The most fLindamentLiI ; [ this book rrviches ts that ii is essontiaJ to learn 10 rocognize wtiat any chart looks like just tsetore an irnpofiant breakout. Equally important is to recognire cnngEJstEon at Uh? edrliesi jjossrble lime. This necessitates lhai n ehari fook a eeriain way. ThroLighout this manual, 1 show cliaiis that have That look. They must be ol sulficient lengih I tinit? to be weir lorried. A five oiiruJto bond chart is the exact ofipusite of the type of chart formations i look for. Later I will show a five minute bond chart and other charts that are untradable by my methods.

A Brief Comparison

When f fjrst started rfaytrading in the commodity futures mirkets, [ was unable to find books of any kind covering the subject, tveryihing I did was done witfiout prior knowledge as to how to go aboul diiytrhding/ I had no idea of what to expect. I did not know if ific thinys tht fiad ah.vays worked for me woufd continue to work successfully. "Therclore, learning to daytrade was a new adventure and a great challenge for mo.

In some respects, daytrading is not all That different fromi trading doily charts. Yet. tn other respects, it is as dffferent as night and day.

The Similarities

The similarities between intraday tratiing and trading from the daily chart are numercuis.

Intraday charts look much IiUu daily charts, bm with sorne notable exceptions. In part, hov the charts look is a function of ttie data feed service I use. Ive tried different ones side by side, and there are differences in the appearance of individual price bars. They often disagree about where a price bar opens and closes, and where the iiigh and the low occurrfjfi, Tfiere are also differences due to the particular software I use. The .appearance of the charts vary from one software package to another. I have tried several.

With some programs, the clock settir>g ort the computer 1 use also rTiakes a difference in how the software sees the individual price bars. Tfiere are differences in the way ifie data is handled from one comjMJter program to anothor, and even running tho serine program on two com[:)uiers with different clock settings vjiil make a difference in hov; tfio individual price hars ajjpcar on the Chans, When I tHik about clock settings, 1 am referring kj the time clock on the computer that sfiows hours, minutes, and seconds, as opposed to the internal clock tftat controls the hardware cycles.

ntraday charts make essentially the same formations fis do daily charts.

There are trading congestions connected by trends sidev/ays movements, pauses, gaps, and waves.

here are retracements,

1 i>uppose that il traders had the t:me to study intraday charts in thie manner in whrcri they have studied monthiy. weekly, and diily ciiarts. that cycles, could be observed to occur as miuch on a one niinmc chart as they do on a daily chart. 1 know of traders who trade intraday based upon astra phenomena and ocean tides.

fntraoay ch-ans can bn traded tjtiliing ribonaeci, Gann, anrl \1\U(\[ technicjues, fan lines, speedhnei, fiitchforks, oiici-kiiufs, Hovirij averagri.s, RSI, Stochasilcs, DEMA, [.-lACO, Commodity ClKmriol IfkCex, Vo3;;itiliiy Stop Parabolic Stop, Cycle Projection, and any other of trie host ul [e(.:hnica analysis tools available tor use in die market today.

Tfic Differences

Some differertces are to bo found ifie way cenain of the charts appear to the eye.

ho long bond futeres contract, EurtuJollars, in f[ici all oi the imeresi rate contracts, tippear ftat on a five minute cfiart, . dilfereni from the way they appear on daily c?:arts. On most tlays, the chart forrnaitons on thesf; do not begin to lat)k like the daily charti untir stie price liars ate captured on a sixty minLUe interval. Better yul 1 a \2j ( . cJad for seeing the interest [ contracts in the way I like to see a ehari.

Difffirences in volahlity shovy up in tfiat a move on a one minute char tfiot covers ifie entire heiglii of the screen, niay ajjpear ds a normal si/e bar on 3 daily chart.

Charts fnr the more thinly traded contracts, and some of the morti volatile contracts, appear as virtually unrecognE;able and antrai-iaLiie, iosi"g any symmetry and forrnation I migfit v/ant to use in iratJnU] tfiem.

0;her Differences

SliptJiyc is a greater )>rnljlejn in daytradinrj tlian it is m position uaCmg ""he same amount of slippage on a daytrade is proper tionaielv greater in relation to an intraday chart than i; is to daily ctuirt. A daytrade yields less time to absorb slippage. Thefctore, holding slippage to a nur.imum hocomris critical,

Xeeping slippage a mininurm necessitates niy using more restrictive types of orders on an imraday chart than I would on a daily chiirt. I rriost knov withifi a point ur \\\o wliore I ant going to be filLd.

