andexpectations.
Explaining Stochastics Quickly and
Simply
As many of you already know, the stochastic indicator consists of twovalues, percent K and percent D. Percent D is a derivative of percent K.Percent K is derived itself from the fast stochastic indicator which isderived using a simple mathematical formula. We will be working withthe slow stochastic indicator, so termed because it is a moving averageof the fast stochastic indicator and, therefore, makes slower oscillations.It is well known that stochastics can be used in many different ways.
*J, Bernstein and M.A. Silber, Stochastic Fantastic, MBH, P.O. Box 353, Winnetka, Ill. 60093, 1992,
4344
Chapter Five
Sometimes I feel that there are as many different applications of SI asthere are futures traders; SI is one of the most popular contemporaryindicators in the futures markets. This, in and of itself, does not mean thatSI is the best indicator. On the contrary, it may very well mean that ascommonly used SI may be one of the worst indicators. Although I donot believe that this is true, I am by nature a contrarian. When appliedconsistently and with concise trading rules, the SI in its traditionalapplications can be a profitable indicator for day traders (and others aswell). Here is a synopsis of the basic stochastic indicator followed bysome of the more traditional applications for day traders and then bymy stochastic pop (SP) method which is, I feel, one of the more effectivemethods of day trading. ee
The Basic Stochastic Indicator
Futures traders have discovered through trial and error (mostly througherror) that effective timing indicators can be applied in many ways andin a variety of combinations with other indicators. Dr. George Laneadvanced numerous applications for his stochastic indicator; ] have,through persistence, considerable research, and the “school of hardknocks” amplified on George Lane’s original research. In fact, Georgehas adapted at least one of my uses of stochastics, the stochastic popindicator, to his own use.
Simply stated, the SI is a price oscillator which compares today’s pricebehavior with the behavior of prices x number of periods ago. A 14-daySI, for example, compares a derivative of today’s price with price 14trading days ago. The raw stochastic number is converted to a percent-age reading, smoothed, and then compared to a moving average ofitself. Hence, the SI consists of two numbers expressed as percent ateach price bar. Since both lines are smoothed, and since one line, percentDis a derivative of percent K (usually a 3-period moving average of thefirst-line percent K) the visual effect is one which easily shows highsand lows in the SI correlated closely with highs and lows in price.
There are two forms of the SI, fast and slow. The fast SI consists of twolines which often gyrate wildly from low to high and back again, andthe slow SI is a smoothed version of fast and moves more graduallyfrom low to high and back again. There is a strong correlation betweentops and bottoms in price and SI tops and bottoms. The SI is, therefore, apowerful indicator which may be used by short-term, position, and daytraders alike.
The important issue regarding the SI, whether fast or slow andwhether 9-period or 25-period, is its method of application. As we willIntraday Application of Stochastics 45
see later on there are numerous ways in which SI may be used. It is thepurpose of this chapter to provide you with what I feel are some of themost powerful methods for day traders. I am confident that those whounderstand and consistently apply the principles we are about to teachwill appreciate both the simplicity and power of our techniques.
Before introducing the basic approaches to SI timing I'd like to stressthe following important aspects of stochastics:
1. Many traders consider an SI of 75 percent or higher as an indicationthat a top is imminent, and a stochastic of 25 percent or lower is oftenconsidered an imminent sign of a bottom.
2. The fact that the SI reaches an overbought condition (i.e., 75 percent orhigher) or an oversold condition (25 percent or lower) does not neces-sarily indicate that action should be taken immediately. This is the sin-gle most severe drawback of traditional stochastic implementation.
3. The SI is used by many traders as a stand-alone system. Althoughthere is nothing wrong with this approach, I have found that withonly a few exceptions the addition of timing indicators can improveoverall results, regardless of which SI technique you are using.
Basic Approaches to SI Timing
1. Percent K and Percent D
Crossover SignalsThe SI (stochastic indicator) can be used in either its fast or slow mode.The slow SI mode is a moving average version of the fast SI mode. Werecommend using slow SI, since fast SI oscillates too wildly. Onemethod of SI timing is to use the slow SI for buy and sell signals oncrossovers of the percent K and percent D SI lines. This approach isillustrated in Figure 5-1. This application of SI requires a considerableamount of trading, trading which varies directly with the length of theSI indicator. Shorter lengths of SI result in more trades and vice versa.This technique is subject to the same limitations found in virtually allmoving average and oscillator applications—it generates numerousfalse signals and tends to give back too much in profits.
2. 25 Percent and 75 Percent SICrossovers
Generally speaking an SI reading of 75 percent or higher is consideredoverbought and a reading of 25 percent or lower is considered oversold.46 = Chapter Five
 
