Original subtitles

All right, guys.

Today is March 20th, and this is our final session with Linda Reschke.

I must tell you that each session, I was making a lot of notes.

And I think that if you haven't been doing that, if you haven't been

to Linda and how she looks at the system creation, how she looks at the

validation of the signals, how she...

backtest those, how she finds the points of the entry and so on and so forth.

This session today is crucial in the development of any trader because Linda

going to talk about the process, the process of how we incorporate trading

our lives in such a way that it becomes an unconscious habituation of

good. rules and principles and concepts.

And it's very crucial to create that type of lifestyle for you

as a trader or as an investor.

There should be always the time where you're going to go through your process,

where you're going to post -analyze what has happened, and so on and so forth.

So all of those things are extremely important, and I urge you to take notes

today as much as possible.

We've been talking about Linda's book, and I'm still reading it, and it's a

fascinating read. And it's so easy to read, and it's so funny. For me, there

a lot of references also to the Bay Area, San Francisco, and the Pacific

Exchange. I believe Akron Akajima is there right now. So there are so many

references that Linda has in that book.

And also, you see the progression.

where Linda has started as a trader and how she's going through the progress of

becoming more knowledgeable, more skilled, understanding the business

meeting different people in the industry.

And there are so many great stories.

And Linda is very frank and honest about this, and I love this a lot.

Because as traders, we really, really have to be honest to our results.

One of the stories, early stories in the book that I really like is the story

where Linda had a straddle and, you know, had a big drawdown. And by that

86 ,000, you know, back then was a lot of money.

You only have one screen.

Guys, I have not switched the screen yet, by the way.

So I'll switch the screen. Don't worry.

So all of these stories are just a progression of how the trader develops,

it's very important to approach this book from that perspective as well.

So please go to Linda's website, order the book, and enjoy the read.

All right, and with that, now, Damon, I'm going to switch to you.

Okay.

So there should be, yes, the slide now.

Okay. Great.

Thank you, Linda, for being here.

And it's all yours. Thank you.

All righty, you know.

And I'm actually doing this from Tampa today, just so you know.

And if I had had just a tad more time, I had a wonderful picture of driving

through the middle of the state, which I might just have to tack on to the end

of these.

And it said, Welcome, home of the Redneck Mud Park, the world's most

off -road park.

And I thought, well, wouldn't that be fun if I said, well, I'm just a little

delayed because I had to go en route through the mud park.

Here in Florida, we have all the major attractions.

But now, you've got the last part of our three -part series here, Trading

Process and Routine.

And this truly is the most important part of our... presentation because if

are not prepared, you cannot take advantage of the opportunities that we

in today's market. So what we're going to do today is a little bit of

everything. Whoa, whoa, whoa, whoa. I've got a nice sensitive mouse here.

We're going to first take the first hour and go over the process and the

routine, and I'm going to show you exactly my process and routine that's

remained unchanged for over three decades, and I really feel that this is

made me successful.

And if I hadn't been able to do this day after day, I really would have, and if

I don't do it on a daily basis, I am behind the gun even before the market

opens. And if you remember, covered a lot of material. In the first session,

recovered modeling and statistics and a lot of shorter -term systems as well as

long -term systems.

And then in the second session, we covered practical trades and strategies

setups, such as that new two -period rate of change, highs or lows, leading

to possibly extended runs or larger opportunities.

And part of this was based on one of those models that we reviewed in the

session of when you have multiple closes on one side of the five SMA and this

persistency of trend phenomena.

And so today, then, we're going to tie all these things together and see how do

we scan for these things beforehand?

How do we scan for them intraday?

How do we organize all this tremendous amount of data and volume coming in?

And how do we narrow it down to the program that's going to work for us? So

going to show you exactly my process and routine.

And then we're going to start live as if it were the start of today. And what do

I look for? And even if it's a longer -term opportunity or I'm in trades

already, how am I managing them? So super practical on that.

And then in the second part of the presentation,

I got some emails from some of you of things that you would like to see. So

we're going to look specifically at some of the things that I look at when I'm

trading the S &Ps, even if it's just day trading.

And I think you might be surprised at just how basic and simple it is. There's

no reason why.

Anybody that hasn't gotten some basic familiarity with chart formations and a

momentum oscillator couldn't replicate this exactly.

And then, for fun, I thought that I would review the current status of the

markets. or at least the status as it was as of last weekend.

So in all fairness, I didn't want to cheat and show you slides after the FOMC

presentation. I wanted to show you the slides before the FOMC meeting results.

And then you can truly see how do the technicals unfold given the news, not

after the fact, and what would you have been looking for beforehand, and how did

it play out.

And in all fairness, I did not see the last hour of trading per se today, but I

did see that the S &Ps closed up about 36 handles.

Once again, we would not be able to take advantage of these types of

opportunities if we didn't have a firm process in place. So my first comment

is you have to be able to trust this process.

Don't ask questions. If you follow the process, you will have the edge and the

opportunities will arise.

I say this because in my book, which thank you for your comments for those

have read it, that you have emailed me with, you'll see numerous times I was

definitely behind the gun or caught in very difficult situations and had some

huge losses.

You can't go worrying about the market that you lost the money in. You just

to have confidence that if you just keep following that same routine every day,

just stick with your systems or your models, do the best job you can each

eventually that process is going to lead to a rising equity curve. Over time, of

course, because it is a law of numbers.

So let's just look a little bit more about what this process really involves.

It's a series of actions. It's nothing more than almost having a checklist,

one step at a time, one piece of information at a time.

And this is a process that we go through to keep us consistent.

It's also important to have a process because it will keep us objective.

And goodness knows how much over -sensory stimulation there is and data

at us and distractions from all different fronts, from the television,

friends' flippant comments, to another trader expressing their opinion, to

perhaps the Internet, things that we don't necessarily go out seeking, but

they're always floating into our sphere of consciousness.

And it's very difficult for us to maintain objectivity. And I think once a

trader loses this type of objectivity, that's where some of the larger mistakes

and errors can come from. So this process really helps us to at least

these unforced errors and at least have some control over these cognitive

biases.

So it's going to also keep us engaged during the very slow periods.

Because as you know, the best opportunities do not present themselves

It's really a patient game and a game of waiting and waiting.

And what do you do to keep yourself engaged, to keep yourself active,

for when there is an opportunity?

And this same philosophy applies even if you have a regular full -time job, even

if you're just doing end -of -the -day charting or even charts on the weekends.

You still need to have a consistent routine and process that's going to keep

waiting and waiting for when, boom, there is that opportunity because they

ring the dinner bell when it comes along.

For me, process was always my lifestyle as I say it. It had to be

overriding towards all other areas of my life.

It doesn't mean that it consumes you 24 -7, but for me to make it as a

professional trader, I had to prioritize.

Doing my homework. I had to prioritize doing things that a lot of time were

drudge work and boring things. It's not always fun coming up with new indicators

and doing research.

It really is nothing more than going out and practicing 10 ,000 putts out there

on that putting green.

You don't think about it. You just do it.

And so once you've started to remember last time I asked you all to think

what markets you're trading, what style you're trading, what types of things

appeal to you, and to start to think about, as if you were to put a

what your process might be, just one action at a time.

And so this is what's going to lead you to rely on your own homework. And I just

can't emphasize this enough, that the people that I see around me, if they're

investors, part -time traders, Full -time professional traders, the ones who

successful, have always done their own homework and stuck up for their own

opinions or roadmaps or models, if you will, as to what's going to unfold in

markets. You have to be an independent thinker in this business.

Okay, I love this slide because it tells us, it catches us off guard.

Think about it.

The first time I saw this, I fell for it too.

I read that top line wrong.

And the problem is, is that our minds like to jump through pieces of

to connect the dots. But lots of times there's missing pieces of information.

Okay, we don't know everything out there. So we're going to connect the

best we can, but with incomplete information. And that's where a lot of

might fill in the blanks, if you will, with either incomplete information or

information that's definitely.

our slant or our bias, we will find supporting evidence to support our

And this is, again, where some of the bad trades come from. So it doesn't mean

that you have to be a quant per se, but it does mean that you have to have a

model and a process.

Okay, the Internet, good or bad? I have to confess. I am not sure I would be the

trader that I am today if I had started when there was the Internet.

It's very difficult.

to not go down rabbit holes in terms of blogs, e -mails, social media, Twitter,

a zillion different things. And there's a lot of information on the Internet.

Even if I want to Google Wyckoff and see articles that have been written about

Wyckoff, I could probably pull up 100 pages.

And all of a sudden, you're burning a lot of time. So just think about how you

allocate your time with your use of the Internet. And I'm talking about aside

from... our charting programs, or software applications for execution,

just think about how you allocate your time to the Internet and if it's helping

you reach your goal or distracting us.

I will be the first to admit that I am subject to a lot of cognitive biases

and I just can't help it.

That's why, if you remember, Wyckoff was the one that gave the original talk on

a theme that Hank Pruden then espoused on about being your own best

client and doing your work and your preparation in a room with no windows

closed door. In other words, you have blocked all outside distractions and

influences.

Okay, then you can truly do your own best work and be

free from some of these emotions and cognitive biases that creep in.

So let's just do a real quick refresher of what they are.

Everybody's talked a lot more about these in the last 10 years. First, it

started off with the School of Behavioral Finance, which introduced a

novel concepts 20 years ago about why people make the decisions they do.

