All handouts for this seminar can be viewed at the end of this document.

Transcription

1 All handouts for this seminar can be viewed at the end of this document. If you would like to print the handouts, use the link below:

2 Present S EVEN S TEPS TO S UCCESSFUL T RADING

3 Disclaimer This seminar, Seven Steps to Successful Trading, was prepared for educational purposes only. Its contents do not recommend, advocate or urge the buying, selling, or holding of any financial instruments. The authors express personal opinions in the seminar contents, herein, and will not assume any responsibility whatsoever for the actions of the attendee or person reading these contents. The authors may or may not hold positions in the financial instruments discussed in this seminar content. Trading and investing involve high levels of risk. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future performance.

4 Disclaimer This presentation is provided for informational purposes only and does not constitute an endorsement by RealTick of the information and views expressed by the presenter. RealTick does not guarantee the accuracy of or warrant any representations made in this presentation. RealTick shall not be held liable for any inaccurate or incomplete information or for any improper or incorrect use of the information contained in this presentation.

5 Seven Steps to Successful COURSE Trading OBJECTIVES Review a seven-step methodology for trading stocks and ETFs. Identify how to apply concepts from each of the seven steps in your research, analysis, and trading decisions. Support your goal of improving entry, exit and trade management activities in a way that leads you to become a successful trader.

6 Seven Steps to Successful Topics Trading Overview Step One: Step Two: Step Three: Step Four: Evaluate the Big Picture Target High-Potential Stocks & ETFs to Trade Pinpoint Pricing: the Best Entries, Stops and Exits Design and Refine Your Personal Trading Strategy

7 Seven Steps to Successful Trading Topics Overview Step Five: Step Six: Step Seven: Train Your Brain! Enhance Gains with High-Powered Trading Techniques Boost your Market Knowledge: Leap from Just So to Market Pro

8 Seven Steps to Successful Evaluate the Market Target Stocks Pinpoint Entry Refine Strategy Train Your Brain! Trading Enhance Your Gains Boost Your Knowledge

9 Seven Steps to Successful Trading SUCCESS STEP ONE Evaluate the Big Picture Easily and Accurately

10 Evaluate the Market What s the Market s Mood & Manner? Pre-Market Analysis Checklist Market Analysis: Tools that Help Build Safety into Your Trades Rapid-Fire Review

11 What s the Market s Mood & Manner? Dow, SP-500 & Nasdaq 100 Also watch Russell 2000 (IWM) Evaluate current economic environment: Interest rates (rising or falling?) Inflationary or deflationary? Exogenous shocks? Which sectors are leading, which are lagging?

12 What s the Market s Mood & Manner? Who is the current Boss du Jour? Bonds? Oil prices? U.S. dollar? Current tech darling? Fed? Global region or country?

13 What s the Market s Mood & What effect does the Boss have on specific sectors? Manner? Energy prices rise, transportation (airlines) dive U$D falls, gold/metals rise Interest rates rise, broader market and real estate related stocks may slide south

14 Pre-Market Analysis Checklist DATE Pre-Market Analysis Checklist Response Support Resistance 1. Global markets (Europe/Asia) positive or negative? 2. S&P 500 E-Mini futures contract positive or negative? (Financial network Pre-Market Open) 3. Dow Jones Industrial Average: uptrend/downtrend/consolidating? 4. S&P 500 Index trading in uptrend/downtrend/consolidating? 5. NASDAQ 100 in uptrend/downtrend/consolidating? 6. Russell 2000: uptrend, downtrend/consolidating? 7. VIX trading higher or lower? 8. Are key economic data or earnings reports issued today? Is it Options Expiration? 9. What is the current "Boss du Jour"? What does its movement indicate? 10. Are the sectors/industry groups related to my target stocks in uptrend/downtrend/or consolidating?

15 What s the Market s Mood & Manner?

16 What s the Market s Mood & Manner?

17 Market Analysis How to spot trend reversals before they happen o Clues from the Trend o Clues from the Average True Range (ATR)

18 Clues from the Trend Uptrend to Downtrend Clue # 1: Lower Low? Break through of the trend line Break through of the former low No support means buyers have changed their mind

19 Clues from the Trend

20 Clues from the Trend

21 Clues from the ATR Uptrend to Downtrend Clue # 2: Rising ATR? Size of Disagreement Between Buyers and Sellers Disagreement = Discomfort Sellers likely to take over

22 Clues from the ATR

23 Clues from the ATR

24 Clues for an Uptrend Downtrend to Uptrend Clue # 1: Higher High Clue # 2: Falling ATR Break out of a trend line or channel No resistance means sellers aren t in a hurry to get out any more.

