeled point 1. Price then pulls back to a
short-term support level, labeled point 2. Finally, price moves up to an area between points 1 and 2,
labeled point 3. It then reverses down again and begins a trend in the new direction.
Trade Entry: The pattern is complete when the price trades below point 2. At a 123 top, the strategy
is to sell on a break of point 2. The measuring objective is the distance between point 2 and point 3,
projected below the break at point 2. The stop loss is set just above point 3 but a more conservative
stop loss is above the start of this move, at point 1.
This is a choice that the trader must make and only by trading it over and over again will the trader
feel comfortable with the choice of a stop loss.
An optional sell is at point 3, only if point 3 is at the 50% retracement level of the move from 1 to 2.
Also watch for reversal candlestick patterns at point 3 to trigger the entry.
Figure 4: 123 Reversal Trade Entry
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Figure 5 summarizes the 123 top and bottom trade. We just looked at scenario 1 which is the 123
top. Now we will discuss the opposite scenario of a 123 bottom.
Scenario 2: At a 123 bottom, the market hits a low at point 1, trades up to point 2, trades back down
to point 3, and back up through point 2 to begin a new uptrend.
Observations:
I like to see point 3 retrace at least 50% of the move down from point 1 to point 2. I also learned
that if the pattern has between 10 and 20 bars between points 1 and 3, it is more likely to succeed.
What I have to say about that is back test and see for yourself. I take most of my trades based on
this pattern alone. It is very powerful. You can also use this pattern on a smaller time frame once the
market reversal is identified. You will get a closer entry to point 1 and will therefore be able to take a
larger position, using the same money management rules.
Figure 5: 123 Top and Bottom
Notes
1. The 123 formation is classified as a major reversal pattern and is one of the best indicators
of a trend reversal. They are found on every time frame. The swing or position trader will look
for these patterns on the weekly, daily and 4-hour charts. The day trader will look for 123s
on the hourly and 15-minute charts. The momentum trader will trade these patterns on the
5-minute, 1-minute and tick time frames.
2. Stop losses for 123 tops should be set above point 1 initially, and positions need to be sized
accordingly so as not to exceed the risk limit for the trade. Another option is to place stops
above point 3. However, the odds are increased of being stopped out early. It is better to
take a smaller position and leave the stop above point 1. Stop losses for 123 bottoms are set
below point 1, or alternatively, below point 3.
3. Optional: On a 123 reversal using any time frame, wait one or two candles for confirmation.
Ideally price will come back and retest the breakout or breakdown point for a safer entry. This
helps to avoid whipsaw.
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At this point in the video we look at more 123 reversal examples using market data.
The 123 Pattern as a Trend Continuation Strategy
We have just completed the section on the 123 reversal pattern as confirmation of the end of the
trend. However, while the end of trend 123 top and bottom is a great entry method for taking reversal
trades, most of your trades as swing and day traders will be trying to get into a trend move getting
into the trend in the middle of it. You may have heard that the trend is your friend, so now we will
learn a method to get into a trend move using the 123 trend continuation pattern.
How do you get into the trend in the middle of it? The safest trades you can make are the ones where
you are trading in the direction of the current trend. In other words, if the trend is up, you should be
long and if the trend is down, you should be short. If you miss the start of the trend, you still need
a method to enter a confirmed trend during its progress. I am going to suggest two entry methods
using the 123 pattern for trend continuation called internal 123s.
Figure 6: 123 Trend Continuation Trade Entry
Method 1:
Draw your 123 points as price moves in the direction of the new trend.Enter on a break of the newly
established point 2 with a stop below point 3 if the trend is up, and above point 3 if the trend is down.
Follow the market up or down, depending on the trend.
Method 2:
Draw your 123 points.Enter at point 3 with a stop below the new point 1 if the trend is up and
above the new point 1 if the trend is down. Figure 7 illustrates both the 123 reversal and the 123
continuation, back to back, on the same market, the 4-hour GBPAUD.
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Figure 7: 123 Trend Continuation Trade Entry with 123 Reversal
Notes
1. When the Trend is your friend, we need to make sure we get into the trend at various points
along the way. Why? The safest trades are taken in the direction of the current trend. Trade
entry is easily done with the internal 123 formation.
2. In a trend, the first 123 pattern is the reversal pattern that occurs at market tops and bottoms.
The second and third sets of internal 123s continue to confirm the uptrend or downtrend.
3. Take note how each point 3 becomes the new point 1 for the next internal 123 pattern. In a
very strong trend, point 3 will not always retrace to at least the 50% mark, and thats ok. It is
more important for that to occur with reversal 123s. In a strong trend, the retracements can
be as shallow as 23.6% or 38.2%.
4. If you miss the initial reversal 123 pattern, look to get into the subsequent internal 123s.
Preferred entry is on the break of point 2. However, alternatively, you may enter at point 3.
And, wait for the candles to start trending again before entering.
5. Profit taking is recommended along the way for day traders. Position and swing traders may
hold the positions and trail the stop every time we trigger a new trade. The stop would then
be placed above the new point 1 if in a downtrend or below if in an uptrend, and previous
stops would be moved to the new point 1. These positions would be considered add-ons for
position and swing traders.
At this point in the video we look at additional 123 continuation examples using market data.
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CONCLUSION
The Forex markets offer an opportunity to trade various currency pairs and CFDs as well. Once a
trader understands that all of the markets are related in some way currencies, commodities and
stocks and that correlations exist between certain markets, the excitement comes in understanding
these relationships in order to confirm market moves day in and day out. Learn the fundamentals,
scan the markets for the best markets to trade, and select a simple strategy such as the 123 Strategy
to stay with the trend, or find the end of the trend for a market reversal.
Jody Samuels covers the 123 pattern over multiple markets. WATCH HER VIDEO HERE!
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basics, cover the intermediate levels, and end with more advanced concepts.
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ABOUT THE AUTHOR

Jody Samuels is one of North Americas leading coaches for successful traders,
and the creator of fxtradersedge.com. Her highly acclaimed new book, The
Traders Pendulum The 10 Habits of Highly Successful Traders, is described
as the traders guide to the business, psychology and hype in trading and is a
must read for any trader with a passion for a profitable trading business. Jody
Samuels, a professional trader with 15 years experience trading currencies with
a New York international investment bank, successfully made millions of dollars using the proven
theories of Elliott Wave analysis.TheElliott Wave Ultimate Course, Jodys latest accomplishment,
illustrates the convergence of Elliott, Fibonacci and Harmonics in a ground breaking program to
combine precise analysis with a simple strategy, and can be accessed on fxtradersedge.com.
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The London Breakout Session

By Joshua Martinez, Market Traders Institute
The FX market forms consistent patterns that often take place at the same time everyday. Between
2:00 am Eastern time and 5:00 am Eastern time the market has about a 70% chance to form its first
high or low of the day. This consistent movement forms what we call the London Breakout Strategy
and can be applied to any of the following pairs: GBP/USD, GBP/CHF, GPB/NZD, GBP/CAD, GPB/
JPY and the GPB/AUD.
The second high or low will form anywhere between 8:00 am eastern time and 2:00 pm eastern
time, which makes it more difficult to take advantage of seeing it as it is a larger time range. So we
are going to focus in on the first high/low of the day simply because we have a higher percentage of
winning.
The distance between the first low and the high of the day or vice versa is known as the ADT(Average
Daily Trading Range) which can be anywhere between 50 and 200 pips in a single day. With a
standard position, which is an investment of $2,000 at 50 pips a day, you stand to earn $500 and at
200 pips a day you are at $2,000.
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The FX Market is open 24 hours a day, five and a half days a week. Within the 24 hours that the
market is open there is going to be three main trading sessions: the Asian, US and European.The
European session opens at 2:00 am EST and, because of how the time zones are set up in Europe,
sometimes it will take 3 hours between 2:00 am and 5:00 am for all the banks to open and start to
process orders.
Some of the worlds largest bulk transactions take place on a daily basis in Europe and because of
this all of the banks are processing orders in a heavy directional manner, causing a large volume
move. This is unique to the European session simply because the US and Asian transactions are
just not as large.
So lets take a look at how to set up the London Breakout Strategy
Presentation
Trading Rules Using a 60-minute chart:
1. Identify the candle that represents the 8:00 to 8:30 am London time.
2. After the close of the 8:00 to 8:30 am London time candle, place a working buy order 10 pips plus the
spread above the wick high and a working sell order 10 pips below the wick low.
3. If the market breaks out to the north and takes you in on the buy, the sell straddle order will be the number you place your stop order and the limit order will be figured out by calculating the daily trading range
as explained in #6. The working sell stop order will not be canceled but remain in place and be your entry
should the market reverse, meaning you will keep that working sell order in play and use it to reverse
your position to go short should the market reverse after it takes you in long, then reverse and take off
to the south.

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4. If the market breaks out to the south and takes you in on the sell, the buy straddle order will be the number you place your stop order and the limit order will be figured out by calculating the daily trading range
as explained in #7. The working buy stop order will not be canceled but remain in place and be your entry
should the market reverse; meaning you will keep that working buy order in play and use it to reverse
your position to go long should the marketreverse after it takes you in short , then reverse and take off to
the north.
5. You will want to trade the daily trading range. Find the average daily trading range over the last month.
6. If it breaks out to the north and takes you in on the buy, find the low that has been made over the last
2-4 hours and use that as your starting point to find the estimated high of the daily trading range; and
set yourt limit order 10 pips below that number.
7. If it breaks out to the south and takes you in on the sell, find the high that has been made over the last
2-4 hours; and use that as your starting point to find the estimated low of the daily trading range and
set your limit order 10 pips above that number.

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8. If the market stops you out 2 times in a row, you may consider it to be a sideways day and not continue
to trade. Should you continue to trade, I recommend you continue to trade in the direction of the 2-hour
chart.
CONCLUSION
London Breakout Strategy Checklist: Apply this strategy to the GBP crossovers: GBP/AUD, GBP/CAD, GBP/
CHF, GBP/JPY, GBP/NZD, and the GBP/USD
Pre-Trade Checklist
Use the 60-minute time frame.
Identify the candle that represents the 8:00 AM to 9:00 AM London time (3:00 AM to 4:00 AM ET).
After the close of the 8:00 AM to 9:00 AM London time candle, identify if the candle is in a BUY LOW
or SELL HIGH price.
If the market is in a sell high price
Place an ENTRY SELL ORDER -5 pips below the candlestick wick LOW.
Place a STOP +10 pips ABOVE the candlestick wick HIGH. Your LIMIT will always be at least +50 pips
from your entry SELL PRICE.
If the market is in a buy low price
Place an ENTRY BUY ORDER +10 pips above the candlestick wick HIGH.
Place a STOP at the LOW of the candlestick wick LOW. Your LIMIT will always be at least +50 pips
from your entry BUY PRICE.
If by chance the risk is larger than -50 pips, then your reward will match your risk. For example: If risk is -65
pips then the reward will be +65 pips.
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THE MOVIE
SIGN-UP HERE and see a Free Forex Training Video series!
THE SPECIAL OFFER

Take a 30 day test drive with MTI for only $27. SIMPLY CLICK HERE TO REGISTER!
ABOUT THE AUTHOR

Joshua Martinez is Market Traders Institute's product expert and has trained
thousands of investors to trade the Forex market. Joshua initially began his trading
career with a $500 investment which he turned into over $39,000 in profit. He is a
published author, professional FX analyst and, most importantly, he is a full time
trader.
Joshua is one of MTIs most followed Forex analysts and is head of MTIs Analyst on Demand. His
time is spent training and coordinating its team of analysts as well as monitoring and evaluating the
overall trader experience for quality assurance. You can find him in the Analyst on Demand chat
room sharing his trading insight to MTI Clients.
85
What Is the Best Time to

Trade Currencies?
By Ricardo Menjivar, PhoenixTradingStrategies.com
The Importance of Volume and Order Flow Trading

I created my business for the purpose of helping active individual traders to understand the importance
of Volume and Order Flow trading. I think that you might find more in common with me than you think.
I say this because I started as a novice retail trader twelve years ago and like yourself have spent
years, months, days, hours and minutes searching for the right strategy that would work for me.
Eight years ago, I decided that I could no longer trade in ignorance and decided that I had to figure
out a way to break into the industry and find out what was happening behind the scenes. Living in
Los Angeles, California I found it very difficult because the industry leaders in Forex were located at
the time in New York, Chicago and San Francisco.
All I could find in Los Angeles were Independent Introducing Brokerage (IIB) firms. These were small
boutique Futures and Forex Firms that referred their clients to large clearing firms. Since I could not
relocate to any other place because I was too old and without experience, I applied to a small IIB as
an assistant to get my foot in the door. Since I also had some experience trading Forex, they gave
me an opportunity.
For a year and a half I worked there as a Brokers Assistant learning the business and simultaneously
studying for the Series 3 License. What did I learn working for young brokers was that they were
more ignorant than I was when it came to trading and advising their clients. Lets just say that I dont
want to name who they are because they dont matter anymore. However, they were relevant to my
growth in this industry because if not for them I would have never gotten my foot in the door.
Once I passed my Series 3 exam, I had to move on and was hired by PFGBEST in 2008 as a Futures
and Forex Broker.This is where I stayed there until 2011 right before PFGBEST went down due to the
CEOs embezzlement of client funds. Although PFGBEST leaves a bad taste in everyones mouth,
it allowed me to work with some of the best software developers the company had in the industry.
A team of innovators that created one of the first Electronic Communications Networks an (ECN) that
pioneered straight through processing. We were the first group to bridge multiple bank feeds into one
master bank feed. Here is where my school of digital manipulation of order flow began.
This is where I learned the protocols that the banks/market makers created and implemented to
trade against the retail trader. But more importantly, I learned what was happening behind the scenes
that a retail trader would only dream of discovering but never gets a chance to see too see.
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As a broker, it allowed me to work with many educators and traders. I was able to create one of
the largest client books in the industry, which consisted of over 1,100 clients. I had clients from
retail traders to professional Commodity Trading Advisors (CTAs), to Institutional Traders that were
Proprietary Desk Traders. And because I was able to provide them the technological solution that
they were looking for, my reputation and business grew exponentially.
This also allowed me to work with software developers and traders that were on the forefront of High
Frequency Trading, which at the time was a fad just like Expert Advisor (EAs). So my experience as
a broker and trader grew to levels of knowledge that few individuals ever get to aspire too. I lived it,
I learned it, I worked it and I enjoyed it. A true blessing from God. So I believe that what I will share
with you will change the way you trade forever, because I will change your perspective from looking
at the market from the eyes of a retail trader to an institutional trader. I will let you be the judge of that
as you continue to read.
The Trading Strategy
My trading strategy is based on four concepts:
1. Order Flow ( High Frequency Trading)
2. Volume Divergence ( The Foot Print of the Trade)
3. Volume Price Analysis
4. Volume Spread Analysis
It is because I have a more profound understanding of how the banks have designed their strategies
under the umbrella of these four (4) concepts that I have been able to reverse engineer their protocols
and create a strategy and suite of indicators that can intercept and interpret their real trades before
anyone is aware of their real plan of action.
I know it sounds arrogant to make a statement like this, but you will discover that what most so-called
experts and educators teach is outdated and cannot be applied in this new world of digital warfare.
You need a guide that truly understands the new order of trading because what is being presented
to the retail trader is incomplete and delayed information. That is why you have not been able to
progress as a trader.
Ill show you that trading is like a game of chess
where you must think 4 to 5 steps ahead of your
opponent. And this opponent does not care that
you have emotions. This is why you are now trading
against robots that are programmed with algorithms
to confuse and out-think you.
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I have learned to see through the smoke and mirrors and catch them make the mistake of a century.
Yes, I said mistake of the century. Sometimes you have to know what you are looking for in order to
find the right solution. Now it is at your fingertips and when you see that I have streamlined the trade
identification process so that anyone can learn how to do this. The only thing on your mind will be,
where do I sign up.
You see, while everyone is talking about Moving Averages, Stochastics, MACD, RSI, Elliot Wave,
Fibonacci Levels, Regular Volume Indicators, Candle Sticks, Ichimuko Cloud, Pivot Levels, Chart
Patterns, etc... They are leading you in the wrong direction. I say this because I have studied the
mathematical formulas behind these indicators and now that I know how the banks manipulate their
volume and order flow I can show you how they have counter programmed these indicators. Dont
despair. There is always a solution to the problem and an answer to a question.
You will learn that my strategy is defined by 4 algorithms and a systematic five (5) step process that
anyone can learn without having to go through a big learning curve. Trading was hard until now. Now
it has become too easy to predict, I dont care if I miss a trade because there will be another that will
make up for it. And since I have designed the strategy to give me time to determine the best entry,
determine the best stop loss, and even forecast the best exit. Ask yourself. What more can you ask
for? I trade with a calm demeanor and my students come the same conclusion. This cant be that
easy. They are right it was never meant to be easy but it has evolved in a strategy that we can trust
and believe in. So when others began the race with decoding volume it is Phoenix Trading Strategies
that has finished the race and is the winner.
Once you see what I do, you will be inspired to learn to trade without fear and doubt. Yes, fear and
doubt? Fear and doubt cloud your decision process because you are unable to analyze the real risk
of the trade. How can you when you have never had the right guidance or information?
I now look for a specific set up that identifies the point of control that the buyers and sellers have chosen
in each candle where they prefer to buy and sell. Identify where there is real volume divergence,
determine the real support or resistance level that they are going to use to rebalance their risk and
exposure in the market. Isolate the price level that I can use to make my entry into the trade.
Establish my risk because I now know the price level that will not be penetrating as a support or
resistance level because the decision has been made by the market makers to take the trade in the
opposite direction and finally forecast the exit to maximize the best outcome of the trade.
Identifying the Best Currency Pairs and Time of Day to Trade
I am sure that you are aware that market conditions change and that finding trade opportunities as
well. At this particular moment I find that there are better opportunities to find trades at the close of
the U.S. Session - 5 pm EST. Why is this?
China has become such a big player that they are affecting the following currency pairs in FX that I
see great opportunity almost every day. Those pairs that I like to trade the most are GPB/AUD, GBP/
NZD , EUR/AUD, EUR/NZD, NZD/USD, AUD/USD You will discover that these are great pairs
to trade because they are at this moment more active than the regular pairs such as the USD/JPY,
EUR/USD , GBP/USD, USD/CHF etc.
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I have found that these pairs usually move somewhere between 50 to 100 pips during the Asian
session. But I feel that the Asian session is underrated by many traders because they are looking
for trades in the wrong pairs when they should be looking at these six (6) pairs. That would excite
everyones trading and not require those that live in the U.S. to lose sleep and try and trade during
the European Session.
I also favor trading the European Session at times because you can find some good trades with
the EUR/USD , GBP/USD , and USD/JPY that are much more active. Now if you are like me and
you live in Southern California you must value your sleep, so I only trade the European session on
Wednesday evening into the early morning of Thursday. Yes, once a week. I find that one cannot
make good trading decisions if you have a lack of sleep and are very tired.
I am sure that some of you like trading the U.S. Session but you really cant find any good trades at
this moment because they have already occurred during the Asian and European Sessions. Now this
is not to say that this wont change in a few months.
For the time being I dont fear trading during the Asian session because others claim that banks
and market makers set the trade up for the European session. Which is a lie, that I cannot support
because the banks and market makers are always rebalancing their risk in the market and choose
the FX Pairs where they have more exposure to do what I call Currency Portfolio Rebalancing.
Think about it they have exposure than you and I because they are constantly in the market 24/7.
Remember the retail trader is just in the market from a few minute to a few hours while the banks
maintain their positions and exposure for days weeks and months.
Using Phoenix Power Dots
If you are in love with trading as I am, I think you will appreciate the cutting edge technology break
through that I bring to the table. I have developed my own proprietary indicators that describe
the market from a different perspective than you are accustomed to seeing.So have an open mind
because if you were truly interested in learning how decode the banks high frequency order flow
trading then you are going to love what I have done.
Let us begin with my pride and joy, a super algorithm that I call the Phoenix Power Dots and you will
understand why they are so powerful. These Gold dots announce three things.
They establish a new support or resistance levels that form based on the manipulation of order flow
caused by high frequency around those price levels that the banks and market makers are doing to
offset their risk to the downside before driving the trade long as the picture below describes. Upon
forming they also announce that volume, momentum and liquidity that will come into the market to
drive the pair.
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As you can see the Phoenix Power Dots in the picture above show that they established the support
level that would give an hour notice before they took the trade long. Can you think of any indicator
out there that gives you 30 min to an hour notice before volume, momentum and liquidity come in to
drive the trade? I can assure you that no such indicator exists, thus making my Phoenix Power Dot
Algorithm unmatched. More importantly, you can see that we would be entering a trade long on the
4th or 5th candle because we have an established support level that will not be challenged.
This is because when the Phoenix Power Dots form, the banks/market makers are offsetting their
risk to the downside. You will discover that the longer they take to rebalance their short positions the
bigger the trend of that trade once it begins.
The Trend Dots, and Trend Stop help to keep you in the trade once it begins to trend. The Pivots
outline new support and resistance levels which are price targets as the trade begins to trend. The
next Algorithm that you are going to see will change the way you look at Order Flow forever if you
have a little understanding of how it works.
You see there are people out there that have complicated indicators to demonstrate their sophistication,
but in actuality they have the wrong formula. I am not here to correct them, because they have failed
and I have succeeded in decoding what is probably the most complicated program that evades even
institutional traders. But I am going to put it at your fingertips. So pay attention because you may
have to read this again.
You see all traders want to know, what is the preferred price level in the candle that the buyers prefer
to bid (buy) at and what is the price level that the sellers prefer to offer (sell) at. It is the one piece
of information that can explain the conspiracy theory of whether the banks communicate amongst
themselves.
The new Phoenix Price Identifier does exactly that, because now we can forecast when the buyers
are in disagreement with the sellers or vice versa and see with clarity that the trade will change
directions within the next two candles.
You see we now have the ability to detect a trade imbalance that you can bank on. You see this is
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the actual Footprint you have been waiting for.

