master trader

© 2009 Tigrent Brands, Inc. All Rights Reserved.

MASTER TRADERTM

© 2009 Tigrent Brands, Inc. All Rights Reserved. 2

DisclaimerThis publication and the accompanying materials are designed to provide accurate and authoritative information in regard to the subject matter covered in it. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional opinions. If legal advice or other expert assistance is required, the service of a competent professional should be sought. Reproduction or translation of any part of the information contained herein, in any form or by any means, without the written permission of the owner is unlawful.


DisclaimerStock and Options trading have large potential rewards but also involve large potential risks. One must be aware of the risks and be willing to accept them in order to invest in the stock and options markets. Any decisions to place trades are personal decisions that should be made after thorough research, including a personal risk and financial assessment. The company’s products (including but not limited to training and coaching materials and newsletters) are for training and/or illustration purposes only and are provided with the understanding that: (i) the company is not engaged in rendering legal, accounting, or other professional opinions; (ii) no solicitation and/or recommendations to buy or sell any stock and/or options is made herein; and (iii) no representation is being made that any of the accounts or trades mentioned in this presentation or training materials will or is likely to achieve profit or losses similar to those shown or are appropriate for your personal account. Virtual trade transactions are performed with delayed data. The company and employees, subcontractors and alliances may own, buy, or sell the assets or options discussed for the purpose of trading at any time. No express or implied warranties are being made with respect to company services and products. If legal advice or other expert assistance is required, the service of a competent professional should be sought. The company is not liable in any form. You must receive a copy of the publication Characteristics and Risks of Standardized Options (ODD) prior to buying or selling an option. Copies of the ODD are available from your broker, at , or from The Options Clearing Corporation, One North WackerDrive, Suite 500, Chicago, Illinois 60606. Access to software features subject to maintaining a valid data subscription.


Disclaimer – Websites

Any list of websites or website resources is provided solely for training purposes and as a convenience to you and does not imply our sponsorship, endorsement or approval of any website, its sponsors, products and/or services offered therein, or by any advertiser therein. The company does not maintain the site(s) or assume any responsibility for the accuracy, content and current status of any information provided. Please note that the locations of the site(s) can change without notice.


Testimonial results are not typical, as each customer’s success depends upon the unique skills, time commitment and individual

effort of each customer. The customers sharing their stories have taken various advanced trainings, each at a cost of approximately $4,990, to achieve these results. Discounts are offered for courses

purchased as a package. The customers may have been reimbursed for travel and lodging expenses but not otherwise

compensated.

The training program provided today is not designed or intended to qualify customers for employment. It is intended solely for the

avocation, personal enrichment and enjoyment of customers. The company’s products (including but not limited to training and

coaching materials and newsletters) are for training and/or illustration purposes only and are provided with the understanding that the company is not engaged in rendering legal, accounting, or other

professional opinions.

Please note that investing involves risks. Any decision to invest in either the real estate or stock markets is a personal decision that should be made after thorough research, including a personal risk

and financial assessment.

Thank You!Thank You!


Course Learning Objectives• Understand basic market principles• Learn the Model for S.U.C.C.E.S.S.TM

• Understand essential building blocks of technical analysis & price action

• Understand practical application of price & volume analysis

• Learn & apply secondary indicators• Learn to apply the Model for S.U.C.C.E.S.S.TM as it

pertains the Master Trader bullish trading models• Learn to apply the Model for S.U.C.C.E.S.S.TM as it

pertains the Master Trader bearish trading models• Understand the application of personal trading rules

& discipline• Develop a 30-day action plan

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Chapter 1: Know the Market Essentials

©2009 Tigrent Brands, Inc. All Rights Reserved.


Chapter 1: Learning Objectives

• Identify common pitfalls and mistakes

• Understand the odds of probability

• Identify and outline personal goals

• Understand how to outline a basic-trading plan

• Recognize the importance of developing a playbook

• Learn the Model for S.U.C.C.E.S.S.TM

• Know the essential market functions

• Understand basic-market structure



Know What Drives the Markets

• Fear • Greed

Core human emotions drive the markets.



Understand How Emotions Affect the Decisions Market Participants Make

• Fear • Greed• Fear is a primal human emotion

that expresses itself in many forms.

– Fear can cause people to…• panic• close out of a trade instead of

holding• hold on to a trade instead of

closing• lose money• take inappropriate position sizes• etc…

– Fear of…• missed opportunity• losing money• being wrong• leaving money on the table• making mistakes• etc…

• Greed is a primal human emotion that expresses itself in many forms.

– Greed can cause people to…• hold instead of close• close instead of hold• fail to take profits• hold on to losing trades• trade on impulse• be stubborn• take too large of a position• risk too much• make poor decisions• become euphoric and irrational• etc…



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Understand the Plight of the Emotionally Reactive Trader/Investor

Fear of a missed opportunity

“Hey did you see XYZ it is hot.”

Fear – Hesitation “What if I lose money?”

Greed - Holding instead of closing

“This stock is going to the moon!”

Greed/Fear - Hope that it goes back up

Fear/Greed – “If I sell now it will just go back up.”

Fear - Frozen like a deer in the headlights

Greed/Fear -“It is only a loss on paper. It is a good company, they’ll be back.”

FEAR – “There won’t be anything left if I don’t get out.”

Greed - $#*!

A moment of clarity

“I NEED A PLAN!”

Fear -

“What if people find out?”



Identify Common Mistakes• Trading on emotion • Failure to develop a plan• Entering a position without assessing

and understanding the potential risk and reward

• Falling in love with a stock• Failure to plan or stick with a stop loss• Exiting a position too soon• Staying in a position too long• Putting too many eggs in one basket

− Inappropriate positions size• Risking too much money

− Disproportionate risk tolerance• Basing decisions on impulse and

emotion• Failure to properly analyze and correct

mistakes

We all make mistakes. It is a wonderful part of the human experience that everyone shares in common.

The success minded individual will learn from mistakes.



Avoid the Prediction Trap• New traders often develop the

misconception that they have to be able to predict the future in order to make money in the markets.

• The truth is, one does not need to be prophetic to profit. Successful traders do not need to own crystal balls.

• The business of trading is based on probabilities, not predictions.

• The successful market participant recognizes the importance of analyzing and understand the odds of probability.

Stan’s Stock Picks

100% Guaranteed.*Guaranteed not a guarantee.



Understand the Odds of Probability• Gambling patrons oftentimes willingly

place wagers with complete disregard for the odds

• The game of roulette is a perfect example of how the odds work in the favor of the house

• Some patrons will bet on red or black, believing that they have a 50-50 chance of winning

• The house will gladly take that wager– The roulette wheel has 38 numbers– 1-36 alternate between red and

black– 2 green spaces 0 and 00 shift the

odds of probability into the favor of the house

– 5.26% is the basic edge that the house holds on a simple red/black or odd/even bet

The profitability of the casino & gaming industry is based on a clear understanding of statistics & odds of probabilities.



Realize that Trading is Not Gambling!• The first rule of trading is to protect

your capital• A wise trader will take measures to

control the odds and mitigate exposure to risk– Asset allocation is the first line of

defense• Diversification is an age old money

management technique

– Position sizing is the second line of defense

• Too many eggs in one basket is never a good idea

– Protective stop losses and many other strategies can be implemented to effectively manage exposure to risk

– Favorable Reward to Risk Ratios are a must

Unfortunately too many people equate trading with gambling. The common sentiment that the markets are “too risky” keeps many would-be traders sitting on the sidelines. The reality is that most traders spend the majority of their time and effort managing the odds and controlling risk. After all without risk there would be no reward!



Understand Risk of Ruin



Identify Past Mistakes



Learn from Your Mistakes

• True or False – Making mistakes is a normal

part of learning to tradeTrueFalse

• True or False – Learning from mistakes is

critical to successfully learning to trade

TrueFalse

• As a group, share and discuss some of the mistakes that have been made

• Recognize that the most common mistake made by individual is the lack of careful planning



Build a Trading Plan“A failure to plan is a plan to fail.”

• Understand what it takes to build a successful trading business.

• Knowledge is essential to success– Plan a course to further pursue

knowledge and education• Maximize your efforts

– Analyze personal goals– Design a personal plan– Develop winning strategies – Implement the strategies &

game plan– Evaluate personal progress



Evaluate the Objective & Set Goals

• Identify a source of personal motivation.

• Define primary objectives– (personal goals, financial goals

etc…)• Design a plan that will help you

meet those goals and objectives.– Goals need to be realistic and

measurable– Long-term financial goals can be

defined in dollars and broken down into smaller more specific goals

– Design and develop a daily, weekly and monthly plan of action

• Develop specific trading strategies that can help you reach your goals

– Develop a playbook of high probability strategies that can profit in any market

• Implement the game plan– The disciplined execution of the

game plan is requisite– Trades don’t plan and place

themselves• Evaluate and adjust the goals from

time to time– Every good plan needs to be

assessed and adjusted as needed– Keep a journal of your goals




Break Long-Term Objectives into Short-Term Goals

• Joe would like to generate an additional 25k per year to help him reach his retirement goals

• How can Joe break down his financial goal down into a realistic and measurable goal?

• Annual goal 25k– During a typical calendar year,

the market is open on average…

• 252 days per year• 21 days per month

– $25k goal can be broken down into a more manageable goal.

• $25k ÷ 252 days = $99.20• $99.20 = est. daily goal

• Joe determines that this goal seems realistic and manageable



Make Certain that Goals are Realistic• After some careful planning, Joe has

decided...– To use careful money management

in order to protect his 50k in working capital

• Predetermines a maximum asset allocation of 10 percent of the account balance per trade

• Predetermines a personal maximum risk tolerance of 1 percent of the account balance per trade

• Joe’s money management rules are an important part of his plan– His current account balance &

personal rules allow Joe…• A $5,000 maximum position size or

asset allocation• A $500 maximum risk exposure

• Joe determines that he needs to trade stocks that…– can potentially yield $99.20

per day– require less than 5,000

capital for the position– can provide a risk profile

under $500 when coupled with a protective stop loss



Use Good Business Sense• Using MachTraderTM Joe identifies a stock that

can potentially meet his short-term goal– XYZ is only $35.50 per share– XYZ stock has a statistical average daily

range of $1.30• Joe estimates that purchasing 100 shares

could meet his short-term goal and keep his personal money management rules– 100 x $35.50 per share = $3550 – A protective stop loss at $33 dollars will

give him a $2.50 risk profile• $2.50 risk x 100 shares = $250• Plus $10 in round trip commissions = $260

estimated risk profile• Now that Joe has estimated his risk profile, he

proceeds to estimate the potential reward

Careful planning of the trade provides Joe with a clear understanding of risk.



Use Good Business Sense• A position size of $3550 is less

than his maximum asset allocation rule of 10 percent and 5k.

• An estimated risk profile of $260 is much less than his 1 percent maximum risk profile of $500.

• XYZ has a statistically probable average daily expectancy range of $1.30

• $1.30 x 100 shares = $130– A potential yield of $130 per day is

possible assuming that the trend persists

– Joe factors in that same $10 in round-trip commissions

– Quite satisfied with the estimated reward compared to the estimated risk, Joe determines to proceed with the plan

– Does Joe’s trade match his personal rules?



Remember, Every Market Participant Is Unique.• Financial goals and objectives will also be as

unique and varied as the market participants themselves

– Educational needs will vary– Personality types are different and financial risk

tolerance will vary. One size fits all trading plans are impractical and less effective

– Trading plans need to be compatible with individual personality type and financial goals

• Evaluate personal goals• Analyze personal and financial objectives• Customize a game plan that is compatible with

your unique circumstances– Personal goals– Financial goals– Capitalization– Personality type– Risk tolerance– Time frame– etc…

Like snowflakes, no two people are the same. Therefore, no two trading plans will be the same. Take the time to evaluate your personal goals and analyze your financial objectives. Then design and develop a personalized game plan that can be implemented.



Design & Outline a Sample Game Plan

• Identify and write down a personal financial objective

• Estimate and write down the financial goal in dollars

• Estimate and write down a realistic time frame in which to achieve that goal

The individual with a professional mindset finds a

way to make things happen.

Take a few moments to identify and write down some personal goals.



Crunch the Numbers

• Estimate the number of trading days within the time frame selected– 252 days in an average year– 21 days in an average month

• Break down the financial goal into a daily goal– Do the math

• Divide the estimated dollar amount by the estimated number of trading days

– Write down the estimated daily goal*This exercise is designed to illustrate breaking a large objective into an attainable shorter-term goal and is for training purposes only.



Think in Percentages• Albert Einstein

– Special Theory Of Relativity• E = MC2

• Once also theorized that “the most powerful force in the universe is compounding interest.”

• Trading accounts can grow percentage point by percentage point.

%

Getting too caught up in dollars and cents can often times overshadow the power of a simple percentage growth in a trading account.



Practice Making Personal Rules• You’ve just inherited $72,000 after taxes and opened up a new

trading account• Practice making money-management rules• Determine both…

– Maximum asset allocation per position• In percent first then convert into $

– Maximum risk tolerance per position• In percent first, then convert into $

• Calculate these numbers and write them down. Be sure to express the values in both percent and $.

• Maximum asset allocation per position

• Maximum risk profile per position

• Write down the reason you chose those percentages and figures.

$

$

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Develop a Strategic Playbook• A good trading playbook will focus on

– Identify high-probability trading and investing opportunities

– Devise Strategies that are compatible with personal and financial objectives

– Draft specific rules to help implement the designated plan

• Trade identification that is structured, consistent and repeatable

• Multiple strategies are required– Practice the plays from the playbook.

• Practice, practice, practice! Use a virtual trading platform

• Be prepared for live action in the market requires practice and preparation

– Journal and review all of your practice trades

• Identify what needs improvement• Identify what is working well

Now that examples of how to develop a basic-game plan have been outlined, it is important to recognize the need to develop systems and strategies that are consistent and repeatable. A rock solid playbook based on high probability setups and theories is essential to success.



Know the S.U.C.C.E.S.S. ModelTM



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• Study charts of all of the major market indices.– S&P 500

• Index $SPX = Index• SPY = ETF

– Dow Jones Industrials• $INDU = Index• DIA = ETF

– NASDAQ• $COMPQ = Index• QQQQ = ETF

– Russell 2000• $RUT = Index• IWM = ETF

• Study charts of Sectors & Industries in a top down approach.



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• Find trading & investment opportunities using the MachTraderTM toolbox.– Run SeekerTM scans.– Keep & check watch-

lists.– Perform research.

• Technical• Fundamental• News• Etc…

– Check economic calendars.

– Check earnings dates.– Etc…



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• Choose the appropriate or desired tradeableinstrument to match your market bias and trading strategy.– Master Trader

• Long Stock• Short Stock

– Cashflow Options• Long Options• Short Options• Covered Calls• Calendar Spreads• Etc…

– Spread Trader• Credit Spreads• Debit Spreads• Advanced options

combinations– Etc…

• Use the price quotes and risk graphing tools provided in MachTraderTM to help you make intelligent business decisions.



