The Joast impancint is what the Japanese call a "tfcji." I love that icrm and havn adopted il into my trading lingo. U looks iike this:

The main thing to notice about a doji is tho (net that tho open and rhe close ore about the sarTiG.

The open and close do not have to be exactly the same, just very near to each other.

higii perenntage of tiie time, when I see a doji and market is trending, Im aieiied that the market is going to go the op[)osite Vay on the following price bar.

A more important reversal bar is seen when in a down market I get a close that is Jiigher than the open, and sn an up market I get a close that is ower than die open.

An even stranger indication of an imminent major trend change comes wiien liiere is a combination of a doji and a reversal bar.

The very best indicator of a trend change comes when there is combination of two or even three successive reversal bars, or a combination of dojis and reversal bars mixed in with one or two bars that fit the pattern of the trend.

Reuersa I hnjr

Doji

Note: I do nof confuse the mix of bars in a trending market with those in a congestion, A look at congestion areas on most any chart wili show that tfiere are usually reversal bars almosi every other day,

When I see a series of reversing bars, (open higher tftan close on one day, and close higfier than open] the next day, I get out of the market. If I were not in Id stay out until ] see a breakout or come to tlie reali?ation that tfie market is trending.

These reversal bar, doji combinations occur in a dovntrend while Im stili seeing Jower highs and lower lows. Conversely, they occur in an uptrend while Im still seeing higher highs and higher lows, in other words, to the casual viewer, it still looks as thoueh the trend is intact. But if a trader knows how to read a market, as I was lauglt, these reversal bars and dojis are powerful signals.

If E have a position when these combinations occur, il ps limie to really lighten up my stops. I get ready to hail out.

would say that dojis work singly about 55% of time; in combination with a reversal bar. about 70% of the lime. A single reversal bar will indicate a trend change of at least one bar about 65% of Ihe tirTie. A pair of reversal bars will indicate a counter trend move from 70-75% of tfie time. These figures are just estimates based on experience. Ive never actually counted to see the exact percentages. All 1 know is ifiat they work. They are an example of letting the market lell you what it is going to do.

When a trader knows how to road a marker, and has a pretty good idea of v>;hat it is going to do, then he is able to get m step with that niarkot and go along tor a ride.

The Floor

Many "at home" traders wonder, "What in the world is going on down on the floor? How is it that lloor traders always manage to fade those trading off the floor? Does it have to be that way? Why is it Ittat floor traders can trade against the trend and get away with it?

Floor traders certainly appear to have the advantage over the rest ot us. But do they really?

Its important to know the truth, its vital to daytrading to know where and when the floor traders have the advantage and where and when they do not.

Lets get a few tfiings straight.

Floor traders as a rule dont do any better than anyone else as far as succeeding in this business. The mortality etc is very high. They come in with their money and go out broke just as daytraders and posriicjn traders do. They constitute trading casualties in the markets the same as others.

They have some advantages. Here are a few of them. 1. They can trade at a iTiuch lower ound turn cost than f can. They pay somewhere around 51.50 for a round turn. 2. They can see the bid/ask prices and the size. Because they can sell at the ask price and buy at the bid price, floor traders may seem to be able to trade against the trend, 3. They can see who is coming onto the (loor. 4. They can hear" the market. They can react to the noise of a busy market. They can move with the market as soon as they sense the excitement. 5. They do not suffer the terrible time delays we have in getting our orders to the floor. They are there and can react as fast as is humanly possible.

I can sell only at the bid price and buy only at the ask price. I also pay much higher commissions. Ive always wondered just how unfair are the commissions that are charged? Does it cost the broker any more to buy or sell a fifty lot than it does a one lot? Why do I have to pay the same price per car when I orcfer ten. as I do when I order one? Vouldnt it bo more fair if I paid a single commission regardless of how many contracts are in a lot? In addition, I would pay the exchange fees per contract, same as the floor.

1 have the inevitable time delay ol dialing the telephone, wailing for someone to pick it up at the other end. recording my order, calling the trading desk, waiting while they record the ticket, and waiting for the order to be arbed over to the pit via hand sirjral or runner. To make matters worse, I have to pay atrocious commissions, several times as much as do the floor traders. Even though I call straight to the floor at each exchange where I trade, it takes tirne to do the paper work.

Because of those disadvantages. I must trade with as much in my favor as possible.

How do I do this? Notice carefully what Im guiinj to show.

Because I cannot see the hid/ask, I must trade only witit tlie trend, must be a buyer in up markets and a seller in down markets, Once a bu" trend is delinable. then I must buy every lime I can. That means buying retracements by trying to buy breakouts of the highs as [uices move away from the trend and buying breakouts o( highs when pncos are moving towards the trend. Once a bear trerid is dellnabSc, 1 must sell at every opportunity. That means trying to sell breakouts of lows on the reKacement days, and on the dyys where prices move in the direction of the trend,

As crazy as it may seem, statistics show that as prices approach a trend line due to a correction, the odds become two to one in favor of a successful trade if t enter in the direction of the trend. The best place to do so rs when prices have changed direction back towards the trend direction.