The picture below shows Green and Red Dashes in each candle. That is another super Algorithm
that we created to show that how the buyer and sellers communicate amongst themselves. Ill give a
brief explanation of what happens here in the picture below.
I have numbered a few candles from 1 to 4. Candle No. 4 being the one where the first Power Dot
formed. Normally, I look back 2 to 3 candles once a Power Dot has formed. Why because I want to
verify that the banks are going to establish a support level because they are planning on taking the
trade long which did happen here.
What you are about to discover will now change the way you look at trading forever. You see how in
candle No. 4 the Point of Control (Green Dash) for the buyers it at the top of the candle that will give
a two (2) candle warning before they take the trade long. You see even though that candle is bearish
the candle is showing an imbalance between buyer and sellers because the buyers are giving the
sellers notice that they are not going to allow the trade to go down any further and that they are going
to increase their order flow to establish a support level and drive the trade long. So what happened in
the next 3 candles after candle No. 4 Now here is the tricky part. Can you see the same imbalance
in candles No. 3,2, and 1? The answer is yes.
When the sellers took control and started to drive the trade short the buyers were not in agreement
and communicated to the seller that they were going to slow the trade to short side and eventually
take control again to take the trade long. So you see when combining the Phoenix Power Dots with
the Phoenix Price Identifier you get the most magical combination. Now this will be better explained
in the video so make sure to watch it.
Here comes the 3rd Super Algorithm that we created called the Phoenix Volume Indicator.
What makes this volume indicator different than any other out there for Forex traders is that we
synthetically created volume to interpret the High Frequency Order Flow. In the Example below
you will see what I mean. This is the only volume indicator that give you a visual describing Volume
Divergence but also a numerical value of divergence through the high frequency trading in each
candle. Lets use candle No.3 .
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You see the Data Box show the buying volume, selling volume and cumulative volume in Panel 2. So
the top of the volume bar is represents the maximum buying volume in that bar, the bottom of that bar
represents the maximum selling volume and the grey dash represents where that bar settled which
in this case was 32 million negative volume. But that 32 million represents order that did not get filled
by the buyers. Again you will be able to understand it further in the video.
The Fourth Algorithm is called the Phoenix Congestion Zones. What this indicator does is identify
support and resistance levels where Power Dots have formed in the past in different time frames.
The example below will show blue and light green lines. The Blue Lines represent strong support
levels in the 30 min time frame and the light green line represents strong support levels in the 60 min
time frame.
Last but not least is the Market Analyzer that makes identifying trades easy as 1,2,3. I have over 20
pairs on it and I have programmed it to alert me when there are Phoenix Power Dot formations so
that I can go to those pairs and take my time analyzing whether they are the type of trade setups that
I look for.
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Lets Take a Look at a Trade Example

Here is an example of a trade set up that I normally look for in the GBP/NZD. You can see in the
example below that we had a Resistance Level Power Dot Formation, You have an imbalance in the
candle giving to two candle warning before going short and you have volume divergence confirming
a short trade even further.
SUMMARY
If after you have read this chapter and watched the video. Take the time to look at the GBP/AUD ,
GBP/NZD ,EUR/NZD , EUR/AUD , NZD/USD , AUD/USD at the end of the trading day which is 5
PM EST.
You will confirm for yourself that the banks at this particular moment are trading these pairs
aggressively when you compare them to other pairs. More importantly is that if you live here in the
U.S. you can trade these during the afternoon or early evening and not lose sleep trying to find a
trade during the European Session. I love my sleep, How about you?
Just remember that if you choose to use our cutting edge technology you will be able to pinpoint
these trade opportunities every day during the Asian or European Session by just letting the Market
Analyzer alert you so you can go to the charts to analyze whether that is the trade you are waiting
for or if you should wait for it to develop further. At the end you will love what I have to show you
because the one thing that you have is time. Time to analyze and determine your entry, your stop
loss and your take profit target. It just cant get any simpler than this. Remember that information is
the most valuable commodity a trader can get his hands on. With our suite of indicators traders get
the right information to make great trading decisions.
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Trading has changed my life for the better. I hope that I have inspired you to shoot for the stars
and believe that there is someone out there that does care about your success and future. Here at
Phoenix Trading Strategies we care, that we are willing to educate you and share our wisdom to help
you become that which for too many is but a dream. We dont want you to dream about it. We want
you to live and enjoy it. Life is getting harder every day for people, dont let this opportunity pass you
by that you miss the boat because you procrastinated.
THE MOVIE
Decoding Market Makers Order Flow Footprint
CLICK HERE to watch Ricardo demonstrate how to collect 400 pips in one night.With Phoenix
Trading Strategies you are able to put the puzzle of information together. Where before you didnt
even know where to start. Now you know where to start and finish.
See how Ricardo trades the rate announcements for the Bank of England using
the Phoenix Trading Strategies Indicator, SIMPLY CLICK HERE
THE SPECIAL OFFER

If you wish to learn more about how we trade these markets YOU CAN SIGN UP FOR OUR FREE
WEBINAR ROOM on Mondays and Fridays from 9:00 am EST to 11:00 am EST. Below is a link for
you to sign up. It will sign you up for our Free Webinar room as well as give you another gift to read.
ABOUT THE AUTHOR

Ricardo Menjivar a licensed Futures and Forex Broker who started trading over
10 years ago as a retail trader like many of you. He decided to become a licensed
Futures and Forex Broker in 2008 where he collaborated with a team of software
developers to bring out the first Electronic Communications Network platform for
the retail FX traders.
As a broker he had the ability to deal with many software developers, CTA,
Prop Desk Traders and Money Managers that were trading the Forex
Markets. That is where he discovered the protocols that the Market Makers / Banks were
using to report their order flow to the Broker Dealers. You will not find a better individual to
guide you in this maze of digital warfare. Ricardo chose to create PhoenixTradingStrategies.
com in 2014 for the purpose of helping retail traders learn the truth behind the deceit the
banks have created to cheat the retail traders out of their money. He has chosen to share his
knowledge to help individuals like you to learn how to correctly analyze and trade these markets.
Website: www.phoenixtradingstrategies.com
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95
OPTIONS
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How to Add Weekly Options to

Your Trading Arsenal
By Andrew Keene, Founder and CEO, AlphaShark Trading
If you trade stocks, futures or Forex, you should consider adding weekly options to your trading
arsenal. In this chapter you will learn how to trade weekly options using the Ichimoku cloud. We will
also focus on four stocks that have weekly options: Apple, Facebook, Tesla and Twitter. Now is one
of the best times in history to trade weekly options, and here are a few reasons why:
Now is the best time in history to trade options. Markets are tighter and more liquid than ever.
There are over 8,700 stocks and 4,200 stocks with options.
Of the 4,200 stocks with options, 320 stocks are listed with weekly options.
The CBOE lists weekly options on indices, stocks and ETFs.
The CBOE publishes a list of all assets with weekly options.
Gives traders 52 expirations to trade instead of 12.
Weekly index options account for 11% of all index options volume in 2011 and this number is
increasing over time.
Weekly options give you the opportunity to
rake in huge percentage returns in a short
period of time.
The CBOE puts out several reports on
weekly options and this graphic shows you
the huge increase in the volume of weekly
options traded since 2010:
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Why should you trade weekly options? The answer is twofold. First, stocks are boring. They move
1-3 percent on a big move and you have to outlay huge amounts of capital to own stocks. Google
trades at $600 per share. If you wanted to buy 100 shares of Google, you would have to lay out
$60,000 dollars.
Since options are leveraged, you can take returns and magnify them. Small moves in stocks can
lead to huge returns using weekly options. Whether you are a novice or seasoned trader, anyone
can trade weekly options. Green Mountain Coffee weekly options had profits that exploded 1,500
percent, but the stock moved just 6 percent.
It is very difficult to trade stocks, futures or Forex because you are trading against algorithms. High
frequency trading and dark pools dominate these spaces, and they are programmed to win. I
ts like playing chess against a computer, it has been programmed to win, and its not likely that
the average chess play can beat the computer. In weekly options, however, there is a bluffing
mechanism built in.
A trader isnt always buying calls to get long on a stock. Maybe they are buying the calls to go short
on the stock. The added benefit to weekly options is that dark pools do not currently operate in these
markets. Another advantage of trading weekly options is that there are multiple different ways to
trade them depending on your trading style and personality.
Lets take a look at Facebook using a 5-minute chart and the Ichimoku cloud.
The Ichimoku Cloud
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The Ichimoku cloud is a highly valuable technical indicator because it looks at the past, the present
and the future. It is also free and available on a wide variety of trading platforms. If youre not familiar
with the Ichimoku cloud, here are the basics:
The term Ichimoku means at first glance. At first glance, is a stock bearish, bullish or neutral?
Where is a good entry, and where is a good exit? Lets take a look at the components that make up
the Ichimoku cloud:
First, lets look at the tenken-sen (red) line. This line shows the short-term trend and it is calculated
as follows:
Tenken-sen line = the highest high + the lowest low over
the last 9 periods divided by 2.
This formula has a Fibonacci retracement built into its calculation. Its an effective indicator because
it works better than simple moving averages.
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The Kinjun-sen line (green) shows the longer-term trend. The calculations for this line is:
Kinjun-sen line= the highest high + the lowest low over the last 26 periods divided by 2.
So the tenken-sen and kinjun-sen lines show the short-term and longer-term trends in a market at
the present time.
The Senkou Span A is the future short-term trend.

It forms one of the boundaries of the cloud, and heres the formula:
Senkou Span A = tenken-sen line + kinjun-sen divided by 2 plotted 26 periods in the future.
Senkou Span B is the future long-term trend.
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It is calculated as follows:
Senkou Span B = (highest high + lowest low) divided by 2, over the past 52 periods, plotted
26 periods in the future. If a stock is not making a new high or a new low, then this line is going to
be flat.
So we now know the present trend. If you pull up the Ichimoku cloud, you can tell at a glance if the
market is bullish, bearish or neutral. If it is above the cloud, its bullish. If it is below the cloud, its
bearish. If the market is in the cloud, its neutral. Now we know how the cloud is constructed for the
future.
Kumo is the cloud, and it communicates how hard or easy it is to break the trend. Since
everyone trades differently, there will be different approaches to trading in the cloud. Some people
are breakout traders.
In that case, a thinner cloud is preferable, because there are more entries and traps. Thicker clouds
have less entries, less traps and wider stops. A medium size cloud has not too many traps and
communicated that a trend is strong.
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Finally, the Chinkou Span Line is the current closing price, plotted 26 bars back. If you trade a
daily chart, it shows you where the price of that stock was a month ago. The Chinkou line gives you
a historical perspective. How is your relationship with this stock versus the last month? Is it better or
worse?
How to Apply the Ichimoku Cloud in Trading Weekly Options
Now that we know the elements of the cloud lets apply it to this chart of Tesla. The stock rises
above the cloud, breaking through the short-term (tenken-sen) and long-term (kinjun-sen) moving
averages. The cloud also looks bullish moving forward.
As Tesla breaks the cloud to the upside, you want to plot the ATR, or Average True Range, for Tesla.
When the opening bell rings, most institutional traders, mutual funds, hedge funds, etc. have a
plan whether they are to buy Tesla and accumulate shares or sell Tesla to offload shares. It is very
important to know if institutional traders are buying or selling Tesla.
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The ATR measures how much a stock actually moves from high to low during a trading day.
Tesla has an average daily range of about $7.65. In this example, the low of the day for Tesla is
$220.65. If we see the stock breaking to the upside, it is reasonable to expect that Tesla will move
to $228.30.
So here is the trade:
1. Entry to Open and filled: 40 TSLA weekly 227.5 calls for $0.70
2. Targets: $0.95 and up every $0.25
a. Sold 10 TSLA Calls for $0.95
b. Sold 10 TSLA Calls for $1.10
c. Sold 10 TSLA Calls for $1.35
d. Sold 10 TSLA Calls for $1.60
The 227.5 calls were bought because they realistically reflected where the market was going to
move, given the ATR for Tesla and information revealed in the Ichimoku cloud.
All of these targets were hit by the end of the day making this a huge winner. More about the data we
keep on hand to choose this setup will be in the next section.
How to Select a Target on a Trade
TSLA Statistics for YTD at time of this setup

Trading Days
229
Up Days
119
51.97%
Down Days
110
48.03%
Average Range
7.65
It is very important to have the right information to make decisions at your fingertips. If you dont know
the ATR and track record for TSLA over the past year, then you are flying blind. You can manually
record this information if you follow TSLA daily, or you can subscribe to services that publish this
data.
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Conclusion
Trading weekly options can add significant income. If you become familiar with the Ichimoku cloud,
and you have all of the information you need on the stocks you follow that have weekly options, then
you can fine-tune your portfolio to a handful of stocks that are reliable performers.
Weekly options offer a trader more expirations than standard options.

Generally speaking, weekly options tend to trade at a lower price than standard
options.
Weekly options expire on Friday, and they are listed on the previous Thursday.
Weekly options can experience fast, violent moves in delta.
Can be used as a vehicle for trading during the day in stocks like FB, TWTR, AAPL and
TSLA
THE MOVIE
To watch the video of Andrew discussing the materials shared in his chapter, CLICK HERE
Andrew Keene does an excellent job of explaining why weekly options can be a powerful addition
to your trading arsenal. He covers the Ichimoku cloud and it applications for weekly options in
depth.
SPECIAL OFFER
Learn how to trade weekly options using the Ichimoku Cloud. CLICK HERE
ABOUT THE AUTHOR

Prior to founding AlphaShark Trading in 2011, Andrew Keene worked as a
proprietary trader at the Chicago Board Options Exchange.
Keene graduated from Botta Capitals clerk-to-trade program to become
known as one of fastest traders to make a market. As a market maker he
traded options in over 125 stocks, including Apple, General Electric, Goldman Sachs, and Yahoo.
Keene left Botta Capital to co-found KATL Group, where he was the largest, independent on-the-floor
Apple trader in the world.
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Naked Put-Writing: A Strategy for All-Hours

By Lawrence G. McMillan, McMillan Asset Management
The sale of a naked put is often a very attractive strategy that is conservative, can out-perform the
market, can have a high-win rate, and can be analyzed and sometimes constructed in non-market
hours.
In this article, were going to look at some of the background on put writing, show a systematic way to
select which puts are best to write, and finally explain how you can implement them into your trading
arsenal outside normal hours.
The methodologies described herein are ones that I have confidence in, for they have produced
profitable results in actual recommendations and in trading accounts that we manage over time.
However, there may kbe other profitable approaches as well. I am not maintaining that this is the
only way to analyze put writes only that this is one viable way.
Option Selling is Conservative
The basic concept of option writing is a proven investment technique that is generally considered to
be conservative. It can be implemented as covered call writing or, alternatively, naked put writing
which is the equivalent strategy to covered call writing. In either case, one is selling a wasting asset,
and over time the cumulative effect of this selling will add return to a portfolio, as well as reducing the
volatility of a purely equity portfolio.
People sometimes stay away from uncovered put writing because they hear that it is "too risky" or
that it doesn't have a sufficient risk-reward. The truth is that put selling, when secured by cash, is
actually less risky than owning stock outright and can out-perform the broad market and the coveredwriting index over time.
Covered Writes vs. Naked Put Sales
First of all, it should be understood that the two strategies naked put writing and covered call writing
are equivalent.
Two strategies are considered equivalent when their profit graphs have the same shape (Figure
1). In this case, both have fixed, limited upside profit potential above the striking price of the written
option, and both have downside risk below the striking price of the written option.
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FIGURE 1
One very compelling, yet simple argument in favor of naked put writing is this: commission costs are
lower. A covered write entails two commissions (one for the stock, the other for the written call). A
naked put requires only one. Furthermore, if the position attains its maximum profitability as we
would hope that it always does there is another commission to sell the stock when it is called away.
There is no such additional commission for the naked put; it merely expires worthless.
Nowadays, commission costs are small in deeply discounted accounts, but not everyone trades with
deep discount brokers. Moreover, even there, it doesnt hurt to save a few dollars here and there.
So, a naked put sale will have a higher expected return than a covered call write, merely because of
reduced commission costs.
Another factor in utilizing naked puts is that it is easier to take a (partial) profit if one desires. This
would normally happen with the stock well above the striking price and with a few days to a few weeks
remaining before expiration. At that time, the put is (deeply) out of the money and will generally be
trading actively, with a fairly tight market. In a covered call write, however, the call would be deeply
in-the-money.
Such calls have wide markets and virtually no trading volume. Hence, it might be easy to buy back
a written put for a nickel or less, to close down a position and eliminate further risk. But at the same
time, it would be almost impossible to remove the deeply in-the-money covered call write for 5 or 10
cents over parity.
The same thinking applies to establishing the position, which we normally do with the stock well
above the striking price of the written option. In such cases, the call is in-the-money often fairly
deeply while the put is out-of-the-money. Thus the put market is often tighter and more liquid
and might more easily be middled (i.e., traded between the bid and ask). Again, this potentially
improves returns. The above facts regarding naked put writing are generally known to most investors.
However, many are writing in IRA or other retirement accounts, or they just feel more comfortable
owning stock, and so they have been doing traditional covered call writing buying stock and selling
calls against it.
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But it isnt necessary, and it certainly isnt efficient, to do so. A cash-based account (retirement
account or merely a cash account) can write naked puts, as long as one has enough cash in the
account to allow for potential assignment of the written put. Simply stated, one must have cash
equal to the striking price times the number of puts sold (times $100, of course). Technically, the put
premium can be applied against that requirement.
Most brokerage firms do allow cash-based naked put writing, however, some may not. Some firms
may require that you obtain level 2" option approval before doing so, but that is usually a simple
matter of filling out some paperwork. If your brokerage does not allow cash-based putselling, you
can always move the account to one that does, like Interactive Brokers. Once you write a naked put
in a cash account, your broker will set aside the appropriate amount of cash. You cant withdraw
that cash or use it to buy other securities even money market funds.
Most put sellers operate in a margin account, however, using some leverage (if they wish). One of
the advantages of writing naked puts on margin is that the writer can gain a fair amount of leverage
and thus increase returns if he feels comfortable with the risk (as a result, we have long held that
naked put writing on margin makes covered call writing on margin obsolete). That is not the case
with cash-based naked put writing, though. The returns are more in line with traditional covered call
writing.
In summary, put writing is our strategy of choice over covered call writing in most cases whether
cash-based or on margin. Later, when we discuss index put selling, you will see that there are even
greater advantages to put writing on margin.
Put-Selling Can Outperform the Market
The Chicago Board Option Exchange (CBOE) has created certain benchmark indices so that investors
can compare covered call writing ($BXM), naked put selling ($PUT), and the performance of the S&P
500 Index ($SPX). Figure 3 compares these indices, with all three aligned on June 1, 1988.
FIGURE 2
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It is clear from the Figure 2 that naked put writing ($PUT) is the superior performer of these benchmark
indices. For this reason, naked put writing is the preferred option-writing strategy that we employ
in our newsletter services. Since covered call writing is equivalent to naked put selling and since
Figure 2 merely shows dollars of profit, not returns you might think that the covered call writing
graph and the naked put writing graph would be quite similar.
But there is something more to index put writing especially writing puts on the S&P 500 index
($SPX or SPY, or even e-mini S&P futures): out-of-the-money puts are far more expensive than outof-the-money calls.
This is called a volatility skew, and it has been in effect since the Crash of 87. Institutional put
buyers want to own $SPX (and related) puts for portfolio protection, and they dont seem to care if
they constantly pay too much for them. Conversely, other large institutions may be selling covered
calls as protection, thereby depressing the prices of those calls. Some institutions do both buy the
puts and sell the calls (a collar). Thus, the main reason that $PUT outperforms $BXM by so much
in Figure 3 is that the out-of-the-money puts being sold are far more expensive (in terms of implied
volatility) than are any out-of-the-money calls being sold.
We recommend put ratio spreads and weekly option sales in The Daily Strategist newsletter as a
way to take advantage of this. Moreover, we have put together a complete strategy called Volatility
Capture that we use in our managed accounts.
In the Volatility Capture Strategy, we blend all aspects together to produce a reduced volatility strategy
that can make money in all markets (although it will not keep pace on the upside in a roaring bull
market). The primary focus of the strategy is selling $SPX puts, but there are two forms of protection
in place as well. McMillan Analysis Corp. is registered as both a Registered Investment Advisor
(RIA) and as a Commodity Trading Advisor (CTA), so we are able to offer the strategy to both nonretirement and retirement accounts.
Our complete track record and other pertinent details are available by request. For preliminary
information and a summary of our track record, visit our money management web site: http://
www.mcmillanasset.com. For more specific information, email us at the following address: info@
optionstrategist.com, or call us at 800-768-1541.
Positions Can Be Hedged
One of the main arguments against put-selling is that the draw-downs can be large in severe market
downturns. One way to mitigate these draw-downs would be to hedge the entire put-sale portfolio.
For example, one may attempt to offset the market risk that is inherent to option writing by continually
hedging with long positions in dynamic volatility-based call options as we do in our managed accounts.
This is really a topic for another article, but the gist of this protection is to buy out-of-the-money $VIX
one-month calls and roll them over monthly. Buying longer-term $VIX calls does not work, for only
the front-month contracts come anywhere close to simulating movements in $VIX (and in $SPX).
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The Odds Can Be in Your Favor

As evidenced by the $PUT Index, nakedput-writing is a conservative strategy that has the potential
to out-perform the broad market over time. When implemented correctly, the strategy can have high
rates of success and can also be hedged against large stock market-drawdowns. For example, The
Daily Strategist and Option Strategist Newsletters have produced a combined 89.4% and 85.6%
winners in their index and equity naked put-selling/covered-writing trades since the newsletter started
recommending them in May of 2007 and April of 2004 respectively. Investors looking for put-selling
trading ideas and recommendations on a daily or weekly basis may be interested in subscribing to
one of those services.