Trying bcive ! slippage also affects size, I fiave to he canolul to mainiaifi Int si,:es t-at ac riorrriidly traded on tfie Iloor. I viint id avoiu odd-lots, sij<:fi tweniy ifiioe ofangtj juice coiuracts. rmi r.nruracis.

e I

Very often, I viil licjuiflatc a lot size to cover costs that ts greater than neede<l just so I will be left with an easily lirpudaied :oi shoLiU! I neird to get out in a hurry, or to hrjlp insure the least slippage lor a proht icikjny tiii.

Fundamentals play littlj part in tradig the intraday chnrts. I-fows affects the 0[)CMiing cals, and, of course, d cai hnve irnfiac: on the action (furing the day, but [i long te.Tjn pusltirm trade on a one mmute cfian Clio cofisist of about twenty [jricc bars. Often a trde consists of five to it.4"i price l)ars. and occasionally only one pri[:e bar is suflicosit for a traiimg decision.

Seasonality, in tfie conventional sense, has virtually no mnj-,figeabie effect on iriuaday trading, othor tnari as a poss.ble entry !echiiir[ue,

Jl}ws slorJQS antJ tireaily affori the imraday chLTrts, ca-jsing huge runs dunng [he day and yawning yaps at Iho open.

Obtaifiing good fiHs betjonies absolutely critical in intraday trading, doc the problem ofcntiy esnd exit on a same short term price bar can be enormous, because one doesnt yet know if the entry hi! was completed prior to having to enter the exit order. In some of tlie more thinly traded markets, and at intervals whe?i a market is fast, even a ten minute chart docs not give sulficieni tirTie for knoving whether or not an entry order was filled prior to having to enter tlio exit order for a particular trade. Execution is a major consideration in (Eaytradmg, and I vll delve into it m greater detail in die apprOf)f)aic plactis.

Ttie amnur.t of commissions to be paid becomes critical in daytrading, Having [ess tiirin and range ol movement with which to absorb overhead means thai it fs v,;n] to secLire and maintain ific lowest ijcssible cornmissions per round iLirrii.

Tfe area of tratJe nianagement becomes totally ddferent in intraday uafiii-ig, antl the strategy and tactics involved are much different for wfien

trarie intratjay ifian whLm I trade tfie daily cfiarts. l-lease notice tb.it I sait trride nvsnrigrriTienh and not risk management or money management. The

main [JifferencG in trade management has to do witfi the lurrried way in whici liivt? to tiade irtrailay.

Dy tMde aw-HUjuemeni, I mean the nieehanics of entering or exiting a

trade.

riu.ise vdui have roacJ my manual Trading Bv The Book know that I pretty nnich reject the practicality of fundamental trn<liJU] because, as an individual, f fiave J-eitfier the lime nor lo pursue tho acquisition of suMicient 1i.iric)aiiiontril knowledge from vvhich lo make Ui-iding decisioe,s.

Also, with ifie excefnion of mentally noting wheie Fibonacci ratios arc located, along with the occasional use of a simple offset moving average, I reject [Ile use of the dozens of technical trading tools in my trading of tfie intraday cfiarts. As regards Fibonacci ratios, I use visuaE retracement ratios only as 7] filter tc Irll rne if a market is behaving nornially, I do not use J-ibonacr,i (xpansron ratios to tielp me set objectives for my trades. They are too time coiisLjmiiuj and lo;ally unnecessary in the way I daytrade.

I would strongly urge anyone wanting a more comptcto understanding of my liasic trading pfitlosophy to [jurchase Trading Ey The Book, r-1uch ol what will be fourul in Trading By The Minuie derives from the age old trutfis ioLind in Trodig Dy The Dook. Tfic conce[)lfi shown in Trading Bv The Book, along with macjy of the tips and techniques shown, are for Ihe most part applica)>le trading in virtually any lime frame,

V/nen irad-ng intraday ciiarts, I use no "tecfinicai" tools at all, other than occasicmaly using tr-e mc/ing avcrago mentioned above. This is, more specificrHv. a three bar sim[jle moving average of the close sot forward three bars in time, Wlien t do use ii, us usually to provide variety in my trading so lK Im joi alvvays ihrui (exactly ihc same dung.