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• Calculate and analyze the potential risk vs. reward– Risk– Reward– Risk/Reward Ratio– Asset Allocation– Risk Tolerance– Position Size– Etc…

• Document the trading plan• Use the tools of the Master

Trader– MachTraderTM Risk Graphs– Trade P.R.E.P. Calculator– Create your own system

• P.R.E.P. every trade.Price Trigger EntryRealistic TargetsExit Stop LossPosition Size



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• Implement the trade according to the pre-determined game plan– Place the order

• Practice placing the order in a virtual platform until the order-entry process has been mastered

• Trade live when ready

– Use appropriate order types for the strategy

• Practice virtually trading with various order types until mastered

• Master Trader “Trick of the Trade”– Place the protective stop

loss order at the same time the entry order is placed



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• Supervise the trade according to plan– Supervise the trade &

make the proper trade adjustments

• Swing trade example – Check the trade daily after

the market is closed– Adjust stop loss according

to pre-determined rules» Cancel existing stop

loss order» Place the adjusted

stop loss order – Take profits if objective is

met– Remember to update your

trading journal– Etc…

• Your trading business will require regularly scheduled maintenance

• Different trading styles have different maintenance requirements

• Choose a trading style that matches your goals and personality



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• Journal & Review each and every trade

• Use the Master Trader Journal or create your own journal to help you…– Track overall performance

• Income Trades vs. Expense Trades

• Win Loss Ratio• Profit Factor

– (size of income trades compared to size of expense trades)

• Track equity curves (equity over time)

• Make notes• Identify strengths• Diagnose potential problems• Etc…

• Make journaling a part of your daily routine



Understand the Power of the S.U.C.C.E.S.S. Model• Which of the following is NOT a part of the model

for S.U.C.C.E.S.S.?Survey the Market

Use MachTraderTM to Identify & research potential trades

Choose the Tradable Instrument

Carefully plan & prep the trade

Execute the trading plan

Evaluate the position

Supervise the trade

Systematically Journal & Review

• The Model for S.U.C.C.E.S.S. will help you develop a regular & consistent routine

True

False

• A disciplined routine is critical to the success of your trading business

True

False

• Joe developed a simple and realistic game plan which fits the Model

• Write down some of the ways in which the Model for S.U.C.C.E.S.S. can help you implement your own game plan



Know the Market

• Order Routing• Exchanges & Electronic

Clearing Networks• Order Types• Buying Long vs. Selling

Short• Choosing a Brokerage• Market Organization and

Classification• Top Down Vs. Bottom

Up Analysis• “Knowledge must come through

action; you can have no test which is not fanciful, save by trial.”

– Sophoclese (496 BC - 406 BC)



Understand the Transaction• Buyer

– Takes delivery of the security, typically will pay the asking price

– Charged a commission by their broker

• Seller– Delivers the security

typically at the bid offer– Charged a commission by

their broker

A market maker is typically a firm that quotes both a buy and a sell price. The market maker is hoping to make a profit on the Bid/Ask

spread. The profits yielded from the difference between the Bid/Ask spread is often referred to as “the turn.”



Understand the Bid & Ask• BID

– An indication by an investor, a trader or a dealer of a willingness to buy a security or commodity

– The price at which an investor or trader can sell to a broker-dealer

• ASK– The lowest price anyone

is willing to sell a specific stock or commodity at a given moment in time

– Also called the offer

• Bid Ask Spread – The difference between

the bid and the ask prices of a security

– An unavoidable cost of trading for the retail participant



TRADER

INTRODUCING BROKER

CLEARING FIRMS: Independent and market

owned Electronic Clearing Networks (ECN)

NASDAQ

NYSE

AMEX

CBOE

Conceptualize Order Flow



Know the Core Entry & Exit Order Types

• Entry Orders– Buy To Open (BTO)

• Market• Limit

– Stop Orders» Stop Market» Stop Limit

– Sell To Open (STO)• Market• Limit


• Exit Orders– Sell To Close (STC)

• Market• Limit


– Buy To Close (BTC)• Market• Limit




Define Primary Order Types• Market Order

– Will fill at the next available price

– Buy Market – Sell Market

• Market Orders typically take precedence over Limit Orders and are used for rapid execution.

• Limit – Buy = at or below the

specified limit price– Sell = at or above the

specified limit price• Limit Orders offer some

control over the entry/exit price.

• Stop = Trigger– A stop is a trigger that will

route either…• A Market Order

– or a…

• A Limit Order – Buy Stop

• Triggers a Buy Market or a Buy Limit Order when price trades at and above the stop price

– Sell Stop• Triggers a Sell Market or

a Sell Limit Order when the price trades at and below the stop price



Market Order ExampleThe Buy or Sell Market Order is placed while the Market is trading @ $32.23

Market is trading @ $32.23

Moments later the order gets filled @ the next available price $32.17

.06 cents lower

•The Market Order…• Ideal for instant execution in a

liquid market.• Can potentially get filled at an undesirable

price. This is called slippage.



Buy Limit Orders


Buy Limit @ $32.15

Buy Limit Order • will execute @ $32.15 and lower



Sell Limit Orders

Sell Limit @ $32.40

Sell Limit Order • will execute @ $32.40 and higher




Understand Stop Orders• Stop = Trigger

– A Stop Order is a trigger order that has a specific price rule or contingency.

• Can be coupled with a Market or a Limit Order.– Buy Stop

• Enter a bullish position– Upon price condition being met

• Close or cover a bearish position– Upon price condition being met

– Sell Stop• Enter a bearish position

– Upon price condition being met• Close or cover a bullish position

– Upon price condition being met

– Trailing Stops• A Stop Order that will trail price by a predetermined

and fixed $ or percent amount • Typically used to help traders lock in profits• Can be coupled with a Market or a Limit Order.

New traders can often be confused by the Stop Order. A simple memory trick can be used to clear up the confusion.

What do you do at a stop sign? stop?go?or both stop & go?




Buy Stop @ $32.36

•Buy Stop Order • Will execute @ $32.36 and higher.• Buy Order is sent as a Market Order

unless specified otherwise.

Buy Stop Orders



Sell Stop Orders

Sell Stop @ $32.06

• Sell Stop Order will execute@ $32.06 and lower.

• Sell Order is sent as a Market Orderunless specified otherwise.




Buy Stop Limit Orders


Buy Stop @ $32.36

•Buy Order is sent as a Buy Limit andwill execute at $32.50 and below.

•Buy Stop Order will execute@ $32.36 and above.

Buy Limit @ $32.50




Sell Stop @ $32.13

•Sell Stop Order will execute@ $32.13 and below.

• Sell Order is sent as a Sell Limit andwill execute at $31.95 and above.

Sell Limit @ $31.95

Sell Stop Limit Orders



Understand Time in Force

• DAY ORDER– An order to buy or sell

stock that automatically expires if it can't be executed on the day it is entered.

• GOOD 'TIL CANCELED– Sometimes simply

called "GTC," it means an order to buy or sell stock that is good until you cancel it. Brokerages usually set a limit of 30-60 days at which time the GTC expires if not restated.



Practice with Order Types


Buy ______________$32.36

Filled @ $32.50 and ______________

Triggered @ $32.35 and ___________

Buy _______________$32.50

• Place a Buy Stop Limit Order1. Identify and label the Stop order.2. Identify and label the Limit order.3. Correctly describe the price action (e.g., @ and

above or @ and below)



Practice With Order Types

• Place the appropriate order type for a protective stop loss below support.

1. Identify and label the order type2. Correctly describe the price action

1. Sell __________________$32.05

The Position is trading @ $32.23

2. Will execute a market order @ $32.05 and…higherlower

• How long should a stop loss order be enforced?

Good for the day?Good Until Canceled?



Identify the Correct Order Type

Trigger a Sell @ or below = ____________________

Trigger a Buy @ or above = ____________________

Sell @ or above = ________________________

Buy @ or below = _______________________



Understand Long vs. Short• Long

– A position that requires the price of the underlying instrument to rise in value

• Short– A position that

requires the price of the underlying instrument to fall in value



Understand Long Orders Entry & Exit

Buy To Open

Limit Market

Trigger

Buy Stop

Choose an order type

& follow the arrows.

Sell To Close

Limit Market

Trigger

Sell Stop



Understand Short Orders Entry & ExitSell To Open

Limit Market

Trigger

Sell Stop

Choose an order type

& follow the arrows.

Buy To Close

Limit Market

Trigger

Buy Stop



“Get” Shorting!• SHORT

1. The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.

2. A short sale of stock is initiated by choosing a SELL TO OPEN entry order.

3. Upon execution money is received for the sold security.

4. Gains or losses are not realized until the borrowed security is returned to the introducing broker through a BUY TO CLOSE exit order.

5. Brokers charge round-trip commissions.

6. The Broker Call Rate is the interest rate that banks charge brokers to cover the short sold security positions.

a) Brokers typically up-charge approximately 1 to 2 percentage points above the federal funds rate.

Don’t “sell yourself short.”Markets go up, down and sideways. Learning to trade all three-directional biases will help a trader profit in any market.



Be Aware of Rules and Regulations Regarding Short Selling.

• Short selling is not allowed in an IRA or cash account.

• A margin account is required to sell short.

• Theoretically, there is unlimited risk.– Stocks can go up forever, but

can only fall to zero.• With proper risk management

this concern is mitigated.• Many ways to protect a short

position with stock and options strategies.

• Maintenance Requirements– The minimum amount of

equity required in the account to maintain an open position if trading on margin

• Consult with your broker about margin and maintenance requirements.

• The “Up-Tick” rule has been eliminated by the SEC as of July 6, 2007.

• There is a small amount of interest charged for borrowing the stock.

– This is called the “Broker Call Rate”– Check with your broker for specific

details.• Not all stocks can be short sold.

– The Introducing Broker is required to have an appropriate inventory available.

• Check with your broker for a list of securities that can be sold short.

• The Introducing Broker can call in the shorts.

– A “Buy In” or short squeeze can possibly occur where your broker demands the return of the borrowed shares.

• For more information visit http://www.sec.gov



Know How To Choose an Introducing Broker.

• Full Service vs. Discount• Web Based vs. Direct

Access• Insured?

– SIPC, FINRA, NFA, etc…

• What instruments do they trade?– Stock, Options, Futures,

Forex, etc…• Basic interface vs.

sophisticated interface– User friendly?

• Customer Service• Industry Accolades• Commissions • Execution • Analytics• Tools and gadgets• Do they offer Mobil Trading

from a wireless handheld?

As a group discuss how to identify a good Introducing Broker.



Know What an Active Trader Looks for in a Broker

• Great virtual trading platform that translates into a “quick and easy to use” order entry platform for real money orders

– (i.e.)Virtual trading platform that is identical to live trading platform is preferred.

• Live support for the beginning trader

• Competitive commission structure• Excellent history of speedy

execution with minimal slippage• Trade options, futures, stocks,

forex from one account

• Availability of order-types and combination orders

– Stop - Limit orders used in a "one triggers other" relationship to an attached protective stop loss

• Stock and Option order templates

– Make sophisticated orders easy to implement.

• Bracket Orders• Options Templates like spread

trades etc…• High ratings and accolades for

online discount brokerage firms. from reliable sources

– (i.e., consumer reporting services like JD Powers and associates, or independent reviews from within the trading community.



Know the Principal Types of Individual Accounts

• CASH ACCOUNT– An account in which the customer is

required by the SEC's Regulation T to pay in full for securities purchased not later than two days after the standard payment period set by the NASD's Uniform Practice Code.

• INDIVIDUAL RETIREMENT ACCOUNT (IRA)

– Traditional and Roth IRAs are established by individual taxpayers who are allowed to contribute 100 percent of compensation (self-employment income for sole proprietors and partners) up to a set maximum dollar amount. Contributions to the Traditional IRA may be tax deductible depending on the taxpayer's income, tax filing status and coverage by an employer-sponsored retirement plan. Roth IRA contributions are not tax-deductible.

• MARGIN ACCOUNT– An account leveraged in which stocks

can be purchased for a combination of cash and a loan. The loan in the margin account is collateral by the stock and if the value of the stock drops sufficiently, the owner will be asked to either put in more cash or sell a portion of the stock. Margin rules are federally regulated but margin requirements and interest may vary among broker/dealers.

• Many Traders Have Multiple Accounts and Account Types.

– Simply put, it is not wise to day trade the IRA.

– Active traders enjoy the flexibility that margin accounts can offer.



Individual Action Plan

• List three things that you can do to help ensure that the broker you choose meets your individual needs.



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Understand How Securities Are Classified & Organized in MachTraderTM

• SECTOR− A market sector is an

accumulation of industrial groups with similar macro business characteristics.

• INDUSTRY− An industry is the category

describing a company's primary business activity. The largest portion of revenue usually determines this category.

− To screen for companies in a particular industry, select the industry from the drop down menu.



Understand a Top Down Approach to the Market

Top Down• Start by looking at broad market index

charts.– Import market sector lists into an

MachTraderTM quote sheet.– Link to a chart and proceed to identify the

broad market trends.– Determine market posture.

• Identify which sectors have the strongest trends.

– Import major-market sector lists into an MachTrader quote sheet.

– Link to a chart and proceed to identify which sectors best support the broad market trend.

• Identify which industry groups are leading the sector.

– Import the corresponding market sector lists into an MachTrader quote sheet.

– Link to a chart and proceed to identify the industry group with the best looking trend and technical setups.

• Use the SeekerTM to identify trading opportunities for stocks from within the appropriate Sector/Group.

SU

C

CE

S

S



Seek Trades in Specific Sectors & Groups



Practice Using MachTraderTM

• Perform each of the following tasks.– Open up a stock chart– Look up a security's ticker symbol – Open up a fundamental analytics

sheet– Tile the chart and the fundamental

window vertically– Link the two windows together– Change the security

• Perform each of the following tasks– Open up a quote sheet– Right click and import the

Market Index list– Open up a chart – Select symbol group one for

both the quote sheet and the stock chart

– Click on each index and briefly study each index chart

– Click on “file” in the top left corner and save this layout as “practice layout.”

– Close all of the windows and the click on “file” select “open page” and then select the file you saved as “practice layout.”



Chapter 1 Quiz

• Trading is high risk, high rewardTrueFalse

• Trading is a lot like gamblingTrueFalse

• It is important to have a plan & to Pre-determine position size & risk tolerance

TrueFalse

• How many trading days are there in a year?

36525226721

• Which of the following is true about stop orders?

Used to trigger an entry orderUsed to trigger an exit orderCan trigger a market orderCan trigger a limit orderCan be used to protect capitalAll of the above

• A Buy Limit Order will fill at the limit price or

HigherLower

• A Sell Limit Order will fill at the limit price or

HigherLower

• Which of the following statements is true about the top-down approach?