Trading Outside Normal Hours
Naked put-selling is an especially attractive strategy for do-it-yourself investors who do not have time
in their day to watch the markets since positions do not need to be monitored closely all day. Putwriters can sit easy so long as the underlying stock remains above the strike price of the option sold.
If the stock is above the strike price at expiration, the option simply expires. The option-seller then
realizes the initial credit and no closing action needs to be taken. If the position needs to be exited
early, usually due to the fact that the stock has dropped below the strike price of the short option, the
position can be closed out automatically via a contingent stop loss order.
You cannot trade options outside of standard stock market hours; however, depending on your
brokerage, you may be able to place your opening limit order outside the stock market hours. In this
case, your order would simply be placed in a queue for processing once the market opened. If your
broker doesnt allow you to place an orderk outside market hours, you would only need a couple of
minutes during the day to either call your broker or hop on your trading software to place your trade.
Another big benefit to naked put-selling is that it doesnt take much analysis to find good potential
trading candidates. In fact, as we do for our newsletters, all of the initial analysis can be done at night
with computer scans and a little bit of discretion. The following section will discuss our approach to
finding naked put-sale candidates for our newsletters each night.
Choosing What Put To Sell
For the most part, we choose our put-selling positions for our various publications based on data
that is available on The Strategy Zone, a subscriber area of our web site consisting of various data
scans and lists of potential trades compiled by our computer analysis. One could do the same sort
of analysis yourself, as a subscriber to the Zone.
On top of that, our Option Workbench provides additional analytical capability for that data.
Our computers do a lot of option theoretical analysis each night from computer Greeks to analyzing
which straddles to buy to graphs of put-call ratios. The Zone was started about 10 years ago, when
I decided to make the outputs of our nightly programs available to anyone who was interested in
paying a modest amount of money to view them. These analyses are still the basis for almost all of
our recommendations.
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Expected Return
Expected return is the crux of most of these analyses. For those of you not familiar with the concept,
I will briefly explain it here.
Expected return is a logical way of analyzing diverse strategies, breaking them down to a single
useful number. Expected return encompasses the volatility of the underlying instrument as a major
factor. However, it is only a theoretical number and is not really a projection of how this individual
trade will do. Rather, expected return is the return one could expect to make on a particular trade
over a large number of trials.
For example, consider a fair die (i.e., one that is not loaded). There is an equal, one-sixth chance
that any number will come up on a particular roll of the die. But does that mean if I roll the die six
times, I will get one once, two once, three once, etc.? No, of course not. But if I roll the fair die 6
million times I will likely have rolled very nearly 1 million ones, 1 million twos, etc. We are applying
this same sort of theory to position analysis in the option market.
My Approach
For naked put selling, the first thing I look at is the file of the highest potential returns. These are
determined strictly mathematically, using expected return analysis. This list is going to necessarily
have a lot of dangerous stocks listed as the best covered writes. Typically, these would be biotech
stocks or other event-driven small-cap stocks.
Next, I reduce the size of the list. I have a program that screens out a subset of these, limiting the list
to stocks in the S&P 500 Index only. Individual investors might have other ways of screening the list.
If returns at the top of the list are too good to be true, then one can assume that either 1) there
is a volatile event on the horizon (meaning the lognormal distribution assumption is wrong), or 2)
the volatility assumption used in the expected return analysis is wrong. Throw out any such items.
These would likely have annualized expected returns in excess of 100% an unrealistic number for
a naked put write.
However, weekly put sales might sometimes be in that range. Those would have to be looked at
separately. In general, if the underlying stock is going to report earnings during the week in question,
the put sale should probably be avoided.
At this point, I select all the writes with annualized expected returns higher than 24% (my minimum
return for writing puts on margin), and re-rank them by probability of profit. Once that is done, I select
those with a probability of profit of 90% or higher, and re-rank them by annualized expected return. In
other words, I am still interested in high returns, but I want ones with plenty of downside protection.
This screening process knocks out most of the list, usually as much as 90% of the initial put writing
candidates.
From there the analysis calls for some research, for at this point it is necessary to look at the individual
stocks and options to see if there is something unusual or especially risky taking place. Some stocks
seem to be on the list perennially Sears (SHLD), for example, perennially has expensive options
due to its penchant for drastic moves.
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Another useful piece of information is the Percentile of Implied Volatility. That is listed in the data,
and if it is low (below the 50th percentile), then I will likely not write that particular put. Recall that
expected return needs a volatility estimate and for these naked put writes we use the current
composite implied volatility. However, if there is the possibility that volatility could increase a lot (i.e.,
if the current composite implied volatility is in a fairly low percentile), then there is a danger that actual
stock movements could be much more volatile than we have projected. Hence, that is not a naked
put that I would want to write.
I also look at the absolute price of the option. I realize that is taken into account in the expected
return analysis, but I personally do not like writing naked options selling for only 20 cents or so,
unless its on a very low-priced stock. The expiration date of the option is important to me as well.
I would prefer to write one- or two-month options, because there is less time for something to go
wrong. Occasionally, if there is a special situation that I feel is overblown on the downside, I will look
into writing longer-term options but that is fairly rare.
These further restrictions reduce the number of writing candidates down to a fairly manageable
level. At this point, it is necessary to look at the individual charts of the stocks themselves. Its
not that I am trying to predict the stock price; I really dont care what it does as long as it doesnt
plunge. Consequently, I would not be interested in writing a put on a stock, if that stock is in a steep
downtrend. More likely, the chart can show where any previous declines have bottomed. I would
prefer to see a support level on the chart, at a price higher than the striking price that I am considering
writing. This last criterion knocks out a lot of the remaining candidates.
Some may say that the stock chart is irrelevant, if the statistical and other criteria are met. Thats
probably true, but if I have my choice of one that has chart support above the strike and one that
doesnt, I am going with the one that does every time.
The potential put selling candidates that remain at this point are generally few, and are the best
writing candidates. But I will always check the news regarding any potential write, just to see if
there is something that I should know. By news, I mean earnings dates, any potential FDA hearing
dates, ongoing lawsuits, etc. You can easily get a lot of this information by looking up the company
on Yahoo Finance or other free financial news sites.
The reason that this news check is necessary is that these puts are statistically expensive for some
reason. Id like to know what that reason is, if possible. The previous screens will probably have
weeded out any FDA hearing candidates, for their puts are so dramatically expensive that they would
have alarm-raising, overly high expected returns.
But what about earnings? Studies show that the options on most stocks increase in implied volatility
right before the earnings. In general this increase is modest a 10% rise in implieds, or so. But
sometimes the rise is much more dramatic. Those more dramatic situations often show up on
volatility skew lists and are used as dual calendar spreads in earnings-driven strategies. But as far
as naked put writing goes, if the expected return on the put is extraordinary, then that is a warning
flag. If a position meets all of these criteria, we officially consider it acceptable to establish and may
recommend it in a newsletter.
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I realize that many put sellers (or covered call writers) use a different method: they pick a stock they
like first, and then try to find an option to write. By this fundamental approach, one is probably
writing an option that has a very low expected return a la the calls on almost every dividend stock
in the current market. They compensate for this by writing the call out of the money, so that they will
have some profit if the stock rises and gets called away.
To me, that is completely the wrong way to go about it. If you like the stock, why not buy it and buy
a put, so you have upside profit potential? What is the obsession with writing a covered call? Rather
than that fundamental or gut approach, the use of expected return as a guide to the position
makes this a total return proposition where we are not overly concerned with (upward) stock
movement, but rather more concerned with the combination of option premium, stock volatility, rate
of return, and probability of winning. To me, that is the correct approach.
Selecting Naked Put Writes From OWB
Option workbench makes finding actionable naked put-sale trades that fit all of the criteria in my
aforementioned approach quite easy. Once you are logged into the software, one would first access
the broad scan of potential candidates by hovering over Spread Profiles and clicking on Naked
Puts.
A list of all the naked put writes that have annualized expected returns of greater than 4% will be
shown (that 4% threshold would move higher if T-Bills ever yield anything besides 0%!). Using the
closing data from June 17, 2015, there were 14,449 such put writes! Obviously, one has to cut that
list down to a more workable size.
There are a lot of 32 column headings here, and most are statistical in nature. To me, the two most
important pieces of data are 1) annualized expected return, and 2) downside protection (in terms
of probability not percent of stock price). Both of these are volatility-related, and that is what is
important in choosing put writes. You want to ensure that you are being compensated adequately
for the volatility of the stock.
If you click on A Exp Rtn (which is Annualized Expected Return), the list quickly sorts by that data.
However, in my opinion, it is not a good idea to just sell the put with the highest expected return. The
computer calculations make certain assumptions that might not reflect the real world.
For example, if there is a large possibility that the stock might gap downwards (an upcoming earnings
report, for example), the puts will appear to be overly expensive. Any sort of upcoming news that
might cause the stock to gap will raise the price of the puts. You probably dont want to write such
puts, even though the computer may think they are the best writes to establish.
In order to overcome these frailties, one would use the Filter Editor function of OWB. You can
construct a filter to include or exclude writes that do/dont meet your individual criteria.
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Figure 3
If you click on the button (above the data) that says Profile Filter Editor, a box will appear. Figure
3 shows the box as it appears in my version of OWB. On the left are three filter names: DTOS
Noearnings, DTOS w/ earnings, and TOS No Earnings (mine). In the center of Figure 3, the actual
formulae for the filter TOS No Earnings" are shown.
To apply the formulae, merely click the Apply button (lower right of Figure 3). In this case, the list
of 14,449 potential naked put writes shrinks to 64 candidates!
Here are the formulae that appear in Figure 3:

and(
>= 90%,
InList('S&P 500'),
PutPrice >=0.25,
days > 2, days <= 90,

expdate < nextearnings
aexprtn >= 24%,

)
PrDBE
InList (S&P 500'): include only stocks that are in the $SPX Index. This way, we are not dealing with
extremely small stocks that can easily gap by huge amounts on corporate news.
Days>2, days <= 90: include only writes whose expiration date is between 2 and 89 days hence.
Aexprtn >= 24%: only include writes whose annualized expected return is at least 24%
PrDBE >= 90%: only consider stocks that have less than a 10% chance of being below the downside
breakeven (DBE) point at expiration.
PutPrice >= 0.25: only consider puts that are selling for at least 0.25.
expdate < nextearnings: only consider put sales on stocks that are not going to report earnings
while the put sale is in place. Stocks are far too volatile on earnings announcements, and this will
avoid the main cause of downside gaps: poor earnings.
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These criteria produce a strong list of put writing candidates. There will be no earnings announcements
to cause downside gaps. There is a 90% chance of making money. Over time, writes such as these
should produce returns in line with the expected returns greater than 24%, using this formula.You
can add many other filters (or delete some of these if you wish). It is easy to do within OWB, and I
encourage you to experiment with it.
Once the list has been filtered, there is still work to do. Why are these remaining puts so expensive?
One might have to look at the news for certain stocks to see why. At the current time, health care
stocks have very expensive options: ET, HUM, THC, for example. Not only are these inflated because
of takeover rumors, there is also supposedly some Medicare-related pricing edicts coming soon from
the U.S. Government. Those things could cause downside volatility; however, one may feel there is
enough downside protection to warrant selling the puts. If that were the case, you would have found
your trade!
Placing Your Trade
After you have found your trade the next step would be to determine how many puts to sell. Generally,
for a margin account, most brokerages have a margin requirement of 25% of the strike-price of the
short put you are selling less the premium received for the sale of the put less the out-of-the-money
amount, subject to a 10% minimum. We generally write out-of-the-money puts and set aside enough
margin so that the stock has room to fall to the striking price the level where we generally would be
closing the position out. This conservative approach decreases the risk of a margin call if the stock
moves against your position.
For example, if you sell a naked put with a strike price of 50 for a credit of 1.00, the margin we would
set aside would be $1,150. The formula below illustrates this:
Strike Price (50) x 25% (0.25) x Shares per Option (100) Premium Received (100) = Margin
Requirement ($1,150)
For cash accounts, one would have to set aside 100% of the strike price less the put premium. So,
for the prior example, the cash collateral would be $4,900 (50 x 100 100).
We generally suggest that one puts no more than 5% of their total portfolio value in any particular
put-sale for margin accounts, and 10% for cash accounts. If you had a $100,000 margin account, you
would want to allocate no more than $5,000 to any particular put sale. Using the prior example, you
would then sell 4 naked puts ($5,000 / $1,150 = 4.35). Cash based accounts would sell 2 contracts
(($100,000 x 0.10) / $4,900 = 2.04).
The next step would be determine your stop. Generally, we like to set our stops at the downside
break-even level at expiration. This level can easily be calculated with the following formula:
Strike Price Put Premium = Downside Break-Even Level
However, if you cannot watch your position throughout the day, it may make sense to set your
intraday stop at the strike price. This means that if the stock trades below the strike price you are
short, the position would be automatically closed. That way, there would be no risk of assignment if
the stock were below your strike at expiration.
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Now that you have determined your quantity and stop, the final steps would be to enter your order
(before the open with your brokerages order queue if possible), set your stop (via a contingent stop
order if your brokerage allows) and monitor. Those who cannot generally participate during normal
market hours and whose brokerages dont allow order queuing and contingent stops, would only
need a few minutes to initially place the trade. Furthermore, they would only have to monitor the
trade near the market close each day to see if the stock is below their stop. If it were, one would
simply buy back the put to close the position.
THE MOVIE
Do-It-Yourself with Option Workbench
Those looking to analyze potential naked put-writes themselves, can do so with ease with our Option
WorkBench (OWB) software. This is the overlay service to our Strategy Zone, and it provides the
ability to sort the reports in various ways. More importantly, it allows one to construct his own
analysis formulae. For information on the various features and capabilities of OWB
WATCH THIS VIDEO HERE!
THE SPECIAL OFFER

Find naked put-sale candidates on your own with a free 30-day trial to Option Workbench. Feel free
to use my filter or create one of your own! Scroll to the bottom and select the one month subscription
($135) and enter the Coupon Code FREEOWB at checkout. No credit card is required. Subscription
will not automatically renew upon completion.
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ABOUT THE AUTHOR

Lawrence G. McMillan is the President of McMillan Asset Management and
McMillan Analysis Corporation, which he founded in 1991. He is perhaps most
well-known as the author of Options As a Strategic Investment, the best-selling
work on stock and index options strategies. The book initially published
in 1980 is currently in its fifth edition and is a staple on the desks of many
professional option traders. His career has taken two simultaneous paths one
as a professional trader and money manager, and the other as an educator and
proponent of using option strategies.
In these capacities, he currently authors and publishes "The Option Strategist," a derivative products
newsletter covering options and futures, now in its 24th year of publication. His firm also edits and
publishes three daily newsletters, as well as option letters for Dow Jones. He has spoken on option
strategies at many seminars and colloquia, and also occasionally writes for and is quoted in financial
publications regarding option trading. Mr. McMillan is the recipient of the prestigious Sullivan Award
for 2011, awarded by the Options Industry Council in recognition of his contributions to the Options
Industry.
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TRADING EARNINGS STRADDLES

By Kim Klaiman, Steady Options
For those not familiar with thestraddlestrategy, it is a neutral strategy in options trading that involves
the simultaneous buying of a put and a call on the same underlying, strike and expiration. The trade
has a limited risk (which is the debit paid for the trade) and unlimited profit potential. If you buy
different strikes, the trade is called astrangle.
You execute a straddle trade by simultaneously buying the call and the put. You can leg in by buying
calls and puts separately, but it will expose you to directional risk. For example, if both calls and puts
are worth $5, you can buy a straddle for $10. If you buy the call first, you become bullish - if the stock
moves down, the calls you own will decrease in value, but the puts will be more expensive to buy.
The Options Guide explains straddle:
Long straddle options are unlimited profit, limited risk options trading strategies that are used when
the options trader thinks that the underlying securities will experience significant volatility in the near
term.
Maximum loss for long straddles occurs when the underlying stock price on expiration date is trading
at the strike price of the options bought. At this price, both options expire worthless and the options
trader loses the entire initial debit taken to enter the trade.
INVESTOPEDIA explains straddle:
Straddles are a good strategy to pursue if an investor believes that a stock's price will move
significantly, but is unsure as to which direction. The stock price must move significantly if the
investor is to make a profit. Should only a small movement in price occur in either direction,
the investor will experience a loss. As a result, a straddle is extremely risky to perform.
Additionally, on stocks that are expected to jump, the market tends to price options at a higher
premium, which ultimately reduces the expected payoff should the stock move significantly.
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Example
With AAPL currently trading at $130.28, you could buy AAPL straddle by buying 130 put and 130 call.
This is what the P/L chart would look like:
How straddles make or lose money

A straddle isa vegapositive,gammapositive andthetanegative trade.
That means that all other factors equal, the straddle will lose money every day due to the time
decay, and the loss will accelerate as we get closer to expiration. For the straddle to make money,
one of two things (or both) has to happen:
1. The stock has to move (no matter which direction).
2. The IV (Implied Volatility) has to increase.
A straddle works based on the premise that both call and put options have unlimited profit potential
but limited loss. While one leg of the straddle loses up to its limit, the other leg continues to gain as
long as the underlying stock rises, resulting in an overall profit.
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When the stock moves, one of the options will gain value faster than the other option will lose, so the
overall trade will make money. If this happens, the trade can be close before expiration for profit. In
many cases IV increase can also produce nice gains since both options will increase in value as a
result from increased IV.

When to use a straddle
Straddles are a good strategy to pursue if you believe that a stocks price will move significantly, but
unsure as to which direction. Another case is if you believe that IV of the options will increase - for
example, before a significant event like earnings. IV (Implied Volatility) usually increases sharply a
few days before earnings, and the increase should compensate for the negative theta.
If the stock moves before earnings, the position can be sold for a profit or rolled to new strikes.
This is one of my favorite strategies that we use in our model portfolio for consistent gains.
Many traders like to buy straddles before earnings and hold them through earnings hoping for a big
move. While it can work sometimes, personally I dont like it. The reason is that over time the options
tend to overprice the potential move.
Buying a straddle before earnings
Few years ago, I came across an excellent book by Jeff Augen, The Volatility Edge in Options
Trading. One of the strategies described in the book is called Exploiting Earnings - Associated
Rising Volatility. Here is how it works:
1. Find a stock with a history of big post-earnings moves.
2. Buy a strangle for this stock about 7-14 days before earnings.
3. Sell just before the earnings are announced.
IV (Implied Volatility) usually increases sharply a few days before earnings, and the increase should
compensate for the negative theta. If the stock moves before earnings, the position can be sold for a
profit or rolled to new strikes. Like every strategy, the devil is in details. The following questions need
to be answered:
1. Which stocks should be used? I tend to trade stocks with post-earnings moves of at least
5-7% in the last four earnings cycles.
2. When to buy? IV starts to rise as early as three weeks before earnings for some stocks and
just a few days before earnings for others. Buy too early and negative theta will kill the trade.
Buy too late and you might miss the big portion of the IV increase. I found that 5-7 days
usually works the best.
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3. Which strikes to buy? If you go far OTM (Out of The Money), you get big gains if the stock
moves before earnings. But if the stock doesnt move, closer to the money strikes might be
a better choice.
Under normal conditions, a straddle or a strangle trade requires a big and quick move in the underlying.
If the move doesnt happen, the negative theta will kill the trade. In case of the pre-earnings strangle,
the negative theta is neutralized, at least partially, by increasing IV.
In some cases, the theta is larger than the IV increase and the trade is a loser. However, the losses
in most cases are relatively small. Typical loss is around 7-10%; in some rare cases it might reach
20-25%. But the winners far outpace the losers and the strategy is overall profitable.
Market environment also plays a role in the strategy performance. The strategy performs the best in
a volatile environment when stocks move a lot. If none of the stocks move, most of the trades would
be around breakeven or small winners. Fortunately, over time, stocks do move. In fact, a big chunk
of the gains come from stock movement and not IV increases. The IV increase just helps the trade
not to lose in case the stock doesnt move.
Would you like to rent your options for free?
I would like to explain the "underneath" of this strategy. Let's take a step back. When someone starts
trading options, the first and most simple strategy is just buying calls (if you are bullish) or puts (if you
are bearish). However, when doing that, you must be right three times: on the direction of the move,
the size of the move and the timing. Be wrong just in one of them - and you lose money. You will also
find out very quickly that options are a wasting asset. They lose value every day. If the stock doesn't
move, the option is losing value. If it moves but not fast enough, it is losing value as well. It is called
a negativetheta. You can read more about the options Greekshere.
Another factor having a great impact on options value is IV (Implied Volatility). Rising IV will increase
the option value, falling IV will decrease it. For volatile stocks, IV usually becomes extremely inflated
as the earnings approach and collapses just after the announcement. This is why if you buy calls or
puts before earnings and hold them through the announcement, you might still lose money even if
the stock moves in the right direction.
Having said that, I would like to achieve the following three goals when trading options:
1. Not to bet on the direction of the stock.
2. To minimize the effect of the time decay.
3. To take advantage of the rising IV.
The strategy of buying a strangle (or a straddle) before earnings fits all three parameters. First of all,
since I'm buying both calls and puts, I'm not betting on the direction of the stock.
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Second, I'm holding for a very short period of time, so the impact of the time decay is minimal.
Third, since I'm buying a few days before earnings, the IV in most cases will rise into earnings.
However, I will be selling just before the announcement, so the options will not suffer from the IV
collapse.
Now, few scenarios are possible.
1. The IV increase is not enough to offset the negative theta and the stock doesn't move. In this
case the trade will probably be a small loser. However, since the theta will be at least partially
offset by the rising IV, the loss is likely to be in the 7-10% range. It is very unlikely to lose more
than 10-15% on those trades if held 2-5 days.
2. The IV increase offsets the negative theta and the stock doesn't move. In this case, depending
on the size of the IV increase, the gains are likely to be in the 5-20% range. In some rare
cases, the IV increase will be dramatic enough to produce 30-40% gains. For example, AAPL
strangle could be purchased on Friday before October 2011 earnings and sold the following
Monday for 32% gain.
3. The IV goes up followed by the stock movement. This is where the strategy really shines. It
could bring few very significant winners. For example, when Google moved 7% in the first
few day of July 2011, a strangle produced a 178% gain. In the same cycle, Apple's 3% move
was enough to produce a 102% gain. In August 2011 when VIX jumped from 20 to 45 in a
few days, I had the Disney DIS strangle and few other trades doubled in a matter of two days.
This is why I call those trades "renting a strangle/straddle for free" (or almost free). Even under the
most unfavorable conditions, your loss is usually limited to 7-10%. But if you get a decent IV increase
and/or a stock movement, the gains could be much higher.
Another big advantage of this strategy is the fact that it is not exposed to the gaps in the stock prices
- in fact, it benefits from them. So you cannot suddenly find yourself down 30-50%. You can always
control the losses and limit them.
Selection of strikes and expiration
I would like to start the trade as delta neutral as possible. That usually happens when the stock
trades close to the strike. If the stock starts to move from the strike, I will usually roll the trade to stay
delta neutral. To be clear, rolling is not critical - it just helps us to stay delta neutral. In case you did
not roll and the stock continues moving in the same direction, you can actually have higher gains. But
if the stock reverses, you will be in a better position if you rolled.
I usually select expiration at least two weeks from the earnings, to reduce the negative theta. The
further the expiration, the more conservative the trade is. Going with closer expiration increases both
the risk (negative theta) and the reward (positive gamma).
If you expect the stock to move, going with closer expiration might be a better trade. Higher positive
gamma means higher gains if the stock moves. But if it doesn't, you will need bigger IV spike to offset
the negative theta. In a low IV environment, further expiration tends to produce better results.
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Profit Target and Stop Loss

