Simple rules for trading #2

2. • Trading Futures and Options on Futures involves
substantial risk of loss and is not suitable for all
investors. You should carefully consider whether
trading is suitable for you in light of your
circumstances, knowledge, and financial resources.
You may lose all or more of your initial investment.
Opinions, market data, and recommendations are
subject to change at any time. CME Group is the
trademark of CME Group, Inc. The Globe logo® and
CME® are trademarks of Chicago Mercantile
Exchange, Inc. CBOT® is the trademark of the
Board of Trade of the City of Chicago. NYMEX is a
trademark of New York Mercantile Exchange, Inc.

3.  Which markets to trade
 Using a trading journal and the trading rules
that are developed with that data
 Using multiple order brackets (the benefits of
reduced risk trades
 Stop placement and analyzing risk vs. reward
 Money management rules
 Specific trading rules
 Times to trade with the highest success

4.  Where do these patterns come from?
 3 Different Types of 50% Retracements and how to identify them:
◦ Traditional
◦ Extensions
◦ 61.8% Failures
 3 Different trading timeframes and how to execute on them:
◦ Micros
◦ 15 minute
◦ Daily
 Rules For Trading Retracements:
◦ Putting it all together
 A symphony of price action:
◦ Example of a Traditional
◦ Example of a Extension
◦ Example of a series of measured moves
◦ Example of a 61.8 Failure

6.  In 1929 was the beginning of the first 50% short
that was recorded in most modern charts.
 They were drawn from the highs in Sept 1929 from
31.90 to the lows in 1932 at 4.40.
 Inside of that downtrend there were six 50%
retracement shorts.
 That short trend did not break until January 1951.

7.  These patterns have been in existence for 80
years.
 They started out as psychological levels and
throughout history have been acted on for profit.
 The age of instant execution and computer
algorithms has made these patterns efficient.
 These patterns exist in price on every timeframe;
they existed before charts and indicators.
 They tell us where the market is going and how it
is going to get there.

8.  A Traditional
 50% retracement (Half Way Back) – The 50% line on the Fibonacci retracement.
Floor traders coined the phrase as they would wait for “half way back” before they
would make an entry, not realizing that they were really using a Fibonacci 50%
retracement. They knew that it was a good point to make an entry.
 A 50% Long– Bullish – Defined by Bullish Fibonacci bouncing off its 50%
retracement long and achieving a -23.6% target. A series of higher highs and
higher lows.
 A 50% Short– Bearish – Defined by Bearish Fibonacci bouncing off its 50%
retracement short and achieving a -23.6% target. A series of lower highs and
lower lows.
 A Series of Traditional Measured Moves– A Fibonacci that completes its move by
hitting the -23.6% can be followed by another Fibonacci that completes its profit
target. A series of moves in the same direction is defined as a series of measured
moves. Many times identified as a pattern of higher highs and higher lows for an
up trend, and a pattern of lower highs and lower lows for a down trend.
 The phrase “buy the dips and sell the rips” takes on a new meaning.

10.  Extension Long – Starts when a Bullish setup breaks the -23.6% and
continues in an upward move. When a long trend (higher highs and
higher lows) is developing this gives you an opportunity to enter into the
long trend. The entry is based on an Extended High entry in which you
draw a fib from the prior high (stair step) to the current high, wait for
the retracement, and then take the entry.
 Extension Short – Starts when a Bearish setup breaks the -23.6% and
continues in an downward move. When a short trend (lower lows and
lower highs) is developing this gives you an opportunity to enter into the
short trend. The entry is based on an Extended Short entry where you
draw a fib from the prior low (stair step) to the current low, wait for the
retracement, and then take the entry.
 A Measured Move – A Fibonacci that completes its move by hitting the -
23.6%. Then can be followed by another Fibonacci that completes its
profit target. A series of moves in the same direction is defined as a
series of measured moves. Many times identified as a pattern of higher
highs and higher lows for an up trend, and a pattern of lower highs and
lower lows for a down trend.

12.  61.8% Failure – The Fibonacci Line where trend is
broken. It also is a point to base a stop off of
 Line In The Sand – A price point where one will be
bullish or bearish. Stops exist below it and it is the
signal that the trend has ended.
 The 61.8% Failure trade is the first opportunity to
participate in a trend change

15.  Identify a specific price to enter a trend with a
specific profit target.
 Micro patterns build the 15 minute patterns,
and 15 minute patterns build the Daily
patterns.
 These patterns lead us into our short,
medium, and long term trades and are based
on that setup’s specific profit target.

16.  These patterns exist on every time frame.
 We refer to these timeframes as Daily, 15
minutes and micros, but the time frame is not
important. Price is the same across all
timeframes.
 Daily setups are the largest timeframe, they can
be dailies all the way up to monthly chart.
 15 minute setups are the medium
timeframe, they can exist all the way up to 60
minute charts.
 Micro setups are the smallest timeframe, they
can exist all the way up to the 5 minute charts.

17.  Daily patterns are used to identify the major
trend that we are in at the current moment.
 These are exceptionally large swing trades
that might take anywhere from days to years
to complete.
 They give us a directional bias and target to
trade the 15 minute pattern.
 The daily patterns are built out of the 15
minute patterns.

18.  15 minute patterns are the main and most
common.
 There can be anywhere from two to a dozen
per day.
 When the 15 minute pattern changes trend, it
is the first clue that the daily trend is
changing.
 15 minute patterns are built out of micro
trends.

19.  Micro patterns are traded inside of the 15
minute patterns
 We trade the micros in the direction of the 15
minute trend
 They are used as a tool for entry and can be
either a short term trade to their specific
target, or held to the 15 minute patterns -
23.6% target

20. • Identify a series of measured moves already
in process.
• Wait for price to come to your setup.
• Use limit orders to sell 50% lines.
• Place targets 4 pips ahead of -23% or 123.6%
lines.
• If price ever breaks a 61.8% line in trend, the
trend can change.
• Be picky about price. Other traders and
programs are picky, and we should be too.

21. • Extensions happen when a -23% target is blown
out.
• To draw an extension, draw your fib from the
bottom of the last pull that has blown out of its
target.
• It is evidence of extremely bullish or bearish
conditions.
• Most extensions happen when we are breaking
new highs or new lows for the day.
• Each extension has its own -23% target and can
resume its series extensions after completion.
• If an extension ever breaks out of its 61.8
percent line, the trend can change.

22. • This trade setup occurs after a 61.8% line
failure.
• When it is pierced, programs will flip from
selling 50% shorts to buying 50% longs and
vice versa.
• We pull the retracement and wait for price to
come back into its 50%.
• Use limit orders and be picky about the price.