presented by Thomas Wood MicroQuant SM Divergence Trading Workshop Day One Black Gold

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1 presented by Thomas Wood MicroQuant SM Divergence Trading Workshop Day One Black Gold

2 Risk Disclaimer Trading or investing carries a high level of risk, and is not suitable for all persons. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. This content is subject to change at any time without notice, and is provided for the sole purpose of education and assistance in making independent investment decisions. ValueCharts.com has taken reasonable measures to ensure the accuracy of the information contained herein; however, ValueCharts.com does not guarantee its accuracy and is not liable for any loss or damage which may result directly or indirectly from such content or from an inability to access such information or any delay in or failure of the transmission or the receipt of any instruction or notification in connection therewith. Any past performance results are shown for illustration and example only, are hypothetical and as such have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Past performance is not necessarily indicative of future results.

3 CFTC Rule 4.41 (Hypothetical 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, stocks or options on the same. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 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. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED WITHIN THIS SITE, SUPPORT AND TEXTS. OUR COURSE(S), PRODUCTS AND SERVICES SHOULD BE USED AS LEARNING AIDS ONLY AND SHOULD NOT BE USED TO INVEST REAL MONEY. IF YOU DECIDE TO INVEST REAL MONEY, ALL TRADING DECISIONS SHOULD BE YOUR OWN.

4 Naked Trading Pt. 2 Workshop Black Gold Workshop Outline Intro to Crude Oil Best Times to Trade Best Timeframes for Crude Trades Different Exit Opportunities Trading Momentum Breakouts Trading Bull and Bear Flags Significantly Increasing Probabilities with Momentum Breakouts Trading Petroleum Status Report Mastering Reward Risk Ratio

5 Intro to Crude Oil

6 Intro to Crude Oil Contract Size: 1,000 Barrels (42,000 Gallons) $10.00 per tick/contract Trades Every Contract Month (Jan-Dec) Pit Hours: 9AM-2:30PM EST Watch for this market to run stops after pit opens, then reverse Large decrease in volume around 11:30-12:00. Picks back up at roughly 1:30-2:00 Correlated to RBOB and Heating Oil Crude will sometimes do its own thing Report every Wednesday at 10:30 AM EST Can be affected by other reports if large swings in dollar value occur.

7 Best Timeframes to Trade Crude Oil

8 Best Timeframes for Trading Crude Oil Crude is a great market to trade both intraday and end of day. If you are looking for swing trading setups, I would use a Daily price chart for direction and a 240min price chart for timing entries This will get you on the right side of the major moves, but allow you to have a much tighter stop because you are initiating the trade on the 240min chart This helps to increase your reward risk ratio

9 Best Timeframes for Trading Crude Oil When day trading Crude Oil, I prefer to trade off of 30min chart setups, get directional bias off of 240min chart setups, and time my entries using a 500 tick chart. You do not have to analyze multiple timeframes in order to day trade crude oil, you can also just take setups off of the 500 and 1000 tick charts. Keep in mind, when trading off of a 500 or 1000 tick chart alone, we do not have an expected move, meaning we cannot say we expect the market to move our way for next two hours etc.

10 Best Timeframes for Trading Crude Oil Because the majority of the setups we trade, we expect the market to move for 2-4 price bars, you can adjust the timeframe depending on the type of trader you are trying to be. For example, if you want to be in trades for 30mins-2 hours, you would trade a 30min chart. If you want to be in a trade for 1-3 days, you would trade a daily chart, etc.

11 Questions on Intro to Crude and Timeframes to Trade?

12 Exit Strategies, When to Close Your Position

13 Exit Strategies Depending on the type of trader you are, there are a few different types of exit strategies we can use no matter what setup we used to enter the trade Over/Undervalued target Multiple of Risk Trailing Stop Using Pivots Using Trender for Exit

14 Exit Strategies Over/Undervalued Target When using Over/Undervalued as our price target, we will normally want to watch for Significantly over/under valued on a 240 min price chart with a 5 bar analysis period. This level will normally be reached as a market goes into consolidation. Depending on our entry, this will typically be between $500-$1000/contract day trade If you are swing trading, you can use Daily or weekly significantly over/under valued

15 Exit Strategies Over/Undervalued Target When using Over/Undervalued as our price target, we will normally want to watch for Significantly over/under valued on a 240 min price chart. This level will normally be reached as a market goes into consolidation. Depending on our entry, this will typically be between $500-$1000/contract day trade If you are swing trading, you can use Daily or weekly significantly over/under valued