Choose only the most fundamentally sound stocks from the top of the listStart with broad market indices & sectors to identify trending sectors & indices



Chapter 2: Introduction to Technical Analysis



Chapter 2: Learning Objectives• Understand the essential building blocks of technical analysis of price

− Recognize chart types

− Identify and label price

• Understand Volume

− Learn how to read the volume histogram

• Shed light on Candlestick analysis

– Define and label Candles

– Recognize key patterns

• Continuation

• Reversal

• Understand Pivots

• Classify and Rank Pivots

• Learn to read trends

– Direction



A Stock Chart is a Cartesian Graph that Measures Price Over Time

Y A

XIS

= P

RIC

E

X AXIS = TIME



5 Pieces of Data Are Reported for Each Period: Open, High, Low, Close & Volume.

Locate the data at the top of the chart or in the data windowO = OpenH = HighL = LowC = Close or Last Price

Net: 1.40 = net change in price for the periodVol:1024393 = number of shares transacted for the period



Choose a Chart Type• Select a chart type.• Select a time frame then click on

the load button.



Understand How to Read a Bar• Western Bar

High

Low

Open

• Opening price is marked on

the left.

• High = the top of the bar.

• Low = the bottom of the bar.

• Closing price is marked on

the right.

• Net change = the positive or

negative distance between

the open and close of the

period.

Close

CloseOpen



Understand How to Read a Candle

• Japanese CandleHigh

Low

Real Body

Open

Open

Close

Close

• Filled Candles

Open > Close

• Hollow Candles

Close > Open

• Highs are marked by the upper shadow.

• Lows are marked by the lower shadow.

• Real Body marks the price between the open and close.

• Net change = the positive or negative distance between the open and close of the period.

Upper Shadow

Lower Shadow



Know How to Read Bar and Candle Charts

Close

Open

High

Low

Open

Close

High

Low

Close

Open

High

Low

Close

Open

High

Low



Identify Candle Range

• Candle Range is the difference between the high of the candle and the low of the candle.

• High – Low = Range

• Range is a very simple measure of price movement over time.

High = 23.50

Low = 22.50

High – Low = Candle Range

$23.50 – $22.50 = $1.00

This Candle has a $1.00 range.



Know How to Interpret Candle Range

Narrow Range Candles

(NRC)

Expanded Range

Candles(ERC)

• Expanded Range Candles indicate an increased level of movement in price over time.

• Narrow Range Candles indicate a decreased level of movement in price over time.



Basic Bar & Candle Quiz• Identify and label…

– The Open– The High– The Low– The Close

• Identify and label…– The Open– The High– The Low– The Close



Circle & Label Both Narrow & Expanded Range Candles



Understand Volume• Volume is tracked and

charted using a simple histogram.

• The volume histogram tracks and reports the transaction data series into an easily interpreted visual.

• The volume histogram registers the total number of shares transacted on the number scale to the right.



Read and Interpret Volume

• Volume is a measure of participation.• Indicates the number of shares or contracts that a

security has traded during a specified period of time.

• Every transaction that is registered has both a buyer and a seller.



Understand the Importance of Liquidity

• A wise trader chooses to trade liquid instruments.• Avoid stocks with low average daily volume.

5 minute chart on a liquid stock

5-minute chart on an illiquid stock

Notice the holes in trading action on the illiquid stock.



Know How to Apply Volume to a Chart

• Right click on the chart

• Select – Add Study from the

edit menu that appears

• Select– Volume from the

Indicator menu that appears



MachTraderTM Volume Indicator• The volume indicator has several settings

that can be changed or applied in order to display the desired features

• Change the color settings for– Price Up– Price Down

• Change thickness settings for desired visual effect

• Master Trader “trick of the trade”– Check the display moving average box and

apply a moving average of your choosing– Try the 20 or 50 period moving average.– Select the color and thickness setting desired

to the moving average• A simple moving average can help

determine if the volume is high or low when compared to the running average



Customized Volume Indicator• Close > previous day close

– Volume Green• Close < previous day close

– Red Volume• 50 period moving avg.

– Blue line = 50 SMA• The volume is decreasing on

average as price runs higher.• The noticeable decrease in

participation is…– Identified by the drop in

average daily volume– A possible sign of a

weakening trend– A potential warning sign of

pending reversal



Practice Reading & Interpreting Volume

• How much volume was reported today?

• How does today’s volume compare to historical volume levels?

AverageAbove averageBelow average

• Volume is high because there are more buyers than sellers.

TrueFalse

• What do you think could be the cause of this abnormal spike in volume?

Unexpected newsA scheduled earnings reportA technical trading reaction to a key price levelAny of the above



Understand the Pressures on Price• The Float

– The total number of shares publicly owned and available for trading

– The float is calculated by subtracting restricted shares from outstanding shares. The total available number of shares.

• Supply– Individuals and institutions

willing to sell a specific instrument at a specific price range

• Demand– Individuals and institutions who

want to buy specific instrument at a specific price range

• Price is moved by the constant ebb and flow of supply and demand.

• Price can move on both high and low volume caused by shifts in supply and demand.

• Price can move very little when supply and demand are balanced.



Understand How Supply & Demand Affect Price

• Price Trend– Uptrend

• Demand outweighs supply

– Downtrend• Supply outweighs

demand– Trendless

• Supply and demand are balanced

• Pivots– Key price points or

thresholds defined by the market during open trading

– Mark where supply and demand shift

• Demand > Supply• Supply > Demand



Understand Pivots Points• A pivot point on a price chart represents a shift in supply and

demand– When demand out weighs supply, price will pivot and run up.– When supply out weighs demand, price will pivot and run down.



Pivots in Price Are Peaks & Valleys

Dem

and

>Su

pply

A pivot occurs when there is a shift in…

A pivot occurs when there isa shift in…

Supply >Dem

and

Dem

and

>Su

pply Supply >

Demand

Supply < Demand

Demand < Supply



Pivots Define Support & Resistance Zones

• Demand = Support– If the market supports

the price level...• Demand will increase.• Demand will drive the

price higher.

• Supply = Resistance– If the market resists

the price level…• Supply will increase.• Supply will drive the

price lower.

Support Zone

Resistance Zone



Understand Pivot Confirmation• Pivots start out small with

minor changes in sentiment.– A minimum of three

Candles are required to form a pivot

• Preceding Candle• Pivot Candle• Confirmation Candle

• If the change in sentiment persists…– A directional swing can

develop from the initial pivot.

– A trend can be established if sentiment continues to persist.



Understand Pivot Confirmation• Pivots start out small with

minor changes in sentiment.– A minimum of three Candles

are required to form a pivot• Preceding Candle• Pivot Candle• Confirmation Candle

• If the change in sentiment persists…– A directional swing can

develop from the initial pivot– A trend can be established if

sentiment continues to persist



Practice Pivots

• Identify and label support and resistance pivots



Test Your Knowledge

• True or False– A swing low pivot can be

labeled as support.TrueFalse

– Resistance is a pivot that happens at the top or looks like a price peak.TrueFalse

• Select one– A support pivot is caused

by a positive shift in what market force?SupplyDemand

– A resistance pivot is caused by an increase or shift in what market force?Supply Demand



Understand Minor Pivots

minor

minor

minor

minor

Minor pivots mark minor shifts in supply and demand.

Occur within trends



Understand Intermediate Pivots

Intermediate

Intermediate

Intermediate pivots mark intermediate shifts in supply and demand.



Understand Major Pivots Major

Major

Major pivots mark major shifts in supply and demand.

Are typically the beginning and ends of major cycles



Pinpoint & Label the Pivots

• Identify and label– Minor Pivots– Intermediate Pivots– Major Pivots



Check Out the MachTraderTM Mach II Pivot Feature

• Add the pivot study to any chart and allow MachTraderTM to do some of the heavy lifting.

Right Click



• Uptrend = Higher pivot highs and higher pivot lows– Demand drives price higher– Minor, Intermediate, Major

• Trendless = Failure to establish higher pivot highs or lower pivot lows– Supply and demand are

balanced– Minor, Intermediate, Major

• Down Trend = lower pivot lows and lower pivot highs– Supply drives price lower– Minor, Intermediate, Major

Know That Pivots Define Trend



Test Your Knowledge• What is the major pivot trend?

– ______________________

• What is the current minor pivot trend?– ____________________________



Understand Price and Psychology• Basic demand can cause

– General buying pressure– A shortage of current supply– An overreaction of greed

and fear drive price too high– Price is now overbought – New supply at a higher price

• Basic supply can cause– General selling pressure– An increase in current

supply– An overreaction of greed

and fear drive price too low – Price is now oversold– New demand at a lower

price

• The typical movement of price driven by people– Action– Reaction– Overreaction– Correction

• This action/reaction is cyclical and can behave like a pendulum



Understand Overbought & Oversold

• Price has run to an extreme – Potentially too far in price up– Potentially too much time up

• What could potentially happen next?a) Price will continue to run upb) Profit taking is likely to occurc) Nothing/We cant telld) Supply is likely to increase at the higher

pricee) Both b and d

• Price has run to an extreme– Potentially too far down in price– Potentially too much time down

• What could potential happen next?a) Price will continue to run downb) Shorts are likely to take a profit c) Nothing/We can’t telld) Demand is likely to increase at the

lower pricee) Both b an d



Shed Light on Market Psychology with Candles

• The names of Candle patterns are helpful memorization tools

• Understanding the story a Candle tells is more important than memorizing the catchy name

• A firm grasp on Candle patterns can help “illuminate” the potential formation of a pivot

• The various sizes and shapes of Candles can provide clear indications of market psychology and pressure



Understand the Market Yin & YangCandles Tell Stories About Supply & Demand, Buyers & Sellers

• Pay attention to the relationships between...– Candle Ranges– Real Bodies– Shadows or Wicks

• The shadow knows…– Shadows can tell a story about a

sharp shift in price during that trading session.

– Can indicate a shift in supply and demand.

• Long upper shadows indicate an introduction of supply.

• Long lower shadows indicate an influx of demand.

• Real Bodies…– Give the overall market

consensus for that period.– Closing price is particularly

important to traders.

What story can these two Candles Shadows tell us?



Recognize High-Energy Candles



Recognize Low-Energy Candles

• Narrow Range Candles and clusters of low-energy Candles can signify.– Stagnation– Loss of momentum– Indecision– Potential change in

sentiment



Recognize Bullish Reversal Candles

Bullish Doji Morning Star Bullish Hammer

Bullish Harami Bullish Engulfing Piercing Line



Recognize Bearish Reversal CandlesBearish Doji Evening Star Hanging Man

Bearish Harami Bearish Engulfing Dark Cloud Cover



Identify and Label these Candle Patterns

1.)

3.)

2.)

4.)



Explain the Candle Story

• What does the final Candle indicate?

– _________________________

• What is likely to happen next?

– _________________________

• What does the final Candle indicate?

– _________________________


– _________________________



Understand Price Volatility• Volatility is the measurement and

study of price range over time.– High Volatility = Large

movement in price for the specified time frame

– Low Volatility = Small movement in price for the specified time frame.

• A study of volatility can help one understand– Expectancy (risk/reward)– Statistical probabilities– Shifts in volatility

• Increase or decrease in volatility can be indicative of change



As a Group, Discuss Picking Stocks with Volatility Profiles thatMatch Individual Personalities & Financial Goals

• Gauge your personality on a scale from 1 to 10 – 1 being the lowest risk and 10 the highest risk.

_____________________________________________________




• Perform each of the following tasks– Open up a stock chart.– Change the chart style.

• Line• Bars• Candles

– Change time frames.• Daily• Weekly• 15 minutes

– Click on the Cross Hairs.• Identify the time and price at which a pivot

occurred– Click on the data window.

• Point curser at a selected candle and identify the O,H,L,C for that time frame.

– Click on LOG.• Identify the difference between a logarithmic

and linear chart. – Click on the auto scale button.

• Turn it off and freely move the chart around. • Turn it back on and automatically scale the

chart.

– Click on the make bars thicker button. • Increase Candle/Bar thickness.

– Click on the make bars thinner button.• Decrease the Candle/Bar thickness

– Click on the increase bar spacing button.

• Increase the spaces between candles– Click on the decrease bar spacing

button.• Decrease the spaces between candles.

– Click on the show current bar button.• Identify what happens .

– Click on the reset button.• Identify what happens.

– Click on and manipulate both the X and Y axis of the chart.

• X axis Increase/decrease time displayed.• Y Axis Increase/decrease the price

displayed.



Chapter 2 Quiz• Candlesticks are used to graph which pieces of

data?OpenHighLowCloseVolume

• A histogram is used to measurePriceVolumeSentiment

• When the closing price is lower than the opening price the Candlestick’s real body will be

GreenHollowFilledExpanded

• When volume is green, that means that there were more buyers than sellers

TrueFalse

• After an extended price run, a Doji Candle pattern could signify …

The stock could go upThe stock could go downThe stock could stay the sameThat the pressures of supply & demand are relatively balanced and a change in direction is possible.

• A pivot marks a shift in short-term supply & demand.

TrueFalse

• Candle patterns can be helpful when identifying the potential formation of a pivot.

TrueFalse

• Which of the following is not a classification of a pivot?

MajorIntermediateMinorDouble

• Which price point is more noticeable on a price chart?

A minor pivotA major pivot

• Trends are defined by what?Moving averagesTrend linesPivots

• Volatility is what?ScaryNot for meA measure and study of price movement over time.Exciting



Chapter 3: Master Technical Analysis of Price and Volume



Chapter 3: Learning Objectives• Understand the practical application of price and volume analysis

– Refine our understanding of support & resistance• Recognize the catalysts for support and resistance

– Understand Trends. • Minor• Intermediate• Major

– Understand the application of trend studies.• Trendlines and trend zones• Trendlines as catalysts for support & resistance

– Identify basic-swing cycles.• Motive waves• Corrective waves• Estimated Duration

– Identify and label increasing momentum.• Recognize potential for continuation of trend

– Identify and label slowing momentum.• Recognize potential for reversal of trend

– Identify and label essential reversal patterns.• Double tops and bottoms• Heads and shoulders and inverted heads and shoulders

– Read and interpret volume.– Recognize types of gaps and the potential implication of gaps.



Respect Support & Resistance Pivot Zones• Support & Resistance is defined by the market.• Once established Support & Resistance…

– Will be a significant price point for traders– Will be referenced by traders placing new orders– Can be tested by traders

Support Zone Support Zone Confirmed

Resistance ZoneResistance Zone Confirmed



• When a resistance pivot fails this establishes and confirms the beginning or continuation of an upward trend in price.

Support Zone Support Zone Confirmed

Resistance Zone

Know What Happens When a Pivot Zone Fails



Know What Happens When a Pivot Zone Fails

Support Zone

Resistance Zone

• When a support pivot fails, this establishes and confirms the beginning or continuation of a downward trend in price.



