After the first segment has been labeled ifiis method is simtlar tn every respect to the Segment Counting Metfiocf; meaning yoo need only Higher Lows for segments 2 and 3. ff the bar representing segment 3 isnt taken out by the very next bar, you shift the count 1 segment to the right and begin the count again.

The True Correction Method is a counting meifiad. ll requires a three count before entry. Irj an uptrend you try to buy ) tick above the high of the bar representing tfie A3 segment. U is important to note ifiai there may be several intervening bars between the segments.

To repeat, the True Correction fHethod does require both counting and shifting,

Segment Counting Method (SCM): Downward

The Segment Counting Method ISCM), like tfie True Correction Metfiod, requires botfi counting and shifting. When analyzing downward, the Segment Counting Metfiod needs only 3 Lower Higlis. You attempt to self tfiu breakout of the low of tfie bar refjresenting the J segment.

The segment highs do not need to be successively Jower highs. Tfiere may be several intervening bars belween the connected highs. The method does require 3 segments AND a breakout by the very next bar or you must rephrase the count by sfiifling 1 segment to tfie right and begin a recount.

When applying downward, breakout means a takeout of the low of the bar representing the 3 segment. You do not need to wait for a correction, you simply sell the tow of the bar representing the #3 segment,

This method works well on the S&P intraday. You use the SCM to count your way out of congestion; once you fiave a breakout you trade Ihe trend and stop counting.

Segment Counting Meti-iod (SCM): Upward

Segment Counting Method (SCM), [ike ttie True Correction Meitiod, requires both counting and stiifting. Wften applying upward, the Segment Counting Method needs only 3 Higher Lows. You attempt to buy the breakout o( the high of the bar representing the J?3 segment.

The segrYicnt lows do not need to be successively higher lows. There may be several intervening bars between itie connected lows, The method does require 3 segments AND a breakout by itie very next bar or you nusl rephrase ttiG count by shifting 1 segment to the rigfit and begin a recount.

When anafyziny upward, breakout means takeout of the high of tbe bar representing the tf3 segment. You do not need to wail for a cotrection, you simply buy the high of the bar representing the #3 segment.

This method works wefl on ttie S&P intraday. You use the SCM to count your way out of congestion; once you have a breakout you trade the treid and stop counting.

General Comments

Tho True Correction Method (TCM) and the Segment Counting Metfiod tSCM) are bolti counting methods ttiat require shiftirig. The oniy difference is when you begin to apply tlie count.

In tfie True Correction Method, when counting up. you must have both a Higher Low AMD □ Higher High on the same bar before you can begin the count, alter that you need only Higher Lows; wtiile in ttie Segment count, you need only fligher Lows for all three segments,

Wfien counting down, you must have botts a Lower High AND a Lower Low on the same bar before you cari begin tfie count, sher ttiat you need only Lower Higtis; wtiile in the Segment Counting Method yuu need only Lower Highs for all three segments.

Wfien applying either mettuid, True Correction or SegrTient Countirg, wtienever you fail to take out the extreme of the bar representing the ttiird segment, you fiave to shift the count and begin recounting from one segment to the right.

Note: Tfie terms segment counting and segment method are one and the same, and are used interchangeably throughout this book.

ChLipter 28 Full Circle

Ive been showincj how I trade IntradBy charts.

However, despite rriy dnytrading escapades, I have never left off position iradinc] of the daily charts. This is something I mix. In with my daily trading. Heres how I do it, and it takes mo riglu back to the earlier parts of this book.

Whenever a trade derives from one of my major entry signals. I then have a perfect candidate for a position trade.

For instance, when prices break out of an envelope or Irorr a ledge, when prices take out a 1-2-3 high or low, or a hook, I have an opportunity to add contracts to the trade. These additional contracts will be held overnight along with any others that are still open.

m not going to go into how I trade them here, because how I do it is/was the subject of Trading by the Book. But clearly, my positioning in the trade based upon the optimization I can get from the intraday entry make these position trades better and more profitable than they are just trading thern from a daily chart.

By optimisation I mean that, because able to enter from a breakout of the intraday congestion that comes before the actual breakout point on the daily chart, I am usually in the trade earlier than I would have been using just a daily chart. That means that when the other traders enter on the breakout of these signdicant major entry points, they often give a boost to my already Dositioned contracts, driving them further ahead in the direction in which Im tradmg.

By optirriization, I mean not leaving any more money on the table than I

nave to.

Its rather like what some of the pros and floor traders I know do with moving averages. Some of them are mindful of where nine and eighteen day moving averages will cross, and position themselves in the market ahead of time in order to be there when the sheep who take these signals as gospel truth all dive into the market driving it to profits for the pros, Believe me, the pros will soon bail out, undermining the market and leaving tiie sheep to wonder what happened to tho trade.

Other prolessionals watch other things they knov will bring the "suckers" [their word - not mine) into the markets.

Id like to take whats loft of this book to talk about some of these ihings in general - things I hope are of interest.

When Im trading, if 1 dont know what is going on, I dordt trade. Tins is a rule of trading Im sure you have heard before,

Yet I know that m.any ignore this rule. I Can tell by what is said to me on the phone and in letters.

The reason for not knowing what is going on is an unwillingness to make the effort necessary to become a good trader.

Trading is hard work. Its not easy. I spend 85% of my time getting ready to trade and only 15% of my time trading.

That means doing my analysis vrork before 1 traiJe. How else can I know whats going on? I cant judge from the news. I rant listen to thn opinion of odiets. 1 have to analyze the market and then trade from what I see.

I try to never trade what 1 think, only wfat 1 see. My opinion is worthless, and what 1 tliink is my opinion and nothiing more.

Heres how I was taught to do my analytical work.

