movement on the half hour chart to be 1 1/2 points. I, then, have an option to move my protective stop a little closer and lose some of the fear of a loss or, at least have my transaction cost paid. Then, through analysis, there will be a resistance level that is obvxous and I would liquidate another 1/4 or 1/3 of the position. This now leaves me with a guaranteed profit on the position, and I oan now move the protective stop to a point below what would be a counter trend move, if the trend were up. I could possibly look to add back some contracts after a successful test of that level. This will become a little easier to underetand when exact examples are given later in the book. Personally I found it much easier to stay with a trade once I have taken some profit out. Aleo, eight years ago I reviewed my trading and found I had many break even or small loss trades that were profitable right from that start. Since changing my positioning strategy to trading partial positions, most of those trades are now 10 to 20 per cent profits. Over a few years, that oan amount to a great deal of money, and as you will find using an intra-day chart there are a great many trades you will find that will be difficult to qualify the magnitude of the movement.

HOW MARKETS MOVE

In order to become a good trader you should develop an understanding of the manner in which markets or individual securities move in price through time. Study of charts, and the normal moves in the market, will increase your awareness of what is likely to happen under any given circumstance. Being able to recognize "blowoff movements" is critical to success. Recognition of patterns of movement in the market is important to success in the market, and with this in mind, you should obtain charts and books which describe the normal market movements. Study them closely. An exoellent and longstanding text, Edwards and McGees book, "Technical Analysis of Stock Trends," as well as, "The Elliott Wave Principle" by Frost and Preohter, should be included in your library for your understanding of market movements. H,M. Gartleys text, "Profits in the Stock Warket", is also recommended, as is, Wyckoffs exceptional work on volume analysis. I am going to devote portions of this text to price movement. Understanding price movement is the FOUNDATION to successful trading and all else is built upon this knowledge.

FOUR INVESTMENT STRATEGIES

All markets go through four phases. They are topping formations, bottoming formations, and bull and bear campaigns. You should have four strategies in your trading or technical arsenal. One for bull campaigns, which includes an understanding of oountertrend movements, both in price and time. Another strategy for topping patterns with an understanding of "blowoff" patterns, including both price and time. Third, a strategy for bear campaigns which includes an understanding of oountertrend movements and how those differ from the countertrends of bull campaigns. And finally, a strategy for trading the possibility of a bottom formation.

The bull market etrategy goes into effect when you have determined that a bottom has taken place, and the trend is changing to up. The bull strategy is to take long term positions in stocks which are showing strength already, using reasonably long term protective stops developed from your knowledge of countertrend movements. These stocks can be identified by their price movement, and should be making higher lows while the market is making lowar lows with a loss of downward momentum. While this etrategy is in effect, you will be looking for an indication of a change in trend. Knowing that the first indication, possibly a loss of momentum on the daily chart, is an indication that a consolidation or oountertrend movement is about to begin and not a change in trend from bull to bear. This is a point where your knowledge of

countertrend nravements, in both price and time analysis is critical.

When the trend begins to change from bull to consolidation, you should put into effect a consolidation trading strategy. If time is early in the trend, you may look to buy otner stocks or commodities and take advantage of the continual rotation from one group to another, that occurs in trends. If time is early in the bull trend, you would try to stay with your good positions and not

?ive them up during a consolidation. A normal consolidation will ast three to four weeks. Illustration number 2.1 shows typical consolidations in a "blue chip" stock, IBM.

Eventually, one of the consolidations will show the signs of being a top (some of these signs are discussed later). When this occurs, you will shift from the consolidation trading strategy to looking towards the bear trend strategy of selling rallies or breakouts to new highs, and taking longer term short positions. Once the trend is established, you may take intermediate term option positions.

Obviously this is an idealized trading strategy or outline. You will seldom be oertain of any situation, you will only have evidence which leads you to believe that certain cases are true (in the markets you deal with probabilities, not certainties). However, the base strategy given above is a good plan to follow. So, lets go on to a general description of what to look for in the markets.

When a move takes place in a stock, index or commodity, the majority of the move in price will generally occur in time periods of three- three months, three weeks, three daye. You will see multiples of three occurring in trending situations. You will find the average rally in a bear campaign is three weeks followed by a resumption of the bear trend. This is true of a bull trend also, the average sell off is three weeks, then followad by a resumption of the trend. There are timee when these oountertrend moves oan last three months for an intermediate term correction. If you understand countertrend movements, the price and time

?robabilities, you will be very suocessful trading the markets, his will be covered later in the text, but you should be aware of the importance of this subject.

Of course, this discussion so far has been general and simplistic. But you should understand, that even a day trader should look first at a broad strategy based upon what is probable for the month, then week, then day and finally intra-day.

Onoe you have a strategy in place, and you are using it to trade a certain type of market, you should have, or develop, a well defined set of criteria viAiich will cause you to change strategies. If you dont have a strategy well defined, and available, your actions may be motivated by your emotions of hope, fear and greed. Rather than good hard evidence, and the daily movements in prioe may overwhelm your trading judgment.