Active Trend Trading Rules Review

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1 Active Trend Trading Rules Review Active Trend Trader: Dennis W. Wilborn A Trend Should Be Assumed to Continue in Effect Until Such Time as Its Reversal Has Been Definitely Signaled Edwards & Magee

2 Disclaimer U.S. Government Required Disclaimer Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don t trade with money you can t afford to lose. This is neither a solicitation nor an offer to Buy/Sell stocks, futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this training. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. All Materials presented are for training purposes only. Traders should paper trade any new method prior to risk of personal capital. 2

3 ATTS Rules The Challenges Active Trend Trading Rules: Aimed at providing a clear and simple trading system that when executed properly will provide traders with an edge to multiply their accounts. 1. Having the Patience & Discipline to apply the rules 2. Taking the Trades when the Strategic Set-Up happens 3. Failure to Strategically plan the trade 4. Maintaining Focus 5. Pure unadulterated FEAR!! 3

4 ATTS Rules Based on 5 Pillars Active Trend Trading Rules: Aimed at providing a clear and simple trading system that when executed properly will provide traders with an edge to multiply their accounts. Traded for over three years with repeatable results Back tested over a 10 year period with the SPY trading bullish trades only. Average return over 10 years: 31.75% Average Trades per Year: Average Winning Percentage: 71.86% Note: Back test results are not a claim or guarantee of actual trading results 4

5 ATTS Rules What to Trade: 1. IBD 50 Running List Stocks, Sector Leaders, Leaderboard, Stocks on the Move, Growth 250 & Leveraged Bullish Index ETF s 2. Stocks that pass IBD Stock Check Up with composite over 80 or EPS > 85 (with one exception) 3. Stocks/Index ETFs Priced Over $10 with volume GTE to 500K shares/day 4. Stocks/Index ETFs with Weekly Options (Desirable not a must) 5. Stocks/Index ETFs from my personal and Private Go To List 6. Stocks/Index ETFs with observable price patterns When to Enter: At Objectively defined Action Points 1. Bounce or breakouts above/below moving averages intraday (more aggressive) or close (Primarily the 8 day EMA or 8 day HMA see chart example) 2. Trend line Breaks 3. Support/Resistance Bounces or Breaks (If a downtrend is making a new low don t trade it unless there is past support) 4. Candlestick Patterns 5. Use consistent price trigger cushion (5-50 cents) 6. With Convergence of Clues When to Exit: At Objectively defined Action Points 1. Stop Losses: cents above or below swing high or swing low 2. 8 day EMA Rule (can apply to any moving average that triggers the trade) 3. Break Trend Line: cents above or below 4. Profit Stop: At set technical targets for Income Generating Trades, 1/3 to 2/3 s a position 5. Profit Stop after candlestick reversal signal is confirmed and/or violation of the low/high of a close below/above 8 day EMA 6. With Convergence of Clues 7. Hard Stop 7-8% loss from entry price based on stock or ETF What Strategy to Use: Long & Short Stocks and ETF s. Weekly Covered Calls, Naked Puts, Strategic Bullish & Bearish options (directional) What to Expect: Cumulative Target: 40% ROI & 60% Winning Trades 5

6 ATTS Rules (Pillar 1) What to Trade: 1. IBD 50 Running List Stocks, Sector Leaders, Leaderboard, Stocks on the Move, Growth 250 & Leveraged Bullish Index ETF s 2. Stocks that pass IBD Stock Check Up with composite over 80 or EPS > 85 (with one exception) 3. Stocks/Index ETFs Priced Over $10 with volume GTE to 500K shares/day 4. Stocks/Index ETFs with Weekly Options (Desirable not a must) 5. Stocks/Index ETFs from my personal and Private Go To List 6. Stocks/Index ETFs with observable price patterns 6

7 ATTS Rules (Pillars 4-5) What Strategy to Use: Long & Short Stocks and ETF s. Weekly Covered Calls, Naked Puts, Strategic Bullish & Bearish options (directional) What to Expect: Cumulative Target: 40% ROI & 60% Winning Trades Over Time 7

