Manual.pdf

A Manual for Day Trading By

Don Huntsman U.S. Government Required Disclaimer - Commodity Futures Trading Commission. Futures and options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This document is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this document. The past performance of any trading system or methodology is not necessarily indicative of future results.

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Table of Contents Thank You

Page 6

Introduction

Page 7

Trading Philosophy

Page 10

Fibonacci Philosophy

Page 22

Trading Psychology

Page 34

Trading Concept

Page 39

Computer Variance

Page 43

The Indicators

Page 44

Candlesticks

Page 46

Midpoint

Page 49

Tweezer Candles

Page 53

Inside Candlestick Bars

Page 55

Moving Average Methodology

Page 62

The PUP/KISS

Page 70

Trading the EMAs Only

Page 74

Blau Indicators

Page 75

TSIE

Page 83

Convergence - Divergence Opposition

Page 87

SMI

Page 101

ECO

Page 103

Gann Swing Chartist

Page 107

Volume Colored Indicator

Page 109

$VOLD

Page 114 2

Table of Contents Continued Mark  Braun’s  Fibonacci Levels Chart

Page 120

The Fibonacci Trader Software Settings

Page 125

Huntsman Template from Fibonacci Trader

Page 126

Establishing Your Own Settings

Page 158

Template Use

Page 162

Monitor Arrangement

Page 165

Chart Analysis Procedure

Page 168

Using Extended Periodicities

Page 172

Trade Entries

Page 179

PUP/Kiss

Page 182

Swing Trade - ST

Page 183

The First Reversal Trade

Page 192

Failed Swing

Page 195

Pause Continuation Trade – PCT

Page 197

Retest Trade - RET

Page 203

Countertrend Trade - CTT

Page 211

Breakout Trade - BO

Page 218

Minor Alert Level Trades

Page 223

Price Action S/R Alert Levels

Page 229

Higher Low Buy vs. Lower High Sell

Page 238

Overriding Convergence - Divergence

Page 247

When Not to Enter

Page 253

Recognizing False Breakouts

Page 259 3

Table of Contents Continued Sideways Days

Page 263

Congestion

Page 269

Trade Exits

Page 272

Over Riding the Frontrunner Exit

Page 294

Trade Management

Page 295

Pay as You Go

Page 297

Management of the Record Day

Page 299

Trading the News

Page 306

A  “C”  News  event

Page 310

Quick Reversal News Trade

Page 312

An  “A”  News Trade

Page 316

Overriding indicators using new information

Page 319

The Euro Currency Futures

Page 321

Check List

Page 324

Trade Review Spreadsheet

Page 331

The Final Hurdle

Page 337

Manual Conclusion

Page 341 Appendix

Trade Examples Indicator Concept Examples

Page 344 Page 345

Alert Level & Retest Reversal

Page 356

Fib Alert Level Breakout

Page 359

Minor Alert Level Reversals

Page 363 4

Table of Contents Continued

FINIS

Higher Swing Low Buy

Page 365

Lower Swing High Sell

Page 367

ES Counter Trend Trade

Page 369 Page 373

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Thank You! I want to thank Mark Braun for his mentoring and for his work. He makes me infinitely more successful. His help through the years developing this manual and my trading skills is greatly appreciated. I want to thank Don Brummett aka, Cajun, for his relentless questions for method clarification and development. He also pushed for the use of color coded Histograms on the Blau Indicators. I also want to thank him for continual proofing of the examples used in the manual. This manual is the better for his efforts. I want to thank Joe Graber also, for his proofing of the manual. His demand for clarity in grammar, and thought content, has been so beneficial to make the manual more readable and understandable. I want to thank George Zalis, aka, Reink, for his numerous questions and pushing me to trade currency futures! His pushing for an ultra short Frontrunner chart has also been valuable. Finally, and most importantly, I want to thank my beautiful wife Nina, for her encouragement, and sacrifice of our time together. Her care for me during times of difficult health problems can never be repaid. Without her this manual might not have been finished.

Introduction 6

I have invested in stocks and mutual funds for 45 years. I have been trading for about 15 years and early on just successful enough to keep me going. I day traded part time for several years. I have been trading full time for a living since 2007 as other businesses and interests kept me occupied before. I have taken so many classes and been in so many Chat Rooms, I  couldn’t  begin  to   number them. The same for the books I have read, they are too numerous to list. What I will present is what I have found to be the most important and successful. I have not developed anything new. I have just put together and refined the tools in a way I have found that work together well. I want to emphasize this is a methodology for trading any market or instrument! The examples are gathered from the instruments I have traded for the last five years. That is not to suggest this is a method for those instruments only. I have used at times a 13 period moving average. At other times a 15 period moving average. They are very close and interchangeable. Thus some of the charts show one and other charts show the other. The same applies to charts, sometimes an example is a 15 minute chart and others are a 13 minute. All are valid, the concept is the same! I currently use a 13 EMA. I would also like to caution the reader that most of the examples do not show Mark Braun’s  Fib  work.  But,  they  were  in  agreement!  Yes,  the  method  will  work  without   Mark’s  work  but  it  is  more  successful  when  used  with his Fib work! I discuss in this manual that it is important to have more than one market ready to trade as markets often slump for a short while or can change their character totally. Thus one could open an alternate instrument to trade instantaneously. Also when these methods are developed, it only takes a few minutes to even select a new instrument, set it up and to begin trading. This could be done for testing or exploring a totally different market! The book started with my note taking and statistic gathering. I started writing for my own trading analysis and development. I learn better when I write things out doing a detailed analysis. It then progressed to a manual and I am continually refining it. Now I guess it is a book. I have friends and family who keep asking questions in general regarding trading. Like most people they expect a simple answer to a seemingly simple question when actually it is quite complicated. I started to write things out to show the complexity and the manual began. Thus, it is written really for my family, and friends. Most have never traded before so it is written to take a beginner to the level of making a living day trading.

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I  chose  to  share  with  Mark’s  Chat Room members because Mark has been such a great mentor for me and I must add a friend. I  hope  this  helps  and  doesn’t  distract from his great work. Then fellow traders started asking questions. That forced me to dig deeper, expand more, to explain the concepts with more clarity and to show more examples. I now have a Skype sub  room  under  Mark  Braun’s Market Geometry room. In this group there have been additional questions and discussions, making me develop this manual to an even greater extent. I also promised God if he would help me to become a successful trader I would share the knowledge. I have worked with Mark Braun for years. He is the master of Fibonacci methodology and I think his work is like a crystal ball. I will discuss Fibonacci theory, but  will  not  explore  Mark’s  development of Fibonacci levels. That study should come directly from him. He uses different signals and triggers than I do with his Fib work which are outstanding. The ones I will present I find easier for me and some others to read and use. As  Mark  says  “Any  methodology  has  to  speak   to  you”!  My methods are successful alone but I would hate to trade them without Mark’s  work, as he greatly increases my success. His work keeps me out of some trades that shouldn’t be taken and gets me out at the ideal level most often, increasing my bottom line profits. The method I will present is as good as any and better than most. It is tested and proven. As stated earlier the basic strategies have been used by many, many successful traders. I have discussed trading philosophy, psychology, concepts, tools and their use thoroughly with much discussion and many examples. I am not a Guru or a master of trading. I know many traders and many in Mark’s Chat Room who have forgotten more than I know. I will continue to study and to try and learn as one must do in any profession. I am just an average trader who took many, many loses, and finally said enough is enough. I then started keeping the  statistics  to  see  what  works  and  what  doesn’t  for  me.  My spread sheet also was developed over a period of time to help review all my trades. I find day trading to be very challenging, but exciting and rewarding. I hope the reader will too. There is an additional benefit from trading that you may not hear about often. It is that challenging and using the brain allows one to live longer and healthier. Trading allows one to be able to afford living longer. Moreover, trading allows one to work from their home anywhere in the world. You like to ski, live in the Rockies. You like culture live in any metropolitan area you want. The trader 8

needs no employees or an inventory to manage and sell. One can work as little or as much as one wants! Like any profession one must be constantly learning. Hopefully, this manual will give the tools to learn to triumph over the markets for any reader. Then, hopefully one can make a living day trading. This book will give a complete trading methodology. There are no fancy software additions, etc. Thus there will be no additional sales presentations, or attempts to sell you anything else. There will only be attempts to clarify this information if any is needed. Some may say this manual is too long. I had shorter versions but, I had so many questions, I wanted to add material for clarification. I have found the additional material to be helpful to most. Each chapter presents a new concept or trading situation. The tools are all the same, thus, there is a lot of repetition for each concept. In a way, that may not be bad, as repetition is the cradle of learning. If the reader finds these methods to their liking, I would invite joining Mark Braun’s  Chat Room which gives access to my room. In the room all questions and difficulties can be discussed and these methods can be brought to fruition. Please understand, a manual is not only a book of facts and guidelines for an endeavor, the word also signifies hard work or labor taking a great deal of time. Accordingly, understand this endeavor is going to require a lot of time and hard work till you can make a living day trading! I hope the reader will master these methods and have a long successful trading career.

Trading Philosophy Trading professionally for a career is a wonderful way to make a living. But it is also one of the most difficult ways to make a living. Statistics show more than 90% 9

of all people who try trading fail. It takes years to learn any other profession but most who try trading for a living fail to realize trading is a business requiring capital, equipment, education and time. Consider physicians have probably 9 years before they can start practicing, a dentist 6 to 8 years, a teacher 4, etc. Trading requires as much time and effort as well to become successful. It is hoped this manual and its methods will save years of time. Moreover trading involves reading of charts and split second analysis thus it has more mind games than any other career. There is no absolute, we are trading probabilities. A dentist finds a cavity and knows it has to be treated. The result is most always successful. A good trader gathers information, makes an analysis and even with the highest probability understands it still may fail. Trading is like baseball.  You  can’t  hit  a  home  run  every  time  at  bat.  This is opposite of the military where one hurries then waits. As Mark Braun says, this is a job of waiting, waiting, waiting, and then suddenly HURRY! This taxes the patience of most and leads one to take chances, overtrade and fail. Occasionally, hours can pass before a trade could be taken. Although rare sometimes one can sit a whole day and not take a trade. So the first job of any newbie is to develop patience. Trading can return substantial profits, but can also result in substantial losses, and quickly, if one is not well trained and disciplined. Trading is not a get rich quick scheme; it is a business where one can earn a very good living. The methods I will be teaching and which I use in my daily trading are well founded. They have been gleaned from over 15 years of study and learning. There are many successful methods to trade, what I will be teaching is as good as any and better than most. Fundamental and Technical are the two basic ways of trading! Fundamental is based on a single stock company. It is usually a buy and hold method. It is based on corporate studies. These include earning reports, inventory, reorganizations and acquisitions, stock splits, etc. Regardless, any stock is in a state of flux with continual ups and downs. To trade these movements, I use technical studies There are two styles of trading using Technical’s. One is Predictive. Common schools would include Elliot Wave, Gann tools, Market Profile, and Fibonacci Levels. I have traded all of the above extensively. They can all work well when handled properly, but have found Fibonacci Levels to be the best. The second style is Reactive. That means watch data information bars, and patterns thereof, to analyze that information. I have used many, many indicators throughout the years. Some work poorly, some are good, and I have found a few to be outstanding. A few are extremely accurate. The tools I teach are based close to true price action, 10

so they are extremely accurate and work the same on any instrument. We will use the best of both styles. Moreover, one would consider my method to be Momentum Trading. I trade one instrument only. I try to catch the start of a move, jump on board and exit when the move stalls and weakens! Then I watch for momentum resumption or reversal.  The  Technical’s  tell  me  when,  where,  and  why  to  trade. I actually have combined six concepts in my trading. They are the Candlesticks, Moving Averages, Blau Oscillators, Fibonacci Support - Resistance levels, Floor Traders Trades, as well as a volume watching system including the $VOLD. All will be explained thoroughly. I  use  Mark  Braun’s  Fib  work  as  he  is  the  best. I try to name the trades based on the actual mechanics. I have not given, as some do, catchy exotic names. Some teachers use names like Boogie Bounce, which tells one nothing, and they require a lot of memorization. I use names like Higher Low Buy. They are descriptive and tell exactly what one is looking for. Many mentors simply give a new name to an established trade used for years. I have chosen the bond, the Euro and the S&P 500 Emini as my trading instruments. The S&P 500 is a stock index instrument. I feel they are safer than stocks and many commodities. The bond is a debt instrument. They are used by countries, states, municipalities, and corporations as a way of borrowing money. Other debt instruments are notes and bills. They are rated with AAA being the highest, which is the safest. When one buys a bond, the issuer agrees to pay the money back in a certain time frame with periodic interest payments. When a purchaser buys a bond a return of principal with interest is guaranteed. In the scheme of money matters this is not a great return, but it is safe. Debt instruments are frequently called a "Safe Haven". When the stock market and other investments are poor, people buy Bonds for a guarantee on their money. This is often called “The  flight  to  safety”.  The Bond is used by Professionals as a hedging instrument, more than for speculation. The Pros are those who may spend millions per trade. I just want to ride their coat tails. It is imperative to have good volume for follow through. I like to see at least 200,000 contracts traded daily on the Bond. On computer data feed using eSignal the contract symbol is ZB. It is a deliverable contract. That means if you enter a long position by buying, if you are not out by First Notice on the new month’s contract, they can deliver the contract and demand payment. I exit all trades daily so having a contract delivered is nil. The Euro currency future responds similarly to the Bond in trading.

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The S&P500 is one of the largest of the stock index futures and is traded by the Chicago Mercantile Exchange. A stock index future contract is a compilation of a group of stocks. They add the purchase price of all 500 and divide by 500 giving the cost of each contract. To make trading more affordable for the public they have issued a contract worth a fraction of the full S&P contract called an Emini. It is traded mostly electronically. We can purchase on the internet an Emini in milliseconds, and we now have the same edge as a professional. There is the Dow, the NASDAQ, the Standard and Poor 500, etc. Many investors prefer to invest in them rather than buying an individual stock. This reduces risk on ones investment as a single stock is more volatile thus more risky as it is subject more to news, rumors, etc. The change in one stock in an index group does not affect the overall move of the index. The average number of contracts traded daily in the S&P Emini is well over 2 million. Thus there is great range, momentum, volatility, giving good follow through on most trades. On eSignal the contract symbol is ES. On occasion the volatility is so great trading it can be dangerous. Having these instruments to choose from allows one to be in a good instrument for trading most always. One should go to CME and read about the Bond, the Euro and the S&P 500 Emini contracts for a more comprehensive study. One must understand any Market, be it stocks, financials, commodities, etc, is a living entity. They change conditions continually, sometimes in a few seconds. They are influenced by the world wide economy, politics, natural disasters, etc. At times the Market volume is low in one Market and high in another. Sometimes the volatility is huge, at other times it is trivial. Thus, these instruments are going up and down all day every day. Day traders try to trade these moves, making a profit buying and selling, often several times a day. At times one Market is so slow it is untradeable. At other times the volatility is so high it is dangerous to trade. One must be flexible and adapt. So a trader may change markets on occasion to find one that is most tradable. Some change markets daily using intraday time frames. I prefer to chose an instrument and stay with it daily. One must be adaptable and able to change as needed. The ES and the ZB are often in price opposition. Some actually use that as a confirmation signal for trading direction. If bonds are up then the S&P should be down. That is fairly accurate but not infallible. I use other tools to determine trading direction. I find this to be more precise. More importantly when bonds are low in volume the S& P may be high. When volume is very low there is little follow through making trading difficult. When the stock index futures are 12

extremely volatile and challenging to trade the bond may be very tradable. The Euro is a currency future. It is traded highly throughout the world, so it is most always tradable. Choosing between these instruments most always gives one a tradable market. The Bonds, the Euro and the stock index futures are instruments managed by the CME Group located in Chicago, IL. All trades of these instruments throughout the world and similar instruments are handled there including their options. The individual investor uses a broker to facilitate the buying and selling of these and other instruments through the CME. There are many brokers found worldwide. The broker I use is Mirus Futures with Zenfire, and a trading platform called Ninja Trader. One should have a daily premarket program. Remember trading is a business built around the financial world. It is how the professionals invest, hedge and use their money. It is how the governments try to improve, control inflation and maintain the economy. The financial world tells them whether to sell more treasury securities, or unfortunately buy their own. Moreover, trading is influenced by political events from around the world. Make no mistake, a demonstration in the states, or an uprising in another country will definitely affect our trading each and every day! The market is also influenced by weather and natural disasters. These events drive trading, and influence every trading decision we take. There are sources who do major extensive research and present it to us daily. It is our job to get those reports, read and use them in our daily trading. Having and using this information elevates trading above gambling. The first task of the day is to simply check the major news sources. This could be, listening to the radio, watching the TV or checking your internet home news page. A headline like the one below, says to be very careful as this will have a dramatic effect on the markets. Consider that with a major catastrophy, there is going to be a huge need for medical supplies, food needs, construction materials, possible energy increase demand. On the other hand factories may be shut down halting production. The markets are going to be impacted. For the day however this says to be extra cautious. We will trade what the tools, to be taught in this manual, tell us. We will watch the price action, the patterns formed, constantly analyzing the ebb and flow. This is the bottom line for all trading decisions!

