same isequivalently and obviously true of other successful traders—their methodswork . . . for them. You and I may or may not be able to put these othertraders’ methods into profitable use, or we may develop our own over time.However, we cannot possibly prosper until and unless we take the time toexamine, and the more closely the better, the claims and underlying assumptions of any of those who would advise us, and to sort out the profitablefrom the unprofitable. And, make no mistake about it, you should absolutely apply this same standard to your favorite author.Being cynical never earned anyone a dollar as far as I know, H. L.Mencken excepted. Discard any cynicism you may have about those whodiscuss trading, strategies, and methods. Some highly popular market pundits contain more crap than a Christmas goose, as you and I know (orshould know) from experience. Fear of lawsuits prevents me from specifically naming a number of these folks right now, but consider all those financial experts, those clowns who ranted on about the “Y2K” event threatening
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a market disaster of Biblical proportions. Dang, I musta missed it! I hate itwhen that happens. Or, maybe these folks hadn’t any clue in the first place?Rather, and much more profitably, retain a healthy skepticism aboutsuch alleged experts and about any of their methodology, until such time asyou can profitably apply portions of their advice or their strategies to yourtrading. When the mythologists, the moonshiners, and the morons crawlout of the woodwork and make all sorts of pronouncements about this,that, and the other thing, just give their views a withering look with a jeweler’s eye. Smile at them and say “Thanks!”Then fade them, and bank the profits. It’s a very high expectation trade.
CHAPTER 5
No Hammer,No HouseThe Tools of the Trader
The house doesn’t beat the player. It just gives him the chanceto beat himself.—Nick “The Greek” Dandalos
apital and knowledge by themselves aren’t sufficient for successfultrading. We must also have a methodology for locating profitable opportunities, a discipline for limiting loss, and, unquestionably, continuing access to relevant and useful market information. I’d be shocked,however, if any two traders would agree on exactly what types and piecesof information are most valuable. Clearly, a useful set of information variesaccording to the markets we intend to trade and in our strategic approachto those markets. In addition, we require the means to obtain and processthis information. We need a set of tools.The trades I want to locate are generally longer-term than most futurestraders prefer. These trades will have, as we’ll continue to see, a definitepositive expectation when entered and as high a theoretical probability ofsuccess as I can generate, consistent with a well-above-average return oncapital. The approach I take to markets is broadly statistical, conditionedby historical price movement and the current and putative future supply/demand situations in the assorted markets. I’m not a technically orientedtrader at all. Nothing against technical methods, but if you don’t understandhow and why certain methods work, you’re surely better off not applyingthem to your trading. I know for an absolute fact that I don’t understandhow and why most technical methods operate, and therefore I don’t employthem except in infrequent one-off situations.
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Ignore History and Lose—No ExceptionsAll right, what information do I require? First on the list, without any doubt,is a database of historical prices for a broad set of markets, perhaps 60–70in all. Historical databases are available from numerous vendors, but bealert: the quality of the data varies widely from vendor to vendor. The bestand most error-free end-of-day data I’ve found for futures markets comesfrom Pinnacle Data, at www.pinnacledata.com. The databases this company offers also have the merit of being very reasonably priced.(Side note: you can be absolutely certain of three things when I mention any company’s or person’s product in this text. First, I use it. Not, “Ihave used it”; I use it and it’s a very good product, for my purposes at least.Second, I don’t receive and wouldn’t take any compensation of any kindfrom any of these companies or people, period. Third, the number of suchmentions in the text will be small; I’m not here to write advertising copy.Now, back to our exciting tale.)In some instances, brokerages will provide price history data for somesort of fee, or even at no charge for good clients. Policies vary from brokerage to brokerage, so if you propose to use historical data as a tool inyour approach to trading (which I believe strongly that most traders should),you would certainly be missing a bet if you didn’t learn what your brokerage offers along these lines.I trade futures options, mainly, and it would be entirely reasonable ofyou to assume that I also need a database of historical option prices. I’d loveto have one, but I’ve never yet seen one in which the data were sufficientlyerror-free to use for analysis and didn’t also cost approximately the Frenchnational debt. By all means, if you know of a company offering historicaloption price databases of good quality at a reasonable price (doesn’t haveto be cheap, just reasonable), would you please let me know?