But so much more work has been done in going terms much deeper.

And I love this little cartoon because it tells how we are influenced by the

very first thing that we see, whether you admit it or not.

Confirmation bias, I think, is one of the biggest traps for traders in the

market.

If you have a position on, you are always going to be looking for evidence

supports your position.

It's very difficult not to.

I'm sure you have heard from some of the more exceptional professionals out

there, the Ray Dalios of the world or, you know, Tudor Jones, and they will say

that they always go looking for the things that will prove them wrong.

per se, where would their analysis or their thesis go wrong instead of

looking for what is going to support my opinion or belief.

So, for example, a very obvious case would be when we made those big lows

at the end of December, and if you allowed yourself to get too bearish,

would be very easy to start looking for, oh, gosh, we're going to be in a

recession. Oh, goodness, China's in a slowdown.

Oh, look at these charts, made new momentum lows.

And you're only seeing one side of the coin.

So I'm not going to say anything more on this because I suspect that most of you

know what I'm talking about from your own personal experience.

And I can find myself doing that to this day if I have a position on,

I want to go and look at what are the fundamentals or what is the basis that

could support this position, and that's totally wrong.

I had a gal that used to work for me back about 15 years ago, and she's

mentioned in the book, and she had a wonderful system that she came up with,

it's called the time frame justification system.

So if you're in a position and it's not feeling quite right, have you ever gone

and all of a sudden you're looking at hourly charts?

Or perhaps we're looking at weekly charts, or we're looking for the time

that's going to justify us holding that position.

So just be aware of that little trap.

Anchoring bias.

That could be being influenced by information that came into your sphere

earlier point in time.

This was a case where we had the commitment of traders report

showing large commercial long position in the Japanese yen.

So you can see each week when they give the reporting here how the commercials

are these purple lines up at the top, and they had a very long position.

And then what happened is the market did have a good rally. And you can see here

on the weekly charts, I'm going to practice something here.

Let's see here.

On these weekly charts, this huge breakout that we had from that base.

I'm actually trying to use this little pen function here.

On the left -hand chart, A wonderful breakout to the upside, and this was

the commercials were massively long.

And as a trader, it's very easy to say, oh, this is starting a new leg up. Where

can we go?

Look at that big round number up there, par.

The market traded there in the past. Why can't we go back up and test those

highs, you see? And this information is sticking in our head.

And on the right -hand side, I put up.

A daily chart of exactly that last bar on the weekly.

So you can see if we're thinking on the dailies, we still have an uptrend here.

We're still seeing that, oh, I want to buy dips. I wanted to buy dips, this

of mentality.

If I look at the weekly chart, I don't see any sell divergence.

So I'm still being influenced by this last piece of information that I got on

the commitment of traders.

And then when we retrace back to that moving average, perhaps my brain is

thinking, oh, it's just another little dip, it's just another little pullback.

And I drop my guard and I forget the fact that perhaps we had three pushes

Perhaps that price rejection spike up there at the top was a very sharp

indicating new downside momentum.

You know, I'm perhaps...

blind to these things because I don't have a quantifiable model that's telling

me at this point I'm just thinking about that last traders report.

So you see it would be very easy to just drop your guard a little bit and you're

still thinking about something that perhaps was from the previous month or

previous couple weeks before.

The bandwagon effect, of course, none of us are subject to the herd mentality,

right? We're all astute market technicians.

But there's a lot to be said for market sentiment and how people do feel

more comfortable when they are thinking in terms with the crowd behavior. And

here at the right -hand side, with this bullish sentiment reading, You can see

that spike up in the blue line at the very far right. I would love to be able

get this to work.

And I, excuse me, I'm just trying to play around with the little pen

But you can see at the far right -hand side of the chart.

That bullish sentiment reading was the highest reading in many years, and that

was right at the market top.

So the most people were bullish right at the market top.

Another bias, which we don't want to say is a cognitive bias, but it is, and

that's when you turn your head in the other direction from something that's

working and stop managing the risk.

The ostrich effect.

Oh, I'll just pretend that I don't see this losing position on my sheets.

Oh, if I just ignore it for a couple days, it'll come back into the direction

that I want it to.

Recency bias.

On this left chart, which is a chart of the NASDAQ, basically the QQQs,

think how you were feeling if that day closed where we had that big

bar down, that break from that last swing high, and you can see that

that bar closed around 158.

And at that point, you're probably feeling tremendously bearish. Well,

been studies that show that people will be influenced by the last bar of the

price movement. So if the last bar was a high to low bar, the majority

of people will have a bearish bias.

And if the last bar was a low to high bar, the majority of people will have a

bullish bias. So this is behavioral finance 101.

And if you go and look at the right chart, you'll see that the very next day

did a quick test below and then popped right back up. So even if you were

thinking, well, we might need to rotate around and consolidate a little bit, you

might have been caught off guard for just how far that swing snapped back up.

to the upside, okay? So always keep an open mind as to what the next day's

action can be.

So in addition to the recency bias and all these other cognitive things, how

many of you have thought that if I just knew a little bit more, that's better?

And that's not often the case. Sometimes it just muddies the water and

complicates things. More indicators just creates more confusion.

A wonderful technician that's passed was Dick Arms, and he used to have a great

expression. He says, if you have a watch, okay, and you look at

that watch, you'll know what time it is.

But if you have a watch and somebody else has a watch and they have different

times, you'll never know what time it is. It was something to that effect, how

just because you have two sources of information.

may make it more confusing.

The optimism bias, it is a known fact that humans are generally a lot more

optimistic.

We are just that way by nature. We tend to overestimate our own abilities.

We overestimate how great we are as traders.

We overestimate the probability that the trade that we have on is going to have

a good outcome.

and therefore we drop our guard against the risk management as being as

stringent as we should be about our risk management because we always want to

have a positive outcome.

The loss aversion bias, losses are felt twice as much as gains. We're much more

fearful about having losses than we are feeling good about our gains.

And lastly,

Ego bias.

Everybody else has these cognitive biases, but none of them apply to me,

Because I know them all. And I will tell you, I've been in the markets now for

almost 40 years, and I catch myself every day with one of these biases.

I'm not a machine, so I have to always make sure that I have that.

process and that ritual and that homework that's going to keep me in a

consistent routine because that way I have the greatest odds of either being

the groove if I'm day trading or trading actively during the day or if I'm not

sitting in front of my screens every day, I have the greatest odds of at

capturing one of the signals that I'm looking for.

So routine and rituals are our friends, be it if we're traders in the markets,

if we're doing professional sports, if we're a musician, anything that is a

performance -oriented discipline.

And definitely trading in the markets is a performance -oriented discipline.

The only thing that counts is going to be the bottom line or...

Following your system and not making unforced errors.

There's a lot we can do to protect ourselves also in terms of the right

environment and structure.

For example, if you are a full -time trader sitting in front of your screens,

create an office that's free from distractions.

Where you don't have young children walking in on you in the middle of the

or dogs coming up and barking at you at your desk like mine likes to do if I

don't shut it out of the office.

All right. Same thing. If you're just doing your homework at night and perhaps

you have a family to attend to during dinner, make sure that you have some

time, some quiet time where you can go in in the evening.

and do your studies or your homework and preparation without any distractions,

without interruptions.

You can create this environment yourself. You can be creative in any way

you need to be, but you have to take it upon yourself to create the environment

that's going to facilitate your business.

So think of it as a substitute for a mechanical system. Perhaps you're not

a mechanical system, but this is the next best thing, and I can't emphasize

important it is.

Now, in terms of processes, we can have separate processes for each part

of our business.

Just as if you were a large company and you have different departments, each

department has people that they answer to, a general flow or routine that's

spelled out.

So the thing about our business with trading is that we're the only ones to

accountable to ourselves.

We're not answering to a boss.

So it's very easy for us to get sloppy around the edges or say, oh, I'll come

that after I'm through with my TV show.

That's where the real discipline comes in. It's not a discipline in terms of

people like to think about the risk management. That's a whole entirely

field. It's a discipline about being accountable that you are going to follow

your process.

So we are going to look at separate processes for how I do my homework and

preparation, how I'm going to do my execution, how I am going to manage a

once it is on, and my process, too, for making sure that I'm healthy and in a

proper mental state.

And you could, in theory, write down a checklist for each of these areas.

for each routine that you do.

You don't want to write down checklists that are too long because, trust me, you

will never do them. But at least it will give you a good starting point because

we want to approach the markets the same way every day, every morning,

same time, and so forth, and take one day at a time.

Okay, I'm going to show you exactly what I do, and this is the only way that I

have been able to manage as much as I have been able to do, and there's still

more I would love to do, but I just can't make it work. I am a one -trick

and even though I have all these wonderful ideas for more trades and

and systems, I have to limit myself to my specialty.

At the end of each day, such as today, I will print off my trade sheet at the

end of the day.

I used to make this trade sheet by hand and then just Xerox a bunch of copies,

but it's my form that I fill out every day.

friends that do the same thing. They have different spaces and they put in

different types of information, but writing stuff down is the very first

So I print off my trade sheet and then I write down the closing prices of the

markets that I trade. I write down the prices and I write down the two -period

rate of change.

Once I've logged all my numbers,

And, by the way, part of logging these numbers includes logging the market

internals, which I'll show you, the trend, the breadth, the ticks,

the closing ticks, and a few other metrics.