16 Exit Strategies Multiple of Risk Target One of my favorite ways to determine my take profit target is to use a multiple of my risk. This guarantees that you maintain a good reward risk ratio, but many times you will get out of the trade too soon. I will typically go for a 2/1 reward risk if trading against the trend and a 3/1 reward risk if trading with the trend

17 Exit Strategies Over/Undervalued Target When using Over/Undervalued as our price target, we will normally want to watch for Significantly over/under valued on a 240 min price chart. This level will normally be reached as a market goes into consolidation. Depending on our entry, this will typically be between $500-$1000/contract day trade If you are swing trading, you can use Daily or weekly significantly over/under valued

18 Exit Strategies Trailing Stop Using Pivots Another way of determining when to exit is by using a trailing stop. We trail the stop behind each pivot point, that way if the trend continues, we will stay in. One disadvantage to using this method is that you have to wait for the market to move your direction, then move against you, before you can move your stop to lock in gains. One advantage is that you can catch larger moves in the market if the trend continues

19 Exit Strategies Over/Undervalued Target When using Over/Undervalued as our price target, we will normally want to watch for Significantly over/under valued on a 240 min price chart. This level will normally be reached as a market goes into consolidation. Depending on our entry, this will typically be between $500-$1000/contract day trade If you are swing trading, you can use Daily or weekly significantly over/under valued

20 Exit Strategies Using Trender Pro for Exit If looking to stay in a trend a bit longer, you can use the Trender Pro indicator as a guide for exiting. You can trail stop behind the yellow exit bar or stay in the position until color changes to opposite trend. This will allow the market to give back a decent amount of gains normally before getting you out.

normally want to watch for Significantly over/under

This level will normally be reached as a market goes

Depending on our entry, this will typically be

21 Exit Strategies Over/Undervalued Target When using Over/Undervalued as our price target, we will normally want to watch for Significantly over/under valued on a 240 min price chart. This level will normally be reached as a market goes into consolidation. Depending on our entry, this will typically be between $500-$1000/contract day trade If you are swing trading, you can use Daily or weekly significantly over/under valued

22 Questions on Exit Strategies?

23 Trading Momentum Breakouts

24 Trading Momentum Breakouts One of the best way s to trade crude oil is by using a momentum breakout strategy. We need to have two things line up for this setup to work, a well defined trendline/support or resistance, and MQ Momentum indicator agreeing on direction at time of breakout. Ideally we want to see not only the Momentum indicator lines moving our way, but we also want to see the histograms moving our direction as well.

25 Trading Momentum Breakouts When we draw a trendline or support/resistance level, we want to make sure we are connecting PIVOT points, not just one price bar to another. A Pivot is the highest high for the previous 3-5 price bars, or lowest low for the previous 3-5 price bars. So the market needs to have hit a price point and turned the opposite direction for several bars. The larger the pivot, the better.

26 Trading Momentum Breakouts

27 Trading Momentum Breakouts

28 Trading Momentum Breakouts When we are trading a momentum breakout, we should expect the market to move our direction within 5 price bars of the break. If it is not moving our direction, we can normally close the trade and watch for a better entry. As long as it is not forming a bull/bear flag. If day trading, once we break the support/resistance, within 5 minutes we should normally be in the money. If we are not, it may be better to close the trade and watch for another entry.

29 Trading Momentum Breakouts

30 Trading Momentum Breakouts

31 Questions on Trading Momentum Breakouts?

32 Trading Bull and Bear Flags

33 Trading Bull and Bear Flags Bull and Bear Flags are continuation patterns. They also will normally increase the strength of a market going into trendline or support/resistance breaks. When we are looking for a bull or bear flag, we are looking for the price action and the momentum to agree on the setup. Because a market rarely goes straight up or straight down, but rather takes breaks between the moves, we can take advantage of this by entering as soon as the market stops taking a breather

34 Trading Bull and Bear Flags When we are looking for a bull flag, we are watching a minimum of 3 price bars, an up bar, a lower high breather bar, and a break of the previous bars high.