Know that Old Resistance Can Become New Support

Support Zone

Resistance Zone

Old Resistance is a Catalyst for the New

Support Zone

• The upward trend is confirmed as price establishes a higher swing pivot low.



Know That Old Support Can Become New Resistance

Support Zone

Resistance Zone

Old Support is a Catalyst for the New

Resistance Zone

• The downward trend is confirmed as price establishes a lower swing pivot high.



Remember a Key ConceptWait for pivot confirmation.• Support is not established until

price is forced higher by demand.– Remember, all other

expressions of technical support are theoretical until confirmed. (e.g., moving averages, trend-lines, etc.)

• Resistance is not established until price is driven lower by supply.– Remember, all other

expressions of technical resistance are theoretical until confirmed. (e.g., moving averages, trend-lines, etc.)

• Don’t assume support or resistance zones will hold. Always wait for confirmation of a pivot.



Understand that the strength of pivots directly correlates to the strength of historical support & resistance zones

Intermediate Res.

Intermediate Sup.

Major Res.

Major Sup.

Minor Sup.

Minor Res.

• The bigger the pivot, the more difficult pushing price can become.



Understand a Support & Resistance Re-Test• When support/resistance zones are retested

– The market can strengthen the opinion of the price zone and hold.– The re-test can weaken the price zone which can lead to a future

failure of the zone.

Support is re-tested three times and holds as a major price zone.

Resistance is re-tested three times and fails under the pressure of demand.



Practice Plotting Support & Resistance Studies

Hold the shift key to plot the lines straight

The best way to develop a solid understanding of support & resistance is to practice using the powerful tools inside of the MachTraderTM software.



Understand Trends

• Life Cycle of Trends– Motive Waves– Corrective Waves

• Trends are defined by pivot points.

• Strength of Trend– Minor– Intermediate – Major

• Forecasting Trends– Trend Studies

The old stock market saying is that “the trend is your friend.”

Learning to properly identify and read trends is an essential skill every trader must know. Learning to trade with the trend is the next step on the path to success.



Understand the Swing Cycles in Trends

Motive

Wav

e

Motive

Wav

eCorrective

Waves

Motive Wave

Motive W

ave

Corrective Waves

• Uptrend– Price is driven by bullish motives.– Motive waves are longer than corrective

waves.– Trends on all time frames follow this

general pattern.

• Downtrend– Price is driven by bearish motives.– Motive waves are longer than corrective

waves.– Trends on all time frames follow this

general pattern.



Recognize the Life Cycle of Trend

• Bullish example of a macro or major uptrend

• Uptrend occurs in longer waves or cycles of accumulation (buying) and shorter cycles of distribution (selling)

• Can you spot the various cycles?• Downtrends are comprised of similar

bearish cycles in an upside-down mirror image of the bullish cycles.



Learn to Use Trend Studies• Understand that there are trends

within trends– Major– Intermediate– Minor

• Identify the trendsMajor

Intermediate

Minor



Use the Trend Studies

• Select the desired trend study from the toolbar• Plot the trend study on the chart• The key to successfully using trend studies is practice,

practice, practice…



Understand How to Properly Plot a Trend Study

• Connect a minimum of two pivots and project the line to the right into the future.• Trend zones can be catalysts for changes in price.• Watch for confirmation of trend with formation of a pivot in the trend zone.

Forecasted Trend Zone

Forecasted Trend Zone



Recognize Trend Zones as Catalysts for Support & Resistance

• Trend zones can help cause traders to make decisions concerning a security.

• Decisions to buy and sell influence other traders.

• Trend zones can be strong catalysts for changes in the direction of price.

• Notice the price channel or trend channel during the down trend.

• Notice the pivot on the top side of the trend line after the breakout.

Trend Support Zone



Recognize Trend Zones as Catalysts for Resistance & Support

• Trend zones can act as catalysts for resistance.

• Notice the uptrend channel.

Forecasted Trend Resistance Zone

Forecasted Trend

Resistance Zone

• Notice that this is the same security trading into minor trend resistance and major downtrend resistance.




Test Your Knowledge• Trends are defined by moving

averages.TRUEFALSE

• Which type of pivots define the strongest trends?

MajorIntermediateMinor

• Trading with the trend will improve your odds.

TrueFalse?

• Trend lines are support.TrueFalse

• When trading in a trend zone, it is important to wait for pivot confirmation.

TrueFalse

• Trend zones can be catalyst for both support and resistance.

TrueFalse



Practice Plotting Trend Studies

• Use a straight edge and hand draw some support/resistance trend lines.

MajorIntermediate Minor



Understand Pivots and Momentum • Momentum measures price

movement over time. • In essence, Momentum is the

rate of change. • Meaningful information can be

derived from the acceleration or deceleration of price. – Increasing Momentum is…

• An acceleration of price movement over time.

• A strong indication that a trend is likely to continue

– Slowing Momentum is.• A decrease in in price movement

over time.• A strong indication that trend is

weakening and potentially ready to reverse.

A clear understanding of momentum can help traders and investors make more intelligent decisions when money is on the line.



Recognize Slowing Momentum• The distance between

pivots is the purest measure of momentum.

$3

$2

$1

• This trend is losing momentum as the rate of change decreases.



Increasing Momentum Up

• Easy to identify• Holds true in both

directions up/down• Reliable on all time

frames• Easy to calculate

• (R1 – R2) > (R2 – R3)

• Trend has strengthened and price likely to continue the upward trend

R1 = resistance 1R2 = resistance 2 etc…



Increasing Momentum Down

• Easy to see• Holds true in both

directions up/down• Reliable on all time frames• Easy to calculate

• (S2 – S1) > (S3 – S2)

• Trend has strengthened and price likely to continue the downward trend.

S1 = support 1 S2 = support 2 etc…



Slowing Momentum Up


directions up/down• Reliable on all time frames• Easy to calculate

• (R1 – R2) < (R2 – R3)

• Trend is losing momentum and may fail

R1 = resistance 1R2 = resistance 2 etc…



Slowing Momentum Down


directions up/down• Reliable on all time

frames• Easy to calculate

• (S3 – S2) > (S2 – S1)

• Trend is losing momentum and may fail

S1 = support 1 S2 = support 2 etc…



Recognize Momentum in CandlesticksSlowing

Slowing

Increasing

Increasing

Candle range, patterns and

shadows are often a good indication of pivots forming on a smaller time frame.



Verify Your Understanding

• This stocks upward momentum is…

IncreasingDecreasing

• This stocks upward momentum is…




Verify Your Understanding

• This stocks downward momentum is…


• This stocks downward momentum is…




Identify Candles & Momentum

• Pay close attention to the proximity of the candles.• The distance between the tops and bottoms of candles can be

a clear indication of momentum on smaller time frames.



Understand Essential Reversal Patterns

• Identifying Key Reversal Patterns– Double Tops– Double Bottoms– Head and Shoulder Tops– Inverted Head and

Shoulder Bottoms• Slowing momentum can

help a trader anticipate the forming of these classic reversal patterns.

Traffic signs help alert drivers to the driving conditions ahead. In a similar fashion, reversal patterns alert traders and investors to the possibly changes in market conditions ahead.



M Stands for Murder… Because Double Tops Can Confirm the End of an Uptrend

• A failure to make a new high

• Resistance holds• Failure of support• Also watch for triple tops



W Stands for Win… Because Double Bottoms Can Confirm the End of a Downward Trend

• A failure to make a new low• Support holds• Resistance fails• Also watch for triple bottoms



Head and Shoulders Top• Classic reversal

pattern that can signal the end of a trend

• Failure to make a new high

• Violation of neckline

• Failure of support

Neckline

Left Shoulder

Right Shoulder

Head



Head and Shoulders Bottom

• Classic reversal pattern that can signal the end of a trend

• Failure to make a new low

• Violation of neckline

• Failure of resistance Left

Shoulder

Neck Line

Right Shoulder

Head



Understand the Power of Essential Continuation Patterns

• Bullish Continuation Patterns– Bullish Retracements– High Base Breakouts– Cup and Handle Breakouts– Ascending Triangles– Symmetrical Triangles

• Bearish Continuation Patterns– Bearish Retracement– Low-Base Breakdowns– Inverted Cup and Handle

Breakdowns– Descending Triangles– Symmetrical Triangles

Learn to harness the power of continuation & breakout patterns.



Bullish Retracement



High-Base Breakout



• The ability to spot a forming cup and handle can create tremendous opportunity.

Resistance Zone

Recognize a Cup & Handle



Recognize an Ascending Triangle

• The ability to spot a forming ascending triangle can create tremendous opportunity.

Resistance Zone



Recognize Symmetrical Triangles

• Symmetrical Triangles have the potential to break up or down.

• The consolidation in price can lead to an explosive breakout.



Bearish Retracement



Low-Base Breakdown



Support Zone

Recognize an Inverted Cup & Handle• The ability to spot a forming

inverted cup and handle can create tremendous opportunity.



Recognize a Descending Triangle

Support Zone

• The ability to spot a forming descending triangle can create tremendous opportunity.



Recognize Symmetrical Triangles

• Symmetrical Triangles have the potential to break up or down.

• In a bearish trend, the consolidation in price can lead to an explosive breakdown.



Know How to Interpret Volume

• Price & Liquidity– Adding Liquidity– Subtracting Liquidity

• Volume & Pivots• Increasing Volume• Decreasing Volume• Volume & Price

Breaks• Volume generated by

news.

• Institutional & individual market participants affect price by…– Adding to liquidity of a

security– Subtracting from the liquidity

of a security



Adding Liquidity • Liquidity was added to

the market in the $19 price range.– An increase in the

available supply– Price drops as a result

of the increased supply– The increased activity

among traders is indicated by the above average volume.

Increased liquidity



Subtracting Liquidity • Liquidity was subtracted

from the market as price dropped into the $28 to $25 price range.– A decrease in the

available supply – Price runs as a result of

the decreased supply– The increased activity

among traders is indicated by the above average volume.

Decreased liquidity



Understand Volume & Pivots

• Above average volume often accompanies the formation of pivots.– Indicative of either an addition of liquidity or a subtraction of liquidity.

• Above average vol. can precede the pivot. • Above average vol. can occur with the pivot candle. • Above average vol. can accompany the pivot confirmation change in direction.



Recognize Increasing Volume

• Increasing volume– Increased demand– Increased liquidity– Demand > Supply

• Not enough liquidity• Price increases as a

result– High volume is

indicative of strong participation in the trends motive waves.



Recognize Decreasing Volume• Decreasing volume

– Decreased demand– Decreased liquidity– Lower-average readings

on histogram– Negative slope on moving

average• Low volume is indicative

of decreasing. participation in the rising trends motive waves.

• Waning Volume can warn of pending reversal.



Understand Volume and Price Breakouts

Subtracting Liquidity

Resistance

• Bullish Breakouts in price subtract liquidity from the market as demand consumes supply.



Understand Volume and Price Breakdowns

Adding Liquidity

Support

• Bearish Breakdowns in price add liquidity as supply floods the market.



Know that News Can Cause Volume

4th Quarter Earnings Report

1st Quarter Earnings Report



Volume ActivityMark only true statements

• What can the volume tell us about the price run up?

Increased participationDecreased participationMore stock was purchased than was sold

• What can volume tell us about the price correction?

Increasing participationDecreasing participationMore sellers

• What can the moving average on the volume indicate?

Increasing participationDecreasing participationAbove or below average participationThe stock will go up



Understand Gaps• What are Gaps and what

causes them?– A break between prices on a chart that

occurs when the price of a stock makes a sharp move up or down with no trading in between

– Gaps can be caused by various factors. Gaps can occur under regular buying or selling pressure or can be caused by the introduction of new information such as news, earnings, analyst recommendations etc…

• What do they mean?– Types of gaps

• Common• Runaway• Breakaway• Exhaustion• Catastrophic

• Gaps present both opportunity and risk.


Common Gaps• Gaps commonly occur

on daily charts.• Can be caused by a

variety of events– Typically caused by an

imbalance in inventory• Common Gaps have a

tendency to fill as inventory shifts & price corrects.

179©2009 Tigrent Brands, Inc. All Rights Reserved.



Breakaway Gaps

• Price breaks out of a trading range

• Have explosive volume

• Can signal the start of a new trend or continuation of an existing trend

• Often coupled with a continuation chart pattern



Runaway Gaps• Price is already in a

trend• Increase interest in

stock suddenly occurs

• Gap continues in the trend without a retracement

• Volume spikes with gap due to increased interest



Exhaustion Gaps• Can occur at the end of a

good up or down trend• Gaps from the previous

day’s close• Typically accompanied by

above average volume• Gaps tend to fill as the

supply and demand shifts at the new price level

• Can easily be mistaken for a runaway gap

• After the initial gap fills, a new trend direction is established



Catastrophic Gaps

• Bad news• Stock price drops

dramatically over night

• Heavy volume created by news– Example

• Drug company announces new wonder drug trials prove ineffective



Chapter 3 Quiz• Which of the following is Support?

An upward movement in priceThe 20 period moving averageA trend line drawn on a chart

• Which of the following is not a catalyst for support/resistance pivots?

Trend ZonesMoving AveragesHistorical support/resistance zonesA Stochastic

• Slowing Momentum is when the vertical distance between pivots

IncreaseDecrease

• Which of the following is not a continuation pattern?

High BaseCup & HandleHead & ShouldersAscending Triangle

• Candlesticks can express slowing momentum on a smaller time frame.

TrueFalse

• There is a buyer & a seller for every transaction registered by the exchange.

True False

• A reversal pattern can signal the potential end of a trend.

TrueFalse

• Gaps always fill.TrueFalse

• Minor trends are drawn on what type of pivots?

MinorIntermediateMajor

• Major pivots are what type of catalysts for price change?

MajorIntermediate



Chapter 4: Learn & Apply Secondary Indicators



Chapter 4: Learning Objectives• Learn & Apply Secondary Indicators

– ATR• Understand the statistical significance & power of the ATR

– Moving Averages• Understand popular moving averages • Differentiate between simple and exponential moving averages

– 13 exponential, 20 simple, 50 simple, 200 simple– Relationship to price– Crossovers

– MACD (Moving Average Convergence Divergence)• Understand: the MACD main line, the trigger or signal line and the center

based momentum oscillator characteristics. – Stochastic

• Understand: overbought/oversold indications, the 20 & 80 lines and the signal line.

– Relative Strength Index• Understand how to read the slope of the indicator and identify overbought and

oversold conditions.



Learn About the Average True Range

• Average True Range– An indicator that

measures the average candle range over a user specified time frame

– The default setting is 14 periods.

• How to Read Average True Range (ATR)– The running average is

reported in price on the scale to the right.

– The above example reads 2.7184 dollars

– This security has an average range of $2.7



Add Average True Range (ATR) to a Chart

• Right click on a chart.– Select Add Study.– Select Average True Range (ATR).– Keep default setting or make

personal adjustments.– Select OK.