Then I'm going to zero in, and I'll start looking at one market at a time.

found that I can go through 24 markets in pretty much 20 minutes.

So I'm not doing deep analysis.

I'm not drawing pivots all over the place and squiggly lines.

I'm just looking for my specific patterns to see, are they setting up?

will show you those in the second half, how they set up for today.

So I simply go through one market at a time. I'm looking for those two period

rate of change patterns I showed you in the very beginning.

or perhaps I'm analyzing the daily weekly charts for potential structure,

as we looked at in the second half.

But my specialty is really looking for, is there a trend day

potential for the next day? So that's the main thing I focus on at night. Then

I'll write down a simple little note to myself. Is it a buy day?

Is it a sell short day? Or is it a breakout mode?

I don't really write down much more than that. I keep it pretty simple.

I write down two words.

Maybe I'll write down the swing high or the swing low if there's a key pivot

that I think the market can go to.

Lastly, I'll note if there's any compelling daily chart formation with a

oscillator pattern that could be a buy or sell divergence.

And the funny thing is, I might only get one pattern per market every three

weeks. So it really doesn't happen as often as you would think. But I'm always

keeping an eye out.

And I have to write down the next days.

calendar in terms of economic numbers is it going to be an FOMC is there a crop

report if you just trade stocks you might want to definitely make note if

particular stock has earnings or for example you know next week's going to be

big week for Apple with their annual conference and reveal so all these

write down at night and I do it when the markets are closed of course Globex is

trading and so forth, but the stocks aren't open yet, and we don't always

if there's going to be a big gap such as Biogen today until the next

morning.

So this I just had to show you was what I've been doing for 30 days.

Five years about, and you can see this was when the S &P was at 1407, so I just

write down the closing price.

I write down the two -period rate of change.

one line of data, and then I make my little notation. If it's a buy day or a

sell short day, you can see in that middle column on the bonds, on the right

-hand side, I've got 1, 2, 3, 4, 5, 6, 7, 8, 9. So I was writing down, once

got to 7, that we've got an extended run going on.

Now you can see the price right there, 145 .30, then 146 .18.

And look where we were. Even eight days later, we were rallying up to 148 .12. I

don't know if you can see that. It's right smack in the middle of the page.

And at that point, FC cell, I wrote down first cross cell.

This is just one day at a time because that was the pattern that set up on that

310 oscillator.

So you can see we don't really have.

many of these daily patterns that unfold with the chart structure.

But I might not have caught it at that time if I didn't go through and write

that down one day at a time. And this is really important to my preparation.

Here's the sheet that I print off of TradeStation.

It's a radar scan sheet.

And it just goes through each of my markets.

High and low for the day are the most important pivot points.

And then some of the patterns that we've already looked at that are just done in

my silly notation here.

The plus one is if there's a three -bar triangle.

The B and the S is there are if there's a pinball buyer sell.

And on the right -hand side is a volatility breakout system.

That's what I use for stops a lot of times. I don't necessarily trade the

system, but it's an average true range function that's quick and easy.

And if I have an existing position on, it serves as an excellent stop since

an ATR -based type of function.

I used to fill out this sheet by hand 30 years ago. Of course, I didn't have all

the patterns on it that I do now, but I would still write down something similar

where I could then go through and do my homework on the individual

charts.

So this is the page that I use for my nightly homework. I'm mostly looking at

that lower left.

candlestick chart to see if there's any compelling patterns with that two

-period rate of change.

You saw last week how we had that new momentum highs coming

out of a three -bar breakout or a little small trading range for a couple days,

how that could lead to continuation, and that's exactly what gold had there.

with that first big green bar up that was at the end of February. You see, we

had three little narrow days. It popped up. And if I were doing my homework on

that day, I would simply write down new Momo highs so that I knew

that we should get some continuation for a couple of days.

So that big green bar up at the very bottom there, is different than the big

green bar up at the very top, which is coming at the end of the swing. So I

you to understand totally the importance of the context.

Big range expansion coming out of the little narrow bars is different from the

big range expansion at the end of the swing. And I know that you are all...

pretty sophisticated enough in your technical analysis by now to understand

that. And on this particular chart with the gold in the middle, the daily, you

can see we had our three pushes up. And if I look over on the weeklies, I can

see we were a little bit overextended on that weekly swing up.

I usually don't put too much faith in the 120 or the 240 -minute charts on the

right side of this slide, other than the fact to note that they did make new

momentum lows.

So I know the next day, if we have a rally or reaction, it's

probably going to start to form a bear flag.

where, as you know, the traditional Wyckoff sequence, if we have a reaction

we'll still have to go down and retest because of that downside momentum.

So I go through and I just simply click one market at a time, make the notes on

my sheet, and when I've filled out my sheet, this is what it looks like.

I suspect I'm probably the only one that can read my chicken scratch.

But this was from a couple years ago, and I wanted to keep it real.

And these are the types of little squiggles and notations I'll make to

So this is the way I can go through and look at 24 markets and

just make one or two notes. It does not mean that I trade all these markets.

Please understand that. If I have more than four or six positions on at once, I

am asking for trouble.

But I have to make it part of my process because I want to be there if a ripe

opportunity presents itself.

And then, of course, at the very bottom, I'll make any special notations on this

particular day.

I noted that the ticks had a very narrow range. It was an inside day range for

the ticks.

We had a high put -call ratio and a few other little technical notes that I

wanted to make to myself, five -year auction, FOMC, et cetera.

So it's the process and the preparation for me that puts it all together.

It's not that I trade all these patterns. It's not that I'm trading, you

half of these markets. I might not even make a trade in those live hogs for six

months. But if I hadn't been going through that process, would I have been

for that live hog new momentum highs that set up?

Last week. And by the way, they're still going up and making new highs.

So it's grunt work for sure.

Absolutely. But this is my business.

Then I take all my notes on that sheet and I transfer them over to this sheet.

This is my worksheet for that next day. So I made out my game plan for the

day. Now I need a clean sheet that I can write down things as the

day unfolds. And you see my little note at the bottom left there, winners

readily admit errors. And I actually have another piece to that,

and it's correct mistakes immediately.

So I still print out the same sheet, and here it is.

As the day is going on, I transfer my comments from that game plan sheet that

you saw initially.

And for example, if you look at the top right of this sheet where it's got the

gold and the silver and the copper, CP is the CQG symbol for

copper. I know some software programs like TradeStation will use HG.

But here I've got gold, silver, and copper, and I simply wrote down buy day.

I'm looking to buy those.

At the bottom of the sheet, I write down my existing positions.

This was when I had my fund. This is back in 2013, so I was still

actively trading my hedge fund.

And I will write down.

The bonds, minus one. That was minus one unit. So I had my unit size.

The EC, I was long one unit. And I'm going to write down the stops on those

positions or where I would be wrong.

And then as the day goes by, I will write down my actions. So you can see in

middle part of this sheet, ZCH.

Three is corn.

Z -W -A -H is wheat.

At the start of the day, I wrote down to exit these positions.

That's what my model was telling me to do. Perhaps I had initiated the position

the day before on a range expansion function.

Now, all of you know...

Sometimes when the markets look the best and sometimes when you have the best

winning position on, you don't want to drop your guard. I might want to look to

sell out or take profits on a test of a high or a push above a previous high.

So that's why I was writing down exit and then I write down what I did. I sold

$1 .30 and three quarters there in that corn.

I must have made a mistake on that natural gas because

I'm not so sure why I wrote down stupid, but I wrote down stupid, sold 83,

bought 60. I'm not sure what I was alluding to there, but that's pretty

that I'll make that type of comment to myself.

So this is my process.

I have charting software and a zillion screens, and you can sit

there, and I do watch the price change all day long, but I'm still very

active in my management process, in my preparation process, and throughout

the day of writing things down with a pen on paper.

This was my same trade sheet from the early 90s. Now I've got it on an Excel

spreadsheet where I can just print it out mechanically.

But this was from the early 90s, so I really wanted to show that I have stayed

consistent to my process day after day after day for so many years.

So everybody can develop their own routine.

You have lots of examples around you. We were talking last week about

Investors Business Daily, Bill O 'Neill, the CanSlim process.

There's lots of different models that you can go through that are appropriate

for investors.

that perhaps are not necessarily looking to be quite so active during the day.

But even if you're just simply an S &P day trader, I think it would behoove you

to write down the Globex levels, write down the previous day's key

little swing highs or swing lows. Are there any gaps?

Are there any pertinent areas where the market?

might have what we call a decision point, a decision level, like that would

considered support or resistance, a test level, all right? So go through and do

your preparation in the evening. I do have one friend that gets up at 5 in the

morning to do his preparation and homework. I don't suggest that, but I do

strongly suggest doing it the day before so that you're not influenced. by the

overnight action. It's better to do your plan the day before and then adjust it

as you come in in the morning than to try and scramble and do it in the

And the reason is because you will be very biased by what happened overnight

the overnight action. For example, this morning we gapped down.

And it would have been very easy to think, oh, it's a failure. It's after

They sold it off on FOMC. Big gap down.

But what happened?

We had a pretty good rally. And you know what? There was an excellent technical

reason why. It was exactly on one of those models that we learned in the very

first session. And we'll look at that at the end of this.