25 Clues for an Uptrend

26 Clues for an Uptrend

27 Clues for an Uptrend

28 Rapid-Fire Review Stay updated on key support/resistance levels of major indices especially S&P 500 Index Remain aware of overall economic climate Conduct Pre-Market Analysis before trading Trend Clue # 1: Lower Lows (or Higher Highs) Trend Clue # 2: Rising ATR (or Falling ATR)

29 Seven Steps to Successful Trading SUCCESS STEP TWO Target High-Potential Stocks and ETFs to Trade

30 Target High-Potential Stocks & Spot Opportunities across Different Markets Use a Simple Watch List to Give You Key Directional Signals Select the Best Sectors and ETFs to Trade in Bull or Bear Markets Identify High Potential Stocks and ETFs to Trade Rapid-Fire Review ETFs

31 Spot Opportunities Across Markets Markets are Often Well Correlated Diverging Correlations Imply Opportunity Market Shifts Take Time Early Adopters Benefit

32 Spot Opportunities Across Markets Take Notice of Significant Highs and Lows in Market Prices Compare ETF Prices to Track Shifts in Market Behavior Compare Sectors, Locations, and Asset Classes.

33 Example Look for Evidence of Trend Change Begin Comparing from Start of the New Trend

34 Example Leading Sectors Tend to Stay Strong for 9-15 months

35 Watch List for Key Directional Signals US SECTORS INTERNATIONAL COMMODITIES BONDS XLB EWA GLD AGG XLE EWC PALL SHY XLF EWG DBB TLT XLI EWJ KOL LQD XLK EWP UCO CSJ XLP EWT UGA SHM XLV EWU DBA MUA IYT EWZ MOO EMB

36 Example: US Sectors March through June 2009 Financial Sector Outpaced in First Three Months of the 2009 Uptrend

37 Example: US Sectors June 09 to March 10 Financials remained strong for next 9 months.

38 Select Best Sectors and ETFs to Trade You The Sector Savvy Trader! For every market environment, certain sectors thrive, others dive Sector rotation occurs in both short and long-term time frames Recognizing interplay between sectors is key to boosting profits.

39 Select Best Sectors & ETFs to Trade You the Sector Savvy Trader! Nine sectors represented in S&P 500 Index Sectors embody nine diverse commercial groups that drive the U.S. economy Each Sector contains individual industry groups Recognizing interplay among sectors assures a winning edge

40 S&P 500 Index Sectors Basic Materials (XLB) Consumer Discretionary (XLY) Energy (XLE) Financials (XLF) Health Care (XLV) Industrials (XLI) Technology (XLK) includes Telecom (IEZ) Utilities (XLU)

41 Select Best Sectors & ETFs to Trade

42 Identify High-Potential Stocks Maintain a Watch List of the Sector SPDR ETFs Go to: Sectorspdrs.com & ETFs Add Watch List of Industry Group ETF Favorites Check ishares.com for Comparable Sector ETFs Note: ishares follow DJ Indexes DJ Indexes more holdings than S&P Indexes ProShares ETFs follow DJ Indexes

43 Identify High-Potential Stocks & ETFs When Trading ETFs Go to Fund Family Identify index & actual asset ETF follows Equity index? Commodity? If commodity, futures or physical price? One, or more? Commodity ETFs involve different tax structure Check Equity ETF holdings Single sector? Multi-sector or industry groups? Note top three stock holdings for fund direction

44 Identify High-Potential Stocks Cherry-Pick Your Stocks & ETFs The Stocks & ETFs you trade should: Trade 300,000 shares ADV, or more Move in orderly patterns & ETFs Growth stocks fall 1 ½ to 2 ½ x faster than value stocks Price patterns of stocks/etfs rising in uptrends more orderly / falling in downtrends can be very volatile

45 Identify High-Potential Stocks & ETFs RealTick graphics used with permission

46 Identify High-Potential Stocks Disorderly pattern & ETFs RealTick graphics used with permission

47 Identify High-Potential Stocks & ETFs RealTick graphics used with permission

48 Where to Find Stocks to Trade Most Dow stocks trade in orderly patterns Go to ETF sector / industry group funds Check top 5 holdings Check major index components: S&P 500 Index S&P 400 (MDY) mid-caps Russell 2000 (IWM) small-caps