8 ATTS Rules (Pillar 2) When to Enter: At Objectively defined Strategic Action Points (SAPs) 1. Bounce or breakouts above/below moving averages intraday (more aggressive) or the close (8 Day EMA) 2. Support/Resistance Bounces or Breaks 3. Trend line Breaks 4. Candlestick Patterns at support or resistance within an established trend 5. Use consistent price trigger cushion (5-50 cents) 6. With Convergence of Clues Note: These Rules work with any time frame chart 8

8 day EMA Rule--Example INCY What are the clues? 5/5 Retest Uptrend line and horizontal support Entry could be planned here between 97.21 and 98.90 5/1 5/5 Entry 98.

9 8 day EMA Rule--Example INCY What are the clues? 5/5 Retest Uptrend line and horizontal support Entry could be planned here between and /1 5/5 Entry Easy Stop Loss = 50 cents below low of candle from 5/5---but! Swing Low at a stop at would provide more room for the trade to breathe and also stay within the 7-8% stop loss criteria When price closes above the 8 day EMA then the stop can become the 8 day EMA Rule 9

Other Clues-Example INCY What are the clues? 4/30 Test 61.8% Retracement 5/5 Retest Uptrend line and horizontal support 4/30 5/5 Entry 98.90 Entry could be planned here between 97.21 and 98.

10 Other Clues-Example INCY What are the clues? 4/30 Test 61.8% Retracement 5/5 Retest Uptrend line and horizontal support 4/30 5/5 Entry Entry could be planned here between and Easy Stop Loss = 50 cents below low of candle from 5/5---but! Swing Low at a stop at would provide more room for the trade to breathe and also stay within the 7-8% stop loss criteria When price closes above the 8 day EMA then the stop can become the 8 day EMA Rule 10

8 Week EMA Rule Example INCY Second Chance Entry 12 weeks later Entry 51.00 First Close below 8 week EMA Week of 10/13/14: Close above a Moving Average Cluster and the 8 week EMA & 16 week HMA.

11 8 Week EMA Rule Example INCY Second Chance Entry 12 weeks later Entry First Close below 8 week EMA Week of 10/13/14: Close above a Moving Average Cluster and the 8 week EMA & 16 week HMA. Multiple Second Chance entries on the 100%+ run since October /5/ % 1/12/ % 1/19/ % 2/2/ % 2/9/ % 2/16/ % 4/6/15 19% Closes Below 8 Week the week of 6/22/15 11

12 ATTS Rules (Pillar 3) When to Exit: At Objectively defined Action Points 1. Stop Losses: cents above or below swing high or swing low 2. 8 day EMA Rule (can apply to any moving average that triggers the trade including weekly charts) 3. Break Trend Line: cents above or below 4. Profit Stop: At set technical targets for Income Generating Trades, 1/3 to 2/3 s a position 5. Profit Stop after candlestick reversal signal is confirmed and/or violation of the low/high of a close below/above 8 day EMA (or the moving average that triggered the trade) 6. With Convergence of Clues 7. Hard Stop 7-8% loss from entry price based on stock or ETF 12

13 When to Exit Stops are designed with Two Objectives Stop Losses: Protect Capital from Catastrophic/Controlled 7-8% from purchase price protect against Catastrophic Loss Swing Lows/Highs 8 day EMA Rule Trend Line Break Profit Stops: Target Profit, Protection or Profit Conservation Measured Profit Targets--Technical Stops Trailing Stops 8 day EMA Rule Candlestick Formation Stops 13

14 Strategic Exits Stops Loss o 7-8% from purchase price protect against Catastrophic Loss o Define exactly the price of this stop o Some use mental, written of conditional order o o Most critical when the trade starts o These are the Abort Procedures just as the trade starts to take off! o This is the trader s LINE IN THE SAND 14