We'll say, what was it that we learned from our extended run or our two -period

rate of change or these models that we looked at in the very first session that

were screaming that there was an opportunity?

All right.

Moving on.

Now the day has started.

We've done all our preparation.

And by the way, everything that I just showed you, from logging my numbers,

looking at the sentiment readings or the market internals, then going through

those 24 markets and making my notations.

It does not take longer than 40 minutes.

I can do it in half an hour if I have to.

I just put my mind down and do it. It's a lot of grunt work. So it doesn't have

to be this big two -hour analysis thing every night. If you are spending two

hours at night doing your homework, you're going to be too burned out the

day to trade.

It needs to be efficient but thorough.

I come in in the morning, and I try to sit down at my desk at the same time

every day.

I brush my teeth. I go into the kitchen. I make my tea. I take the dogs out for

a quick little walk. Boom, I'm at my desk at 7 a .m. Once I sit down at my

I do have to remember to put on my binaural beats music or some Pandora

music just because that.

Kind of sets the stage there with a nice meditative tone to it.

Now I'm going to look at the 7 a .m.

Central Standard Time reading, okay? 8 a .m. Eastern Time. And you'll see why.

We already looked at this in one of the models.

in that very first session where we saw the price movement, the trends start off

the session openings.

And we use 8 Eastern Time because that's when the big boys in New York sit down

at their desks. That's what they've always done from trading the bonds and

financials. And that's what we're going to use even for the S &Ps for our

initial S &P reading.

And you'll see why.

I like to look and see how did Europe trade.

How did the global markets trade?

What is the DAX doing? So this morning when we came in and we sat down, the DAX

actually had sold off pretty hard. It had been in a pretty good downtrend, and

told Kyle, my assistant, that we would look for a five -minute buy divergence

the DAX, and that might be the sign then that the S &Ps were ready to rally.

Or at least you don't know that they're going to rally 35 handles, my goodness

gracious, at all. But at least we're trying to get a little rhythm from the

overnight markets. That's important for me as a shorter -term trader.

And I like to look at the boons. So, for example, yesterday was a strong day up

in the bonds and the boons. And coming in this morning, I could see that the

boons had...

Pretty good upside follow through, as did our bonds, but that wasn't going to

sustainable on top of yesterday's move.

It didn't mean the market was going to necessarily fall out of bed, but it

wasn't going to be sustainable for that morning session.

Then I like to look at my tick charts, and I'll show you these in the second

half, too.

Are there basic patterns forming? And by that, I simply mean...

Bi -divergences, flags,

ABC consolidations.

I'm pretty simple in terms of the patterns that I look for.

And if it doesn't strike me between the eyeballs, I don't want to have to squint

to see something. In other words, the best patterns.

stick right out at you. They almost look too good to be true, but they're the

good patterns because there's the volume there and the volatility to make a

reliable pattern.

Lastly, I'm going to look and see what are the big movers in stocks before the

opening because

As you saw in our last session, that FinViz is a great scanning tool, and

sometimes it can just set the tone or perhaps prepare you so you aren't

blindsided. For example, there was a 100 -point down gap in Biogen this morning,

but did the NASDAQ care?

No, it really didn't care. It wasn't affecting that major market index.

So it was already priced into it. So you're not caught flat -footed by seeing

these things. And instead, if you do have an upside bias, is there any

leadership that we can find to the upside?

Or perhaps if you're looking for the downside, where would the downside

leadership be?

Is there an opening gap? That's the first thing once those S &Ps then open.

Do we have a gap greater than four points, and how do we immediately trade

that gap? And this morning, you could see that we gapped down and immediately

rallied to fill that gap.

Remember in the first session, we talked about that burning dog model.

Okay, so it's something where I have some hard statistics that I know the

market's going to trade into that gap area 70 % of the time.

Do we do that right away?

Do we need to go down, test, and then come for the gap?

And if you're going to close the gap, is it starting to accelerate?

So right away you see that when I sit down, if it's 7 or if it's 8 .30

when the New York Stock Exchange opens, I have specific things that I look for.

It is my ritual because that way I don't get brain fried by all of a sudden

being inundated by so much information.

In other words, what I'm doing is chunking data.

I'm trying to look at the day in blocks.

Now here's something very interesting as an aside.

Did you realize that you can only concentrate for 90 minutes at a time?

Once you go past 90 minutes, you really need to stand up and walk around for

three minutes. You can't process information for eight hours straight all

long. So that's another benefit of chunking data.

marking tasks for you to do at certain times or intervals, and then giving

yourself a little mental break.

At 9 o 'clock, or rather, it says 9 Central Time. That really should be

9 Eastern Time.

No, I'm wrong. It's 9 Central Time, 10 Eastern Time. I'm going to check what

the first 30 -minute volume of the day.

So in other words, is it better than the previous day?

If so, that increases my chance of a trend day.

If it's lighter volume, then it decreases my chance of a trend day.

Obviously, yesterday, being an FOMC day, was a much lighter volume day. So we'll

look at a chart and just see what the past couple days.

And then if we do get a good trend with an increase in volume, what do we want

to do?

We want to press that morning trend into Europe close because the morning

session is a sweet spot.

And then take a break.

Go get some more coffee. Go get some more tea. Get a glass of water.

hydrate, hydrate. It is so true that our cognitive processes are not

nearly as good if we aren't hydrated.

You don't think nearly as well if your body needs water, and

that's the last I'm going to say about that.

Once the New York session opens, the first thing I do is look at

my Stock board here. This is trade station, and this is my grid.

Do I trade all these stocks?

Absolutely not.

But it is my process, and it helps me see the tone of the market. Now, this

a number of weeks ago, and on this particular day, on the far left column,

you'll just see three stocks in green, and the rest are all red.

So that's my top 40 NASDAQ shares.

And then right next to that is the top 40 NYSE shares.

So at the start of this day, I could glance over and immediately see the

For me, it's the same as those heat maps that you can...

I have a friend who doesn't look at a screen like this, but he simply pulls up

the heat map and sees the number of green and red squares that are popping

at him and the groups.

So that's his way of processing information, and I think a lot of people

that. It's a wonderful, wonderful tool.

On the far right of this page,

At the top, it's a relative strength grid for the futures market. So on this

particular day, the SGB, that's the boons.

So the boons were the relative strength leaders, which should be no surprise

when you're seeing the sea of red in the stocks.

And then the dollar was right up there as well.

I can just glance at this. I'm not reading all the numbers and the symbols,

for me, this is my way of processing information.

Just so you know, the third column over and the fourth column over, one's green

and one's red, those are the shares that are best up off the opening price, and

the one next to it are the shares that are down.

down most off the opening price.

And we looked at this last week.

Remember how the stocks would have that big five -minute opening bar or a huge

gap? And if you're a stock day trader, you can just go and pick the top

three of these and the bottom three of these and look for a long trade on the

strong ones and a short trade.

on the weak ones, and it works better than anything else. It's not going to

100 % of the time, but it works well enough.

And then the two columns next to those where you see those little blue squares

and the little red squares, that's simply the stocks making new highs on

and the stocks making new lows on the day.

So in this particular example, I don't really see many stocks making new highs

or new lows on the day.

and it was probably in the middle of the day, and we might have been having a

sloppy downside bias trading range day at that time.

But on a day like today,

you will see that column with the blue lit up. And it's the same as if you're

watching the ticks hit plus 1 ,000, except that it stays lit up. And I will

never consider making a short trade against that. It's just telling you that

you're long, to stay long.

That's really the useful metrics of this.

Equally important, telling you when to stay with a winning position.

And this was a day, just to show you the flip side of the coin, where the

majority of the shares were green.

And you can see my NASDAQ column on the far left and right next to that, the top

40 NYSE.

And then on my relative strength on the far right,

Aside from coffee and the hogs at the top of the list, there was the DAX, FDA,

that's the DAX, RTY is the Russell, ES, S &P, all the indices were the

strongest relative strength leaders.

And a pretty strong sea of blue there for indicating new highs.

All right, everybody see that?

So, boom, I keep this monitor off to the side.

I turn my head and I glance at it maybe two times during the first hour.

And for me, again, my point is just showing you my process, how I can go

through that first hour, that first two hours, the first three hours of the day,

almost on autopilot, just waiting for my signals to pop up.

So here are some visual cues that I have created for myself.

And you can do this, too, with any type of indicator. If you wanted to have

alerts pop up, if an hourly stochastic is overbought or oversold.

Here I've just got funny little blue dots to indicate spots where there could

bear flags on weak stocks or bull flags on strong stocks.

So this is a separate monitor.

What I try to do is I don't want to mess with my monitors during the day. I

don't want to end up playing with things because if I start playing with

indicators or reconfiguring charts, it takes me out of my trading mode.

And sometimes it's very easy to do when we're anxious or we're nervous or we're

not quite sure what's happening with the day.

Instead of just gathering your breath.

being calm and taking a pause to step back, we want to start pounding on our

keyboards or monkeying with indicators or changing the colors or playing with

things. And that's okay, but just understand once you start going into

mode, you have left.

the arena of trading mode, okay? You've left that arena of stocking,

patience mode, waiting for your signals.

So I have a lot of monitors, but I'll always keep this particular one, and

actually got 15 charts.

I just wanted to pop this up and show you a close -up of four of

them.

And I stick to my, even though I do my homework on 24, I'll always have my same

15 up in the same spot, and I don't touch it. This is my stable. These

are my resources.