35 Trading Bull and Bear Flags

36 Trading Bull and Bear Flags Now, once we see the price action setting up the flag, we need to confirm that it is a good trade by looking at the MQ Momentum Histogram. We want to see the MQ Momentum histogram green on the up move, green on the breather and green on the break higher. (If you do not have the MQ Momentum, you can also use an MACD)

37 Trading Bull and Bear Flags

38 Trading Bull and Bear Flags Bear Flags are the exact opposite setup from a Bull Flag. Instead of looking for a lower high, we are going to watch for a down move, with a higher low breather bar, and a break lower. Just like a Bull Flag, this pattern is a minimum of 3 price bars.

39 Trading Bull and Bear Flags

40 Trading Bull and Bear Flags Just like with Bull Flags, we need to confirm that it is a valid setup, the way we do this is by looking at the MQ Momentum Histograms once again. Instead of green throughout the entire setup, we want to have it be red, or down, for the entire setup. Remember, as soon as the histogram goes back to the opposite color, the setup starts over and it is no longer a valid flag.

41 Trading Bull and Bear Flags

42 Trading Bull and Bear Flags When trading a Bull or Bear Flag, no matter what timeframe we are analyzing, we expect the market to move a specific way. Once the flag has triggered, we should never see the market go above the apex of the flag, or the highest/lowest point of the consolidation period. The first test after a flag has triggered is if we can break through the high/low of the initial up/down move. At a minimum, we expect a flag to test this first resistance/support level.

43 Trading Bull and Bear Flags No matter what timeframe we are trading on, we expect a flag to move our direction very quickly, meaning, we should normally be in the money within 3-4 price bars at the most. If we are not in the money by the 3 rd or 4 th price bar, it may be worth going ahead and closing the trade because it is not meeting our expectations.

44 Trading Bull and Bear Flags

45 Trading Bull and Bear Flags

46 Trading Bull and Bear Flags Just like with most of the other setups we use, we can increase the probabilities of Bull and Bear Flags by adding additional filters. If the trigger bar forms a Low/High or High/Low reversal when triggering, we will have a higher probability of the flag playing out. We also have a higher probability of the flag playing out if the apex of the flag is a doji pattern showing market neutrality. We also increase the probabilities if we have a candlestick reversal as the apex of the flag.

47 Trading Bull and Bear Flags

48 Trading Bull and Bear Flags

49 Trading Bull and Bear Flags

50 Trading Bull and Bear Flags A couple things we want to keep in mind when trading bull and bear flags: We only want to take the first 1-2 flags. The probabilities of the market following through decrease the more flags you have in a row. We do not want to take a flag at the top or bottom of a significant market move. Meaning, we do not want to see 5 or so price bars straight up/down, then a flag. By this time the market is too extended.

51 Questions on Bull and Bear Flags?

52 Significantly Increasing Success with Momentum Breakouts

53 Increasing Success With Momentum Breakouts The way we typically go about increasing our probabilities of success with a trade is we add additional filters to the setup. There are several different filters we can add to Momentum Breakouts in crude oil that will significantly increase the probabilities of success. Two of the things we can watch for are bear flags moving into or out of the breakout, and trendline retests (last kiss) coming out of the breakout + a flag pattern.

54 Increasing Success With Momentum Breakouts Having a flag going into or out of a breakout, is often one of the best setups for a good reward risk ratio. When we have a flag, stop is placed just above high of the flag. If you are timing the trade on a 500 or 1000 tick chart, many times you can have < 10 ticks risk. The other good thing about adding a flag setup is that once it triggers and gets you into the trade, it should move your direction almost immediately.

55 Increasing Success With Momentum Breakouts If we are trading a flag + a breakout, we need to make sure we are taking the flag in the immediate vicinity of the breakout point. Once the market has moved through the trendline or support/resistance level, we no longer want to take the flag as the market is probably too extended. We are trying to time our entry to be right at the START of the move, if we wait until the market has already moved, then we are getting in late.

56 Increasing Success With Momentum Breakouts Because we are only looking for the best of the best setups, we need to expect the market to act a certain way. If we are entering on a last kiss or a flag, the market should move our direction a significant amount, and then continue to move our way once we are in the money. This means we can move our stop losses to break even very quickly, often times when we only have 8-12 ticks in profit.

57 Increasing Success With Momentum Breakouts

58 Increasing Success With Momentum Breakouts

59 Increasing Success With Momentum Breakouts

60 Increasing Success With Momentum Breakouts

61 Increasing Success With Momentum Breakouts

62 Increasing Success With Momentum Breakouts

63 Increasing Success With Momentum Breakouts Many times you will have a bull or bear flag immediately after Crude has a false breakout. If you see this flag take place, the flag will often times give you a very good entry on the real breakout. When you have a bull or bear flag going into or out of a breakout, this automatically makes the momentum in your favor meaning it is a good breakout trade.

