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Simple Trading Techniques
BySteve Copan
Copyright @ 1997-2009 Steve Gopan. All rights reserved.
Copyright - No part of this publication may be reproduced,stored in a retrieval system of any kind or transmitted in any formor by any means, electronic, mechanical, photocopying,recording or otherwise without the written consent of the author.This book may not be lent, hired out or othenvise disposed of byway of trade in any form of binding or cover other than that inwhich it is published without the prior consent of the author.
Acknowledgements - Special thanks to Robert G. Miner,the president of Dynamic Traders Group Inc, for his invaluablehelp over the past few years and especially in enabling theMarket Matrix, Matrix GyclesrM templates and Nexus tools tobe implemented directly into the Dynamic Trader chartingsoftware.
Disclaimer - all the information contained in this book hasbeen prepared solely for informational and educational purposesonly, and should not be taken as an offer to buy or sell anyinvestments of any kind. Therefore the author and publisher willnot accept any responsibility for any loss incurred as a result ofusing or misusing any of the information in this book.
Published by - Financial Matrix Ltdwww.th e ma rketmatrix. co. u k
Printed by - fingfisher Press Ltdwww. kin gfisher-press. com
Cover design by - Aarter Barrett Design Agencywww. barterbarrett. co. u k
Foreword
Back in 1996, which seems like a long time ago now, lstartedwork on a method to predict stock market movements. Unlike alot of people I considered that it must be possible to predict futuremarket turns accurately in both Price and Time using simplemathematics and logic.
It was not long before I had discovered a way to do this and overthe next few years I developed this into a structured logicalmethod and called it the Market Matrix. I then released thismethod to the general public on a video cd set in 2004.
The Market Matrix video set had a number of future predictionson them I had made using this method, all of which haveoccurred on time as predicted. One of the predictions I includedin the cd's was for a major collapse of the Markets to start in theyear 2008 and this prediction as you well know has now alsocome true but is only a fraction of what is still to come.
At the beginning of 2008 as the markets had just begun theirspiral down I decided to update the Market Matrix method in aspecial limited edition book with more explanation and examplesas well as some special rules and logic that were not on theoriginal video set. This was subsequently published in June 2008.
Even though to me the Marketand very easy to understand,had regarded as easy mighttrader. let alone someone who
Matrix method was simple, logicalI neglected to consider that what I
not be the case for the averageis totally new to trading.
So I decided the best way to help people to get started in tradingand more importantly to make a profit, was to produce this bookof simple trading techniques and to make it as simple as possibleto help the beginner start trading with confidence and even give
something to existing traders to think about who have failed toconsider these profitable opportunities.
Although I have made this book as simple as I think is possible, itwill still require you to spend a little time and effort to fully get togrips with the techniques, so a little effort on your behalf isneeded as nothing in life is free.
I suggest you read this book slowly and thoroughly from thebeginning regardless of how mundane some things may seem asthe way I use the indicators and tools is totally different to whatsome other traders would expect.
There are thousands of indicators and trading methods that are inuse around the world today all having their own merits andproblems but rather than produce a book full of differentindicators that will overload your brain and confuse you to thepoint of tearing your hair out I shall be using just a couple that areeasy to understand and implement as well as being available inalmost every charting package and free from some brokers.
At the beginning of this book I will be going through a couple ofsimple tools and indicators that we will be using that I personallyuse to determine when the best and most advantageous placewould be to enter a trade and place exit positions. Once you haveunderstood this first part the rest should be a breeze and overtime should become second nature.
Regardless of how simple the methods I show you are, nothing inlife is perfect, so it is important to remember that you will neverbe able to win every trade and therefore you will make a fewlosses on the way, although these should be limited by tradingstops that we place with every trade.
It is worth noting that some very successful traders lose on 60%of their trades while the other 40% make large profits thatoutweigh the loss trades by a big margin making overallconsistent profit, so the odd loss here and there is part of tradingand should be expected.
To become successful in trading, first you have to have a methodthat works and second, being just as important, you need self-discipline. Far too many people do not have the discipline to stickto a fixed method of trading and are constantly switching fromone method to another looking for one that is better or trying thelatest method their friend has told them about. This is one of themost common reasons for a trader to fail in this business.
do, and then try to be clever by placingsome other irrational logic or tradingannoyed that the first trade lost, and
proper trade entry set-up, only to see
These people will never succeed because they do not have thepatience or discipline to follow a method and wait for the nextproper set-up. Please do not be one of these people or it will costyou dearly. Take your time with every trade you are going toplace and consider all possibilities before you place it.
You will find lots of information on our website including brokerswe recommend that have the charts. indicators and tools for freeto their clients.
Good luck with your trading.
Steve Copan.
So many times I have seen a trader place a trade correctly thatthen fails, which some willanother trade based onmethod because they gotcan not wait for the nextthat trade also fail.
Gontents
The Basics
Daily / Hourly Bar Gharts
FibonacciRetracementsExtensions
StochasticsSetup PatternsBuy set-upBuy divergenceBuy divergenceSell set-upSell divergenceSell divergenceRecap
ISD - TrianglesRecap
Final words
Page
1
1
5I11
pnceStochastic
priceStochastic
24,25,31,27,30,34,
131942434445464741
4972
73
Ghapterl-TheBasics
Throughout this book I will be showing and using various barcharts that almost every typical charting package uses or hasavailable in its chart display mode.
Bar charts are very common and this type of chart is availablefrom many brokers as well as on the Internet for free, so there isno need for you to purchase any special or expensive software toinitially start trading.
As time goes on and you start trading more markets then you willmost likely want to purchase a professional charting softwarepackage so that you can keep all your charts in one location onyour computer. This will also enable you to display multiple chartsat the same time and allow you to apply the analysis tools andindicators in this book to your charts with ease.
You can find more information about the professional chartingpackage Dynamic Trader that I personally use and recommend,which is used for all the charts in this book, from the website atwww.them a rketm atrix. co. u k.
As explained, the main type of chart we will be using for thepatterns and analysis will be the daily bar chart like the barsshown in (Ghart-l), these are OHLG bars.
OHLG stands for Open, High, Low and Glose, and representsthe main four parts of a days trading.
Each onethat chartcomplete
of the bars inyou can seetraded days.
(Ghart-1) represents one single day so inthere are 8 individual bars representing B
Page 1
GBP-USD D-D
1.4900
1.48001.4736| .rt I vt
1.4600
1.4500
1.4400
1.4300
1.4200
27f 30m 31t Anil92t 3f 6m 7tChart created Trader (c) 1996-2009
(Ghart-1)
Looking at any single bar covering a single day you will notice alittle notc to the left side of the bar and also a notch to the rightside of t e bar.
The notch to the left of the bar represents the opening price ofthe day (Open).
The top of the bar is the highest price that market traded atduring the day so represents the (High)
The bottom of the bar is the lowest price that market traded atduring t e day so represents the (Low)
The notch to the right of the bar represents the closing price ofthe day (Close) making one complete OHLC daily bar as shownin the chart (Chart-2).