Figare 5-1. SI buy-and-sell signals on percent K and percent D crossovers.
Because the SI can remain in the overbought (OB) or oversold (OS) areafor lengthy periods we advise against sell decisions made simply on thebasis of an OB condition or buy decisions made simply on the basis ofan OS condition. If you use the SI for the purpose of selling and buyingon such extremes, you must wait for the cross to occur from OB backunder 75 or for a cross above 25 from OS. This approach to the use of SIrequires you to wait for SI to rise to 75 percent or higher and then to fallbelow 75 percent on a closing basis; when it does you will sell or reverseyour long position to short. Wait for SI to fall to 25 percent or lower andthen to rise above 25 percent on a closing basis. When it does you willbuy or reverse your short position to the long side. This application of SIhas good potential for trading in virtually all time frames.
Remember, however, that the SI alone will not tell you where to putyour stop or where to take your profit. You must use your other meth-ods to do so or you must rely on your own judgment for stop-loss place-ment. As with any method or system you must be prepared to take yourlosses when necessary.
Please don’t resort to excuses to avoid taking your loss and don’t addto losing positions just because the SI is heading in a given direction.The SI is not infallible. I have found, however, that when used in con-junction with the other timing signals, SI achieves a greater degree ofaccuracy while limiting false signals and risk.Intraday Application of Stochastics 47
I have found the 75/25 approach to be more fruitful than the cross-over method described in the previous section. The technique is verysimple. Figures 5-2 and 5-3 illustrate this approach using 5- and 10-minute data. The 75/25 method may be used in virtually any time frameand will work well in 5-, 10-, or 15-minute charts. It is also applicable to30-minute data; however, when used on data longer than 20 minutes’duration, it no longer serves the purposes of day traders very well.
Intraday Stochastic Pop: Definition
I’ve been asked on many occasions why I call my unique use of stochas-tics the “stochastic pop” indicator (referred to hereinafter as SP). Verysimply, the SP is so termed because it enters markets when most tradersconsider markets to be overbought or oversold. In other words, the SP signalsa buy when a market is considered by the vast majority of traders to beoverbought and incapable of going any higher. SP enters short positions-when the majority of traders considers the market to be oversold andunlikely to go any lower. In other words, I have found that markets tend toPOP like a kernel of corn at the right temperature, once they reach certainlevels on the SI.
Through the years I have found that the ideas of overbought andoversold are fallacies. The fact is that a market is never too overbought to go
     
           
 
wefe .
   
Myfit
lat
     
  
   
Figure 5-2. The 75/25 SI method on 5-minute data.48 = Chapter Five
| o ih neCh we
ts hd
 
Figure 5-3. The 75/25 Si method on 10-minute data.
higher and hardly ever too oversold to go lower. Since there is a natural limitas to how low prices can go (i.e., zero), there does eventually come apoint at which prices are ideally too low and oversold. On the upside,however, as we have seen many times over the last 25 years, there is nolimit to how high prices can go. Therefore, the SP method takes advan-tage of market momentum by buying when momentum is strong andselling when momentum is weak in the expectation that the move willcontinue long enough to yield a profit.
In other words, SP is, in a sense, consistent with the laws of physicswhich state that a body in motion tends to stay in motion until it runsout of energy. In studying the stock and futures markets I have foundthat many very large moves occur quickly toward the end of a bullishtrend and toward the end of a bearish trend. Frequently, the period ofgreatest upside momentum over the shortest period of time occurs aftera market has become overbought and after a market has become over-sold. SP attempts to capitalize on this condition.
SP Parameters
Here are the rules of application for SP. Using a 14-period slow stochas-tic indicator, a buy signal will be triggered when percent K is at 75 per-cent or higher at the end of the period you are using. For the purpose ofIntraday Application of Stochastics 49
day trading with the SP, I prefer either 5- or 10-minute data. Con-sequently, once the SI has closed at 75 percent or higher on percent Kusing 5- or 10-minute data, you will be buying immediately upon that 5-or 10-minute posting. Your buy will always be at the market. From timeto time there may be sufficient leeway to allow a specific price order;however, I leave that type of jockeying up to you, since it is not usually asimple matter. Once you have established your position, use either a riskmanagement stop loss or exit your position at the market as soon as per-cent K and percent D have crossed one another at the end of your 5- or10-minute segment.
See Figures 5-4, 5-5, and 5-6 for graphic explanations and illustrationsof the SP method. Note that the following abbreviations are used onmany of the charts in this chapter as well as in the chapters which follow:
 