Present-Day Information—The Sine Qua NonFor obtaining supply/demand and other worthwhile current market information, there’s no one to match cash market brokers and professional market analysts, but—let’s be honest here—not all analysts are created equal.I trade with REFCO, Inc. and with Salomon Smith Barney, and betweenthem they’ve quite a number of very experienced and well-informed analysts.Better even than that, these analysts are all accessible to traders who havelegitimate questions, and they typically also offer useful pre-market andpost-market commentaries on their companies’ Internet sites. Even if yourbrokerage doesn’t maintain a staff of analysts, if they clear your tradesthrough a firm that does, you can likely enough talk with the clearing firm’s
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analysts. Again, the only way to find out is to ask. Talk about missing a bet,I know a flock of traders who have never asked this question, for reasonscompletely beyond me.I said it earlier and I’ll say it again: the Internet is indispensable totraders. If you don’t use it for acquiring information, you are putting yourself at a dreadful disadvantage to other traders. While I freely grant you thata heck of a lot of the so-called information floating around the Internet ispure horse puckey, it’s fairly easy to sort the gold from the pyrite with a bitof patience. The amount of useful and immediately valuable informationavailable is simply staggering, and any trader would have to be purblind notto seek to take advantage of it.
Analytical ServiceNow, we ourselves can manually wade through all the information we acquire, but that’s just a little impractical, not to mention way too timeconsuming. If you have any intention of applying historical data analyses orcomparative supply/demand analyses to your trading, either use a computerand a spreadsheet program or find a commercial service that will performyour preferred analyses for you. I’ve only ever found one really convenientsource for some of these analyses, but I haven’t looked around as vigorouslyas I probably should have done.That source is Moore Research, Inc., www.mrci.com, whose principalis Stephen Moore, and which offers a enormous amount of historical data,numerous different analyses, and a good deal of commentary. They keep allthe information on their site nice and current and charge the reasonable sumof $344 per year for their basic service, which is dirt cheap at double considering all the information available there. One extra valuable feature oftheir service, from my perspective, is a continually updated presentation ofspecific seasonal tendencies in various markets. Having this information athand is quite valuable in locating potentially profitable situations because Idon’t have to expend time and effort replicating Moore’s research.This is not to say that there aren’t other equally fine or even better services available, whether on the Internet or elsewhere, it’s to say that I’msimply not aware of them at this time. For that matter, as long as I’m admitting things, you should also know that I don’t use a spreadsheet. I don’teven know how to add up a column of numbers using a spreadsheet (I’ll getaround to spreadsheets one of these days . . .). My business is computer systems design, and over the decades I’ve written some hundreds of programsthat analyze price databases, and, naturally, these are very easy to use . . .for me. In the wide world of trading, though, my personal situation is just afluke. Either purchase or gain access to commercial analysis software or
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Internet sites offering whatever types of analyses you favor, or use a spreadsheet. If you don’t want to purchase a commercial analysis product andyou aren’t comfortable with spreadsheets, take some time to become comfortable with them. You can’t afford, literally you cannot afford, to concedethe analytical advantages of this tool to the other market participants.
Where Is My Capital? PC-SPANEvery worthwhile book ever written on trading discusses capital management at some length, and this one will be no exception. We’ve touched onthis topic earlier, in the notion of refusing to use the maximum leverage available to us in any market, and that’s fine, as far as it goes. We need to go further, however, for there is another thoroughly indispensable tool for propercapital management when trading futures and futures options. This tool isPC-SPAN, the computer program developed and sold by the Chicago Mercantile Exchange. This program, using cost-free downloadable files as inputs, will keep you abreast of your current margin requirement and informyou when capital considerations indicate that a modification of your position(s) might be a good idea, and it does much more. It offers you the abilityto view your capital and margin position in the future as prices and volatilities in the markets change, the well-known “what-if” analysis. This sort offorewarning is worth rubies to any trader.At this writing, PC-SPAN version 4 costs $500.00, and it’s worth everypenny and then some to the serious trader. I don’t care if you can get yourbrokerage’s margin department on the phone on demand (and I’d wageryou can’t, these days!), without PC-SPAN, you simply cannot obtain all theinformation you need to manage your capital in a careful and practical fashion. Frankly, I’ve lost count of the times that PC-SPAN has either warnedme of an impending margin problem, or indicated a sensible adjustment inan existing position, or pointed the way toward the most efficient use of capital in a new position I’m considering. It has easily paid for itself 20 timesover or more, and I can’t imagine trading as profitably without it.Even if you principally trade in stock markets, you should still acquirePC-SPAN. Numerous overseas stock markets use the SPAN model to determine margin levels right now, and more are adopting this procedure all thetime. U.S. stock markets are the primary holdout to date, and their resistance is entirely due to the inertia of legislators regarding the repeal of Federal Reserve Regulation T, which prescribes allowable margin levels forthese markets. Given the development of modern risk analysis and its subsequent application to margin requirements, the technique usually calledportfolio margining, Regulation T is a dinosaur and the next Ice Age is onits way. The advent of single-stock futures, which are backed by every major
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exchange in the United States except the NYSE, will further crank up markets’ and traders’ demand for elimination of Regulation T. Being familiarwith the SPAN procedure through the use of PC-SPAN will be entirely to youradvantage when the dinosaur bites the dust and the stock markets in whichyou trade do finally adopt portfolio margining.
