Simple Rules for Futures Trading

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Risk Disclaimer

Which markets to trade Using a trading journal and the trading rules

that are developed with that data Using multiple order brackets (the benefits

of reduced risk trades Stop placement and analyzing risk vs.

reward Money management rules Specific trading rules Times to trade with the highest success

Review

Where do these patterns come from? 3 Different Types of 50% Retracements and how to identify them:

◦ Traditional◦ Extensions◦ 61.8% Failures

3 Different trading timeframes and how to execute on them:◦ Micros◦ 15 minute◦ Daily

Rules For Trading Retracements:◦ Putting it all together

A symphony of price action:◦ Example of a Traditional◦ Example of a Extension◦ Example of a series of measured moves◦ Example of a 61.8 Failure

Outline

Where do these patterns come from?

In 1929 was the beginning of the first 50% short that was recorded in most modern charts.

They were drawn from the highs in Sept 1929 from 31.90 to the lows in 1932 at 4.40.

Inside of that downtrend there were six 50% retracement shorts.

That short trend did not break until January 1951.

Where do these patterns come from?

These patterns have been in existence for 80 years.

They started out as psychological levels and throughout history have been acted on for profit.

The age of instant execution and computer algorithms has made these patterns efficient.

These patterns exist in price on every timeframe; they existed before charts and indicators.

They tell us where the market is going and how it is going to get there.

Where do these patterns come from?

A Traditional 50% retracement (Half Way Back) – The 50% line on the Fibonacci retracement. Floor

traders coined the phrase as they would wait for “half way back” before they would make an entry, not realizing that they were really using a Fibonacci 50% retracement. They knew that it was a good point to make an entry.

A 50% Long– Bullish – Defined by Bullish Fibonacci bouncing off its 50% retracement long and achieving a -23.6% target. A series of higher highs and higher lows.

A 50% Short– Bearish – Defined by Bearish Fibonacci bouncing off its 50% retracement short and achieving a -23.6% target. A series of lower highs and lower lows.

A Series of Traditional Measured Moves– A Fibonacci that completes its move by hitting the -23.6% can be followed by another Fibonacci that completes its profit target. A series of moves in the same direction is defined as a series of measured moves. Many times identified as a pattern of higher highs and higher lows for an up trend, and a pattern of lower highs and lower lows for a down trend.

The phrase “buy the dips and sell the rips” takes on a new meaning.

3 Different Types of 50% Retracements

3 Different Types of 50% Retracements

Extension Long – Starts when a Bullish setup breaks the -23.6% and continues in an upward move. When a long trend (higher highs and higher lows) is developing this gives you an opportunity to enter into the long trend. The entry is based on an Extended High entry in which you draw a fib from the prior high (stair step) to the current high, wait for the retracement, and then take the entry.

Extension Short – Starts when a Bearish setup breaks the -23.6% and continues in an downward move. When a short trend (lower lows and lower highs) is developing this gives you an opportunity to enter into the short trend. The entry is based on an Extended Short entry where you draw a fib from the prior low (stair step) to the current low, wait for the retracement, and then take the entry.

A Measured Move – A Fibonacci that completes its move by hitting the -23.6%. Then can be followed by another Fibonacci that completes its profit target. A series of moves in the same direction is defined as a series of measured moves. Many times identified as a pattern of higher highs and higher lows for an up trend, and a pattern of lower highs and lower lows for a down trend.

3 Different Types of 50% Retracements

3 Different Types of 50% Retracements

61.8% Failure – The Fibonacci Line where trend is broken. It also is a point to base a stop off of

Line In The Sand – A price point where one will be bullish or bearish. Stops exist below it and it is the signal that the trend has ended.

The 61.8% Failure trade is the first opportunity to participate in a trend change

3 Different Types of 50% Retracements

61.8% Failure

A 61.8% failure long

Identify a specific price to enter a trend with a specific profit target.

Micro patterns build the 15 minute patterns, and 15 minute patterns build the Daily patterns.

These patterns lead us into our short, medium, and long term trades and are based on that setup’s specific profit target.

The Goal

These patterns exist on every time frame. We refer to these timeframes as Daily, 15 minutes

and micros, but the time frame is not important. Price is the same across all timeframes.

Daily setups are the largest timeframe, they can be dailies all the way up to monthly chart.

15 minute setups are the medium timeframe, they can exist all the way up to 60 minute charts.

Micro setups are the smallest timeframe, they can exist all the way up to the 5 minute charts.

3 Different timeframes

Daily patterns are used to identify the major trend that we are in at the current moment.

These are exceptionally large swing trades that might take anywhere from days to years to complete.

They give us a directional bias and target to trade the 15 minute pattern.

The daily patterns are built out of the 15 minute patterns.

3 Different timeframes

15 minute patterns are the main and most common.

There can be anywhere from two to a dozen per day.

When the 15 minute pattern changes trend, it is the first clue that the daily trend is changing.

15 minute patterns are built out of micro trends.

3 Different timeframes

Micro patterns are traded inside of the 15 minute patterns

We trade the micros in the direction of the 15 minute trend

They are used as a tool for entry and can be either a short term trade to their specific target, or held to the 15 minute patterns -23.6% target

3 Different timeframes

• Identify a series of measured moves already in process.

• Wait for price to come to your setup.• Use limit orders to sell 50% lines.• Place targets 4 pips ahead of -23% or

123.6% lines.• If price ever breaks a 61.8% line in trend,

the trend can change. • Be picky about price. Other traders and

programs are picky, and we should be too.

Rules for a 50 percent trade

• Extensions happen when a -23% target is blown out.• To draw an extension, draw your fib from the bottom

of the last pull that has blown out of its target. • It is evidence of extremely bullish or bearish

conditions.• Most extensions happen when we are breaking new

highs or new lows for the day.• Each extension has its own -23% target and can

resume its series extensions after completion. • If an extension ever breaks out of its 61.8 percent

line, the trend can change.

Rules for Extensions

• This trade setup occurs after a 61.8% line failure.

• When it is pierced, programs will flip from selling 50% shorts to buying 50% longs and vice versa.

• We pull the retracement and wait for price to come back into its 50%.

• Use limit orders and be picky about the price.

Rules for 61.8% Failures