B = buy to establish new long position
S = sell to establish new short position
SL = close out long position and go flat
CS = cover short position and go flat
F = forced out at end of day
 
Figure 5-4. Ideal representation of the SP method.50 = Chapter Five
 
Figure 5-6. The SP method in real time, pork bellies.
As you can see from a close examination of these illustrations, inevery case that there was a buy or a sell SP signal, the results wouldhave been profitable even after having been stopped out on the exit sig-nal. Remember that once the exit signal has occurred you must exit yourposition at the market.5 BAR EXP (XK)3 BAR EXP (4D)
Intraday Application of Stochastics 51
Assume now that once you have entered by SP and exited accordingto the rules, percent K declines under 75 percent and then in a future atthe end of a subsequent 5- or 10-minute segment goes to 75 percent orhigher. What to do? Simply enter a long position again and trade by therules. You will find a number of such instances illustrated in Figures 5-7and 5-8.
Although the SP technique is ultimately very simple, it does requireclose attention, and you must, by all means, be there watching for thosecrossovers or you will lose money with this method. Before you attemptto implement this approach, take the time to follow it closely in actualmarket conditions so that you may test your knowledge and developyour skill with the SP method.
As you can see from the illustrations, the SP sell condition on an intra-day basis also uses 5- or 10-minute data; however, it sells once percent Kfalls below 25 percent after first having been above it. Price execution isat the market in all cases, although as I’ve said earlier, you may decideto fool with specific price orders on your own if you'd like to take thechance. Exit of the SP sell will be at the market once percent K and per-cent D have crossed.
In any‘event, do remember that the SP intraday method is merely aday-trading method. I recommended against carrying positions beyondthe end of the trading session. You must be out of your SP trade by theend of the day in order for it to qualify as a true day trade.
   
Figure 5-7. Ideal representation of the stochastic pop showing method—multi-
ple signals.52 = Chapter Five
 
Figure 5-8. The SP method in real time—multiple signals.
Markets in Which SP Works Well
In my experience, SP on an intraday basis works well in highly volatilemarkets. Naturally, this includes most of the currencies, crude oil attimes, S&P most of the time, and T-bonds at times. Perhaps SP’s mostconsistent performance is in S&P futures. Since market characteristicswill change over time, I urge you to watch the markets closely in orderto allow the use of SP signals in other markets which are not currentlyactive or volatile but which may become so in the future.
Hit-and-Run Trading Using the SP
One of the characteristics of the SP method is that it lends itself readily tothe application of my “hit-and-run” technique. What this amounts to issimply entering a long or a short position consistent with the signals,staying with that position for a fairly brief period, and exiting the posi-tion at the market in order to grab a quick profit on the long or short side.The advantage here is, of course, that you will find it possible to takemany quick profits. The disadvantage is that in so doing you will sacri-fice larger moves which may occur once you have exited the position.
In order to have the best of all possible worlds, I suggest trading sev-eral units as opposed to one unit. Here’s how it would work in practice.Assume that an SP buy signal has occurred. Instead of entering just oneIntraday Application of Stochastics 53
contract, you enter two or four, preferably in even units. As soon as themarket has moved in your favor by a predetermined amount (100 pointsin S&P futures for example), you exit one unit. You hold the remainingunit long until the stochastic lines have crossed at the end of a 5- or 10-minute segment, which is where your ideal exit would have been. In sodoing, you will trade one unit for hit and run, the other unit accordingto the rules.
Variation on the Theme of SP
Because markets can continue to run in their existing direction once anSP signal has occurred, I have developed yet another application of SPwhich is a more aggressive one. By aggressive, ] mean one which tendsto hold a position longer than the original SP application once the signalhas occurred. Examine Figure 5-9. It illustrates a situation where an SPsignal occurred subsequent to which a number of crossovers developedwhich would have caused you to exit your SP position according to therules I gave you earlier. If, however, you did not exit when the percent Kand percent D lines crossed but rather maintained your position, thepotential profit would have been significantly greater. This is a moreaggressive method because it allows you to hold your original SP posi-tion for a longer period of time. To exit the position use a close trailing stop
ttl:. ‘nad
 