Understand Which Stock Moves More

• $33 stock $1.98 ATR

• $33 Stock $0.80 ATR

• ATR can provide an understanding of potential price movement.• ATR can also be used to help determine…

• Potential Average Yield for day trading purposes• Placement of protective stops• Daily Volatility Estimates



Understand ATR & Potential Short-Term Yields

• Which stock could potentially provide the highest percent daily yield?

– XYZ = $31.72 stock $1.84 ATR• $1.84 ÷ $31.78 = .057 or 5.7%

– PDQ = $101.59 stock $4.1One ATR• $4.11 ÷ $101.59 = .040 or 4.0%

– Which stock could provide a better bang for the buck?

XYZPDQ



Understand Moving Averages• Popular form of basic-technical

analysis• Essential types of moving averages

– Simple (SMA)– Exponential (EMA)

• weighted• User defined parameters

– Popular Moving Averages• 13 exponential• 20 simple• 50 simple• 200 simple

• Common applications– Assist in interpreting trends

• Minor, Intermediate, Major– Assist in determining changes in trend

• Violations and Crossovers– Assist in interpreting price action

• Overbought, Oversold. – Assist in trade identification

• As potential catalysts for change

A savvy technician can use a moving average in many different ways when applied to a chart.



Understand Simple Moving Average (SMA) Calculation

• Let’s assume we have 10 periods of data. – 3, 4, 5, 6, 7, 8, 9, 9, 9, 8

• Let’s calculate a 5 period Simple Moving Average (SMA).– Last 5 points of data

• 8 + 9 + 9 + 9 + 8 = 43• 43 ÷ 5 = 8.6

• The Moving Average calculation is re-tabulated & plotted on the chart with each new point of data that is introduced.

• Notice that even a 5 period moving average is lagging.

• Price data is plotted in red.

• Moving average calculation plotted in blue.

5 periods of data calculated & then plotted on the chart



Understand Simple vs. Exponential

• An exponential moving average is weighted.– The closing price of the two most recent candles is

emphasized in the calculation of an exponential Moving Average.

– Exponential Moving Averages are more sensitive to changes in price trend because the most recent data is more heavily weighted.

the blue EMA

the red SMA



Understand that Moving AveragesDo NOT Define Trends

• Moving averages are lagging indicators.– Price clearly changes

from trending up, turns sideways, & then drops.

– The moving average still measures an upward slope.

• Price defines trend & market sentiment.– Moving averages are

secondary lagging indicators that reflect where a stock has been, not where a stock is going.

Using only 5 periods of data the price has changed direction but the moving average is lagging.

Even fast moving averages are lagging.



Understand How Moving Averages Can Assist in Reading Trends

• Price remains below the 200 SMA.– Helping to confirm that this stock is still in a major

pivot downtrend

• Price has moved above the– 13 EMA, 20 SMA, 50 SMA – Helping to confirm that this stock is in a minor to

intermediate pivot uptrend

• Pivots Define Trend .– Moving averages can serve

as secondary confirmation.



Understand Who Watches What• Different types of market

participants value different moving averages.– Short-term traders

• Fast moving averages – 13 EMA & 20 SMA

– Longer-term participants• Slow moving averages

– 50 SMA & 200 SMA

– Not all participants choose to use the same moving averages.

Moving averages are only of value to those people who choose to use them and actually apply them on charts.

Long-term

intmed.-termSho

rt-term



Understand How Moving Averages Can Assist in Confirming a Change in Trend

Violations occur when price closes on the other side of the moving average.

Moving Average Crossovers occur when fast moving averages cross slower moving averages.

Price close above MA’s can help confirm change in trend.

MA crossovers can help confirm change in trend.



Understand How Moving Averages Can Help Identify Overbought & Oversold Conditions

Price has moved too far away from the “average” & is likely to revert to the mean.

Price has moved too far away from the “average” & is likely to revert to the mean.



Understand that Moving Averages Can Be Catalysts for Change

Moving averages can be a catalyst for change. However, it is important to wait for pivot confirmation.

Moving averages can be a catalyst for change. However, it is important to wait for pivot confirmation.



Verify Your Knowledge• True or False

– Moving averages define trends.

TrueFalse

– Moving averages can be secondary confirmation for trends.

True False

– Stocks always “bounce” off of moving averages.

TrueFalse

– Moving averages can be catalyst for change.

TrueFalse

• Choose the correct answers.– A moving average

crossover is…always a good time to buyalways a good time to sella secondary confirmation of change in trendno good

– An exponential moving average is…

weightedbetter than a simplemore sensitive to price and momentum



Master the MACD (Moving Average Convergence Divergence)

• Developed by Gerald Appel• The MACD was developed to help

determine overbought or oversold conditions in the market.

• The MACD Line is the difference between the long-and-short exponential moving averages of the selected security.

• The Signal Line is an exponential moving average of the MACD Line.

• Signals are generated by the relationship of the two lines.

• MACD is a Center or Zero Based Oscillator and is particularly good at reading momentum and displaying indicator divergence.

MACD LineSignal LineHistogram

The MACD with Histogram is a zero-based oscillator.



Understand the Histogram

The Histogram measures the difference between the MACD Line & the Signal Line.This measure determines if the lines are convergent or divergent.

0.7322 - 0.8517 = -0.1195



Recognize MACD Buy & Sell Signals

Textbook MACD Buy Signals

Textbook MACD Sell SignalsThe Master Trader technique is to consider the “textbook”signals as secondary confirmation only



Recognize MACD Indicator Divergence

Bullish Divergence

Bearish Divergence



Verify Your Knowledge• Which condition best

describes this MACD indicator?

BullishDivergentA good time to sell

• What does the MACD histogram indicate about momentum?

Slowing or decreasingExpanding or increasing



Examine the Stochastic• Developed by George Lane• The Stochastic Oscillator compares the

current close relative to the price range over a user defined time period.

• The Main Line called “%K” is a percentile of the price range over the specified time period that will range between 0 and 100.

• The Signal Line called “%D” is a user specified simple moving average of the main or “%D”

• Signals are generated by the relationship of the two lines and the overbought/oversold zones.

– The 80 Line represents the top 20% of the specified period range and can be considered over bought.

– The 20 Line represents the bottom 20% of the specified period range and can be considered oversold.

Main %K Line

Signal %D Line

above 80 overbought

below 20 oversold



Recognize Stochastic Buy & Sell Signals

• Recognize classic buy signals.– Main Line “%K” crosses above

the 20% line– Main Line “%K” crosses above

the Signal Line “%D”• Signal line cross can be prone to

whipsaws• Recognize classic sell signals.

– Main Line “%K” crosses below the 80% line

– Main Line “%K” crosses below the Signal Line “%D”

• Signal line cross is prone to whipsaws

• Master Trader technique suggest only using the stochastic oscillator as secondary confirmation.

buy signals

sell signals



Recognize Stochastic Indicator Divergence

Bullish Divergence

Bearish Divergence



Verify Your Knowledge• Which statement

best describes the condition of this Stochastic Indicator?

OversoldOverboughtBuy signal confirmationSell signal confirmation



Read the RSI (Relative Strength Index) • Developed by Welles Wilder• RSI is a price-following oscillator

that ranges between 0 and 100.• Designed to read overbought &

oversold conditions, as well as provide strength of trend readings over a user specified time period.

• The RSI Line measures and compares the magnitude of upward price change to downward price change.

• The RSI reads Overbought & Oversold Conditions.– Above 70 is overbought– Below 30 is oversold

RSI LineOverbought > 70Oversold < 30

above 70 overbought

below 30 oversold



Customize the RSI • “Trick of the Trade”

– Customize the setting on the RSI to achieve a strong visual indication of overbought & oversold conditions

– Select Lines with Bands and Shading

– Customize the band color

– Overbought & oversold conditions will pop off of the screen

above 70 overbought

below 30 oversold



Recognize Relative Strength & Weakness

RSI LineOver 50Under 70Positive Slope

RSI LineUnder 50Over 30Negative Slope

Relative Strength Relative Weakness



Recognize RSI Indicator Divergence

Bullish Divergence

Oversold & Divergent

Bearish Divergence

Overbought & Divergent

Confirmed Reversal

Potential Reversal



Verify Your Knowledge

• Which statement best describes the condition of this RSI indicator?

OverboughtOversoldDivergentOverbought & DivergentOversold & Divergent



Chapter 4 Quiz• Identify the false

statement.Indicators can provide secondary confirmation.Indicators can provide signals of confirmation.The MACD can predict a change in trend.The RSI can help identify overbought & oversold conditions. The ATR can help identify the average daily trading range of a stock.

• Identify the true statement.

Stocks “bounce” off of moving averages.When a stochastic crosses below 80 that stock is going to go down. The 20 period SMA defines trend.A clear and concise understanding of price & volume is more important than secondary indicators.



Chapter 5: Master The Bullish Retracement



Chapter 5 Learning Objectives• Learn to apply the S.U.C.C.E.S.S. Model for the Bullish Retracement

– Survey the Market• Learn how to properly survey the market and identify conditions that are conducive to the Bullish Retracement. • Know when to call this play.

– Use MachTraderTM to identify to identify and research potential trades• Learn to scan for & identify the Bullish Retracement Pattern.

– Top Down – Learn how to identify Sectors & Indices with bullish retracement patterns.– Bottom Up - Learn which SeekerTM scans to run.

• Learn to technically Score the Charts.

– Choose the Tradeable Instrument• Learn how to structure trades using stock as the tradeable instrument.

– Carefully Plan & Prep the Trade• Learn to identify and estimate reward & risk.• Learn to estimate what the stock can P.A.Y. (Potential Average Yield).• Learn to use the P.R.E.P. Calculator& Risk Graphs during the planning phase of the trade.• Determine at what price to place potential entry and exit orders.

– Execute the Trading Plan • Learn to implement the trade according to plan.

– Supervise the Trade• Supervise the trade & learn to make the proper trade adjustments.

– Systematically Journal & Review• Learn to use the Master Trader journal to track cumulative-trading performance.


S.U.C.C.E.S.S. with the Bullish Retracement




Learn to Call the Right Play from the Playbook

• Understand the pattern• Know when to call the

Bullish Retracement– Identify broad market

trend.– Top down approach

• Identify bullish Sectors & Industry Groups.

– Understand the power of the SeekerTM

• Powerful Pattern scans• Scan by Sector/Group



Recognize the Pattern• Bullish Retracement

– Buy Low (Wholesale)– Sell High (Retail)

• Consistent Repeatable Pattern…– Price pattern that occurs

frequently– High Probability of trend

continuation• “The trend is your friend.”

• Learn the Master Trader techniques for managed risk entry.

“Who

lesale

”

“Reta

il”



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• Create & use broad market layouts in MachTrader.TM

– Broad Market Indices• Sectors

– Industry Groups

• Read the charts to identify bullish areas in the market.



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• Filter – Minimum Price– Maximum Price– Minimum Average Volume (in thousands)– Exchange– Minimum 5 Star Ranking– Sector & Industry Group*

• (Avail. in Mach II & Mach III)

Master Trader scansBullish Retracement

***Automatic Primary Scoring***Available in Mach II & Mach III

Swing scansDaily Swing Buy WatchDaily Swing Buy TriggeredWeekly Swing Buy WatchWeekly Swing Buy Triggered

Mach scans Bull AreaStock Bouncing off of Rising 20 Mov Avg.

Bullish Daily & Weekly Candlestick scansDojiEngulfingHammerHaramiStar

Fundamental scansTop 50



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• Score the Chart• Technical Trade

Identification

• 7 core price and volume criteria.

• Individual traders can add personal rules and filters.



Know the Bullish Retracement Price & Volume Conditions

Uptrend•Higher swing pivot highs & higher swing pivot lows are what define an uptrend.

Increasing Trend Momentum•The vertical distance in price between resistance pivots is the best measure of momentum.•Expanded resistance is a strong indication of a strengthening trend.




Corrective Retracement•An orderly price retracement from the swing pivot high for a minimum of three periods is typical of a profit-taking sell-off.

Slowing Retracement•Decreasing candle range indicates that the sell-off is losing momentum.•Decreasing vertical distance in price between candle bottoms also indicates slowing.




Technical Catalyst•Price should be trading near a technical catalyst that can help initiate change.•Catalysts include: support/resistance zones, trend zones, moving averages & Fibonacci retracements.




Reversal Candle•A reversal candle can signal change. •Watch for: Doji, Hammer, Harami, Engulfing, etc... or a closing price > opening price.

Volume•Decreasing or below-average volume indicates decreasing participation during the sell-off.•Volume tends to increase near the technical catalysts as traders act & react.



Score the Chart

Inverted Hammer



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• Secondary Confirmation & Routine Checklist.

• Eight-point secondary check list

• Be thorough. • Individual traders can

add personal rules and filters to this checklist.



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• Master Trader – Long Stock

• Understand Trading with Stock– Costs

• Commission In• Commission Out• Bid-Ask Spread• Slippage

– Leverage• Points multiplied by shares

– (e.g., 100 shares x 1 point = $100 )

– Potential Reward/Risk• Unlimited reward• Maximum possible risk is

theoretically the entire dollar value of the position

– Master Trader Risk Management• Position Sizing • Protective Stop Loss

• Cash Flow Options– Long Calls– Short Puts– Covered Calls– Leaps– Calendar Spreads

• Spread Trader– Bull Call Spreads– Bull Put Spreads– Ratio Spreads

• Elite Options & Technical Mastery – All Instruments– Complex Combos– Advanced Adjustments– Dynamic Hedging

• Bullish Retracement pattern is compatible with other trading instruments.

– Futures – F.A.C.T (Futures & Commodities

Trading)– Foreign Currencies

– Focus Forex– 24/7 currencies Trading

Know the tradeable Instruments for the Bullish Retracement



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• Use the Risk Graphs– Understand

the tradeable instrument

– Master Trader instrument is long stock

Long Stock Risk Profile



• Know how to plan & P.R.E.P. your trades– Price Trigger– Realistic Target– Exit Stop Loss– Position Size

• Apply personal trading discipline• Personal Position Sizing• Personal Risk Tolerance• Reward to Risk Ratios• Personal Trade Management Rules

• Use the Trade P.R.E.P. Calculator.

• Pre-determine the game plan for the trade.

Careful planning will help ensure that you make intelligent decisions and mitigate the powerful effect that emotions can have on traders.

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• User defined inputs• Designed specifically for Master

Trader strategies• Pre-determine

– Price Trigger, Exit Stops, Realistic Targets & Position Size

• Automates – Order Entry Prices– Potential Position Sizes– Trade Costs– Break Even Point– Reward/Risk Ratios– Capital Requirements– Compliance with Personal Rules

• User defined money management– Account Size– Asset Allocation– Risk Tolerance

Use the Trade P.R.E.P. Calculator

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• Identify potential support zones.

