Wilh my risk and rnorioy manageriient phiEosopliy in mind, fut me review miy shorr tracje in me crude oi

CL 5 niNIJTE

<----

<----------

flboue lines shou ubore tlie ironcfest inn

I CfDt slinrt .ll The rtdrk&t got to 3340.

3G0O 3510 351,10 3570 3560 3550 3540 3530 3520 3510 3500 31%

31 no

3170 3160 3150 10 3430 3120 3110 3100 3390 3300 3370

3:160

3350

The rnaiket openeti at 3400, moved up slightly, and then took out tiie low nf day 1 13390], I was waiting for it at 338 and got filled at 3388. I took my first [Kofit at 3377, an.d my second profit at 33G5. I t).en held on wiif> ? {lontrafU to run, Tfie Oi-l never rcfilly ran, It wani dovn to 3340, and tfien began a major upward intraday recovery.

Wheri prices had reached 3340, I moved rity sto[i ;o protect t/2 of my unrealized paper profits. At 3340, I had q points [>er contract in the crude, moved iTiy proleehve slcfp to 3301. and boughj it !)ack (hcrr neititiy 24 points.

warit to SJvnre an amaiing .statistic. I have th.is on gooci authority: In any given trade »n any market, 80% of the traders enter on Hie nyht side of the trade. Vet, the vast majority of tfiose traders will end up losing money on the trade. Why? Because they v/ill sit there stewing in their gieed, and watch their jnofiis fritter avay. Tficy will not take pi"Oiits! They will try to milk pjst a hit nxire out of the market, When tlie market moves away from die most profit they have seen, ttiey wi.l hold on in the hopes that the market will move in their direction just one more time.

Inste?id, xip. market will move agminst them, perha[>s gradually or perhaps suddenly. In any event, tlie traders who didnt take prcdits will now be on the defensive. Tiicy will be facing a breakeven or a loss. They may evCEt commd suxide by aioving their stop afniad to meet the onslaught of the price action. Before they know it, ttiat faial tick will have arrived, and they arc nut Willi n loss. I have just descritjed my readee, then now be aware ifiat there is a way to circurrivent these losses - they dont fiave to happen to anyone,

Do t do as I have said? Do I lake the profits while they ate there? Do I take them systematically, and on schedule? Youd better beiieve it. Ive just shown how to do it. Meed I say ?

I have a little friend. Thats my friend over there on the right, 1 protect fim as best 1 can. When t go to mafket wihi him, lie has a tendency to wander away and get lost.

There have been times wh.en I lost him, and a caused me great pain and Qrref. I dont ever want to lose him again. Most people have one just like him. Have tlu>y boon losing theirs? li they have, tfien theyd better protect theirs as I do mine.

Chapter 13

Coageslions Arc Iniportiinl

Let niG revscw some matencil Ive cnveretJ, and then movn on lo another refinement.

Upon eniry into a market, i vam to trade a breakout JHOurjht about by any one of my major or intermediate siynals.

For actual entry inio such a trade, 1 want to trade the breakout of any congestion that existed jusT prior to my entry poiru. That way I can get into the trade very early or somewtiat early.

THIS BREAKOUT OF THE COIMGESTlOfV PRIOR TO THE TAKING OUT OF THE ENTRY SIGNAL IS TRADING FILTER. IT IS IMPORTANT BECAUSE IT GIVES ME A JUMP ON THE MARKET

If I have gottrjn into the trade very early [the nearest corigLshon area was distant from the breakout pomt on the daily chart), [irjccs vviil almost surely test the area of die fiigh or low tfial was the basis for my entry signaf. The thrust that carries prices from tlie breakout of the in;raday congestion to the area of the fiigfi or low is where we will make our money -- EVLivJ IF prices only test the high or low and NEVE:R actuafiy break

If I hav{i goMcn jnto the trade sofnewhat early [the ncarest ccmgostion is quite closf to the breakout potnt on Mie daily cfiart), prices wif! almost surely make a new higti or low, Tfre thrust that carries prices from tfie intraday congestion to the new daily tiigli or \ov-j is vhere I wll iiuike my money.

Let rne illustrate ihds.

Tfie {Jaily 1> for yesterday rnigfu look liko rfiis:

<- luiiiL te bm; a bri>zik[jiit of tliis liiyli oi Die (\,ilhj jdi.trt

<- 1 uemt to self a brealiont this Ilm en the Julg c)iai4.