Figure 5-9. The aggressive SP technique, pork bellies.54 = Chapter Five
which will follow up your position preferably every half hour or more frequent-ly in order to lock in your profit and protect you in the event of a quick reversalin trend.
A good illustration is provided in Figure 5-10, which depicts an SPsignal followed by a continued uptrend, an exit indication on the origi-nal SP method, but a maintenance of the long position beyond the origi-nal SP exit with a detailed follow-up stop procedure as suggested. Seealso Figure 5-10 for similar illustrations of the aggressive SP technique.
As you can see, using this technique allows you, in most cases, to par-ticipate in the larger moves subsequent to an exit on the original SPmethod. The aggressive SP technique is not recommended for conserva-tive day traders, assuming that there is such a thing as a conservativeday trader. For those interested in the technique, I strongly recommendfollowing it closely for several weeks before deciding to pursue thisapproach.
What You Can Expect
The SP technique has been tested extensively on historical data datingback to the 1960s. Using various combinations of percentages to triggerSP entry (ie., 75 percent, 65 percent, 60 percent for buying; 25 percent,15 percent, 30 percent for selling), I have found that the accuracy of SP
 
Figure 5-10. The aggressive SP technique, deutche mark.Intraday Application of Stochastics 55
in terms of follow-through is high. Even in a large sample size such asthe one I tested, accuracies in terms of follow through in the direction ofthe signal as high as 65 percent were not uncommon during certain timeframes. However, since the SP method both in its original form and inthe aggressive mode is more of a method than a solid mechanical sys-tem, results in terms of application will vary from trader to trader.Although I will not guarantee definitive performance results since alltraders trade differently, I can tell you that if you use both the original SPand aggressive SP methods consistently and with close attention in terms offollow-up stops, you can do extremely well.
Preferred Markets for SP Application
Although SP signals will occur in virtually every market, the day traderis looking specifically at those markets which have a high tick value andsufficient volatility to generate meaningful moves within the day timeframe. The old standbys, S&P, Swiss franc, British pound, T-bonds,crude oil, heating oil, etc., should definitely be considered as day-tradecandidates. However, there are other markets which, subsequent tomajor news items, reports, and other fundamentally inspired events canalso yield outstanding day-trade pop opportunities. These should beconsidered as well. I refer specifically to such markets as cotton, lumber,pork bellies, and soy beans.Gaps, Gaps, Gaps
Of all the short-term trading systems I’ve researched, traded with, anddeveloped, my favorite ones are those which use opening price gaps asa methodology for entering trades. The reason I prefer systems based ongaps is primarily that they require less attention than any other methods Iknow. With the gap systems which I will discuss in this chapter, ordersare entered either on the opening or 1 hour after the opening, and closedout either at a specific stop loss or on the close of trading. Naturally, forthose traders who wish to follow the markets during the day this is cer-tainly possible using the gap system; however, it is not necessary. Beforediscussing the gap systems, let’s define what I mean by an opening gap.Surprising as it may seem, there are still many traders who do notunderstand the concept or the definition of an opening gap.
An opening gap occurs when today’s opening price
is either greater than yesterday's high priceor less than yesterday's low price.
 
Here’s an example. Let’s assume that yesterday's price range was$59.10 as the high, $58.60 as the low. If today’s opening price is greaterthan $59.10, then an opening price gap UP has occurred. If, however,today’s opening price is less than $58.60 which was yesterday’s low,then an opening price gap down has occurred.
There has been some controversy as to what constitutes the openingprice. This is an important consideration for day traders, so let me giveyou my definition of the opening price. If you are watching an on-linequotation system or if you consult your local newspaper or financiallistings of futures prices, you will see that an opening price is usuallyGaps, Gaps,Gaps 5&7
indicated in the far left column. The prices read open, high, low, andclose. Sometimes the close is referred to as a settlement. For our purposes,I define the opening price as the first print price.
Specifically, what I mean here is that the first price which appears onyour screen is considered for the purposes of our discussion to be theopening price. I say this because frequently the exchange will define theopening price as slightly different than what the first print may be.Occasionally, a market opens in a range of prices. In other words, therewill be no one specific opening price as defined by the exchange. Rather,there may be two or three opening prices, all of which occurred at thesame time.
In such cases the exchange uses the range of the opening prices,selecting the midpoint as the opening price. This is not sufficient for our -purposes. You must use the first print. In the vast majority of cases, thefirst print will not differ significantly, if at all, from the exchange-defined opening price. Figures 6-1 and 6-2 show the ideal gap open upand down signals. Gaps on actual charts are very easy to find and use ifyou know what you’re looking for.
As you can see, it is very easy to identify an opening price gap due toits specific definition. This is why opening price gaps can be used objec-tively and as close to mechanically as possible.
 