64 Increasing Success With Momentum Breakouts

65 Increasing Success With Momentum Breakouts

66 Questions on Increasing Success with Momentum Breakouts?

67 Trading Petro Status Report

68 Trading Petro Status Report The weekly Petrolium Status Report takes place every Wednesday (except when there is a holiday) at 10:30 AM Eastern. A lot of times the price action the day of the announcement will be fairly choppy, typically I will sit on the sidelines until after the announcement is over.

69 Trading Petro Status Report The first thing we watch for with the announcement is going to be a bull or bear flag, on a 500 tick chart, immediately after the announcement takes place (meaning within 5-45 seconds) This trade is designed to just be a quick scalp for roughly a 1/1 reward risk ratio, normally you will be in and back out in roughly 10 seconds.

70 Trading Petro Status Report The second setup we watch for will typically take place ~ minutes after the announcement. We wait for the market to actually pick its direction, then we watch for a brief consolidation period on the tick chart. We trade the breakout of this consolidation with a target of ticks.

71 Trading Petro Status Report

72 Trading Petro Status Report If you do not get either of the aforementioned setups during the announcement. Watch for the market to pick a direction (you should easily be able to tell by about 11:00 AM) then watch for a consolidation breakout in the underlying direction.

73 Questions on Trading the Petro Status Report?

74 Why Increasing Your Reward Risk Ratio is Important

75 Why Increasing Your Reward Risk Ratio is Important If someone asked me what the number one thing is that they could do to increase their profitability, I would tell them to increase their reward risk ratio. The better our reward risk ratio is, the easier it is for us to be net profitable traders. Typically, for day trading, anything above a 2/1 reward/risk is considered acceptable. If you are swing trading, you normally want to have 3/1 or better.

76 Why Increasing Your Reward Risk Ratio is Important The average reward risk ratio that I see, is normally around a.8/1. Meaning the average trader I talk to is only making $0.8 for every $1 risk. In order to be a profitable trader at this ratio, you need to be correct on 56% of your trades. If you have a 2/1 reward risk ratio, you only have to be correct 34% of the time to be net profitable. If you have a 3/1 reward risk ratio, you have to be correct 26% of the time to be net profitable.

77 Why Increasing Your Reward Risk Ratio is Important 0.6/1 reward risk ratio 50% win ratio

78 Why Increasing Your Reward Risk Ratio is Important 0.8/1 reward risk ratio 50% win ratio

79 Why Increasing Your Reward Risk Ratio is Important 2/1 reward risk ratio 50% win ratio

80 Why Increasing Your Reward Risk Ratio is Important 3/1 reward risk ratio 50% win ratio

81 Questions on Increasing Reward Risk Ratio?

82 Want More Coaching? Do you want to learn more? 4 week continued education small group class. Only taking 10 traders, meeting every Tuesday and Thursday at 2:30 PM Eastern for the month of July. Price is $1200/person and you will be able to record each session and talk with myself and the other traders in the group. twood@microquant.com to get registered today!

83 Self-Quiz!

84 Self Quiz Answer Yes or No Assuming we Breakout Higher, is Momentum Bullish?

85 Self Quiz Answer Yes or No Yes! We had just triggered a bull flag, which automatically makes momentum bullish for a breakout

86 Self Quiz Answer Yes or No

87 Self Quiz Answer Yes or No

88 Self Quiz Answer Yes or No

89 Self Quiz Answer Yes or No

90 Self Quiz Answer Yes or No

91 Self Quiz Answer Yes or No

92 Self Quiz Answer Yes or No

93 Self Quiz Answer Yes or No

94 Self Quiz Answer Yes or No

95 Self Quiz Answer Yes or No

96 Self Quiz Answer Yes or No Is this a good short setup? Why?

97 Self Quiz Answer Yes or No

presented by Thomas Wood MicroQuant SM Divergence Trading Workshop Day One Bond Trading Success

presented by Thomas Wood MicroQuant SM Divergence Trading Workshop Day One Bond Trading Success Risk Disclaimer Trading or investing carries a high level of risk, and is not suitable for all persons. Before