Strategy I: Buiding Wealth Part 1. For Active Trend Trading Dennis W. Wilborn

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1 Strategy I: Buiding Wealth Part 1 For Active Trend Trading Dennis W. Wilborn

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 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.

3 Where Wealth Begins Last month Lee Tanner presented his Model Portfolio based on trading IBD Quality Stocks from the IBD 50, Leaderboard, Sector Leaders Points Lee Made that Resonated: 1. Stay Fully Invested 100% Margin 2. Trade a Solid System that will take you in and out off the market at the Right Time 3. True Wealth is generated by working a Portfolio Building Plan Strategy I, and doing it again and again and again! 4. Patience, Persistence, Discipline, Confidence, Compounding 5. Some Stocks Work, Some Don t Fire the ones that don t Bonus Training:

4 Building Wealth Requires a Plan 1. A Plan based on a sound strategy to Get In 2. A Management Plan to Get Out The skills to build wealth can be developed in almost everyone! It takes understanding how to enter properly, exit properly and the power of Compounding

5 It s a state of mind! It s having a plan! It s practicing the plan! Momentum Master s: A Roundtable Interview with Super Traders Mark Minervini, David Ryan, Dan Zanger, Mark Richie II Interesting Facts: - Each Blew Up accounts while learning - One blew out his account, sold his car for a stake - Favorite entry of each Pullbacks and bounces - Each defined an entry target entering the trade on their terms - Each had to get past their egos - Each said the learning curve to become a good traders is between 3-5 years or longer depending on how learnable a person is - Each patiently worked with a system and plan refined but didn t change - Each plans their trades during non-market hours no seat of the pants trading - Very Rarely Trade Options Too Many Variables

6 Momentum Masters A Roundtable Interview with Super Traders To succeed as a stock trader, you need to learn what to buy, when to buy and when to sell. Mark Minervini: I originally got interested in trading because I grew up poor and I wanted to get rich. I saw the market as the ultimate opportunity for riches without prejudices it s just you and the market Once I decided to put my ego aside, admit my mistakes, and cut my losses and protect profits, then the big performance and consistency started coming together. Mark took his account from $100K to $30M in 5 years

7 ATTS Strategy I : A stock and ETF timing system for portfolio building Covers all 5 Pillars of Active Trend Trading 1. What to Buy IBD Quality Stocks and Index ETFs 2. When to Buy Initial position on pullbacks towards the 8 day EMA + When to add to build position 3. When to Exit Initial 4% stop loss from purchase price and then follow rules for profit protection 4. What Strategy Strategy I 5. What to expect Strategy I: Building Wealth

8 ATTS Strategy I : A stock and ETF timing system for portfolio building 1. What to Buy IBD Quality Stocks and Index ETFs IBD 50, Running List, Sector Leaders, Leaderboard Preliminary analysis of the first list of 2015 again shows the IBD 50 was the place to be to find great stock! First two data points.

9 ATTS Strategy I : A stock and ETF timing system for portfolio building 2. When to Buy Initial position on pullbacks towards the 8 day EMA + When to add to build position Use Conditional Orders if Trading Platform allows Use Stop Limits or Buy Stops to enter If trading platform doesn t allow orders to trigger use alert to let you know when trigger price is hit

Where Wealth Begins Conditions When to Enter Examples SWKS 1/8/15: Close above 8 day EMA 2014 2015 1/9/15:

10 Where Wealth Begins Conditions When to Enter Examples SWKS 1/8/15: Close above 8 day EMA /9/15: Pullback intraday approaching 8 day EMA: Enter at with a conditional order 1/9/15: Adds Start at 74.55

