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only 9 points which produces support at 187. The largest single move down was 17 points or 179, so the support levels, which will become resistance levels if broken, are 189 to 190, 185 to 186, possibly 182, and definitely 178 to 181 and 170 to 173. Now look at the daily chart. The first movement finds support at an old low on July 24, 1985. But the rally is only one day up then down sharply, breaking a previous low (a rally day is qualified as higher high and higher low. a down day is lower low and lower high). Price now shows high, then low, then lower high, on July 26, 1985, then lower low. This trend looks down and possibly into the 30 or 45 day cycles. Then price rallies two days followed by an inside day on August 2nd for possibly a second lower high. So breaking the low of the day on August 2nd, would be an ideal place to position short.

I am going to digress from this exercise to make a very important poit about trading. Your purpose in trading is not to pick exact highs and lows. Your only purpose is to make money. You should find high probability setups on a chart which will allow for a tight protective stop and the start of a fast movement. You must identify when the market is trending and trade with that trend or when the market is consolidating and trade it as a consolidation. Those who attempt to trade by only picking the exact top and bottoms to trend, seldom last very long in this business. Top and bottom pickers invariably go broke. The majority of the time, you should look for a sign of weakness to sell short. That sign of weakness could be something as simple as breaking the previous days low, or a sign of strength to go long, as breaking the previous days high. Every position is not going to be a home run (the top and bottom piokers mentality), so take your profits at reasonable objectives. Dont get greedy. When making your trading plan for a position you would be wise to consider the partial position strategy mentioned earlier in this text. When you dont understand what the market is doing, dont trade by guessing. Trade your analysis, not the market movements. Quite simply if one had the patience to position only when cycles expired, using previous days highs or lows as entry points and protective stops, you would consistently make money trading.

Lets move back to the exercise. After breaking the low on August 2nd, price moves down for three days, up one day, then down into the 30 day cycle with little down side momentum and is resting on a predetermined support level. On the weekly chart, from the low in the first week in May 1985, price is, also, on a 2X1 angle. So, exit ing sho rt pos it ions and going long wou Id be a good strategy, with a protective stop slightly below the low of the

Previous day. Remember that there is nothing but lower lows and ower highs on the chart, so we may be positioning against a trend. The 45 day cycle will be the next clue. Stopped out on August 22, 1985, were left with a small profit or break even. Price then moves up into the 45 day cycle with a three day rally not exceeding, in points, the previous rallies. It is at the

predetermined resistance level. This could set up a 30 or 45 day fast move down as it is, also, a 4th lower high. On August 30th, a daily low is broken and we are now short. But with the possibility of a significant move down, lets keep our protective stop a little above (i.e. one point) the high of August 29, 1985.

Look at the weekly chart. At this time price is below the 45 degree angle from high, below the 45 degree angle from low, and the 2X1 angle (which you will need to draw on the chart) comes in at 189 that week. Support finally is withdrawn the week of September 13, 1985. On the 60 day cycle, price reaches the upper level of our next support of 178 to 181. On September 19th, primarily due to the 60 day cycle, I closed out my short position when price took out the previous days high. I did not play the long side because of the very weak position. I sold short, again, on the third day up, this time not waiting to break a low since prioe was at angular resistance and appeared to be trending. Price then moved down to September 26th and moved up from the support of 179 in an impressive manner. I remember at that point being sure the index was going to run out a full 90 day cycle from high-to-low and was very bearish. The next day saw a higher high and higher low. On October 1st, I closed out my shorts when prioe moved above the previous days high. I went short, again, on October 3rd, but now for the first time price had moved above a swing high and exceeded in points any other previous rally. The low on the 26th was a momentum divergence and the high on October 2nd it reached up to the low of the previous consolidation. But I was still bearish, and assuming a drop down to 170 to 173, by October 17th. On the 9th. price moved above a previous daily high and above a 45 degree angle on daily chart, showing support at a previous low of 181 on the 30 day cycle. In addition, this week contained, both, a one and two-year cycle. On October 8th, the advance-decline line was at a higher low. To much risk now to be short, I brought my stop down to a break even trade and waited for the resolution of the 90 day cycle. By October 17th (90 day cycle), price had moved above the 45 degree angle from high on the weekly charts. Therefore, we are moving out from weak position from high, leaving what could be a five week basing pattern behind. Price had moved back above the previous lows at 186 making it very doubtful that the trend was down. I remember, even m the race of the mounting bullish evidence, still being psychologically bearish. On October 24th, price moves above the 50 percent mark, but still below previous highs and at a predetermined resistance level. Then on October 29th, it gave me a strong move up after only two days down, moving above all resistance. I remember saying to myself at the time, "Why are you afraid of the market?" There *s a low at a predetermined support on September 26th -a higher high- higher low on October 17th, higher low on the 21st with only one day correction- a higher high- a two day oorreotion with higher double bottom on October 28th. This is not a market that is trending downJ Its a third higher bottomJ Buy Itl Price could be in a 90

day cycle from low on September 26 to September 29th, or from October 8th. Either way both those lows must be considered since the Dows lowest low was October 8th.

You should continue with this exercise by covering up with a piece of paper these charts and moving day to day and week to week using the same fundamental understanding of price movement. You should pay close attention to the cycles, not attempting to pick tops or bottoms but look for a setup to position. Dont attempt to be positioned 100 percent of the txme, but just try to find points where you can jump on the trend and make a profit with limited risk. Keep an account of your profits and losses. You will have loses but they should be very small per position. Before reading further, please complete this exercise at least through April, 1987.

Now, lets look at some of the trades I actually put on during this time period, and see if you could see the same opportunity developing. Look at March 21st (first day of spring). There was a low on September 26th. But the 26th was followed by a weekend so that cycle could be running from 27th, 28th or 29th. On April 7th or 8th, was a 90 day cycle from high with a 180 from low. However, a full 90 day cycle from where this drive started, was not until April 23rd or 24th. So, a correction starting anytime after March 26th for a low on April 7th or 8th was a good possibility. First, price objective would be one point less than the previous larger correction or 11 points (11 1/4 is natural vibration). So I was short 238 on April 1st and covered at 229 for a fast nine point profit. I went long on April 8th at 229, then out of longs, at the break of 242, on April 18th, for a profit or 12 plus points. I went short at 241 and change, with my protective stop at 246. This is an unusually large protective stop, but a 90 day cycle meant a very good probability for a 30 day move down, especially since high day saw a loss of upward momentum. On April 23rd, I added to the position at 244 with a 245 protective stop (90 degree aspect was 244) and added, on April 29th, with a break of the previous days low. Obviously, I went short on July 3rd and covering on July 8th at 13 to 14 points down and selling short, again, on the break of 239 and covering on one year on July 17th at 237.

The time period from December 29, 1986 through January 5, 1987, should have been obvious that something big was going to start. Note, the large number of cycles on the daily chart and the higher highs, higher lows on the weekly chart in addition to the 45 degree angle on the weekly chart.

Going into the end of March, 1987, there was a 90 and 180 day cycle expiring. From the previous important high of 254, 270 degrees was pointing to a price of 303 (also 3 times the 1982 low). I went short on breaking the low of March 26, 1987, and closed out at 14 points down which matched the previous largest correction. The market went 2 points lower. It spent two days on the side, then gave 3 days up followed by an outside reversal day down. It Finally hit the 303 objective from September, 1986 high, the 179 low (two cycles out in 18 months or 540 degrees in time) and price

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