You could do the same thing if you had a stable of 20 top trading stocks that

you want to keep an eye on.

Or even on the daily charts, if you had a stable at night that you looked at of

20 top relative strength stocks that you're keeping your eye on for a trading

opportunity.

Or better yet, if you get one of those signals like the new momentum highs or

lows or you've got a position on, keep that chart up along with the other

on one page and leave that page up. Don't go monkeying with it.

So this is the same thing. I have another grid that's just the five

charts. And I'm not trading off the five -minute charts, but I just want to have

them up for when that market starts moving.

And as you can see, you can't just...

I'm just going to go back. You can't just react to little dots, okay? If I

didn't have my preparation and game plan ahead of time that was telling me gold

is a sell short day, look for the trading opportunities to the short side,

I'm focused in on only looking for the short trades on gold. But if I didn't do

that,

Okay, you can see I wanted to show you a chart with bad signals because it's not

so easy that we just put up little signals and they pop up and we're

the colors.

Trade by numbers. It doesn't work that way. So my previous

page are little cues, okay, but they're not trading signals in and of

themselves.

I have to have already done the homework so that I have the confidence that I've

got my bias set ahead of time because, remember what I said, the blue dots

could be the buy signals, and in a downtrending market, the sell signals.

see this S &P chart on the top right, that big blue dot as we're falling out

bed.

Well, that's happening right after we were coming off of the divergence and it

was a weak market. And on my sheet, if I didn't have trend day up or buy day, I

would very easily get suckered into making a bad trade.

So I just wanted to explain to you that there is no little magic dots or magic

indicators. They're just my way of creating little signs and roadmaps to

monitor things.

Really important to have a completely separate weekend process.

It's my Sunday night process or Sunday morning if I've got plans for Sunday

evening. And again, it does not take much time.

My basic things that I look at take me no more than 30 minutes.

But I also want to do...

My computer maintenance on the weekends. I don't want to be messing with my

computers during the trading week.

So on the weekend, I'll look at the commitment of trader reports.

I look at the sentiment readings.

I'll go through my top 200 stocks for weekly structure. And trust me, it

take long because the weekly charts don't trade, don't give you a choice

opportunity, but maybe once a quarter.

I update my contracts on the trading platform. For example, if things are

rolling, I want to be sure that I've prepared that ahead of time.

Computer maintenance has become an ever -increasing important part of this

business because we rely so much on our computers for our execution

and our charting.

I do always do the backups. I do the cleaning out the caches, a lot of little

things that I'm sure most of you have come to learn through learning the hard

way, or hopefully you're more sophisticated than I've been and knew it

you had to hit those emergency break type of things. But it's an important

of our business.

As traders or investors, make sure your computers are up to snuff. I like doing

research. search on weekends but above all you have to do something fun you

get out of the house go see movies go to an art show do some sports do something

take the family on a picnic you must do something to completely clear your brain

This is back to the mental health part of the process.

For example, exercising every day or getting out of the office at a certain

time.

Because if you are not 100 % upstairs, if you are tired or fatigued mentally,

you don't have to be tired physically.

But trust me, at the end of the week, I am really fatigued mentally.

You're simply not going to be as sharp.

And you will miss things. Even if you are a systematic trader, you will miss

things.

Okay, I'm not going to talk too much more about process and all this kind of

stuff. But most of you know by now that we don't want to focus on the dollars.

We don't want our goals to be expressed in terms of dollars.

We want our goals to be expressed in terms of our process and our sequence.

So keep in mind that you did a good job if you did your homework

every night, if you took the signals you were supposed to take, if you were

paying attention and concentrating. That is far more important.

in terms of keeping your process goals and how much money you made or lost.

Because it's equally destabilizing if you got lucky and caught some big wins.

And likewise, sometimes it's hard to keep going if you had, let's say you're

trading a mechanical system, but it took a beating that week.

Well, that's just the system. You're still trading your system. It's not, you

can't take it personally, you see.

So always think about.

Am I doing what I should be doing correctly?

Am I going about my routine correctly?

Am I making fewer unforced errors this week than I did the previous

week? If you happen to see something in your preparation, did you act on that

signal? So monitor your performance in terms of these process goals.

as opposed to the dollar goals.

And remember that very first slide I showed you in the beginning.

Trust the process.

You must do that. You must trust the process.

Same thing if you're an analyst. One of the analysts out there that I respect

the most, who's been a very good friend for almost 40 years, is Larry McMillan.

And Larry McMillan has been sending me his options report or his nightly

homework that he does now for goodness knows how many decades.

And I make it a point to not look at it first thing in the morning when I sit

down. Sometimes I'll open it at lunch.

I'll do best if I look at it at the end of the day because his type of...

Analysis is a little bit longer term in orientation than mine is, you know, and

he follows a different routine. But I will have to say this. I totally respect

and admire the fact that he has been 100 % consistent in his

analysis and routine for all these years. It doesn't mean 100 % correct.

but I never see him deviate from the types of things that he is looking at.

And if it works out or doesn't work out, that's a different story.

You know, he might be taking one of his trades or signals that's a Bollinger

Band type of standard deviation function.

It's not going to work 100 % of the time, but he's going to keep following

strategies.

as they unfold, and I've never seen him deviate from that, unlike a lot of

analysts out there who sort of hedge their bets.

You know, they kind of speak out of both sides of the mouth. Well, I like the

market unless it doesn't hold and it goes down, and then I don't like it type

hedging, you know.

This is the strategy. This is the signal.

There's a seasonal bullish tendency the day before the holiday. Therefore, we

buy options on that day and we'll sell them three days later and it's worked

65 % of the time over the last 40 years. Okay, that is cut and dry.

So just be conscious about how you monitor your own progress and

routine.

We've already gone over the variables that we can control, our environment,

research, how we can find ways to be accountable.

If you are finding yourself making too many unforced errors in your trading,

either missing trades that you should be taking or taking trades that you

shouldn't be making, some creative solutions can be have a trading buddy

share your results at the end of the day.

Or share them with your spouse or email them to a coach or find some way to

make yourself accountable to somebody else if you are not being accountable to

yourself and instead taking that ostrich approach of sticking your head in the

sand.

We've already mentioned the importance of models because they add an element of

objectivity. that we can trade around.

I'm not going to go on much more about this because we've got charts to go

through. But as an example, Wyckoff, Elliott, Gann,

Stoudelmeyer. They all came up with their own unique models for structure.

They all came up with their own unique process.

So whatever you come up with must be unique to you in order

for you to believe in it and follow it.

Okay, you will be able to read these slides at the later date and point if

would like. I can email them to you as well as Roman can email to them. So

are just extra supportive things that you can go back and look at yourself.

But given everything that I have said, start off simple.

Don't try and do it all because you will fail. You can't succeed trying to do

too many things at once.

Concentrate, concentrate.

All right.

And eliminate those distractions.

Let's look at some charts because one of the questions that I had was,

what do I look for when I'm day trading the S &Ps?

or intraday opportunities.

And this is yet another monitor that I have that I don't touch, that it's

up. It's just like my Insight Grid that had all those lists of stocks.

And this one just simply has the 5 and the 15 and the 120 minute.

Sometimes I'll make that 120 minute a 30 minute.

And I'm just keeping my eye open for a recognizable pattern.

I'm going to sit back and wait and wait until I see a recognizable pattern. And

a lot of times I miss stuff or I don't see a pattern. But these, to me, are the

major indices.

Somebody said, oh, the Russell's not a major indice anymore.

And I don't know how they can say that given the fact that it represents the

small cap shares. And, yes, it was a little sloppy and weak the past couple

days. But so what? There was enough leadership.

It's still an important part of the equation for me.

So this was just a couple days ago. I think it was on two

days. It was before the FOMC meeting, I believe.

And you can see the three pushes up, one of the patterns that we looked at in

the very beginning with structure on those S &P 120 -minute chart, the very

Left chart. If you just be patient with me, I'm going to try one more time to

engage our little pen mode here.

Pen. All right.

And I don't seem to be able to draw. Roman, are you there? Yes.

So the pen is going to be on the GoToWebinar module.

I'm there and I'm clicking on it. And then you have to choose the pen and you

can choose the color of the pen.

Well, maybe I'm not choosing the color.

By default, it could be black.

That's exactly what it is. Oh, well, I'm not going to get very far drawing with

a black pen, am I?

Okay, now we're in business.

Whoops.

Glad you guys are patient here.

Okay. One more time. Third time's a charm, right?

Okay.

I'll have to try a different time. But you can see the top left chart,

the 1, 2, 3 pushes up on that 120 minute.

And if I go down, and at that time on the 15 -minute, you can see the cell

divergence on the S &P 15 -minute. And this just hits me between the eyeballs.

I'm watching this unfold.

It's always up there. And you can see how pretty it was.

On the far right side, I've got the 15 -minute Dow. It's the middle chart on

the far right side.

I'm going to do this one more time.

I'm sorry, Roman. I've tried to click.

Okay. No worries. But we see the cursor, so we're following the cursor. Oh, you

do? You see this?

Yeah. Okay. Then I'm in business here. Good.

Well, you can see the 15 -minute cell divergence and the classic oscillator

pattern. I will look for something like that.

