Active Trend Trading System Candle Light 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

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.

Why Active Trend Trading & What is It?

The History

Objective: Clarify, Simplify & Multiply

Clear & Simple Rules for all trends & non-trends Excellent Potential Returns: “Trend Trading for a Living” ~~ Dr. Thomas Carr = 40% +/Year.

Efficient & Effective Use of Trading Capital

What Is It? Trading System going with the Major Trend for both Cash Flow and

Long Term Wealth Building

Uses elements of both Swing Trading & Trend Following

A Strategy of Patience based on Objective and not Subjective Observations

Trading Without a System & Rules

Elements of All Trading/Investing Systems

1

2

3

4

When To Enter: Entry Action Points

When To Exit: Exit Action Points

What Strategy To Use

What To Trade

System to Strategy to Campaign

SYSTEM

Stock Strategy ETF Strategy Option Strategy

Active Trend Trading System Rules? What to Trade: 1. IBD 50 Running List Stocks 2. Stocks/Index ETFs Priced Over $10 with volume GTE to 500K shares/day 3. Stocks/Index ETFs with Weekly Options 4. Stocks on the Move/Leaderboard/Sector Leaders 5. Stocks/Index ETFs from my personal and “Go To” List When to Enter: At Objectively defined Action Points 1. Alternative Entry: Bouncing off of Significant Moving Averages

2. IBD Pattern Breakouts

3. Support/Resistance Bounces or Breaks When to Exit: At Objectively defined Action Points 1. Stop Losses: 1-2% above or below swing high or swing low or Closing Price violates

moving average that triggered trade

2. Hard Stop Loss @ 7-8% loss from entry price

3. Profit Stop: Cash Flow Trade a set percentage 5-10%; or closing price violates selected moving average; or at Support/Resistance

4. Profit Stop after candlestick reversal signal & close below/above 8 day EMA

Active Trend Trading System Rules? Cont.

What Strategy to Use: Define Trade as Cashflow, Capital Growth or both 1. Buy Stock or ETF 2. Buy Puts vs selling stock/ETF short 3. Directional Spreads or Directional Options with high Open Interest 4. Short Puts in Uptrending Market

What To Trade

Weekly & Running IBD 50 Watch List Excellent Yearly Performance Time Efficiency

Stocks & ETFs with Weekly Options

Other Growth Stocks Trading Over $10 Ave Volume Greater than or Equal to 500K/Day Ave

Stocks on the Move/Leaderboard/Sector Leaders

Stocks/Index ETFs from my personal “Go To” List

What To Trade: IBD 50 Running List

Weekly & Running IBD 50 Watch List Excellent Yearly Performance

Time Efficiency

Over $15/Share

Focus on IBD stocks trading over 500K shares/day The IBD 50 stocks may be more than enough to focus on and here’s why.

Secondly, during market corrections

this same list also provides

excellent short candidates if one’s

rules allow for trading down

markets.

FISH WHERE THE BIG FISH LIVE:

We have tracked this elite IBD list since 2007 and each year it has significantly outperformed S&P & Nasdaq Indexes.

Top 5 IBD 2013 Results

Best Year Low

to Year High.

Best from the

Close of 2012

thru 2013

When To Enter or Exit: At Objective Action Points

What is an Objective Action Point? - A definable price level on a chart where we can expect something to happen with high probability

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

When To Enter: At Objective Action Points

Identify Current Trends, Patterns & Action Points

1. Define The Major Market Trends

2. When trading from an established list, the trend of many

stocks on the list will already be definable

3. Trade with the Major Trend—This is the Edge

4. Define Key Trend Reversals and Entry Action Points

Uptrend: 1. Higher Highs & Higher Lows 2. Up Sloping 20-50-200 day SMA’s 3. 20 day SMA above 50 day SMA (Exceptions: Reversals Patterns

or Higher Lows)

Downtrend: 1. Lower Lows and Lower Highs 2. Down Sloping 20-50-200 day SMA’s 3. 20 day SMA below 50 day SMA (Exceptions: Reversals Patterns

or Lower Highs

Sideways: Chaos 1. Box like pattern or Consolidation Pattern

When To Trade:

Identify Current Trends

Identify Current Trends

At What Points Does the Trend

Reverse?

Multiple Correct Answers

Chaos

Identify Current Trends: Moving Averages

The Moving Averages are key!

Understanding what to expect around the moving averages provides the trader with an edge!

The basic thesis behind moving averages is to identify key resistance and support levels of the underlying security so that one can detect the continuation of a price trend or the emergence of a new price trend….

Moving averages watched by institutions:

20 or 21 Daily

50 Daily

200 Daily

Traders also use shorter timeframe moving averages to better trigger entries and exits. 8 or 10 period EMA works well for these triggers.

Weekly Period Moving Averages which approximate the Daily Moving Averages can also be helpful during analysis.

50 Day Moving Average approximately equals the 8-10 Week Moving Average

200 Day Moving Average approximately equals the 40 Week Moving Average

Identify Current Trends: Moving Averages

Most Important: Decide type to use and then stick with the choice:

The solution isn’t so much which type of moving average is best but how well the trader masters using the moving average chosen.

**Observe how price action responds around the moving averages:

Which moving average does the trend respect?

Know the probabilities: If Price Action violates a moving average at the close, then there is a higher probability the next most significant moving average will be tested

Identify Current Trends: Moving Average

8 EMA

20 SMA

50 SMA

200 SMA

Bullish Stack with

Increasing Spread

between Moving

Averages

Slope, Stack and Spread of moving

averages help define the Trend & Strength & Trade Posture

Identify Current Trends: Moving Average

Slope, Stack and Spread of moving

averages help define the Trend & Strength & Trade Posture

Identify Current Trends, Patterns & Action Points

8 EMA

20 SMA 50 SMA

200 SMA

Uptrend to Downtrend

Lower Low

Rally Failure: Lower High

Identify Current Trends: Moving Average

No Trend : Chaos Mode!

