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patterns is directly related to the dedication and amount of effort one wishes to devote to the task at hand.

My attempt here is to demonstrate an alternative method for the use of a few of the commonly available, popular technical indicators. These techniques, combined with a few logical processes and Common-sense filters, along with considerable effort and dedication on your part, can significantly improve your trading success.

Coon Rapids, Iowa May 2001

John F. Clayburg


I would like to thank Pamela van Ciessen, Claudio Campuzano, and the rest of the staff at John Wiley & Sons, Inc., for their invaluable, patient guidance to a first-time author.

Also the staff at Cape Cod Compositors. Your superior efforts have added a great deal to the quality of this work. Your patience in working with a rookie writer is very much appreciated.

The routines and theories in this book could have not been developed without the software provided by TradeStation Technologies. Sincere appreciation to Bill Cruz, Darla Tuttle, Amy Solt, and Mitch Ackles for your support and assistance over many years.

Thanks to Tim Eilers and Bill Orlowski at Investors Performance Group.

Thanks to Rita Karpel of Fox Investments, who has to be one of the best-connected people in the industry. Your advice and introductions throughout the years have been invaluable.

Thanks to Tom DeMark for introductions that led to this publication.

And finally, most special thanks to my family, my wife, Karen, and our children, Gary, Roger, Kathy, Tom, and Michael, for their support and patience during the busy time writing this book.




CHAPTER 1 Day Trading Methods and Philosophies 5

CHAPTER 2 Why Traders Lose 17


People, Prices, Personalities, and Probabilities: Why Technical Indicators Really Work 23

CHAPTER 4 The Concept of Trend Exhaustion 33

CHAPTER 5 Conventional Use of Online Indicators 37

CHAPTER 6 Multiple Indicator Sensitivity Settings 61


Market-Defined Support and Resistance Categories


Support and Resistance in Actual Trading 99 CHAPTER 9

Combining Dual Signals, Support, and Resistance 111

CHAPTER 10 Directional Day Filter 119


Alternate Use of Online Indicators: Identification of Exhausted Corrections within the Major Trend 147


Putting It All Together: Using Common Oscillators, Support, Resistance, and the Directional Day Filter to Achieve High-Accuracy Trades 179

CHAPTER 13 Directional Day Filter Breakout System 235

CHAPTER 14 Using an Automated System 253

CHAPTER 15 Using Online Charting Services 259

CHAPTER 16 Other Indicators and Systems 265



With the advent of online trading, technical an&is has become more readily available to traders than ever before. Multiple web sites exist that offer a number of indicators and studies for use on price charts of any market, any time frame. Most of these sites offer these basic services at a very reasonable cost to the trader, if not absolutely free. Although there are significant online resources explaining the commonly accepted methods of application and interpretation of the many available indicators, the unfortunate fact is that many of the oscillator indicators are not being used to their most profitable extent. This is due largely to the fact that the designs of most of these indicators, in their conventional interpretation, work well only on certain types of trading days.

In this book I will explain the use of a simple early-morning filter that, with 75 percent accuracy, will define each trading day in such a manner that trading with oscillator indicators will be much more accurate. This information allows the trader to introduce an alternate method of using common oscillator indicators, enabling you to trade in the direction of the major trend. By entering the market in this fashion you can give yourself the edge necessary to increase the accuracy of your trading significantly.

Many different combinations of trading tools will be detailed in this book. It is not the purpose of this text specifically to define an exact trading strategy that will work on all issues for all traders. Rather, my mission is to provide the serious day trader with a wide array of instruments that can be used to build an effective day trading system.

It would be quite rare for any one person to use all the materials in this book. Undoubtedly, each user will find a particular combination of trading tools most useful for his or her own purposes. Thats the whole idea. On what issues they are used, what time frames, stop placement levels, objectives, and so forth are determined by the individual traders, complementing their own trading styles.

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