15 When to Exit: Swing Low s Trailing Stops Swing Lows - Identify Swing Low Place Stop cents below Low - Use as Capital Protection or Profit Stop - Know the percentage to swing low if over 7% adjust to another stop-loss 15

Trailing Profit Stops: Swing Lows Move Stops to 15-50

16 Trailing Profit Stops: Swing Lows Move Stops to below New Swing Low Reset after each new Swing Low 16

17 Strategic Exits Stops Loss 8 day EMA Rule o 8 day EMA Rule Triggers on Close below the 8 day EMA o TWO DAY PATTERN in an Uptrend** o A violation of the low on the Day Price Closes below the 8 day EMA The sequence: 1. Price Action closes below the 8 day EMA 2. Place a conditional or hard stop at below the low of the day prices closed below the 8 day EMA This stop doesn t have to be put in place until there is a close below the 8 day EMA, daily review is necessary! Example: Go To The Charts 17

18 When To Exit: 8 day EMA Rule Capital & Profit Protection 8 day EMA Rule: Wait for a close below the 8 day and then set up the stop order - After a stock s run has been in a continuous uptrend for a while using the 8 day EMA Rule is a objective way to protect profits. - If price is extended from the 8 day EMA a % stop may be a better stop. (Example: Going away for a trip & can t monitor daily) - Works on all time frames 18

8 day EMA Rule Entry: 83.77 Exit : 87.38 Exit : 81.

19 8 day EMA Rule Entry: Exit : Exit : Entry: Trade 1: 30 days, 8.7% Gain Trade 2: 28 days, 4.3% Gain 19

20 Example 8 period EMA Rule: Weekly Chart 79% Gain in 329 calendar Days Week of 2/25/13 thru Week of 1/20/14 Exit : Entry :

21 I absolutely believe that price movement patterns are repeated. They are recurring patterns that appear over and over, with slight variations. This is because the markets are driven by humans and human nature never changes. ~ Jesse Livermore Art & Science of Active Trend Trading Trader s Report Dennis W. Wilborn DWW@activetrendtrading.com 21

22 Technical Stops When to Exit: Trend Line Breaks Capital & Profit Protection - Defined Profit Target - Clear Breaks Support/Resistance Levels - Clear Break of Trend Lines - Breakout Failures (Traditional, Moving Averages, Keltner Channels) These Profit Stops are more prone to Fake Outs, but the one time we don t use them and POW! 22

23 Technical Stops: Technical Profit Targets Technical Profit Targets at Objective Targets T3 = Swing High T1 = Swing High T2 = Envelope Entry : at the Close 23

24 Technical Stops: Trend Line Breaks Support Identified at Profit Stop =

25 Technical Stops: Trend Line Breaks 52% Profit in 56 Days 1/14/14-3/11/14 Exit : below estimated value of Trend Line Entry :

26 Strategic Exits: Part 2 Profit Protection Candlestick Formation Stops - Use after a run up of several weeks or months - Days if Trading off Intraday Charts - Look for reversal signals - Market Condition - Often an after open adjustment - Stronger when accompanied by other clues 26

Candlestick Profit Stops High Volume Pop & Drop On Earnings Day Exit : 113.

27 Candlestick Profit Stops High Volume Pop & Drop On Earnings Day Exit : A Clue to be cautious Entry : % Profit in 27 Days 2/07/14-3/06/14 27

28 Candlestick Profit Stops Observe the Clues 1 1. Doji Hanging Man 2. Mid-Section of Long Candle Observe the Clues 2 1. Many Doji s 2. Breakout - Fakeout 28

How to Fix the Top 10 Fatal Errors of Trading One Flaw at a Time. #2 Trading Strategies before Knowing Systems. From the Active Trend Trader

How to Fix the Top 10 Fatal Errors of Trading One Flaw at a Time #2 Trading Strategies before Knowing Systems From the Active Trend Trader Disclaimer U.S. GOVERNMENT REQUIRED DISCLAIMER COMMODITY FUTURES