21 prpFit 1 ->

i Costs couered Jieire >

an 2nd trade. Ci ist profit bare---

N Close

Stopped out at this level an 3rd set.

This uas F Costs cnverea

yesterd,vjs bei<:------>

high------>

L Placed a sti>p here on 3rd

contract set. :<- Lowij a breakout of tlvis

I cmitjcstioh. Stop 12 poiiits back

I III

<--stopped Dut at tliis

Jl price level on Ir-A contractset.

- RelrocenRiit did not tftk» out stop. (- <- LoiiEj here when congestion high was iaken out

*!! < Large congestion the Injh in price,

<- This is the opening bar.

I Initial Stop

12 points bclou entrg.

7336 7 20 7320 7312 7304

7G36 78[]B 70DG 7G72 7D61 7B56 7G18 VB1G 7032 7021 7C16 700(1 7 00 •7792 7701 7776 7768 7760 7752 7714 7736

I lere it IS, step al n lioie.

A - shows yestcjciays tiitjh. - sl-iows [odays open. - sliovs the mnin conriesiion ih.it is ne;-ue: to the poco levef of yesterdays high, D -sfiows the price level at wluch I gut 1 > , just above tiie congestion hiyh fit sho-jld have Ijeen a l:;t:e lower h\f\ I chickened out and look the high). E: shows 1 put my stop 1 2 points per contract below my entry. F - shows the pncc level at wfuch I covered costs on the first comractsot, G - shows the price level at which I took profits on my second set. H shows tfie price level at whicfi I was forced to take profits on the 3rd contract set.

I-K is virtually a repeat of A-H and it should bP fairly evitJorU as to what happened. I-K wi.l introduce the ne:<! Piumj I want to wnte about. Some will lale me lor this.

5

N Close

2 prof it here -> hi Costs cowered here -> □m 2)id trade.

1st profit herr--

This uas FCiJsts cauered

yesterdays }iere------)

hiyh---->

i I.

-Stopped out at tl] leuel on 3rd set.

i X!

b <- Plrtced a stop Icre en 3rd

coitract set. <- Laiifj a breakout «f this

I congest ion. Stop 12 paints back.

iv--- " J

<--\--Slopped mit at this

11 price leyel on 3rd coiitract-set.

r<"- Retracement did not ttkc out stop. <- Lonrf liere ulien crmgestion high lj.is taken out

<- Large eeiigestiun flRir iho high in price.

Ihis is the opening b<ir .

E hiit ia 1 Stop

12 points belou entry.

dont always take that add-on set of cocjiracts tfiat are represented by A-l. Yes, 1 krtow thats where 1 made a good [)icce of profit righl? Righlf But thats also where 1 incurred addiho.ial ri:k. VVlien I entered tfiat second set of contracts at poirit L I stood to lose evGryitdrig 1 aiade on A-H That has to be laken into accoL;rii.. Its a part of risk jnanagoiTient.

So flow do I know wliether to lake it or not Roy, 1 almost liatc to say it, hut it has someihing to do wtlfi waves. However, if it turris oljI tliat this has anything to do wuh Elliot vaves, believe mc it is purely comcidenial, To me, Elliot waves arc vvhat nty wife conks in - a crock.

7936 7320 7320 791Z 7904 7836 7808 78BG 7872 7861 7856 7840 7840 7032 7B21 7B16 7B0B 7BO0 -7792 77B4 7770 7768

7760 7752 7714 7736

I usuaMy iracfe on actd-on set of contracts, (Le. a continiiaiion set} at Ifie breakout of [fie first congestion after ttie first ieg up. But not always. l-K is a continuation set of tlie second leg up and Ill come back to it soon.

Heros wfiat [ mican:

I trade a breakout

of the second congestion -> /

/\/\/\/\/\/congestion

/ Icq up

congestiGn/\/\/\/V/\/

However, there ate exceptions to this find tficy arc wfiy I said "usuaify" I have to keep rny eye on the cfock. I tiave to make surt this is happening when there is stilf at ieast one hour of trading left in the market J want to trade. These are best when tficy occur earfy in the trading.

All right! So wfiy didnt 1 take the second L:)reakout on tho trade Ive been showing? Heres vvliyl I tlo it only if tfic second congestion is relatively

nate to say how many bucks I

"latn or corled. I dont do it it there is a f:ag. ,

lost til I figured that one otrt, I wont lelt. Just take thy word for itiltat it was plenty On tho otfier hand. I shoufd tell "why."

Wfieti a flag formation is made it looks like ttiis:

In a down market, it looks the amo. Jiist turn the page ufjside tJown and hold it up to a mirror.

The problem is Ifiat, liecause it represents a serious retracement, prices are apt to spend a good par of their mornemum just reaching back to the lop of the flag pole, There will usually not be enough moptentum to carry very far before prices congest again.