Page 2
High
Low
Open
(Chart-2)
Bar charts are not only used to represent a singe day's tradedrange, they are also used for any time range, and are often usedin hourly bar format for intra-day charts as well as bigger timeframes like weeks, months and years, some of which I will beshowing later.
The construct of a bar is always the same regardless of the timeperiod and will always represent the Open, High, Low and Closeof the time period that it is covering.
In the hourly bar chart (Chart-3) you can see clearly ineach of the 24 individual hourly bars for the day, with each barconstructed of the Open, High, Low and Glose for that specifictraded hour.
Page 3
IltrEnd ofthe day
ng ofthe day
rll3f
Chart created bv Dvnamic Trader (c) 1995-2009
1.4700
1.4650
1.4600
1.4550
1.4500
2t
(Ghart-3)
The daily bar is the most important because it represents acomplete traded day.
Differen markets around the world trade over different amountsof time during the day so can have a different amount of hourlybars or other intra-day time bars in a full traded day.
For example the UK FTSE-100 cash index trades from 08:00 to16:30 being 8 and a half hours while in the USA the S&P-500cash index and Dow trade for only 6 and a half hours.
Regardless of how many hours, half hours or any other timeframe a market trades for intra-day, every market in the world wil:still have one time frame equal with each other and that beingone complete day.
Page 4
Fibonacci
The sequence of numbers 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144,and so on to infinity is known today as the Fibonacci sequence.The sum of any two adjacent numbers in this sequence forms thenext higher number in the sequence, 1 plus 1 equals 2, 1 plus 2equals 3, 2 plus 3 equals 5, 3 plus 5 equals 8, and so on toinfinity.
The Fibonacci sequence is in fact involved in almost everything inlife including planet movement and structure, plants, animals andeven your body structure
For example if you look at the sequence you will note that thesenumbers relate to you as follows. You have 5 limbs on each ofyour 2 hands and each hand has 4 fingers and 1 thumb. Thatmakes 8 fingers and 2 thumbs and each finger has 3 joints andeach thumb has 2 joints
Golden Mean. Nature uses the Golden Ratio in its most intimatebuilding blocks and in its most advanced patterns, in forms asminuscule as atomic structure and DNA molecules to those aslarge as planetary orbits and galaxies. lt is involved in suchdiverse phenomena as quasi crystal arrangements, planetarydistances and periods, reflections of light beams on glass, thebrain and neryous system, musical arrangement, and thestructures of plants and animals.
near perfect to the next number in the sequence and by taking
previous number in the Fibonacci sequence.
Page 5
Not only do you have the various limbs of your body in exactFibonacci amounts but also your entire body is built upon theFibonacci sequence and the ratios of these numbers, specificallythe 0.618 Golden Ratio.
As in (Picture-1) if you raise your arm and point your fingers tothe sky the distance from your fingertips to your shoulder isapprox. 0.618% of the distance from your shoulder to the ground.That is the Golden Ratio.
The stock Market also has this same Mathematical base at itscore and all movements in both price and time are based on theFibonacci number sequence and I or Fibonacci percentageratios.
0.618ryo
(Picture-l)
Page 6
By taking the Fibonacci percentage 0.6 and multiplying it byitself we get 0.382 and any Fibonacci number from the numbersequence multiplied by .382 will give you another Fibonaccinumber two places before it in the Fibonacci sequence.
Each Fibonacci number in the sequence is 1.618 from theprevious number and 0.618 from the one after it.
The Fibonacci percentage ratios listed in in (Picture-21 arederived from a simple process of dividing a Fibonacci number byanother Fibonacci number.
13 21 34 55 89 144 233 377 S101
235I
1321345589
144233377610987
17.92311.0956.8544.2362.61.1.000.6180.3820.236
(Picture-2)
You can start with any Fibonacci number but for the examplehere I have started with the Fibonacci number 233. We divide233 by 987 to get the ratio of 0.236. Divide 233 by 377 and youget 0.618 being the Golden ratio, this is because 377 is the nextFibonacci number up in the sequence from the number 233 westarted with.
Page 7
There are four other Fibonacci percentage ratios to take intoaccount and these are 0.50 being a half or 50o/o, 0.786, 0.886and 0.941. 0.786. 0.886 and 0.941 are derived from taking thesquare root of the Fibonacci 0.382 and then square rooting thatnumber. The square root of 0.382 = 0.618, the square root of0.618 = 0.786, the square root of 0.7 6 = 0.886 and the squareroot of 0.886 = 0.94
The 0.886 and 0.941 Numbers are very special and we will bespending some time on these later as, if used correctly, thesenumbers can provide you with some incredible tradingopportunities
3.6%38.2%50%61.8%
8.6%
.618%2.618%4.236o/s6.854%
1.095%17.923%
Square Root numbers
0.382 Square root = 0.618
0.786 quare root = 0.886
0.886 Square root = 0.941
(Picture-3)
The table in (Picture-3) shows all the main Fibonacci percentageratio numbers and the square root numbers that we will be usinEto produce price targets from our set-up patterns.
Page I
Fi bonacci Retracements
When a market has moved up or down over whatever time periodbe it a few hours, days, weeks or months it will eventually retracesome of that initial move. Once a move has occurred we can useFibonacci retracement percentages to work out levels at whichthe market could retrace to.
In the daily bar chart (Chart-a) the market has moved up in 8days from the LOW bar at the bottom left of the chart to the HIGHin the middle of the chart, then retraced back down to the 0.618retracement level being 61.8% of the up move.
HIGH
25 Feh BChart created
1366.24 Ret 0.236
1347.fi6 Ret 0.382
1333.00 Ret 0.500
1318.1,1 Ret 0.618
1236.99 Ret Il.7B6
c Trader (c 1996-2009
I{
,oI
1350.00134[.00133[.001320.001310.[01300.001290.0012S0.001270.00
LOWI
1400.001390.001380.00
(Ghart-4)
You can see all the Fibonacci retracement percentages that arenormally used on the right of the chart from the 0. to the0.941 from the table in (Picture-3).
Page 9
In the next chart (Chart-s) we are using the same Fibonacciretracement levels as used in (Chart-4) but measuring in reverseas this time we are measuring a retracement of the marketmoving down instead of up.
HIGH
t
913.99 Ret 0.786
ff9t1.54 Ret tI.618
874.07 Ret 0.500
B5I.El Ret tl.3BZ
837.23 Ret 0.236
LOW12 19 26 Jan I 16 23 30
Chart created 1996-2009
You can see the market moved down from the HIGH at the top otthe chart to the LOW at the bottom middle of the chart, it thenretraced back up to the 0. 00 position or 50% of that initial downmove, efore then starting to drop down again.
Throu hout, this book will only require one of these retrac,?numbers and that will be the 0.618 Fibonacci retrace so as tomake i as simple as possible for you.