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Next we explore more specific market sources. One of the best of these dedicated news sources is http://online.barrons.com/public/page/barrons_econoday.html Barron’s Econoday. Barron’s  has  been  one  of  America’s  leading  financial   magazine and news services since 1921. It is published by Dow Jones & Company. It is considered one of the most important sources of financial information for corporations, institutional investors, professional, and individual investors. I highly recommend the magazine in hard copy or online. However a subscription is not necessary to get its economic calendar, news alerts and announcements. We should read the Economic Calendar every morning as part of the premarket work. It lists a daily market focus, International focus, Simply Economics, and gives Market Reflections also. The Market Reflection  discusses  the  previous  day’s   trading and tries to put some sense into what happened. These sections are very helpful in analyzing the market activity. It helps us predict what the market may do. Econoday has the daily schedule of important speakers, News Announcements and notices of any auctions, etc. in all markets. These often influence the trading day. I read Econoday and other sources, before market opening every morning. Below is an actual Barron’s  Econoday  Economic  Calendar  page that will open when you click on the link above. I have highlighted the different items’  with   different colored boxes and have marked a couple of speaker events in red arrows. I have checked with purple arrows a few of the Treasury events. I have marked with green arrows some of the financial News Announcements. I have not marked all as the page would be so cluttered. Econoday marks important financial news events with stars and dots of various sizes and colors for emphasis of their importance. I have shown a couple in an orange ellipse. You can see for the week, the different announcements of treasury auctions and other treasury events. There 14

are many most every day. Some of course are more important and have more market effect than others. I will discuss how I rate these events, and how to use them in trading. If you click on any event a pop up window explains the general concept of the event, and the possible effect on the market. It will give a definition, explore the highlights, and give a Consensus of expected outcome. This helps a News Trader to determine whether to trade a news event, and whether to go long or short. Most importantly explain fully why investors care! This includes a discussion of what the event is all about, what different numbers would mean, and how it affects the economy, and the everyday person. I will show the details to help the new trader, as I feel this is so important. In earlier manual versions of this document, I just mentioned these sources but I found  many  students  didn’t  realize the importance and rarely followed through with a premarket plan. This is understandable as most people begin trading and believe it must be simple. They are looking for a straight forward tool that says buy here, or sell there, not even realizing one can make money even in a falling market. I am asked frequently by lay people how do you know when to buy? They are expecting a one sentence answer. I now answer I do premarket study to set the tone for the day. I am continually analyzing six studies on each of about ten charts and when all the pieces align I make a decision. Then they understand trading is not so simple. Believe me doing a premarket study will help to put money in your account! So read this material, it is discussed thoroughly.

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Below is a popup page that came up, when I left clicked on the announcement event Jobless Claims, marked with a black arrow above. This happens for any item. I have highlighted the sections of the popup with red boxes. The page gives a discourse on Jobless Claims. A similar page is given for each event seen above. Knowing this information helps to make the trader a better informed citizen. If one clicks on Why Investors Care, marked with a black arrow below, there will be additional information for the reader. This is most helpful. Needless to say with experience, one learns a lot of this information and will need to spend less and less time studying daily.

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You can also find the results of any News Announcement immediately, by left clicking on the event in the daily calendar. This is a screen capture taken a few seconds after the Retail Sales announcement. The results are in the Actual column on the far right in the red ellipse. 17

It is very important to have ratings on each of the news events. Knowing the strength of the announcements is vital to trading. Briefing.com has a paid subscription to gain these ratings, their Consensus, and their explanations. Here is a list that I have gleaned from years of use of the old version of Briefing.com, other sources and my own statistics. I believe this to be invaluable for news trading! It can make you a boatload of money! I would suggest you make a copy and refer to it daily if you want to trade the news. Remember, the A is the most volatile and is more risky. The B announcements can be quite volatile but with experience can be very profitable. With all the others one can just use the regular indicator tools. Often, I have overlooked these events, and just traded normally and have been quite successful. 18

Announcement

Rating

Auto and truck sales

C-

Bank of Canada

B+

Beige Book

D

BOE Bank of England Policy

B+

Business Inventories

C

Case-Shiller Index

D

Chicago PMI

B

Conference Board Consumer Confidence

D-

Consumer Confidence

B-

Consumer Price Index

B+

Consumer Sentiment - U. of MI

B

Construction Spending

D

Crude Index

C

Durable Goods Orders

B

ECB European Central Bank Policy

B+

EIA- Natural Gas (Energy Info. Admin)

D

EIA Petroleum Status

C-

Empire State MFG Survey

C-

Employment Cost Index

B+

Employment Situation

A

The Employment Report ADP

A

Existing Home Sales

C

Export Import Prices

D 19

Factory Orders

D+

Fed’s  Beige  Book

D

FHFA House Price Index

D

Gross Domestic Products -GDP

B

Housing Market Index

C-

Housing Starts and Building Permits

B-

Housing Price Index

D

ICSC –Goldman Store Sales

D

Industrial Production

B-

Initial Jobless Claims

C+

Institute for Sup. Management MFG

A-

ISM Non MFG Index

B

International Trade

C+

Leading Indicators

C-

MBA Mortgage Index

D

Michigan U. Consumer Sentiment Index

B-

M2 money supply

F

New Home Sales

C+

Non Farm Payrolls

A

Non Farm Productivity

D+

Pending Home Sales

D

Personal Income, Spend and Consumption

C+

Philadelphia Fed Survey Index

B

Producer Price Index

B20

Productivity and Costs

D+

Red Book

D

Retail Sales

A-

Trade Balance

C+

Treasury Budget

D

Treasury International Capital

C-

Wholesale Inventories

D-

Wholesale Trade

D-

Weekly Jobless Claims

C

My personal rating on Treasury Auctions is “A” thru “D”. An “A” rating would mean to expect a marked trading reaction always. The “B”  rating  would  mean  a probable  reaction  and  could  be  dramatic.    A  “C”  rating  would  give  a  small  change   if the auction is average but anything out of the ordinary could give a dramatic spike  to  the  market.  A  “D”  rating  would  be  to  expect  little  if  any  change  in  market   action. We pay attention to those lower ratings because the market could respond dramatically if anything unexpected would occur. One must always be prepared as the Treasury announcements affect all markets. In general we simply follow the indicators. Auctions

30 Year Bond

A

10 Year Note

A

7 & 5Year Note

B

1 & 3 Year Note

C

Monthly /weekly Bills

D

Announcements

D

Settlements

D

Mark Braun's Daily update email should be read every morning as part of premarket study. His calls and forecasts are always spot o and are extremely helpful. Mark gives an analysis of the day’s expectations of most markets, including chart examples. He maintains a Chat Room posting intraday analysis 21

live continuously for many instruments including currency, commodities, bonds, and stock index futures. I  key  my  work  off  of  Mark’s  Fibonacci  work.  My methodology is very successful when used alone. I am much more profitable however, when trading with his Fibonacci Support, Resistance and target levels. I would  hate  to  trade  without  Mark’s  work.  Many people use Fib Levels, but, he is the master, the absolute best. Moreover, he runs the work quickly and accurately using multiple time frames giving a summary posting. I feel using his work frees my time. I can then concentrate more on my trading tools.

Fibonacci Philosophy Leonardo Fibonacci was a mathematician who lived about 1200 AD. He explored a different way of using numbers. By definition he starts with two numbers, 0 and 1. Instead of using the usual progression of numbers adding one to the previous number: 1+1 =2, 2+1=3, and 3+1=4 etc. He adds the two previous numbers to give the next in a series. So 0+1= 1, 1+1 is two, 2+1=3, 3+2 =5, 5+3=8, etc. His sequential numbers would be; 0, 1, 2, 3, 5, 8, 13, 21 and so forth. This is a proportion of 1.618. It seems psychologically people respond to those numbers, or the proportion! It is known in art as the Golden Mean or Golden Section. It is found repeatedly in nature. It is used in poetry, music and other walks of life. Think about the poem; Twinkle, twinkle, little star. The syllables are based on the rhythm of the Fibonacci numbers the same as in music. Strangely, it seems to affect the behavior of mankind as well. It is an extensive study and some feel it couldn’t  possibly  effect  trading.  Some  call  it  magic.  Let me say, you will think Mark’s  work  is  magical.  You will see Mark predict levels of support, resistance and targets hours ahead of time, day after day, after day. These levels are called Alert Levels. They are critical points that emphasize action. Suffice it to say, these numbers and proportions appear in trading. They are seen in price levels, as well as in time. Here are some general examples of Fibonacci numbers found in the world.

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Mark gives many classes on Fibonacci work and shares his knowledge daily in his Chat Room. You can check his website for classes, manuals and the Chat Room. Here is the link for those interested. http://www.mjbraun.net/ Every morning one should also check several days of previous data for range and volume. To get this information, one can use crosshairs as a pointer and right click on a daily candle stick data bar. A pop up will be seen to give the data information.

Other news sources would be: The Wall Street Journal. , Barron’s,  Bloomberg www.bloomberg.com, http://www.smartmoney.com, as well as the following http://www.marketwatch.com. and http://moneynews.com. I also like 25

www.forexfactory.com .It gives news releases of all kinds pertaining to the markets live throughout the day. In general, I use multiple contracts, taking small profits at a first target for less risk. This will yield a sizable profit for a very good living. This is the method used for years by some of the most successful floor/pit traders. I set a minimal goal on each trade and for the day, so that I know I can make a good living without having to overtrade and take risky trades. (The psychology of trading is as important as the mechanics if not more so. I will discuss this more. ) I make my goal almost every day, often 2, 3, and 4 times over. My personal goal on the Bond is only 4 ticks a day. But I usually get more than one daily goal. A tick in bonds is $31.25 that is 125.00 per day. If one trades 200 days a year, using five contracts would be about $135,000.00 per year. There are 360 days a year, less 104 Saturdays and Sundays, less 10 Federal Holidays, less 5 days sick leave, less 21 days vacation that leaves 220 trading days. If you want to stay in a lower tax bracket, take more vacations. Knowing  this  I  don’t  have  to  be   nervous and anxious, thus overtrading and probably losing. It is generally possible to earn more than 4 ticks per day, and one could certainly add more contracts to get a higher bottom line. The simple math is that two goals a day is doable giving a probable profit of over $200,000.00 a year. This is not guaranteed but certainly possible! On the ES my goal is 8 ticks per day. At $12.50 per tick that is $100.00 per contract. Trading multiple contracts and averaging 3 winning trades per day can give a substantial living as well. The Euro can give comparable or even better results. An ultraconservative way to trade, especially for the beginner with a small account, is to only have a goal of 2 ticks per trade on the Bonds and 3 or 4 ticks on the S&P Emini or the Euro. With a good methodology and I believe my methodology is, that goal is almost assured. On a strong trending day when price moves all day in one direction, a lot of money is left on the table. Trending days only happen a few days a month. Most days are momentum days where the market moves for a short period in a direction, reverses, then reverses again. This gives several swings up and down throughout the day. These days have possible losses, if in for a long period. Since a few ticks can be had easily the net can often be more profitable on these types of days. The remaining days are extremely choppy and for most traders losses are almost certain, whereas the ultraconservative trader has a stronger chance of success. So on a full month of trading averaging trending, 26

momentum and choppy days the ultraconservative trader can be rewarded substantially. When one can trade multiple contracts taking off some at lower targets, using a Runner to catch the longer trends, trading is safer and more profitable. That is when one can make a living trading. When trading more than two contracts, one should take off a larger proportion at the first target. If one is trading 3 contracts, take off 2 at first target. If trading 4, take off 3 at first target. This allows one to be trading on market money. The remainder called the Runner has less chance of a loss or at least a smaller loss than if one is taking half off at first target. The important thing is to not lose money. One must be aware the market can only move up or down. When a market is seemingly Sideways, there are still small up and down movements! Furthermore, it moves in cycles, up and down. Knowing how to find these cycles gives us our trading opportunities. This will be discussed extensively throughout the manual. People decide to try trading and expect to find a single indicator, a HOLY GRAIL, two lines crossing for example that will be totally successful. It will make a profit every time. There just isn’t any single indicator that will do this. I do firmly believe, however this system can be the gate to the HOLY GRAIL. The HOLY GRAIL is the trader who has mastered a system and developed the self discipline to be a trader. I believe  that  combining  Mark  Braun’s  Fibonacci work with my methodology is a sure way to success! The daily market plan will be discussed extensively. Essentially, we want to establish the market direction and take trades with the immediate momentum. We will use multiple charts called periodicities, to establish trading direction. These include time and volume as well. The trend is established by the professionals, large banks, hedge fund managers, etc. The longer term time charts and higher volume charts establish the trend and trade direction. This is a Setup. We  don’t  try   to always take the extreme high and the low of each cycle. We just try to get the part when the indicators confirm. The shorter term time charts, lower volume and Tick Charts give the Signals to join the trend and enter a trade. They also help with trade management. To enter a trade we use a Trigger which is Price Action Confirmation. That means the price must move in trade direction beyond the Signal Bar. When all the indictors on all charts are in agreement we call this a Grand Slam, a GS! When a GS is established, one could initiate a trade. There are Mini Slams, which we will discuss. 27

One really should not trade unless he or she has the account size to trade at least two contracts, ideally 3, or multiples thereof. It should be emphasized that there is no way to predict the future, in trading or in life. But interestingly, every time a person enters a trade, they are trying to predict the price of the instrument in the future. We establish what the market is doing now. Then, we use tools to make an analysis of what the price will probably be in the future of the instrument being traded. I will present several tools and their use. This will help to make the predictions, of what the probable outcome will be. There are no absolutes, but with the tools in this manual, and  with  Mark  Braun’s   Fibonacci work, we will be successful the vast majority of the time. If one is gambling one may use tools, like counting cards, to help predict the outcome of a bet, but one is still playing the odds. In good trading we use tools but they are based on more complex factors that include the economy, imports, exports, manufacturing, weather, international political events and other worldwide events as well as mathematical probabilities which greatly enhance our outcome. Thus I think it can be safely stated, good traders are not gambling. We will trade with the trend and countertrend. Many traders will not take Countertrend Trades. I trade them frequently, almost every day. The method will be explored thoroughly. We will trade News Announcements. Most traders will not trade them, but we will take them routinely with much success. We will trade, both Long and Short trades. Long is when you buy a contract and you sell it at a later date. Some people trade only Long. The concept is simple just like buying a boat, a car, a baseball card. I buy and if price goes up, I sell and keep the difference. If price goes down and I sell, I lose money. Short is when one sells a contract and you cover (buy) at a later date. Shorting is a little harder to understand. Simply put, you just borrow a contract from the broker and you have to pay it back. If you can buy it at a lower price, you can pay it back “cover”  with a cheaper one so you keep the difference and make money. If you “cover”  at  a  lower   price you make money. If I have to pay more for the borrowed contract to return to the broker I lose money. Some people, psychologically, don’t  like  to  short  as  they  feel  it  is  wishing a company will fail. They want it to go down in value. They feel badly for the company, the economy and the country. This is not true. We are not wishing anyone to fail. Any stock, financial instrument, stock index future, commodity goes up and down all the time. The pendulum swings so to speak. As a matter of 28

fact when the price on any instrument goes down, it may only rest, building up strength to go even higher. It is our job to recognize and trade those swings. That allows us to make money, whether the market is going up or down. Remember trading is a business. There must also be a post market plan. This is the time to evaluate all trades. A novice trader takes a trade, and if successful, jumps up and down, screams, and brags. If they lose they get mad, swear, throw things and berate themselves. A professional  trader  merely  asks  “Why  did the trade become successful, or why was the trade not successful?” Following this procedure will greatly improve success. When one trades using my methodology there should only be a few trades to review at the end of the day. One can review the day in a short time. This will tell why a trade was successful or failed. It could find missed trades as well. A good idea is to use Snagit and copy all trades made. Then, one can review each trade more easily. I will also give a check list. If used, it will give a quick means of reviewing each entry. I found my trading improved dramatically when I started reviewing my trades post trading. If one trades well, a lucrative living can be made in a few hours each morning. That leaves ample time to review trades as well as to study the news, etc. In  today’s  Globex  electronic  trading world good trades may be had all day long. They seem to be fewer and slower later in the day, but often give steady gains. I will give a detailed check list to aid in selection of each and every trade. It will list most every detail needed to make any trading decision. Most failures are the result of failing to gather all the information needed. It is complex but with practice, its use will become routine. An emphasis and discussion must be made regarding focus. On the surface it might seem inconsequential, but let me tell you it is critical to successful trading! I use seven chart periodicities. There are four Sub Charts with multiple indicators on each with long and short considerations. There are nuances that must be analyzed as well. Although each chart is basically the same and analyzed the same it still requires maximum concentration to be sure some minor detail is not overlooked. When I am trading, I am not reading the news, sending or reading emails, or surfing the internet. I am looking from Mark’s  charts  to  each  of  the   Fibonacci Trader charts, using a check list continuously. I am looking for Setups and for reasons not to trade. I am trading and like a surgeon, I am concentrating. I would like to make a point regarding trading during the so called  “Dead  Zone”  or   the extended lunch time. Traders think because it is a slow time, they can pay their utility bills online, etc. I think this is hypo focusing. Unfortunately, when they 29

look back at the indicators, they see some action and they jump in a trade. In haste, they have overlooked something or the trade has been running and they are late in entry a few ticks, with resulting loosing trades! If one is hyper focused, one is apt to only see the EMAs, etc. Thus, a trader will overlook another tool like  Mark’s  Fib  work, which is more static not changing for long periods at times. There may be long periods when seemingly nothing is happening. But in just a few seconds, a trade sets up, signals and an entry is given. It can also be the reverse of what the market might have been suggesting for quite a while. To prevent hyper focusing, one should take deep breaths, expanding the rib cage up and out Sideways while inhaling. On exhaling contract the stomach, and bringing the rib cage down and inwards with sideways movement. This is to get maximum body movement as well as oxygen. This helps the heart as well as concentration and burns a few calories. Another tool is to sit in front of your monitors and force your focus on the outer edges. This does something to the brain as well as stretching and relaxing the eye muscles. Therefore one is more relaxed but still focused. One  can  also  message  one’s  ears  vigorously  for  30  seconds  each,   and also breathe deep, rapidly through the nose for 30 seconds or so. These also build energy! I  like  to  use  Mark’s  Chat Room as a tool to prevent hyper focusing. This is different than reading the news or sending emails as the information is based on our trading. So I make some comments, if only to say Good Morning to Mark and fellow traders, or when Mark discusses his charts to say thanks. Not only does Mark deserve acknowledgement, but it takes the edge off of hyper focusing. In summary, when one is trading, one must be focusing on the charts every second, but should be in a state of  “Calm  Focus”! This  is  a  way  to  review  all  trades  taken  to  evaluate  one’s  strengths  and  weaknesses. The question is will a new trader accept trading is very difficult. It is extremely challenging and almost certainly the most difficult way to make a living. The beginning trader must accept trading is probably more art than science. Will the new trader be willing to do the hours of work it takes to become successful! Most won’t  and  most are destined to fail. I hope the readers of this manual will understand how important a post market plan is. It is tedious and time consuming but the work pays substantial dividends. The Spreadsheet is like homework in school. Those, who do not do homework, are lucky to pass. There are exceptions. If one does not have time to trade all day and the time to do the homework, it would be best to trade only 30

mornings. Then use the afternoon for homework. It simply must be done. Many say  a  trader’s  success  is  definitely  proportional  to  the  statistics  gathered. I believe it. Below is my spreadsheet master.