When I am trading the S &Ps, it's really basic. That's what I said. I'm looking

for the divergences, the momentum divergence that's confirmed by at least

these other indices because the NASDAQ sometimes does not always behave like

S &Ps.

if it's being influenced by one of the larger big four fangs there. And then

can see at the bottom here, we actually had the little five -minute bear flag.

After making this new momentum lows, your Wyckoff sequence, we react back up,

and we have to retest back down. We may not make a full retest, or we may make

a whole new swing down.

I don't know.

what we're going to get. I just know that I've got a good opportunity to put

a trade. And then it's always a matter of seeing what the market gives me.

So, for example, if I make a counter trend

trade on this 15 -minute chart on a sell divergence, okay, in my mind I'm

saying, let me see if we can make it back.

down to that moving average because a divergence is a regression to the mean

type of trade.

I don't know that we're going to punch through it. I don't know if we're going

to fall short, but I'm always watching price relative to a moving average or

price relative to a swing high or swing low. In this case, you see we had the

price relative also to a gap area.

So I never put out targets per se. I'm just seeing if we can get to that level.

And sometimes we'll exceed a target and sometimes we'll fall short.

And in this particular case, we actually had a much greater swing down.

Now, I might have covered it, that moving average. That's just fine.

I took my piece and I walked away.

And then you wait until you get another recognizable pattern.

And if you don't get a recognizable pattern, then you just keep waiting and

keep waiting and you keep waiting.

Here is the other screen that I look at. It's the tick charts.

I like to look at a 3 ,000 or 4 ,000 tick chart, a 9 ,000 to 12 ,000 tick

chart.

A 16 ,000 to 20 ,000 and a 40 ,000 to 60 ,000. So there's no right or wrong

parameters. If it's heavier volume, I'll watch a 4 ,000 relative to

a 3 ,000. It's very similar to looking at the 5 and the 15 and the 30 and

the 60 minute. The big difference is it includes the overnight data.

So when I look at the 5, 15, 30 minute of the S &P and NASDAQ and Dow,

I'm only looking at the pit session data.

Why?

Two reasons.

A, that's the start of the NYSE opening and all the volume comes in on the

stocks at that time. And B, it's pointless to look at a five -minute

That includes the overnight data because there's not the volume and the trading

there to necessarily make the symmetrical patterns that I like to see.

look at the tick data, it condenses everything proportionately to the volume

ticks are the number of frequency of ticking up or down, you see, price

So in this particular case,

There was a very recognizable pattern towards the afternoon session there

you can see this nice little momentum divergence.

And that, to me, is a beautiful trait. It's symmetrical.

I like to see symmetry in the chart formations, meaning I don't have to

and there's too much noise.

If there's too much noise, I'll just see what I want to see.

So we had obvious volume here because the volume makes clean oscillations, you

see? Even though it's a tick chart, it's getting good volatility there.

If I look down below that, I don't necessarily see any chart formations on

9 ,000 tick. It's not like there are compelling buy or sell divergences. But

what do you see here?

It's that equilibrium level, that sideways line. You see?

So we went over this in that very first session when we were looking at

structure. Our sideways line.

is equally important as a pattern.

So let me repeat that in a different way.

A non -pattern or a non -compelling oscillator formation can be

equally as important as one of those patterns that's hitting you between the

eyeballs because that's where we tend to get our breakouts.

They come from these low volatility points, from things that we can't see in

oscillators, from things that aren't necessarily traditional chart

but yet...

If you were a market profile person or you looked in terms of the volume nodes,

it's building a big node here. And you can see once we broke from that, we had

more significant downtrend.

And then that reaction back up where I've got that blue arrow drawn was a

perfect classic Wyckoff setup for a retest back down, new momentum lows,

react back up, retest. That is the recognizable.

pattern on that chart right there.

On the 20 ,000 tick next to it, you see that cell divergence up there? That was

that same divergence that we just looked at on the 15 -minute chart. And you can

see that it also shows on the tick chart.

So right here in the course of one day, I have three obvious trades

to me that I couldn't anticipate.

But that happened as the day was unfolding.

So I'm working with the market, letting the market tell me when there's a

recognizable pattern or opportunity.

And I find that every single day will have at least three recognizable

along this way of thinking.

And on the top right, I just simply have a big 60 ,000 tick or an 80 ,000

tick. It could be like a 120 -minute chart. And what I like to do is always

the key levels marked off.

So I want to recognize those swing highs and those swing lows because we're

either going to come down and test those and As you know, if we break through

them, then we'll go back down to the middle of the range.

Or if we hold support there, then we'll get our continuation pattern back to the

upside.

This was FOMC afternoon.

So this was two days ago.

Wait a minute.

Excuse me. It was yesterday.

I'm on the wrong planet.

And all I wanted to point out here was that even if you were waiting and didn't

make any trade all day long, there was a wedge at the bottom there. You could

see those three pushes down and an upside breakout from that. But let's say

were still standing on the sidelines because of the uncertainty from FOMC.

You can see once we made that new momentum high and that push up, The

reaction down, a little small flag pattern. There was a long trade

And the second retest down, another long trade opportunity. I don't even have

any oscillators up on this particular chart.

But I wanted to show you that, A, you don't have to anticipate what's going to

happen with the FOMC results or the announcement.

Let the market tell you because once a market comes to life, it's like the ball

is in play.

You see, then you have something to work with.

If you're in this little slop and chop rotation here, you can see at this part

of the trading here, there's nothing really to work with.

You don't want to be trading in dead markets where there's just sideways

Who cares if you miss this break? It doesn't matter. There was a reaction

that set up a great little short scalp if you wanted.

But I'm just saying, let the market come to life so that you have something to

work with.

And here, I just wanted to show it to you again.

With a full layout of the grid that I just showed you, the 4 ,000, the 9 ,000

tick, the 20 ,000 cell divergence was there from yesterday, but now I've

all this information for you.

And you can see right here, this was the little space that we just looked at in

close detail.

upside momentum after the FOMC, a little ABC consolidation.

Now, perhaps the oscillators might be a more useful crutch, little cell

divergence at the top.

Who cares if you missed all this? It doesn't matter. We broke sharply here

new momentum lows.

Boom! If you're waiting, there's your signal. You just need one trade a

day.

I don't sit there and make 20 trades a day in the e -minis because what would

happen if I did is the first two would be winners, and guess what? They would

get successively worse and worse and worse as the day goes on.

You just can't process that much information consistently and expect

good results. You will start making more and more mistakes.

At least I do, and I know it's pretty common for traders to make money in the

morning and give it back in the afternoon.

You can see at the top here this cell divergence that showed up on the 9 ,000

tick. That was the same pattern here on the 4 ,000 tick. So that's why I always

like to have multiple time frames up because they will catch different cycles

different rhythms. You see?

And then here on the far upper right, you can see we came down in that

ABC type of feeling, quasi -momentum divergence.

And at the same time, that was that wedgie 1, 2, 3 push thing down, okay,

wasn't perfectly symmetrical.

But that higher time frame was showing you that divergence.

So that's what I look at when I'm trading these S &Ps. I don't do

don't do GAN lines.

I don't do Ichimocho Cloud stuff.

I don't do Elliott Wave. I don't do any of these other things. I'm just waiting

for a recognizable pattern with a simple momentum oscillator.

And I do look at one more thing in all fairness.

And that has to do with the tone of the day.

I do have a two -minute chart with the ticks plotted underneath.

Okay, this was the day before the FOMC here.

And what I wanted to show you was this little aberration up here where there

a big bonk down at lunchtime. And what I have found is that a lot of times at

lunchtime there is unusual.

program activity, and you will very often see extremes in the ticks

around the middle of the day that really don't mean anything in terms of

momentum.

You'll see it, and the rustle will almost always move.

And I've always noticed that the funds tend to divide up, you know, the

funds and these types of things tend to divide up their order placements into

three parts. I don't know if this is true or not, but it's hypothetical to

This is my theory. They do some in the first hour.

They do some in the middle of the day and some in the last hour.

So this was an aberration.

But aberrations impart information. So it was telling me at the time there was

an urgent big program that was probably taking profits, would be my guess,

probably liquidating and taking profits at this point.

But the other things I keep on the bottom of this chart is.

I like to watch the breadth. And you can see the breadth had pretty much been

declining off of the opening price. Even though the S &Ps made new highs here,

the small cap Russell was not. It was steadily deteriorating in a drip, drip.

So that would reflect itself in the market breadth.

And then at the very end, this was not a great example, but I will.

Always keep an eye open for the tick buy and sell divergences at the end of a

swing. So this was not a great tick buy divergence.

It was just about an equal test there.

Okay, so that's just to sum up what I look at when I'm making S &P trades, and

I've been trading the S &P futures since the very first day.

They were listed in the early 80s, and that's what works for me.

It's just a matter of staying in the moment, working with the market, having

lot of patience, and I just let it go if I miss something. And I see so

much after the fact. I'm like everybody else out there.

Oh, I should have seen this or I should have seen that, but if I can just find

one or two spots.

That's what I'm happy with.

So the things I'm looking at now, I wanted to show you some big picture

and what I see as the overall state of the market because you'd be surprised at

how much information we can look at in just 20 minutes.

Remember I told you that your weekend homework doesn't have to be more than 10

or 15 minutes?

Okay, big picture.