This 0.618 will be used for one purpose and that is a tradingStop. A trading Stop is very important and every trade we enterinto will always have a Stop.
.00
.00
.00
.00
.00
(Chart-s)
Page 10
Fibonacci Extensions
Fibonacci retracements are used for measuring a retracementa market move, while Fibonacci extensions are measurementshow far the market should extend to on its next move.
In the chart (Chart-O) you will see an up moving market where I
have measured from the LOW to the HIGH of the initial up move.
I have then taken a Fibonacci 38.2% and 61.8% percent of thatinitial up move in price and then added it to the top of the HIGHpoint. This gives us a price level of 944. 3 at the 38.2o/o level and960.57 at the 61.8% level.
ofof
.00
.[0
.00
SEtl.57 LHexp 0.61S
S44.63 LHexp 0.382
Trader {c
H
LOW
12
{lGH
I l"ll
I
19 26 JanCharl created 1996-2009
Extensions
7[fi[504030201[
.[0
.ill
.00
.00
.00
.00
.00
.0[
.00
.00
(Chart-6)
The software always considers the initial measurement as 1
rather than 100% so it will display on the chart 0.38 as being
Page 11
We will be using the same Fibonacci extension process but inreverse when measuring a Fibonacci extension of a market thatis moving down.
ln the next chart (Ghart-7) you can see the market is movingdown overall and I have measured from the HIGH to the LOW ofthe initial down move.
I have then taken a Fibonacci 38.2% and 61.8% percent of thatinitial down move in price and then subtracted it from the bottom
38.2% level and 718.33 at the 1.8% level.
s&P 500 D-D
HIGH
I
LOW
Extenr
0S FehChart created by Dynamic Trader (c) 1996-20[9
850.00
900.00
s5[.00
800.00
.75rl nn
700.00
(Chart-7)
There are other ways of calculating and producing Fibonacciprice extension levels and other percentage numbers but in thisbook, with the set-ups we are going to use, there is no need forany method or numbers other than those I am showing you here;thus I am aiming to make this as simple as possible.
Page 12
Stochastics
Stochastics is an indicator we will be using to give an idea ofwhen a top or bottom in a market is likely to occur. A Stochasticis a simple mathematical formula of 100 times (last close priceless the lowest price over a set period of time) divided by the(highest price over the period less the lowest price over theperiod). You do not need to understand the maths to use this.
There are various versions of Stochastics but the version we willbe using is the Slow Stochastic. This you can see in the bottomof (Ghart-8) as two solid lines moving up and down together.
.0[
.ilI780.0[760.00
9%
10%Chart created by Dynamic Trader (c) 1996-2009
.0[
.00
.00
.00
5toch 13,3,3 (90%-10%)
(Ghart-8)
The first of the two lines is a moving average of the originalStochastic called a and the other of the two lines is a movingaverage of the %K called a o/oD. The settings I use for thisStochastic you can see on the chart are 13,3,3 with the horizontal
Page 13
We do not need to be concerned about the settings or theconstruct of the Stochastic only the position of the actual two %Kand %D lines relative to the high and low 10% and 90%horizontal lines.
Looking at the chart (Chart-9) you can see marked with theBLUE arrows that when one of the two Stochastics lines reachesthe bottom horizontal line, being the 10% line, it tends to mark abottom in the market. The same in reverse when one of theStochastics two lines reach the top horizontal line being the 90%it tends to mark a top in the market.
1./
.00
.00
.00
.00
.[0
.0018[.00750.00
Chart created 1996-2009
You will also notice the RED arrows marking a high and low i,rthe market, but this time without the two Stochastic lines reachingthe high or low. What the Stochastics did do was changedirection as the market itself changed direction and I will explaina little more about this later.
3 (90?o-l0o/"
(Ghart-9)
Page 14
The way we will use the Stochastics here is different to the waymost other people will use them. Most traders will only beconcerned when one of the two o/oD or %K lines cross over theother which is the most common use, while here we are onlylooking at the position the lines are compared to the upper andlower 10o/o and 90o/o horizontal lines.
Other than giving us anmarkets is likely to occur,to possible bigger moveswe call a divergence.
indication that a high or low in theStochastics also provide an indicationand higher probability trades by what
A divergence is when there is a discrepancy between the price amarket is making, being either a new high or a new low, and theposition of the Stochastic lines not making new highs or lows.
In (Ghart-9) | marked with LUE arrows the market turning downfrom a high point as the Stochastics hit the top 90% line andwhen the market turned up from a low point as the Stochastics hitthe bottom 10% line, this is what we will be looking for most ofthe time, but from time to time a divergence or discrepancy willoccur as shown by the RED arrows in (Ghart-10)
From the first RED arrow marked with a letter A the marketturned down from a high point as the Stochastics hit the 90% line,then the price went slightly higher at point B but the Stochasticsdid not go as high as they did at point A. That is a divergence.
A divergence will usually result in the market responding with alarger or faster move in the opposite direction especially whenthe price goes a lot higher and the Stochastics remain lower.
Page 15
B
.00
.00780.00760.00
A
Chart created Trader {c) 1996-2009
.00
.00
.0lr
.0[
5toch 13,3,3 (90%-10%
(Chart-10)
At point C the market went a lot higher in price than at point A as
shown with the horizontal BLUE line but the Stochastic did not go
any higher than it did at point A making a bigger divergence andas you can see the market then responded with a drop that wasmuch bigger than at either point A or point B.
The same method is used in reverse for divergence from a lowpoint around the 10% level and will usually cause the same resultwith a bigger up move from the new low price.
The Stochastics can easily hit 0% or 100% and there is nothin(Iwrong with that but you will tend to find most of the market turnswill happen around the 10% and 90% positions.
A Stoc astic can also make a new high or low without the marketprice doing so.This is also a divergence and again can result inlarge moves as shown in (Chart-11).
Page 16
Ilft
Chart created Trader {c} 1996-2008
.00
.0[
.00
.00
.00
.0[
.[[7BIl.00
5toch 13,3,3 {90%-10%
(Ghart-11)
The Stochastic was at the low 10% line and then started to moveup in line with the price to point A on the chart.
After a few days the price retraced down part of the up movefrom point A and then moved up again to point B. Althoughpoint B was not as high as point A in price as shown by the
line, the Stochastic went a lot higher than it did as point A.
As you can see the resulting move back down from point B wasindeed quite large and is common from this type of divergence.
This is exactly the same but in reverse, again most of the timeresulting in a large move. Later I will be showing you ways youcan take advantage of this pattern even though the Stochastic isnot at the 10% or 90% position.
Page 17
Stochastic Set-up Patterns
The first thing I am going to start with is the Stochastic andsimple set-ups that will enable you to enter a trade withconfidence as well as a high probability of success. TheStochastic is one of the easiest indicators to use as you can seewith your eyes if a set-up to trade is available.
As explained earlier the way I use the Stochastic is very simpleas I am only interested in when the Stochastic reaches the top90% or the bottom 10% position or produces one of the two maintypes of buy or sell divergence.