49 Rapid-Fire Review Spot opportunities across markets by noting highs, lows and diverging correlations Use ETF watch list for key directional signals Be a Sector Savvy Trader Know which sectors thrive or dive in certain market environments Be thoroughly familiar with the ETFs you trade Identify-high potential stocks & ETFs Cherry-pick the best orderly, high-volume stocks & ETFs

50 Seven Steps to Successful Trading SUCCESS STEP THREE Pinpoint the Best Entries, Stops and Exits

51 Pinpoint Entries, Stops and Exits Sleeping Tiger, Crouching Cougar... Two Proven Setups that work for Day, Swing & Position Trades Think Fast- Learn to Strategize Quickly and Easily with our Setups Your Turn to Trade: Buy, Sell, or Fugettaboudit

52 Sleeping Tiger Set-Up Use this set-up for: Breakouts from bases Uptrend consolidations Works for position / swing / intraday trades

53 Sleeping Tiger Set-Up Trading Criteria for Intraday & Swing Trade Entry Day 1. Stock/ETF trading in base or consolidating in uptrend on daily chart 2. Check weekly chart for agreement 3. Related market indices are positive Dow, SP-500, Nasdaq 100, or sector index 4. Price trading above 8-day EMA, 13-day SMA, 50-day SMA, 200-day SMA Note Bottom Fishing exceptions

54 Sleeping Tiger Set-Up 5. 8-day EMA is poised to, or just crossed above 13-day SMA 6. 9-day RSI below 70, hooked upward 7. Buy: stock/etf moves 10-cents above closest resistance Ideal: Strong volume accompanies move

55 Sleeping Tiger Set-Up 8. Place Protective Stops Arbitrary: 1 ½ - 2% under entry price Technical: 1 ½ - 2% under 8-day EMA Technical: One ATR below entry or LOD Technical: Beneath intraday support levels of current (entry) day or prior day (day trade) 9. Once stock breaks out, trail stop beneath 8-day EMA

56 Sleeping Tiger Set-Up 10. Stock should walk up 8-day EMA 11. Swing trade, take profits: At/near profit target (prior resistance) 2-3 days lift off above 8-day EMA Top reversal candle pattern 12. Final Stop: stock/etf closes below 8-day EMA

57 Sleeping Tiger in Action RealTick graphics used with permission.

58 Sleeping Tiger in Action RealTick graphics used with permission.

59 Sleeping Tiger in Action RealTick graphics used with permission.

60 Two C Pre-Entry Process Safety Steps Spot Sleeping Tiger Set-Up on daily chart Check weekly chart for confirmation Flip to sector chart for corroboration

61 Sleeping Tiger in Action - Spot Set-Up on Daily Chart RealTick graphics used with permission of Townsend Analytics, Ltd

62 Sleeping Tiger in Action - Check Weekly Chart for Confirmation RealTick graphics used with permission of Townsend Analytics, Ltd

63 Sleeping Tiger in Action - Flip to Sector Chart for Corroboration RealTick graphics used with permission.

64 Sleeping Tiger in Action - Entry Stop: 1 ATR RealTick graphics used with permission.

65 Sleeping Tiger in Action 15- Minute Chart RealTick graphics used with permission.

66 Sleeping Tiger in Action Take Profits! RealTick graphics used with permission of Townsend Analytics, Ltd

67 Sleeping Tiger Short Swing Trade RealTick graphics used with permission of Townsend Analytics, Ltd

68 Sleeping Tiger Long Swing Trade RealTick graphics used with permission.

69 Sleeping Tiger in Action RealTick graphics used with permission.

70 Sleeping Tiger Set-Up Review Use for breakouts from base, or consolidation in uptrends Works for position / swing / intraday trades Monitor 8-day EMA/13 SMA as main drivers Exit swing trades on close below 8-day EMA

71 Crouching Cougar Set-Up Use for: o Quick pops (Long) o Quick drops (Short) o High-frequency, smaller-dollar wins Timeframes: o Swing (Daily chart) o Intraday (Five-minute chart)

72 Crouching Cougar - Daily Long: Stock in Uptrend Price Above 50-day Moving Average CCI (14) below 60

73 Crouching Cougar Indicator: CCI CCI Stands for Commodity Channel Index o Developed in the 1980s for Commodities o Oscillating indicator o Formula designed to identify above-average price moves Over +100 = Unusually Bullish Under 100 =Unusually Bearish