Now if prices had made a \ / formation or on /\/\ formation. It woufd have been a ddferent story. Then prices would have been able to move a lot higher.

Im saying that I want to see more congestion before wifling to put myself at risk once again. ! especially like viyfil congestions. t3y ligtit, I mean Dts of individual price bars wiifi just about equal tofss, botEon-is, operts, and closes.

A close look will sfiow that t took the very next breakout, the one above IhG flag, for exactly that reason.

Lets talk about add-on sets on a tfiird breakout. The rufe is the same, they must come wdfi at least an hour of trading left in tfie market. The breakouts must come from [jrior congestion.

I never, ever, take a fourth breakout no matter wfiat. Remember tr>at fiave lo be out by the close. Few are tlie days when a maiket will pvefi offer a fourth breakout. Dy then, it will be too late in the day to risk it. Fourth breakouts usiralty dont go all tfiai far. Elliot enthusiasts prob;ihly have some kind of explanation for all of dns. Wh.oa! Dont tell me, 1 dont want to know. Looking at tfia: again...

hl I

Tills did conyesi.

---ricjH tliroiirjli this

Iue sliGuii uitli tbe line.

Tliis aeuer CQuaested.

But if { tJus as ft firt breakout fron a prior days congest ion, it ueuld be OK.

Bui it is OK to lakii a flag breakout for tiie first entry. Let rne s w what I meaii.

Sonictimios its best to wan patiently for tlie tigfitest congestions to occur. Tigfu and (lat are the best, They save a lot of care and worry. Most have seen the

<- 1 this, or anutlitr congestion

]\ been over here J

or )iErej frort prior drtySy

10-1

Dien it ucwiid fiawe ! OK to take tlie break-niit of tlie conges-tien despite tlie f

tlp/*Vi i[\l> <- They look like this.

<- OP tliisi

<- or euen tbis. 1 loe thesE,

I have learned to spot these, they are worth a lot of niooey.

Now then, everythiru] Ive heen showing for the rnost part has boon in uptrenoing markets. Can I help it if everything was going up when I vroto this?

The exaet npposite is true for downlrending markets. To see how Ihey ook, more or less, just turn the pages upsirJe down, The flays may he pointing to ttie left instead of the right, but they still convey the idea. Up anarkeh down markeh iis all the sarne. Tfiats one of the reasons tor trading future., righ*? Up, down, it doesnt matter. 1 can earn mjy living in either one.

Now that IVe shown how to trade continuation sets, I can qo on to the riext subject, wfiich js reaily an old subject revisited - trading strategy and tactics.

Chanter 17

Slnilciiy and T;)clics

Ive shown my plan. The plan represents my strategy in the markets. Strategy is ifre way Ive planned and directed my trading operation. Ive planned to take profits at certain levels. Ive planned to cover my costs, Tve planned to let my third contract-set run. Ive planned how and where I will take continuation trades. Ive direciod my broker through the orders Ive placed.

Tactics, on tJie oilier hand, is the way I have marshaled and maneuvered my trades in and around congestion areas. Tactics is placing 5 in the best position in the markets to take advantage of price movement as seen through momentum.

Tactics are seen in the methods E used to enter my orders, place my stops, take rny profits, etc.

The dictionary says that Strafcgy is the science of planning and directing, whereas Tactics is ifie science of arranging arU rriaruveriric.

Continuation Trading

Ive shovin how and when I wilt take a contmoation trade on a five minute chart. I will take a bteakout of die next congestion after the first breakout which constituted my initial entry, Ttiere must be at least an hour of trading left in order for me to do this. I will take a breakout of a subsequem congestion if there is sufficient time to do so. The sum of the natter i, that will enter a market no more than three limes in a single day - in a single direction.

Tfiere are a couple of additional criteria I use for contirtuaiEon trades

Jormally, I will take a continuation trade 0[>1 when my third contract-set is in the black and has not been taken out by a fdty percent retracement.

The best continuation trades come from pointy Ross hooks, ff a hook is niade wfuch tends to have a flat top, then do not o:<pect the continuation to go as far as it will if ifie Ross hook has a sharp point to it as it forms.

Reversal Tradiru

5 lltcre a time to reverse direction? Yos, there Is.. Someiirnes a marke vill make an outside day. h might take out yesterdays fvgfi, and tfien turn right arourid ai5d take out yesterdays low. The outside flay may he so large frorTi top to tioitftm as to take out t.e highs and tows cd several days. I watcfi for this wficn there is feverish activity m tfie markets.

Tiio rLiles for cfianying Lfircclion are ideritical with the rules fnr trading one way: 1 take a fireakout of the lo*Hiesh tigfiiesl. and/or best ccjogestjon that occurred firior to the extrrme.