It may appear confusing, but when the manual is completed it will seem quite simple. Filling it is easy, but it is time consuming. I will break it down in sections, so it will be easier to read. I will also explain each item in detail, then one will understand  the  effect  on  one’s  trading. Downloadable Master for this sheet is: HERE for Excel 2007

HERE for earlier versions of Excel

I must emphasize that trading is a business! One needs to be trained to be successful. Hopefully this manual will be a thorough platform to help anyone to become a profitable trader. It will take a great deal of study, homework, and screen time to be successful. The screen time is like an internship for a physician. Also, one  must  have  the  proper  equipment  to  trade  properly.  A  dentist  couldn’t   think about treating a patient without an office, a special chair, x-ray equipment, a lab, tools, and assistants, etc. We need the proper hardware too. Many think because they have a laptop and the internet, they are set to trade. That is just not so. I can tell you many who do not have the proper hardware have software problems. They may blame the software, but the problem may be their hardware. However, the cost to set up a trading business is minimal compared to most businesses. 31

The beauty of trading for a living also is that one only needs a home office, thus no commute.  One  doesn’t  need  a  staff, so there is no payroll, taxes, and hiring problems, etc. There is no inventory, advertising, etc that complicates most businesses. One further bit of philosophy is to really, really devote your time to a system till you know it well. Many try a system, but don’t  really  master  it.  When they fail, they blame the system. Many, many mentors have rooms with successful traders, but  a  newbie  comes  in,  tries  it  for  a  while,  fails,  then  says  the  system  doesn’t  work.   If the  mentor’s system was not successful, why are there successful people with that mentor? Any system including this one, takes a great deal of screen time to really be able to trade successfully. Along with this thought is that many will try to change the system. They will add other tools from their past. Be careful doing this. Moreover, some will try to use additional systems, and then get “paralysis  by  analysis”.  If  one  is  trying  to  look  at   too much data, one will often overlook an indicator or two, and get a losing trade. The trader then blames the system. When one becomes a master with one system, then it might be OK to compare another or test another but be careful! Trying to use three systems together will almost guarantee failing.

Philosophy Summary The reader must understand learning to trade is extremely difficult. When one has mastered any endeavor it is easy. You  have  heard  the  cliché  “When  you  know  how   it’s  easy!”  If trading were easy, everyone would be doing it. It is not a science where one can say if the market  does  “X”  then  buy.  Or, if  it  does  “Y”, then sell. One must take several factors, analyze them for probability, and then make the trade decision. In addition to being challenging, this leads to various psyche problems, often with failure for the individual trader. We must have the proper hardware and we must be well trained. This requires an individual to commit to devoting extensive time and effort. Unfortunately most will not commit to the work needed to become successful. And they will try to get by without the proper hardware. They will want to find some Guru who offers a weekend class to master trading with a chain store off the shelf computer. Or, they will respond to one of those ads  saying  “This  simple  secret  will  make  you  millions   in the stock market”.  What I present here is not quick, simple, or cheap, but it is proven. 32

Conquering the market can be done, but it takes time and work. It is a career, a means to earn a living, and like any profession it will take time and effort to master. This chapter has attempted to discuss the central elements on beginning to trade. From this we will explore the hardware, the psychology, the concepts of trading, then the indicators, the tools with their use. We will put together the use of the tools to cover the mechanics of trading. This hopefully will save years of effort to become a winner! I have started with the premarket plan. Good information including links, have been given. All the trading tools will be explained with numerous examples. The tools for the post market plan will be given in a more thorough manner. I have used this methodology for years. There have only been refinements with no changes or additional tools. It is tested and proven. It is challenging to master but can be done. This manual is quite long and may seem overwhelming but when taken one step at a time conquering day trading can be done! Remember, if trading was easy everyone would be doing it.

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Trading Psychology It has been statistically proven that 90% of all traders fail. There are many methodologies that work, and many successful traders make a fantastic living! So why do so many people fail? I believe it is the psychology; the makeup of the individual trader that leads to self destruction and failure! It is important to note, all traders lose money! This means some traders lose most of the time; some lose part of the time. The winners are successful most of the time keeping their losers small. I have read that the number one reason for failure is the same for any business – Undercapitalization! There is a lack of money for learning, for software, for hardware, and for the time needed to develop self discipline! I hear statements  like  “I  can’t  put  up  all  those  charts  cause  I  don’t  have  enough  monitors”   The answer is, one  shouldn’t  be  trading. There is a lack of capital. One must have enough capital to sustain temporary losses before becoming profitable. My method requires several monitors watching multiple charts on each. The off the shelf computer at your local chain store is not good enough. I recommend Trading Computers.Com. Some  say  they  are  pricey.  But  I  don’t  believe  out  of  line  for  their   product. They simply do the job and are extremely dependable. They have computers with the capability to watch up to 12 monitors. They state as many as 100 charts can be run on those monitors. I have run 30 or 40 charts on 6 monitors and never have a problem. If one is really knowledgeable about computers one could build a good computer. I am not. I know many who have built their own successfully. But, I have seen many who cannot match the performance and dependability of Trading Computers.com. There are trading mistakes to be made just learning the use of the hardware, the computer software, the trading software, and trading mechanics. This is one of the main reasons I recommend paper or Simulated Trading. A few believe one should always trade with real money, then the trader is more focused, doesn’t  take   chances, and more attention is given each trade. Thus, the learning curve is shortened. This takes a large account, and most traders don’t  have  that  to  start.  I just feel it is wasteful. Some say a simple rule is to have enough trading capital to be able to take 10 losing trades in a row and still have enough money to continue to trade. The number 2 reason for failure is the inability to actually take a trade. This is fear of losing. So how can we overcome that fear? Once again, I say it can be done by Paper Trading and keeping statistics until one is successful. Then, one has the 34

confidence the odds are very favorable. This really shatters the fear of entry. Of course one has to have a good system. I truly believe you will find it here. One should look forward to the entry with eagerness and excitement not with fear. Reaching that level of confidence is not easy, but it can be done. My trading will be discussed in detail, but basically I look for Alerts, which are trading opportunities. I find the Trend; I then employ a Trading Chart which gives the signals to Stop or go. I confirm entries with a Frontrunner Chart. The tools I use must be the same on all charts. I call this the Grand Slam. If you have that you have a very, very, high probability trade! As one of my students, Elson Lacerda said  “The Trend Chart is like a policeman standing at a traffic light, even when the Signal traffic light is working, he tells you to sometimes to stop on green or go on red”. The number 3 reason for failure is not having realistic goals. I set a very small daily goal, so I know can make a comfortable living. Then, I can start the day knowing my goal is easily within reach. So, I am relaxed. Why do I keep it so low when I generally exceed it? So I am not taking chances to reach a high and probably unrealistic goal. Forcing trades is a sure way to lose. Let me add that I often stay with a trade for lengthy periods garnering several daily goals on one trade. The secret to staying with a trade will be discussed later. Don’t  try  to  force   trades. Just follow the Trading Plan and we will suggest a good one. When the Setups and the triggers are given, the trades must be taken. Selectivity of the signals and triggers, invariably results in a loss as one generally picks the losers and lets the winners pass. At the very least, while time is taken to determine which trade is good, the momentum will have run its course and often reversed. The Setups I use are high probability, and when seen should always be taken. I can safely say, waiting before entering, is one of the biggest reasons for failure. Not all trades are going to be successful regardless of the methodology. My personal average is high. But as a matter of fact if one had only a 40 to 50% success rate, then managed the trade wisely, one would be able to make a good living. The number 4 reason for failure is not having a trigger. The trigger I use is price moving beyond the Signal Bar. It is called Price Action Confirmation- PAC. Entering a trade too soon before the trend direction is confirmed is probable failure. 35

The number 5 reason for failure is exiting a trade improperly. Surprising as it may seem most beginning traders take a small profit on winning trades, and let losers run. Obviously this results in continued losses and depletion of the trading account. With my method, there are clear-cut signals for exiting. One can be completely relaxed, even anticipating the exit. The beginning trader takes a little profit to be safe, but lets the losers run. He or she won’t  accept  a  loss,  or  feels  so  strongly about the basis for the entry, one feels it will surely turn around and become a winner. Deciding when to exit and when to stick with a trade must be done on every single trade. So every single trade is managed as soon as the trade is opened. One must accept immediately when a trade is unsuccessful. Exiting quickly with a loser and staying with a winner is one of the hardest aspects of trading. An exit Stop that is too close to the entry price, is another reason for exiting a trade improperly. The trader thinks it is best to keep Stop close to the entry, so any loss would be only  a  couple  of  ticks.  That  doesn’t  allow  for  market volatility. This takes one out before the trade can move successfully, thus consistently losing. If the reasons for entering are sound, the majority of the time the trade will be successful. Losses do happen, forget them, and get to the next trade. The number 6 reason for failure is overtrading. This may be the biggest reason for failure. It used to be my biggest problem. It is a downward spiral that whirls one out of control, and results in major losses. Traders overtrade when they are not sure of their methodology, or lack the discipline to wait for a proper Setup. They take trades because they are in the Hope Mode. Consequently, they take chances and force trades. Probably the biggest reason for overtrading is what I call “The  get  it  back   syndrome”! I believe there are three reasons for falling into this syndrome. The first is undercapitalization. This causes the trader to be so worried, panicked decisions are made. Traders who are undercapitalized have a very small trading budget. When they do take a loss, they feel they have to get it back quickly. They force trades, jumping in and out with the slightest momentum reversal. This results in many trades with more losses. When they do get a little profit they exit thinking they must be sure to get something on the trade, only to see it go for many more ticks of profit. Understanding the methodology, being sufficiently capitalized and realizing there will always be losing trades gives one the reassurance to just calmly wait for the next Setup, signal and trigger. The second reason for getting into this downward spiral is personal ego. The same philosophy prevails, the trader has to prove they are good traders, but they become nervous and again force trades. 36

Don’t  laugh but the third reason for this syndrome is spousal and peer pressure, This may be the greatest of the three. We just can’t admit when we face our spouse, our family, our friends, our neighbors with the truth! We made a mistake and or admit we lost family money. They are always saying  “Trading the  stock  market  is  just  really  gambling”. And you know what; overtrading is gambling! If you  don’t  have  the perfect Setup, the perfect Signal, the perfect Trigger, you are gambling. Admitting you have a gambling problem is the most important step to being able to break the behavior! I can’t tell you how many times early in my trading career, I have made money in the first hour of trading, only to give it back and usually more during the rest of the day. Trading mid day is more difficult, mainly because there is little volume. Thus there is no follow through. Pushing trades during the lunch time without the proper Setup is pure and simple greed. If you lose a little of your profits then the  “Get  it   Back  Syndrome”  kicks  in  and  the  downward  spiral  begins.  Then one starts gambling. This is the major reason I have a realistic goal. The major way to stop overtrading with my methodology is to minimize all but the Trend Chart, and only watch the Trend Chart. Watch for the perfect Setup! There will be 3 or 4 of these a day, and occasionally up to 8 a day. If one is taking more than about 8 trades a day one is probably overtrading. When ALL the indicators are in line with good angles or getting close to it, restore the Trading Chart and look for the Signal. Another reason for overtrading is taking signals randomly rather than at Alert Levels. Some  days  it  seems  you  just  can’t  win! If you are trading multiple contracts and have a day with 3 losers in a row, you should stop trading live for the day or at least till a later period. Most often this occurs when the Trend Charts indicators are in conflict. Some days, one must stand aside. If this is happening from 10:00 AM EST  until  1:00  PM  EST,  then  the  losers  may  be  due  to  “lunchtime  doldrums”.  So   at least stop trading until the afternoon session when there is more volume and follow through. There are some days when the market is just range trading with low volume and is very choppy. They often occur the day after a strong trend day or sometimes on Friday afternoon particularly in the summer. If one has two losing days in a row then probably one should go back to Paper Trading until one is successful five days in a row. Let me assure you however, if one is taking trades as this manual prescribes, one may have losing trades but should not have a losing day. 37

The number 7 reason for failure is a  lack  of  knowledge  of  one’s  own weaknesses. As discussed earlier one must do a spreadsheet of every trade to determine why a trade was successful or why it failed. One will find there are patterns repeated over and over that allows one to be successful or to be in the 90% of all failing traders. A trader who is continually losing has his or her own faults. They must be discovered. The best way to find and to correct those habits is to do the spreadsheet daily of all trades winners and losers.

In Summary: To gain the proper mind set to be able to trade calmly, relaxed, and with the inner confidence to trade successfully, use the following. Be properly capitalized. Have good hardware. Set realistic goals. Set realistic Stops  so  that  volatility  doesn’t  stop the momentum move. Develop a premarket plan. Watch the Trend Chart only until you have a perfect set up. Trade Grand Slams at Alert Levels Follow the exit strategies. Use a post market study period. One should Perfect Paper Trade until you have consistently 20 or 30 successful days in a row.

Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude. Thomas Jefferson

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The Trading Concept A Trader must be continually monitoring the market to evaluate possible entries, exits, or when to step aside. This is not a profession for those with Attention Deficit Syndrome. In a trend, the market moves, pauses, moves, pauses in a general direction. These are called Cycles, or Swings. The cycles and swings determine the trend. This gives the opportunities to enter, exit and helps with management as well. When the market is Sideways it may be flat with little movement or choppy with some short irregular up and down movement. The term “consolidation”,  is  used when price has been moving Sideways in a small range. When price is moving in a trend or direction and reverses slightly or levels, we have to consider whether the market is showing indecision or the momentum is halting briefly, some say resting, or a reversal is beginning. The first sign of leveling or turnaround we call a Pause. If price is in an uptrend, then rests dropping down, it is called a Pullback. That is a downward momentum movement in an uptrend cycle. If the market is in a downtrend and then turns up for a while, an upward momentum movement in a downtrend it is called a Rally. After the momentum rests, the cycle may resume or become a true reversal. The Pause, Pullback or Rally may take place in 2 or 3 bars, or they may involve several bars. We have rules to determine if a reversal is occurring. If the momentum rests, forming a Rally or a Pullback, one must then be looking for a Trend Continuation Trade or a Counter Trend Trade. I start trading Bonds early and watch the volume build. I want to see a minimum of 1000 contracts in 3 minutes or less on the Bonds to trade. One can use an indicator called Volume Color to determine that volume. Often there will be 1000 contracts in less than a minute. The ES is one of the highest volume instruments traded. When the Pit Market opens, there is most always substantial volume to trade. It is advisable to check the daily volume range every day to know when the market is slowing, and may be more difficult to trade. One must check for extreme volatility and range as extreme volatility can be dangerous to trade. Premarket opening trading can be done using a 24 hour Globex chart, but should be done with caution. For premarket trading I especially like to see a minimum of 8,000 contracts traded in a 3 minute period. The first few minutes after opening can be erratic, so some choose to wait till the 39

market settles to begin trading. There are many who trade longer term. They placing a market order at the open, then go off to another job. I think this flood of orders increases volatility, and then the market settles down, reflecting what is currently happening in the world. I am confident enough with the selected indicators to trade the opening. One must select a personal time frame, volume, or tick amount one is comfortable with. These are called periodicities. Some people are in a trade for days at a time. Some trade for only a minute or two. Even when one has basic periodicities one is comfortable with, one may find a day when volatility is so high that price becomes erratic. One might then choose a longer period to smooth price. This may necessitate larger Stops however. These choices are personal; experience and spread sheets help make these decisions of course. On the evening news they give a business summary. For example “the Dow was down 2.60 today”. They  don’t  tell  you price may have been above or below the opening 2 or 3 times, being up part of the day and down before the final closing. I hope to catch those intraday moves. I like to trade the first couple of hours when the market is moving the most. I leave when the market slows and becomes more unstable. We will be trading using Alert Levels. Alert Levels are support, resistance or target levels. The market will move to a level, and possibly stalls or turns around. It is amazing how significant these levels are! The Alert Levels are based on price, and time using Mark’s  Fibonacci  work.  I  also  use  previously established highs and lows of price or other indicators and called swings. We have Swing Highs and Swing Lows. The Alert Levels alone do not predict what will happen, when the Alert Level is reached. They do predict where an event is most likely to occur. We will use tools to help predict what will happen at these Alert Levels. The results are extremely positive. No one can predict with 100 percent accuracy what will happen at these levels. One will be amazed though, how effective the Alert Levels can be! There is a dichotomy in trading. On the one hand we try to establish the trend and  trade  with  the  trend.  There  are  clichés  “The  Trend  is  your  Friend”,  “Trade the Trend”,  etc.  So long term charts are selected to determine the trend direction. On the other hand a trend change starts on a single bar in the shortest periodicities. Knowing when the trend is changing is difficult as it takes time to develop. If one is in a trade a lot of money can be lost, if one is only trading long term charts. This is a major conflict, and can be challenging. If one wants to solve this problem that means trading the shortest periodicities possible. Then, there is so much volatility one could overtrade. I have selected periodicities for my psyche that keeps me 40