My typical profit target on straddles is 10-15%. I might increase it in more volatile markets. I usually
don't set a stop loss on a straddle. The reason is that the upcoming earnings will usually set a floor
under the price of the straddle. Typically those trades don't lose more than 5-10%. I believe our
biggest loss on a straddle was around 25%, and only a handful of them have lost more than 20%
since inception.
The biggest risk of those trades is pre-announcement. If a company pre-announces earnings before
the planned date, the IV of the options will collapse and the straddle can be a big loser. However, preannouncement usually means that the results will be not as expected, which in most cases causes
the stock to move. So most of the time, the loss will not be too high, especially if there is still more
than two weeks to expiration. But this is a risk that needs to be considered. As a rule, I will always
close those trades before earnings.
Why I don't hold through earnings
Some people would argue that selling before earnings is premature. Why not tohold through earnings,
hoping for a big move?
The problem is you are not the only one knowing that earnings are coming. Everyone knows that
those stocks move a lot after earnings, and everyone bids those options. Following the laws of supply
and demand, those options become very expensive before earnings. The IV (Implied Volatility) jumps
to the roof. The next day the IV crashes to the normal levels and the options trade much cheaper.
For example, holding straddles on stocks like AMZN or NFLX could be very profitable during some
of the last cycles. However, we have to remember that those stocks experienced much larger moves
than their average move in the last few cycles. Chances are this is not going to happen every cycle.
There is no reliable way to predict those events. The big question is the long term expectancy of the
strategy. It is very important to understand that for the strategy to make money it is not enough for the
stock to move. It has to move more than the markets expect. In some cases, even a 15-20% move
might not be enough to generate a profit.
Some people might argue that if the trade is not profitable the same day, you can continue holding
or selling only the winning side till the stock moves in the right direction. It can work under certain
conditions. For example, if you followed the specific stock in the last few cycles and noticed some
patterns, such as the stock continuously moving in the same direction for a few days after beating the
estimates. Another example is holding the calls when the general market is in uptrend (or downtrend
for the puts). However, it has nothing to do with the original strategy. From the minute you decide
to hold that trade, you are no longer using the original strategy. If the stock didnt move enough
to generate a profit, you must be ready to make a judgment call by selling one side and taking a
directional bet. This might work for some people, but the pure performance of the strategy can be
measured only by looking at a one day change of the strangle or the straddle (buying a day before
earnings, selling the next day).
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The bottom line:

Over time the options tend to overprice the potential move. Those options experience huge volatility
drop the day after the earnings are announced. In most cases, this drop erases most of the gains,
even if the stock had a substantial move.
Jeff Augen, a successful options trader and author of six books,agrees:
There are many examples of extraordinary large earnings-related price spikes that are not reflected
in pre-announcement prices. Unfortunately, there is no reliable method for predicting such an event.
The opposite case is much more common pre-earnings option prices tend to exaggerate the risk
by anticipating the largest possible spike.
It doesnt necessarily mean that the strategy cannot work and produce great results. However, in
most cases, you should be prepared to hold beyond the earnings day, in which case the performance
will be impacted by many other factors, such as your trading skills, general market conditions, etc.
Test Case #1
On July 28, 2014 we purchased EXPE 80 straddle expiring in 18 days. We paid $8.45 for the trade.
The IV of the options was around 59%.
Two days later, the IV of the options jumped to 73% and we sold the straddle at $9.85, for 16.6%
gain. An hour later, IV reached 80%, and the straddle could be sold for 26% gain. The stock itself
moved less than 1%.
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Test Case #2
On June 24, 2014, we purchased MSFT $42 straddle expiring in August. We were able to roll the
straddle twice, and finally closed it on July 17 for 35.4% gain. In this case, most of the gains came
from the stock movement.
CONCLUSION
Buying a straddle or a strangle few days before earnings can be a very profitable strategy if used
properly. Of course, the devil is in the details. There are many moving parts to this strategy:
1. When to enter?
2. Which stocks to use?
3. How to manage the position?
4. When to take profits?
And much more. But overall, this strategy has been working very well for us.
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Here is an example how this strategy performed during the August 2011 crisis:
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Kim Klaiman is a full time options trader. He is a founder of www.
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and non-directional options strategies. Kim has been trading stocks and
options for more than 10 years. He likes to trade variety of non-directional
trades with low correlation to limit the total portfolio risk. Kim wrote over
100 articles forSeeking Alpha. He started the SteadyOptions educational
forum after numerous requests from his Seeking Alpha readers, to share
his experience and trading ideas. Kim holds a BSc degree in Computer
Science. He lives in Toronto, Canada.
SteadyOptions.comis a combination of a high quality education and actionable trade ideas. Our
style is non-directional trading. We aim for steady and consistent gains with a high winning ratio
and limited risk. Our focus is on trading Earnings-Associated Implied Volatility rise, Iron Condors,
Calendar spreads, etc. Our performance is based on real fills, not hypothetical performance. We
provide a full trading plan with complete portfolio approach.
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125

NADEX
126
Getting Started with Nadex Binary Options

By Cam White, TradingPub
If you trade Stocks, Options, Futures or Forex, every decision starts with your opinion about the
direction of the market you are trading. Is the market on an uptrend, downtrend, or is it trading
sideways? Once you have determined the direction of the market, then you must decide which
trading strategy gives you the best edge.
Is it a trend-following strategy, or is it a scalping/fading strategy for a sideways-moving market?
Finally, how do you manage your trade to minimize your risk and maximize your gains? What are the
best entry opportunities? Where do you place your stops and take profit targets?
Trading involves risk, which needs to be carefully managed. If you trade heavily leveraged instruments
like futures or forex, it is possible to lose substantially more than your initial investment. On January
15, 2015 the Swiss Franc flash crash blew through stops and caused many Forex brokers and
traders to incur huge losses. Sudden market moves routinely stop-out trades, which can be a source
of frustration for many.
If you want the certainty of trading in an environment where your maximum risk and reward are
known in advance, then Nadex binary options and Nadex spreads may be the instrument that is best
suited to your trading personality.
What is Nadex?
Nadex is the North American Derivatives Exchange. Based in Chicago, Nadex is a wholly-owned
subsidiary of the IG Group, an international trading company that is headquartered in London and
listed on the FTSE 250 exchange. Here are a few other facts about Nadex:
Nadex is a US federally regulated exchange Nadex is subject to strict oversight and
regulation by the U.S. Commodity Futures Trading Commission (CFTC).
All member funds are held in a segregated bank account with a major banking
institution.
No Broker Needed When you place a trade with Nadex, your order is placed directly on the
exchange and not through a broker.
Full transparency on every trade Nadex does not take positions on any trades, so they
have no vested interest in whether your trade wins or loses. Nadex receives revenues from
charging a small $.90 cent execution fee and a $.90 cent settlement fee per contract traded.
Nadex employees are not allowed to trade Nadex.
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Nadex is now available in 47 countries Nadex was previously only available to legal
residents of the United States, Canada, Mexico and US Territories. As of March 2015, Nadex
is now available in 47 countries.
Australia
China
Finland
Guernsey
Ireland
Jersey
Malaysia
Norway
Slovenia
United Kingdom
Austria
Cyprus
France
Hong Kong
Isle of Man
South Korea
Malta
Poland
South Africa
United States
Belgium
Czech Republic
Germany
Hungary
Israel
Liechtenstein
Mexico
Portugal
Spain
Brazil
Denmark
Gibraltar
Iceland
Italy
Lithuania
Netherlands
Singapore
Sweden
Canada
Estonia
Greece
India
Japan
Luxembourg
New Zealand
Slovakia
Switzerland
What are Nadex Binary Options?

Nadex binary options can best be described as True or False trades. With Nadex, you are making
a trading decision about the likely direction of a major index, commodity, forex pair, etc. relative to a
fixed strike price within a defined time period of your choosing.
Nadex binary options contracts are valued at exactly $100 per contract. That means the absolute
most you can make or lose per contract traded is $100. When you place a trade with Nadex, you
always know your maximum profit and maximum loss before you place your trade.
Nadex is a federally regulated exchange (CFTC) that matches buyers with sellers for every contract
traded. If you buy a Nadex contract on Gold futures at $60 risk per contract, then Nadex matches
you with a seller who is risking $40 per contract, for a sum total of $100. When the trade expires, one
person is right and one person is wrong. The winner receives $100, the loser receives $0.
Nadex makes money by collecting $.90 cent trade execution and settlement fees, per contract
traded. Execution and settlement fees are capped at 10 contracts per trade. That means if you have
a successful trade with 10 contracts trade, your execution and settlement fees would be $9.00 per
side or $18.00 round-trip.
If you traded 20 contracts on the same trade your total exchange fees would also be $18.00. One of
the best features of Nadex is that you are not charged a settlement fee if your trade expires out
of the money for a full loss. You are only charged for the $.90 execution fee, per contract.
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Nadex does not take positions in any of the assets being traded, so you are never trading against the
house. Rather, Nadex facilitates transactions between your opinion on a proposition, and another
trader who takes an opposing opinion on the same proposition.
Placing trades on Nadex can be easily broken down into a few simple steps:
1. Everything starts with your opinion on the direction of a market. Is it on an uptrend, on a
downtrend, or is it trading sideways?
2. Choose the asset you want to trade:
a. Major Stock Indices (S&P 500, NASDAQ, FTSE, DAX, etc.)
b. Commodities (Crude Oil, Gold, Silver, Natural Gas, Soybeans, etc.)
c. Forex Pairs (GBP/USD, EUR/USD, GBP/JPY, USD/CHF, etc.)
d. Bitcoin and News Events
3. Select your contract expiration timeframe, depending on your trading personality:
a. Weekly Expiration (close of Market on Friday)
b. Daily Expiration (close of Market daily)
c. Intraday Hourly Expiration
d. 20-minute Binary Options (US Indices Only)
e. 5-minute Binary Options (Selected Currency Pairs)
4. Select a Nadex Strike Price, and determine if you are going to BUY or SELL.
a. How many contracts do you plan to trade?
b. What is the price you are willing to pay for each contract?
c. Once you have made your decision, place your order directly on the exchange.
5. Once your trade is accepted, you have two options to manage your trade:
a. Let the trade run until expiration and collect your maximum profit or lose your
maximum risk.
b. Or you can choose to exit your trade early and lock in profits or minimize losses.
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How to Place an order with Nadex?
On this order ticket, we are looking at the US 500 Market (S&P 500 Futures)
1. Contract: US 500 (Jun) >2075.0
2. Date: April 7, 2015
3. Expiration of Contract: 4:15pm EST (close of market)
4. Time left until expiration: 55 min., 35 sec.
5. Nadex Indicative Index: Current price of the market is 2076.750
6. Offer/BUY Price: $69 ($69 max risk/$31 max reward)
7. Bid/SELL Price: $63 ($37 max risk/$63 max reward)
8. Size: Number of contracts being traded
9. Price: Price per contract traded
a. The price box is automatically populated with the current bid/offer price for a market
order.
b. You can manually adjust the price to reflect a better risk/reward.
c. When you do this the order will become a working order and will only become an
active order if there is a market for your order.
10. Max Risk: $69 to BUY this contract
11. Max Reward: $31 to BUY this contract
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At a glance, the Order Ticket gives you everything you need to know about this contract. Summing
it all up, heres how you place an order with Nadex:
Make a decision about the probable direction of a market
Select the expiration time you want
Select a Nadex strike price
Are you BUYING or SELLING this proposition?
How many contracts?
At what price?
Lets take a look at an example of a Nadex trade on the Germany 30 (DAX) Index:
In this example using the Germany 30 (DAX) Index, we are looking at a trading period starting at 7am
EST, and expiring at 9am EST.
The market had been on a downtrend going into the 7:00am hour, where a reversal started to occur.
At 7:25am, the market was at 10734. Where would the market be at the 9:00am expiration?
With 1 hours left in the trade, Nadex offered three nearby strike prices to choose from on the strike
price ladder on the right side of the chart:
At the Money Trade (<10734) For this statement to be TRUE the market would have
to expire ABOVE 10734 at the 9:00am expiration. The statement is FALSE if the market
expires at or below 10734. Since the market is currently at 10734, buyers and sellers for
this statement are almost evenly split.
o If you place a BUY order on this proposition, then you will incur a $54.50 maximum
risk, in order to make a $45.50 maximum reward.
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Nadex deducts $54.50 from your account, plus a $.90 cent execution fee.
If the market expires above 10734 at 9:00am, you receive a $100 payout, less a
$.90 settlement fee. If the market expires at or below 10734 at 9:00 am, you receive
a $0 payout.
o If you place a SELL order on this proposition, then you will incur a $52.00 maximum
risk, in order to make a $48.00 maximum reward. Nadex deducts $52.00 from your
account, plus a $.90 cent execution fee.
If the market expires at or below 10734 at 9:00am, you receive a $100 payout, less
a $.90 settlement fee. If the market expires at or below 10734
at 9:00am, you receive a $0 payout.
In the Money Trade (>10714) If you are a BUYER, this strike price is in the money, since
the current market at 10734 is already significantly above that strike price of 10714. Since
the probability of a successful expiration is much greater at this strike price, you are risking
a maximum of $83.50 to make a maximum of $16.50. Nadex deducts $83.50 from your
account, plus a $.90 cent execution fee.
If the market expires above 10714 at 9:00am, you receive a $100 payout, less a $.90
settlement fee. If the market expires at or below 10714 at 9:00am, you receive a $0 payout.
The marketplace of buyers and sellers has determined that theres an 83.5 percent chance
that this trade will expire above 10714.
If you are a SELLER at this strike price, then you are placing an out of the money trade.
Since the probability of a successful expiration is much lower at this strike price, you are
risking a maximum of $23.00 to make a maximum of $77.00. Nadex deducts $23.00 from
your account, plus a $.90 cent execution fee.
If the market expires at or below 10714 at 9:00am, you receive a $100 payout, less a $.90
settlement fee.
If the market expires above 10714 at 9:00am, you receive a $0 payout.
The marketplace of buyers and sellers has determined that theres a 23 percent chance that
this trade will expire at or below 10714.
Out of the Money Trade (>10754) If you are a BUYER, this strike price is out of the
money, since the current market at 10734 is already significantly below that strike price of
10754. Since the probability of a successful expiration is much lower at this strike price, you
are risking a maximum of $25.00 to make a maximum of $75.00. Nadex deducts $25.00
from your account, plus a $.90 cent execution fee.
If the market expires above 10754 at 9:00am, you receive a $100 payout, less a $.90
settlement fee. If the market expires at or below 10754 at 9:00am, you receive a $0 payout.
The marketplace of buyers and sellers has determined that theres a 25 percent chance that
this trade will expire above 10754.
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If you are a SELLER at this strike price, then you are placing an in the money trade. Since
the probability of a successful expiration is much higher at this strike price, you are risking a
maximum of $81.50 to make a maximum of $18.50.
Nadex deducts $81.50 from your account, plus a $.90 cent execution fee. If the market
expires at or below 10754 at 9:00am, you receive a $100 payout, less a $.90 settlement
fee. If the market expires above 10754 at 9:00am, you receive a $0 payout.
The marketplace of buyers and sellers has determined that theres an 81.5 percent chance
that this trade will expire at or below 10754.
Lets take a look and see how this trade played out:
At 9:00am, the market expired at 10761.567

If you placed the At the Money BUY order at >10734, your trade would have expired in
the money for a $100 payout and a full profit of $45.50, less a $.90 cent settlement fee, per
contract traded. If you had placed SELL order at >10734, you would have received $0 at
expiration.
If you placed the In the Money BUY order at >10714, your trade would have expired in the
money for a $100 payout and full profit of $16.50, less a $.90 cent settlement fee, per contract
traded. If you had placed SELL order at >10714, you would have received $0 at expiration.
If you placed the Out of the Money BUY order at >10754, your trade would have expired
out the money and you would have received $0. If you had placed SELL order at >10754,
you would have been in the money, for a $100 payout and a full profit of $18.50, less a $.90
cent settlement fee, per contract traded.
Depending on your technical analysis, and your risk/reward preferences, there are many ways to
133
trade with Nadex binary options.

Advantages to trading with Nadex:
As long as your trade is active, you cannot be stopped-out. The only thing that matters
is where the price of the market will be at expiration. If you hold your contract until expiration,
your payout will be either $100 or $0 per contract.
You always know your maximum risk and maximum reward before you place your
trade. There is no way you can lose more than your original investment in a trade. There are
no margin calls with Nadex.
You are making an Up or Down decision about the market relative to a strike price.
With Nadex, you are not counting pips. If you win by one pip, you win the full profit at expiration.
Conversely, if you lose by one pip you forfeit the amount of money you risked in the trade.
You can trade multiple markets with Nadex:
o Popular Indices
o Commodities
o Forex Pairs
o Bitcoin and News events
If your trade expires out of the money for a loss, you are charged an execution fee, but
you are not charged a settlement fee.
Nadex is a regulated exchange.
o Nadex is headquartered in Chicago, and is regulated by the CFTCAll member funds
are held in a segregated account
o Nadex does not take positions in any of the instruments they offer for trading
You can open a Nadex trading account for as little as $100
o Unlike other trading accounts that can require initial investments of $5,000, $10,000
or $25,000, you can get started trading with Nadex for a fraction of the cost of other
instruments.
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No Broker Required When you place an order with

placed directly on the exchange. Instead of paying broker
charged $.90 cents per contract, per side ($1.80 round trip
maximum commission you will ever pay on one trade is
Nadex, your order is

commissions, you are
fees per contract). The
$18.00 (10+ contracts)
Nadex is now open in 47 countries Nadex was previously available only to legal residents
of the United States, Canada, Mexico and U.S. Territories.
Opening a Free Nadex Demo Account
It doesnt get much simpler to open up a 2-week Nadex Demo account, funded with $25,000 in play
money. Just create a demo name and provide your name, telephone number and email address.
You will have complete access to the entire Nadex Trading Platform for 2 weeks.
Use your favorite trading strategies or the strategies in this book and see if Nadex is right for you.
SIGN UP for a free 2-week Nadex demo account.

If you have already looked at Nadex and want to fund a live account for as little as $100, then you can
go to this link to open a funded account- www.TradingPub.com/Nadex Once you have placed
your first trade, your Nadex demo account will be extended for up to a full year.
135
Free Links to Nadex Resources:

The Probability Report- www.TheProbabilityReport.blogspot.com This monthly blog
newsletter lists a calendar of free weekly educational webinars hosted by Nadex, along with
articles and videos explaining how to trade with Nadex. The Probability Report is free and
produced by TradingPub.
The Inquisitive Trader Blog- www.InquisitiveTrader.blogspot.com
TradingPubs Cam White takes a look at Nadex trading strategies, and routinely breaks down
Nadex trades in his Trade of the Day column.
The rest of this book is dedicated to Nadex trading strategies you can test tomorrow. If you havent
tried Nadex, make sure to load up your FREE DEMO ACCOUNT HERE!
ABOUT THE AUTHOR

Cam White is a Partner Relationship Manager with TradingPub. When he joined
TradingPub in June 2014, his first assignment was to become familiar with
Nadex. He downloaded the demo software and dove into the Nadex platform.
A self-professed crash test dummy, Cam tests directional and non-directional
strategies with Nadex Binary Options and Nadex spreads and publishes results.
Cam also publishes The Probability Report, a monthly newsletter featuring
Nadex webinars, and contributes articles on Nadex to financial media outlets.
136
Using Nadex Spreads as the

Ultimate Hedge Strategy
By Darrell Martin, Apex Investing
If you are a futures or Forex trader, this chapter will show you a strategy to reduce your risk to the
Current strategy you are trading. Stock traders sometimes buy option puts to hedge their risks, but
what about Forex traders or futures traders? The strategy in this chapter will discuss using Nadex as
a hedge against risk for futures and Forex trades.
In this chapter, you will learn the following concepts:
The three important things you must know to begin making money in trading.
How to reduce risk by up to 75% or more while having stop/losses that are up to 400% or
more larger than what you use now to decrease the probability of getting stopped out by a
spike in the market.
How to get stop/losses for pennies on the dollar with the Whipsaw Elimination Strategy.
How to hide your stops from the market with the Ultimate Hedge Strategy.
How to find the right spreads for your trade.
How to know how far the market will move today.
But first, lets take a look at a fairly typical trade setup:
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The chart above is the GBP/USD, but it could be any market. You plot a trend line and see a bearish
trend. You identify a pullback for an entry signal. You exercise caution and set your stop/loss above
the highest candlestick. Your risk is 65 pips or $650 dollars, so you are prudent in setting your stops,
but there is a greater amount of risk capital in play. And then this happens:
This really hurts. The market starts threatening your stop/loss. What do you do? Move your stops,
take the hit? Go long because there is a trend reversal?And the worst part about it is that it is a slow,
agonizing march toward your stop/loss. So you take the hit, and lose $650. And then the market
decides to slap you in the face.
Your initial instincts were right. The market was in a downtrend, but it decided to spike upward and
stop you out before it made its move downward. The net result is that you lost $650 dollars. This
chapter will show you how to prevent this from ever happening in the future. You will learn how to
place the exact same trade, use less money and never get stopped out again. You can combine this
strategy with your current Forex strategy to create a massive stop/loss for a fraction of the cost.
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To make money in trading, you need to master three things:

1. You need to lean to reduce your risk.
2. You need to increase your leverage.
3. You need more time to be right.
In the trading example above, the trade had $650 dollars of money at risk, and as soon as you
made it, the market spiked and took you out. You were right, but you needed more time to be right.
Trading futures, options and Forex can be very expensive. Traders can be required to have upward
of $30,000 on hand to fund accounts and have a considerable amount committed to margins. This is
where Nadex comes in very nicely, as the table below illustrates:
Day trading the EUR/USD (Equalized Size 125,000) and other instruments requires considerable
capital to fund an account, margin requirements are high, and leverage varies. When you look at
the table above, you can easily see a comparison of trading the same instrument across multiple
trading platforms. The significant advantage of Nadex is reduced capital risked, a huge leverage
advantage, and best of all, you cant get stopped out in a trade.
Other benefits of using Nadex as a trading platform are:
You cant lose more than you put up in margin. The amount of cash you risk is your margin.
You still get very good leverage.
You can trade stock indices, popular commodities and Forex pairs.
Price is driven by the underlying market.
Every pip is worth $1.00 per spread bought or sold.
Nadex is an exchange that facilitates transactions between buyers and sellers.
Nadex is regulated by the CFTC, and does not take a position in any market.
Nadex is now available in 49 countries! (Previously USA, Canada & Mexico).
139
Lets talk about some basics to trading Nadex spreads:
A spread is defined by a floor and a ceiling. In this EUR/USD example, the spread is between
1.2400 and 1.2500, which is 100 pips. Each pip is worth $1.00, so the spread is worth $100.
If the price moves above the ceiling or below the floor of the spread, you cant get stopped
out. Nadex spreads are based on a defined time period that you choose, and the trade is
active until expiration of the contract.
Using this example, if you SELL at 1.2490 and the ceiling of the spread is 1.2500, your
maximum risk is 10 pips or $10. Remember, with Nadex, your risk is your margin. If you
placed the same trade on Spot Fx, your margin would be $250.
Since the spread is 100 pips and you are risking 10 pips, your maximum profit is 90 pips if
the trade ends at the floor.
If you BUY the spread at 1.2410, its the exact opposite. Your risk is 10 pips from the floor of
the spread, and your maximum profit is 90 pips above.