Patterns: Define Action Points

1. IBD Patterns

2. Candle Stick Patterns (Separate Presentation)

3. Moving Average Bounces

4. Trend Line Breaks

Supporting Clues: Keltner Channels, Stochastics & Momentum

Entry Action Points

1. IBD Proper Buy Points

2. Active Trend Trading Buy Points

Critical Requirement: Objective Buy Points for Both

Identify Proper Strategic Entries & Position Sizing

- William O’Neil: Fewer is better. Hold no more than 5-8 stocks. For accounts less than $100K should be no more than 4-5 stocks.

- Options: size to meet 7-8% loss in stock or less

- Learn how Margin works

- Objective not Subjective

Identify Proper Strategic Entry Action Points

Trend Line

Break

Action Point: Moving

Average Bounce

1

2 3

4

5 Cup Break

Out

Identify Proper Strategic Bearish Entry Action Points

Trend Line Break

Action Point: Moving Average Bounce

1

2

3

4 5

Cup Break

Out

Thoughts on Strategic Exit Action Points

Executing a proper exit can be challenging unless the trader acts automatically at well-defined strategic exits Action Points. Again with an aim at keeping this initial strategy simple and objective the following exits are suggested. Stop Loss: 1. Hard Stop Loss at 7-8% of entry price if entering off an IBD Breakout 2. Breaking Swing Low or High on Alternative entries by 1-2% or tighter 3. Close below Moving average that triggered trade Profit Stops: Define Cashflow or Capital Growth 1. Profit Target at 20-25% of entry price (Move on underlying for Options) 2. Areas of Resistance/Support like moving averages 3. Close below Moving average that triggered trade 3. Stay in trade until a close below the 8 day EMA

4. Cash Flow Trades: Once paper profit is up over 10% adjust trailing stop to

entry price plus 5% and then increase trailing stop by 2.5% for every 5% increase in stock price. Or close below 8 day EMA.

Thoughts on Strategic Exit Action Points

Determine if the trade is a Cash Flow Trade, a Capital Growth Trade or both. Consider: 1. Is the trade in an IRA or 401K? – Might want to just do Capital Growth Trades

2. Do you need Cash Flow?

3. Do you need both?

How one answers these questions can help with pre-trade strategies on where and how to take profit. See Alternative Exits at the BAMM Site under files.

Profit Targets

Entry 2: Bounce off 200 day SMA

Exit Trade 2: Cash Flow

12.7% in 6 days

2

5

Entry 5: Cup Break Out

Exit Trade 5:

26.5% in 24 days

Cash Flow Trade: Take

profit at the Moving

Average Resistance

Objective or Subjective?

Cash Flow and Capital Growth Trades can be concurrent taking ½ position profit at a defined level of resistance or % Gain. Then the Capital Growth portion can be held until a longer term profit objective is hit or a trailing stop based on a close below a significant moving average take place.

Profit Targets

Entry 3 Moving Average Bounce/Break

3

Exit Trade 3:

8% in 27 days

Max Profit Target on Downside Trades = 20-25%

What Strategy to Use

1. Buy Stock or ETF’s: IMHO this is the best strategy to use, fewer variables, thus the simplest to manage!!! Learn to be successful here first.

2. Buy Puts vs selling stock/ETF short 3. Directional Spreads 4. Short Puts in Uptrending Market

A Few Recent Trades

It doesn’t happen every time, but it does

happen all the time!

Yogi-ism from Mike Trager

Enter 9-11 @ 21.95 Exit 9-23 @ 25.86 17.8% in 13 days

Order place on 9/11 didn’t fill. Good No Trade after Shooting Star Pattern

Enter 9-4 @ 54.50 As of 9-25 8 day EMA @ 61.84 13.46% in 21 days

Active Trend Trading System Rules? What to Trade: 1. IBD 50 Running List Stocks 2. Stocks/Index ETFs Priced Over $10 with volume GTE to 500K shares/day 3. Stocks/Index ETFs with Weekly Options 4. Stocks on the Move/Leaderboard/Sector Leaders 5. Stocks/Index ETFs from my personal and “Go To” List When to Enter: At Objectively defined Action Points 1. Alternative Entry: Bouncing off of Significant Moving Averages

2. IBD Pattern Breakouts

3. Support/Resistance Bounces or Breaks When to Exit: At Objectively defined Action Points 1. Stop Losses: 1-2% above or below swing high or swing low or Closing Price violates

moving average that triggered trade

2. Hard Stop Loss @ 7-8% loss from entry price

3. Profit Stop: Cash Flow Trade a set percentage 5-10%; or closing price violates selected moving average; or at Support/Resistance

4. Profit Stop after candlestick reversal signal & close below/above 8 day EMA

Active Trend Trading System Rules? Cont.

What Strategy to Use: Define Trade as Cashflow, Capital Growth or both 1. Buy Stock or ETF 2. Buy Puts vs selling stock/ETF short 3. Directional Spreads or Directional Options with high Open Interest 4. Short Puts in Uptrending Market

It doesn’t happen every time, but it does happen all the time! Yogi-ism from Mike Trager

Art & Science of Active Trend Trading—Bi-Weekly Free Newsletter

Dennis W. Wilborn Email: DWW@activetrendtrading.com

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