active and hopefully getting in trades before the masses know a trade is even developing. They also get me out with maximum gains.  This  doesn’t  mean churning, getting in and out of the market repeatedly or scalping taking 30 or more trades a day for a tick or two each. I am simply trying to get in a trade as early as possible and to stay with the trade as long as possible The charts are easily read. One simply needs to see indicators green and pointing up for buying, red and pointing down for selling. There is analysis of the different periodicities, but they can be mastered. The entry mechanics, trade management and the exits will be explored throughout the manual. We have great staying power with our indicators and can be in trades 20 to 30 minutes or even longer at times. Reading a chart in hindsight is so easy. When one looks  at  a  chart  at  day’s  end, it is so easy to say “I would have gone long there or gee I would have stayed in that trade longer”. But in the heat of the battle so to speak, it is a gazillion times harder! Any good system requires much study. Some market Gurus state a minimum of 10,000 hours is required before one can become a successful trader. This is similar for any career or profession. Why should trading be any different? I do feel, that knowing Mark Braun’s  Fib Levels, and the use of my methodology, the majority of those hours are saved. The trader will still need to spend a lot of hours, but far less than 10,000. One must know how to operate a computer with ease. A good system the trader is compatible with is mandatory. There is computer hardware and software to learn. One must have good Trading Chart software and trading platform software. A trader must master each of those and then be able to use them all together. One must have knowledge of the instruments being traded. One must have at least a rudimentary understanding of the financial world. One must know where to gather the information used in daily trading. Most importantly one must have excellent self discipline and patience. They are probably the hardest of all to master. One cannot simply read this manual and start trading live. Most people will not spend the time and effort necessary to master trading. As a result, they are in the 90 percent who fail in this career! Sadly  they  will  say  the  methodology  doesn’t  work.   They will go to Guru after Guru searching for the Holy Grail, hoping to find the “secret” of trading. They  want  to  find  a  simple  two  line  crossing  method.  I  don’t   think it exists. I spent years trying to find it. This is pretty darn close. They may 41

find many successful mentors who have many successful students but they will still fail. Most traders will seldom look to themselves as the reason for failing. It is important to discuss order placement. Here below is a picture of my Ninja Trader DOM. There are many. It allows placing a market buy order simply by hitting any level in the green column above the yellow cell in the center column. The waiting buy orders are seen below the yellow level in the green column. There are 17 buy orders waiting to be placed, if the market price drops to 1343.25, 93 orders if price drops to 1342.75, etc. The red column is for shorting and selling of course. You can see the block for the instrument, and account which I have in sim, and ATM (advance trading management). This is a good trading platform. They have excellent training tools to really become proficient with all the nuances.

They can because they think they can. Virgil

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Computer Variance I would like to explain computer variance. Mark is in a different part of the country than I. Thus, we have different servers. His server and my server send us data. Our computers and our software may be different. When they process that data our results may vary a tick or two. Mark’s then sends his data back out on the internet. Obviously there is more delay, maybe as much as 20 seconds! Therefore, our charts will vary slightly. Needless to say traders from around the world will see some variance as well. Some traders may use a different data feed and that can account for some variance as well. The starting and closing times may be different as well. That can account for several seconds’ difference. Even when I use two computers on the same server with the same provider and software, the ticks will vary between the two computers. With the same computer, my charts may vary a tick or two. Thus the appearance is not exactly to the tick. But, the basic data is still correct and is just as tradable. It is hard for many beginning traders to accept this fact. They want their charts to be the same as the Chat Room Charts or the Mentor they may be studying with. I have heard this complaint in many Chat Rooms with many different mentors from many novice traders. The  bottom  line  is  that  one  must  trade  one’s  own  hardware   and software and develop statistics to prove its validity for trading! The fact is every computer will vary slightly from any other. Sometimes my trading platform will be a tick or two ahead of my Trading Charts and sometimes the Trading Charts will be ahead of the platform. I have observed this phenomenon for many years. Even my charts on the same computer may show a tick or two variations from each other! In my own sub Chat Room under  Mark’s,  sometimes  a   certain trader gets a quicker entry and the very next trade another trader will get a quicker entry, getting the same basic information! Don’t  expect  all  charts  to  look   exactly alike. So, my chart examples in this manual may appear slightly different than  Mark’s, but they are close enough to make trading successful. The fact that we have this internet trading is amazing in itself. We could not do this a few years ago!

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The Indicators The indicators are used at Alert Levels. If a trade Setup is seen at times other than at Alert Levels, generally it is best to stand aside. This combination of indicators at Alert Levels gives very high probability trades. The indicators help establish some Alert Levels, so we must examine them first. I have also discussed Fib Levels are Alert Levels. The examples used in this book are for Intraday trading on Bonds, the Euro and the ES that I taken. I recommend using periodicities other than time such as volume, range or tick data. One could trade all volume, all tick or all time charts, but I find using time and volume is most effective. The indicators are interpreted the same way, regardless of the type of market data. I especially like time charts as Mark gives the Fib Alert Levels on a 3, a 15, and a 45 minute chart on most instruments. They are probably used by the majority of traders. The principle again is all indicators at Alert Levels should point up and be green for longs and point down and be red for shorts therefore easy to learn. The indicators used here are very close to price action in the immediate moment. This is extremely important, as they tell what the market is doing without any lag delay in analysis. For swing or position traders who hold their trades for days or more, the periodicities would be longer but one would still need to have multiple periodicities to determine trend, entries and exits. There are many signal methods in use and many are successful. Mark  Braun’s  CCI   method is outstanding. I watch them on his charts in his Chat Room and listen to his comments. The indicators I use seem to be a little easier and clearer, as well as being extremely successful. They give me the final answer on when to enter, how to stay with, and when to exit! I implore you not to add anything to this system till you master these indicators and are making money! An important factor to consider is that the Indicators I use are put together also to be easily read and analyzed. If one has traded other systems, there is an inclination to try to improve this system. One wants to take some other good Indicators and add them to these. This system works, no others are needed. As a matter of fact, adding others can be distracting. It slows the analysis time and may cause a lot of late entries and loses. One must gather and have pertinent information regarding price for a given period. The first tool I build on is Candlesticks. They have been used by the Japanese for centuries. I have several books by different authors on technical 44

indicators. The most important, and probably the oldest, is a moving average system. The third is the use of Blau Oscillator Indicators which are extremely accurate. No matter what triggering method is used, I think any would benefit from Mark’s  Fib Levels. I also use the Gann Swing Chartist to help analyze momentum moves. I use a simple Volume Colored Indicator to underscore momentum and to substantiate there is enough volume for follow through. I watch the $VOLD on the ES which confirms if the market is dominantly buying or selling. I  must  say  at  this  time  don’t  trade  spikes  or  sudden  movements. These indicators work, but they must be in a synergistic movement or they will fail. One tool alone will not give profitable results! If you  don’t  have  time  to  thoroughly   analyze  all  the  indicators,  don’t  trade.  Traders  see  a  big  spike with a solid confirmation chart and try to jump on board fearing they are missing some profit. Once their trade is filled however the trade reverses just as quickly and a loss is taken. I repeat; if  you  don’t  have  time  to  scrutinize  all  the  tools  on all periodicities, don’t  trade! The key to this manual is to master each section letting each one build on the prior to gain complete control of this system. In the same vein, we must master one tool at a time, then put them all together. We will explore the basics of each of the six tools in the order needed. We will put them all together in a synergistic method for actual use!

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Candlesticks For any given periodicity of time, volume, etc, certain information is gathered. This is the foundation for all indicators. Most traders are interested in the Open of the period selected, the High, the Low, the Midpoint and the Closing price. There are different ways of displaying this information. The most common is a simple line bar with flags. The low and the high are seen vertically. A flag to the left is the open. A flag to the right is the close. The midpoint  is  marked  with  an  “x”  or  other   symbol. Mark uses the line bar for his Fib, work which is important for him. Another display method is the Candlestick. Both have their place in trading. I prefer the candles for my work. Below, on the left is a simple and probably the most commonly used line bar. It is an open-high-low-midpoint-close bar contrasted on the right with a Candlestick. The same information is gathered for either presentation. The details of reading and interpreting the Candlestick will be examined completely.

LINE BAR

CANDLESTICK

The Candlesticks have been used by the Japanese traders for centuries. Steve Nisson claims to have brought the concept to America, or at least brought it to America’s  forefront. He has been a Candlestick teacher for years. He trades for major corporations and hedge funds. He, and many others, uses Candlesticks only to trade. What I will present is just the way I understand and use them. Each Candlestick in essence represents a battle between the Bulls, who try to take the market higher. The Bears, try to take the market lower. They are first read as a single bar, then as a group, and then the groups are interacted allowing an analysis to make trading decisions. Below is a chart showing a group of Candlesticks. 46

There are several books about Candlestick Charts. Candlestick professionals have names for different types of bars, and names for groups of bars that give Setups. They are numerous and challenging to learn. I prefer to use other tools, and just analyze a trade with the basic Candlestick philosophy as an aid. The Candlestick Bar is printed for each interval used on a chart. This could be Minutes, Days, Volume, or Ticks and so forth. An evaluation is only made when the bar closes. The open and the close form a body. The high and the low, which are usually above and below the body, are formed by just lines and are called wicks, or shadows. If the Open and the Close are the high and the low, there would be no wicks. If the bar closes above the open, it is colored green, and verifies an immediate up momentum. If the bar closes below the open, it is colored red, and verifies an immediate down momentum.

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If there is no body on a Candlestick Bar, or a very small body, this means the open and close were the same, or nearly the same. This means a standoff; neither the Bears nor the Bulls could win. In Japanese it is called a DOJI which is the name I will use. If the open and the close are the same, and at the midpoint, it is called a Balance Bar. It is seen on the bottom left, in the next chart sampling. If a DOJI occurs at the end of several bars of the same direction, it could be a reversal signal, especially if it has a long wick.

BALANCE BAR

DOJIs

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Candlestick Midpoint The midpoint of each and every Candlestick is critical. Some feel the midpoint is the real price and movement above or below the midpoint is just noise. This may be true, but we can use that noise as a diagnostic tool! Many traders use the midpoint for the setting of all indicators, rather than the close. As stated, each bar is considered a battle. The close shows the momentum by the half it closes in. Added strength is given, if the close is below the midpoint. The nearer the close is to the edge of the bar, the stronger the momentum! A close at the very edge, with no wick shows the strongest momentum. This generally means the next bar will continue the momentum direction. If the Bears won, the close would be below the open. The bar would be printed red. The immediate momentum would be down. If the Bulls won, the close would be higher than the open, preferably with a close above the midpoint, in the upper quarter, and the bar would be green. The Bulls took the prices higher. The immediate momentum would be up. In the chart below the midpoints are marked on all the bars. There are four white Doji bars with an open and close at the same tick. The first bar on the left, had an open and close at the midpoint. It is a Balance Bar, a real standoff. The second Doji has an open and close above the midpoint but not near its extreme. This shows a standoff in the battle but the Bulls have a slight upper hand. This is a weak up signal, and notice price continued down. Further to the right, there are two Doji bars with the open and close slightly below the midpoint. This position of the open and close shows a weak signal. Observe the market continued up. This way of marking the Midpoint can be done with the Fibonacci Trading software. It is an indicator called the MPoint and works on any charting method. There are different methods of marking the midpoint.

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If there is a long upper wick, it means the Bulls took the prices high, but then the Bears took over and drove the prices down. Some call this a Spike Top Reversal Bar (STRB). It is an alert for a reversal. This is because at the close, the Bears were in control. It is stronger, if there have been several up bars preceding the printing of this bar. Here are some examples of Spike Top Reversal Bars. The lower the close the stronger is likelihood of a reversal occurring.

If there is long lower wick, the Bears took the prices down, and then the Bulls took over, and moved the prices up. Some call this a Spike Bottom Reversal Bar (SBRB). This is an alert for a possible down trend reversal; especially if there have been several down bars before the SBRB. The higher the close the more likely a reversal will occur.

If there is no upper wick on a green bar, that suggests a strong uptrend momentum. The next bar will probably continue up. If there is no lower wick on a red bar, that 50

suggests a strong down momentum, then the next bar will probably go further down.

The next chart shows how multiple charts can be analyzed. The mid points are shown with the right arrow as a marking symbol. Here the market starting from the left is in an upward momentum. However, there are Dojis, candles with wicks and long ones on every bar. This shows indecision. The Bulls and Bears are in a tug a war, pushing and pulling, a stalemate. Notice how low, the close level is on most all the bars. The midpoint showed the true momentum! At the bar with the orange arrow, there is even a close in the lower half. This is precisely why I feel seeing the close. The Midpoint says the momentum is up. The close gives the tip off momentum is weak, and to look for a reversal. This shows the upward momentum is very weak, and is a sign of consolidation. This says we are looking for a Breakout. In this instance The Breakout was to the short side. One would need to look at other indicators to determine a trading action.

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The chart below gives another example of how the candle sticks are read as a group. There are several green bars showing an up momentum. As we get closer to the top, the wicks get longer. The closes are at or below the midline showing the momentum is weakening. Then there is a white STRB Doji Candlestick and the close is at bottom, the opening. It is marked with the yellow arrow. This says the Bears are winning and pushing the market down. A momentum reversal is possible. One can see the market did turn down. However, there are still long wicks on the red Candlesticks. This says the reversal is not strong.

Next we will look at multiple candles, and then at groups.

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Tweezer Candles If, there is a green bar with no wick at the top, and the next bar changes color to red with no upper wick, it says the momentum has been struck a blow. This says the market may reverse. It is a strong alert for a reversal! This is called a Tweezer Top. As an alert it says look to other tools immediately! A classic example is seen in the chart below. The candles are very tall and there are no wicks. Tweezers work best if the candles are very tall and long.

The next chart shows a Tweezer Top in the yellow box, but the bars are shorter. This is still an effective tool. It is not as strong as when seen with taller bars, shown in the above chart. There were several green bars showing an upwards momentum. Remember several bars preceding a signal bar of the same color gives more weight to a reversal. It shows exhaustion. At the peak there was a wickless green bar. Then there was a red bar with no upper wick. The sudden change is the key for a momentum reversal. The market did reverse and turned down. When one sees a Tweezer, it is a heads up to check other tools to confirm a reversal.

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If there is a red bar with no wick at the bottom and the next bar does not continue the momentum down changing color, it is a strong alert for a trend change! This is called a Tweezer Bottom. An example is seen in the next chart in the yellow box. Like the Tweezer Top, this is particularly strong if the red bar with no bottom wick is very tall. Again, it is also more powerful if the Tweezer Top or Bottom is preceded by several bars of the same color allowing exhaustion.

The chart below shows another Tweezer top. In this instance, there are wicks. The Tweezer concept still works, but it not quite so powerful. The rules are still the same. There are several green bars leading up to the Tweezer developing exhaustion. At the same tick peak level, the next bar turns down. This is marked with a yellow horizontal line. The close of the reversal bar is near the lower edge of the bar. Again, the sudden change with exhaustion is the key for a reversal alert!

On tall Candlesticks, the reversal may occur, if the peak candles are within a tick or two of each other. 54

Inside Candlestick Bars The next chart shows an Inside Bar. It is an alert for a turnaround and possible reversal. There are some important parameters to consider. First, there should be a Candlestick of significance, and it is called the Signal Bar. One instance of a significant Candlestick would be a very tall bar. It could occur, and is best, at an important Alert Level or Retest. It should follow several Candlesticks of the same color showing strong momentum. When momentum has been running there is exhaustion. The range of the next bar, after the Signal Bar, must be within the high and low range of the Signal Bar. This is called “an  Inside Bar”! The Breakout of the high or the low, of the Inside Bar, is usually the direction the momentum will then take.

An example is seen below in the yellow box at the yellow arrow. The Signal Bar was green preceded by several other green bars. The Inside Bar was red, further substantiating a reversal was probable. I have marked the low of the Inside Bar with an orange line showing The Breakout level. The market continued to drop.

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The next chart shows an Inside Bar action, for a down momentum reversal to the upside. There were several red bars leading to a much taller red bar with seemingly strong down momentum. Then there was a green bar. This is a Tweezer Bottom saying a move to the upside is probable. This is also an Inside Bar, and is marked with a yellow arrow. The high and the low are within the high and the low, of the Signal Bar. Thus, we have two tools saying an up move is possible. The fact that the following four bars couldn’t  go  any  lower  establishes  a  barrier  called  Price Action Support and is marked with a purple line. This will be discussed fully later. This is a third indication that a reversal is probable. This example shows it took two additional bars before the high or the low of the Inside Bar was broken. I have marked the high of the Inside Bars with an orange line. When it was broken the market did indeed reverse.

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There are Outside Bars as well. Obviously,  the  Outside  Bar’s  range  must  be   greater than the Signal Bar. I do not find it as consistent or effective as the Inside Bar. Therefore, I use the other Candlestick concepts and other indicators for trading analysis. There is another tool in Candlesticks I use and simply call the Short Bar. It is an alert for a possible reversal and says check all tools. It must be very narrow, squat and preferably has a color change. It must follow several tall bars of the same color, or it is not valid. Again we are looking for exhaustion. It is most effective when the preceding bars are very tall. The next example shows a Short Bar at the purple arrow. This one has a color change, and a close below the midpoint. Price will probably drop.