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You can close the spread any time you want to before expiration to capture profits or limit
losses. When the contract expires, remember that you are trading an underlying market, and
not physical commodities, for example. Corn will never be delivered to your doorstep if you
trade corn futures on Nadex.
Your profit is the difference between your strike price and the price of the market at the
expiration of the contract, or the price of the contract if you close the spread early. If you
BUY this spread at 1.2410 and it settles at 1.2480, then the difference is 70 pips, and $70 is
deposited in your account, usually within a matter of seconds.
There are a wide variety of spreads and timeframes to choose from in Nadex. Choose the
spread that works the best with your trading plan and risk/reward tolerance.
Duration and Expiration of Nadex Spreads
Nadex offers a wide variety of spreads, both in terms of markets you can trade (indices, commodities,
Forex) and time intervals:
Intraday as little as every 2 hours. Time frames can depend on the markets being
traded. Forex trades are available in the overnight hours when the commodities and
some indices are closed. All times listed on Nadex are Eastern daylight time (EDT).
Some spread times can include:
o 8am-10am EDT
o 9am-11am EDT
o 10am-12pm EDT
o 11am-1pm EDT
o 12pm-2pm EDT
o 1pm-3pm EDT
o 2pm-4pm EDT
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Expiration and Settlement

o Days of expiration
o Time of settlement (All quoted in Eastern time)
o Spread Range/Width: Distance between the floor & ceiling of the spread
o No. of contracts: Number of spreads per expiration, per range. For
example, you could have one in the middle, one high and one low.
Trading Hours: Times when new trades can be entered, and when open trades can be
closed before settlement.
Commissions: Since you are placing an order on an exchange without a broker, there
are no commissions charged. There is an exchange fee of $0.90 cents per $100 contract,
per side. You are not charged a settlement fee if your contract expires out of the money.
If you trade one $100 contract successfully, you are charged a $0.90 to execute a trade and $.09
to settle the successful trade for a total of $1.80 in transaction fees. Transaction fees are capped at
$9.00 per side. If you trade over 10 contracts on a transaction, your transaction fees are capped.
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The chart above shows the overlap of five Nadex spreads. The longer you have until expiration, the
wider the spread:
Daily: The yellow background is the Daily Spread between 1.2700 1.3300 ($600)
8 Hour: The blue spreads are two 8-hour spreads:
o 1.2875 1.3125 ($250)
o 1.2750 1.3250 ($500)
2 Hour: The Orange spreads are two 2-hour periods
o 1.2950 1.3050 ($100)
o 1-2900 1.3100 ($200)
Nadex offers binary options and spreads on the following markets:
The Whipsaw Elimination Strategy is simply using a Nadex spread. As long as a spread is active
within a defined time period you cant get stopped-out.
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The Ultimate Hedge Strategy

Now that we have a basic understanding of Nadex spreads, we will apply Nadex spreads to help you
get stop/losses for pennies on the dollar. You will also learn:
How Nadex spreads work
Nadex spread example
How to find the best spreads
How to know how far the market will move today
Lets go back to our original example
We identified a trend, placed our trade, set a conservative stop/loss, and got stopped
out on a market spike before the market continued downward. We lost $650.
Lets look at the same trade, using an 8 hour Nadex spread:
A Nadex spread was available with a ceiling of 1.5700 and a floor of 1.540 (250 pips). If you sell
10 contracts at 1.5665 then your maximum risk (and margin) is 35 pips or $350. In the previous
example, our risk was $650, and our margin requirement was $3,138.
In the Nadex spread, we didnt get stopped out and took a $750 profit within 8 hours. In the previous
example, we got stopped out immediately on a market spike and lost $650. We satisfied the criteria
for making money discussed earlier in this chapter. We risked less money, we had better leverage,
and we had more time to be right.
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Here is the side-by-side comparison of trading a Forex spot trade vs. making the same trade with
Nadex spreads:
Underlying Spot vs. Nadex Spread Example Results
Underlying - Spot
Risk: $650
Margin: $3138.00
Result: Lost $650
Nadex Spread
Risk: $350
Margin: $350
Result: Profit $760
Heres another way to look at the original trade in this chapter. What would happen if we took our
original Spot Forex trade, went short and hedged it with a Nadex spread instead of a stop/loss?
A Nadex spread is available with a floor of 1.5700 and a ceiling of 1.5950 (250 pips). You buy the
spread at 1.5710, which becomes your margin, and you risk $100 instead of $650. When the market
spiked, you had a 240 pip Nadex insurance policy protecting your trade. The market continues
downward to your profit target. Your gross profit is $960, less your $100 Nadex spread loss for a net
profit of $860.
If you trade Forex or futures, you can trade the way you normally do do, but use Nadex spreads to
minimize your risk.
Using the Apex Investing Institute Website to Help You Find the Right Nadex Trade
If you sign up as a member on the Apex Investing Institute website, you will have free access to a
wealth of information to help you identify the right Nadex spreads and binary options to trade.
They also have tools to help you learn how far the market thinks it will go in any given trading day.
The graphic above is a screenshot of the Apex Nadex Spread Scanner utility which will return
spreads to you based on the money you are comfortable risking, your expected reward and the time
period you are looking for. Apex also offers free chat rooms for their members and several services
which can be purchased at a reasonable price if you need them.
Conclusion
Nadex spreads are an excellent way to trade with less risk, get better leverage, and they buy you
the time to be right. Since you are placing your orders directly on an exchange without a broker, you
dont pay brokerage commissions, just exchange fees. You cant get stopped out during a trade, and
you have the flexibility to exit a trade at any time before contract expiration.
If you trade futures or spot Forex, Nadex spreads allow you to trade the way you normally trade,
but they can buy you stop/loss protection for pennies on the dollar. There are no large margin
requirements with Nadex. Your risk is your margin.
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THE MOVIE
WATCH THE VIDEO OF THIS CHAPTERS PRESENTATION HERE! During the presentation
Darrell Martin does an excellent job of explaining how Nadex spreads work, and how they can be
used as a standalone trading instrument or as a hedge against risk in your current trading strategy.
SPECIAL OFFER
Get hundreds of hours of free Nadex Binary and Spread Education!
ACCOUNT HERE!
CREATE YOUR FREE
ABOUT THE AUTHOR

Darrell Martin coined the phrase diagnostic trading. He defines diagnostic
trading as looking at how fundamental investors, technical investors, statistical
investors, and seasonal investors look at the market and then using that
knowledge to be one step ahead of the markets. His A.P.E.X. pattern and Trend
Catcher system simplifies trading entries, stop losses, and take profits to the
tick/pip/cent and works on the one thing that moves the markets. For more
information visit www.apexinvesting.com.
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Creating Nadex Trading Plans

by Sean Jantz, Binary Trade Group
My trading background before Nadex was trading traditional options on TD Ameritrade software.
The main strategy was selling options where prices were NOT going to go in a specific time period,
usually 30-50 days out. Although it was a simple strategy, I had to wait a month or two to collect the
premium and to pocket the money.
Then, 2 years ago, I discovered Nadex. I was so excited. I could take my knowledge and instead
of trading 30-50 day contracts, I then could trade 1-24 HOUR (not days) contracts. I took my same
methodology of buying and selling options on the chart where prices were NOT going to go in a way
shorter time period and made my profits faster!
I wont lie, when I first started trading Nadex, it was a lot harder than I thought it was going to be.
Binary prices move fast and you have to always be ready for a fast move against and learn to
manage risk. I realized too why so many people were losing money (including myself); because they
weren't trading with a Plan!
I was tired of losses and knew I needed to treat trading Nadex like a business. I turned my trading
account into an LLC Entity account and started taking trading seriously and creating Daily Trading
Plans for myself.
HOW TO CREATE A NIGHTLY TRADE PLAN
The main markets I trade are Futures instruments, such as US 500,
Smallcap 2000, Gold and Crude Oil. There is a bigger advantage to
Futures because you can use volume and order flow in your analysis,
where as some markets such as Forex you cannot.
In a previous career, I worked in the car business. When I bought and
sold cars, one thing I ALWAYS did was I first would determine the fair
value for the car.
Usually I would consult with Kelley Blue Book to find out where the
range was for selling and buying that specific vehicle based on the
marketplace. If youre selling the car, you want to try and sell it at the
top of the range and when buying, you want to try and get the price at the lowest range.
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Let's look at the Kelley Blue Book of the car above. If you're selling this car, you want to try and get
as close to $16,817 as you can. If you're buying, you're trying to get as close to $13,752 as you can. I
would want to try and stay away from the "Fair Purchase Price". What if we could see this information
on a Futures chart?
It's safe to say that 90% of people do this when working a car transaction. You always want to make
sure you're getting a good deal. Even when you buy a house, you almost always look at comps of
other similar houses.
So it finally hit me that in any other buy/sell transaction out there, almost everybody does research
first. I have now taken that same philosophy and I "Kelley Blue Book" every night the price of a
certain Futures market using a free tool called Volume Profile.
Every evening, I "Kelley Blue Book" the price of the instrument I want to the trade the next day. Here's
an example of US 500 (ES. I first begin by defining the price range. I want to find where the "Good
Deals" are to be a buyer and a seller:
Next, I draw a rectangle from the top of the Value to the bottom so I can visually see the price range
for the next trading day:
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There are 6 ways to profit from the Value Area Box that you can learn in my Education Center, and
here is a visual picture of the first two:
1.
2.
So, I have now defined where I want to be as a buyer and a seller.

Early in the morning, the price of US 500 was at a point of a "Good Deal" for buyers.
Mid-afternoon, price then retraces up to a point where sellers were on high alert.
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Here was that days US 500 "Trade Plan" video the night before, starting at the 5:40 minute mark. I
do nightly "Trade Plan" videos just like this to help me and my Binary Trade Group members know
where the best opportunities are each day. Watch this 3/23/15 Trade Plan here www.TradingPub.
com/Nadex6. Begin making Trade Plans for yourself on your favorite instruments that you like to
trade to see how much of a dramatic difference to your success it makes.
UNDERSTANDING INTRADAY MARKET MOVEMENTS
The next element of trading Nadex and Futures that has drastically increased my winning ratio was
understanding how a typical day works in the stock market and when the best times are for reversals,
and what type of risk/reward binary to take during which times of the day.
Here is an easy time-based synopsis of the New York Trading session:
9:30am ET- Strong opening and will see heavy volume in one direction or another.
10:10am-11:00am ET -Many stocks reverse their trends. When stocks open up with strong buying (or
selling), specialists and market makers were forced to take the other side of the longs (or shorts) and
sell short (or long). They have no intention of riding losing positions forever, so they start "dropping
the bid" so they can cover their short (or longs) at a profit.
11:00am-1:00pm ET - "Lunchtime Doldrums". This is when most of the traders in New York go to
lunch and you will see lower volume during this time. Sometimes you will see range bound trading
or a reversal continuation.
1:30pm-1:45pm ET - Most often the market compresses during lunch and volume picks up after, and
the market then starts to make its next move.
2:15pm-3:00pm ET- Volume should be strong and the trend should continue.
3:30pm-4:00pm Going into the close you will see heavy volume and big money getting their
positions in or out. Prices will move fast.
High Probability Nadex Trading Strategy The Caret Trade
My favorite trading strategy from using the time based information is the reversal of the market open
trend and using Lunchtime Doldrums to my advantage. Here is an example of a high probability
trading strategy that I use at least 3 out of 5 days a week called The Caret Trade:
Many traders avoid trading at lunchtime because there is just not much volume in the market.
With Nadex Binary Options, the lunchtime Caret Trade allows you to take advantage of declining
lunchtime volume on the S&P 500 Futures market.
Quite often, after a busy morning session, volume on the S&P 500 has a tendency to start declining,
usually after 10:00am EST. The market, which has been grinding upward, hits resistance, and then
starts forming an upside-down "V" pattern. I call it the "Caret" trade because it resembles the "^"
symbol above the number 6 on your keyboard.
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On this day's lunchtime trade, the "Caret" trade was in play. The market started moving upward after
10:00am as volume declined. At noon, the market hit resistance on the Keltner Channel and the
indicators on the Fisher Transformer were lined up overbought. A reversal Star candle signaled a
potential reversal. Sure enough, it happened:
The market started to reverse with a strong SELL signal on the Fisher transformer. The following
order was placed:
Trade Details:
Contract: US 500 (Mar) >2107.3 (1PM)
Expiration: Mon Feb 23 13:00:00 EST 2015
Direction: SELL
Quantity: 2
Price: 20.00
Two contracts were being sold, with a maximum risk of $160 and a maximum reward of $40 for this
deep in the money trade. The trade settled in the money for full profit of $40 at 1:00pm, less $3.60
in exchange fees.
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Here was the video of me trading this strategy live. The more times you see it and do it, this type
of trade becomes extremely routine and mechanical. Watch this Live Caret Trade here- www.
TradingPub.com/Nadex7
(This type of trade works the opposite way as well, where price will move down at the open and you
will see a "V" pattern develop.)
CONCLUSION
1. Create "Trading Plans" for your favorite instruments. Never go into a trading day unprepared.
2. Trade in areas of the charts where big buyers and sellers are. You can easily find out with my
"Kelley Blue Booking" the price of that instrument every evening.
3. Understand how the New York Stock Exchange works and when the big money is trading and
not trading and then utilize specific risk/reward strategies based off of the hour of the day.
4. Trade with a group of like-minded Nadex traders and gain support, confidence and knowledge
with Binary Trade Group.
THE SPECIAL OFFER

Binary Trade Group is all about traders helping traders. Trading alongside others and learning from
profitable NADEX traders dramatically speeds up the learning curve. BTG aims to keep NADEX
simple but effective. Take a FREE sneak peak at BTG! Request to be added to Binary Trade Group's
Education Center, simply go here- www.binarytradegroup.com
THE MOVIE
Watch Sean Jantz's Presentation From Trading Pub's Trade-A-Thon- How To Profit by Knowing
Where Prices Are NOT Going to Go Using the NADEX Platform. Sean Jantz talks about Nadex, and
covers how to exploit value areas in the charts to make high probability trades based on areas where
the market is not likely to move. WATCH IT HERE!
ABOUT THE AUTHOR

Sean Jantz, the Founder of Binary Trade Group, is a fairly new, successful trader
who saw the need for more simplification in the marketplace for ordinary people
trying to bust through into the markets. Sean's journey to profitability was filled
with courses, books and videos that sounded great, but nothing seemed to make
sense, or he just didn't understand how to apply the teachings. Now, he has a
knack for simplifying charts and terminology by using layman terms and using
real world analogies so newer traders can keep up. He likes to say, "If you can't
explain it to a 3rd grader, then you can't explain it."
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How to Find High Probability Trades

Using NADEX Binary Options
Mark Hodge, Rockwell Trading LLC
When you trade Nadex binary options the first step is to determine the direction of the underlying
market for the option you want to trade. In order to enter binary option trades with the right risk/reward
ratio, it is important to not only know the direction of the market, but also the historical probability that
a market will close higher or lower.
In this chapter, we will discuss a strategy that can give you an edge for trading Nadex dailies on U.S.
Indices and popular commodities. You will learn how to determine the direction of the market using 3
indicators, and how to use this information to select the best binary options to trade.
The PowerX Method
The PowerX Method is a strategy that has been used for years to trade stocks and options. We
recently discovered that it is also a perfect method for finding high probability binary option trades.
When you trade binary options using this method, you identify buy or sell signals, and use daily
charts to identify the potential for the market to close higher or lower the next day.
But first, there is some essential terminology you must know in order to use this method:
Trend Day When all three PowerX Indicators confirm a trend. These indicators are customized
Stochastic, Relative Strength (RSI) and MACD indicators.
Triggered This means the price traded above a Trend Day's previous days high for an
uptrend, or below the Trend Day's previous days low for a downtrend.
Depending on your charting software, it may be possible to customize and color code the bars on
your daily charts. Using the rules for the three PowerX indicators, you may be able to customize your
charts to make decision making easier:
Green Bar: All three indicators a bullish
Red Bar: All three indicators are bearish
Black Bar: There is a divergence between the indicators
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To better understand the concepts of Trend Days and Triggers lets look at the chart above. The last
five bars show a nice downtrend in the E-Mini S&P 500 market. This trend is easy to identify because
the bars are colored red based on our PowerX Method rules. When MACD, RSI, and Stochastics are
bearish, we have a Trend Day (red bar).
If the market trades below the low of a Trend Day during the next trading session, we have a Triggered
downtrend. Triggered trends are powerful because there is a higher probability that the trend will
continue and the market will close lower in a downtrend, or higher in an uptrend. These scenarios
create perfect conditions for high probability binary trades.
Taking things a step further we can take all Triggered uptrend and downtrend days for the year and
determine the probability that the trend will continue (close lower in a downtrend or higher in an
uptrend).
Here are the yearly probabilities for the core markets we trade (as of December 2015):
E-Mini S&P = 68% probability trend continues
E-Mini DOW = 70% probability trend continues
E-Mini NASDAQ = 72% probability trend continues
Crude Oil = 79% probability trend continues
Gold = 90% probability trend continues
Silver = 90% probability trend continues
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How to Trade Binary Options using the Power Crossover Method

Once you are familiar with the essential terminology and the PowerX indicators, you can make
better decisions when trading trading binary options. We can then use PowerX Triggered days and
probabilities to determine:
The market with the best probability.
The direction of the market, based on PowerX Method rules.
The right expiration (dailies).
The best strike price.
o BUY below the previous days close for a triggered uptrend
o SELL above the previous days close for a triggered downtrend
The best entry price (BUY/SELL $5 better than the probability).
o Example: If you are buying a US 500 contract with a PowerX uptrend and 70% probability
the market will close higher, buy a daily for $60 or less.
Amount Risked: $60 (max)
What Happens if a Trade is Working Against You?
Using this method will help put probabilities in your favor, but sometimes the markets dont cooperate.
With Nadex you can always exit your trade early and buy/sell your contract at current market prices.
This might preserve some profits or minimize losses. But keep in mind that the probabilities are based
on end of day data. So theres nothing wrong with keeping it simple and hold trades to expiration.
A Case Study for Using this Strategy
On November 17, 2014, we started a very unique experiment. The goal of the experiment is simple:
"Can We Make 10% Per Month with Trading - SAFELY and CONSISTENTLY?"
10% per month is quite aggressive. After all, this would yield to 120% per year! And as if this goal
is not challenging enough, we added some more "restrictions" to this experiment - making it almost
impossible to succeed!
So did we succeed? And if so, how did we do it? Before I show you the results, let me talk a little bit
more about the "restrictions" for this experiment
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The trading strategy should be easy to understand and easy to use. Even somebody who
has NEVER traded before should be able to understand and execute the trading strategy in
less than 60 minutes.
The trading strategy should work equally well on a $2,000 and a $200,000 account. It's
important to us that ANYBODY could trade this strategy.
You should be able to trade the strategy without buying any charting software, indicators, etc.
It should be possible to trade this strategy with a simple browser, no matter whether you
are on a PC, Mac, tablet or even your phone!
It should be possible to trade the strategy even if you have a full-time job. Therefore it should
take less than 5 minutes per day to place the trades and also manage the positions.
Pretty challenging, isn't it? - But we did it! And thus far the results have been impressive!
After spending months testing and trading the strategy on a live account, we narrowed it down to the
BEST 6 markets to trade. And on November 17th we started to trade THESE markets on a live
account. Below is the performance based on a $2,000 account (Keep in mind that you could trade
this strategy with $2,000 or $200,000 it doesn't matter.)
Here Are the Results (Updated Daily)
The Strategy
Heres the strategy we used for our experiment. We tried different strategies for stocks, options,
futures and even forex markets. But the market that produced the best results was binary options.
We have been running a sophisticated algorithm on 5 years of datafor 6 different markets, and
based on this algorithm we know the probability of a market closing above or below a certain price.
The table below is an example of the trades we want to place, including the probabilities of the trade.
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We update these values every night, and the next morning you just have to wait untila market goes
above or below the "trigger price, and then you place an order.In order to place an order, simply log
into your trading account using a simple web browser, and that's it.
In this example, a trade in Crude Oil was triggered, and you will receive a text message from us:
Now you just need to log into your account and place the order as specified. It's that easy!
The beauty of this strategy is that we know the probabilities of success based on historical data
collected over the past 5 years. As you can see from above, all of the probabilities listed are above
75 percent!
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In the REAL LIFE statistics above you can see exactly what OUR winning percentage is. And we're
updating the statistic daily, so that you can follow our experiment. Keep in mind that we are just
trading a small $2,000 account, so if you have more money in your account, you would just trade
more contracts! Simple and straightforward.
So let's review the criteria for this strategy (and then I'll show youhow YOU can join us in this
experiment, if you want to):

The trading strategy should be easy to understand and easy to use. Even somebody
who has NEVER traded before should be able to understand and execute the trading
strategy in less than 60 minutes. I just briefly explained it to you in a few minutes,
so I'm sure you'll fully understand it after 60 minutes.
The trading strategy should work on a $2,000 account as well as on a $200,000 account.
(you simply trade more contracts!)
You should be able to trade the strategy without buying any charting software, indicators, etc.
It should be possible to trade this strategy with a simple browser, no matter whetheryou
are on a PC, Mac, tablet or even your phone! All you need is the table with the probabilities
and exact entry signals and you can start trading the strategy right away! When trading binary
options you only need a browser All you need is the table with the probabilities and exact entry
signals and you can start trading the strategy right away! When trading binary options you only
need a browser.
It should be possible to trade the strategy even if you have a full-time job. Therefore it shouldn't
take longer than 5 minutesper day to place the trades and manage the positions. You have
seen how easy and fast it is to place the orders. And once the order is in the market, there's
nothing elseyou need to do. Just wait until the end of the day to see if you are right or wrong. If
you are right, the money will be automatically deposited into your account! Easy enough, isn't it?
I have been trading for more than 25 years.I don't know about any other way that makes it so easy
to identify and place the trades, especially not with the accuracy that we're achieving!
I wish Binary Options existed when I started trading! Im sure

I would have achieved my trading goals MUCH QUICKER!
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CONCLUSION
The PowerX Method puts probabilities in your favor, and makes it easier to identify trending markets.
The rules are simple and straightforward as long as you have an understanding of the key concepts,
and your charts are set up to help you make the right decision.
Since binary options boil down to a simple up or down decision relative to a strike price and a
defined expiration, this strategy can be quite effective.
THE MOVIE
In this 45-minute video, Mark Hodge will walk you through the basics of trading NADEX binary
options, along with the step-by-step approach toward using the Power Crossover Method to trade
NADEX binary options. CLICK HERE to view the video.
SPECIAL OFFER
So let me show you how YOU can take advantage of a fantastic trading opportunity to trade Binary
Options just like I do.I have decided to make our table with the probabilities available for a limited
amount of traders. As you know, "stock picking services" and other newsletters charge $200 and
more per month!
But the reason I started this experiment and created this strategy in the first place is because we
wanted a solution for EVERYBODY who wants to trade - regardless of experience or account
size - and I want YOU to have access to this, too.
We are planning to increase the price of this service to $197 per month, but when
you join us TODAY, you can join for only $47 per month.
And of course you can cancel anytime, if you dont want to continue for ANY reason.