The five n-iinute chart for yesterday might look like this;

<- esterdtiy

CoiigBstian closest to t}ie liiyli. Os prices tske out thr liiyb til is cnuufstum I u il 1 be long .

I I

foiKjes t km closest to tlie [du. As jpices take cut tlie Iqu of tfiis conges tiPn, I u i 11 be slioit.

<- SlesterdAijs low.

I Vyant to enter on a brcakovd of the congestion area,, ratfier than on a lireakoui of yesterdays actual high or low.

3LJt wfiat if there is not congestion area uijon wtiicti to liase a t>reakout? Just siicli a situation occurred in the currencies as illustrated tielow, aiul iiivis an i!dditir>nLil rLdiiiement in my tradi:uj

Here is a rule. If prices are making new htgfis or new lows relative to tho last three days or more, I may enter based upon a gap Ivroakout ot yesterdays fiigli or low. Let nie shnw what I meiiri.

i. I.

11, n

l:,uli

III ;;

7925

I- 7331 L- 7325 C- 7VM U-

<- II 1

?53{> 7 7320 7332

If todays open ucrc to be riht around yester-days lose but not a gap open tliat taUes vui tlie high. ] would go loiig a breakout of the Uujh. If prices were to cong(?st in llic area of t)ie 1 1 \1 guuld nake it easier. Dui th(y mitrbt open aiid go iff lit up and

never t/iue ne a ebinoe to get in at tjhe ieye 1.

iflj

G T-

7G80 7072 7B61 7056 7mtl 70-10 7032 7021 7B16

7B00 7792 77D1 7776 7760 77b0 7752 7711

7736 0

As 1 linck at prices, I can sec thai there are no prior congestioits on the high side from wh;ch to base ar> entry. If prices open today soniewhere below die fngli, or even al the liigh, i can take a breakout of this liigh as rny entry, llovevcr, if I tio, I run the risk of a quick pop foUowetl by a rntraccment lo test suptJurt at the high. So if 1 take this trade on a guick breakout of die higli, I must to prefiared to risk more than I normally would m order to be sure Im on boart

A much more conservative approach would be to wait and see. If jrices open l>elow the high and continue to trade in the area of the ckise, Pien linvc thrj comije?t:ejn I am ) 1 for as my entjy signal.

f prices npeu aruJ (juickly take out tite irigfh then I can wait for a possitjfe retrEicement iriat v/ill test support at what was the high.

By following tfie more conservative strategy, I can maintain my risk at $150 per contract. Heres wltat sctoaUy happened

5 hiMUTi:

lh\s is

Tliis is the Ist bre<ili;ou I

Long Kern

If 1 take the first brekuiit uf the hiah ] in effect tak imji the nore risky tradii. TJiefG lias eunyesliou yet

If ] wit until tliere is concjestion ny clianr:es fnr yreater and I

don4 liave to increase ny risk.

take this trade one stej at a time. The market opened lower, tested its uptrend line, and then moved uf} lu take out yesterdays high at 7935, by 1 tick.

8021 OOlh 000(3 8000 7992 7931 7976 79 7960 7952 7911 7936 7920 7920

7912 7901

7

7BBB 70DO 7072 7 7B5f> 7U1B 7G40 7B32 7 21

Since I da nctt trade bounces from uptrend lines, I waded for some kind of congestion to form. If [iic market were to keep on going and not congest in the area of yesterdays close, l would let tfiat go by. 1 want it my way or not at all. I dont mind missing a big move if its not rny move.

The market then retraced from tlie new higfi at 793G to form somewhat of an /\/\ formation. ) figured this mighi be as close as I was going to get to my desired congestion, and so t entered ai". order to buy breakout

of yesterdays hit

was filled at 733fj.

When the market started Irad.ng ai 7944, \ put in a nrarket orcler and got lilted at 7 46 winch was the ricxt lugfi. I now had ten points m the Sv/iss. and so I moved my rema;nii"it] two contract sets to breakeven at 7 36 and was sin;r[hd out Mii.rre.

Subscgueritly, firices made a true congestion by mevuig dowrr into the area of yesterdays close. Ive marked that boxed off area for easier viewing, on the cfiart oei the next page.