Altfiougri I do have a sense of wfiere the Fibonacci retracement ratios are located, in rny use of tfiese I differ greatly from the "norm", in that I do not trade from the retracement ratio points as do most who use Fibonacci, f

use rny percufitifHi of where tfiey are to teil ne if a market is acting as expoci d to. In th.at sense, it is "nice to know" information,

migfit

My approach to intraday tradiiig is based entirely upon what see before me in the form of a bar cfiart showing Open, High, Low, and Close, As previouslv stated, 1 use vjrtually no technical tools In my trading. Why? 3ecause I feril they operate only to confuse ihe pictkirc, AND BECAUSE THE ARE WHAT THE MAJORITY OF THE OTHER TRADERS ARE USING - AND *F YOU BELIEVE THE STATISTICS, YOU KNOW THAT THE IVIAJORITY ARE CONSISTEfJTLY LOSING IN THE MARf<ETS!

The closest I can get to tfie truth of wfiat is happening in the markets is what ] am able to see on m.y bar chart as prices tick up and down ori the computer screen, Notice I sard "closest". Tho bar chart is Ifie best I can do, but even It doesnt toll me the wholc truth.

I know of a riuniljer of traders vvho thought thai because tfiey had live data feed, liiey coufd trade tfic r7iarkets just as a ffoor trader would. That is emphaticafly not true, although the data feed suppliers would like to convince you tfiat fiaving a Eivo data feed is as though you are "right tficre in the pit with tfie fEoor traders."

Oil my livu ddta feed, 1 cant see flow many traders arc \r, the pits. The volume 1 see on my chart is oiily a best guess of ifie acUiaE volume on the trading floor. I cant immediately see if a market Is thirt, I can only guess, or ask my broker, I cannot sense the en-.onons or moods on tfie trading floor. I cannot tell if there are rnnro buy orders than soil orders, or vice-versa.

1 carv on.y belnedly realize that a market has starird to become "last

1

Another Jiandicap is that .1 cannot see wtio is doing tiie trading. I am unaware when a "commercial," or a largu tratJer conies onto tfie floor and begins to suddenly or incrernenlally buy or sell. Probably my biggest disadvantage is that I cannot see the "bid", "ask" or "size" figures. Although they are availabfe through my daytrading software, they are posted too late to do me any good. Tiiey are always beiiirtd-times.

Anoiher important iteni thais missing is that I cant hear the action as the floor traders can. They react to the noise levefs - 1 cannot.

These limitations, of necessity, have sn effect on my trading style and

rnsults. The way 1 trade has to compensate for the lack of "truifi deal with when trading from a computer screen.

have to

Another riiajor limitation I fiave is ifiat of time. I dare not use ihe "nytural" pivot points that are in effect down on the floor, I dare not use the samG support and resistance ponus that are being used by the floor traders. The difJerence is that they are THERE, in the pit, and can react imrdedtateiy to the price action. As stated, th.c floor traders have the advantage of "hearing" ;hc action on the lloor.

Even though roy daVa fcecf is "real lime", there is as much as a (en second traosniission delay between when 1 sec a price tick and - it actually licks on ttie Moor. Added to that is the increriieoial dehiy wiitiin computer program thai takes place between the time the data is receivet (he program, and tlie time slice given to the particular matkoUs* in which trying to trade. The rehesh laie to the screeri tor each tick causes n tmy Celay. The delays are something I have to live wiiih ttie floor trader doesnt have to Jive with.

by m

Another problem I have with timCr which chanues the vvholc bail game as to Ihe way I can trade versus the way someone on the door can trad(i, is that 1 have to deaf with the ineviiabfe delay oJ the telephone call lor pfaciny my order, and the ensuing clerical procedure riecessary to get my order into the pit. Even if and when I call directly to the boor, ihore is a delay as \Ue order ticket is wntten and then taken to or signaled to the tracJuig pit,

Tiie tiniG intervals I lose, compared wilfi die actuality that is taking ptace on the tradiig floor, amount to a tremendous handicap that tias to be dealt with and overcome by the methods t use in my trading.

I also have to Jive with higher commissions than do floor traders. Even a low rour»d-turn commission off the floor results in paying several times tFie commission that some floor traders pay.