74 Crouching Cougar Indicator: CCI CCI Stands for Commodity Channel Index o Developed in the 1980s for Commodities o Oscillating indicator o Formula designed to identify above-average price moves Over +100, then under 60 = Crouching Cougar Long Entry Crouching Cougar Entry region

75 Crouching Cougar: Setup Example Do not enter early Entry point

76 Crouching Cougar Entry/Exit Enter as price breaks a previous daily high o Check the ATR value o Calculate the number of shares using two times the ATR o Set a buy-stop order for best execution Exit o Set Stop Loss order at Entry less two times the ATR o Set Profit Taking order (Sell Limit) at Entry plus ATR

77 Crouching Cougar: Trade Setup Example Entry point ATR at setup day = $1

78 Crouching Cougar: Trade Setup Example Profit Target = $1 Higher Entry point Stop Loss = $2 lower ATR at setup day = $1

79 Crouching Cougar: Trade Example Entry point Win = $1.50 higher Above MA Loss = $3.00 lower CCI below 60 ATR = 1.50

80 Crouching Cougar: Multiple- Trade Example

81 Crouching Cougar: Multiple- Trade Example

82 Crouching Cougar: Trading Example Why Trade This Way? o Increases the number of times you win. o Decreases the time-frame you are in the trade o Allows you to make safe trades in an up trend o Allows you to quickly adjust to market opportunities Why Not Trade This Way? o If you prefer to optimize trend-following trades o If you prefer fewer, long-lasting trades

83 Crouching Cougar - Intraday >30 minutes after open Buy Dip in uptrend o Price above 50 MA o CCI(14) at 20 or below, but above -100 Same Entry/Exit setup Typically 0-3 trades each day (per symbol)

84 Crouching Cougar: Intraday Example 1

85 Crouching Cougar: Intraday Example 1

86 Crouching Cougar: Intraday Example 2

87 Crouching Cougar: Intraday Example 3 No! Do not enter in first 30 minutes!

88 Crouching Cougar Short Daily Short: Stock in Downtrend Price Below 50-day Moving Average CCI (14) above 60 Entry/Exit rules same, but for short

89 Crouching Cougar: Short Trade Setup Example Entry point

90 Crouching Cougar: Short Daily Example 6 Wins, total = + $ losses, total = -$5.86

91 Pre-Entry Process Safety Steps Identify most correlated index ( Identify trend of most correlated index Choose direction (long or short)

92 Crouching Cougar Intraday Short >30 minutes after open Sell Rally in Downtrend o Price below 50 MA o CCI(14) at -50 or above Same Entry/Exit setup Daily Short

93 Crouching Cougar: Intraday Short No! Do not enter in first 30 minutes!

94 Crouching Cougar - Summary Take small wins in strong trends Set wide stops, but take quick profits Follow prevailing trend of market

95 Your Turn to Trade Buy? Sell? or Fugettaboudit?

96 Buy? Sell? Fugettaboudit? RealTick graphics used with permission.

97 Buy? Sell? Fugettaboudit? Weekly Chart-Confirmation RealTick graphics used with permission.

98 Buy? Sell? Fugettaboudit? Sector Chart - Corroboration RealTick graphics used with permission.

99 Buy? Sell? Fugettaboudit? RealTick graphics used with permission.

100 Buy? Sell? Fugettaboudit? RealTick graphics used with permission.

101 Buy? Sell? Fugettaboudit? RealTick graphics used with permission.

102 By? Sell? Fugettaboudit? RealTick graphics used with permission.

103 Buy? Sell? Fugettaboudit? RealTick graphics used with permission.

104 Seven Steps to Successful Trading SUCCESS STEP FOUR Design Your Personal Trading Strategy

105 Personal Trade Strategy What are Your Trading Goals? What is Your Preferred Trading Style? Let s Design Your Personal Trading Strategy

106 Personal Trade Strategy Win Percentage 90% 80% 70 % 60% 50% 40% 30% 20% 10% Minimum target win-to-loss ratio High percentage of trades are winners Winners are consistent but small Losers are infrequent but larger than winners Low percentage of trades are winners Winners are not frequent but are large Losers are frequent but significantly smaller than winners

107 Personal Trade Strategy Win Percentage 90% 80% 70 % 60% 50% 40% 30% 20% 10%

108 Personal Trade Strategy Trading Style Survey Eight Questions, score each answer. Calculate your total score Judge whether the description matches your preferences or not Modify the recommendations as necessary.