Regardless of where you think the market will move to once youare in the trade, it is very hard to be exact unless you areprepared to spend a lot of time analysing the market using otheranalytical tools and methods. So the easy way to look at this is toask the question (what is the minimum the market should move)?This is where the Fibonacci Extensions come into play.
As explained in the Fibonacci section, everything in life is builtupon Fibonacci numbers and percentages in some way oranother, so each move in the market should move according to atleast one of the Fibonacci ratios.
lf you remember, the golden ratio number was 61.8% and thedifference between 100% and 61.8To is 38.2%. So for anychange in direction in the market we will be looking for aminimum movement of 38.2o/o of the prior move.
Looking at (Chart-12) using the lowest daily bar coloured RED, I
have measured from the low of that bar to the high of the bar(marked with RED horizontal lines at the top and bottom of thebar) and added to the top of the bar both 38.2% and 61 .$oh ofthat bar's size.
Page 19
38.2% of the bar isdisplayed as 0.618most software usebar we measured is
displayed on the chart as 0.382 and 61.8% isbecause instead of a percentage of 100%
percentages in relation to 1, so 0.618 of thein reality 61.8% of it.
s&p 500 D-D
858.56 LHexp 0.ElBLHexp 0.382849.94
813.44 LHexp{1.618
860.0[
t50.00
30.00
20.00
10.00
00.00
5toch 13,3,3 (90o/a-10o/o)
Chart created Trader (c) 1996-2[09
(Ghart-12)
This basically gives us two simple price targets of which thc
market moves a lot higher we have still hit our first price target.
When using this method we also need to consider a Stopposition to protect our money just in case the markrrtunexpectedly reverses on us. We will always use a Stop and thiswill be placed at 61 .8o/o retrace of the bar we measured €smarked on the chart as -0.618 in RED.
As explained before these are normal Fibonacci percentages soare built into most charting packages, so there are ttocalculations for you to do manually.
Page 20
The reason we are using both .382 and 0.618 targets isbecause we are going to place 2 trades each time we trade withthis Stochastic set-up method, one for the 0.382 target and onefor the 0.618 target, but both will have a Stop at the -0.618position. The whole idea of these 2 trades is if the market hits the0.382 target and then turns and hits our Stop without hitting our0.618 target then we will have only made a small loss overall.
Rather than be selective and show you pre-selected charts thathave worked with this method, I would prefer to be honest withyou and show you it being used in the real world, so (Ghart-13) isof the S&P-500 for the past 6-7 months and we will go through itday by day on every available set-up it produces.
|-1100.0[fl050.0[f10[0.[[p50.00lonn nn866.50
lnoo:mi750.00
r00.00
Chart created Trader (c) 1996-2009
5toch 13,3,3 (9rJe/o-10!o
(Chart-13)
We will start by zooming in(Ghart-13) in October 2008bottom 10% line. (Chart-14)
at the far left of the chartStochastics are below the
to the startwhere the
Page 21
You need to allow a little movement on the 10o/o and 90% linesdepending on the direction of the main trend the market is in.
For example the market was moving down overall to the lows inOctober so we look for the Stochastic to hit the 10% line, but ifthe market is moving up over all then for a Buy set-up we wouldbe looking for the Stochastic to be within 4% of the 10% line.
The same applies in reverse if the market is moving up overallthen a Sell set-up would be when the Stochastic hits the 90% lineor when the market is down overall then a Sell set-up would bewithin 4o/o of the 90% line.
s&p-500 D-D
Bar Opened at highof day - no trade
tlr 1160.0[1140.[01120.001100.001080.001060.001040.[01020.001000.0[980.25
5toch 13,3,3 (90%-10%)- -
Trader {c) 1996-2009Chart created
(Chart-14)
Because the overall market was down and the Stochastic has hitthe 10% line then we place a B Y trade on the market just abov,;
above the high of the bar with a target of .618. We also place aStop for both trades at the -0.618 retrace position of that bar.
Page 22
The reason we place the entry for any trade just above the high
getting falsely triggered into a trade when the market matches thehigh or low and does not breach it.
market in RED (Ghart-14) with the RED arrow, but we will never
point of the day and in reverse we never place a Sell trade if thebar closes at the lowest point of the day. So on this occasion wewould wait for another day or trade set-up.
the price targets and Stop's as shown on the chart (Chart-15).
tI'l r
12m.0[
1t50.0[
1100.ilr
1050.00
10[[.00lUZg.4$ LHexp{1.618
.00
912.75
Chart crealed Trader [c 1996-2009
5toch 13,3,3 {80%-10%)
(Chart-15)
As you can see the market continued down to new lows so thetrade was not triggered. What you now do is delete the trade and
Page 23
Every time the market goes down to new lows you will delete theold Buy trade and place a new Buy trade again on the new lowday until you are triggered into the trade.
After 3 more days of new lows and moving your Buy trades themarket finally activates the Buy trades (Ghart-16).
s&p-500 D-D
I
13,3,3 {90%-10%)-
Chart created Trader {cl 1996-2009
(Chart-16)
You can see the result of what happened as the market not onlyput you in both Buy trades but the market hit both price targetrwithout hitting your stop making you a good profit on both trades.Now you do nothing until there is another set-up trade.
The next set-up trade happened a couple of weeks later aroun J
the 24th with a divergence (Ghart-171. lf the market main tren'lwas up then it would also have been a Buy trade because theStochastic was within 4oh of the 10% line, but the market trenCwas down so a divergence is all we had.
Page 24
You can see the divergence clearly, as the price went lower thanthe last low that we had our last uy trade from and theStochastic was not as low as it was back then.
we place the Buy trades for this divergence trade on the lowestbar in the same way as before.
I
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lf the market goes lower again than we wiil derete the Buy tradeand place a new Buy trade on the new low daily bar.
As you can see in (Ghart-18) the market put us into both the Buytrades the very next day and again hit both the 0.3g2 and 0.61bprice targets for another nice profit.
There was no set-up trade for another week until the stochasticsgot to within 4o/o of the 90% line where we praced a sell trade onthe highest daily bar (Ghart-l9) because the main trend wasoverall still down.
Page 25
1050.00
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(chart-19)
s&p-500 D-D
Page 26
The result from the Sell trade was the market went down puttingus in to the Sell trades and the same day hit our first price targetof 0.382 but then stopped. At this point the market could havereversed and hit our -0.618 Stop but if it did the loss would not beso bad because the first trade, the 0.382, had completedcorrectly making a profit, thus off-setting part of the possible losson the other 0.618 target trade
As you can see there was no reason to worry because the verynext day the market went down and hit the 0. 18 price targetclosing that trade for yet another nice profit.
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Now I hope you can see why we trade using two trades. lf youwish only to trade with one trade at a time then it has to be the0.618 target trade as with the stop also at -0.618 then one loss
target would require you to make 2 profits for 1 loss so would putthe odds of making profit totally against you.
