Priorities

Now ir is tinio to sliow my priorities. I want to fradr; tlie n;aj[tr and intermediate term breakonls (irst and foremost. Tbjs emails wriiiny dowu some sort of scfiedule as to where these breakouts vM occur.

I have presented hiese in the order of their occurrences. There is no specific pnf)rity to tfH! ribiiof signal trades over tfie intermerliatc signal hades. The breakout frooi a major entry pomt is not better than a breakout irom an iniermetfiate entry point, nor is the breakout g( Ific extrentes of tfie last three days laken as a gnxjp nrjcessarily a better slgnpJ than ifie breakout of the individual higfi or fow of a-w of tfie last three days. Intermediate entry signals cio not take a lov/er priority than do major entry signals. The difference between n.ajor e;ury signals and intermediate entfy signals as it affects my other tradirig will t)e discussed in a later chapter.

However, the minor entry signal does doJer to the others. The major and the intermediate sigals are more important than the minor. Any time I can trade a major or intermediate signal rather tfian a miinor signal, I do.

Miotu entry signals ate ojiiionai, and I dont need to lake them at all.

Wfien I am trarhng. unless I am starving (or action, I trade most major and intermediate term signais, and let the miner er-iry signals pass rne by.

The ne>:t tliree pages show additional exarnples of minor entry signa

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My stops are of two kincJs - protective stops, and objectivn stops.

Protective Stops

t is vofy dtlficult to leil sorneone jList where tu place stops. Tfils is tccause stop placement is a tunctEon of a number of variables. Tfie S[2e of the account must certainly dictate stop placement. The abjiity to vilhstand pain {comfort levid} is a major factor. I cannot tell another to place stops at a certain percerdage away from the entry. Tfist doesnt mioke sense. If the stops are too close, there will be losses on what migfu have been winning trades. If tl-e stops are too far away, there will be larger losses on losing trades than were necessary.

cannoi tell anyone to place his stops at a certain number of points away from entry. 1 dont know the si e of someone elses account and I dont know tha; persons coadori: level.

1 would be liigfiSy suspicious of someone who pre5dr ed to tell me where to pbice \r\y stops, unless I were fcilowing thai persons trades on aii advisory basis. Then, of course, 1 must use that persons stops or 1 wouldnt truly be folknving vjfiat Ive paid to find out.

Since I wll rtot presurTe to tell anyone where to [)lace his stops, let me where 1 have a tendency to place mine.

Because the siire of my margin account is not a worry for me, v-hcn 1 enter a trade I pace a nental stop 10 licks away from my entry point. 1 mainta-n this as a merdal stofi for as long as it is expedient to do so. If In in only one trade, then I wait until the !ast possible second to phone in rny stop. I dort want the pelicans iri tfie pit to know where it is any sooner tfian ts absolotely necessary. They love to go fishing for stops and run them whenever tiiey ca.. Obviousiy d 1 am engaged in a number of trades sirnultaneously, it r-nay be expeditious tc enter my stop earlier in the course of the trade. If a market is fast when 1 enter, or it becomes fast, I will enter my protective stop in [he market.

I move rny protective stop as soon as [jossible. For gold, crurle oil, and the currencies, I think about moving it up as soon as 1 have eght to ttdi ticks in tfie market. For the S&P. I look to niove my stop as soon as I lave our ticks in the O.arket, When 1 say tick, keep in mind E am not talking a[)out points. iit;k is one po;nt in all of tfiese markets except the Britisfi Pound and th[] Sfi;P. Tfie Fou;";d moves two points per tick, and the S&P moves five points per lick.

Objective Stops

I use two ty]>es cf oljJcctive stops: one for covering costs, and the otiier fur hikinrf jrt.>fils.

f-or mos: rj,:-sy :rar]es, Im iriiaalSy iuokiiig to cover costs and make a small fi!r:>!it ori a f)art of itty positiori.

IrTi not going to tell anyone fo trade a certain number of contracts at one time. But Ill give an G>Eample of the tactics I use.

My cost covering stop is just what it says, I liquidate a pan of my posilion in order to cover costs. If 1 make a small profit along wUfi it tfrats fine but only coincidental. Later, when 1 talk about average v(3latility. I will be more precise about using a part of my position to cover tjusls.

My best minimum confsguratian is a three contract-set. If I had to trade fewer than three, 1 would consider using die Mid Am. I ener the trade with \uy minimum configuration. Once Ive covered costs, d 1 see $100 in gains on aiy scroei, I take profits on part of my positions at tlie market, I don4 worry about slippage, I lake what I can get. By the time my order hits tiie floor, I may get only 460, $70 or 80. 1 doni worry about it, I just take it. 1 get that order to the floor N0VV1 I ask tor a flash fill - I hold and wait. If the market is last, I ntay not be able to hoiid, but at least my order win have gone to the floor.

Contract sets should he made up of 3, 4, b, 10, 15, 20. 25, 30, or etc., contra(]ts.

As soon as possible after covering costs, or taking a firolit, 1 quickly move my stops up lo bare breakeven. By lhat, I mean I move my stops up to my entry point. If I get nailed, I havent tost anything. I arn alive to try again another timo- Tiicre will be plenty of other times.

II t am not stopped out, tfien 1 vy-ad for the market to retrace. The next time it takes out the old high in an up market or the old low in a dov/n market, I move my stops forv/ard ariotfier five ticks.

I contiruje moving my stop.s every time the market breaks Tiie old fiighs and heads higher. At tfie very lea.st, I try to protect onedialf of she unrealized paper profits lo die tradt;. Paper profits are defined as the of money or points I could have made harf 1 goiien out at tfie greatest extreme prices reached since riiy entry point.

If I were unable to trade at least a tfirec fol, tfien I would Trade two contracts until 1 fiad butli my account tn where i could trade at least a three lot.

Just as with tfiree lots, if f v/ere trading two lots hd dose out one contract and bring if home if I saw 5100 in profits on my screen. As with a three lot trade, 1 wouldnt worry about siifjpnge, Id take what I could get. By the time my order would hit the floor 1 may have gotten only $G0, $70, or $80. I wouldnt worry aljout it, Id just take it. Id get that order to the 1loor NOWJ Id ask for a flasfi fill - hold and wait, If tfie market is last f rnay not be able to hold, but at least my order vjould have gone to the floor.

As before, Id quickly move the sop on my second contract [ to bare breakeven. By tfiat I mean Td niove rny stop up to my entry point. If Im nailed, 1 iiaveot lost anything other than costs. Id tie alive to try again another tune. Ihere will always be jjlenty oi odier tiaies.