This is the OEX index, and the only reason I have the OEX index is because

that's what shows the equity put call ratio on it. That's the only put call

ratio I look at. I don't look at the index option put calls because there's

too much arbitrage with those.

And I get this data off of StockCharts .com.

It's an exceptionally wonderful program for sentiment. And if you want things

like the McClellan Oscillator or a host of zillions of indicators and charts and

groups and relative strengths, I think that StockCharts .com is the best value

out there for somebody that's an investor or an end -of -the -day.

person that doesn't want to fork out a lot of money because it's exceptionally

reasonable. And what I wanted to show you on this chart is where we are at

Last weekend, with our put -call ratios, this is the equity -only put -call

ratio, and you see this middle graph right here.

Pretty neutral, right?

The green arrows are where we spiked up with these high put readings on this

moving average basis, and you can see how they coincided with previous

Why do we have to make this game so complicated?

It's just keeping an eye open for these two to three to four ripe

opportunities every year.

So make this part of your weekend process because that way you will be

when one of these sets up. And it just is patience, waiting, waiting for it to

unfold. Either pushing back down to the lower end of the range where I have the

red arrows drawn, which shows the caution once everybody's in or is too

bullish, you see.

I'm not sure where my cursor went, but the red arrows coincided with

times that you want to take some money off the table because what does

reading teach us? It shows us that everybody's already in.

So when the put -call ratios are very, very low, everybody's long calls,

everybody's bought, everybody's already in.

Okay.

Oops. So on to the next page.

This is a big picture chart that also shows the AAII

bulls. And the nice thing about StockCharts .com is you can look at this

detail if you want, if you want to look at just the past couple months, or if

you want to blow it up and look at the last six years or seven years like I'm

looking at right here.

So we can see from the previous slide.

Where we are now is we're not overbought, nor are we oversold. We're

neutral, which means there'd be no reason to fight the existing trend and

getting bearish.

Okay, we're not at any real extreme.

Here you can just see the huge extreme that we were just at when we had an

exceptionally high reading.

In the AAII bears, that's the American Association of

Investors. And I also look at

Investors Intelligence, II.

So these are the stable metrics that I've followed for years and years.

So we've just come off an exceptional buying opportunity. The low -risk buying

opportunity is over.

It doesn't mean, though, that we still don't have opportunities along the way.

It's just those major investment -grade opportunities, that window's past.

We don't see a spot where you have all those green spikes at the exceptionally

high level. When these green spikes get back up there, we'll be looking to take

some money off the table.

I'm a big believer in George Soros' theory of reflexivity, that the market

swings from one extreme to the other extreme. It's always going to overshoot.

And you can see that we have not overshot to the upside bullish sentiment

readings yet.

This here was showing us that the oversold condition from

just... a week and a half ago, had corrected. We had a nice dip down.

If we're just looking at the day -to -day basis, it was actually the first

dip down that we had since we came off that major bottom there.

All right?

So this is just simply the New York Stock Exchange with the McClellan

oscillator.

The McClellan oscillator is a simple breadth oscillator.

But the interesting thing about it is that he has his summation index, which

really important for looking at market tops, because that's when we'll start to

see divergences that then lead to the more significant tops.

But what do we see on the far right -hand side of this chart?

This summation index made new all -time highs.

There's no divergences at all.

So intermediate term, or short term rather, we've corrected back up to

We're not overbought.

This was on Sunday night, okay? It takes a lot more action than just today's

action to get this back up to overbought readings, and we're not anywhere near

forming divergences in this very long -term summation index.

So all of these charts are available to you from very nominal price on

StockCharts .com, and you can see what they do on the far right -hand side.

blow up that action into detail for you.

Another thing that I look at on the weekends is I like to look at the global

indices, and I simply do that with the ETFs.

So I'll look at EWZ for Brazil, EEM for the emerging markets.

I have a grid of like 24 of these things up, little dinky squares all on one

chart. And they all tend to pretty much look similar, except with varying

degrees of relative strength.

So you can see that right at this point on Sunday night, We had the Euro stocks

leading to the upside. Of course, Hong Kong has been the big relative strength

leader and Malaysia right up there.

And believe it or not, Italy and Spain and Switzerland have been setting the

world on fire.

But then we have some that were just lagging a little bit. There's no top in

them yet. You can see this emerging market index had a nice formation here.

and it hadn't yet made new highs. It might have done that today. I didn't

at it yet at the end of today.

But I love looking at the daily and the weekly position of all these global

indices because just with a glance, you can see I don't have any oscillators,

but it's very easy to see if there's any seductive chart formations, simple

little continuation patterns, and I really just have to look at it once a

Big picture again. Now, this was on Sunday night before FOMC, and I was just

telling you what I saw.

I saw the broad market in a balanced area in the middle of a big trading

So obviously, the techs and the semis have been setting the world on fire with

their relative strength.

It's not that the broad market's in bad shape.

It's just that it hadn't quite caught on with the leaders yet. So for me, I just

saw a big, broad trading range in the small cap.

Obviously, the S &Ps at this point had already taken out that upside high, and

we're right at this key level here. And now I made several scenarios for myself

on Sunday night.

I said, If we can't hold, or maybe it was rather at the end of Monday, if we

can't hold around this level, this 2825 area in general, and we start

closing below that, the 2776 is the middle of that range. That would be if

market made a convincing bull trap.

So if we made a bull trap, I would look for it to fall back down to 2775 area,

just because it's in the middle of the range.

Worst case scenario, if we couldn't hold that area, then we would go test the

lower end of the range. And in an extreme bearish scenario, we would fall

the low of that range by an equal amount that we tested above that range.

So those are just real simple metrics. I'm not predicting what's going to

happen. I'm just saying what would happen if one of those areas didn't

But if we do hold here, then I projected at the very least we should go back up

by an equal amount to that 2907 area, which would be just the top of that big

breakdown bar.

And then, of course, it goes without saying that all -time highs is within

striking point.

You can see at the far right of this chart, I don't have anything bearish on

oscillator. We had our one, two, three pushes down with a correction.

We rallied up. If this was going to fail, it would have to fail hard.

But right now, it's just in no man's land. There's no cell divergences

the trend. And for me, a divergence has to be the clean kind of.

W or M feeling, all right? So that's just what I was looking at. This is

the FOMC. What do I see in the dollar index?

Four years of trading range, basically.

So we're just in a big range. There wasn't anything compelling either way

we were going to bust out to the upside or break down to the downside.

And indeed,

When FOMC came out, we had a one -day downside flush in the dollar, and then,

course, today it rallied right back up again.

So that's classic trading range action for you.

Sorry I couldn't see anything really earth -shattering there, but this is the

environment that we're in, and sometimes we want to see more than there's really

there in the chart.

This was the 10 -year yield chart. I like to use a yield chart instead of

looking at the bonds because to me it gives the truest big picture data.

I can go back and look at five years, whereas the bonds will have continuation

charts that are so full of distortions because of the way that they roll.

So I'm very keen on the 10 -year yield chart, and then I'll look at the 30

yield chart. And you can see right where we were sitting going into FOMC at this

key line here that was also the area of previous highs.

These are the things that create structure for me.

So at the time, I was thinking, well, we're either going to flush down below

those highs, and if we do, then it would be logical to push down to that 2 .5

yield level, which was sort of where the upside breakout began.

And you can see the oscillator here. It's possible that over the next couple

days, we could form a weekly buy divergence and snap right back up.

Or we could get continuation on down. But this is how I like to frame things

out. On Sunday night or Monday on the close, it still looked like that this

going to try and flush down. I didn't know if it was going to make a new leg

down or if it was just going to form a divergence.

And that's how it is when we do our analysis.

Are we going to test?

Are we going to make a new leg down?

Or are we going to form a loss of momentum and come right back up?

And it's very difficult to predict in advance.

Gosh knows it's hard enough to predict anything with all the noise that we have

out there.

But you can see with patience we can wait for a recognizable pattern. And now

I have the coup de grace for you.

Last week, I left you with Navidia having a fresh upside breakout. Did you

how that continued to get legs?

So this morning, this was around 11 o 'clock in the morning. You could

see this first thing in the morning, too. I'm like, let me see if I can find

something interesting for today. And this was what was popping up on my grid

for... the range expansion, the breakaway gap, and the new

momentum highs on that two -period rate of change.

So this is just what we were looking at last week, a recognizable signal telling

us something very important, that there's a great urgency here in the

and this is exactly the type of thing that can now lead to an extended run

or persistency of trend.

But wait, there's more.

Okay, that was the NASDAQ, and I was showing you there that we came in today

with already multiple closes on one side of the SMA, the extended run

already underway.

So there was no reason to be overly bearish today because we knew that if we

have the first close below,

that it would still set up a buy signal that first closed below the 5 SMA. Now,

this was midday, and obviously this got legs and kept running and running.

And this is my radar scan on the trade station, you see, where those little

squares that pop up, those are the new momentum highs on the two -period rate

change.

So TradeStation is the tool that I use to scan for this, and I know that you

find this on other types of software as well.

TradeStation, by the way, is free for those of you that trade stocks.

And then I always have the weekly chart there, so you can see that that was

poised for a new leg up on the weekly. These are my three main things.

This was another one. It hadn't quite broken out yet, but it was the same

pattern that we looked at last week with that bull trap, or rather the bear

trap, just poking below that previous swing low, trapping the shorts.

And over here on the right -hand side, we made new momentum highs on that two

-period rate of change. We got the range expansion.