Page 27
The next trade set-up occurred a few weeks later as a Buy tradewhen the Stochastics hit the 10% line (Chart-21).
Again we placed the Buy trades. This Buy trade did not gettriggered as the market made another new low the next day, sowe deleted the trade and placed a new Buy trade on the newlower daily bar.
s&p-500 D-D
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(Chart-21).
and on the same day hitting both our 0.382 and 0.618 targets foryet another nice profit.
The market then moves up and so do the Stochastics until the r
again get to within 4oh of the 90% line. Once again we place aSell trade against the low of the bar with the usual price target;and Stops in place. (Chart-221.
Page 28
This time the marketuntil eventually goingagain hitting the 0.382
spent the next few days going sidewaysdown putting us into the Sell trades andand 0.618 targets for yet another profit.
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(Chart-221.
Here you can also see that once the market had hit the 0.618target and went a little through it the market then turned and ranall the way back up to close at the high of the day. So althoughthe market closed higher than the close of the previous day, youhad still taken your profit.
Looking back at the high around the 28th you may have beenthinking it would have been nice to have also caught the big dropthat occurred there as well. Listen carefully and note that theStochastics were not within 4oh of the 90% line so you did not geta Sell trade so there was no trade. You cannot get every moveon every market so only concern yourself with a proper set-up,because rules are there to be followed and to protect you.
Page 29
The next trade was again a Sell trade but it was on a pricedivergence Sell set-up (Chart-23).
S&P-sOO D-D
8r1.50
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(Chart-23)
After the last Sell trade the market then went all the way back upto make an exact match in price with our last Sell trade but theStochastics did not go as high, making a divergence.
The Sell trades were placed on the low of the daily bar as shownand as you can see yet again the market entered us into the Se I
trades and after 2 days hit both our 0.382 and 0.618 price targetsfor another nice profit.
Note - an exact match in price is as good as a new high in pric ebut it must be exact or greater for a Sell trade and exact or lowerfor a Buy trade.
Page 30
it in position until either the price target is hit or your Stop istriggered unless a new higher or lower daily bar occurs for you to
The next trade set-up (Chart-24) was immediately after the last
Stochastic divergence trade set-up.
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(Chart-241
Look closely at the price on the chart (Chart-24). lt did not golower than the last low of a few days before but the Stochasticsdid go lower causing a divergence.
price target to make another profit on both trades.
Page 31
Both the Sell and uy Stochastic divergence trades are a lotharder to spot than the normal Buy and Sell price divergencebecause your eyes are drawn to the Daily bars or the 10% and90% lines while the Stochastic divergence can only be spottedby looking at the Stochastic lines themselves.
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(Ghart-25)
After the market moved down from our last Sell trade the marketthen decide to move back up again to a new high (Chart-25) anuthe Stochastics to within 4oh of the 90% line giving us yet anothe"Sell trade set-up opportunity.
This time although it was a new high in price the Stochasticswere also very close to creating another divergence set-up.
Once again as you can see the market then dropped down belor,vthe entry point putting us in the Sell trade and yet again hittingthe 0.382 and 0.61 price targets for another nice profit.
Page 32
At this point you see that we have had 14 trades from 7 set-upswith all of them hitting our price targets and making profit, but as Ihave said, life is not perfect, as the-next chart snoris (Ghart-26).
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The market made a low around the 1Sth but the stochastics didnot hit the 10o/o line. Remember the main market trend overallwas down so we need to see a hit of the 10% rine before weplace a Bu trade.
The market then came down lower around the 20rh and althoughtechnically the stochastics again did not hit the 10% line we willnot be picky here as they were as near as you can get so no onecould blame you for placing a Buy trade there.
target and then dropped to hit the -0.61g stop position, crosing
Page 33
out one of the trades for a loss. As I have already said and willsay again that's life, you cannot win them all.
The next set-up is a Sell trade and was a Sell Stochasticdivergence. You will see in (Chart-271 the Stochastics wenthigher than the last high but the price did not, creating adivergence and therefore a Sell set-up.
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The market then entered us into the Sell trade and on the same:day again hit both our 0.382 and 0.618 price targets for anothernice profit.
Note - The only difference with this type of divergence trade is ifthe next day the price went higher than the last high then you willdelete the old Sell trade but will not enter a new Sell trad;because there is not one as the divergence will now not exist, soyou will then have to wait for another normal set-up to occur.
Page 34
I hope by now you are grasping this simpre method and can seehow easy it is to implement.
The. only thing you must remember is to consider the mainmarket trend, so that you rook only for a hit of the 10% line for aBuy if the main market trend is dbwn and 90% for a Sell if thetrend is up, elsewithin 4%of the 10% linewith the main trend upand within 4% of the 90% line if the main trend is down.
The easiest way to decide if the main market trend is up or downis to look and see if the rowest price in the last 3 months is lowerthan the lowest price in the previous 3 months.
The reverse is applicable, if the highest price in the last 3 monthsis higher than the highest price in ihe previous 3 months then themain trend is up.
From time to time you will find the highest price of the last 3months has not gone higher than the highest price of theprevious 3 months and the lowest price for the last i months hasalso not gone lower than the prior 3 months meaning it is in asideways market.
In the case of a sideways market you need to err on the side ofI of either the 10% or 90% tinesru will get false signals and end
The next set-up was a totar failure (Ghart-2g) as the price did notof our price targets and crosed both trades out on thefor a loss. Again you need to understand that a ross
now and then is part of trading so accept it.
The next trade was the very next day (chart-29) and was aset-up that resulted with the price hitting both the targetanother good profit again.
Page 35
Il{:51 IHEUF H:$flE
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Page 36
The next set-up (Ghart-30) was a Sell trade that was veryto not being a Sell at all because the bar closed very closebottom of the day. Again this trade resulted in both ourtargets being hit for another profit.
closeto theprice
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On occasions like this where the close is within 1% of the low fora Sef l trade or 1o/o of a high for a Buy trade it is better to becautious than make a trade for the sake of trading unless theStochastics are up higher than the 90% or lower than the 10%
After the last Sell trade the market went back up again to newhighs but so did the Stochastics so another Sell trade set-up wasavailable (Ghart-31). Again the Sell trade was triggered and themarket hit both price targets for a profit.
The next Sell trade (Chart-32) again hit both price targets foranother profit but the next Sell trade (Chart-33) only hit the 0.3 2price target and failed with the 0.618 for a small loss.
Page 37
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Page 38
Chart created
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(Chart-34)
Page 39
Finally the last trade for the past 6 months (Ghart-34) was a Selltrade that yet again resulted in both price targets being met foranother profit.
The results for the last 6 and a half months was a total of 16trade set-ups making a total of 32 trades of which, 28 werewinning trades and 4losing trades.
When a trade fails it is usually the bigger 0.618 trade, butbecause the market generally has already hit the first price targetof 0.382 for a profit then that would be offset against the 0.618loss trade, meaning the total loss would be a lot smaller.