The next chart shows a Short Bar after several long tall bars. It is marked with a yellow arrow. This shows the down momentum is weakening. It is a standoff showing indecision, and is an alert for a reversal. It says to start checking other indicators to confirm a momentum change. It simply says, a stall is possible in this down movement. This is because of the relative size, it is much smaller. It is also a SBRB with a close above the midpoint. There  wasn’t  a  color  change,  but   still showed a relatively smaller bar than the preceding three. The market did reverse. There is still a question,  “Is  this  a  reversal,  or is it just a stall or a rest in the  market  momentum?”  Other tools will give the answer. 57

Many say candle sticks are not viable below the 15 minute time frame. Therefore, in my normal trading, I use other indicators to verify and confirm any Candlestick action. One cannot trade one indicator or one aspect of an indicator like an Inside Bar or a STRB alone! I  wouldn’t trade Candlesticks alone, but as an adjunct, I find them extremely helpful. We have just explored the basics of my Candlestick use. Next, I will discuss and give examples of Candlesticks in daily use.

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CANDLESTICKS: I  have  added  yellow  lines  rather  than  the  small  x’s  or  arrows  to   show the critical midpoint of each Candlestick, white lines to show the range of the four bars examined, and a purple line to show the midpoint of the range of the four bars. These lines would not be present on the actual chart. They need not be drawn while trading. The first bar, on the left, shows the open at the bottom of the green body, with a close at the top edge of the Candlestick. This says the Bulls are stronger, and the Bears weaker, as they couldn’t  push price down below the close. The Bulls are in command, and in the next bar, should take price higher. The next bar is a Doji STRB. Price did go higher, but the Bears took over, and pushed price down. The Bulls tried to take over again, but there was a standoff at the close, with no one strongly in command. The close was in the bottom half, close to the low, saying the Bears have a slight edge and price should go lower. In the third bar, which is red, the Bulls tried to take price higher. The longer wick at the top says the Bears gained control. They drove the price down, with a close well below the midpoint. The Bears are in charge. The price should go lower in the next Candlestick, which it did. In the fourth bar of this analysis, price did go lower, but the Bulls are fighting back, and have taken price up to the midpoint at the close. The Bears are dominant but the SBRB says to exercise caution. At this juncture, we could look at the four bars as a group. The white lines indicate the high and the low of the group range. The purple line shows the midpoint of the four bar range. The final close, of the four bars, is below the midpoint of the range. This gives the Bears an edge for control. One can see trading analysis is not simple. No single indicator or a facet of any indicator is absolute. We will explore in further chapters, the use of other indicators to give us a stronger methodology to trade. Just take it one step at a time, build on each prior step, and with substantial screen time trading can be mastered!

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CANDLESTICKS: There are yellow horizontal lines, showing the critical midpoint of each of these three Candlesticks. The first candle stick is red and shows a close below the midpoint, at the extreme low of the bar, this tells us the Bears are strongly in command, and should take price lower. The lack of wicks say the Bulls did not put up much of a fight to take price higher. We are seeing the close of the bar, which is essential when trading. Before the close price may have gone up and down several times, but obviously never went above the open in this bar. The Bears did take price lower but then the Bulls took command and drove price higher. The close at the open is a Doji showing the Bulls and the Bears were in a standoff, at the close. With the close above the midpoint, and at the extreme high of the bar, the Bulls have the upper hand. Price should probably go up. This did happen on the next bar. There are no wicks. The close at the extreme high of the bar, says price will probably go higher. Please note however, the Bulls over ran the Bears and created a reversal in only one bar. This could easily happen in the next bar with the Bears taking over. I hope it is obvious now one chart and one tool is not sufficient to trade. One simply must use multiple charts and multiple indicators to give a strong edge to trade any instrument, be it commodities, financials, stocks, or stock index futures.

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Below is a more complex analysis. I have drawn boxes to show groupings. This goes beyond an individual analysis. This explains how my thoughts would work in a trading session. The red box on the left shows two green candles with no upper wicks saying we are in a strong up trend. The next orange box shows two Doji bars and a green bar with wicks. This shows indecision, and says the momentum is weakening. A stall or reversal might occur. The next blue box is a Tweezer (within one tick). It is a tall bar with a very low close. It says yes, a reversal is possible. The next five bars in the gray box show indecision. There are wicks with alternating red and green bars, followed by two Doji bars. The second Doji has a high close so the Bulls are gaining control. One could say the turn around to the downside is weak. One would avoid shorting now, and look for an up move. The purple box shows the uptrend resumed, and went for several bars. I hope this shows how one must be continually monitoring each Candlestick, then a group and then the groups. One could trade just using Candlesticks but it would not be as efficient as adding other indicators. Trading then becomes more efficient. Professional Candlestick traders use a more complex system, but I prefer to add other tools instead.

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Moving Average Methodology Moving Averages are placed on various data bars including Candlesticks. They show the current average, for a specified number of bars back, from the most current bar. One could use any facet of the data bar as the key for analysis. I use the Close of a selected number of past bars. One would add the closes, and then divide by the number of bars selected. This gives the average close of the bars. One can then draw a line showing the evolution level of the average. When a new bar is added, the first of the preceding group is dropped for calculations. The moving average line stays continually, and shows how the market is advancing. The Three Moving Average Methodology is by far and away the most important indicator I have found and used. Moving averages have been used since the beginning of trading. They are an aid in determining momentum. The steeper the moving average is the stronger the momentum. The drawback is, they are lagging, as they are using prior periods for calculation. This means the Market may have turned or reversed before the MA tells! To use them effectively, one must really shorten their length. Then one gets too much “noise” or volatility. This leads  one  to  “churning”,  getting  in  and  out  quickly,  taking too many trades and probably mostly losers. To eliminate these problems of moving averages, some use 2 or3 moving averages together. It is the cornerstone of my trading system and will help to override any other tool. If I could only use one tool for trading, a 3 EMA method would be it. It is head and shoulders above all the others, I have tried, and they are too numerous to mention. The 3EMA system is extremely helpful in entries, staying with and exiting a trade! I have found my choice of lengths for the three moving average system to be extremely effective. They are the 3, 5, and 13 periods. We will also use exponential moving averages. They give a very slight edge above the regular moving average. It puts more weight on the most immediate preceding bars. It is designated as EMA. The 3 and the 5 period EMAs are very short in duration thus producing little lag. The 13 period EMA does produce lag, but it smoothes the volatility. This helps establish the momentum for the bars being analyzed. Some may use a 15 period EMA, but I prefer a 13. It is a little shorter, and is a Fibonacci number. In summary, we have eliminated a good deal of lag, but smoothed the volatility for basic momentum determination. The 13 period establishes the momentum for the chart. If it is flat, on any of the charts used for analysis, there is no momentum. One should not be trading at that time. This system is almost magical. The 3 and 62

the 5 EMAs show immediate momentum strength and direction, by the steepness angle as well as by separation between the EMAs being used. There  is  a  term  “Trading  Price  Action”  This  means  trading  what  the  market  is   actually doing at any instant. I have seen this 3EMA method, is as close to true price action as one can reasonably trade. I have traded this method, without the Candlesticks or other indicators, and it is quite effective. I made the price bars black, so I had nothing to see, but the EMAs. However, using Candlesticks and additional tools is much more effective. Here is a chart below showing a 3 EMA Setup with the Candlesticks.

Some say Richard Donchian was the developer of the three moving average system. Some call him the father of trend following trading. I have not read his books so this is my way of using a 3 EMA system. In addition to being great for entries, it is the best “stay with” indicator and the best exit indicator, I have found in all my years of trading! The basic concept, of a single moving average, is that one should be long when the midpoint of a price Candlestick is above a Moving average line, and short, when the midpoint of the price bar is below the Moving Average line. The longer the EMA period used, the more the line will be away from the midpoint of the 63

price bar. This can be vague at times with the shorter moving averages, so many simply use angle steepness to determine if momentum is moving up or down. In the chart below left, I have shown two moving averages. The shorter period of 5 is in blue, and a longer period of 13 is the purple line. This shows up momentum. The chart below right shows down momentum. Both are shown to clarify the concept of trading with a single moving average, not a two EMA system methodology. I have used different colors than I regularly use, for clarification of a single EMA system. One can see the shorter period EMA is closer to the Midpoint.

This chart on the left shows the shorter EMA is slightly below the midpoint of each price Candlestick. The longer EMA is well below the midpoint of the candle stick. Both meet the criteria for a long position. On the right above, the shorter EMA is definitely above the Candlestick midpoint. The longer EMA is even further above the Candlestick price midpoint. One’s  temperament  would  suggest  which EMA to use. This could be determined with a great deal of screen time. In any case, a single moving average can be an effective tool. The EMA, of a single moving average, is an aid in determining whether to be long or short. Notice in the next chart how close the 3 EMA is to the midpoint. This captures true price action as the slightest variation up or down is seen immediately. By itself, it would not be effective for trading, as one would be whipsawed in and out of trades.

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The concept, with two moving average lines, is to use both a crossover, and price position relationship. Two EMAs gives added strength to an analysis. If one is in a long trade, the shorter yellow EMA will be above the longer orange EMA, and both will be below the midpoint. We still follow the same concept of midpoint to the line position. The benefit of the second EMA is giving an additional entry and Exit Signal. When the shorter EMA crosses below the longer EMA, an exit could be taken. A short entry could be placed as well. This is seen in the chart below. In the red box, the yellow shorter 3 EMA crossed below the longer orange 5 EMA. The midpoint of the price Candlesticks is generally below the EMAs, so one could short or sell. The angle is shallow however showing momentum is weak. In the green box, the shorter EMA crossed above the longer EMA. The EMAs are generally below the Candlestick midpoint, saying one could go long. Notice also, the angles of the EMAs are steeper, than in the red box, saying momentum is stronger. Even when there were white DOJI Candlesticks, and a red candle stick at the white arrows, the  3  didn’t  cross  below  the  5EMA.  This  says  don’t  exit, stay with the trade. One can see, adding a second EMA gives a stronger verification of the immediate momentum. The crossover gives stronger confirmation for a trade entry or exit!

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The next chart below shows the complete EMA system with a 3, a 5 and a13 EMA. When the 3 is below the 5 and the 5 is below the 13EMA, there is a down momentum. When the 3 is above the 5 and the 5 is above the 13EMA the momentum is up. Please note this is for momentum, and  doesn’t  by  itself   establish a trend! However, a momentum as determined here is tradable. Again, a cross of the 5 EMA by the 3 EMA is a warning of a possible momentum change. If one were in a trade that would be an Exit Signal. The crossing of the 13 EMA by both, confirms a momentum change. If in a trade it is a failsafe exit. It could be an entry for a subsequent trade. Remember, if the 13 EMA is flat, one should not be trading as there is no momentum. Keep in mind, the steeper the angle, the stronger the momentum. A steep angle is a must for trade success. Also, one must be sure there is good separation between the EMAs. There should be a larger separation between the 5 and the13, than the 3 and the 5 EMAs.

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The 13 EMA is like a line in the sand. On the Trend Chart, it determines the basic momentum. It is a Support - Resistance level to be discussed. If price is above it we are looking for longs. If price is below it we are looking for shorts. Similarly, if the 3 and the 5 are below the 13 EMA, we are looking for shorts. If the 3 and the 5 EMAs are above the 13 EMA we are looking for longs. A change in the direction of the EMAs, on the Trading Chart, could be a pause, a Pullback, or a rally, before returning to the basic momentum of the Trend Chart. The 13 EMA on the Trading Chart establishes the immediate momentum. A cross, of the shorter EMAs, could be an alert for direction to change on a Trend Chart. Of course, the Trading Chart could return to the Trend Chart direction. If one were to enter a trade opposite the Trend Chart, it would initially be a Countertrend Trade. It might prove to be a trend reversal trade in time. It is important to note again, trades should only be taken at Alert Levels. If the EMAs, on the trading and Frontrunner charts change direction, one could look to see if the EMAs are leveling on the Trend Chart. If they are, then the immediate reversal on the shorter term charts could be a start of trend change. If the Trend Chart has a 13 EMA, that stays flat for several bars or more, it is a stand aside signal. There will probably be congestion in the Trading Chart. So, price may be erratic and signals will have little follow thru. In the 13 minute chart below on the left, the white 13 period EMA stayed relatively flat for 90 minutes. During the same period on the 3 minute chart to the right, price stayed in a trading range. This could have been scalped, taking 2 or 3 ticks shorting at the top white line, and buying on a bounce off the bottom white line, but it would be risky.

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A summary of the basic concepts regarding the 3EMA system include the following: When the 3 crosses the 5 EMA and then the 13 EMA a momentum cycle is initiated. When in a long trade, the 3 crossing below the 5 EMA is a signal for at least a minor momentum change, and probably an exit. Both crossing the 13 is probably a momentum change and a definite exit. The strongest trend is when the EMAs are steep. A good separation between the 3, 5 and 13 is ideal. A leveling of the 3 and 5, but not crossing, shows pause in the momentum. When the 3 and the 5 resume momentum, it is a continuation entry signal. One should never, ever enter a trade if the 3 is against the trade direction. (As an aside thought, the 13 EMA is used both for the Moving average system and the Blau Oscillator Method to be discussed next.) The 3EMA System uses Sub Chart 1 only. The 3 EMA line is yellow, the 5 EMA is orange, and the 13 EMA is white. At the yellow arrow, the 3and the 5 EMA moved above the 13 EMA. This says a new momentum is starting up. At the green arrow we get a bar with a close above the 3 EMAs. This would be an alert to go long and is called the Signal Bar. There was good separation between them. If the 3, 5 and 13are almost or actually touching, as seen before the yellow arrow, there is indecision. Thus, it is a sign to stand aside. If in a trade it says to be very cautious and consider an exit. At the top, at the white Doji STRB, marked with the red arrow, the 3 and the 5EMA turned abruptly down. This confirms the Doji statement; the Bears have taken over. This would be a signal to exit the long trade. At the purple arrow, the 3 EMA again turned abruptly up. This is an Exit Signal if one had taken a short position. It also says, price may resume its upward momentum.

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The 3EMA System At the bottom green Candlestick to the left, at the green arrow, the 3 and the 5 EMAs turned abruptly up. There was fair separation between the 3EMA and the 5. There was good separation between the 5 and the 13. And of course, the 3 EMA was above the 5. This would be a signal to go long. At the red arrow the 3 EMA leveled. This is a time to tighten Stops or exit. If the 3 EMA crossed below the 5, that would signal a definite exit. It never closed below the 5 EMA here. When the 3and the 5 EMAs turned up again, at the yellow arrow, it said to stay with the trade. If an exit had been taken, another long could then be taken.

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The PUP/KISS Another aspect of the 3EMA system is called the Price Up Breakout or simply stated, a PUP. Others call it the KISS method. I use the term, PUP for this concept in an uptrend. In a downtrend, I use, an Inverse PUP. Some say long PUP or short PUP. Collectively, I call them PUPS. They are mainly a trend continuation, or a stay with signal if in a trade. It can be an entry signal, if not already in a trade. It could also confirm an entry for a Countertrend Trade. The theory is the 3, 5 and 13 EMA’s  should be in a strong momentum. This is established by the 3 being outside the 5EMA, which is outside the 13, with good separation between them. More importantly, they should be in a steep angle. The 3 and the 5 EMA flatten or level off. The 13 continues in its steep angle. If, and when, the 3 EMA and the 5 EMA resume trend direction it is a trend continuation signal. This can happen in a couple of bars or several. The 3 and the 5 might actually touch the 13 without crossing. This is why some call it a KISS. If one is in a trend trade, the 3 and 5 level, but do not cross, one could stay with the trade. One can enter or add on contracts, when the 3 EMA and the 5 resume the momentum. Examples are shown below. In the first chart below are two PUP/KISS examples. At the purple arrow all the EMAs are moving steeply up with good separation. In the purple box, price drops and we get a red Candlestick and a Doji. If one were trading using Candlesticks as the only tool, one might exit. The PUP will help us more accurately decide. The 3 EMA  levels,  then  turns  up  again.  The  5  EMA  stalls  but  doesn’t  level as much. The 13 EMA maintains its upward momentum. The 3 never crosses down below the 5 so no exit should be taken. When the 3 EMA turns up with a bar close, at the green arrow, the PUP is complete. The PUP says stay with the trade or to enter a new position. The PUP is more effective than just Candlesticks, in helping us with the trade. This is a small PUP but is tradable. The entry would be one tick beyond the close of the bar that completes the PUP. In the green box, price again drops and there is a red candle. Some would exit a long position then. The 3 and 5 EMAs upward slope reverses down, and then they level a bit. The 13 EMA stays steeply up. The 3EMA never crossed below the 5EMA  saying  don’t  exit.  When the 3 and the 5 EMAs turn up again at the yellow arrow completing the PUP, an entry could be taken. In reality we would use other periodicities and other indicators to confirm an entry. I hope one can see how this simple tool of the 3EMA system is a valuable aid. 70

The next chart shows an Inverse PUP. In the purple ellipse, there is a moderate downtrend. This is shown with the EMAs all moving slowly and erratically down. There is poor separation. This is consolidation, and this says stand aside. Price has only moved in a two tick range for over an hour. In the orange ellipse at the gray arrow, the 3 and 5 EMAs level, then turn more steeply down This happens in the consolidation so it is not a strong signal. Next, there is a Breakout short at the purple arrow marked by the yellow level line. This would not be a strong entry. With the green STRB, price jumps up. The 3 and the 5 EMAs turn up, but do not cross, nor do they cross the 13 EMA. The 13 EMA stays in the angle down. Then, the 3 and 5 EMAs turn down again. This action in a down cycle is an Inverse PUP. The Inverse PUP was complete with a bar close after the 3 and the 5 EMAs turned down. In this case it was complete with the close of the white Doji bar. The Inverse PUP gave stronger confirmation for a short entry. I entered when the Swing Low bar at the red arrow was taken out at the red horizontal line. The trend was steep, and there was one bar up albeit a spike in the Inverse PUP. It is marked with a green arrow. This gave a stronger entry. At the white ellipse, the 3 crossed above the 5 EMA and then both crossed above the 13 EMA ruling out another Inverse PUP. This shows the momentum and possibly the trend is reversing. The essence here is the Inverse PUP actually gave a stronger entry confirmation for a down momentum trade.