• Identify potential resistance zones.

• Understand Average True Range.

• Understand the potential…– Risk

• Entrance Price – Protective Stop Loss

– Reward• Estimated Target – Entrance Price

• Understand Pay Days– Average number of candles

between swing pivots

• Understand Pay Range– Average number of points


• Understand Potential Average Yield (P.A.Y.)– Average number of periods and

points in a typical price swing

• Learn to choose stocks that meet your personality and financial goals.



Identify Known Support & Resistance Zones

• The last swing high R1 is minor resistance.

• The previous swing high R2 is where old resistance could act as a catalyst for new support.

• Price is trading near a catalyst and has a reversal candle.

• A new support pivot could be forming in this zone.

• Wait for it to trade above the last candle for confirmation of a possible buy.

Pivot ConfirmationPrice Zone



Identify The Potential Reward to Risk Ratio• Buying the stock at the

pivot confirmation price helps ensure that the uptrend is resuming.

• Plan the trade.– Target at known

resistance– Protective stop loss below

the current candle low• An eyeball assessment of

potential risk compared to potential reward looks very appealing.

• There is twice as much potential reward as potential risk.

• R/R ratio is 2 to 1.

2 to 1 Reward to Risk Ratio

Potential Risk Potential Reward

Potential Risk

Potential Risk



Identify The Average True Range (ATR)

ATR can help estimate the

probabilities for daily candle range.

• The ATR of a stock is a vitally important piece of information for short-term traders.– Potential Daily Yield

• Day traders target– Critical information

when determining the placement of protective stop losses

• Place stops outside of one ATR from the trigger price.



Understand P.A.Y. Days• P.A.Y. Days = Time Expectancy

– The estimated average number of days in a typical price swing between pivots

• S3 to R3 = 6 periods• S2 to R2 = 5 periods• S1 to R1 = 7 periods

– Three swing ranges calculated

• 5 + 6 + 7 = 18 ÷ 3 = 6– Quick estimate = 6 periods

• Potential average time yield is about six days between pivots– How many periods could the

next swing potentially take?• Approximately six-trading

periods Based on quick estimates, six

periods is a typical time expectancy.

?



Understand P.A.Y. Range• P.A.Y. Range = Price Expectancy

– The estimated average number of points in a typical price swing between pivots

• S3 to R3 = 6.00 points• S2 to R2 = 6.50 points• S1 to R1 = 7.00 points

– Three-swing ranges calculated

• 6.00 + 6.50 + 7.00 = 19.50 ÷ 3 = 6.50

– Quick estimate = 6.5 points• Potential average price

yield is about 6.50 points between pivots– How many points could the

next swing potentially yield?• Approximately 6.5 Points

Based on quick estimates, 6.5

points is a typical price yield.

?



Understand the Potential Average Yield• P.A.Y. (Potential Average Yield)

– The estimated average number of points and periods in a typical swing between pivots

• S3 to R3 = 5.00 points over 6 periods• S2 to R2 = 5.50 points over 5 periods• S1 to R1 = 6.00 points over 7 periods

– Three-swing ranges calculated • 5 + 6 + 7 = 18 ÷ 3 = 6 periods• 6 + 6.5 + 7 = 19.5 ÷ 3 = 6.5 points

– Quick estimate = 6.5 points over 6 Periods

• Potential Average Yield is about 6.50 points over 6 periods

– What could the next swing yield?• Approximately 6.5 points/ 6 periods

Based on quick estimates, 6.5 points over 6 periods is the

Potential Average Yield

?



Master Trader Trigger• Buy above the signal

candle.– Place a Buy Stop Order

above the signal candle• A Buy Stop Order will be

executed at the specified price or higher.

• Use a percentage of the ATR as a confirmation filter or buffer.– (e.g., 5% to 10% of the ATR)

• 10% of $1.91 = .19– 19 cents

• 5% of $1.91 = .095– 9 to 10 cents

A Buy Stop Order placed above the signal candle high requires an upward move in

price to trigger.



Master the Protective Stop Loss• Once the entry order is

filled, the position is exposed to risk.

• Protect your capital by using a Protective Sell Stop.– 5 to 10 percent of the ATR

below the signal candle low will usually do the trick.

• Use Sell Stop Market Orders– Sell Stop will trigger a

market order– Market order will help

ensure rapid execution.

• Place the Sell Stop Order at the same time as the Buy Order.

– A one triggers other order known as an OCO can help ensure that a protective stop is in place.



• Basic Target– One ATR

• 1 to 1 reward to risk minimum

• Intermediate Target– Swing high resistance (R1)

• 2 to 1 reward to risk or better is desirable

• Extended Target– Forecasted Potential

Average Yield– Trend Resistance

• Use Sell Limit Orders for Targets– Will sell at the specified

price or higher.

Tgt 1

Tgt 2

Tgt 3Know Master Trader Targeting Techniques

Targeting is one of the master trader’s secrets to success


P.R.E.P. the Trade• Price Trigger

– Select a technical price trigger.

• Realistic Target– Select a price target.

• Choose the Master Trader targeting technique that suits your individual trading style.

• Exit Stop Loss– Identify the technical price for the

protective Stop Loss Order.

• Position Size– Use the Trade P.R.E.P. Calculator

to help determine an appropriate position size.


Realistic Price Target

Price Trigger

Exit Stop Loss

• Position Size Properly!– Base position size on

pre-determined personal rules.

• Asset Allocation• Risk Tolerance



P.R.E.P. this Trade Using the Calculator • Identify Key-

Technical Prices– Signal Candle High– Signal Candle Low– Potential Targets

• Identify– Trigger Price– Stop Loss Price– Target Price

• Plug the numbers into the Trade P.R.E.P. Calculator.

Selected price target

Signal CandleHigh $51.50

Signal CandleLow $49.94

Previous Swing High R1 $56.23

Selected technical high price

Selected technical low price



Crunch The Numbers• Plug in the Key-Trade Data to Help P.R.E.P the

Trade– Select Long vs. Short trade.– Input the current ATR.– Apply personal-trigger buffer.

• ATR % buffer Above High• ATR % buffer Below Low

– Selected High Price.– Selected Low Price.– Identify Realistic Targets.

• Basic, Intermediate, & Extended

• Manage Your Money– Input current trading account balance.– Input maximum percentage for Asset Allocation.– Input maximum percentage for Risk Tolerance.

• Manage Trading Costs– Account for potential slippage.– Account for round trip commissions.– Input the desired position size.



Assess the Risk & Reward• Study the potential trading

plan.• Pre-determine

– Price Trigger Entry• Stop Price• Limit Price

– Stop Loss– Target Limits

• Identify Reward & Risk.– Expressed in dollars– Expressed as a ratio

• Verify that the plan is in complete compliance with personal rules and discipline.



Re-enforce Disciplined Trading • Choose an Appropriate Position Size

– Identify & Understand• Estimated transaction cost• Estimated breakeven price• Identify earnings date• Input fundamental score



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Buy Stop Limit

Limit $51.69

Stop $51.60

Sell Stop MarketLow $49.84

Sell Limit Price $56.23

Sell Stop

Market

Buy Stop Limit

Sell Limit

• Place the Buy Stop Limit Trigger Order

– Stop Price– Will route Limit Order

to the exchange if price trades @ the stop price or higher.

– Limit Price– Once routed the order

will @ the limit price or lower.

• Place the Protective Stop Loss

– Sell Stop Price– Will route a Market

Order to the exchange if price trades @ the stop price or lower.

– Order will fill at the next available price.



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Allow target to be hit or make an adjustment.

Manually adjust the Sell Stop up

each day.

Sell Limit• Supervise the trade &

make proper adjustments.

• Trail Stops– First to the break even

point– Adjust stops up below

the new candle stick lows or according to personal rules.

• Take Profits– Close all or part of the

position if the target is achieved according to personal rules.

– Make adjustments to the target according to personal rules.



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Use the Master Trader Journal


Test Your Knowledge


Desired Entry Price

$51.69 and lower

$51.60 and higher

Exit if the stock trades at $49.84 and lower

Sell at $56.23 and higher

Properly identify & label the corresponding order types above.

3.)

2.)

1.)



1. What will happen if the stock price trades at or above the limit order?

Test Your Knowledge

2. Based on the most-recent candle, what should be done with the existing manual trailing sell stop?

XX

X


Practice Identifying the Bullish Retracement




Practice Estimating Risk/Reward• Signal Candle Data

– High 32.95– Low 32.04

• ATR = 2.1671• Swing High R1 = 38.18• Estimate potential

reward using resistance as the target.

• Estimate potential risk using the signal candle low for the protective stop loss.


P.R.E.P. the Trade


R1 = $38.18





Practice Executing the Trading PlanSell Order?

LimitMarket

Buy Order?Stop LimitStop Market

Sell Order?LimitMarketStop Market



• Perform each of the following tasks.– Open MachTrader.– Open up a chart. – Open up the Seeker.– Link the two windows together.– Select scans listed in this

chapter that are designed to identify Bullish Retracements.

– Input price & volume filters.– Identify how to narrow down a

search by sector & industry group.

• Perform each of the following tasks.– Identify a candidate that

appears to match the Bullish Retracement Pattern.

– Score the Chart.– Identify Expectancy

Risk/Reward.– Plan the trade using the

trade planning worksheet. – Place a virtual trade based

on the plan.– Open up the trading journal

and document the virtual trade.




Chapter 5 Quiz• The Bullish Retracement

typically will have the best results

In a bear marketIn a bullish marketIn a bullish sectorIn both a bullish market & bullish sector

• The Trade Seeker can be used to help identify potential trades.

TrueFalse

• A proper-position size should be determined by which criteria?

ImpulseThe technical scoreA pre-determined asset allocation rule & risk toleranceHow much money you want to make.

• Journaling is an important part of the trading process.

TrueFalse


Chapter 6: Master The Bullish Breakout




Chapter 6: Learning Objectives• Learn to apply the S.U.C.C.E.S.S. Model for the Bullish Breakout

– Survey the Market• Learn how to properly survey the market and Identify conditions that are conducive to the Bullish Breakout • Know when to call this play.

– Use MachTraderTM to identify and research potential trades• Learn to scan for & identify the Bullish Breakout Patterns.

– Top Down – Learn how to identify sectors & indices with Bullish Breakout patterns. – Bottom Up - Learn which SeekerTM scans to run.



– Carefully Plan the Trade• Learn to identify and estimate potential reward & risk.• Learn to estimate what the stock can P.A.Y. (Potential Average Yield)• Learn to use the P.R.E.P. Calculator & Risk Graphs during the planning phase of the trade.• Determine at what price to place potential entry and exit orders.

– Execute the Trading Plan • Learn to implement the trade according to plan.


– Systematically Journal & Review• Learn to use the Master Trader journal to track cumulative trading performance.


Master S.U.C.C.E.S.S. with the Bullish Breakout




Recognize the Pattern• Bullish Breakouts

– Buy Breakout– Momentum Play

• Consistent Repeatable Patterns…– High Base– Cup & Handle– Ascending Triangles etc…– Price patterns that occurs

frequently– High Probability of Trend

Continuation• “The trend is your friend.”


Breakout Confirmation

Resistance


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• Broad Market Analysis – Potential Breakout Identified

– Transportation Index• $TRAN

– Check

• Run SeekerTM scans for breakouts In the transportation sector.




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Master Trader scansBullish Breakout

Available in Mack II & Mack III

Basic scansTwo-Month Highs Today52-Week Highs Today

Eduscans Bull AreaStock Bouncing off of Rising 20 Mov Avg.Three-Green Lights UpMACD Crosses UpStochastic Crosses

Fundamental scansTop 50

Also, look for hot stocks in other ways outside of the Seeker.TM

In the newsHeavily tradedStrongest trending

• Filter – Minimum Price– Maximum Price– Minimum Average Volume (in thousands)– Exchange– Minimum 5-Star Ranking– Sector & Industry Group*

• (Available in Mach II & Mach III)


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• Score the Chart

• Technical Trade Identification

• Seven-core price and volume criteria.





Know the Bullish Breakout Price & Volume Conditions

Uptrend•Higher swing pivot highs & higher swing pivot lows are what define an uptrend.

Trading within One ATR of Resistance•Correctly timing a breakout is more likely if price is trading within One Average True Range of the resistance zone in question.




Bullish Continuation Pattern•A recognizable bullish continuation pattern should be present.•Watch for: high base, cup & handle, ascending triangle, etc...

Room For Price to Run•Make sure that no historical support/resistance zones will interfere with a healthy run in price. •Remember to check plenty of history on both daily & weekly charts.


Consistent Buying Pressure•Both pivot & candle lows must be registering higher. Higher lows are consistent with an up trend.•Reversal patterns can be identified when price trades below pivot support zones.






Remaining Range•Remember that price is not likely to exceed a typical-trading range, also known as the Potential Average Yield. Make sure that price is not overextended or overbought prior to the breakout.

Volume•Decreasing or below -verage volume indicates that participants are waiting for directional price confirmation. Once direction is confirmed, participation tends to increase as traders act & react.



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• Secondary Confirmation & Routine Checklist

• Eight-point secondary check list.

• Be thorough.• Individual traders can

add personal rules and filters.


Score the Chart




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• Master Trader – Long Stock


• Commissions In• Commission Out• Bid-Ask Spread• Slippage

– Leverage• Points Multiplied by Shares

– (e.g., 100 shares x 1 point = $100 )

– Potential Reward/Risk• Unlimited Reward• Maximum possible risk is

theoretically the entire dollar value of the position.


Know the tradeable Instruments for the Bullish Breakout• Cash Flow Options

– Long Calls– Short Puts– Covered Calls– Leaps– Calendar Spreads

• Spread Trader– Bull Call Spreads– Bull Put Spreads– Ratio Spreads







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• Use the Risk Graphs– Understand the

tradeable instrument

– Example of Long Stock

Long Stock Risk Profile










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• Understand Pay Days– Average number of candles


• Understand Pay Range– Average number of points


• Understand Potential Average Yield (P.A.Y.)– Average number of periods and






Understand Breakout Expectancy• Identify potential support zones.• Identify potential resistance zones.• Identify the ATR.• Estimate Potential Average Yield.





A typical swing range is a reasonable expectancy for the breakout.


Identify Known Support & Resistance Zones• The last swing high R1

& R2 are minor to intermediate resistance.

• The R1 & R2 zone could act as a catalyst for new support after the breakout.

• S1 is a minor support pivot.

• S2 is a minor to intermediate support pivot.

• Check for historical-resistance zones on a historical price zones.

Remember to look at the historical data to identify old resistance zones.




Identify the Potential Reward to Risk Ratio• Buying the stock on the

confirmation of the breakout helps ensure that the uptrend is continuing.