Now we have worked through this method on the last 6 months ofdata you can see how simple and effective this method is andhow easy it is to use.
Page 40
Recap Stochastic Set-up trades
The Buy set-up is: when the Stochastic reaches the 10% line youplace a Bu trade on the high of the daily bar unless the close ofthat bar is within 1o/o of the highest point - Page 42
The Buy divergence with price at new low set-up is: when theprice goes lower than the last low but the Stochastics do not golower than the they were at the last low - Page 43
The Bu divergence with Stochastic at new low set-up is: whenthe Stochastic goes lower than the last low but the price does notgo lower than it was at the last low - Page 44
The Sell set-up is: when the Stochastics reach the 90% line youplace the Sell trade on the low of the daily bar unless the close ofthat bar is within 1o/o of the lowest point - Page 45
The Sell divergence with price at new high set-up is: when theprice goes higher than the last high but the Stochastics do not gohigher than they were at the last high - Page 46
The Sell divergence with Stochastic at new high set-up is:when the Stochastic goes higher than the last high but the pricedoes not go higher than it was at the last high - Page 47
Both a Buy and a Sell trade require you to place two trades, one
of 0.618 with both trades having a stop at the -0.618 position.
As explained before, both the Sell and Buy Stochasticdivergence trades are a lot harder to spot than the normal Buyand Sell price divergence so take care with these specific set-ups and if in doubt leave them as it is better to miss out on thetrade rather than make a wrong decision and make a loss.
Page 41
The Buy Stochastic set-up
When the Stochastic reaches the 10% line you place two Butrades on the high of the daily bar unless the close of that bar iswithin 1% of the highest point.
You need to measure from the bottom of the daily bar to the highof the daily bar and add 38.2% of that bar to the top of that bar toget the target price for the first trade, which is 983.49 in thisexample on the chart below. Then place a Stop at61.8% retraceof that bar which is 877.49 on the chart below.
Then measure again from the bottom of the bar to the top of thebar and add 61. of that bar to the top of that bar to get thetarget price for the second trade, which is 1008. 1 in thisexample on the chart below. Then place a Stop at 61.8o/o retraceof that bar which is 877.49 on the chart below.
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Page 42
The Buy divergence - price set-up
When the price goes lower than the last low but the Stochasticsdo not go lower than they were at the last low then you place twoBuy trades on the high of the daily bar.
You need to measure from the bottom of the daily bar to the highof the daily bar and add 3 .2% of that bar to the top of that bar toget the target price for the first trade, which is 20.36 in thisexample on the chart below. Then place a Stop at 61.8% retraceof that barwhich is 851.36 on the chart below.
Then measure again from the bottom of the bar to the top of the
target price for the second trade, which is 936.64 in this exampleon the chart below. Then place a Stop at 61.87o retrace of thatbar which is 851.36 on the chart below.
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Page 43
The Buy divergence - Stochastic set-up
When the Stochastic goes lower than the last low but the pricedoes not go lower than it was at the last low then you place two
uy trades on the high of the daily bar.
You need to measure from the bottom of the daily bar to the highof the daily bar and add 38.2% of that bar to the top of that bar toget the target price for the first trade, which is 90 .30 in thisexample on the chart below. Then place a Stop at61.8o/o retraceof that bar which is 867.55 on the chart below.
Then measure again from the bottom of the bar to the top of thebar and add 61. of that bar to the top of that bar to get thetarget price for the second trade, which is 915.45 in this exampleon the chart below. Then place a Stop at 61.8% retrace of thatbar which is 867.55 on the chart below.
Stoch 13,3,3 (90%-10%)
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Page 44
1996-2009
The Sell Stochastic set-up
When the Stochastics reach the 90% line you place two Selltrades on the low of the daily bar unless the close of that bar iswithin 1o/o of the lowest point.
You need to measure from the high of the daily bar to the low ofthe daily bar and subtract 38. Yo of that bar from the bottom ofthat bar to get the target price for the first trade, which is 947.67in this example on the chart below. Then place a Stop at61.8%retrace of that bar which is 990.42 on the chart below.
Then measure again from the top of the bar to the bottom of thebar and subtract 61.8% of that bar from the bottom of that bar to
example on the chart below. Then place a Stop at 61.8% retraceof that bar which is 990.42 on the chart below.
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Page 45
The Sell divergence - price set-up
When the price goes higher than the last high but the Stochasticsdo not go higher than they were at the last high then you placetwo Sell trades on the low of the daily bar.
You need to measure from the high of the daily bar to the low of
in this example on the chart below. Then place a Stop at61.8%retrace of that bar which is 907.12 on the chart below.
Then measure again from the top of the bar to the bottom of the
example on the chart below. Then place a Stop at61.8% retraceof that bar which is 907.12 on the chart below.
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Page 46
19S6-2009
The Sell divergence - Stochastic set-up
When the Stochastic goes higher than the last high but the pricedoes not go higher than it was at the last high then you place twoSell trades on the low of the daily bar.
You need to measure from the high of the daily bar to the low ofthe daily bar and subtract 38.2% of that bar from the bottom ofthat bar to get the target price for the first trade, which is 845.01in this example on the chart below. Then place a Stop at 61.8%retrace of that bar which is 865.26 on the chart below.
Then measure again from the top of the bar to the bottom of thebar and subtract 61.8 of that bar from the bottom of that bar to
example on the chart below. Then place a Stop at 61.8% retraceof that bar which is 865.26 on the chart below.
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Page 47
ISD - Triangle Bar Set-up
ISD stands for In Side Day. What this means is the high of adaily bar did not go higher than the high of the bar the day beforeand the low of the daily bar did not go lower than the low of theday before. You can see this ISD bar in (Chart-35) that I havecoloured in RED and will be coloured RED on all charts from hereon. The daily bar before the ISD bar I shall call the triangle barand it will be coloured in BLUE on the charts from here on.
This ISD bar with the triangle bar before it in BLUE forms atriangle shape or arrow head as marked with the RED lines andis also referred to as a consolidation pattern, as the market isneither going up, nor is it going down at that point.
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We do not need thehave removed them
Stochasticsfrom here on
on the chartfor clarity.
Page 49
for this section so I
At some point in time the market will eventually move eitherhigher or lower than the triangle bar and that is referred to as abreak out.
This pattern is very common and tends to happen on average 2or 3 times a month on most major stock Indices as you can see inthe next chart (Chart-36). This is the same chart of the S&P aswe used for the Stochastics section. I have coloured the ISD barRED on all the days it has occurred over the past 7 months.
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We can trade these bars even though we do not know for certainwhich way the market will break out from this triangle.
First there are a couple of simple rules and Fibonacci extensionsthat we need to go through before getting started. We will beusing the same Fibonacci percentage numbers, .382 and 0.618,as targets and the -0.618 Stop that we used in the Stochasticssection.