109 Personal Trade Strategy Stop to Target ratio Win % 1:1 50% 2:1 66% 3:1 75% 4:1 80% Trailing Stop to Target ratio Win % 1:1 36% 1:2 29% 1:3 26% 1:4 23% Stop to Target ratio Win % 1:1 50% 1:2 33% 1:3 25% 1:4 20%

110 Personal Trade Strategy

111 Trading Goals What kind of a loss are you trying to avoid? (10, 20, 30, 40 percent?) What kind of gains are reasonable within that limit? (Double your risked loss)

112 Market Analysis How do you read the Markets you trade? What indicates a bullish market? (Trend) What indicates a bearish market? (Trend) What indicates a sideways market? (Channel) What indicates good for your trading plan?

113 Entries and Exits What are the rules of your setup and entry? What is your initial stop loss? What is your initial profit target? Will you use stop, limit or market orders?

114 Risk Management Rules How much risk will you allow per trade? o Allow for losing streaks o Avoid maximum draw down How many trades will you have? o How many can you manage? (Less than nine) o What portfolio risk can you tolerate? (6%-12%) How many different sectors? (three or more)

115 Personal Trading Fitness How do you view the stock market? Place of apprehension? Market of opportunities? Who s in control you or your trades? If asked, Why are you entering that trade?... can you give an appropriate answer? Have you cultivated the mental/emotional discipline to follow your trading plan?

116 Research Activities How will you look for new trading opportunities? o How much time will it take? (1-2 hours/week) o When will you schedule in this time? Will you incorporate watch lists? o How many? ( two to ten) o How often will you review them? (weekly)

117 Adding New Techniques What minimum activity will you require of yourself before trading with a new technique? o Specific amount of research? (2 to 20 hours) o Specific amount of back testing? (1-10 years data) o Specific amount of simulated trades? (20 to 30)

118 Once you have a trade put on, what will you do to change the stops? o o o Monitoring Activities Adjust based on recent support? (Trailing stops) Time-based stop? (2-3 x your intended trade) Market-based stop? (Most correlated index turns) Under what circumstances will you adjust the profit targets?

119 Periodic Review How often will you review your trading results? (Monthly) What statistics will you keep track of in your trading journal? (risk-to-result ratio) With whom will you share your insights?

120 Rapid-Fire Review Develop a Trading Plan based on your system style preferences. Establishing a plan for your trading activities helps you avoid the effects of stressful trading Trading according to a plan is more likely to yield consistent results.

121 Seven Steps to Successful Trading SUCCESS STEP FIVE Train Your Brain

122 Train Your Brain Spend Quality time with Yourself Write down Who are you in the stock market? What goals do intend to achieve? How do you plan to accomplish your goals?

123 Who Are You in the Stock Market? Knowing who you are assures a strong foundation of confidence. Example: I am a successful short-term trader. I focus on the energy and retail sectors in order to profit from the stock market.

124 What Goals Do You Intend to Achieve? When you establish written goals, you focus your attention and energy with clear direction organize and gain control of your actions grow past limiting beliefs & fears If it is to be... It s up to me.

125 What Goals Do You Intend to Achieve? My trading goals this month Specific: Forty-percent of my trades will be winners. Measurable: Eight-five percent of my trades will follow my established trading plans. Achievable: I have experienced weeks of 35%/70%, so I know I can now raise the bar. Relevant: I will move this month s profits to my vacation account I will attain this goal by the 30 th of this month.

126 What Goals Do You Intend to Achieve? Design your trading goals to be SMART: Specific - Define what you want to achieve Measurable - Measured goals give feedback Achievable - Ambitious, yet attainable Relevant Personally important to you Timeline Deadlines = focus on fulfillment

127 How Do You Plan to I will: Accomplish Your Goals? protect my capital at all times trade to trade well, not to make money conduct pre-market analysis before trading specialize on 2-3 sectors / cherry-pick stocks, ETFs avoid trading on choppy, whippy days set hard stops with broker

128 Power-up Your Trading -- Successful Trading is an Inside Job Approach Attitude Attainment Three-Step Process

129 What s Your Approach? Set Up Your Day Ten minutes before you begin pre-market analysis Conduct self-directed imagery Used by Olympic athletes Quiet, comfortable, relaxed imagine trading day ahead See yourself enter trades with calm confidence, following plan, trading well When trading day ends, see yourself content with your actions

130 What s Your Attitude? With your day set-up, confirm your attitude: Positive, focused, nimble, ready to respond Physically alert, feeling good Affirm: I am a strong, smart and successful trader.