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The next chart below shows more Inverse PUPs. There are 3 within the orange ellipses. This shows how the PUPs will keep one in a trade. Rather than panicking at the first sign of a color reversal with the Candlesticks, or seeing Doji bars, one should be looking for an Inverse PUP, which says stay with the trade. Believe me staying with a trade is easier and much more profitable, than exiting and reentering in this down move. This is the primary use of PUPs. The white ellipse shows a cross of 3 going above the 5 EMA. This crossing rules out another Inverse PUP. It says the down momentum has stopped and may be reversing. An exit should be taken at this juncture.

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Below is another example of an Inverse PUP. In the orange box the 13EMA white line was in a downtrend but not steep. The 3 and 5 EMAs had just crossed below the 13 EMA which might be a short. The EMAs are very shallow saying a short position, would be very weak. The 3 and 5 EMAS then leveled off, which also said to wait for an entry. When they turned sharply down, a short entry would be more likely to succeed. Ideally one would wait for a close of the Signal Bar. It is marked with an orange arrow. An entry would be the first tick in the direction of the trade after the close, which is marked with a white arrow.

In summary the basic rules of a PUP state there must be a strong established momentum. The 13 EMA must stay with the momentum, and should be steep. The 3 and the 5 EMAs can level or reverse. They should not cross and cannot cross the 13 EMA. When they resume the momentum with a closed bar, the pup is complete. A PUP is a trend/cycle/momentum Continuation Trade.

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Trading the 3EMAs Only To show how effective the 3EMA system is, I will post below a chart showing just the 3EMAs and the Mpoint. The midpoint of each price bar is the purest moving average. The moves above and below are just noise. We can use that noise information though. The concept is to take a short when the 3 goes below the 5 and both below the 15EMA. We exit when the 3 crosses above the 5EMA. We go long when the 3 goes above the 5 and both go above the 15 EMA. We exit when the 3 crosses below the 5EMA. This is simple and straightforward. If one had taken a short entry at the red line at 1.4374, and exited at the yellow line at 1.4334, one would have gained 40 ticks! If one took a second short at the purple line at 1.4332 and exited at 1.4318 at the orange line, one would have gained another 14ticks. You can see the 3EMA system is quite effective by itself!

This is what one must see, even when we have wicks and color. If a trader is short and sees a green candle, a panic exit is often taken. An instant later the price may move down again. If one were watching the EMAs an exit would have been avoided. Being able to focus on the moving averages will certainly help one to become a master trader!

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Blau Indicators W. Blau was a pioneer in electronic Trading. He was an electrical engineer with a strong  mathematical  background.  His  book  “Momentum,  Direction,  and   Divergence”  is  a  classic.  For  many  the  math  is  hard  to  understand  especially  if  one   has not had some college math. The charts and graphs are factual but not esthetically exciting. Consequently most traders have not read his book. He took classic very good oscillator indicators and made them better. I have used several of his indicators, and explored many others he developed. The three I am using now I find to be the best and I recommend them highly. However, I would advise the reader to definitely  read  Blau’s  book and to explore his other indicators and make one’s  own  selection. Blau used oscillator indicators formatted with two lines crossing, and Histograms with Signal Lines with Krausz. I prefer Histograms and Signal Lines as they are a little easier to read. It is important to note all oscillators using Histograms have the same appearance, and are read the same. However, I believe the success using the Blau indicators is head and shoulders above most all other oscillator indicators. I will discuss all three indicators developed by W. Blau that I prefer. I have found I prefer different Blau indicators for different instruments. I will show the ones for the ES, Euro and the Bonds. Some may use all three on each instrument. Some could trade using only one. I have found two to be just right. The choice should be chosen by the reader. To study the indicators, one should backup the Fibonacci Trader software charts, and move forward one bar at a time, with each oscillator on each instrument. Spending a week end doing this will be of great value. This helps to develop confidence and familiarity with the indicator. The  question  again  is  ”Are  you  one  of  the  traders   committed to do the work necessary to become a trader or will you be one of the  90%  who  fail?” The Blau Indicators are found in the Fibonacci Trader Software under W. Blau Indicators. I promote the Fibonacci Trader Software. They work extremely well. This is where Blau and Software Founder Robert Krausz worked together to develop, and promote these important tools. I have found the software to be consistent with few problems. I have used it for years. I know they are found in a few other software packages. Fibonacci Trader Software has worked continuously to improve and refine the Krausz software. I choose to support them. I only use and recommend Fibonacci Trader Software. I do not know about other software packages and cannot answer questions regarding others. 75

The first I use, is The Ergodic Candlestick Oscillator-ECO. It is based on the moving average of momentum change instead of price close. Simply stated Blau’s   momentum is based on the percentage change from one bar to the next. Robert Krausz, who developed the Fibonacci Trader Software, used it also. They were important leaders in trading. My use comes directly from Blau’s book, titled “Momentum,  Direction,  and  Divergence”. When reading his book, the calculations may be difficult for some, including yours truly, but his concepts and indicators are some of the best I have found for trading! They may be used on any time frame or any instrument. The book is available from Amazon.com on line. Blau traded a simple crossover system. If the histogram crosses below the Signal Line he was short and only exited when the histogram crossed above the Signal Line. Of course the opposite theory is used for longs. I have some nuances beyond his use that I will discuss later. I feel the nuances make his tools even more successful. The three moving averages set a base to use these indicators. The Blau indicators may be shown with the Histograms in gray or color coded with a colored Signal Line. Each version is seen in the two charts below. In general I prefer the color coded. All Blau indicators have Histograms marked with red arrows, a Signal Line marked with yellow arrows, and a Zero Line marked with purple arrows. The Zero Line is of minor importance as we are mainly concerned with direction and, if used, histogram color. Never the less, when the Signal Line is above the Zero Line up momentum is even stronger, and when crossing above, it gives strength confirmation. This is true for the opposite in down momentum.

The second is the True Strength Index Ergodic-TSIE. It is based on Wilders True Strength Index. Blau improved it and it is much more efficient. I am showing 76

below first, the non colored coded and then the color coded version. Again the Histograms are marked with red arrows. The Signal Lines are shown with yellow arrows and the Zero Line with purple arrows.

One can also see the red Over Bought line and the green Over Sold line. They are drawn manually. The third Blau indicator I use is the Stochastic Momentum Index - SMI. It is based on George C. Lanes Oscillator known as the MACD or Moving Average Convergence - Divergence Indicator, and is also greatly improved by Blau. The basic premise of all Blau indicators is when the histogram is above the Signal Line one should be long. When the Histograms are below the Signal Line, one should be short. Please note again the trading decisions are referenced to the Signal Line, not 77

the Zero Line. My refinement is that one should be long when the Signal Line is pointing up steeply and above the Histograms. One should be short, when the Histograms are steeply below the Signal Line and pointing down. The important element is that the steeper the angle of any Blau indicator Signal Line the stronger the momentum. Further nuances will be discussed later. Notice all Blau indicators appear the same, so they are easily learned and used. They are also all interpreted the same regardless of time or instrument, again simplifying use. The default of all the Blau Histograms is to have red below the Zero Line and green above the Zero Line. If the Histograms are above the Zero Line it strengthens the long momentum. If the Histograms are below the Zero Line, it strengthens the momentum for shorts. This is not as important as being above or below the Signal Line or the steepness importance, however. One can make the Histograms all gray, or color coded when the Histograms are above or below the Signal Line. I now use color coding of green above the Signal Line, and red below the Signal Line on all my Blau Indicators. The examples in this book, have been collected over a long period, thus some have gray Histograms. The screen capture below shows the color coding for green above the Signal Line and red below the Signal Line. This is most effective. I use this all of the time now. Notice the red lines on the chart below. They are the Over Bought line above and the Over Sold line below. When the Histograms are above the red line, it says the market is running out of buyers. When the Histograms are below the Over Sold line, it says the market is running out of sellers. When the Histograms cross into the normal range, one should exit any positions. If price is above the Over Bought line it says to exit if in a long position or to think about taking a short position possibly. The opposite is true for Over Sold below the lower red line. They are set at 75 which I find to be accurate. It is questionable to enter long above the 75 or short below the 75!

When all the Histograms are pointing up and green, one is long. When all are pointing down and red, one is short. At entry the Histograms must match the candle stick color and the direction of the EMAs. After entering, the Histograms may be in opposition to the EMAs, but then, it is a caution signal only. It does not 78

say an exit must be taken. The EMAs then take precedent over the Histograms. The histogram colors generally match the Candlestick color, which simplifies chart reading and consequently trading analysis. In addition to confirming entries the Histograms help the trader to manage the trade. Below is the color coded SMI:

Next is the color coded ECO:

One can again see how accurate the colors are to delineate whether the position of the histogram is above or below the Signal Line. Remember the Zero Line is not as important but does confirm more strength. Remember all trades are taken only on the close of the bar. One could set the bar to show the color change when crossing the Signal Line before the close, but I must be emphatic and say trade only on bar close. There are two minor problems when using this histogram color coding. The first is seen below. It concerns the conflict of seeing a green histogram as in Sub Chart 3 below, but  with  shallow  EMAs  which  say  don’t  trade.  One might be lulled into thinking just because the color is green it is OK to enter a long trade. When the Blau Histograms, Signal Lines and EMAs are shallow as in Sub Chart 2, one should generally be flat, sitting on your hands so to speak.

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The second minor problem with color coding is that price may be reversing indicated by the Blau histogram changing direction. But the trader may not be alert to a possible change of price if the histogram color has not changed. Therefore one must still be watching the direction of the Histograms. The following chart shows two Blau indicators with orange ellipses and orange vertical lines at points in time where a reversal is occurring albeit a minor stall. None the less, one might have taken an earlier exit. There are purple ellipses where the Histograms reversed and it was the beginning of a reversal. The reader can see how important it is to still watch the histogram directional change.

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I have used the ECO for years and have traded with all three of these Blau indicators and eliminated each one at times. Some may select different ones, but I like the TSIE and the ECO on Bonds. For the ES and Euro I prefer the ECO and SMI. Blau does have other indicators and they are excellent but I find these three to be the best for me. One should experiment with these indicators and see if they concur with my selection. One  should  read  Blau’s  book  and  check  out  all  the  indicators.  One  might   even prefer one of others of the many he presents. 81

For the ES and Euro, I also like the SMI in Sub Chart 2 and the ECO in Sub Chart 3 as seen below.

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Blau’s  True  Strength  Index  Ergodic The T-S-I-E  is  based  on  Lane’s  True  Strength  Index  that is long considered one of the best indicators. Blau modified it and improved it by using momentum instead of price. Momentum is the difference in change of price from one bar to the next. He took a moving average of the momentum and a second moving average of that result. This is called double smoothing. This reduces lag which is the problem with most indicators. The term Ergodic refers to the additional math of the double smoothing. The concepts and formulas are explained thoroughly in Blau’s  book   “Momentum, Direction, and Divergence”. We will review the basic concepts of the T.S.I. E. and then the methodology. For my work, I have selected a 13 or 15 period exponential moving average on the price bars. Ideally the EMAs should be parallel with the Signal Line of the Blau indicator as well as in the same direction. When the Signal Lines are flat or in opposition to the EMAs, one should be on the sidelines. It is just as important to know when not to trade. There are 3 positions when trading; long, short, or flat/out. One need not be in a trade all the time. Remember being out or standing aside is a position. When the indicators are mixed or weak, they are telling you to stay out. This is hard for beginners to comprehend. They want to be trading all the time. Actually for most of the day one is standing aside.

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This is a classic view of the TSIE although not color code on the Histograms. The upper Sub Chart has the three EMAs a 3, 5, and a13 period. The lower Sub Chart has the TSIE. It shows the Histograms with red arrows. The blue Signal Line is marked with the orange arrow. I consider the EMAs as my basic method and use the TSIE as an adjunct. Blau used an all in or all out method of trading. If the Histograms are below the Signal Line he was short. If the Histograms are above the Signal Line he was long. He was only out if the 13 EMA and the Signal Lines were opposite or flat. At the white vertical line the Histograms went below the Signal Line, and both were pointing down. This signaled a short but aggressive entry. I would not have taken the trade as the 13 EMA was flat. A safer entry would have been when the 3crossed below the 5, and then when both crossed the 15 period EMA at the red vertical line. That red bar SBRB was the Signal Bar. The entry would be one tick below the close not the low of that red bar. Usually there is little difference between close and low, but sometimes it can be substantial. After the red vertical line entry, a down cycle followed. There were three white Doji bars. Some traders might have exited the short when there was a Doji or SBRB, but the Histograms stayed well below the Signal Line. The 3 never crossed above the 5 EMA also saying stay with the Trade. When the Histogram crossed above the Signal Line a safe exit could have been taken. A possible gain of 12 to 14 ticks could have been made and on the bond that would have been $350.00 to $400.00 per contract. This also shows the ideal parameter of the white 15 EMA being parallel to the blue Signal Line

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Another use of the TSIE and other Blau indicators is the ability to show Over Bought and Over Sold conditions. I have manually added these lines on the TSIE but they are on the SMI by default. This simply means if price is above the Over Bought level, the market may be running out of buyers. There is a tendency for price to return to a normal price levels. Thus, one should be looking for price to drop when above the Over Bought level. Conversely of course when price drops below the Over Sold level one expects price to return to average levels so one should be looking for price to rise. This concept is mainly used as an exit tool. One should not take an entry when price moves beyond these levels. I draw the Over Bought / Over Sold Levels using the horizontal trend line tool, color them, and thicken them. They are marked with white arrows. If you use the “delete  all  lines”  with  other  drawn  lines  in the Fibonacci Software, the Over Bought Over Sold lines will be erased too, and then must be redrawn. I have chosen 60 as the levels above and below zero to determine those conditions. One could also try 70 or75. Price can stay beyond the overextended levels for a long time. If in a position the Exit Trigger is when Price crosses these levels and returns to the normal range within the Over Bought and Over Sold lines. This can also be part of an Entry Signal for a new position! The next chart shows the TSIE in Sub Chart 2. The green line shows the Over Bought level and the purple line shows the Over Sold level marked with white arrows. The Over Sold level has been crossed indicated at the blue vertical arrow. One can see when the histogram rose above the level, price did indeed reverse.

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Next is a full day chart with considerable data marked. This chart will be explored in detail later! I am showing it here only so one can see that when the Blau indicators are Over Bought above the red horizontal line, and when the Signal Line and the Histograms cross back down in to the normal range, exits could be taken. These junctures are marked with red vertical lines and confirms that concept. Each red vertical line with price crossing below the red Over Bought horizontal line indicates price did indeed drop. If in a trade an exit should have been taken. Other concepts of trade entry and exit will be discussed later as well as other markings on this chart.

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Convergence-Divergence Opposition A major use of all Blau indicators is Convergence - Divergence at swing positions. This is an extremely powerful tool with any indicator, but it is even more powerful and predictable, when used with the Blau Indicators! Basically price moves in a momentum direction. It pauses, rests or reverses. If price is in an upward momentum, and then falls backwards, a peak or high is established. If it drops for a while, then resumes upward a low is established. This is a swing or a pivot. The extremes establish peaks. These swings will also establish trends. The price peaks should match the indicator peaks. Interestingly, in technical analysis tradition, any variance between price and indicator is called “Divergence”!  When the lines of price and an indicator come closer together converging, it may be called up Divergence or positive Divergence. If the lines are separating moving further apart or diverging, it may be called negative Divergence or down Divergence. This makes no sense to me and I believe it is confusing for many. So when the lines or points are coming closer together I call it Convergence. When the lines or points are moving away from each other I call that what it is, a Divergence. To most accurately analyze Convergence or Divergence we relate the Signal Lines to a moving average of price. For my work I use the 13 EMA as the key. For the strongest momentum, we want to see the 13 EMA parallel to the Signal Line. We would want both to be pointing steeply up for longs, and steeply down for shorts. The 22500 ES volume chart is below. I have marked two sections in rectangles. The first is in yellow. Notice the white 13 EMA is virtually flat as are the Signal Lines on both the SMI and the ECO. Although the Histograms are green the Signal Lines are shallow or flat! This is not tradable and is a stand aside signal I have emphasized these lines with purple lines. In the orange rectangle the 13 EMA is steeply up as are the signals lines. A long position would now be tradable. I have emphasized these lines in gray.

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Convergence - Divergence is an important tool with any indicator, but it is especially effective on all the Blau indicators. It is a very powerful adjunct to the basic use of the Blau indicators. Blau’s  basic  stand  aside  signal  is  seen  when  the   13 EMA is up and the Signal Lines are down, or when the 13 EMA is down and the Signal Lines  are  up.  I  call  this  “Opposition”! One should not take an entry when there is Opposition on your Trading Chart! Remarkably the Opposition tells us something beside stand aside. If the 13 EMA and Signal Lines are in Divergence, this says price will probably drop, when a juncture is reached at an Alert Level. If the 13 EMA and Signal Lines are in Convergence, this says price will probably go up when an Alert Level is reached! So, Opposition not only tells us when to stand aside, but effectively predicts price direction in the near future. 88

Convergence or Divergence can be overridden on shorter term charts. This will be discussed in detail later, but this is risky. Some detailed information will be given to illustrate when it could be overrode. This Convergence - Divergence is a step forward from the basic use concept of the Histograms and Signal Lines. Blau spends a whole chapter in his book on Convergence - Divergence. He felt it to be so important, his title is “Momentum,  Direction,  and Divergence” (emphasis mine). He used the basic term of Divergence for both Convergence and Divergence. One need not use calipers to establish Convergence - Divergence, just draw lines generally. In the chart below there is an alignment of price, EMAs and histogram Signal Lines, where the price is dropping. This price and EMA dropping, is shown with a purple line drawn from the highest level to the lowest price level. I have drawn orange lines to mark the blue Signal Lines on the two Blau indicators in Sub Charts 2 and 3.All three lines are near parallel showing the same down slope. Thus, there is no significant Convergence or Divergence on these lines.