Page 50
ln the chart (Chart-37) | have measured from the low of the ISDbar marked with a letter A to the high of the previous triangle barmarked with a letter B and added 38.2% and 61.8% of thatdistance to the high of the bar at point B making two target pricesof 27.19 and 834.56 at the BLUE horizontal lines.
The Stop point for this trade is in exactly the same place asbefore at the -0.618 position.
834.56 LHexp 0.618
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(Ghart-37)
You then need to do the same process but to the down sidethis triangle by measuring from the high of the ISD to the lowthe triangle bar using the same setting.
This is shown in (Chart-38). I have measured from the high of theISD at point G down to the low at point D and subtracted 38.2%and 6 .8o/o of that distance from the low at point D, giving the
ofof
Page 51
Again the Stop position for this trade is at the -0.618 position.
Because the ISD was almost perfectly central to the previous daythen the -0.618 for both up and down trades are almost inexactly the same place, so they look a bit messy on the chart.
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Now this all looks simple enough but as would be expected thereare a couple of rules to make this work as effectively as possible.
We need to see the direction of the market prior to the triangledaily bar to determine which trade has the greater probability o=
hitting the price targets we have set because commonly a marketwill break out in the direction of the original move.
triangle, but we then need to remove 1 of the 0.618 trades fromthe direction that the market was not moving in when entering thetriangle as it is less likely to be met and could result in a loss.
(Chart-38)
Page 52
lf the market was moving down into the triangle then the Selltrade has a greater probability of working so we would then
lf the market was moving up into the triangle then the Buy tradehas the greater probability of working so we would then removethe 0.6 8 target Sell trade.
We only need to consider the bar that enters the triangle and notthe bigger market trend. To some people this will seem strangebut this method works well on trading small time frames.
In the following chart (Ghart-39) you can see the bar that enteredthe ISD triangle being the daily bar marked with a letter B.
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As the price for the daily bar B moved down from a higher pointthan the triangle bar C then the market was moving down into thetriangle so the Sell trade has the greater probability of working,
Page 53
therefore I have removed from the chart the .618 price targetfrom the Buy trade leaving 2 Sell trades and 1 Buy trade in placeand of course their appropriate Stops. Whenever we place a
Moving on you can see in (Ghart-4O) that after another day the
and hitting the 0.38 price target making a nice profit.
27Chart created
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1996-2009
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Once a trade has been executed and the day has finished thenyou will need to delete the trades in the opposite direction. Schere for example once the market had hit our Buy targets andthe day has finished then we need to delete the Sell trades.
At the end of the traded day if any trade had been entered intoand had not hit target so it was still active, then we leave thattrade alone until it either hits target or hits the Stop but you stilidelete all the opposite trades.
(Chart-40)
Page 54
Now we have the logic to the ISD triangle set-up we shall now gothrough each of the trades individually that we highlighted fromthe chart (Chart-36) over the past 6 months.
To make things clearer on the charts I have coloured the ISD barin RED and the triangle bar in BLU
In chart (Chart-41) the market had moved up into the triangle so
Sell trade.
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(Chart-41)
As you can see the market opened and came down during theday and then broke the triangle upwards and triggered us intoboth the two Buy trades. At the end of the traded day we are nowin the two uy trades so we need to delete the Sell trades.
The next day the market produced yet another ISD bar as shownin (Chart-421 and so again we need to look at the direction themarket was going into the new triangle.
Page 55
Because the market was moving up into the new triangle thistime from the first triangle again coloured BL then again weneed to place both the 0.382 and 0.618 Buy trades but only the0.382 Sell trade.
s&p-500 D-D
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(Ghart-42)
The chart is getting a bit messy here with all these lines but wenow have 4 Buy trades in place. 2 Buy trades we have alreadybeen triggered into from the previous day and waiting for them tohit target with another 2 Bu trades waiting to be triggered.
We also have 1 Sell trade in place and of course 5 Stopscovering each of the 5 trades.
The next day the market broke out of the second triangleupwards and triggered us into the other 2 Buy trades.
Page 56
As you can see from the chart (Chart-43) notday trigger us into the other 2 Bu trades butwent a lot higher during that day and hit all 4targets making a very nice profit on all 4 trades.
only did thethe marketBuy trade
nextthenprice
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Now the Bu trades have triggered and hit target you need todelete the Sell trade that was still there from the second triangleSell trade.
lf the market had triggered you into the second triangle uytrades but had not hit the second triangle Buy targets by the endof the day, then you would have still deleted the Sell trade for thesecond triangle.
The only time the Sell trade for the second triangle would nothave been deleted was if the market had not triggered thesecond triangle Buy trades. A trade once placed is left alone
Page 57
The next ISD triangle trade was just a couple of days after thelast one as shown on (Chart-44).
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Note - Although as explained at the beginning of this section we
market was moving into the triangle, there is one exception to thisrule as follows:-
!trade on a trianqle that opens at the lowest point of the dav.
With that in mind as the triangle bar in opened at the
it which is why there is not one marked on the chart.
As the market was moving down into the triangle bar then wewould still place both Sell trades as shown on the chart.
Page 58
As you can see from what happened in chart (Ghart-45) themarket moved up the day after the RED ISD bar and would havetriggered us into a Buy trade if a Buy trade was there then itwould have dropped and hit our -0.618 Stop for a loss.
There was no Buy trade there because we had not placed it, dueto the fact the triangle bar in B UE opened at the high of the day.
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(Ghart-45)
The next day the market went down and entered us into the two
price targets for a nice profit.
The next available trade was a few weeks later around the 28th in(Chart-46) but did nothing because the triangle bar as shown inBLUE on the chart opened at the high of the day so no Buy tradecould be placed.
Page 59
Even though a Sell trade was placed it was deleted by us a fewdays later because as the market went higher than the trianglebar it would have triggered us into a uy if one was there and we
would then have deleted the Sell trade, so we deleted it.
The next available trade is marked on the chart on the right. Thebar before the triangle bar was moving up into this triangle so weplaced a Bu trade for both 0.382 and 0.618 target prices but
only a single .382 Sell trade.
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(Chart-46)
lf you look closely, the day after the RED ISD bar the marketagain had an ISD but this time I have not placed any Buy or Selltrade. Why?
Note - lf a new ISD triangle pattern occurs after an existingtriangle that you already have trades in place for but none ofthose trades you have in place have been triggered yet, then you
do not place any new trades on the new ISD triangle until you aretriggered into or out of the original ISD triangle trade.
Page 60
lf you remember back from earlier in (Ghart-43) we had a newISD triangle form while we were already in an existing ISD
a position to place another trade on the new lSD.
Following on from the previous chart (Chart-46) the market thenmoved down and entered us into the Sell trades. (Ghart-47).
trades because we had been entered into the Sell trade.
price target for a good profit.
89I.EX HHexp{1.fi18
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(Ghart-47)
lf you notice the marketthen moved fast back up to close higher than where it started.
Page 61
You will find this happens a lot because once a market hasbroken out of a triangle it will tend to have a good move in thatdirection even if it then returns back to its original direction.