• Plan the trade.– Target at known

resistance– Protective stop loss below

the current candle low• An eyeball assessment of




Potential Reward

2 to 1 Reward to Risk Ratio

Potential Risk

Potential Risk

Potential Risk

Potential Reward


Master Trader Trigger• Buy above resistance

– 5 to 10 percent of the ATR above resistance will usually do the trick.

– Place the Buy Stop Order above Resistance

• Buy Stop Market will get filled @ next available price at or above the stop trigger.

• Buy Stop Limit will get filled at the limit price or lower once the trigger is hit.

• Create a window for the Limit Order.

– 5 to 10 percent of the ATR will usually do the trick.

Place a Buy Stop above the breakout resistance zone.

Couple the Buy Stop with a Limit Order to limit the entry price.




Master the Protective Stop Loss• Once the entry order is filled, the

position is exposed to market risk.• Protect your capital by using a Sell

Stop Closing Order if the price runs the wrong direction.– Place protective stops below

technical price levels determined by the market.

• Candle lows• Pivot lows• Other technical support zones

– Use a small price buffer.• 5 to 10 percent of the ATR will

usually do the trick.• Sell Stop Market Orders can help

ensure a timely exit.

• Remember:– Protective stops protect trading capital.– Mental stops don’t work.– Place the protective stop at the same

time as the entry order.

• Once the Buy Stop is triggered, a protective Sell Stop can be activated.

– A good brokerage firm provides sophisticated order combinations like OTO (One Triggers Other) & OCO (One Cancels Other) etc…


Know Master Trader Targeting Techniques• Basic Target

– One ATR• 1 to 1 reward to risk

minimum

• Intermediate Target– Forecasted Potential

Average Yield• 2 to 1 reward to risk or

better is desirable

• Extended Target– Trend Resistance– Significant Price Zones

• Whole numbers• Numbers that end in 5 or 0

• Use Sell Limit Orders for Targets

– Will sell at the specified price or higher.

Tgt 1

Tgt 2

Tgt 3

Targeting is one of the master trader’s secrets to success.



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• P.R.E.P. the trade– Price Trigger– Realistic Target– Exit Stop Loss– Position Size

• Identify– Trigger Price– Stop Loss Price– Target Price

• Plug the numbers into the Trade P.R.E.P. calculator

Selected Target

ResistanceHigh $31.34

Candle Low $29.94

Forecasted P.A.Y. $36.23





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Selected Target

ResistanceHigh $31.34

Candle Low $29.94








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Buy Stop Limit

Limit $31.58

Stop $31.42

Sell Stop Market $29.86

Sell Limit Price $36.23

Sell Stop Market

Buy Stop Limit

Sell Limit• Place the Buy Stop Limit Trigger Order

– Stop Price– Will route Limit Order to

the exchange if price trades @ the stop price or higher.

– Limit Price– Once routed, the order will

fill @ the limit price or lower.

• Place the Protective Stop Loss

– Sell Stop Price– Will route a Market Order

to the exchange if price trades @ the stop price or lower.


• Once filled, update your trading journal with actual fill prices.




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• Four-logged trades: three completed and one open positions• Two winners & one loser $424.65 & $608.60 & $205.50



Identify & Label the Correct Order Type

__________________________

_____________________________

___________________________



Score the Chart



Practice Estimating Expectancy• Signal Candle Data

– Resistance Zone 28.50– S1 Support Pivot 27.50

• What is the quick estimate for risk?• ATR = 1.1986• Identify the Pivot Data.

– R6 = 28.10– S5 = 23.00– R5 = 25.06– S4 = 22.82– R4 = 28.10– S3 = 26.60– R3 = 28.54

• Estimate the P.A.Y. (Do the math)..– What is the average number of candles

between pivots?• __________________________

– What is the average number of points between pivots?

• __________________________ P.A.Y. = $3.59over 6.75 days(based on 4 highlighted cycles)



P.R.E.P. the Trade

S1 Low = $27.50

R2 & R3 = $28.50

P.A.Y. = $3.59





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• Four-logged trades: three completed and one open positions• Two winners and one loser $424.65 & $608.60 & $205.50




• Perform each of the following tasks.– Open MachTrader.Open up a

chart. – Open up the Seeker.TM

– Link the two windows together– Select scans listed in this

chapter that are designed to identify Bullish Breakouts.

– Input Price & Volume Filters.– Identify how to narrow down a



appears to match the Bullish Breakout Pattern.

– Score the Chart– Identify expectancy

Risk/Reward.– Plan the trade using the

trade planning worksheet. – Place a Virtual Trade

based on the plan.– Open up the trading journal




Chapter 6 QuizHow Many Core Price & Volume Criteria Can You Identify on this Breakout Pattern Setup?



Chapter 7: Master The Bearish Retracement



Chapter 7: Learning Objectives• Learn to apply the S.U.C.C.E.S.S. Model for the Bearish Retracement

– Survey the Market• Learn how to properly survey the market and identify conditions that are conducive to the Bearish

Retracement .• Know when to call this play.

– Use MachTraderTM to identify and research potential trades.• Learn to scan for & identify the Bearish Retracement Pattern.

– Top Down – Learn how to identify sectors & indices with bearish retracement patterns. – Bottom Up - Learn which SeekerTM scans to run.



– Carefully Plan the Trade• Learn to identify and estimate reward & risk.• Learn to estimate what the stock can P.A.Y. (Potential Average Yield).• Learn to use the P.R.E.P. Calculator& Risk Graphs during the planning phase of the trade.• Determine at what price to place potential entry and exit orders.

– Execute the Trading Plan • Learn to implement the trade according to plan .





Master S.U.C.C.E.S.S. with the Bearish Retracement



Recognize the Pattern• Bullish Retracement

– Sell High (Retail)– Buy Low (Wholesale)

• Consistent repeatable pattern…– Price pattern that occurs




“Wholesale”

“Retail”



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• Broad-Market Analysis – Potential Bearish Retracement

Identified– Industrials

– Construction Index• Run SeekerTM scans for breakouts in

the transportation sector.



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• Master Trader scans– Bearish Retracement

• ***Automatic Primary Scoring***

• Swing scans– Daily Swing Sell Watch– Daily Swing Sell Triggered– Weekly Swing Sell Watch/Triggered

• Mach scans – Bear Area– Stock Bouncing off Falling 20 Mov. Avg.

• Bearish Daily & Weekly Candlestick scans

– Doji– Engulfing– Dark Cloud Cover– Hanging Man– Bearish Harami– Evening Star

• Fundamental scans– Top 50



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• Score the Chart

• Technical Trade Identification• Seven-core

price and volume criteria.




Know the Bearish Retracement Price & Volume Conditions

Downtrend•Lower swing pivot lows & lower swing pivot highs are what define downtrend.

Increasing Trend Momentum•The vertical distance in price between support pivots is the best measure of momentum.•Expanded support is a strong indication of a strengthening trend.




Corrective Retracement•An orderly price retracement from the swing pivot low for a minimum of three periods is typical of a profit-taking buy-in.

Slowing Retracement•Decreasing candle range indicates that the buy-in is losing momentum.•Decreasing vertical distance in price between candle tops also indicates slowing.




Technical Catalyst•Price should be trading near a technical catalyst that can help initiate change.•Catalysts include: support/resistance zones, trend zones, moving averages & fib. retracements.




Reversal Candle•A reversal candle can signal change. •Watch for: Doji, Hammer, Harami, Engulfing, etc... or a closing price < than the opening price.

Volume•Decreasing or below-average volume indicates decreasing participation during the buy-in.•Volume tends to increase near the technical catalysts as traders act & react.



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• Secondary Confirmation & Routine Checklist


• Be thorough. • Individual traders can add

personal rules and filters.



Score the Chart

Signal Candle



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Know the tradeable Instruments for the Bullish Retracement

• Master Trader – Short Stock


• Commissions In

• Commission Out• Bid-Ask Spread

• Slippage

• Broker Call Rate


– (e.g., 100 shares x 1 point = $100 )

– Potential Reward/Risk• Unlimited Reward

– Master Trader Risk Management• Asset Allocation

• Position Sizing

• Protective Stop Loss

• Cash Flow Options– Short Calls– Long Puts– Protective Calls– Put Leaps

• Spread Trader– Bear Call Spreads– Bear Put Spreads– Ratio Spreads

• Elite Options & Technical Mastery– All Instruments– Complex Combos– Advanced Adjustments– Dynamic Hedging


– Futures– Forex


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Short Stock Risk Profile




Identify Known Support & Resistance Zones

• The last swing high R1 is minor resistance.

• The previous swing high R2 is where old resistance could act as a catalyst for new support.

• Price is trading near a catalyst and has a reversal candle.

• A new support pivot could be forming in this zone.

• Wait for it to trade above the last candle for confirmation of a possible buy.

Pivot ConfirmationPrice Zone



Identify the Potential Reward to Risk Ratio

• Buying the stock at the pivot confirmation price helps ensure that the uptrend is resuming.

• Plan the trade.– Target at known resistance– Protective stop loss below the

current candle low• An eyeball assessment of




2 to 1 Reward to Risk

Ratio

Potential Risk

Potential Reward

Potential Risk

Potential Risk

Potential Reward



Understand Bearish Retracement Expectancy• Identify potential support zones.• Identify potential resistance zones.• Identify the ATR.• Estimate Potential Average Yield.








– High 24.25– Low 23.15

• What is the quick estimate for risk?

• ATR = 1.15836• Identify the Pivot Data.

– R1 = 27.68– S1 = 18.44– R2 = 29.10– S2 = 24.01– R3 = 30.59– S3 = 25.10– R4 = 31.69– S4 = 23.80


between pivots?• __________________________


• __________________________ P.A.Y. = $6.93over 6.75 days(based on 4 highlighted cycles)









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Master Triggers• Master Trader Triggering

Technique– Sell below the signal candle

low• Place a Sell Stop Order below

the signal candle low.• The Sell Order will be triggered

at the specified price or lower.• Use a percentage of the ATR

as a filter or buffer.• (e.g., 5 to 10 percent of the

ATR)– 10 percent of $1.58 = .16

» 16 centsA Sell Stop Order placed below the signal candle

low requires a downward move in price to trigger.



Couple the Trigger with Either a Market or Limit Order• Manage the entry

– Sell Stop Market• Once the stop price is triggered, a Market

Order will be routed to the exchange.– Market Order will fill at the next available

price– Sell Stop Limit

• Once the stop price is triggered, a Sell Limit Order will be routed to the exchange

– Limit Order will fill at the specified price or better

– Use a buffer between the stop and the limit to allow the broker some wiggle room to fill.

• A 5 to 10 percent of the ATR window will usually do the trick.

• A Sell Stop Order can trigger either a Market or Limit Order.

• When coupled with a limit, the fill will only occur at the specified limit price or higher.



Master Protective Stop Loss• Know the Master Trader Protective

Stop Technique.– Once the Sell Stop is triggered, the

position is exposed to market risk.– Protect your capital by using a Buy

Stop Closing Order if the price runs the wrong direction.

• Place Protective stops a percent of the ATR above the signal candle high, or technical resistance zone.

• 5 to 10 percent will usually do the trick.

– Use Buy Stop Market Orders to help ensure a timely exit at the next available price.

• The number one rule of trading is: Don’t lose money

– The second rule of trading is: Don’t forget the first rule.

– Protective stops protect trading capital.

• Once the Sell Stop is triggered, a protective Buy Stop can be activated.

– Good brokerages provide sophisticated order combinations such as OTO (One Triggers Other) and Bracket Orders.



Master Targets



• Intermediate Target– Swing low support (S1)

• 2 to 1 reward to risk or better is desirable

• Extended Target– Forecasted Potential Average Yield– Trend Support– Significant Price Zones


• Use Buy Limit Orders for Targets– Will buy at the specified price or

lower.

Tgt 1

Tgt 2

Tgt 3

Know Master Trader targeting strategies

Targeting is one of the Master Traders’ secrets to success



Trigger Stop & Target Quiz• A Bearish Retracement

Trigger should be placedAt the previous candle low5 to 10 percent of the ATR below the previous candle low

• Who chooses the trigger price?

The InstructorYour MentorYou are responsible for selecting the entrance trigger price.

• A protective stop loss should be placed at least 5 to 10 percent of the ATR

Above the signal candle highAbove a resistance pivotAbove a technically significant price levelAny of the above

• Who decides where to place the protective stop?

Your BrokerThe SoftwareYou are responsible for selecting the protective stop trigger price.



P.R.E.P the Trade• Identify

– Price Trigger– Realistic Target– Exit Stop Loss– Position Size

• Identify Key Technical Prices

– Signal Candle Low– Signal Candle High– Potential Targets

• Plug the numbers into the Trade P.R.E.P. calculator

Selected Target



Previous Swing Low (S1) $18.44





• Trade P.R.E.P. Calculator– User defined inputs– Designed specifically for Master

Trader strategies– Plan the trade

• Then trade the plan– Pre-determine

• Trigger, Stops, & Targets– Automatically calculates estimated

• Order Entry Prices• Trade Costs• Break Even Point• Reward/Risk Ratios• Capital Requirements• Personal Rules Compliance

– User defined money management rules

• Account Size• Asset Allocation• Risk Tolerance



Know How to Estimate Short Sells Using the Trade Calculator

• Select Short from the drop down menu in the Long Trade or Short Trade field.



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Sell Stop Limit

Stop $23.07

Limit $22.91

Buy Stop Market$24.33

Buy Limit Price $18.44

Sell Stop Limit

Buy Limit

Buy Stop Market

• Place the Sell Stop Limit Trigger Order.

– Stop Price– Will route Limit Order to the

exchange if price trades @ the stop price or lower.

– Limit Price– Once routed, the order will fill @

the limit price or higher.• Place the protective stop loss.

– Buy Stop Price– Will route a Market Order to the

exchange if price trades @ the stop price or higher.





Allow target to be hit or make an adjustment

Manually adjust the Sell Stop up

each day

Buy Limit

• Understand the Master Trader adjustment techniques.

• Trail Stops– First to the break even point– Adjust stops down above the

new candlestick highs or according to personal rules.

• Take Profits.– Close all or part of the

position if the target is achieved according to personal rules.

– Make adjustments to the target according to personal rules.

• Update Trading Journal with any adjustments that have been made.



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• Four-logged trades: three completed and one open positions.• Two winners and one loser $424.65 & $608.60 & $205.50



Practice Identifying the Bearish Retracement



Practice-Estimating Expectancy• Signal Candle Data

– Candle Low 39.39– Candle High 40.04

• What is the quick estimate for risk?

• ATR = 1.8602• Identify the Pivot Data.

– R1 = 42.69– S1 = 37.03– R2 = 43.97– S2 = 38.92– R3 = 43.96– S3 = 40.12


between pivots?• __________________________


• __________________________

P.A.Y. = $4.85over 6.00 days(based on three-highlighted cycles)




S1 = $37.03




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Buy Order?LimitMarket

Sell Order?Stop LimitStop Market

Buy Order?LimitMarketStop Market


Should the stop loss be adjusted?