-inolly, I Slave to put up with the inevitable missed licks [hat fait to come across : data feed and bad ticks that come all too frfjpucntly across any data feed, Tliey love to conie at cntrcal decision tiroes. They are a najor annoyance in daytrading, espcctally those you cannot see because they fal wittiin the "norin" of "he current price aciiori,

stated previously tfiat technical indicators only tend to cotduse the picture. Anyone who v-cs them knows that a three bar versiori of a moving average, a momemum oscillator, a channel index, DEMA, RSI, Stoctiastic, etc, look and behave (idfiMenily rhaii an eighitnen liar version of the same technical indicator, Wtuch one is to be believed? AH techrsical iiuiicators are figments of the imagir>ation. They arc creatcrf by the trader and reFidor different trading decisions from the same trader depending upon the Icngtii of their base.

Technical indicators tend to smooth things, when the underlying reality upon which they are based is anydiing bu; smooth. Prices ton<! to cfiop up and down, making rattier large moves in sports from time to tirrso.

fVly way of trading is to trade from the reality of what is happening to the price as reflected on the computer screen in front of me. Since wliat 1 see there is the closest I can coirie to the troth, for me it is the irui

Another thing to realise when trading intraday charts is that by the end of the day there will, on tfio shorter term charts, be a great many bars. For instance, on a one minute chart, there m;iy l>e as many as 2G0 price bars showing. That is the cgtJivalent of many months of trading on the daily charts. In addition to those 260 bars, there arc those that have already slid off the beginning of the chart. This is especially true of the currencies, Uio interest rates, and tho stock indcK charts.

hats a lot of jnsce bars, and it represents a lot of irading (incisions. 5f were to add to rriy posiiioi each time there was a tiading oij.noramity on a one miinuto ch.cM. I couUJ go nuts,,,and so could my broker.

Therefsre. 1 do not trace in and out a:l dy long, I Sfftifjly cannrn take llie wear :in(i te.ir. If I did aade ir and out [l:ke the Poor tra-.fers), I w<juld sirTiply burn ou( beiore th<c end o\ the cay, Ir fact, I k.uw sortjeone wfio had nervous brcEikdown doing that very thing.

IpTi not saymy Itiat odicrs cant do it, Im saying I cant do it. Its "no intense lui ine, and its loo much like hard wrurk.

"m olten asked by others, "Do you dayirarje?

By now tfie answer shouM t)c obvious. Yes. 1 ckj [laytiai.:e. Dot I cannot do St all the iiine. ft takci gieat energy to daytradc It involves a great intensity oi concentration.

I fiave. a: hmcs. daytraded intensivery for a *ew Cays. iKrt then I hiad lo rest and get away from the niarkets. The odd thing abotit diat kind of irtense trading is that 1 dont alwisys know when Ive had eeoughi, 1 usuaKy find out or realize Ive been at it too long whef! I wake up to the act tfiat losmy too nuch money.

The intensity of daytrading has a way of hyfinoiizmg rrie so that aher awhile I really am not seeing much of anything. I [ {Sull. My perccpion

of the niarket action is no longer sharp, mind fias In.come riumb.

lave becofiie sajuraieij and my

t takes great energy to dayfade and tfte [:ost in nienttil and pliysic wear and tear nsakes it problematic frcjin a practical s[ani :poiU.

I iim not alone ir, tins peiception of dayirodMig. Out: (nend (if mine, wtw) has h(!en a [irofesiona; irarU-r for 24 years, snys dial ail he can siand it is two 01 three (JLtys out o\ each morith.

Another Iriend, w\\o has a seat at the CBOT, lias told ; it is ea.ier to trade down on ilte flotfr tiian ;n daytrade frorii a screen off die floor, hie has 1 :{} trading foi 3G years, tind is cjiie of the athtime greats oi trading,

Becausti tlayirading is so intense, because I piersnnaily carTt hnndle ton much of It. anrl most of all hrcausr; tht> greater pro fas are rnacJe long :erni, also position trade ttie intraday charts, I attcmpi wtienevtjf f)(>.s.s-ble to turn a (faytrade into a posit4"]n trade, ItJ [)c sh.owng how I do ih[i; in a later chapter.

Position trading is a lot more relaxed. The trades more or less take of themselves. I dtnt itave to pay much attention to them, Oncti I have turned a (Jayirade irvto a position trade, I tiave to do is rnonfior tn,e trade closely enough to move my profit protecting stops and get ou! at any objectives I have set tor itie uadr TypiCiiNy, my [irofit prta-ji-jtu :- stofi is one and the same with n:y objective. I want to be stofiped out vvilh a prufi;, long ago 1 guil trying to pick nvuktt lops ar.d bouoms.