The next trade was only a week later. (Ghart-48).
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(Ghart-48)
You can see the market moved down into the triangle bar so we
Buy trade.
The next day after the ISD bar the market dropped and hit bothour price targets, closing them for another nice profit. Do notforget to delete the Buy trade.
The next trade was only two days later (Ghart-4g) and was oneof those patterns that you need to remember the rules for.
Page 62
We had ahad movedSell trades
normal ISD bar triangle formation where the market
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Trader (c) 199r5-Zrl09
(Chart-a9)
The next day after the ISD bar the market made another ISD bar.Remember this happened earlier, in (Chart-46), and the rule: lf anew ISD triangle pattern occurs after an existing triangle that youalready have trades in place for and none of those trades youhave in place have been triggered yet, then you do not place anynew trades on the new ISD triangle.
As the market had not triggered us into any of the original triangle
The market then bounced around for another 2 days and almostput us into the Sell trade, but then a few more days later went up
Page 63
The next available trade with the ISD triangle was a few weekslater on 21"t January 2009. Again the market moved down into
The market messed around again for a few days like the lasttrade we had on (Ghart-49) but eventually broke out of the
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16 23Chart created Trader (c) 1996-2009
(Chart-50)
market then produced yet another ISD triangle. Because we had
new ISD triangle.
As the market had moved up into the new ISD triangle then we
Page 64
So we now have a similar situation as we had withwhere we now have multiple trades together, being 3and 1 Sell trade on the market at the same time.
(Ghart-42)Buy trades
The very next day (chart-S1) the market moved up breakingthrough the second triangle and putting us into the oiher 2 Bujtrades, then on the same day the market moved up far enough tohit all 3 Buy trade price targets making a very nice profit
Again at this point you need to delete the Sell trade.
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The very next day the market made another lsD triangle for us toplace a trade on (Chart-52).
This time the market moved up into the triangle so weplace both 0.382 and 0.618 Buy trades on the marketthe .382 Sell trade.
(Chart-s1)
need toand only
Page 65
The next day the market moved down breaking out of theand putting us into the Sell trade. On the same day the
another profit.
trianglemarketfor yet
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(Ghart-52)
The next available ISD triangle trade was about 2 weeks later(Chart-S3). The market, although going up overall, still enteredinto the triangle going down as you can see by the bar just beforethe triangle bar.
Because it was down into the triangle then we place both the
The very next day, after the RED lSD, bar the market droppeddown through the triangle bottom triggering us into both the Sell
another profit.
Page 66
ft83.I6 LHexp tl.3SZ.[0
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(Chart-53)
The next ISD triangle trade was about another 2 weeks later(Chart-54) on February 24th, so you can see these ISD triangletrades are available on average 2 to 3 times every month and thisis common on most markets.
This time the bar before the triangle bar was not higher orlower than the triangle bar, so we have to look at the bar beforethat bar to determine the direction into the triangle.
As you can see the bar was moving down into the triangle so we
trade.
The market then went sideways for two more days beforedropping down through the bottom of the triangle and entering usinto the 2 Sell trades.
Page 67
s&p-500 D-D
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fhart created Trader (c) 1996-2009
(Chart-Sa)
At the end oftriggered then
The next day
the traded day, since the Sell trades have beenremember that you need to delete the Buy trade.
the market then dropped down again and hit both
The next available ISD triangle trade was once again about twoweeks later on March gth lGtrart-ss;.
As you can see the market moved down into the LUE trianglebar so we need to place the 0.382 and 0.618 Sell trades on themarket but only the 0.382 Buy trade.
This was a nice and clean trade as the very next day after theRED ISD bar the market shot up entering us into the Buy tradeand hitting our 0.382 price target at the same time for anotherprofit. Again you need to remember to delete the Sell trades.
Page 68
S&P-SOO D-D
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Chart created Trader (c] 1996-2009
(Chart-s5)
It may all seem great up to this point with no losing trades but as I
have said before you can never win them all and that is exactlywhat happened to our next ISD triangle trade (Ghart-56).
The market was moving up into the triangle so we placed both
Sell trade.
The very next day the market moved up breaking out of the
the same day and came all the way back down hitting the Stop
point you must delete the Sell trade.
the very next day the market went back up and hit the point were
Page 69
.00
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(Chart-56)
This was unfortunate but does happen, but looking at whathappened next you would see that even though it would have hit
trade, so it would have resulted in a loss anyway.
Stops are there for a reason. The reason is to protect you fromlosing large amounts of money. Always use these stops on everytrade regardless of what you think.
The last ISD triangle trade for the last 6 months was 31"t Marchas shown in the next chart (Chart-57).
The market moved down into the triangle so we placed both the
Page 70
5&p-500 D-D
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(Chart-57)
As you can see the market wentISD bar, then the following daytriangle and entering us into themoved up far enough to hit ourgood profit.
sideways the next day after themoved up breaking out of the
At the end of this 6 month period we have had a total of 16 ISDtriangles available of which 1 was not possible because of theopen position of the triangle being at the high of the day so 15possible ISD triangles.
Out of those 15 ISD triangles, we had 14 winning ISD trianglesthat had a total of 21 profit trades, and 1 loss ISD triangle thathad 2loss trades.
Page 71
Recap ISD Triangle Trade Rules
trades and two Sell trades with Stops at the 0.618 retraceposition.
highest point of the day and we will not place any Sell trade on atriangle that opens at the lowest point of the day.
We only need to consider the bar that enters the triangle for thedirection and not the bigger market trend.
lf the market was moving down into the triangle then we remove
lf the market was moving up into the triangle then we remove the
Once a trade has been executed and the day has finished thenyou need to delete the trades in the opposite direction, so if the
At the end of the traded day if any trade had been entered intoand had not hit target so it was still active, then we leave thattrade alone until it either hits target or hits the Stop but you stilldelete all the opposite trades.
lf a new ISD triangle pattern occurs after an existing triangle thatyou already have trades in place for but none of those trades youhave in place have been triggered yet, then you do not place anynew trades on any new ISD triangle until you are triggered into orout of the original ISD triangle trade.
Page 72
Final Words
You now have two simple, logical and easy to follow tradingstrategies for the S&P with the ability to make very good profitsfor you to use to trade the markets with.
Please follow the rules for each of the strategies fully and do nottry to bend these rules as they were designed to make theprobability of a profitable trade as high as possible.
lf you try to modify or bend the rules then it is likely you will endup losing more trades than the techniques would otheru,uise do.
Never ever forget to place a Stop on every trade you placeregardless of how confident you are. You are human so you canand you will make mistakes. The Stop is there to protect you soyou can live to trade another day.
Do not rush your trading - be patient. lf there is no tradeavailable, then there is no trade available, so do not try to makeone that does not exist.
lf you are not sure about a trade leave it alone, as it is better toleave it than to make a mistake and lose.
Now that you have this information it is up to you to decide if youwish to use it or sit back and do nothing,
Best wishes.
Steve.
Page 73