11 ATTS Strategy I : A stock and ETF timing system for portfolio building 2. When to Buy Initial position on pullbacks towards the 8 day EMA + When to add to build position 1/8/15: Close above 8 day EMA Define Order After Hours Order: Trigger Approaching 8 day EMA from 1/8 Estimate = ( ) = If price goes below trigger Stop Limit to buy at between x If filled trigger conditional stop loss if price goes below 4% of entry price x 0.96 = /9/15: Pullback intraday approaching 8 day EMA: Enter at with a conditional order What are the Pyramid Points? Several methods to pyramid. 50/30/20, 60/40 Pyramid Point can be triggered by the initial fill order 1/9/15: Adds Start at 74.55

12 ATTS Strategy I : A stock and ETF timing system for portfolio building 2. When to Buy Initial position on pullbacks towards the 8 day EMA + When to add to build position

13 Questions? End of Part 1

14 Part 2 For Active Trend Trading Dennis W. Wilborn

15 Part 2 Management Rules You are never too old to set another goal or to dream a new dream." -C.S. Lewis

16 ATTS Strategy I : A stock and ETF timing system for portfolio building 2. When to Buy Initial position on pullbacks towards the 8 day EMA + When to add to build position Use Conditional Orders if Trading Platform allows Use Stop Limits or Buy Stops to enter If trading platform doesn t allow orders to trigger use alert to let you know when trigger price is hit

17 How to use the 8 Period EMA Our research has found that learning to trade off of a specific moving average can lead to better entry consistency based on objective entry criteria. We also want the chosen moving average to be applicable across variable timeframes such as intraday, daily, weekly and monthly charts For the Active Trend Trading System the 8 period EMA has performed well in over 10 years of back testing and live trading!

18 How to use the 8 Period EMA While using the 8 period EMA to trigger trades we have found there are 3 stages which traders need to be aware of Each of these stages carries a different reward/risk profile and a different set of expectations The following charts highlight these stages on an up trending chart Similar observations are applicable to down trending conditions

19 EXAMPLES DAILY Late Stage Early Stage

20 Other Considerations 1. Market Conditions often tops a stock s buy trigger 2. Are prices pulling back to a lower moving average? 3. Whipsaw? More prevalent in Early and Late Stages 4. Take the trades because we never know exactly which trade will be a worker and which will be a slacker!

21 ATTS Strategy I : A stock and ETF timing system for portfolio building 3. When to Sell Capital Protection and Profit Protection Objective Design Worry Free Trades What does that mean?

22 Conditions Defining Rules: When to Sell Protective Sell Rules: Sell -4% below entry price. Why not 7-8%? If -4% failure three times stop buying and study. If portfolio is down 4% for the week (no margin) to 8% (full margin), sell weak stocks to reduce exposure. Generally sell at least one full position to cut risk. Sell if a breakout did not happen or stalled out, but mostly don t use this rule unless you are sure. (Failed Breakout Sell Rules)

23 Conditions Defining Rules: When to Sell Profit Protection Sell Rules Take gains +20% to +25% above buy point, unless within the first 8 weeks. Stocks surging up past the sell goal may be held using the 8-day or 8-week EMA as a selling guide. When profitable 6%-11% use 10%-12% cushion. Adjustable Trailing Stop (Decline from the peak sell rule) Sell on Close below the 8 week EMA Sell if it plunges below the 50-day on huge volume. Sell if it gaps down on huge volume.

24 Conditions Defining Rules: When to Sell Guideline and Clarification Sell only if written sell rule is triggered. Select a few stocks to hold for longer term, larger gains Keep a 3 to 1 profit to loss plan. (Profit-to-Loss Ratio) If up 20% in 3 weeks hold 8 full weeks. Don t sell for profit taking for the first 8 weeks if buying out of Early Stage or Mid-Stage. During this time sell only if a protective sell rule is triggered. Hold until you reach 8 weeks, and +25%. In a few cases you might hold a stock for 13 weeks before concluding it is not going to perform. (Time Stop Sell Rule) If closes a week up 60% from BP sell a portion of the position and wait for a pullback to reload Probably sell if a breakout on good volume stalls and goes negative within a day or two.