Figure 6-1. Opening price gap up.58 = Chapter Six
 
Figure 6-2. Opening price gap down.
Gap Trading Rules and Definitions
Gap Open Signals (GO)I use two types of gap signals. The first is called the gap open (GO) sig-nal. The second, to be defined later, is the delayed gap open signal (DGO).Each signal has its buy and sell parameters.
Gap Down Buy Signal Rules. The gap methods | use consideropening price gaps down to be the first indication of a possible bottomand intraday rally. Most gap lower openings occur following bearishnews or negative expectations based on international and/or domesticevents. Here are rules for using the GO signals:
1. In the event of an opening price gap down, the first condition for apossible buy signal will be established.
2. If a lower opening price gap occurs, then you will place an order tobuy once the market has come back up and penetrated the previousday’s low by a given number of ticks.
3. Such an order must be given as a buy-stop-order or a buy-stop-limitorder.
4. You will use a stop loss either at a predetermined dollar amount orseveral ticks below the day's low once your order has been filled.Gaps, Gaps,Gaps 59
5. Of the two stop methods, I prefer the money management dollar stoploss because, in many cases, the day’s price range will have been toonarrow to permit a reasonable stop loss to be placed.
Let me be specific about the buy condition which occurs after a gaplower opening. First, I’ll begin with an example. This example refers toFigure 6-3. Assume that March S&P futures establish a daily tradingrange yesterday of 410.00 high, 408.00 low, and 408.50 close. A gap loweropening will establish the first condition for a possible GO buy signal.You know yesterday’s high, low, and close (for this method knowing theclose is not important). The market opens today at 407.50, 100 pointslower than yesterday's close and 50 points lower than yesterday’s low.The first condition for a gap-buy-trade on a lower opening has been established.
Due to the gap lower opening you would now enter a buy order byplacing a buy stop or a buy-stop-limit, two ticks above the low of theprevious day which would be 408.10 (408.00 + 0.10). What does thismean? This means that if the market turns around and goes back up throughthe low of the previous day by two ticks, your buy stop will be elected and youwill be long the market. See Figure 6-3 for an illustration of this condition.In this intance the gap signal went long may cocoa as shaun and closedout the long position at the end of the day.
The rationale for this trade, both operationally and psychologically, isfairly understandable. If the market opens down price gap, the majority
 
th
: I, . “di at
tpl a
 
Figure 6-3. Gap down buy signal.Chapter Six
of traders interpret this to be a bearish sign, expecting prices to golower. This brings in more selling. The market moves lower. If sellingbegins to “dry up” (that is, if the selling pressure decreases), then priceswill not drop any further. If the market is strong enough to then rallyback up through the low of the previous day, many traders will inter-pret this as a bullish indication and a negation of the lower openingprice gap. Therefore, they begin to buy and prices will move higher. Youwill want to be in on the long side of such a move because frequentlysuch “surprise” rallies after lower opening price gaps tend to accentuate upsidemovement. /
Once you are long the market, at least two decisions need to be made.The first decision is where to put your stop loss. As you know, I havestressed the use of stop losses repeatedly and stress it here once again.Initially, your stop loss may be placed several ticks (most often twoticks) below the low of the day at the time that your buy order wasfilled. Therefore, if the low of the day was 399 and your buy stop wasfilled at 401.10, your stop loss would be placed two ticks below 399, orin this case, 398.90. Another procedure for stop losses is based strictlyon risk management. In other words, a dollar amount stop will be usedregardless of the low of the day. Typically, traders attempt to use verysmall dollar risk stop losses for day trading; however, I do not necessari-ly agree with this when it comes to such volatile markets as the curren-cies and S&P futures. My research has shown that larger stops arepreferable. Unfortunately, this does not sit well with many traders whohave limited amounts of capital to risk. I have found, for example, that astop loss of as much as $2500 in S&P futures (500 points) is preferable toa stop loss of $500 or 100 points. Unfortunately, it is a sad but true factthat speculators have limited capital. Yet, the other side of the coin isthat the larger your intraday stop loss, the greater the probability thatyou will remain in the trade and exit it profitably by the end of the day.This is what my intensive research has confirmed.
Gap Up Sell Signal. Opening price gaps to the upside provideopportunities to sell the market short for a day trade. The procedurehere is the inverse of the lower opening price gap which is used for buy-ing. See Figure 6-4 and the rules below for specifics:
1. In the event of an opening price gap up, the first condition for a pos-sible sell signal will be established.
2. If a higher opening price gap occurs, then you will place an order tosell once the market has come back down and penetrated the previ-ous day’s high by a given number of ticks.Gaps, Gaps,Gaps 61
1
all; t {
 