131 Attain Success The road to trading success is a journey, not a destination Look for new ways to grow and expand trading knowledge Attend online class Read new books Visit different websites

132 Every day Attain Success Learn one new aspect of trading Learn one additional fact about the market. Start pre-market analysis 15 minutes earlier Equals 2 hours, 15-minutes additional learning time each week Keep a Success Trading Journal Record your trades. Show how they matched your goals!

133 Seven Steps to Successful Trading SUCCESS STEP SIX Enhance Gains with These High-Powered Trading Techniques

134 Enhance Trading Gains How to use Multiple Time Frames for Best Entries and Exits Apply These Special Tactics to Increase Trading Profit Opportunities (scale in) Apply New Tactics to your Trading Strategy (evaluate and improve)

135 Use Multiple Time Frames-Best Entries & Exits Pinpoint set-up on primary trend--daily chart Check weekly chart for confirmation Drill down to 60-minute chart Label support and resistance levels If desired, enter on 5-15 minute chart

136 Use Multiple Time Frames for Entries & Exits Room to 27 RealTick graphics used with permission.

137 Use Multiple Time Frames for Entries and Exits 9-periodRSI OBV RealTick graphics used with permission.

138 Use Multiple Time Frames for Entries and Exits RealTick graphics used with permission.

139 Use Multiple Time Frames for Entries and Exits RealTick graphics used with permission.

140 Special Tactic to Boost Profits: Scale in Scaling-in uses Multiple Entries when possible Decreases Win Rate Dramatically Increases Profits Increases Opportunity without Increasing Risk May be Emotionally Stressful if not Prepared

141 Scale-in Tactic: Example 1. Enter position with normal size and risk 2. As trade goes positive, move stop 3. Add a new position 4. As trade progresses, move stop 5. Add a third position 6. Exit using a manually adjusted trailing stop

142 Scale-in Tactic: Example 1. Enter position with normal size (100 shares) and risk 1x ATR ($2) stop loss

143 Scale-in Tactic: Example 1. Enter position with normal size (100 shares) and risk Entry: $50 1x ATR Stop: $48

144 Scale-in Tactic: Example 2. Add same size (100 Shares) Entry 2: $52 3. Move stop loss to break-even price Stop: $50 Stop: $48

145 Scale-in Tactic: Example 4. Add third position (+100 shares more) Entry 3: $54 5. Move stop loss to break-even price Stop: $52 Stop: $50

146 Scale-in Tactic: Example 6. Manually trail a stop-loss until exit. 300 shares Average Entry: $52

147 Scale-in Tactic: Example Measure Trade from Average Price of Entries. 300 shares Average Entry: $52 to final $62

148 Scale-in Tactic: Example to final exit Measure Trade from Average Price of Entries. ( + $10 per share ) Now compare to risk. ( 1x ATR = $2 ) Remember to triple the count... Result = Risk $2 compared to $10 x 300 shares Gain 1-to-30 risk-reward

149 Apply New Tactics to Increase Profits Understand the tactic fully Back test the tactic in multiple markets Make several paper trades using the tactic Track and review the results. Look for what could go wrong and be prepared. Ask others what you might be missing.

150 Seven Steps to Successful Trading SUCCESS STEP SEVEN Boost Your Bottom Line: From Just So to Market Pro

151 Tactics That Make a Difference Discover how to Properly Trade: Opening Price Gaps Intermarket relationships The News Economic Reports Rapid Fire Review

152 Fading the gap Opening Price Gaps Expect the gap to fill Shorting an up-gap Buying a down-gap Choose Carefully: big enough but not too big Guideline: 1 ATR > Gap > ¼ ATR

153 Selling the Up-Gaps Gaps fill when order flow makes unnecessary overnight buildup that has no follow through Gap Up: Go Short as gap begins to fill Set Stop Loss at the same size as the gap o Expect the gap to fill within first 30 minutes o Exit if not filled or stopped out after 30 minutes

154 Gap Fill Example (Short) Gap Next Day s Open Previous Close

155 Gap Fill Example (Short) Sell Short as Gap Begins to Fill Gap Take Profit as Price Closes Gap.

156 Buying the Down-Gaps Gap Down: Buy as a Gap Begins to Fill Set Stop Loss at the same size as the gap o 30 minute limit to trade o Can hold on to trade if no resistance at the previous closing price.