The parallel alignment of the 13 EMA with the Signal Lines is seen in the next chart below drawn with purple lines.

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Below is another example of Blau’s  basic stand aside signal, when price and the key moving average are moving in one direction, and the Histograms and Signal Lines are moving in Opposition. This is Divergence Opposition. Here one should not trade. This shows flat EMAS and price, but the Histograms are dropping in Sub Chart 2. In Sub Chart 3 the Signal Line dropped, rose then fell again. This is marked with purple lines where price was falling and the yellow line where price rose. A reversal entry would not be taken with the rising yellow Signal Line as there is still Opposition. Now, it is Convergence Opposition.

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The second example shows the 13 EMA rising with a purple line, but the signals lines are falling shown with yellow lines. This again is Divergence Opposition and says  “stand  aside”.

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Even if one may have a Grand Slam, all indicator colors and all lines pointing in one direction, but a Convergence or Divergence if present, could negate the GS. This concept of Convergence - Divergence Opposition is so important I use it on every trade decision! I am continually monitoring these arrangements throughout the trading session. The example seen in the chart below is to show Divergence opposition. In the orange box, the 13 EMA and the Signal Lines are near parallel. These are marked in yellow. This says it is OK to trade and since all were up and Histograms green, then longs were in order. In the gray box, the 13 EMA was up marked in yellow, but the Signal Lines were down marked in purple. This is Opposition and says stand  aside,  don’t  trade. It also says, when this Opposition is resolved, price should drop, which it did! The outcome is shown in the red box. Now the 13 EMA and the Signal Lines are parallel and pointing down. This of course says trading is OK, and shorts are in order. The Opposition called the trend reversal! One can see what a valuable tool Opposition is.

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Below is an example of Convergence Opposition with the resultant up move. The notes are in the sidebar. The red arrows and vertical red line show a short entry at 121.20. The entry was based on the 3 and 5 EMAs crossing below the 15 EMA and the Histograms dropping below the Signal Line. The green vertical line shows the cover/exit when the Histograms went above the Signal Line, and the 3 EMA turned up. The exit could have been 121.10 or 121.12 for a gain of 8 or 10 ticks. The TSIE was at the Over Sold level, signaling a probable reversal of momentum, and a good Exit Signal as well. From the green vertical line to the purple vertical line the 15 EMA and the Signal Line were in opposition, a stand aside signal. The EMA and price direction and the direction of the Signal Line are marked by yellow lines. This Convergence is an alert for a Breakout to the upside which did occur. At the purple vertical line, the Histograms moved more steeply above the Signal Line, which turned sharply up. The 3EMA crossed above the 5, and then they both crossed above the 15 EMA. Both indicators of the 3EMA system and the Blau indicator confirmed the Convergence long entry.

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The chart below shows another Divergence example. The Histograms are not color coded. The yellow line on the price bars show the second price peak was much higher than the first. On the TSIE however the second peak was lower than the first. This is Divergence. This is basically a nontrade time, but one must be aware that price could break down at any time, which it did. It is remarkable how often a short breakdown of price will follow Divergence. A short entry would be confirmed with the Histogram dropping below the Signal Line as well as the 3 crossing below the 5 EMA. This is marked with orange arrows. A confirmation and stay with trade signal would be both crossing below the 13 EMA. The yellow lines show the Divergence from peak to peak. Even if an entry is not given one must be aware that a price uptrend may be ending. If long one could possibly take an exit until the market resolves. I draw Convergence – Divergence manually as seen here, which I prefer as I can select varied longer interim peaks. Convergence – Divergence lines can be drawn automatically by the software. To do so right click on the chart options icon, select show indicator names. Then right click on the indicator name in the Sub Chart. A pop up box appears and Divergences can be selected. There are parameters that can be chosen; color thickness, etc. then the Convergence – Divergence will be drawn automatically. But, they are drawn on the prior two immediate peaks. They appear so frequently and on minor peaks which I feel clutters the chart and is distracting. I find them difficult to use.

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Here is a further nuance of opposition in the 15 minute Euro chart below. Basically it involves one only of the Blau indicators being in opposition to the EMA. Realizing the Blau indicators are in opposition, as marked with an orange  and  yellow  line,  is  a  stand  aside  signal  and  says  don’t  trade  now.  Here   the13 EMA is almost flat and neither Blau indicator is parallel. This also says stand aside. The fact the Blau indictors are in Opposition is a stand aside time.

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Some say they don’t  know  which  peaks  to  use  to  determine  Convergence Divergence. I will list some guide lines and give examples that might help. First, pick the two most recent clusters of histogram bars above or below the Zero Line of the Blau indicators. I use the TSIE and the SMI on Bonds. On the Euro and the ES, I prefer the ECO and SMI. Pick the highest bar from the two histogram clusters and draw a trend line from peak to peak or valley to valley. It is critical to connect the peaks from top to top or valleys to valley. Some call these inverse peaks. Normally, one would not cross the Zero Line when drawing the consecutive extremes. It can happen but it is not common. If the price Candlesticks are unclear as to which are the peak bars one could just draw a trend line on the 13 EMA from the same periods using the cross hair tool to match the peaks. The price peaks, usually match the histogram peaks with my settings, most of the time.  This  very  fact  that  they  don’t  always  match  is  the  reason  we  can  use   Convergence - Divergence. This is the brilliance of the Blau indicators. Frequently, the price bar high or low may be ahead or behind the histogram peak a bar or two. This is not as important as when they do not match in height. When drawing the trend lines it is just important to be close. It is not critical, but the larger the height variance the greater the strength of the expected move! Believe me, they must be respected even if very shallow! One can also use the Gann Swing Chartist to be discussed later to help select the important price peaks. Again, the difference in the height of the bars is more relevant than having the peaks match to the exact bar. In the next chart I have drawn orange ellipses to show the histogram clusters along with the price peaks established by the Gann Swing Chartist. When actually trading  I  wouldn’t  draw  the  ellipses, I would just visualize them. In the second chart I have drawn orange arrows at the highest points in each cluster ellipse.  Again,  I  wouldn’t  draw  these  when  trading.  I  am  showing them here as a training exercise only. These charts have the Gann Swing Chartist and help to define the points where the Convergence should be seen. One would need to check the cluster of peaks and valleys (or inverse peaks) on the Blau indicators to draw the matching Convergence - Divergence points.

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In the next chart below, I have drawn trend lines from peak to peak in yellow. Could one simply visualize these, yes of course? Sometimes they are close and hard to establish however. I usually just visualize them. One could use the Signal Lines or the Histograms for determining the peaks. I prefer the Histograms, but either is acceptable. Usually, one will draw the lines from inverse peak to inverse peak below the Zero Line or peak to peak above the Zero Line. They are especially useful at Retests to be discussed. One should look for valleys between the peaks.

If the Convergence - Divergence occurs at a support or resistance Fib Level established by Mark Braun, the Fib Levels reinforce the possibility of a stall, rally, Pullback or reversal tremendously. If there is a downtrend with a Convergence and it is seen at a strong Fib Level you can be very confident to take a long position regardless whether it is countertrend or not. 99

The obvious question is why is this crucial to know? In this chart above one can see the market is in a down cycle. One of the most successful trades we take, and seen here, is a lower Swing High sell. A Convergence marked with yellow lines as seen at the Higher Low marked with red arrows, says price may Breakout and go higher, or simply the downward trend may be over. This conflict in signals says be sure your indicators synchronize before taking a trade. In my experience I feel Convergence - Divergence is accurate at least 80 per cent of the time. One should also look for consecutive points over a longer period with the immediate swing being the most important. One must check longer time frames as well. One must develop a feel of what the market is doing to trade. One must look at the big picture, as well as just focusing on the Trading Chart. Over riding Convergence – Divergence will be discussed. The next chart shows Convergence that crosses the Zero Line. This is infrequent but does happen. When lines on the Histograms are drawn from the same peak as seen on price, you see a green histogram peak above the red histogram lows on both Blau indicators marked with white arrows. Connecting the second price peak definitely shows Convergence. I have drawn white lines connecting the lower extremes on the red Histograms. In summary, the lines connecting the green Histograms cross the Zero Line.

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Blau’s  Stochastic  Momentum  Index-SMI The Blau SMI is based on Dr. George  Lane’s  stochastic.  It is one of the most highly used indicators available. As Blau did with the TSIE, he added double smoothing which improved  Lane’s  work. I believe he made it a much more accurate Momentum indicator. The concepts and use are the same as the ECO (Ergodic Candlestick Oscillator and the True Strength Index Ergodic. Either uses a 13 or 15 periods EMA for trend confirmation and for a stand aside signal with my Setups. The Convergence and Divergence principals are the same. The default settings use on Over Bought / Over Sold feature as well at +75 for Over Bought and -75 for Over Sold levels. I have found these levels to be satisfactory. The Blau indicators do give slightly different readings so it is helpful to use more than one. Most traders will agree one indicator is not enough. I have found three; two Blau indicators and the 3EMA indicator, is excellent. These are so effective I don’t  think  more  are  needed.  An  advantage  of using  two  Blau’s  is that they are both interpreted the same and appear the same on any instrument. It is easy to see a GS a Grand Slam, all indicators in agreement. I like to keep the TSIE in Sub Chart 2 and the SMI in Sub Chart 3on the Bond. That is a personal preference. One might like to keep the Ergodic Candlestick Oscillator replacing either. Three are easy to watch, as they appear the same. I just have not found it necessary to have more than two. I have also traded with just one, but using two with the EMA method is for me more precise. I must restate the three indicators; 3EMA and two Blau indicators must be used together and at Alert Levels (to be discussed) for success. This also makes Countertrend Trades more plausible. The SMI seems to be more acute than the TSIE. Sometimes the SMI and the TSIE will get one in a little faster than the EMAs but when they are all together, one has a higher probability trade. For exits 2 of 3indicators confirming is OK, but for entries I must see all 3 in agreement.

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Here is an example of how the chart looks with the Candlesticks, EMAs and the two Blau Indicators. The appearance alone should illustrate how easy the chart is to study. These indicators work on any instrument and any time frame. Notice the green Over Bought and the purple Over Sold lines on the TSIE. On the SMI, both Over Bought and Over Sold lines are in red. The rectangle in orange shows a bounce off the TSIE Over Sold line at the white arrow. This was a tipoff that price could possibly reverse.

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Blau’s  Ergodic  Candlestick Oscillator Blau specifically mentions in his book, the use of the Ergodic Candlestick Oscillator is one of the best indicators for day trading. It is a double smoothed oscillator based on a Candle stick index, a type of momentum index. The math is beyond me, but after years of use I can tell you it is a very accurate indicator. I prefer its use on the Euro and ES, along with the SMI. The next chart shows an 8000 volume ES chart with the Blau SMI in Sub Chart 2 and the ECO in Sub Chart 3. The reading of the ECO is so close to the SMI with such little and subtle differences here one might question whether it is necessary to use both. There is clear Convergence drawn with yellow lines.

In the next chart below, one can see there is a discrepancy. Price went up and the ECO peaks did also shown with yellow lines. On the SMI as seen with a purple line, the peaks showed dropping indicating a slight Divergence. This says one 103

should be careful. Sure enough price turned down. So, when they are not in agreement I wait for definite alignment of the indicators. They did align and showed a reversal marked in the orange rectangle. The 3 and 5 EMAs turned down and crossed the 15 EMA. The Histograms dropped below the Signal Lines and if other tools said OK one could possibly have taken a short Countertrend Trade here.

The next example below shows conflict also, but this time the Divergence is seen in the ECO in Sub Chart 3. One tool out of synch is enough to prevent me from taking a trade. In this chart the trend was up, but price dropped giving a Pullback seen in the blue box. One would expect the trend to resume and continue upwards. The price peak moved up, and the corresponding peaks of the SMI moved up saying a possible upwards continuation. These peaks are drawn with yellow lines. The ECO in Sub Chart 3 however, shows the peaks dropping. This is Divergence, which  says  price  may  drop.  Sure  enough  it  did.  This  doesn’t  necessarily  mean  price   will reverse, but it does say the uptrend continuation may not happen. One should stand aside and wait for the indicators to align. 104

This awareness of this conflict can keep one out of bad trades, alert one for a reversal in a good trade and helps choose an exit as well. I hope one can now see two Blau indicators are more meaningful. Below is an example of Divergence as seen on a color coded chart. If one had taken a long entry at the green arrow, one would expect price to reach the level of a previous high at red arrow and moreover to continue upward! With Divergence, marked with yellow lines, one should look for price to fall.

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Gann Swing Chartist The Swing Highs and Lows are important Alert Levels. They will be discussed thoroughly in the chapter on Entries. They act as Attractors / Support - Resistance. If one has trouble seeing these Swing Alert Levels, then using the Gann Swing Chartist could be a big help. It does an excellent job of marking, but not predicting important Swings. It is important to use them on volume charts as well as time charts. The Chartist automatically changes color when a major swing is taken out, and a new momentum begins. As with any indicator, it is not infallible, but none the less very helpful. It does add some clutter to the chart, so it is a personal choice whether to use it or not. For some it is extremely helpful. I use them on all my charts! I have used pink and light blue for the colors, to delineate from the candle stick colors. Pink is for short swings, and blue for long swings. A conservative trader would only take shorts with the trend when the color is pink and only go long with the trend when the color is blue. There are exceptions, and that will be addressed later. The color by itself does not say enter long or enter short. It is a just a tool to help make a trading decision. Remember, trading is an art and requires multiple indicators and periodicity charts that cumulatively help a trader to make a trading decision. Using the various tools seen in this manual one can make a decision which way and where price will probably go. There is much discussion elsewhere in the manual to help one decide when it is possible to take a counter trend trade. In the ES chart example below, one can see I have 3 swings minimum. This helps to determine the immediate momentum to detect early trend change, and when a Countertrend Trade might be taken. If one were only watching the previous one or two swings, and relying on the color one might miss a trading opportunity. Three swings is the bare minimum, having more allows one to see the big picture of a trend day, etc. So, one may have to adjust the number of bars seen on the chart. This is done simply by clicking and dragging on the chart right or left. Conversely, if there are too many swings, the chart is cluttered and EMA lines might not be separated enough. One might do the same dragging, reducing the number of bars on the chart. Note the line color only changes when a prior swing is taken out and a new pivot point is established. On the far left at the orange arrow, there was a Pivot High seen with the pink line moving up and then down. This was followed by a Pivot Low at the white arrow. The pink line dropped, and then bounced moving up. The 107

pink line changed to blue only when a new Pivot High was established and a down move began. This is marked with a gray arrow. The  blue  color  change  didn’t  say an uptrend had begun. We need Higher Highs and Higher Lows to confirm a trend. One can see next the momentum crossed a prior Swing Low resuming the down momentum. The color would not have changed back to pink until the next pivot was established which is seen on the bottom far right.

In summary: the Gann Swing Chartist is a tool to help establish Swing Highs and lows. It helps to establish a trend by seeing Higher Highs and Higher Lows for an uptrend, and Lower Lows and Lower Highs for a downtrend. The color by itself doesn’t  establish  an  entry  or  a  trend.  It  is  a  tool  to  help  make  those  decisions.

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Volume Colored Indicator It is crucial to know how much volume is being traded. It is also important to know whether the contracts being traded are buying or selling. As part of the premarket plan one should check the recent volume being traded daily on the chosen instrument. One should know if the market is in a Trend, a slow period, congestion, the daily range average, volatility, etc. These influence  one’s  trading dramatically. I use the daily chart for this information. It is essential to know if there is sufficient volume to enter a trade to assure momentum is strong enough for follow through. When the Bonds are trading only 115,000 contracts average daily, there is little follow through and this makes for difficult trading. When there is little follow through, trading is not as predictable and can be sporadic. If the ES or any instrument is extremely volatile for example, the bars are averaging 20 ticks in range, an 8 tick Stop could be taken on every bar. This might give a possible loss on every trade. One might then want to change instruments, or if the account size allows, one would have to increase the fail safe Stop. One must be aware any instrument is in a continual flux, and must be evaluated for this type of information. Below is an ES chart with the Volume-colored on the bottom Sub Chart and price in the upper chart. The Blau indicators have been removed to show the volume relation to price action. I use Green to show more buying than selling, red for more selling than buying and yellow for neutral. Other settings are default. The most important use of the Volume Colored Indicator as discussed above is to determine contract volume amount being traded for each period. One can simply look to the right side of the bottom Sub Chart, and see the price levels as shown on orange box. This is easy to read if volume is high. For more accurate readings, in the Fibonacci Trader software, one can right click on any Volume Colored bar or Candlestick and get the data box, which gives volume marked with red ellipse and other pertinent information. The data box relates to the selected bar marked with the white arrow. If one uses crosshairs as a pointer, one can just left click on a Volume Colored bar or a Candlestick for this information. Using the crosshairs the information stays available only while one is holding on the bar, but it is quicker to use.