Figure 6-4. Gap up sell signal.
3. Such an order must be given as a sell stop order or a sell stop limitorder.
4. You will use a stop loss either at a predetermined dollar amount orseveral ticks above the day’s low once your order has been filled.
5. Of the two stop methods, I prefer the money management dollar stoploss because, in many cases, the day’s price range will have been toonarrow to permit a reasonable stop loss to be placed.
Assume the following situation: T-bond futures establish a tradingrange yesterday of 10201 as the low, 10214 as the high, 10203 as the close.Today, the market opens at 10126, a gap higher opening. This is a gaphigher opening because the market has opened above the previous day’shigh price. In using the gap open lower and higher system for T-bondfutures, I do not include the night session trading range. I am simplyusing the open, high, low, and close of the day session. You may want touse the systém differently than I do; however, if you do, then I suggestyou do some research with it before implementing these changes.
In this case, the gap higher opening establishes the first condition fora possible sell signal. A sell stop would be placed two ticks below thehigh of the previous day at 10212. You would not be able to use a sell-stop-limit because the Chicago Board of Trade, home of T-bond futurestrading, does not accept stop limit orders.Chapter Six
If the market starts to decline and falls two ticks below the previousday’s high, you would be stopped in to your short position. Your initialstop loss would be either several ticks above the then-current high of theday, or a money management dollar stop loss as discussed previously.
The psychology for the gap higher open sell is essentially similar tothat of the gap lower open buy, only in reverse. When the market openson a gap higher, those who are short rush to cover their positions andthose who wish to get long, thinking the market is strong, support thehigher opening. If, however, buying begins to diminish, prices willdecline, falling through the gap and into yesterday’s trading range bypenetrating the previous day’s high. This will be cause for concern tothose who bought the higher opening and to those who exited short posi-tions. Those who bought the higher opening and are concerned that a tophas occurred will rush to sell their longs. And those who covered shortpositions on the opening will enter the market to reestablish their shortpositions. The combined selling of these two groups will force priceslower, and you hope you will be on the correct side of the market bybeing short. Naturally, both the gap lower buy trade and gap higher selltrade are closed out by the end of the trading session if the rules are beingfollowed. See also Figures 6-8 through 6-11 for examples of gap trades.
Stop Losses and Follow-Up Stop Losses on Gap Trades.Frequently, gap lower or higher openings will produce fairly largemoves within the day time frame. The professional day trader will wantto maximize on these signals not only by having a specific stop loss butalso by attempting to lock in as much profit as possible so that in the long runoverall risk exposure may be minimized. I cannot overemphasize this lastpoint. In order to do this I offer the following suggestions regardingstop losses and trailing stop losses:
= When a gap signal trade has occurred, make certain that once you are inareasonably profitable position, you place a stop loss to exit that positionat your commission cost plus a small amount of profit so that if the marketreverses course, you will have been stopped out without losing any money inmost cases. As far as follow-up stop losses are concerned I suggest thatyou develop your own procedure. In terms of dollar stop loss, a deci-sion should be made on a per-market basis. In S&P futures for exam-ple, a 150 point or $750 lead on the market is a reasonable point atwhich to consider placing a stop loss at break-even plus commissionor slightly higher. Remember that if you are “scalping” the marketyou will want to use an even closer follow-up stop loss.
= Multiple units or contracts may be considered as one way of maximiz-ing your potential profit without significantly increasing your overallGaps, Gaps,