First, 1 went through all my charts to get an overview of the markets. During that time, I looked for trending markets. Trend lines wore placed on the charts as long as they had a 30" or greater angle. Until 1 became used to what That looked like, I used a protractor to determ.ine the angle. This action got me used to identifying the trend.

Next, 3 v/ent through alt my charts again looking for against the gram moves " the intermediate trend that went again.st the longer term trend. This alerted me to markets that might soon resume trending.

Then I went through all my cliarts looking for Ross hooks. I marked each hook with a bright red "h". Then, in light of the size of my margin account. I tried to select those markets that appeared to have the greatest potentiab and I placed order entry stops jusi above or heiow the hooks. These were resting orders in the market. J tried to never miss a hook, I phoned my orders in daily.

How did I kriow which markets fiad the greatest potential? The answer is simple. I selected those markets which had the strongest trend lines.

Now there was a trick lo this. 1 didrit want too steef) an angle, because in an up market that often signals that the end of a move is riear. Markets that break out too fast and go straight up rarely give an opportunity for entry before they start to chop around in congestion. >4larkets that have been going up at a steady angle, and suddenly that angle steepens, are giving □ warning that the move may soon be over.

In down markets I was willing allow a steeper angle, because often a market will move down lliree times"fasier than it moved Lip,

What 1 rnost watTtcd was trending markets that were making a retracement. Then I could attempt an entry as the market retraceth when it reached the proximity of the trend line, and ihen seemGd to resume its trend, and when it took out the Ross hook created by tfie retracement.

Sometimes I had to wait for weeks before the markets started trending. The same is true today, nothing lias cfianged. Tiiere wisi usually be at least a couple of markets in that condition, but there are times when there are none.

Yet I did rny homework every day. There was no way to know when an important breakout, she beginning of a trend, would occur, unless I performed my daily analytical work,

Finalfy, I would set my work aside and take a break for dinner. After dinner when my head had cleared a bit, I would look at them again. I woufd then do my best to come up with a trading plan. I woufd try to think through what I was going to do. I would ask myself a million "what ifs." I tried to anticipate wiat might fiappen in the market.

Often, that kind of thinking would cause me to eliminate some of my potential trades. Also, second look at times resulted in "Why didnt I see this before?"

For instance, what if 1 was looking at a market and il was approaching its trend line. Wouldnt it have been reasonable to ask myself, "11 this market breaks the trend line, what should I do?" I asked myself how such an event would change the picture. If I had a position, I asked myseff if t stilf wanted to hofd it. If I had no position, f asked myself, "Is this an event that will cause me to take a position opposite what was the trend?" If it was such an event, then should I place an order entry stop with limit, just outside of lhat trend line? Very often, when prices approach a trend line from what has been a trending cliannel, they are already in a counter trend wittiin the channel. That means a breakout of the trend line would be continuation of this newly formed trend.

Finally, 1 would put rny work aside and go to bed. Ir> tfie morning I woufd look at my charts once again. Then I would write out scripts for the orders I wanted to place.

I would rehearse how authoritatively I was going to give tfiese orders.

All this and more I did before I entered a trade. But most traders do their analysis after the trade is made. Too often, they do it when the trade is already going against them.

Many times traders go into trade, and then when they are in it, they say to themselves, "Oh no, why didnt I see lhat before?" How could it have been seen before if Ihey hadnt looked, and looked again, and ihought about it. and then perhaps looked one more time?

Also, many traders do their analysis after entering the trade in search of a justification for having entered, "fiow Im in the trade, lets see if I can find a couple of good reasons as to why!"

If I want to continue as a successful trader, I have to be fiard. Hard on myself and hard on my broker. I dont mean I have to be a rat, or be impolite, or be contemptuous. I just have to be firm in all I do. 1 cant afford to be "IVlickey Mouse" about the way I do things. This is a business, 1 must be businesslike in conducting rtiy affairs.

As a business [lerson, I must manage my business. One of tfie main functions of management is planning. I have to plan my trades. Otlter things I look for as [ go through my charts are: One-tvo-three formations, cups with fiandle, rnatcfirrig congestions, reversal bars and dojis. Ttiese arc all part of niy plan.

I have to have good reason[s) for getting into a trade. But, too often others get into a trade, and then look around to see if there was a good reason for having done so. Tfiat way they justify to tficTiseives that ifiey did the right tfiing, when in fact they did the wrong tfiing.

The horrible thing about not doing analysis work and researching a trade is lhat they give more thought to choosing whjch flavor ice cream they will eat than they give to which market to enter and how and wiicn to do it.

By not taking tfic time for preparation, they end up not iiaving enough tirne to weigh tfie pros and cons or really familiarize tfiemselves with what they are getting into.

They dont have time to realize that prices have supported two ticks away from their entry about forty times in the past. They dont have tinrie to see that they are trading right into overhead selling. They dont have time to notice that if prices break out of yesterdays high, they will also probably take out a Ross hook. They dont have time to see wfiere prices are in relation to the trend line. They dont have time to really grasp the overall trend, or the wave that is going counter trenrf. They dont have time to really consider where they will place tfieir stop. They dont have tirrse to read ;fie market and to see what it might be telling them.

All these tilings could be anticipated ahead of time, but if tfiey have not done their homework, tfiey wfl end up chasing markets in a desperate attempt to get into "the big move."

Heres one item 1 look for when 1 am in a trade. Its a piece of information I was taught a long time ago. Amazingly, it is now coming into vogue via tfie Japanese candlestick charts. It fias to do with wfiat t fiave always called a "reversal bar."

11 show an Gsample of wfiat I look for.

Essentially, there are two forms of reversal bars. Singly one is more important than the other: in combination, they are just about equally important.