Just click on the SIGN UP NOW button below to join.
You will then receive an email with a username and a password that allows you to access
the members area in which you will see the table with detailed trading instructions.
We will update the table the night before the next trading day, and we will send you an
email as soon as it is updated, so that you don't miss any trades.
You will also have access to our training videos, in which we explain EXACTLY how to
trade this strategy.
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SPECIAL BONUS
If you decide to join us TODAY, we will upgrade you to our TEXT ALERT SERVICE free of charge!
Whenever a trade occurs, we are sending you a text message. So you don't have to sit in front of
your computer all day.
You can simply go about your day as usual, and whenever you receive a text message, you log into
your account using a browser - or even your phone - and place the trade. It's that easy!As you can
see from the LIVE results above, THIS works!
You are no longer GUESSING, you now trade with the odds in your favor.Imagine using this
simple strategy to finally achieve your trading goals!Instead of spending more time and money
on complicated courses, DVDs, indicators, software packages, you now have a simple strategy...

...that's easy to execute,
can be traded on a small account,
can be traded from ANYWHERE (as long as you have access to a browser),
and produces RESULTS!

Even if you just want to follow it on a demo account first, sign up now and
Let's get you started today!
CLICK HERE to get Instant Signals and 5-Year Probabilities
for just $47 per month!
ABOUT THE AUTHOR

Mark is the Head Trading Coach at Rockwell Trading. He is co-developer of many of
Rockwell Tradings educational resources. With an extensive knowledge of technical
analysis and money management, Mark has been featured by SFO Magazine,
Technical Analysis of Stocks & Commodities, AllExperts.com, INO, FXstreet,
Traders Library and other leading publications and websites in the trading industry.
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FUTURES
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How to Use Market Profile to Trade Futures

By Greg Weitzman, TheTradingZone.com
If you actively day trade the futures markets, specifically the ES, NQ, TF, CL, 6E and other popular
futures markets, then this chapter is for you. You will learn about using the TradingZone method
with Market Profile. This chapter will also focus on bridging the mechanics of trading with the human
elements of trading. Most traders get into the technical side of trading without taking into consideration
that trading is an emotional business.
Trading isnt for everyone, and every trader develops a trading style that best fits their personality.
Some traders are more attuned to day trading short time frames. Others swing trade and let a
position ride for a few days. Still others have long time horizons. The beauty of trading the markets
is that there are strategies tailored for each type of trading personality.
But first, you need to ask yourself How much money am I prepared to lose? What are you prepared
to invest in your trading business, and how much are you prepared to lose if things go terribly wrong?
Once you have taken personal responsibility for what you invest and what youre prepared to lose,
then you can identify what trading style is best suited to your personality.
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The TradingZone System is built on three primary pillars:

Market Profile A tool used to assess the broad market. Its like a big-picture roadmap. If you
are driving from New York to Chicago, you need to know you are heading west. Where does
the market want to go, and which direction is it going?
Patterns and Inflection Points There are some places on the charts that are better
opportunities than others. Something has happened in the recent past thats a better place
to take a trade, or something has happened in the recent past where its less advantageous
to take a trade. Market Profile gives us the direction of the markets. Patterns and Inflection
Points give us the best spot on the charts to make a trade.
Price Action Order Flow The final step is to take a look at Price Action Order Flow. Once
we have determined the direction of the market and where on the charts we need to trade,
and we want to go long, are other traders moving in that direction as well?
The fourth pillar is Money Management. The reason why this pillar is separated from the others is
that the first three pillars are determined solely by the market. Money management is determined by
the trader, and it goes back to the human element of understanding what type of trader you are, how
much you are prepared to lose and how you manage your money.
200 traders in the same trading room, using the same tools and methodology, will have 200 different
P&L statements. We are all unique in our trading personalities.
A Key Tool for Developing a Positive Traders Psychology
In order to trade successfully, you need to learn how to trade consistently. One of the first things
you can do is to set a reachable, reasonable daily goal. Lets say it is $50.Once you reach that
goal, stop trading for the day. Once you have become accustomed to reaching a daily goal
and stopping, thereby protecting your earnings, it becomes easier and easier to do. As your
account balance increases, you can gradually increase your daily goal as you move forward.
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Market Profile The First Pillar

Market Profile is the most powerful and the most fun indicator to learn. It was originally developed in
the 1900s by J. Peter Steidlmayer, a floor trader on the Chicago Board of Trade, who subsequently
licensed the program to the Chicago Board of Trade. Market Profile has been taught by numerous
educators, and some have over-complicated it. In the TradingZone System, Market Profile is essential,
but it is also greatly simplified.
Market Profile organizes one single days trading data into a simple distribution curve. On the right,
you have the prices that traded throughout the day. The letter blocks are plotted every time a specific
price was traded. The letter blocks move from left to right as time moves forward. During the course
of the day, as all the letter blocks are being plotted on the chart, it builds a distribution curve until one
of those rows stands out the furthest.
This row of letter blocks is called the Point of Control (POC). It is the price level traded more
frequently than all of the other price levels. To put it another way, it is the price where most buyers
and sellers met to exchange product. It is the center of gravity, or the equilibrium point of the market.
It is the most accepted price on the market.
Once the POC has been determined, the Market Profile calculates one standard deviation on either
side of the POC, creating the Upper Value Area and the Lower Value Area. All of the data between
the UVA and LVA comprises 68.3 percent of all of the data for the day.
If you flipped this data on its side, it would look like the bell curves taught in statistics class. What this
information tells us is that the relevant prices, or the most accepted prices, happened within these
2 boundaries. The irrelevant prices, which were the prices with less acceptance and less volume,
occurred outside the boundaries.
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When you superimpose Market Profile on the daily charts, heres what it looks like:
The chart becomes more visually appealing, and easier to understand. You can clearly see the
uptrend with the brackets between the UVA and LVA stacking on top of each other. Its much better,
but it can be simplified even further.
This becomes even more visually appealing to traders. The Market Profile indicator is now
superimposed on a candlestick chart regardless of the time frame you are using. If you have a
visually appealing chart with patterns that are easily recognized, then the probability that you will
hesitate to make a trade is diminished.
On this chart, the green shaded area is the same as the Market Profile on the smaller chart above.
You can easily see how the Point of Control drives the market. Above the green shaded area you
can see yesterdays Point of Control, Upper Value Area and Lower Value Area, so you can compare
todays price to yesterdays value. Yesterdays charts established the value of the market. Has it
become cheaper or more expensive? This chart lets you know whether you are trading above value,
below value or inside value.
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We can use these charts and value levels as a basis for making trades, or as guides to market
structure and direction.Market Profile gives you the information instantly to identify if a market is
range-bound, or whether it is trending.
This is a market that is building value. When you try to draw trend lines on traditional charts, it can
become difficult trying to plot a clean trend line due to periodic spikes. When you see how the value
brackets line up, its much easier to draw a trend line that is more objective and quantifiable.
In contrast, this is a market that is losing value. The value brackets are being set up one below the
other. There is one period where the market is actually bullish, but it is a reactionary movement away
from the greater downtrend.
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In this chart the brackets are in line with each other, making this chart value neutral. Its range-bound,
so you can look to sell off the upper range and buy off the lower range. So how do you identify a good
entry opportunity?
This is a market that is neutral. It is contained within the upper and lower boundaries, providing an
opportunity to buy off the low range and sell off the high range.
Heres an example of a market that had a number of opportunities. This is more consistent with an
active market. You tend to get 3-5 opportunities in a day. Support was tested twice and the market
bounced back off the Upper Value Area.
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This is Market Profile superimposed on a 2-minute chart. You still get the information you need for
setups on a shorter intraday time-frame.
This is an example of the 80 percent rule. It was a term coined by the makers of Market Profile
because it works 80 percent of the time. When a price breaks out of the bracket, it will move to the
other side of the bracket when it re-enters the bracket 80 percent of the time. It will travel from one
extremity to the other.
With Market Profile in place as your primary indicator, you will notice that the market will almost
always make a big move if it bounces off a value area, whether its the Upper Value Area or the Lower
Value Area.
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Conclusion
Market Profile and the TradingZone System give you the tools you need to make objective and
quantifiable decisions about determining the direction and structure of the markets.
Market Profile also works on all markets whether you trade the eminis, stocks, commodities, ags or
forex. Key benefits include:
Market Profile is Different from other Indicators. It determines if the market is long, short,
trend or range-bound
It is Easy to Learn. Your chart isnt cluttered with useless information
Works in Any Market. Forex, Futures, Indices, etc.
Clearly Identifies Optimal Trading Price Levels. It makes entries objective and accurate.
Provides Entries as well as Exits. Keeps you in the trade for big moves
Objective, Accurate and Precise Rules-Based Trading. This is critical because without it
you are just trading on information and not a methodology
THE VIDEO
WATCH THE VIDEO OF GREG SHARING MORE ABOUT THE MATERIAL PRESENTED IN HIS
CHAPTER He does an excellent job of explaining how the Market Profile and TheTradingZone
System work.
There are also numerous other examples of how to spot market direction, entry and exit points.
THE SPECIAL OFFER

Get this trading system cheat sheet complimentary eBook. SIMPLY CLICK HERE
ABOUT THE AUTHOR

Greg Weitzman founded the trading education firm TheTradingZone.com in 2003.
TheTradingZone teaches both new and experienced traders how to day trade the e-mini
stock index futures, based on his own methodology of combining technical indicators,
rice levels.Market Profile (market profile is a trademark of the CBOT), and Tape reading.
170
6 Essential Ingredients for Winning
at Stock Index Trading
By Mohan Wolfe, Day Traders Action
After trading the futures markets for 25 years, there are a few things that are certain. Trading futures
is a high risk business, and like all trading it will require your full application of skill in the areas of
research, practice and live in the trenches trading to gain experience and realizesuccess.
The rewards can be tremendous if you apply yourself fully to learning the key ingredients described
in this chapter. The Trading Strategy, I will be describing in this chapter, is for the US stock index and
primarily uses the mini Nasdaq (NQ) contract.
I find this to be the best day trading contract for the US stock indexes. This strategy can also be used
on the Mini S&P 500, Mini Dow or Mini Russell 2000 as well, with great results.
The 6 essential ingredients to successful futures day trading are:
1) A tested and proven method for day trading on a short term time frame basis.
2) The High 5 or what is sometimes referred to as the tape or the big board. These indices are
used for reading the surface bias of the market.
3) The Higher Time Frames of the market. To get a "helicopter view of the market bias above the
High 5 readings.
4) Simple Candlestick reading. I use very simple candlestick reading methods to get instant
additional information as to the direction of the prices.
5) Basic Elliot Wave chart patterns. These patterns occur regularly in day trading and you should
learn them following the simple approach I use.
6) Fibonacci Retrace map. The Fibonacci readings are very accurate if used correctly and they
should be part of your day trading arsenal.
These are the 6 key ingredients for successful day trading.
This is really all you need to know to be successful, but you will need to gain skill in learning how
to work with these elements and incorporate them into your trading. This mastery comes from time
in front of your screen and practice, just like a surgeon masters all the surgical tools in front of him
during an operation or airline traffic controllers are completely adept at reading all the gauges in front
of them.
171
You, too should master the simple methods for the 6 key ingredients for successful day trading.They
are not that hard to learn and I will summarize them in this article.
First, here is a 450 tick Boomerang Day Trader chart of the mini Nasdaq (NQ) which shows both
a winning Sell short trade and a winning Buy trade using Boomerangs bias indicators and chart
readings.
Note the Sell Trade Channel moving down (marked by down arrow) and a pullback to the Signal Line
Entry marked by the yellow dot and subsequent lower move in prices. Also, the Buy Trade Channel
moving up and the pullback to the Signal line marked by the Blue dot.
Because of this lower move and then upside reaction, the High 5 readings were most likely more
Neutral. The Higher time frames were also leaning more on the Neutral side, which you can also
learn more about on the webinar provided below.
You can see how on the way down during the sell off the Red Boomerang candles which were
all solid bodied. The bearish candlesticks are solid bodied. Note, how after the reversal and the
Buy signal from Boomerang, the majority of the Green candles were hollow bodied. Hollow bodied
candles are the bullish candles. For simple candlestick reading I only focus on 2 things. I focus on
the hollow bodied candles on an up move and if some of the candles are starting to show solid bodies
as a possible sign of a reversal. The opposite is true for a down move.
I watch for solid bodied candles moving lower with some intermittent hollow bodied candles showing
possible signs of the move to the downside completing. The only other element I watch for in looking
for a completion of the move is for a candle to become engulfed by the body of the next candle.
The Higher time frames bias reading is a matter of watching the shift first in the 5 minute chart from
Bullish to Neutral to Bearish and the follow up with the 13 minute chart following the same pattern.
You can use an MACD indicator to watch for these shifts and other indicators, such as our BDT bias
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indicators. Then, when we see the 30 minute chart bias join the one sided bias reading to neutral
and then bearish, it is important to trade on that side of the market until the downside gets more
exhausted.
If the 60 minute then rolls over to bearish during this time expect a larger scale move.When the 135
minute chart rolls to bearish intraday, joining the other already bearish time frames, then we will most
likely see a very strong move to the downside.When the market makes a stronger, one sided move
in line with the shift in the higher time frames that is when we can begin to start measuring the Elliot
Waves 1-5 pattern.
On the chart below you can see the Elliot Wave patterns which are based on a Wave 1 directional
thrust, a Wave 2 pullback, a Wave 3 continuation thrust and a 4th wave pullback. The general rule
is that if Wave 2 is simple then Wave 4 will be complex. If Wave 2 is complex then Wave 4 will be
simple. Then following Wave 4 we have the Wave 5 move, which is often a very strong extended
move which finishes off the directional pattern.
Below is a chart of a common Elliot Wave 1-5 move intraday and subsequent upside reversal after
the 5thwave lowest move. Note how the patterns all correlate with the description I gave above. Note
also how the Boomerang bias indicators #1 and #2 measure the Elliot Wave patterns.
Elliot Wave theory can be kept simple by using it intraday like I show you here. The E Wave 1-5
pattern is easier to spot intraday.
It is when you get into multi day or even multi week E Wave patterns that a deeper study of the theory
is required.Here is a good place to learn more about theElliot Wave 1-5 pattern- www.TradingPub.
com/Chart3. I follow as one of the key ingredients for successful day trading.
The last Key Ingredient you will want to learn for professional day trading is how to use what I call a
Fibonacci Retracement map. Fibonacci was a brilliant mathematician from long ago who discovered
specific numerical sequences present in nature itself and with many valuable uses. It was Fibonacci
who introduced the Hindu/Arabic numeral system to the west.When we count 1-2-3-4 etc. we can
thank Fibonacci for that.
173
I use the Fib retracement map after the market has made a strong intraday move and I want to map
out the potential retrace levels using the highly accurate Fibonacci readings.However, please note
that the Fibonacci map is only for purposes of measuring where to exit a clear Boomerang trade or
for support/resistance using the map as a guide.
The Key numbers used with Fibonacci are: Zero23.6%38.2%.50%61.8%100%.You can
see on the chart below how after a strong, early rally as measured from the top of the rally prices
pulled back and bounced off of the Key Fibonacci numbers, as shown by the 50% center dot/dashed
white line and the key 38.2% light blue line and 61.8% dark blue line. This can be a very valuable
road map when you are live trading intraday.
How to trade with the Elliot Wave patterns

In this section of the chapter I will show you two excellent examples of how to trade using the Elliot
Wave patterns using a plain chart.
I have added to this plain 450 tick chart on the mini Nasdaq (NQ) a 14 period Bollinger Band and a
10 period simple moving average which is the blue dashed line.
On the charts I have identified the specific Waves 1-2-3-4-5 along with the completion A-B-C pattern
after the 5th Wave move. The rule to watch for on the Wave 2 and Wave 4 patterns is as follows:
If Wave 2 is relatively simple then Wave 4 will be complex (and therefore require a bit more patience
in shifting to Wave 5)
If Wave 2 is more of a complex wave then Wave 4 will be simple with Wave 5 coming into play much
quicker.
The above rule, when learning to intraday trade with Elliot Wave, is incredibly valuable, so be sure to
make a note on your trading desk about this. The Elliot Wave patterns occur over and over in intraday
trading of active markets. The patterns will not always complete the full extension of the move, but if
you have carefully read the higher time frame charts and they are all one sided then odds are very
strong the pattern will come to full fruition.
174
I highly recommend that you go over 20-50 charts with the same time frame and indicators I showed
above and get really skilled at identifying these patterns. You will be surprised to see how frequently
they occur intraday, giving you the advantage of trading off of them.Once you recognize the E Wave
pattern in relation to the Higher Time Frame charts described earlier, you will have an incredible
advantage in seeing where the market is most likely to go.
Sometimes the pattern will not complete itself and a Wave 4 (or even sometimes an early Wave 3)
will fail and prices will shift gears.This can be identified when the Bollinger Band level on the Wave 2
or Wave 4 cannot hold the retrace pullback. So always be sure to work a tight stop on the BB pullback
retracement moves.
Here is a classic Elliot Wave intraday pattern on the downside with details describing the move:
Note how on the Wave 2 and Wave 4 reflex reversal moves prices ran right to the Bollinger Band,
while the Blue dashed MA line stayed relatively flat on the move. Below is another classic E Wave
up pattern:
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This particular chart is interesting in that it shows the full E Wave pattern completing along with the
A-B-C pattern right into the close of the session.Still, because the pattern is so powerful in this case,
citing a reversal that prices drifted lower into the final futures close and then lower into the Globex
session. Notice throughout these charts also the Candlestick Engulfing patterns signaling the end
and start of a new reversal move.
After 25 years of trading I have seen these 6 Essential Ingredients prove to be the most valuable
elements of day trading. If you just focus on getting a really tested proven short term time frame
system of day trading and then combine that with the other 5 key ingredients, it will be all you need
to learn.It is not that difficult to learn these ingredients and it will save you many years of going to
endless webinars trying to figure out what are the most important things to follow.
If I can be of any assistance in your trading just email me anytime and I will gladly answer any
questions you may [email protected]
SPECIAL OFFER
You can find out more about Mohans trading methods and Boomerang Day Trader by visiting his
site - www.BoomerangTrader.com
ABOUT THE AUTHOR

Mohan is a 25 year trading veteran and trading coach for over 14 years in the
industry. He is also the developer of Boomerang Day Trader, which is one of
the top selling day trading software on NinjaTrader. Boomerang is also the
first day trading software to offer a 90% guaranteed winning trade signals,
creating an historical precedent in the industry.
176
TRADING ON THE SIDE OF STRENGTH

