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I trade daily charts and intraday charts. The daily chart is where I do most of my analysis, but I select my opportunities based upon the trend of the weekly charts.
I use the daily charts to enter, monitor, and exit from a trade. I add to my position from the dally charts. I also use monthly charts when I want to get a look at the bigger picture of where prices are in relation to where they were, and to visualize major support and resistance. I do this in order to keep in tune with my own temperament. I cannot stand to wait an entire month to see one bar appear on a chart. Nor can I stand to wait a week. I want to see It today.
The methods by which I trade enable me to trade from dally and weekly charts as well as intraday charts. It is my firm belief that a chart is a chart, and the truth is the truth. Given sufficient movement (volatility), I can use my methods in any time frame. My trade, risk, and money management techniques make this possible.
The main analytical tool I use is the ordinary bar chart showing open, high, low, and close.
I have been intimately involved in the ongoing development of a computer program that I use in my trades. I use that program because it is able to automate the simple studies I use and which are shown in this manual. This computer program is used strictly for end of day analysis and is available for a modest fee. I find that after looking at my daytrading software for the best part of a day, my end of day software gives me a fresh perspective on vhat I have been viewing throughout the day.
With the exception of "high-low bands" (now known as Bollinger bands), I dont use elaborate technical studies because none of them really gives me a more accurate picture of what is going on in the market than what my eyes can see on a price chart. It seems that there are more and more profound technical indicators, with more and more complicated and secret formulas for figuring them out, but not a single one of them is forward looking for the most part, and not a single one of them can tell you what is going on in the market place until it is too late.
There Is a beauty and a symmetry to the markets that is at the same time simple and profound. The closest anyone has come to reducing it to technical terms is found in the Fibonacci series of numbers which, when properly used, can help define that beauty and symmetry so that it can be used to trade the markets. However, this is not a book about Fibonacci trading, i am not a Fibonacci trader. But I am aware of the effect of such trading upon the markets. In some situations I use Fibonacci numbers to project short term objectives. As often as not, I use them to fade those traders who trade as though there were something divine regarding those numbers.
The reason I use my own software, written for me by George Damusis, is that all of the studies available at this time are simple and forward looking. They are what I would call a best and realistic attempt at seeing into the near future. As stated previously, these can be done by hand. This software also provides me with the basic tools I need to draw lines on my charts, illustrate moving averages and oscillators, and to work with Fibonacci numbers although sometimes it is easier and faster to do all these by hand.
A computer is not needed for what I will show in this manual. It can all be done simply with a ruler and a calculator. In this manual I will be showing these tools and hov I use them.
For me, selecting a trade USUALLY consists of finding an entry situation, selecting a protective stop, and delineating an objective point or points. Wisdom dictates that I should be extremely careful in selecting a trade to enter. I want to have the greatest possible chance of success. There are only a few situations that will cause me to enter into a market. Ill discuss and amply illustrate them throughout the various parts of this manual.
To identify these trades, Ill have to exercise patience. It means that I might not necessarily trade every day. Self-control will play a big factor as 1 wait for the right Opportunity to come along. Ill be flexible. The trade has to look right and feel right or i wont enter it. Ill be cautious about entry. Once in it Ill be extra careful and flexible, ready to move my stop at a moments notice - ready to bail out if anything doesnt look or feel right - this is hard to do, but Ill try. I will not be greedy and try to milk a trade fo all its worth. I will be content to get my share of the profits should the trade go my way. No one can really pick tops and bottoms - I wont even attempt it.
I have to be disciplined as I wait for my chance, and then act on it when I do see it. And when I see my opportunity, I must further exercise discipline by selecting a protective stop, and an objective for my trade.
Throughout this book, I show trading of a contract set. The reader needs to be aware of the way I actually trade for my own account when considering the results of th trades and the actual exit points and exit tactics.
I normally trade in contract sets. That means I put on positions of three, four, five ten, fifteen, twenty, etc., contracts at a time.
My management technique is the same regardless of the time frame in which I trade. I cash from two thirds to three fifths of my position when I see a certain number of dollars or points in a trade. This covers costs, and gives me a small profit to boot. The final one fraction of my position is then left to ride as far as it will go. However, 1 wili not, if I can help it, give back more than one half of the unrealized paper profits that have in the trade. Where warranted, I add continuation contract sets, ever mindful of th additional risk being incurred by adding on.
It is by the gradual accumulation of winnings on a steady basis that I have had enormous success in the markets. I seldom make a big killing in the market. I prefer to take a steady stream of profits from the market on a regular basis.
It is essential to my trading to pay low commissions, certainly not more than $35 per round turn commissions. If you are paying more than that you need to negotiate a new rate with your broker, or get a new broker. There is no reason in todays markets tc pay any higher than $35, and many can obtain lower rates. If you are calling your own trades, then you should be paying bottom line.
If there is a desire on your part to pay $35 or less per round turn, I will be happy i recommend one of several brokers who will accommodate you.
My First Opportunity
This nnanual is, in a sense, an anatomy chart of the markets. It shows how to identify each type of market formation and then how to go about trading that formation. A market consists of trading ranges, trends, [edges, and hooks. Each of these in turn is made up of (esser formations.
This particular portion of the manual is the first of several parts. Each part wili cover essentially one aspect of trading, because each aspect of a market is different and requires differing entry and exit techniques and even different tools. I will be covering the breakout from congestion first because it is the easiest trade to make, and can be monitored while still trading other market situations in other markets, and other market situations even within the same market.
This part of the manual is the chronology of entries Into both a Gold trade and a Wheat trade I made and am making as I write this part of the manual, i expect to be out of these trades before I finish writing, but for the sake of consistency they wit! be presented throughout as though I were stili in them.
One of the most reliable trades I can make is based on the breakout of a range or, as some call it, a breakout from congestion.
Whether Im looking at a five minute chart or a monthly chart makes no difference apart from the magnitude of the price bars. What Im looking for is a range of twenty-one to twenty-nine or more bars. The more, the better. But never ever less than twenty-one, with the average being twenty-five. Im diligent in counting them.
Theres more to it than that. I must know what constitutes a range. For my purposes, a range consists of pricesfallihg within a well-defined upper and lower limit, as I perceive my chart in the way that I usually look at that chart. That is to say that both the vertical and horizontal scaling of the chart is consistent with the way I normally view it from whatever source of charts I may have.
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