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24

Its As Easy As 1-2-3

By now what Im doing ought to be as clear as rnud, so let me explain.

The following illustrations by themselves would leave a lot of questions. For instance, where is the stop placement? What is the objective? What exactly constitutes 1-2-3?

1 will now start providing all of the answers to those questions. I will pay close attention to detail. I want to dissect these trades. 1 want to see and understand their anatomy, because it is literally the anatomy of the market. Other than the price chart itself, I will need only one simple tool - the envelope which was described in Section L These trades can be done by anyone with a set of charts. No computer is needed {but its nice to have).



8525

8413

8120 8007

782? 7714

7602 7421

7128

<-bu4 stop

one tick over higb

Figure 1 There is a low at the point marked "1". There is a high marked "2", followed by a lower immediate low, marked "3". I am now in position to make a trading decision. I will enter this market if prices reach one tick higher than the number 2 point. My stop will be placed one tick lower than the number 3 point. Its time to call my broker and place my order. I place the buy order as a Buy Stop and the sell order as a Sell Stop. Both are day orders and the Sell Stop is conditional upon the Buy Stop being filled.



Trading By Tlie Booic - Part ii

{-filled here

Figure 2 My order was fiiied as indicated, because I utilized a Buy Stop, which became a Market Order the instant that prices touched my buy point.

Prices passed my buy point and ended up in a large magnitude day. This automatically sets an alert In my mind. I remember that quite often congestion areas and market turns are preceded by long bar moves.



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