157 Gap Fill Example (Long) Previous Close Gap Next Day s Open

158 Gap Fill Example (Long) Exit as gap fills Buy as gap begins to fill Set Stop lower (same distance as gap)

159 Fading the gap Opening Price Gaps Expect the gap to fill Shorting an up-gap Buying a down-gap Following the gap for a new trend

160 Intermarket Relationships Compare FX pairs to the S&P 500 Index Observe overnight activity Use the information to prepare for trading opportunities in the next day s session

161 Intermarket Relationships Look for the possibility of gaps Judge whether the market is strongly trending or is acting nervous. Observe whether price action seems to be waiting for news

162 Intermarket Relationships EUR Overnight chart 15 min SPX Previous Close Quote AUD Overnight chart 15 min IBM Previous Close Limit order

163 Trading the News Do not trade the news, itself Wait until the market absorbs the news Trade the market s reaction to the news Watch: Stock Index E-mini futures (S&P 500) NYSE TICK S&P 500 SPDR (SPY Check applicable industry group reaction

164 Trading the News Buy the rumor, sell the news. When news is highly anticipated... If the news is good, buyers may have already saturated the market. Result: When the news comes out, few buyers remain If the news is negative, sellers may have already squashed the market Result: few sellers remain

165 Trading the News Market should go lower, but it doesn t Translation: it s going higher Market may have discounted news Market should go higher, but it doesn t Translation: it s going lower Example: Major company reports good earnings, yet stock falls

166 Trading the News When event contains opinion, or temp news The market gap down, then traders fade the gap Example: Econ Report: Housing Starts dive SPDR Homebuilders ETF (XHB) shoots higher Example: S&P Ratings lowers U.S. economic outlook Market gaps down, then rises to fill gap When event is actual exogenous shock Gap down may extend into multi-day move Example: New war, global or U.S. threat

167 Trading the News

168 Trading the News Market should go lower, but it doesn t Translation: it s going higher Market may have discounted news Example: Econ Report: Housing Starts dive SPDR Homebuilders ETF (XHB) shoots higher Market should go higher, but it doesn t Translation: it s going lower Example: Company reports good earnings, but stock falls Bottom Line: Patience Grasshopper! Avoid betting on news results ahead of announcements.

169 Trading Economic Reports We watch economic releases because Can act as catalysts for trading volatility Traders watch them They can reveal the market s mood Again, we focus on market s reaction to report

170 Trading Economic Reports Issued weekly, monthly, or quarterly Most reports issued 8:30 a.m. or 10 a.m. ET Importance depends on current economy Traders note how report affects interest rates How will the Fed react to report? Example: Good economy, falling unemployment: Traders: Fed may have to raise interest rates

171 Trading Economic Reports Websites Featuring Economic Report Data Briefing.com MarketWatch.com Yahoofinance.com ToniTurner.com > Market Education> Economic Calendar

172 Rapid-Fire Review Consult multiple time frames to increase odds of winning trades Consider scaling into trades to boost profits Plan strategy carefully before entering gap open trades Study intermarket relationships to establish trading bias Trade the market s reaction to the news-not news, itself Stay updated on important economic reports

173 Seven Steps to Successful Trading Class Finale: Buy, Sell, or Fugettaboudit - The Sequel

174 Buy? Sell? Fugettaboudit? RealTick graphics used with permission.

175 Buy? Sell? Fugettaboudit? Weekly Chart-Confirmation RealTick graphics used with permission.

176 Buy? Sell? Fugettaboudit? Buy? Sell? Fugettaboudit? RealTick graphics used with permission.

177 Buy? Sell? Fugettaboudit? RealTick graphics used with permission.

178 Buy? Sell? Fugettaboudit? CCI ATR = 1

179 Buy? Sell? Fugettaboudit? CCI ATR = 2

180 Seven Steps to Successful Evaluate the Market Target Stocks Pinpoint Entry Refine Strategy Train Your Brain! Trading Enhance your Gains Boost your Knowledge

181 Thank you for attending... Seven Steps to Successful Trading You ll find additional educational trading products at

182 Handouts The pages that follow include handouts: Pre-Market Checklist ETF Watch List Personal Trading Strategy Trading Style Survey If you would like to print the handouts, please go to: