The Peak Valley Strategy

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July 29, 2010THE PEAK-VALLEY STRATEGY

1 of 12The Peak-Valley StrategyAll rights reserved, copyright by Arnulfo L. Pealoza, 2010

DISCLAIMER:Online trading involves substantial risk of loss and is not suitable for everyone.

The valuation of the contracts does fluctuate, and, as a result, you may lose more than your

original investment. The impact of seasonal and geopolitical events is already factored into

market prices. The highly leveraged nature of online trading means that small market

movements will have a great impact on your trading account and this can work against you,leading to large losses or can work for you, leading to large gains. If the market moves against

you, you may sustain a total loss greater than the amount you deposited into your account.

You are responsible for all the risks and financial resources you use and for the trading

systems you are using. You should not engage in live trading unless you fully understand the

nature of the transactions you are entering into and the extent of your exposure to loss. If you

do not fully understand these risks you must seek independent advice from your financial

advisor. All trading strategies are used at your own risk. This mentoring should not be relied

upon as advice or construed as providing recommendations of any kind. It is yourresponsibility to confirm and decide which trades to make. Trade only with risk capital; that

is, trade with money that, if lost, will not adversely impact your lifestyle and your ability to

meet your financial obligations.

Past results are no indication of future performance.

In no event should the content of this correspondence and coaching be construed as an

express or implied promise, guarantee or implication from Children of the Journey that you

will profit or that losses can or will be limited in any manner whatsoever. Children of the

Journey is not responsible for any losses incurred as a result of using any of our trading

strategies and mentoring. The Trading software should never be left unattended due to the

possibility of events out of your control, such as computer or data failure, power outages,

position mismatches, and/or network problems. Loss-limiting strategies such as stop loss

orders may not be effective because market conditions or technological issues may make it

impossible to execute such orders. Likewise, strategies using combinations of trading positions

such as spread or straddle trades may be just as risky as simple long and short positions.

Information provided in this correspondence and coaching is intended solely for informational

purposes and is obtained from sources believed to be reliable. Information is in no way

guaranteed. No guarantee of any kind is implied or possible where projections of future

conditions are attempted.


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Contents

Contents................................................................................................................................................................................. 2

The parts of the Peak-Valley Strategy: ............................................................................................................................. 3

Set up for Futures Trading: ATC Trader Demo Software Required ............................................................................ 4

Setting up ATC Trader Demo ......................................................................................................................................... 4

Import the xml Layouts .................................................................................................................................................... 4

Using the xml Layouts you wish to Trade..................................................................................................................... 5

Setting up the 144 Tick Chart ......................................................................................................................................... 5

Configure Your Fibonacci Retracement Tool (runway) .............................................................................................. 6

Trading Screen Layout .................................................................................................................................................... 7

Peak and Valley Strategy (PVS) .................................................................................................................................... 7

Knowing when a Peak has formed ................................................................................................................................ 8

Knowing when a Valley has formed .............................................................................................................................. 8

Knowing when to SELL ASK at a Peak, trade for a downtrend ................................................................................ 9

Knowing when to BUY BID at a Valley, trade for an uptrend .................................................................................. 10

How the Market lets us know the rhythm of the dance............................................................................................. 11

Trading in Divine Threes ............................................................................................................................................ 12


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The parts of the Peak-Valley Strategy:

For Futures Trading:1. Various Futures Contracts:

a. The E-mini Russell 2000 Futures (symbol: RLM-M??) tick size is 0.1, one tick move is worth$10 per contract, Trades from 9:30am to 4pm EST.

b. The Euro Currency Futures (symbol: 6E??) tick size is 0.01, one tick move is worth $12.50 pecontract, Trades 24 hours, except weekends (active early morning and early evening).

c. The Yen Currency Futures (symbol: 6J??) tick size is 0.001, one tick move is worth $12.50per contract, Trades 24 hours, except weekends (active after 7pm EST).

2. The use of Stop Limit ticks away from trade entry, helps us Protect Our Principal so we maycontinue to play in the market.

3. The Trading time limit: We remain disciplined and trade for only one hour, maximum two hoursotherwise you give back what you make.

4. The ATC Trader Demo from ATC Brokers $25 per month, after opening a trading account for $3000 to$5000.

5. The 144 Tick Chart used for entering, managing and exiting trades.6. The 55 Tick Chart (predictor) used to give us a 2 to 4 second edge in knowing when to enter or exit a

trade.7. The 610 Tick Chart (trender) zoomed out so the time axis covers one trading day, used to confirm

direction of trends.8. The Keltner Channel spot possible trend, is the trender hugging the upper, lower or mid-Keltner?9. The Relative Strength Index confirm trend, know when the market is going sideways and when

valleys and peaks are forming.10. The Alligator leading indicator, confirms trend continuation and know when the market is going

sideways. We Protect Our Principal and stay away from ranging or sideway markets!11. The Awesome Oscillator confirms changes in momentum, which leads to change in price.12. The Accelerator Oscillator confirms change in acceleration, which leads to change in momentum.13. The Fib Retracement (runway) when trends may stall or possibly end and reverse.14. The MACDs (confirmators) lagging indicator, 233, 610, 987 ticks, lets us know what the long term

trends are. We do NOT use for deciding when to enter a trade.15. The Trading in Divine Threes, gives us courage, our profit and blessings!


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Set up for Futures Trading: ATC Trader Demo Software Required

Setting up ATC Trader Demo

This is how your main trading screen

should look like.

You will need to import the Layout filesprovided to you for your training.These .xml files are on the FuturesTrading DVD you received under \MyLesson Plan\My TradingSoftware\Futures - ATC Trader

Russell2000.xml eminiCurrency-EUR.xml - EuroCurrency-YEN.xml Yen

Import the xml Layouts

From the ATC Trader main window,choose View, Layout, Import. Navigateto where the XML files are and importeach layout you wish to trade.


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Using the xml Layouts you

wish to Trade

From the ATC Trader main window,choose View, Layout and the FuturesContract you wish to trade.

Setting up the 144 Tick Chart

Set the scaling of the Price axis to 1/2

tick intervals

Move the mouse cursor over the Priceaxis and use the mouse wheel while theshift key is down to change the scalingto 1/2 tick intervals.

Set the magnification of the tick chart

Use the Green or Red magnifying toolicons to make sure you have 7 to 8candlestick bars per grid of the time axis.

This makes sure you are not missing theforest by only looking at the trees.Makes you cognizant of significantoverall long-term trends.


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Configure Your Fibonacci

Retracement Tool (runway)

Select the Fib Retrace Tool.

Draw a Fib Retrace by left-clicking andholding on a peak, then drag the pointerto the next valley and releasing the left-click.

Right-click on the Fib just drawn andchoose properties.

Set the values accordingly. You may setcolors and line width as you prefer.


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Trading Screen Layout

The Predictor: 55 tick chart, with thefollowing indicators; Keltner channel,

Alligator, Fractal, RSI, Accelerator andAwesome Oscillator.

The Trender: 610 tick chart, with theKeltner channel, Fractal and RSI.

The 144: with the Keltner channel,Fractall, Alligator and RSI.

The Confirmators: 233, 610 and 987MACDs.

The DOM: used for Trade entry/exit,stop limit, breakeven and take profit limit.

Peak and Valley Strategy

(PVS)

By using the PVS, we Dance with theMarket. We intimately know the nextstep our dance partner will make.

PVS Purpose: to make sure we alwaysenter trades at the highest possible peakor the lowest possible valley.This increases the chances of us stayingin the trade while the price action is

jumpy.

Use the Predictor to know when the 144has reached a peak or a valley in itsprice action.

On the 144 tick chart


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Knowing when a Peak has

formed

Watch the price action and the RSI as it

forms on the Predictor and 144 tick

chart.

The price action will show a green

candlestick followed by a red.

The RSI will form a lower line from a

peak. The RSI is your most critical

indicator along with the price action.

The Accelerator MAY (but not always, as

the price action-red candlestick isforming) show a red bar.

The Awesome MAY (but not always, as

the price action-red candlestick is

forming) show a red bar.


Knowing when a Valley has

formed

Watch the price action and the RSI as it

forms on the Predictor and 144 tick

chart.

The price action will show a red

candlestick followed by a green.

The RSI will form a higher line from a

valley. The RSI is your most critical

indicator along with the price action.

The Accelerator will not show a greenbar as the price action develops.

The Awesome will not show a green bar

as the price action develops.



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Knowing when to SELL ASK

at a Peak, trade for a

downtrend

We see a Peak develop on the 144 tickchart as supported by the price actionand RSI on the Predictor.

Confirmation of a downtrend: priceaction on the 144 has touched the upperKeltner, the RSI comes from a high of 70to 60 and you may have DIVERGENCEbetween price action and the RSI.

DIVERGENCE is when the price action

does not match what the RSI is doing.In this example, the price action createdhigher peaks, but the RSI created lowerpeaks.

The Market always tells you what itwill do! In this example, the Market wasforming lower lows on its RSI way beforethe highest price action peak wasformed, telling us go for a short!

Use the Trender (zoomed-out 610 tickchart) to also confirm when a downtrendis starting.


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Knowing when to BUY BID at

a Valley, trade for an uptrend

We see a Valley develop on the 144 tickchart as supported by the price actionand RSI on the Predictor.

Confirmation of an uptrend: priceaction on the 144 has touched the lowerKeltner, the RSI comes from a low of 30to 40.

Use the Trender (zoomed-out 610 tick

chart) to also confirm when an uptrend isstarting. The Trender is extremelyhelpful in letting us know when theMarket is still in a sustained trend.


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How the Market lets us know

the rhythm of the dance

Watch the price action and RSI1. Higher peaks/lows an uptrend2. Lower peaks/lows a downtrend

When the price action crosses the mid-Keltner, then the trend may havechanged.

Be careful of a sideways market, whenthe Alligators mouth is closed, stay out.

Draw the Fib, to know when the priceaction may retrace, stall or reverse.

On the Trender, mark the possible floorsand ceilings, where price action may findsupport or resistance.

When price action on the Trender is onthe lower half of the Keltner, then it is asustained downtrend and the reverse istrue for an uptrend.

When the next peak on the Trender islower than the previous peak, then it is

now a downtrend, the reverse for anuptrend.

Use the Confirmators (MACDs) toconfirm a sustained trend. Do NOT usethe Confirmators to decide when to entera trade. These are lagging indicators.

When Confirmators approach the zeroline, price action will stall and the trendmay reverse depending on the angle ofthe slope of the MACD line.


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Trading in Divine Threes

When we enter a trade, we buy threecontracts.

At first resistance, on the 144 tick chart,we move to breakeven and close/scale-out the first contract. This closing of thefirst allows us to Protect our Principaland strengthen our courage.

Depending on the Trender andConfirmators we keep the second andthird contracts running.

When a possible ceiling or support is

reached, we scale-out the secondcontract. This locks-in our profit.

We let the third contract run, unless weonce again hit the price at where weclosed the 2nd contract, we then MAYscale-out the third. This is our Blessing.

We also close the 3rd contract when weknow the trend had ended.

The trend may have ended because the

Trender had crossed the mid-Keltnerand/or the 610 MACD gave us a signalcrossing, also the price action is at aceiling or support and at or near a FibRetrace.

We may also choose to let the 3rdcontract just go all the way back tobreakeven, but then, we may havemissed the ability to enter another tradefor the reverse trend.

Please develop the unique variation thatis your very own style.

Each of us are a Special Child of theJourney!

Documents

The Peak Valley Strategy