I rTiusi not attempt to trade in sideways markets. It is in dfc sideways markets, called trading ranges, lhat I get myself killed.

Trading ranges are just what the term says. They are an area that is strictly for floor traders. They arc a "traders range." They are strictly for those traders who fiave the shortest term view of tfie market. This is true whether I am trading a daily chart or a five minute chart. Trading ranges are for traders - floor traders, tfiose down in the trading pits. I stay out of them.

How can I neutralize the time advantage the floor trader has? I cafi do this only by having resting stop orders for entry into or exit from a market, That way. my order is down in the trading pit when prices reach my target and can be executed as quickly as is humanly possible.

The only way I can ever pay lower commissions is to call my own shots, and patronize the discount brokers. 1 pressure tliem constantly to give me lower rates. I bug the blazes out of them tor lower commissions. Of course, traders could bombard the exchanges with letters telling them how they feel about being raped on every trade.

There is not much I can do about seeing who comes in to trade, and I cannot hear the trade as tJiey do on tf;e fJoor. Hopefulty, that disadvantage will disappear if and when they place xUe floor traders in front of a screen and out of the pits.

Ive often wondered what would happen i( traders with live data feeds derTianded to see tfie bid/ask on their screens. Surely if tfiey can provide the floor traders with such information when they remove theni from the pits, then such information could be provided to ihose with live dtita feeds,

"he next question arises. Do I have any advantages at all over the floor traders? You bet I do. I can go for the long pull, I can trade the trend!

A floor trader who is a scalper fmost are) Is looking for a few ticks and then out. Ouite often, after the scalpers yet out, the market goes on to make s bundle of additional ticks. The scalper leaves those lying on the talile for me to take.

How \ take advantage of tliat siiuaiion? When the scalpers start cashing their profits, the rtiarket wilf retrace somewhat, ll is tfie ligoidatioh by scalpers and short term tloof traders ihat craaie minor retracements in markets. Great! I wait for the retracement. As soon as prices move back in the direction of the trend, I jump in.

The floor trader can actually lose his shirt when a market makes a big, sudden move as did the stock irsarkel in 1987, and again in 1 89. In these instances, tfie pubfic took hold of the market.

There are some real horror stories that came out of the markets during those times.

Let me quote from some maleriaf written by Wiliiam F. Eng, a professional trader. I made a copy of this for my files. Its quite interesting.

"The quandary posed to the professional when the public takes fiold of the market applies not only to bull markets, but atso lo downside markets. Horror stories abounded alter the October 19, 1987, worldwide market crash. Friday, October 16, was the first day of the massive downdraft. Many professionals who were stili in business on that day told me that they had substantial profits on Fridays ctosc, They came into the markets Monday opening short and made embarrassingly huge amounts of money immediately at the opening bell. As one professional told me: I couldnt help myself. The market just handed m*e fistfuTs of money." ft was what happened during the rest of that Monday, October 19, that did these professiorals in. The market opened much lower, rallied, and then sold off dramatically. On the opening, some pros covered shorts. As the market went lower, they started to go long at 150 point lower, then 200 points lower, then 300 points lower, then 400 points lower, It looked as if the lows of the century were going to be tested. At the bottom they sold afl their positions."

Such was afso the fate of tfie Fibonacci traders. Fibonacci traders buy at Ihe .382, .50, arid .618 retracement levels. They expect the market to reverse tliere Imagine how badly they ale their shoes during the crashes of 1987 and 1969? Wtien the market started down, they would have bought at those levels, expecting a reversal to be imminent. When they linally decided to sell their long positions, who would have been there to buy them? They woulrl have eaten those positions big-time. Most of the ones I know receivoc margin calls and went bankrupt. They sirnply coufdnT sustain a loss like that.

Cup with Handle

Several years ago, when I first subscriicd to Investors Daify, my subscription came vdh a free book written by the pubtislier oi tliai newspaper.

In the book was described a formation termed a "cup with handle." I picked up on that formation, and it has stood me well ever since. Ill share that vvith you.

On the next page is a chart of crude oif. It shows the cup with handle formation, ft afso turned out to be a matching congestion form-ation, jusi as can be seen on an intraday chart.

As Ive noted before, matching congestions occur on intraday charis, daify charis. and on weekly charts as we

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The cup with handle formation is created by a dip in prices followed by a congestion ifat towards its end begins to have rising boiionis.

When trading the cup with handle in the stock niarket the anticipation is for the market to go up. When trading futures, the anticipation is for a breakout in either direction. That is a significant ditierence.

Notice carefully that whenever there is a tight congestion with rising bottoms, il wilf usuaffy break and wil! have a strong move to tho upside.

The reverse is also true, A tight congestion with falling tops will usually go dovn sharply, very soon.

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2550 Z5G8

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2250 2200 215G 2100 2050

1950 1900 IQ5G IBOG 175G 1700 165G l&QO