25 Conditions Defining Rules: When to Sell Guideline and Clarification Assess risk and sell if needed before earnings, but hold if possible for the earnings report. Generally hold stocks that are going sideways for 13 weeks (one quarter) before dumping it, but the lagging performers may be sold to feed winners or buy new opportunities. If market corrects you may sell lagging positions to reduce exposure. May sell is if a stock is persistently weak after owning it for eight week. Plunged significantly (4%-5%) on huge volume (+100% or more). Sell all of a stock in a climax top. If in doubt you can scale-out. Usually sell all of a stock that has a takeover offer. Sell all or part of stock if afraid or confused.

26 Questions? End of Part 2

27 Part 3 For Active Trend Trading Dennis W. Wilborn

28 Part 3 The Mechanics You are never too old to set another goal or to dream a new dream." -C.S. Lewis

29 Must learn the mechanics of: Conditional Orders Pyramiding Strategy I: The Mechanics

30 Strategy I: The Mechanics Conditional Orders Benefits of conditional orders include Trading on your terms based on technical analysis Build order strings that provide both profit targets and capital protection Aid with follow-on orders

31 Strategy I: The Mechanics Conditional Orders: Example Want to buy: Based on analysis want to enter on a bounce from the 8 day EMA at $XX If filled use a 4% stop loss from approximate fill price Do I use a 10% profit target? Use a Spreadsheet to calculate

32 Strategy I: The Mechanics Conditional Orders: Example with EBIX Want to buy: Based on analysis want to enter on a bounce from the 8 day EMA at $33.45 If filled use a 4% stop loss from approximate fill price Do I use a 10% profit target? Use a Spreadsheet to calculate

33 Must learn the mechanics of: Strategy I: The Mechanics Pyramiding There are several ways to pyramid into a position Buy ½ the desired position and then add at 2/3 s of additional shares at 2.5% above entry price, then add 1/3 of the additional shares at 4.5% above the entry price. Each of these orders can be placed as conditional order at the same time as the initial order or manually after the initial order is filled Or o Buy 2/3 s of a full position on the initial order and then add the remaining 1/3 at 3.5% Which is better? It depends.

Strategy I: The Mechanics Lets build the rest of this trade..ebix Stock Check Up Chart Parameters Trigger Order: Drop at or below 33.

34 Strategy I: The Mechanics Lets build the rest of this trade..ebix Stock Check Up Chart Parameters Trigger Order: Drop at or below Stop Limit Order buy 74 shares between x If filled trigger Stop Loss conditional order at or below sell at market If filled Trigger add orders

35 Strategy I: The Mechanics Lets build the rest of this trade..ebix Trigger Order: Drop at or below Stop Limit Order buy 74 shares between x If filled trigger Stop Loss conditional order at or below sell at market If filled Trigger Add-On orders

36 Strategy I: The Mechanics Lets build the rest of this trade..ebix Trigger Order: Drop at or below Stop Limit Order buy 74 shares between x 33.65

Strategy I: The Mechanics Lets build the rest of this trade..ebix If filled trigger Stop Loss conditional order at or below 32.

37 Strategy I: The Mechanics Lets build the rest of this trade..ebix If filled trigger Stop Loss conditional order at or below sell at market If filled Trigger add orders If the initial order is not filled every thing will cancel but get in a habit of checking to make sure If Initial order does fill and stops out make sure to cancel Add-On orders

38 Strategy I: The Mechanics Once filled our job turns to position management To the maximum extent let the system take me in and out of a trade Know the rules Don t be tempted to cheat on position size or any of the rules Monitor positions daily and update prices

39 Questions?

Strategy I: Buiding Wealth Part 1. For Active Trend Trading Dennis W. Wilborn

Strategy I: Buiding Wealth Part 1 For Active Trend Trading Dennis W. Wilborn Disclaimer U.S. Government Required Disclaimer Commodity Futures Trading Commission Futures and Options trading has large potential