If so, where?




• Short Trades require an x in the Short column of the spreadsheet in order for the reward/risk as well as income & expense trades to calculate properly.




• Perform each of the following tasks.– Open MachTrader.– Open up a chart. – Open up the Seeker. TM

– Link the two windows together– Select scans listed in this

chapter that are designed to identify Bearish Retracements.

– Input price & volume filters.– Identify how to narrow down a



appears to match the Bearish Retracement Pattern.

– Score the Chart– Identify expectancy

Risk/Reward– Plan the trade using the

trade planning worksheet. – Place a virtual trade based

on the plan– Open up the trading journal




Chapter 7 Quiz

How many technical price & volume criteria can you spot?



Chapter 8: Master the Bearish Breakdown



Chapter 8 Learning Objectives• Learn to apply the S.U.C.C.E.S.S. Model for the Bearish Breakdown

– Survey the Market• Learn how to properly survey the market and identify conditions that are conducive to the Bearish Breakdown.• Know when to call this play.

– Use MachTraderTM to identify and research potential trades• Learn to scan for & identify the Bearish Breakdown patterns

– Top Down – Learn how to identify Sectors & Indices with Bearish Breakdown patterns – Bottom Up - Learn which SeekerTM scans to run.


– Choose the Tradeable Instrument• Learn how to structure trades using stock as the tradeable instrument

– Carefully Plan The Trade• Learn to identify and estimate reward & risk• Learn to estimate what the stock can P.A.Y. (Potential Average Yield)• Learn to use the P.R.E.P. Calculator& Risk Graphs during the planning phase of the trade.• Determine at what price to place potential entry and exit orders.

– Execute the Trading Plan• Learn to implement the trade according to plan

– Supervise the Trade• Supervise the trade & learn to make the proper trade adjustments




Master S.U.C.C.E.S.S. with the Bearish Breakdown



Recognize the Pattern• Bearish Breakdowns

– Short Sell the Breakdown– Momentum Play

• Consistent Repeatable Patterns…– Low Base– Inverted Cup & Handle– Descending Triangles etc…– Price patterns that occurs



• Learn the Master Trader techniques for managed risk entry. Watch for

Breakdown Confirmation

.

Support Zone


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• Gauge the broad markets & identify sector & industry groups with bearish breakdown patterns.

Top Down Market Approach–Start with Broad Market Indices

•Identify posture•If bearish, gauge strength of trend.•Pick your posture.

–Check Sector Charts for strength.–Look for economically weak sectors.–Fundamentally weak sectors.

Look for breakdowns in the weakest sectors and industry groups in the market.




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• Master Trader scans– Bearish Breakout

• Available in Mach II & Mach III• Basic scans

– Two-Month Low Today– 52-Week Lows Today

• Machscans – Bear Area– Stock Bouncing off of Falling 20

Mov. Avg.– Three-Green Lights Down– MACD Crosses Down– Stochastic Crosses

• Fundamental scans– Bottom 50

• Also, look for down trending stocks in other ways outside of the Seeker.

– In the news– Heavily traded– Strongest trending




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• Score the Chart• Technical Trade

Identification• Seven-core

price and volume criteria.





Downtrend•Lower swing pivot lows & lower swing pivot highs are what define a downtrend.

Know the Bearish Breakdown Primary-Price Conditions

Trading within One ATR of Support•Correctly timing a breakdown is more likely if price is trading within One Average True Range of the support zone in question.



Bearish Continuation Pattern•A recognizable bearish continuation pattern should be present.•Watch for: low base, inverted cup & handle, descending triangle, etc...


Room for Price to Drop•Make sure that no historical support/resistance zones will interfere with a healthy drop in price. •Remember to check plenty of history on both daily & weekly charts.



Consistent Selling Pressure•Both pivot & candle highs must be registering lower. Lower highs are consistent with a downtrend.




Remaining Range•Remember that price is not likely to exceed a typical trading range, also known as the Potential Average Yield. Make sure that price is not overextended or oversold prior to the breakdown.

Volume•Decreasing or below-average volume indicates that participants are waiting for directional price confirmation. Once direction is confirmed, participation tends to increase as traders act & react.




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• Secondary Confirmation & Routine Checklist.


• Be thorough.• Individual traders can

add personal rules and filters.



Score the Chart



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• Master Trader – Short Stock


• Commissions In• Commission Out• Bid-Ask Spread• Slippage


– (e.g., 100 shares x 1 point = $100 )

– Potential Reward/Risk• Unlimited Reward• Maximum possible risk is

theoretically the entire dollar value of the position.


Know the Tradeable Instruments for the Bearish Breakdown• Cash Flow Options

– Long Puts– Short Calls

• Spread Trader– Bear Call Spreads– Bear Put Spreads– Ratio Spreads


• Bullish Breakdown pattern is compatible with other trading instruments.





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Short Stock Risk Profile




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• Know how to plan your trades

– Know Triggers.

– Know Protective Stops.

– Know Targets.

– Know how to apply personal trading discipline.

• Personal Position Sizing

• Personal Risk Tolerance

• Reward to Risk Ratios• Personal Trade

Management Rules

– Know how to use the Trade Planning Worksheet.

• Pre-determine the game plan for the trade.


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• Understand Pay Days.– Average number of candles


• Understand Pay Range.– Average number of points


• Understand Potential Average Yield (P.A.Y.).– Average number of periods and





Understand Breakdown Expectancy• Identify potential support zones.• Identify potential resistance zones.• Identify the ATR.• Estimate Potential Average Yield.

– The estimated average number of Points and Periods in a typical swing between pivots




A typical swing range is a reasonable expectancy for the breakdown.



Identify Known Support & Resistance Zones• The last swing low S1

& S2 are minor to intermediate support.

• The S1 & S2 zone could act as a catalyst for new resistance after the breakdown.

• R1 is a minor resistance pivot.

• R2 is a minor resistance pivot.

• Check for historical support zones on the left hand history of the chart.

Look back for historical resistance zones.



Identify the Potential Reward to Risk Ratio• Selling Short only upon the

confirmation of the breakdown helps ensure that the downtrend is continuing.

• Plan the trade.– Target Trend Support– Potential Average Yield– Protective stop loss above the

R1 resistance pivot• An eyeball assessment of



• R/R ratio is 2 to 1.Potential Reward

2 to 1 Reward to Risk

Ratio

Potential Risk

Potential Risk

Potential RiskPotential Reward



Master Triggers• Master Trader Triggering

Technique– Sell Short below support

• 5 to 10 percent of the ATR below support will usually do the trick

• Place the Sell Stop Order below support. Order will trigger at or below the Sell Stop Price

– Market will get filled @ next available price at or below the stop.

– Limit will get filled at the limit price or higher once the trigger is hit.

– Create a window for the limit order.

» 5 to 10 percent of the ATR will usually do the trick.

Place a Sell Stop below the breakdown resistance zone.

Couple the Buy Stop with a Limit Order to limit the entry price



Master Protective Stop Loss• Know the Master Trader

Protective Stop Technique.– Once the Sell Stop is triggered, the

position is exposed to market risk.– Protect your capital by using a Buy

Stop Closing Order if the price runs the wrong direction.

• Place protective stops a percent of the ATR above the candle highs or technical resistance zones.

• 5 to 10 percent of the ATR will usually do the trick.

– Use Buy Stop Market Orders to help ensure a timely exit at the next available price.

• Remember– Protective stops protect trading

capital.– Mental stops don’t work.– Place the protective stop at the

same time as the entry order.

• Once the Sell Stop is triggered, a protective Buy Stop can be activated.



Master Targets



• Intermediate Target– Forecasted Potential Average

Yield• 2 to 1 reward to risk or better is

desirable

• Extended Target– Trend Support– Significant price zones


• Use Buy Limit Orders for Targets– Will sell at the specified price or

higher.

Tgt 1

Tgt 2

Tgt 3

Know Master Trader targeting strategies

Targeting is one of the Master Trader’s secrets to success.



Selected Target

SupportZone $40.

R1 $41.83






Ana

lyze

the

Ris

k &

Rew

ard



S

U

C

C

E

S

S

Sell Stop Limit

Stop $39.92

Limit $39.76

Sell Stop Market $41.91

Buy Limit Price $34.31

Sell Stop Limit

Buy Stop Market

Buy Limit

• Place the Sell Stop Limit Trigger Order.

– Stop Price– Will route Limit Order to

the exchange if price trades @ the stop price or lower.

– Limit Price– Once routed the order

will @ the limit price or higher.

• Place the protective stop loss.

– Buy Stop Price– Will route a Market

Order to the exchange if price trades @ the stop price or higher.






Identify & Label the Correct Order Type

__________________________

_______________________

_________________________



Score the Chart



– R1 15.82– S1 Support Pivot 14.90– Last candle high 15.35

• What is the quick estimate for risk?• ATR = 1.1071• Identify the Pivot Data.

– R2 = 20.58– S1 = 14.90– R3 = 22.85– S2 = 18.38– R5 = 21.15– S4 = 18.16

• Estimate the P.A.Y. (Do the math).– What is the average number of candles

between pivots?

• __________________________– What is the average number of points

between pivots?

• __________________________P.A.Y. = $4.38over seven days(based on three- highlighted cycles)




S1 Low = $14.90

R1 = $15.82

P.A.Y. = $4.38



Ana

lyze

the

Ris

k &

Rew

ard



•Identify & Highlight

−Exit Stop Loss

−Buy Limit Target



This supervised trade triggered then reversed and hit the initial stop loss.

According to the S.U.C.C.E.S.S. Model what would be the next step?



S

UC

C

ES

S

• Eight logged trades. Six completed and two open positions.• Four income trades and two expense trades.




• Perform each of the following tasks.– Open MachTrader.– Open up a chart. – Open up the SeekerTM

– Link the two windows together.

– Select scans listed in this chapter that are designed to identify Bearish Breakdown.

– Input price & volume filters.– Identify how to narrow down

a search by sector & industry group.


appears to match the Bearish Breakdown Pattern.

– Score the Chart.– Identify expectancy

Risk/Reward.– Plan the Trade using the Trade

Planning Worksheet. – Place a Virtual Trade based on

the plan.– Open up the trading journal and

document the virtual trade.



Chapter 8 Quiz

What is potentially wrong with this minor pivot low base break pattern trade setup?


Chapter 9: Hit the Ground Running 30-Day Action Plan




Chapter: 9 30-Day Action Plan• Analyze, Develop, Design, Implement & Review a 30-Day Action Plan

– Analyze Required Actions• Open a Brokerage Account that has an excellent virtual trading platform. • Virtually trade all four strategies.

• Actively work towards completing and logging your first 25 virtual trades.• If successful with virtual trades, stick your toe in the water with live trades.• Register for the free month of trading labs.• Schedule your next class.

– Develop & Design a Structured Schedule for the Next 30-Days• Research brokerage accounts.

– Go on line or call the brokerage to initiate opening the account.• Schedule & dedicate time to perform the S.U.C.C.E.S.S. model

– Analyze the broad market– Identify Trades– Instrumentation– Estimate Expectancy Reward/Risk– Trade Planning– Trade Execution– Tracking trades and updating the journal

• Commit to and register for the free trading labs.• Call the scheduling department, or login online & schedule your next class.

– Commit to & Execute the Structured Plans & Goals– After 30-Days Review the Action Plan & Goals.

• Create a New 30-Day Action Plan & Repeat The Process.


Open Up Your Schedule• Look at your calendar

for the next 30 days.• Identify available times

and dates.• Make time if necessary.• Set aside time each

day to dedicate to your trading business.

• Dedicate a block of time each week to dedicate to your trading business .

The success minded individual will prioritize and make time for activities that lead them down the path to success.



Identify What Needs to Happen in the Next 30 Days

• What time of day and what days you will dedicate to your trading business?

– Days of the week

Sunday

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

– Schedule the Time of Day.

• ______________________________

• Schedule time to call & register for the free Master Trader trading lab.

– ___________________________________________

• Schedule time to call & register for your next course.

– ___________________________________________




Plan Your Schedule for S.U.C.C.E.S.S.

• How much time are you willing to dedicate each day/week to your trading business?

• Commit to & document the time that you will dedicate to your trading business.


Identify Your Brokerage Needs• If you do not have a brokerage or a

suitable virtual trading platform schedule time to make it happen.

– Perform Online Research.

• Date__________________________

• Time__________________________

– Register Online or Call.

• Date__________________________

• Time__________________________

– Fund the account or fill out rollover paperwork.

• Date__________________________

• Time__________________________

• Have you opened a brokerage account?

Yes

No

• Does your broker offer a realistic virtual trading platform?

Yes

No

I don’t know



Sunday Monday Tuesday Wednesday Thursday Friday Saturday



Develop a Daily Routine


• Example Swing Trader Daily Routine

• Assess broad market.– Market Posture

• Check your positions.– Check order status.

• Stocks that hit targets• Stocks that hit stops

– Adjust trade management on open positions.

– Update your trade journal or log.

• Analyze trades that did not trigger.

– adjust or discard

• Update trade journal or log.

• Trade Identification.– Prospect

• SeekerTM

• Check watch list or favorites folder.• Check sectors for top down

approach.• Use any other prospecting

techniques desired.• Score and analyze your possible

candidates.• Check economic calendar.• Check news and earnings.



Develop Your Personal Rules• Understand the psychology of money.

– Emotion is the enemy of traders.• Do not make decisions based on emotion.• Base decisions on pre-determined rules and discipline.• Mitigate emotions at every opportunity.

– Pre-determine your personal money management rules.

• Maximum Position Size– Percentage & Dollars

• Maximum Risk Tolerance– Percentage & Dollars

– Pre-determine trade management and adjustment strategies & discipline.

• Adjustments• Scaling in & Scaling out.• Understand how to manage the “if then” scenarios that the

market consistently presents traders.Take ownership of your trading by making sure that the trades you place meet your needs and match your personality.Personalize & tailor your techniques, money management and trading psychology for optimal performance.


Work on Logging Your First 25 Trades

• Virtual or Live

385

• Start applying what you’ve learned immediately.



Review Your First 25 Trades



Attend One Month Free Trading Lab

• Try the Trading Labs.– First month free– one hour per week– Online Instructor– Classes limited to 20

students– Choose a Lab that

meets your schedule– Choose a Lab that

matches your learning objectives


Trading Labs offer a unique online learning environment based on practical application of curriculum taught in courses.


Schedule Your Next Course• Call Enrollment and

schedule your next course.– Online– Live

• Prepare for the course by starting the on-demand lessons in preparation for a live or live online course.



Practice Your Happy Dance• Brush up on all

your best moves• Work hard • Trade often• Perfect practice

makes perfect• Build on success



Persistence• “Nothing in this world can take the place of

persistence. Talent will not; nothing is more common than unsuccessful people with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan ‘press on’ has solved and always will solve the problems of the human race.”

– Calvin Coolidge


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