By Pete Davies, Jigsaw Trading
The Game
Its natural to approach the markets with a them vs. me mentality; to see the market as one thing
and yourself as another. The reality is that a me vs. me scenario is closer to the truth; the markets
are better viewed as a collection of people just like yourself, all trying to squeeze money out of the
markets. In effect, the markets consist of a mass of participants all trying to guess what the mass of
participants will do next.
This could give you a headache just thinking about it.
Of course, not all market activity is speculative. Or rather, not every trade is taken with a view to
making a profit on that specific trade in that specific market. A trade might be an airline taking a
hedge on fuel prices. Other than a massive correction, they wont care what happens to prices
in the short term and they wont react to short term price fluctuations. An arbitrage trade, such as
a calendar spread or a NOB spread, also is non-directional for the individual sides the spread is
placed. As long as the spread is widening/narrowing as expected, it doesnt matter to them if prices
are moving up or down.
Some trading is purely speculative. But how much? Well, that depends on the market and it depends
on whats going on that day. There is certainly a lot more speculation in the US Index Futures than
the US Corn Futures. In markets like the e-Mini S&P 500, the vast majority of trading is speculative.
Its hard to get actual numbers, but my personal estimate is that a minimum of 80-90% of the trading
on the eMini S&P 500 Futures contract is intraday speculation.Each market will differ in this respect
and individual days will differ, too. On a day where a government announces its going in a new
direction for example with Quantitative Easing, the amount of longer term speculation will increase.
The intraday speculators will be taking a ride with the longer term traders O.R. getting run over by
them because they werent informed enough to realize what was going on.
The Market
Some traders like myself play specific markets. Other traders play specific situations (such as stock
earnings reports) across multiple markets.Most retail traders lean toward outright trading where you
buy to sell higher later or sell to buy lower later. Situational trading, such as trading stock earnings
reports is a popular way to trade. For me, I feel there is too much work to be done in the researching
for opportunities before the open.
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I also feel at a disadvantage to people that trade stocks daily that might appear on my radar just a
couple of times per year. I find that I spend so much time looking for opportunities; Im often there
when the opportunity has passed. Other people thrive in this environment. Specializing in a small
number of markets is my preference. The decision on which specific markets to trade then comes
down to a number of factors:
Is the Market "fair"? Wed be a bit nave to think that all participants in a market play it straight but
we need to ensure the playing field is as level as possible so that we stand as good a chance as any
other speculator. Forex markets are the most fragmented, with exchanges on every street corner.
Any individual brokerage can quote any price they like, although arbitrage keeps them in line. Stock
markets are fragmented to a lesser degree and some exchanges are intentionally hidden (Dark
Pools), but overall theres more transparency than Forex.
Futures markets are traded on a centralized exchange, with all participants able to see the same
liquidity and trading activity. This is the most transparent of the markets. Is it rich in information?
Price information is available for all markets. In addition to price changes, many traders assess
changes in volume and liquidity to pre-empt changes in market state. Volume and liquidity information
is not available for the Forex markets. For stocks it is available (at a cost) with the exception of dark
pool activity. With Futures, all players can see all of the liquidity, volume and trades. Can I Trade
sufficient Size? The volatility in the market and the liquidity are key here. If a market only moves 5
ticks a day but you can trade 10,000 contracts, then maybe a tick is all you need. You cannot expect
to trap the entire market range each day, so look for a smaller portion of the range and the amount
of size you can trade.
You need room to be able to trade now and to scale up. For Forex there is theoretically no limit to the
size you can trade. With stocks its down to the individual stock and similarly for Futures, you have
to be careful about which one you pick. For my style of trading, Futures markets have a clear edge
in terms of centralization and visibility. The eMini S&P 500 is very liquid and you can scale up. Most
of the trading there is speculative and short term. As a short term trader, I understand my opponents
and I can clearly see what they are doing. Armed with that, I am confident that in this market (and
other Futures markets) I can gauge strength and weakness and look for areas where speculators
may be caught offside.
The Strategy
Short term speculators all have their own ideas about where to get in and where to get out. Its like a
shopping mall full of shoppers; all buying in different places. If you mapped out where each shopper
in a shopping mall was at any point in time.How would you predict where they would all be in 15
minutes time? Itd be impossible unless you set off the fire alarms! Then itd be fairly predictable.
The markets are the same, people in and out, a directionless herd until there is a trigger that causes
a directional move that speculators jump on. Often the trigger is a group of traders being stopped out,
but the follow through is the herd seeing clear directional movement.
Not only do you then have direction from the herd of new traders perpetuating the move, you also have
the stopped out traders now thinking twice about trading in the opposite direction.The perpetuation of
a directional move is much easier to predict than the end of a directional move, yet new traders are
obsessed with buying the top and the bottom of a move.
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Buying the low of the day and selling the high of the day. This obsession is what blows peoples
accounts. The trouble is that in some cases, the market is in a range. Then the trade IS to fade the
extremes. When the market is in a trend, the trade is to trade with the trend.
So you employ the complete opposite strategy for the 2 basic states of the market.
So we start our strategy with 2 simple rules.
1 Fade Ranges
2 Take continuation trades of intraday trends
The Tools
In this article, we will focus on using Swing Charts to define areas to trade. In my trading, I put heavy
emphasis on using Order Flow to refine the entry. For most people Order Flow acts as icing on your
trading cake. For now, lets just focus on getting the cake implementing a profitable trading setup
that can be refined later with a little Order Flow icing.
Image 1 Swing Chart
Most trading platforms have a swing indicator. The above is a 900 tick chart of the eMini S&P 500
March 2015 contract. The image is from February 15th 2015 (this is the chart at the time of me writing
this article). The action to the left of the vertical black line is Friday the 13th's trading.
The swings in this case are colored red and blue. We can also see the number of ticks moved in a
swing and the total volume in that move.
Red A downswing with more volume than the prior upswing OR an upswing with less volume than
the prior downswing.
Blue An upswing with more volume than the prior downswing OR a downswing with less volume than
the prior upswing.
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As long as the volume is greater on the moves up, the swings will be blue. Vice versa for reds. And
thats all we will use. We are not interested in any indicators, in fact, we are not interested in the
individual price bars at all. Lets consider those individual bars the points at which our shoppers are
all buying in different places. We are just interested in the turning points, the points at which the fire
alarms went off. As mentioned earlier, I tend to stick to few markets. That means I get to know them
well. So I can tell you that the number of contracts in that first blue swing, 103 thousand contracts,
well, its a lot for that market.
Its a lot relative to the other moves on that day and its a lot relative to moves on any other day, too.
This means a lot of people are jumping on that move. Many of them will be short term speculators.
That means you do NOT want to jump in front of that move and short it. We moved up 25 ticks on
103 thousand contracts volume. With any move, people have to actually close the position in order
to exit. On the way down we had selling. Anyone that is short needs to BUY in order to take profits.
So as we move down, we are gathering future buyers.
When we see a big surge like this we can conclude that late shorts got stopped out. We can also
conclude some shorts took profits and took part in the buying. Theres probably some that shorted
and didnt sell yet and are regretting it. So there are people who shorted and lost and others that
shorted and took profits. Will they now short again after this move up? Most likely not in the short
term.
New long positions at this point are pretty happy. So if we look at the balance of future trading in the
short term, its imbalanced to the buy side. After the initial push up from the lows, we moved back
9 ticks on just 17 thousand contracts. Thats actually less volume per tick on the way down. That
might make you think that this is actually weak because of the relatively small number of contracts
for each tick down. Whats also interesting is that the pullbacks are of equal size. Both pullbacks
are 9 ticks. Bear this in mind because it happens a lot, as we move down well have uniform swing
sizes and then as we move up, we get the same size swings. We cannot expect the pullbacks to be
EXACTLY the same size. In fact, the more volatile the market is, the more variation we can expect
in the swing sizes.
Image 2 Upswings 12th February, 2015.
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In this image, we can see there are 4 ticks variance between the smallest and largest pullbacks on
the way up. Compare that to variation to the upside. This is fairly normal. So for trends, we need to
recognize them and we also need to be able to recognize choppier, more range-bound markets.
Image 3 Rangebound start 12th February, 2015
We can see the open of the market on the left. We give ourselves and our competitors in the market
a mental reset each day and in this case, thats at 9:30AM EST. At the open, we first give some time
to allow the market to show its hand.
We started off with some weak moves to the downside and then we had a move up with volume that
was decent. 63 thousand contracts and 27 ticks. Definitely a move you could jump on to the long
side. The next push up also had good volume but we only gained a few ticks. We didnt really make
any headway. Thats OK but then the next move down was larger than your average pullback and
had decent volume. This is indecision.
Right from the open its not clear who is in control or which side the volume is on. Buyers did appear
to take control with that 63k push up but there was no follow through. It wasnt until we got that push
up on the right side (167k, 31 contracts) that one side came in with overwhelming volume. Image 2
shows what occurred afterwards. Some ranges are easier to spot than others.
Image 4 27th January, 2015 Rangebound behavior at the open

In this example, we see a very indecisive market, right from the open. Swinging this way and that way
with no real clarity regarding which side the volume O.R. swing size is on. In this example, its also
fairly clear where you could fade the trading range. It is also clear how attempting to trade pullbacks
in the market would be destructive to your account.
In the end, we had a breakdown. As a range develops, we build positions on both sides long and
short. Eventually, the range breaks and one side loses out. So we get an extended push away from
the range on good volume. But we also have one side of the market happy and one side licking their
wounds. This is important in the short term because it has a psychological impact on the behalf of
both the winners and losers.
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The Rules
Putting this together requires you to know your market. Thats simple enough in itself because you
can go back over historical charts, look at the swing sizes and what sort of volume tended to make
your specific market move.
Market Mode
Your first task is to define which mode the market is in. Is the market in a range or is it trending? Is
it a range with lower volume moves and no clear advantage on either side? Caution must be taken
when with trend moves dont push price forward a significant amount.
Range Plays
Once you have established that the market is in a range, look to use the volume profile for the day to
determine where the most volume sits within the range.
Image 5 High Volume in an early trading range on 12th February, 2015 (Jigsaw DOM)
The volume profile (total trades at each price) is in the far left column. As you can see we have
volume tapering towards the outside of the range, the high volume area is where the bulk of the
positions are (the yellow box).
In this case, the range on the chart will be 2071.75-2076. Your chances of getting filled on a short
trade at 2076 are extremely low. Look to enter at the extremes of that high volume area.
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Strategies
1- If the range forms AFTER an intraday trend, there is a good chance price will continue that
trend. So if the market moves down and consolidates, you can sell the top of the range and
scale off some of the position at the bottom of the range and hold the rest for a breakdown.
2- Fade both extremes of the range. This is one of the main bread and butter trades for scalpers.
Its moving in and out of the market fairly quickly.
Ranges do not last forever, so its essential to exit these range trades quickly if it appears the range is
failing. Order Flow will help to keep you onside with ranges but I would advise also using Order Flow
to pre-empt the range failing against you. It is imperative that you exit the market before the other
range traders get stopped out. If you dont, you get caught on the wrong side of a stop run and that
can put you in catch up mode for the rest of the day.
Intraday Trend Plays
Many traders want to buy the low of the day and sell the high of the day. Good luck if you can do that.
If the market is range bound, then of course it is the correct strategy. Intraday trends continue much
more often than they reverse. Many traders will see a market trend up and then start looking for a
shorting opportunity, then as soon as it starts trending down they start looking for a long opportunity;
always getting stuck on the wrong side of the market.
At Jigsaw, we call these people permafaders. To avoid being a permafader, set a bias and stick with
it until you get evidence the market has shifted in the opposite direction.
Setting Your Bias
When the market opens, look for a strong swing with good volume. If you dont get it, wait for it or for
a range to develop. If a range develops, look for the breakout with good volume to initiate the trend.
Once an intraday trend is established, the next trend will usually establish itself with a countertrend
swing with overwhelming volume and a relatively large swing size in the opposite direction. Once
you have one of these, presume a new trend until proven otherwise. Dont worry if the market didnt
pullback yet or if it pulled back 20 times, stay with that trend until you get the volume/size in the
opposite direction.
Trend Plays
Once you have your bias, you look for a weak move in the opposite direction, a pullback. It will be
low in volume and relatively small. From an Order Flow perspective, there will be little interest, low
participation. Often an iceberg order will stop the pullback and often the counter-trend traders will
simply disappear.
All markets are different but the eMini S&P 500 will often put in 3-5 tradable intraday trends. The
second trend will often have the same size pullbacks as the first trend. So you may see the first
intraday trend put in 11-14 tick pullbacks and see the same thing as it moves in the opposite direction.
That is not magic, just a measure of volatility.
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Strategies
1- If the average pullback was 10 ticks, look to fade that pullback before the 10 ticks. If the
market puts in a 10 tick pullback, it may only trade 100 or so contracts at the 10th tick and you
may be right about the location but you will not get filled on a limit order entry. So enter a tick
or 2 ahead of it.
2- Wait for some with trend interest. So instead of entering ahead of the estimated
pullback, wait for some with trend traders to move the market your way a few ticks.
This gives you additional confirmation that the pullback is over but you do have to be quick,
it may start to move quickly with trend when the permafaders realize they are going to get
stopped out.
I utilize order flow to tell me when a pullback has ended. This is worth looking into and will yield extra
ticks but is not absolutely essential from the start.
Get the overall method right first. Then refine it with order flow. In terms of exiting a losing trade,
as soon as you see evidence of decent volume coming in or the pullback has put in an abnormal
number of ticks move, its time to get out.
Its actually in this area where the Order Flow will help the most because you will SEE the traders
coming in to push against the trend. You can often get out before the price has been adversely
impacted by that Order Flow.
Conclusion
Using swing charts will put you on the right side of the market and give you a heads up as the
market shifts from trending to consolidating. This is a discretionary trading method, but the number of
components you are using to make the trading decision is small. There is no analysis paralysis here.
You are trading based on market participation and your knowledge of how speculative traders
operate; after all, YOU are a speculative trader.
These methods can also be added to your existing trading techniques, implementing what we have
taught about swing sizes and participation in turns, you can use these techniques to help keep you
onside within your existing trading framework.
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THE MOVIE
As mentioned, this doesnt have to be the only tool in your trading toolbox. If youd like to see how I
analyze the market personally using Swing Charts in real time,
TAKE A LOOK AT THE FULL VIDEO SHARED HERE!
In the video, you will see me describing the action as it unfolds looking at the swing charts, correlated
markets and the market Order Flow.
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ABOUT THE AUTHOR

Peter Davies entered the world of trading in the mid 2000s. After becoming
disillusioned with the results attained by fund managers and financial advisors on his own portfolio, Peter figured that even losing money himself would
be better than paying someone to lose it for him.
Peters initial intent was to focus on investing and, in fact, he still manages his
own long term portfolio. Somewhere along the journey he developed a passion
for day trading. Peter feels most comfortable trading the here and now and
feels that he has a better feel for what will happen in the next six minutes than
the next six months.
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If I Had to Choose Only One

Indicator to Trade With
By Mark W. Helweg, Value Charts
A Trading Challenge
I had a lot of fun with this assignment, so kudos to TradingPub for organizing this eBook! This
exercise forced me to really think about the function of every indicator I use. Now, as I dive into this
fun exercise, I am making the assumption that I am still allowed to use traditional price charts along
with the one indicator I select.
I personally consider price charts to be an indicator themselves. Many traders choose only to trade
with price charts and nothing else. Unlike these traders, I am absolutely convinced that I can glean
much more information about a market by displaying my indicators compared to only reading a price
chart. It therefore goes without saying that I am a fan of using indicators to compliment price charts,
like the one displayed below of Apple.
OHLC Chart of Apple (Monthly) using Tradestation

Also, lets not forget that there are many types of price charts. There are OHLC (Open High Low
Close) bar charts, Candlestick Charts, Point & Figure Charts, Kagi Charts, Tick Charts, Range Bar
Charts, and Renko Charts, to say a few. With respect to the rules of this assignment, I will utilize both
OHLC bar charts along with candlestick charts.
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My Background
I was a mechanical engineering major in college. As an engineer, I had to use every advantage I
could within the context of the rules established by my professors to pass certain classes. This was
good practice for my trading career, which also demands that I utilize every edge I can when trading
the markets. In my senior level Controls class, engineering students were given the ability to write as
many formulas on a single cheat sheet paper that we could (front and back).
My cheat sheet looked very similar to the one below. It felt like I was writing in size 2 font as I labored
to fill my sheet with as many formulas as possible. In some ways, this assignment is similar to my
cheat sheet exercise in college. When limited to the tools (or formulas) you can use, you must
choose wisely.
Example Engineering Cheat Sheet (Source: Google Images)
Needless to say, if I failed to include a key formula on my cheat sheet,
I would have been in real trouble. I actually had a fellow engineering
classmate show up to the test not knowing that he could have a cheat sheet
as a reference to help him take the test. What a catastrophic oversight!
When the realization hit him that he had no chance of passing the test
without this vital encyclopedia of formulas, his head hit his desk as he
resigned to failure. Indeed, he had no chance of passing the test without
this critical reference tool. Similar to my engineering classes, it is critical
that traders use every edge or advantage they can (within legal limits) to
trade profitably in the markets.
This eBook is challenging me to find that one indicator that would give me the greatest ability to
achieve profitability in the markets. It is therefore critical that this one indicator I select communicate
as much useful information about what a market as possible.
My experiences from the challenges associated with my engineering background will certainly help
me with this indicator exercise. Now, I am admittedly a huge indicator nerd. I have spent the better
part of the past several decades developing trading indicators and quantitative financial models for
my personal trading and for hedge funds.
After twenty-five years of developing and collecting market indicators, it is safe to say that I have a
large indicator library to choose from. However, trading involves more than just possessing indicators.
We must understand how indicators fit into a plan to trade the markets profitably.
How I Approach Trading
I know we live in a world where many investment advisors try to make trading or investing in the
markets seem mysterious or sophisticated. Many do this so that you will come to believe that you
need their services. Now, admittedly, trading or investing can be challenging and trading or investing
can be sophisticated. But in generally, trading does not have to be complicated.
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I prefer to approach trading in a very simply way by compartmentalizing the way I approach trading
into three areas. These primary areas are as follows:
1. Forecast
2. Setup
3. Signals
Forecasting relates to longer-term market analysis, involving either technical chart analysis or
fundamental analysis.
Setups relate to identifying certain conditions or chart patterns that suggest that there is a high
probability of a market either going up or down in the immediate future.
Signals involve the strategy that a trader employs to determine where to enter a market, where to exit
a market given a profitable trade, and where to exit a market given a losing trade (risk management).
By combining effective forecasting with the ability to identify statistically attractive trade setups, a
trader can dramatically increase the odds for success. Furthermore, traders tend to have the most
difficulty with identifying where to enter trades and where to exit trades. The worst thing to do in
trading is exactly what most traders do, which is let emotions get involved in making trading decisions.
I am a huge advocate of using rule-based logic to manage trading signals and stop loss placement
levels. By using rule-based logic, traders can remove toxic emotions from their trading and let proven
indicators or trading systems guide where to enter and exit markets. I have learned both through
personal experience and through empirical research that successful trading involves removing the
influence of emotions on making trading decisions.
Emotions such as Greed tend to drive traders to enter markers at overvalued price levels where risk
is elevated and where profit potential is reduced. Emotions such as fear tend to cause trader to want
to get out of long positions when markets are oversold and are likely to bounce back. Greed and fear
have no place in successful trading.
Now that you understand how I approach trading, you will better understand my approach to identifying
the best trading indicator to trade the markets.
The Role of My Indicator
My assignment in this eBook is to select only one trading indicator to trade with. I am to assume that
I am stranded on a desert island with only one trading indicator. Therefore my first task will be to
understand and clarify the role of this one special indicator.
In the previous section, I outlined my approach to trading, which involves Forecasts, Setups, and
Signals. The first thing that I must do is determine which of these areas I want my indicator to help
me with. Do I want to select an indicator to help me forecast long-term market direction? Do I want
my indicator to help me identify high probability trade setups? Or, do I want my indicator to help me
identify trading signals; where to enter and exit trades?
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The first thing I must do is to establish what I can reasonably expect my charts to do for my trading.
My indicator needs to compliment my price chart. As it turns out, many of the strategies that I employ
for forecasting prices utilize long-term chart patterns. This means that I can use my price charts in
this area.
Crude Oil Monthly Wedge Pattern using Tradestation

A recent example of forecasting long-term price moves unfolded in the Crude Oil market. For those
of you who have followed my Crude Oil analysis, you know that I have been talking about the fact
that Crude Oil has been in a massive pennant pattern on monthly charts (reference the Crude Oil
chart on previous page).
I have discussed how Crude Oil is likely to experience a massive move in the breakout direction once
a breakout from the pennant pattern is confirmed. Just recently, Crude Oil broke out of the bottom of
this massive pennant pattern, which I then predicted would cause Crude Oil to most likely trade down
to $50 per barrel. Crude Oil did end up braking hard to the downside and did achieve its downside
target of $50 per barrel.
Because I can effectively use price charts to help with market forecasts, I do not need to select my
indicator to fill this role in my trading. I now have to determine if I want my one indicator to fill a role
in finding quality trade setups or for identifying trading signals where to enter and where to exit
markets. This is where things get a little trickier.
The Three Components of Price Analysis: Cost

Before I continue, it is important that we understand what type of information we want to derive from
an indicator. When we think about price analysis for any market, we can organize our price analysis
into three components.
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They are as follows:

Three Components of Price Analysis
The first component of price analysis relates to Cost (or Price). Because
we tend to use price and cost interchangeably, I will use the term price
to represent cost. I am doing this because the investment world refers
to cost charts as price charts.
Although price charts are essentially plotting the cost history for a
security or financial instrument, cost charts would actually be a more
accurate descriptor of these charts. However, in the spirit of keeping
industry terms consistent with how most of us use them, I will use price
charts to represent cost charts.
Price charts are the most widely used market analysis tool in the investment world. They are
powerful tools because they communicate a tremendous amount of information about a market in a
condensed picture format.
The saying still holds true that a picture is worth a thousand words. Price charts show us where
markets have been historically and where they are trading now. Price charts communicate shortterm and long-term market trends, historical trading ranges, and support and resistance levels, to
name a few functions.
Because I am operating under the assumption that I will have access to price charts along with
my one indicator, I have the costs component of my market analysis covered. It is important to
understand that price charts, or cost charts, are not designed to communicate information about
value or momentum.
The value and momentum components of price require indicators designed to communicate
information about value and momentum for a particular market. Traditional price charts were never
designed to do this by themselves nor are they capable of doing this effectively.
The Three Components of Price Analysis: Value

Many traders are not accustomed to thinking about Value as part of price chart analysis when
evaluating markets. This is unusual given that value plays such an important when making significant
purchased outside of the markets.
The differences between non-centralized markets and centralized markets are the primary culprit in
causing confusion with many traders in this area.
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Google Chart with ValueCharts Price Window using Tradestation

Most traders would never purchase a used automobile (free market example) without checking
an industry value reference like Kelley Blue Book or Edmonds. Yet, when it comes to trading the
markets, traders have historically been completely lost when it comes to value.
This is primarily due to the fact that there has historically been no Blue Book for the markets that
allow traders to check for a value reference. However, this has changed. Now, with the development
of ValueCharts (www.ValueCharts.com), traders can see if a market is overvalued, undervalued, or
trading at fair value.
Learning to read a ValueCharts Price Window is fairly simple. Similar to most indicators, ValueCharts
Price Windows share the same time axis as traditional charts (see below). Traditional price charts
communicate information about Cost and ValueCharts Price Windows communicate information
about Value.
Price Chart over a ValueCharts Price Window
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ValueCharts are easy to use. Note that there are a total of five colored valuation zones in a
ValueCharts Price Window.
The green valuation zone represents fair value, the two yellow valuations zones represent moderately
overvalued (top yellow zone) and moderately undervalued (bottom yellow zone), and the two red
valuation zones represent significantly overvalued (top red zone) and significantly undervalued
(bottom red zone). The five valuation zones are labeled in the following ValueCharts Price Window.
ValueCharts Price Window with Valuation Zones
It is important to note that some ValueCharts Price Widows display the valuation zone colors as bar
segments instead of color bands like the chart above.
This variation is related to the trading platform graphics capabilities and limitations. However,
regardless of this settle difference, the ValueCharts Price Window functions the same across all
platforms.
The Three Components of Price Analysis: Momentum
Momentum indicators have been around for many years. Momentum is thought of as the velocity of
price for a particular market. There is no need to go into too much detail as most traders are familiar
with momentum indicators. The Google chart below displays my favorite momentum indicator, MQ
Momentum (developed by www.ValueCharts.com). Because most momentum indicators tend to be
similar, I will not spend a lot of time discussing momentum. It is important to note that momentum is a
very important component of market analysis. Therefore I always like to have a momentum indicator
on my charting screen. However, given the limitation of only being able to select one indicator, I will
not select a stand-alone momentum indicator for this exercise.
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Google Daily with MQ Momentum using Tradestation.
Choosing My One Indicator (ValueCharts)