Let's see if we can get legs, baby, and keep running. And just so you remind

yourself that it is a market of stocks, not a stock market.

This was today, this morning, the banks.

This was USB, but Bank of America looked the same. And, in fact, yesterday I got

the cell signal on these when they made new momentum lows yesterday. And you

can see today they had downside follow -through. And at the very least, you

could put in a break -even stop.

So with that.

This was also the hourly structure coming in to this morning. I just wanted

show you the different things I look at and end with the volume.

Ta -da!

This is my NYSE volume, the first 30 minutes.

Part of my daily routine and ritual once the market's opened and it's been

trading for the first half hour, I mark off how the volume is relative.

to the previous couple days.

And you could see today the first 30 minutes was better than yesterday. That

should be no surprise because everybody's waiting for FOMC.

The hourly volume was better than the previous two days' volume. And, of

we continue to accelerate with our volume all day in terms of

relative to the previous couple trading days, aside from options expiration that

you see there. So that should have given confidence that we had some good trend

action.

This is my 7 a .m. reading. You can see those orange lines make the

bands for the 7 a .m. reading, and I picked the best trends. We had trend

in the yen off that 7 a .m. reading, trend up in the crude, and trend up in

the S &Ps on that far left chart.

So that's why I like to look at this thing even a little bit earlier than

that 8 .30.

So that sums it all up there, okay? It does take time.

I just showed you the summation of 38 years of trading, and I want you to

understand a couple things through this whole three series.

A.

It is just taking one day at a time. I can't predict.

I can only work with the material that the market is giving me at the time. I

can't force it. I have to wait for a recognizable pattern like that new two

-period rate of change, making new momentum highs.

I'm not going to be able to take advantage of that, though, unless I

Routines and rituals by which I can organize my data and my processes.

These things need to be part of a consistent routine that takes priority

everything else.

But you must streamline it too so that it's not taking you two or three hours

every night because you will be so burned out.

What I've just shown you together is 38 years of processes being built, one

on top of the other.

Some of you have been in the markets for a long, long time and are intimately

familiar with the Wyckoff methodology and the processes that Romans taught you

and the Wyckoff analytics whole program has taught you. But some of you are also

newer to the game.

Don't try and do everything at once. Take one market or one little pattern.

Build your processes around that and then take it one day at a time.

Nobody can predict and nobody can forecast.

And my hero, this was the best book that I read a couple years ago, Richard

Feynman's book.

He won the Nobel Prize in physics.

Physics is the science that we think of as being absolute.

Physics. And his answer was, I have a problem. approximate answers and

beliefs and different degrees of certainty.

And I'm not absolutely sure about anything.

And that sums up my philosophy about the markets.

I am eternally a student just as you guys are. With that said, I do have

time for questions. And lastly, if I didn't cover something or you would like

copies of the slides, please.

So email me at lbrgroup .com, and let me get these

questions open. Or else, actually, Roman, can you read them off for me?

Yes, of course.

There are a couple of questions from John.

Where would you enter the divergence trade? And the second one, do you

extended hour data at the open for time -based charts?

That's a great question. I don't have any way of aggregating the overnight

action onto a time -based chart. That's why I use the tick charts.

If you're looking at stocks, of course, you can set the session hours on

something like TradeStation.

Set the session hour to open an extra 30 minutes before the New York Stock

Exchange. That will give you a good enough indication if there is a very

actively market trading pre -market. But the tick data, and of course...

I like to look at the Globex highs and lows for the S &Ps. That's important.

And I'd rather almost look at the 5 - and 15 -minute chart of the DAX and

Eurostox than I would the S &Ps.

But that's just me.

In terms of how do we enter a divergence, especially if it's on the

intraday charts, such as those little examples I was showing you on the 15

-minute chart.

Or the tick charts?

And that's an excellent question because I don't want to be catching a falling

knife, nor do I want to be selling when it's still going up.

I like to watch the tape around those periods. And on a 15 -minute chart,

there's quite a bit of time just to watch how the price is trading. And the

important ingredient for me, if I'm looking to buy a divergence,

I want to make sure it has stopped going down.

I'd rather be just a little too late than too early because I want to see

it stopped going down so I know my risk point.

And then I can put in a stop after it's just been ready to turn.

Now, I have a friend who will like to use, say, for example, five -minute

candlestick bars.

I don't use candlestick bars on my intraday data, but he likes to put a buy

above the high of that bar. That may or may not work for you.

I also will look at things.

such as the ticks, to make sure that they've truly flushed and had a selling

climax, if you will, or at least they're starting to get a little bouncy.

So I hope that answers your question.

There's no correct way to initiate.

It's a matter of style.

So I'll be a little bit more aggressive on my entries in terms of entering

without confirmation.

In exchange, I get better trade location, but I might have a lower

win -loss ratio.

So you could enter with a little bit more confirmation.

You'll have a higher win -loss ratio, but you'll have not as great trade

location and perhaps a slightly wider risk point. So everything's a trade -off

there, and it's going to come down to your own personal style.

I see something about asking about dark pools, and I don't

look anything about this. I have nothing to do with that. I like looking

at the...

Bigger picture stock charts, if I am going to enter a stock on a five -minute

chart, which is really crazy, your opportunities to do that pretty much are

going to be in the morning session.

Usually five -minute charts are incredibly noisy on most stocks, unless

showing an increase in volume and range expansion, and you might just get one

flag formation or one divergence.

For me, I just like to trade the stocks where I can go buy or sell some decent

size. I don't want to be dealing with thin, illiquid things where I can't get

good enough size position on because then I'm just wasting my time.

I use IB, and they just route to the best place.

Or even with TradeStation,

you can click like 1 ,000 shares at a time, and I find I don't really get much

slippage.

And so I don't bother with those things, nor do I bother with putting any faith

in the algorithmic things, the depth, the market depth, the size of the bid

the size of the ask on the futures markets, because I can tell you from

CTA, we work algorithms out there that you can't even see, such as...

I might want to buy 300 euro currency futures, but I'm not going to put in a

of 300.

I'm going to sit there and tell my little algorithm, work to buy 300 over

next minute, do it at random intervals, take some on the offer, work the bid at

some, blah, blah, blah. You set these little things running amok, you see, and

nobody can see what they're doing.

And same thing with the stocks. You can't see anything by the size on the

offer with stocks. You can't even see what's there. So all this nonsense about

being able to read the matrix and read the book and stuff to me, it doesn't

enter into my trading at all.

And if somebody makes money with it, more power to them.

What would be the simplest setup to start with and in what time frame?

The simplest setup is looking for continuation patterns where you've got

established trend, okay? So any time that you've got volume,

any time that you've got volume and something that's moving,

see if you can catch that first continuation pattern, make a trade,

and then immediately look.

Just think, where would you be taking profits? Don't think that it's going to

a home run trade.

If you're just starting off, you need practice getting in and practice getting

out. All right? So don't worry about the big picture, how much money you're

making or not making. The execution skills have to come first.

So that would be my recommendation.

Let's see here.

Go ahead.

Yeah, Linda.

I think there are maybe a couple more questions, so maybe quickly, if we could

address them, we are five minutes behind.

So the question here is, are you using for the channel bands, the Bollinger

bands, or maybe something else?

Those are Keltner channels.

I thought I reviewed those in the first session, but just real quickly, it's an

average true range that's centered around a moving average. I use...

2 .5 average true ranges centered around a 20 -period exponential

moving average.

I believe it's now the default setting on the majority of software programs,

but any chart that you see on my presentation, I use the Keltner

And the last question, how do momentum indicators indicate congestion that

from leads?

Well, the momentum indicator is probably not going to show any clean swings or

divergence or flags. And the best way that you can study this is find periods

where the market's in a choppy, noisy, light volume trading range and see what

the momentum indicator looks like at that point. And it'll probably make lots

little wiggles and jiggles. And the best indicator that you can use to study

these periods, is if you look at an ADX, a 14 -period default

ADX, and you will notice that in congestion periods, that ADX will drop

down to a really low reading relative to what it's been.

And if you look at a momentum indicator at that point, you will see you'll be

equally likely to give a false reading because there's really not any momentum

to measure.

So let's wrap that up with that last question. If you have more questions or

me know what you liked best about this whole series that Roman sponsored with

his Wyckoff Analytics, please email me at lbrgroup.

at att .net.

And again, thank you guys so much. I got quite a few emails from those of you

that have read my Trading Sardines book.

And I just want to say thank you for taking the time to send those. And thank

you for participating in today's session.

Thank you, Roman.

Linda, that was amazing.

And again, as I said, I was taking a lot of notes.

Some of the things that kind of stuck out for me. Why go do your own work in

room with no windows or doors?

That's what Hank was repeating so many times in all of the classes that we

attended with him. So that was just such a great reminder.

Processes substitute for a mechanical system.

So many times in classes we talk about how we want to conduct our trading in a

more mechanical way, meaning that we need to have rules. We need to have the

process. And that was just great. And my favorite, correct mistakes immediately.

And that's that post -analysis that we require, you know, on our timeframes and

with our trades. So it was just...

Such a fantastic presentation, Linda, and the whole series. So much

We're so grateful as a community that you've come to us and delivered this

knowledge, and we just hope to see you in the future. Thank you so much.

All right. Night, gang.

Bye -bye.