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Below I show an 8000 volume chart. Remember on a volume chart every bar shows the maximum volume set amount summarizing buying and selling for that bar. I have marked several bars with purple arrows to show each bar always reaches 8000 before a new bar is opened. Notice the scale on the right in purple ellipse showing the 8000 preset level. The colors again show red for selling, green for buying and yellow for equal buying and selling. When the total set number of contracts is traded a new bar is opened. Thus, there is no way to estimate a scale. Using the scale based on the number of contracts traded for a given period can be a powerful tool. So I use a 3 minute chart to establish a scale on the ES volume Trading Chart.

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I would like to show in this next chart how the scale on the Volume Colored chart could be used. In this instance one, could see that price and the EMAs were in a strong downtrend in the top orange ellipse. Each candle stick was dropping and the wicks were small. One can see by the red bars in the bottom orange ellipse there was more selling than buying, and increasing with each bar as the bars were rising. This showed strength in the down move and said stay with the trade. When the 3 and the 5 EMAs turned up and leveled that showed the sellers were through. This was confirmed when the volume dropped dramatically. Both said exit! This is shown in the purple ellipses. 111

The next chart below shows an uptrend circled in blue with the price and the EMAs up, although the 13 minute is not steep. The Gann Swing Chartist is pink marked with the gray arrow. This says the main trend is down. The EMAs however say the immediate momentum is up. The two indicators in conflict say proceed with caution. The Volume Colored bars, during the same time, are getting shorter showing buying is weakening, marked with a blue line. Notice also there are some yellow Volume Colored bars showing selling equal to buying. This says one must be using caution as well. Sure enough the upward move Stopped and leveled. If one was long, one might exit. One can see the Volume Color indicator is an excellent trade management tool. As with any indicator it is not infallible. It is at the bottom of the ladder in indicator performance! It doesn’t  show  a  lot  of definite patterns. This is one instance where Convergence - Divergence is not a factor. The point is simply whether volume is increasing or decreasing. Although not absolute, I try to watch it continually.

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This again shows that trading is an art. One must be constantly monitoring and analyzing all the indicators, on all the charts, to be able to make trading decisions. It takes a lot of screen time to develop this skill. Although some may be able to evaluate multiple instruments concurrently, it is extremely difficult for me. I am continually amazed at how Mark Braun can watch, post, and comment on several instruments at once! Even with just one instrument it is difficult for me to watch all of this information.

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$VOLD The $VOLD is an indicator based on market internals. Market Internal indicators are based more on money flow into and out of the market and are followed mostly on the NYSE. One example is the TICK. It measures the number of up ticking (rising) stocks and subtracts the number of down ticking (falling) stocks to gauge whether the market is long or short. There are others including the TRIN which measures volume developing an Over Bought or Over Sold condition. Another is the TIKI which is based on up ticking minus down ticking of the stocks on the DOW. Another is the VIX. It is based on the Chicago Board Options Exchange Volatility Index. It is often called the Fear Index. For me, it is complicated and difficult to use. I use it only when I am trading the ES. The $VOLD is the total up volume minus the total down volume on the NYSE. The index futures of course reflect the stock action as they are composed of stocks. It is presented with a Zero Line with red lines below and green lines above. If they are very short or minimal it shows indecision or a weak market and could be a step aside signal. If they are green there is more buying than selling and red if there is more selling than buying. If the lines are rising the market is up trending and if the lines are decreasing in length the market is down trending. If the $VOLD is green I am suspicious of shorts and if red I am suspicious of longs. But, I go against the color frequently. The $VOLD is simply a confirmation tool for me. If my tools are dictating a short and the $VOLD is red I feel more comfortable. If  I  didn’t  have  the  3EMA   system,  I  couldn’t  trade. If  I  didn’t  have  the  Blau  indicators  my  trading would be weakened, as it is, when I have to trade  without  Mark’s  Fib  work.  But,  I could trade very successfully without the $VOLD. Mark keeps it running live in his Chat Room and I watch below it there. The first chart below shows the market is in a downtrend starting with the yellow arrow, as the EMAs are pointing down and the Histograms are red. The reversal down is clearly marked by the indicators. At the bottom, in the purple ellipse, there are two green Histograms saying the down move may be over. The second chart below, shows the $VOLD for the same time period as the Fibonacci Software Chart. It shows the downtrend also, but  it  didn’t  call  the reverse at the peak. It showed some bars bouncing up at the bottom saying the down momentum may be over. The yellow arrows show the same time period as the above chart. Up to that time the Fibonacci chart shows an uptrend where some money was made. The 114

$VOLD however showed red bars albeit up trending. So, the Fibonacci Trading software I think gives better trading evidence.

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The next chart shows a downtrend reversal. The Pink Gann lines marked with red arrows tells one there has been selling. There was Convergence shown with yellow lines saying a long is probable. The 3 and the 5 EMAs crossed at gray arrow with a bar close above the 13 EMA. The Histograms also turned green marked with a gray vertical line. This is a clear cut example of how one knows when the selling is over, and a long should be successful.

The  next  chart  shows  the  $VOLD  for  the  same  time  period.  It  doesn’t  show   weakening or give any particular signs at the black arrow, the point discussed in the previous chart. There were other up and down swings on the $VOLD chart but they are not clear cut trading signals. These do not tell me when a long could be taken. In hindsight, which is always 20 / 20, it shows a reversal as the bars moved up. In  the  heat  of  the  moment  it  didn’t  give  any  indication  strong  enough  to  say take a long. There were, other $VOLD bounces, but no definite swings. So one

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cannot rely on the direction or color of the $VOLD to enter a trade. As a confirmation tool however it is beneficial.

If I see all green as in the $VOLD below I would think longs are in order. If I had taken a long around 10:00 in the morning, this steady rise would have said stay with the trade. This is hindsight again. A reversal could have started, and this would not have said if or when to exit. As with any indicator, when I see a trend has been running so long, I would be looking for a reversal signal. The 3 EMA system and the Blau Indicators give definite signs. The  $VOLD  doesn’t  give  me   any alerts or signals.

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Below are two screen captures. The first is a screen capture that shows buying volume in green is weak, and has been for over a half hour. One can see there is little movement with the buying staying at the same level. This says it is best to be standing aside. It may be hard to see so I have enclosed the bars in a green oval. The second, shows there was weak green buying for a half hour, then weak red selling for a while. When buying or selling is so weak, it can easily reverse direction. This change from green to red does not say sell. It only tells what the immediate momentum is.

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In summary, the $VOLD is just a confirmation tool. If the market was in a downtrend and one saw a strong red $VOLD with bars extending, one would be more confident and could stay with a trade with more confidence. When one uses the other trading tools discussed in this manual, they give specific tools for trade analysis. They are straight forward. The $VOLD does not give such clear cut signals. None the less it is worth watching and using on the stock index futures. I do not use it on the Euro.

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Mark  Braun’s  Fibonacci Levels Chart I must emphasize again that my methodology is trading Alerts using  Mark’s Fibonacci work. I use his price chart section almost exclusively. For the information on his other Sub Charts, I use other indicators on my own charts. I do check his other indicators from time to time as they are helpful for confirmation. I listen for his comments about them as well. Mark’s  CCI  methodology  is   outstanding, but for the triggers, I use the ones discussed in this manual. The indicators I use are easier to see, and to read for me. There are other successful systems in the world. Mark says one just has to find the system that speaks to you.

Mark’s charts help set up the trend using the longer time frames with his Fib Levels. I keep his charts up in addition to my own charts. Finding the trend is the first step in Trend Following Trading. We even have to understand the trend to take Countertrend Trades. The next step is to get good Support - Resistance, and target levels. They act as attractors as well as levels of pause or reversal. Targets in green are always attractors. The other Alert Levels seen in red, blue and sometimes gray, may also be attractors. But, they are primarily Support - Resistance levels. These Levels tell us in advance where the Market is going and where it may pause or reverse! All else is used as supporting information. His calls and insight to the market are priceless! I have heard so many mentors  say  “Well  we  don’t  have  a crystal ball to predict an exit,  etc”.  Well  Mark   does, and it is amazingly accurate. Below  is  a  screen  capture  showing  two  of  Mark’s  Fib  Charts. The bold heavy lines with orange arrows are at Major Alert Levels. The red and blue thin lines with yellow arrows are Minor Alert Levels. A cluster or group of lines forms a Major Alert Level, as shown at the purple arrow. The thin green lines are minor targets and are marked with blue arrows. The bold green lines are major targets and are marked with the green arrow In addition to the price based Fib Levels, Mark also gives timing indicators. Very few other charting methods give timing alerts. This is another way Mark gives Support - Resistance alerts. Mark also discusses when they can be broken and why.

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Below is an example of how there is rhythm in timing, as well as price action, and how he gives information in his Chat Room. Below, he is explaining the basis of his calculations for his room chart. He also talks as market conditions change. He does this for several trading instruments.

The chart for the above discussion is seen next in the chart below.

Next is a 15minute chart which shows a timing resistance high. It is seen as the black vertical line on each of the four Sub Charts. This is resistance and says price will probably go down. A red vertical line would show timing low support. That says, price will probably move upwards. This chart also shows the Fib Price levels by the various colored horizontal lines. Mark watches several time frames, and the chart shows the summary of his calculations. The purple arrow shows, a timing high at a 61.8 red resistance level. Both price and timing resistance say a downward move is expected.

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The odds favor a reversal, if a Major Fib Level is hit. However, if the Blau Signal Lines are steep, the EMAs are steep with wide separation, and if volume is high, price could blow right through the strongest Fib Level. That is the exception not the rule. We must always watch the indicators on the Fibonacci software charts to confirm a stall, a Breakout or a reversal. Below are two more of Marks charts that show how markets react at strong Fib Levels. On the first chart, price bounced up exactly at the Alert Level marked with large red arrow. This would be considered a Major Alert Level as the line is bold. It is a .618 second only to the .786 levels in strength. Note there may be major and minor levels marked with a .786 or any other level. The bold obviously being the most significant and where the strongest support or resistance is found. The second chart shows bounces at the bold .786 levels also marked with red arrows. This is seen routinely. 123

The small red arrows on each chart, with small red numbers show the countdown timer. This shows how many seconds until the next bar begins. On Fibonacci software they may be used on all charts, time, volume, or tick.

One  can  see  how  strongly  the  market  reacts  to  Mark’s  Fib Levels. It is also important to note, these levels are often posted hours in advance, predicting price movement well in the future. Again  I  say  Mark’s  Fib  work  is  as  close  to  a   crystal ball as can be found in the trading world!

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Fibonacci Trader Software Settings Below is my basic chart for the Euro and the ES. A Template or pattern can be made of this so any chart can be made the same instantaneously. This template is used on all periodicities. It should be noted that one of the features of the Fibonacci Trader software is that it allows three different time periods to be placed on a chart. They are O- own, the present time period, N-next for a higher time period, and H for a highest time period. Some methodologies use two or three time periods on the same chart. I only use O- own as the chart is easier to read. With all the indicators and detail I need to trade, the charts are less confusing just using O-Own. With this color coded template on all charts, it only takes a glance to analyze multiple charts as all are read the same. In real time it can be complicated. However, trading decisions can be determined much more easily than with most trading methods.

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Huntsman Template The  “Huntsman  Template”  is  available  from  Fibonacci  Trader  Software  to   aid in setting up the charts. The Template is for the Euro, the ES and for other Stock Index futures. Before setting up the charts, one should select the trading times I use. One can go to File, Symbols, Edit Symbols and get the following pop up window.

One can then click on Trading Time marked with the red arrow. The next Pop up is the time. I am using the following times for my trading. If one fills in the Sunday Open Time, then double clicks on it, all other days of the week will fill automatically. The same procedure is used for the Close as well.

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Next click on File, then New Chart, the following pop up chart will appear. Select an instrument and a periodicity for each chart desired. Then hit OK marked at the purple arrow. One must do that for each chart that is going to be used. After the trader has selected the charts, hit close marked with the red arrow. (If one needs help setting up the instrument, refer to the software manual or Fibonacci Trader support. Those are universal but must be set for your time zone, etc. It would be difficult for me to help with that).

The basic chart appears as below.

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The Huntsman Template can then be automatically installed at the following link: http://www.fibonaccitrader.com/HUNTSMAN_FTTPL.exe. The follow through instructions are given. Then right click on each chart and choose template. When the Templates box comes up, choose Huntsman and the Charts as I use, will automatically appear. Do these for each chart. This also places the chart settings. However, one important step for each chart is to place the “Bars  in  Memory.”  It  is   important to select these for each chart so one does not overload the computer which could slow the computer as well as cause other computer problems Next is the procedure for doing all the settings manually. This will help you to find “Bars  in  Memory”.  Fibonacci Trader software has icons for various jobs. There are some seen below. I am going to post the Chart Settings for use on the charts first. The Chart Settings determine how all charts are basically set. They can be modified for an individual chart. It will need to be varied to show how far back in time, one would need to see the Candlesticks on a given chart. The icon for the Chart Settings is seen below. It is marked with a red arrow. It shows an OHLC bar and two Candlesticks. A left click on the icon brings up the Chart l Settings window.

Next is a screen capture of the Chart Settings I prefer. The display bar section comes up first and I have marked everything. Simply match this chart. The number of Bars in memory will vary with different periodicities. The daily, the 45, 13 and the 5 minute charts need only 1000 bars. The 3 minute requires 10,000. The 22500 volume chart and the 8k require 250,000 bars. The 4K volume chart will need 500,000 bars in memory. There is no need to load more bars in memory.

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In the Grids tab section, marked with purple arrow, I prefer no grids. For all other tab settings, I use the default settings.

Leave  the  “Hide  Live  Arrow”  and hide countdown unchecked, as I like to see the live countdown arrow on all charts. It tells how much time in seconds, or contracts on volume charts, is left till the close of each bar. It is important to me as I trade mainly on the bar close. I have marked it with a purple ellipse in the chart below. Sometimes if the price is moving fast, I might enter with a few seconds or a few contracts remaining till bar close. The safest is to trade only on the bar close. It is a 129

personal judgment call and requires a lot of screen time and statistic gathering to do so efficiently and effectively.

If doing these manually hit OK, and all the Chart Settings will be placed on the chart.  If  doing  only  “Bars  in  Memory”,  Hit  OK  and  close  on  each  chart.   I will now explain how to set all the Indicators manually. This need not be done if the Huntsman Template is used. I feel one should know how to do this. We can make a Master chart using the 3 minute chart. Later we can make a template of the Master to place these settings on all the other charts. The Indicator Icon is the italic lower case i. It is marked with a purple arrow on the icon bar seen again below. If you left click on i icon, it will bring up the indicator window as shown below. (The T is for template settings marked with an orange arrow. A left click on the T brings up the template setting window. We will be using all 3of these icons marked for the chart Setup .We will explore how to make the Master template to later. It is important and will be a great time saver.)

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The next screen capture shows when one selects an indicator in the lower box and presses  the  “ADD”  button  in  the  middle, the indicator will be selected and placed in the upper box. One could just double click on the Indicator to place it above. The window below shows the Moving average exponential selected in the bottom window. If you hit  “ADD”,  that  indicator  will  be  placed  in  the  top  window.  For brevity, I will not show each indicator being selected. The screen capture does show all the indicators I use have been selected and placed in the top window.

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At  this  time  one  should  hit  “Exit”, which places all the indicators on the chart. This is a way of saving all the indicators and the work done so far. They will have the default settings chosen by the Fibonacci Trader software. The settings we will place are specific for my methodology. Ideally, one should experiment and come to one’s own preferential settings. However, to save time, I will show screen captures for the specific settings I use. They are very successful. Then, one could experiment with other settings, if one desired. I will show a screen capture for each indicator window. This should make placing the settings I use, on the tab selections simple. This placement is done by selecting and highlighting the indicator in the top window, then hitting the “EDIT” button, as shown below. That will bring up a window for each indicator, as seen in the second chart below.

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First, I will EDIT the Exponential Moving Averages on the chart. I am going to show the 3 EMA with its various tab settings. The 5 and the 13 are set the same changing only the Length Value. In the primary setting area shown in the red box below, we will use Period O for own, the chosen length of look back period is  “3” We will use “Close”  for  the  bar  setting,  and  “0”  for  the  Offset value. The gray arrows mark the tab selections. Selecting  the  “Color  for  Exp.  Moving  Average”   box brings up a color chart. We will select yellow.

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We will select the other tabs, starting with Style marked by the gray arrow. Then simply change the numbers shown in green ellipse, Check any buttons as seen with red arrow.

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Finally, on the Alarm/Results tab select as shown in gray box set as follows. Once all these selections have been made hit the Save as Default tab shown with red arrow and these selections will be saved for any other EMA desired. Then hit EXIT at the purple arrow and all details will be saved with your own default settings.

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Next select another EMA, change the length to 5 and the color to orange as shown with the gray arrows and hit EXIT marked with the purple arrow. The other settings will be default as we selected above on the 3 EMA.

Finally, select another EMA; place the length to 13 and the color to white. Hit EXIT, and all the EMAs with proper settings, will be placed on the Master chart.

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This completes the moving average settings. Next I will show the settings for placing the Candlestick midpoint on the chart. The indicator is called Mpoint

Settings for Candle Stick Midpoint-Mpoint

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This completes the Midpoint settings. 140

Gann Swing Chartist Next, I will show the settings for the Gann Swing Chartist. It is placed on Sub Chart one. There are two primary settings. The next chart below shows the first Gann chartist as set for 2 bars to swing. All tab settings are the same whether the bars are set at 1 or 2.

The chart below shows the appearance when the setting for Bars to Swing is 1. It is more detailed and is more helpful at times. It only takes a second to change. I use it at various times when I want closer price action. The decision is yours to make with your own experience. I change this setting back and forth intraday, for analysis purposes.

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I will show the other settings. They are all the same whether  the  “Bars to Swing”