It goes without saying that the one indicator I choose can either give me an edge over other traders
or put me at a disadvantage against the market. Therefore I must choose wisely in order to give
myself the greatest edge I can.
I am left with selecting an indicator to either help me find quality setups or to identify entry and exit
signals in the markets. Now, I will be the first to say that I always trade with more than one indicator
because I have found that I can gain a stronger edge by combining complementary indicators when
analyzing markets.
After much reflection, for the purpose of this assignment, I decided to select an indicator to help
me find quality setups because I can use my experience to leverage price action on bar charts to
generate entry and exit signals. I thought that I could realize the greatest benefit by having a quality
indicator help me find high probability trade setups.
Getting back to the three components of price discussed in the previous section, I already described
how a traditional price chart would communicate the cost history for a market, so I do not need
an indicator to serve this function. For me, it really comes down to deciding between value and
momentum indicators.
What if there was an indicator that could communicate both market valuation for a defined timeframe
and, at the same time, also communicate momentum information as well? As it so happens, there is an
indicator that can communicate market information about both value and momentum. This indicator
is called ValueCharts Price Window. Now, this is not to be confused with other ValueCharts tools
like ValueBarsSM and ValueLevelsSM. The ValueCharts Price Window is the flagship ValueCharts
indicator. It is also very easy to read.
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In order to provide full disclosure, I am the inventor of ValueCharts. I am not selecting this indicator
for that reason. That would be foolish. I am selecting the ValueCharts Price Window because it
serves a powerful purpose that other indicators simply cannot serve.
The ValueCharts Price Window allows me to see, in real-time, the exact valuation zone that a
market is trading in. This helps me find high quality trade setups and helps me find price levels where
I could enter low risk trades and or avoid entering high risk trades. In the next section I will discuss
several ways I use the ValueCharts Price Window to trade the markets.
Trading with ValueCharts
I have selected the ValueCharts Price Window as my single indicator because it communicates
information about both value and momentum. I will begin discussing a number of powerful setups I
can identify with this super indicator.
Bullish Divergence Setup
Google Bullish Divergence Identified with ValueCharts using Tradestation
In the chart above, we can see that Google has reached a new low at the bar labeled 1a. Then,
over the course of the next several trading days, Google bounced back before selling off again and
reaching a new low at point 2a.
This is where the ValueCharts Price Window can be extremely powerful. Note at point 2b that
ValueCharts price bas are higher than the ValueCharts price bars were at point 1b. This is in light of
prices reaching new lows at point 2a (compared to prices at point 1a).
Notice also (in the chart below), which is now displaying candlestick price bars, that a bullish hammer
pattern appeared in the white box on the candlestick chart? Even more significant is the fact that the
ValueCharts Price Window shows the same price bar to have a lower red bar segment? This bottom
red bar segment (enclosed in the white box in the chart below in the ValueCharts Price Window
sub chart) communicates that this price bar traded within the significantly undervalued zone, which
represented extreme undervalued conditions.
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Google Daily with ValueCharts and Bullish Hammer Candlestick Pattern using Tradestation
With the combination of the bullish divergence and the bullish lower red tip price bar in the ValueCharts
Price Window (ValueCandles are not covered here, but they are a combination of candlestick patterns
and ValueCharts), we can now look to buy Google.
Because the hammer candlestick pattern presented itself, we can now employ a simple yet powerful
strategy of buying the open of the next price bar and placing our sell stop below the low of the
hammer candlestick pattern. Reference the chart below for trading strategy entry signal and risk
stop placement.
Google Daily with ValueCharts Entry Level and Risk Stop Level using Tradestation
In the chart above, our entry signal would have been at $498.84. We also place our risk sell stop at
$487.56, risking a little over $10 per share. Now that ValueCharts has helped us buy Google at a
very attractive price level, we need to strategize about where to exit this new long position.
Because I do not have use of my traditional indicators like Hedge Fund Trader or Intelligent Breakout,
I am going to simply move my trailing exit sell stop right below the lowest low of the previous two
price bars.
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In this case, this would have exited my long position at $529.67 on January 27, 2015 (reference the
chart below). This trade generated a little more than $30 per share, which is great. Because I had
a bullish candlestick pattern to confirm the timing of my bullish divergence, I strengthened my bullish
divergence setup.
This trade showcases the power of a simple breakout exit strategy in conjunction with a bullish trade
setup. I am not a big fan of trading breakout strategies all of the time when trading markets. However,
when used with high probability trade setups, breakout strategies can be extremely effective.
Google Daily with ValueCharts Trade Entry and Exit using Tradestation
Extreme Value Setups

Sometimes in the context of a longer-term timeframe (weekly or monthly charts), a market trading in
either the significantly undervalued zone or the significantly overvalued zone can represent a good
trade setup.
When looking at Apple during late 2012 through 2013, we can see that the weekly ValueCharts
Price Window registered a number of significantly undervalued points (red bar segments on the
ValueCharts Price Window) that coincided with cycle lows. In fact, these significantly undervalued
bar segments coincided almost exactly with cycle lows (reference the weekly Apple chart below).
Without seeing the value component of Apple by way of the ValueCharts Price Window, we would
not have detected that Apple was trading at significantly undervalued during those five cycle bottoms.
But because I had ValueCharts on my chart window directly below my weekly price chart of Apple,
I was able to see these extreme value setups in real-time. Again, these significantly undervalued bar
segments proved to be the exact cycle bottoms in Apple.
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Apple Weekly with ValueCharts Significantly Undervalued using Tradestation
Now, when trading longer time frame setups from weekly price charts, I always drill down to a shorter
timeframe to execute my signals. In this case, I use daily price bars to manage my entry and exit
signal logic. Similar to the previous example, I use a two bar breakout strategy to both enter and exit
my trade.
Apple Weekly Chart with ValueCharts Trade Setup using Tradestation
Using a simple 2 bar breakout in the context of the bullish weekly Apple setup, a buy signal (breakout
above highest highs of previous two bars) was generated at $66.17. Then, after Apple rallied for
several days, an opposite sell exit signal was generated at $68.94 using a breakout of the two bar
lows. This resulted in hypothetical profits of approximately $2.70 on this trade (reference the chart
below).
There are many more ways we could generate trading signals if we were allowed to have more than
one indicator. However, in this case, using a simple breakout strategy is effective in realizing profits
of several dollars per share. The trade exampling the chart below utilized the last extreme value
setup (significantly undervalued setup) occurrence on the Apple chart above to demonstrate how this
type of setup could be traded.
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Apple Daily with Breakout Trade Entry, Stop, and Exit using Tradestation
This chapter barely scratched the surface about how ValueCharts can be used to find high
probability trade setups. There are many, many more examples that could be discussed if we had
use of additional powerful indicators.
At a minimum, ValueCharts is a tool that no trader should be without (in my humble opinion) because
value is such an important part of any significant purchase or sale.Thank you for allowing me to
share several powerful trading examples that showcase one of my favorite indicators, ValueCharts.
Good luck trading!
Mark Helweg
THE MOVIE
See this quick overview of our services here. WATCH THE MOVIE HERE
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For more information about ValueCharts indicators or how to trade with ValueCharts sign up for
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198
ABOUT THE AUTHOR

Mark Helweg began his trading career as a runner on the floor of the Chicago
Board of Trade at the age of 19. When he turned 21, he leased a seat on the
floor of the exchange and traded in the Treasury Bonds pit for a brief time.
Mr. Helweg then returned to school to complete his degree in mechanical
engineering with a minor in statistics.
While in school, Mr. Helweg developed trading models for a large Commodity
Trade Advisor (CTA). In addition, while in school Mr. Helweg also developed
the first algorithm to model price in terms of objective value known as ValueCharts.
Over the past 18 years Mr. Helweg has developed quantitative financial models for several CTAs.
Honors and awards earned by these CTAs include Top New CTAs Group (Futures Magazine 1998),
MFA Star Search (2003), and MFA Star Search (2008). Mr. Helweg released his first book, Dynamic
Trading Indicators, with the John Wiley Marketplace Series.
This book was recognized among the Best Investment Books of 2002 by Barrons magazine. Mr.
Helweg was awarded a patent for his ValueCharts concept with the U.S. Patent and Trademark
Office in Dec 2008.
Recently, Mr. Helweg founded a new financial technology company, MicroQuantSM, that now features
value-based market analysis tools on the Bloomberg terminal platform worldwide. Mr. Helweg
now speaks around the country about trading technology and technical analysis applied to Stocks,
FOREX, and futures markets.
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Trading the Trends

David Katz, TradingFibz LLC
Learning how to trade doesnt need to cost thousands of dollars

Like you, Ive read a lot of books. Ive attended many seminars and workshops. I even went on an
expedition looking for the Holy Grail to trading. It took time, but now Im at a point where Im confident
in my trading and am able to offer you this step-by-step guide.
In this chapter, you will be ready to envision a life where trading can be a reality to make a living.
Like you, when I started to trade, I envisioned a life of waking up in the morning, putting in a couple
trades and going golfing the rest of the day. Far from that reality, but it can offer everything from some
supplemental income to making a living. Perhaps you may even take your earnings from the short
term and invest for the long term,
Either way, it will take time to be a successful trader. Just because you read this chapter and you
learn to apply it doesnt make you a successful trader. The TradingFibz website and resources
including this e-Chapter is a straight to the point, rudimentary approach to what it takes to become
a trader with minimal indicators and after hours work. This is a guide, and its purpose is to do just
that guide you.
Pick a method, keep it simple and learn it well. Trade 1 or 2 stocks/futures and learn their
personalities.My hope is to bring investing knowledge to many more and make it as easy as possible
tocomprehend. I hope you will find something in this chapter that is useful and tell a friend or two
especially if they are new to investing or trading. It takes time, but with a little help and guidance, you
can do this.
I have had the extraordinary experience of teaching middle and high school students about the
stock market, including participating in three years of stock market simulations where applying
theFibonaccipatterns took 19 awards back to their school. This preceded my three year experience
as a stateStock Market GameCoordinator. I have taught many workshops, spoken to numerous
investing groups so whetherit is adult orstudents, its all about the opportunity of awareness in ones
investments.
With all this invested time, I am now and still an inspiring day trader as well as value investor. Taking
home $100 a day in the market can be $2,000 extra a month you didnt have. Sure, I hear of people
making $4,000 a day I also hear of those losing $4,000 a day. The question is not why did you make
or lose so much its how did you manage your trade or investment, how greedy did you get and
lose it, and did you have a stop loss in place?
200
I dont lay claim to any NEW Grail of trading. I simply have gathered the tools that work best
for me.
Let me share with you through this e-Chapter, a step-by-step guide without all the theory and hundreds
of patterns to learn, a simple and profitable way to trade the market.
Successful Trading
Many traders want to be told when to enter trades and when to exit or even shadow trade. As Jesse
Livermore said it best in Reminiscences of a Stock Operator: The average man doesnt wish to be
told that it is a bull or a bear market. What he desires is to be told specifically which particular stock
to buy or sell. He wants to get something for nothing. He does not wish to work. He does not even
wish to have to think.
Many of the indicators today are written so that a green light means in and red arrow means out,
leaving the automation to the machine. Even airplanes today are so automated they almost leave
the flying to a computer. As traders, we may have the automated systems in place, but as crumb
traders we are at the whim of watching what is in front of us on our screens and making informed
decisions of when to enter and exit. You may be a subscriber to that service, but in the trading
philosophy of TradingFibz, if you know one thing and know it well, you will profit in the market.
Multitasking is not conducive to success in trading the markets. The brain is actually not wired to
multitask while we have convinced ourselves of that. Successful trading is a mindset that if followed,
can lead to becoming a master trader.
No one can guarantee your success in trading. Those who follow a detailed plan will have the
greatest chance of making it as a successful trader. Here are some personal lesson and tips that I
have developed as a trader and gained insight from others.
Remove emotion from your trading and this will allow you to detach from the fear of losing
money.
Execute your trades with discipline each and EVERY time.
You will fail if you dont follow your trading plan and trade on gut oh, the market has got it
wrong!
The market doesnt owe you anything so be patient and you will be rewarded
Trade less than hitting the button all day. Wait for your setups will make you a more profitable
trader. It may take all day for your setup, but follow your rules.
Everything looks great. The setup is perfect. You enter the trade. It goes the other direction
This will happen Have a plan and follow it.
Trade your setups, not the money. You may even want to hide your Profit and Loss ticker
when in the trade.
You will lose money sometimes so accept small losses. Key is to minimize the risk.
Blame yourself, not the market oh this is a big onewho are you mad it? You have complete
control over how quickly you exit or hold on to your trade. Lets not forgethow quickly you
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cut your losers. In other words, DONT move your stop.

Becoming a profitable trader day after day, week after week, is the result of many years of
experience
If you really like trading, keep working and learning every day from it it is the extra hours I
have put in that has made me a better trader.
KISS - Keep it simple! I use limited indicators. My screens arent overwhelmed with lines all
over the place.
As alwaysPlan your trade and trade your plan.
While the setups outlined in this e-Chapter are for the futures, the setup principles can be
adapted to fit all markets.
Market will always go up and down. While your trading plan may be hoping for up, always be
ready for the other direction.
Trade the trend. The run is longer and the TradingFibz tools will keep you in the trade longer.
Previous support lines become new resistance ones and vice versa. Have those lines on your
chart.
There will ALWAYS be another trade, remain patient. As Ben says, New day, Fresh start. If
you didnt get it today, it may be there tomorrow.
The prepared trader has the greatest chance for success do you have a trading plan?
The space to the right is always blank - No one is capable of predicting market moves.
Always continue to learn, recap, blog. Review your trades of the day
Dont chase trades you walk away and come back and the setup already occurred. Wait for
another setup.
Dont let your winning trade turn around on you and become a loser.
Dont add to losing trades
You wrote a trading plan. Just this once youll try something different. Break your rules. You
will surely fail
Take breaks
Account management Never add money to the account, Remove profits frequently.
Trade with the volume. If trading US markets, trade during regular trading hours.
Read your trading plan every day.
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The Setup
Original T3 Study Developed by Tim Tillson, the T3 Moving Average is considered superior to
traditional moving averages as it is smoother, more responsive and thus performs better. The
advantage is that it gets less lag with the price chart and its curve is considerably smoother.
T3 TREND bars set to your period preference.
Moving average (set to 5ema) that changes color when in TREND
Looks like a great study to keep you in TREND!
Range Bound Market?

Riskier entry but can simply trade off the change in T3 moving average.
Add a second T3 moving average (10ema) and now you have a crossover study
It makes a very strong strategy to keep you in TREND.
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While there are endless amounts of studies and indicators to add, the more you add, the more
complex it becomes and less probable that you will enter the trade.
Remember to keep it simple.
With several variations to the core chart, the TradingFibz TREND strategy is all about identifying
the momentum of the TREND and keeping in the TREND as long as possible with trade
management tools.
Variations for Chart #1

The standard setup for chart 1 is wherein the core TREND strategy exists. The ability to add a visual
dimension to your charts is where the flexibility exists for you to modify your charts to your liking.
Optional additions you may add to your charts.
1. Color Cloud
2. Crossover Arrows
3. Heikin Ashi Bars/T3 Trend Bars

4. Adjust colors of lines/thickness
5. Add labels
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6. Adaptability to other trading platforms including setup signals/audio alerts of when the strategy is
in TREND.
Executing the Trade

The TradingFibz mantra is to know 1 thing and know it well.
I am primarily a futures trader.

I trade the indices as my primary markets.
I watch all four major indices closely and comment daily in the live trading room.
Learning to use this strategy on the futures can be transferred to any other market be it
intraday or swing trading.
If futures trading is something you are interested in, there is plenty of good information
Caution: Do not attempt to trades this live until you

are consistently making a profit.
Entry Options
I use a market order. The trend has been identified, and its not as important that I enter on the exact
price when price action closed beyond the 1st bar. Its that the probability is greatest to continue in
trend.
The fewer charts you watch, the more emotion you remove from your trade. I will monitor the TREND
bars, 50/144ema and moving averages Its all about the TREND and what does it take to remain in it?
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Any of the trading platform charts individually may be used as a trading tool. It is the strategy of
TradingFibz to identify the TREND with the highest probability of success in combination with several
charts together indicating that a TREND move is occurring.
The goal is to remain in the trade as long as the TREND is active. Whether you choose to exit at 5
ticks or 100 ticks, the probability of success was greater when all charts are in unison and you have
kept the ticks in your pocket and didnt give it to the market.
Core Chart Setup
Chart #1: T3 Exponential Moving Averages, 10 Tick Range Chart/Heikin Ashi Candles.
Chart #2: 5/34 Exponential Moving Average, 10 Tick Range Chart.
Chart #3: T3 Exponential Moving Averages, 20 Tick Range Chart/Heiken Ashi Candles.
Chart #4: 50/144 Exponential Moving Averages, Overnight High/Low. 24hr chart. Heikin Ashi
Candles.
Chart #5: Advancers vs. Decliners.
Chart #6: $TICK; NISS-NYSE chart ($TIKRL; NISS - TF for R2K).
206
Criteria to T3 TREND Setup (Tick/Range chart)

T3_5ema moving average in TREND
o T3 moving average set to a 5ema setting
o Confirm
Color change on moving average
Color change on T3 price bar
o Most riskiest setup can work in a range bound market
207

T3_5/T3_10 ema moving averages CROSSOVER
o T3_5 moving average set to a 5ema setting
o T3_10 moving average set to a 10ema setting
o Confirm
Color change on both moving averages
o Less risky setup

5/34 ema moving averages CROSSOVER
o Two moving averages set to 5/34
o Confirm
Color change on both moving averages
o Least riskiest setup
208
Gold Standard Setup

Essential to entering a technical trade with the highest reward of being in trend While each criterion
is independent of one another and can be traded as a system in itself, the TREND strategy has the
highest probability of continuing in TREND with the least amount of risk. Based on the following
combination, patience and discipline is the key to waiting for each setup.
1. T3_5ema in TREND (A)

2. T3_5 and T3_10 Crossover in sync with 5/34ema
Crossover (B)
3. Price action bars in TREND (C)
209
4. Price action on 50/144ema and/or 20 tick range chart in TREND above/below based on TREND
5. $TICK or $TIKRL above/below based on TREND

6. AD line not at any resistance
7. ALL Labels in the GREEN or RED depending on TREND?
210
8. Utilizing the color cloud in the background to keep you in the TREND.
Once steps 1-7 have been identified and you have chosen to enter the trade, option to remain in
the trade using the trade management tools .
Putting it all together

If you have confirmation on all the Charts what other significant support and resistance lines are
above or below? This where experience and discipline come into play. Just because I have a crossover, doesnt mean I will enter the trade.
Things to consider.

Time of day?
Economic data coming out?
Am I in between daily gap and pivot?
Is the CAM H4 or L4 within 10 ticks of price?
Am I in between the range or outside the range?
Overnight high or low?
Price action at the 50 or 144ema?
$TICK count flat?
Where is price action on the bigger time frame? Daily, Weekly, Monthly.
211
The setup is clear.

Youve considered all.
You take the trade.
Now its all about your trade management.
Trade Management
The high winning % of the TradingFibz T3 Trend Strategy defeats the high risk stop loss
Should I Trade with Targets

One thing you need to always do is not give money back to the market on a winning trade. The
following target and loss management will minimize your risk and maximize your profit. Key is to lock
in the stop at break even after ticks are in the bank. I tend to trade with two contracts. Never more
than 4. If you use just one contract, use your stop to manage the trade.
Option 1: In and Out strategy
Option 2: Use key levels to remove contracts (Open Ranges, Pivot, Gap, etc.) Once the first target
is HIT, move stop to break even. No loss trade.
Option 3: As long as 5 ema is above the 34 ema, remain in the trade. If the 5ema crosses the 34,
remove contracts, manage your stop.
Option 4: Take off contracts when T3_5 crosses T3_10 ema and move stop to breakeven.
Always front run your exit by 1-2 ticks of your target
212
Do you need a stop?

You will have losses in the market. There is simply no
way to avoid it. We all come to the trading world with
different size accounts. The T3 TREND TradingFibz
strategy can be traded with 1 contract or 100 contracts.
Its all about the stop.
First question I am always asked.how big is your
stop? How much can you risk I ask? The bottom line is
that because I identify the trade with the least risk and
highest probability, though every trade carries its own
inherent risk, the stop is almost inconsequential as the
trade will most surely put you in the profit and not at a
loss. You may consider trading another market if the
potential loss may be too much for your account. Price
action needs room especially in a momentum drive and
that is where the pocket of liftoff (or down) off of price
sometimes need that wiggle room to get going. Are you
willing to give it some room of 20-30 ticks just to move
in trend?
There are a variety of ways to manage, each with their own level of greater reward. As a trading
room mentor/author, it is my position to identify the risk of the trade and give you the best probable
outcome. Once in the trade, it is up to you where you want to take your contracts off. However good
trading is always having a stop and that is what the TradingFibz strategy recommends.
Option 1: At the most recent swing size
Option 2: At 1 tick below entry bar
This applies to both initial entries and re-entries on pullbacks.
On trading platforms of the like of Ninja, Sierra, etc. the ability to have your stop moved to breakeven
can be automated once you have hit a pre-determined number of ticks away from your entry.
Example : Once price action reaches 5 ticks, stop is moved to breakeven or breakeven +1 to insure
a no loss trade.
213
Does this work on other charts?

Index Futures Nasdaq (NQ)
Intraday 10 Tick Range Chart
Commodities/Futures Gold (GC)
Intraday 10 Tick Range Chart
214
Equities - Facebook (FB)
100 tick Range
Equities Netflix (NFLX)
Weekly
215
Forex EUR/USD
100 tick Range
ETF Russell IWM
100 tick Range
216
THE VIDEO
To view in detail a walkthrough of the information presented here in this e-Chapter, please click on
the links below.
Click here to view extended presentation with Infinity Futures
Click here to view - TradingPub presentation
SPECIAL OFFER
If the information in this e-Chapter has piqued your interest, I invite you to email me and request a
FREE session in my trading room to see this strategy traded live. [email protected]
I run a live trading room with 25-40 members everyday from open to close with screenshare and chat
room. We primarily watch the 4 indices including crude. Trading Room Information
Please feel free to stop by my social media outlets to obtain additional information- TradingFibz.com
ABOUT THE AUTHOR

Greetings. My name is David, founder of TradingFibz, LLC.
An educator first, I understand the patience and time it takes
to learn anything new. As an inspiring investor years ago, I
realized that if I wanted to learn what it took to be an investor/
trader, it would take time and discipline. I dont claim to be a
guru, write articles, conduct free webinars and then load up
your inbox, and claim to make thousands a day. What I do I
teach in a methodical manner so you get it and can invest or
trade with confidence.
I have taught many about the world of value investing and along the way picked up some fascinating
methods for use in the market. By far, I have come to appreciate the order of numbers and thus
applying the Fibonacci patterns to the stock market. Since then, I have adapted this to my own
method and have learned to be the disciplined trader I am today.
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