Markets Are Made Up of PeopleThe Rolodex, computerized or otherwise, is nearly the ultimate tool for thetrader who intends to become and remain steadily profitable. Aside fromyour brokerage’s market analysts, make a deliberate effort to acquire thephone numbers and e-mail addresses of successful traders you meet. Keeptrack, too, of people who write about trading, as well as industry analysts,cash market dealers, floor traders, theoreticians, and generally anyone whocan provide accurate information on markets. I’m an absolutely shamelessbrain-picker, and being willing to brain-pick is the only way for a profitabletrader to be. If a trader needs information on a particular topic, he must goto where—which is almost always to whom, in the practical sense—suchinformation can be found.There’s good news to be had here, too. You might be thinking somethinglike, “I can’t impose on such people. They’re way too busy to talk to me.”Perhaps they are busy, but write this down: traders love to talk about trading. Professors love to talk about their theoretical work, although meremortals like you and I have to be careful in these conversations lest we findourselves getting onto esoteric topics far removed from trading and aboutwhich we haven’t a clue. Authors absolutely adore talking about their booksand articles. People are proud of what they do, and in the huge majority ofcases are more than happy to respond to serious questions concerning theirrespective areas of expertise. We traders would have to be stark mad not touse this feature of human nature to improve our knowledge base and ourtrading.There’s a caveat here, of course. We cannot reasonably expect otherpeople to operate on schedules convenient to us, and we must thereforelearn to time our inquiries properly. Calling a trader near the opening orclosing of his favorite markets is pure lunacy and will guarantee his placingyou on his list of idiots-to-be-avoided. Calling someone at 10:00 P.M. (theirtime, in the United States) who writes an overnight newsletter on forextrading is a sure way not to acquire a valuable source (hint: that person isprobably asleep at that time, because of the time frame in which forex markets trade). Calling an academic is a tricky business at all times, unless you’veacquired a direct phone number. A cold attempt to penetrate a universitybureaucracy and locate Professor X is almost invariably a futile endeavor.
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Don’t even think about calling an author of a daily or weekly commentaryor newsletter at or near his deadline.What about e-mail? It’s terrific, as long as you don’t need the information you’re asking about right away. If you’re considering a trade in sugarsometime in the next week or so, then e-mailing those whose brains youwish to pick is a perfectly reasonable action and will probably yield thecommentary you want. If you’re considering a similar trade in the next houror two, though, e-mail is just a Dirty Harry proposition: “Do you feel lucky?”In almost all cases, though, you will and should—out of pure politesseand undiluted practicality—also attempt to find out from, and if at all possible provide to, your various sources the kinds of information useful tothem. We are traders, are we not? We cannot expect other traders, or analysts or whomever, to pave all of Information Avenue at and for our convenience; we must be willing and able to shovel some asphalt and drive thesteamroller for their benefit from time to time, too.There’s one more tool you really should use in order for your attemptsto acquire information from other people bear more fruit. Some healthypercentage of the time when you call an out-of-town source, he or she is notgoing to be available that moment, for any of a long, long list of reasons.They’ll have to call you back. Don’t ask them to contribute their money, inaddition to their time, effort, and expertise, to your cause. Some people areunbelievably nice about this, but you’ve gotta know what’s going throughtheir minds when they dial your number, don’t you? Get an inbound 800number. It’s cheap to start, and will pay for itself over and over again becauseit completely removes one reason why a source might not return your call.The easier you make things for those from whom you want assistance, themore you’ll get.
No Recipe, No Omelet—Be Prepared to LearnTrading is an extremely curious activity in one sense. Would you attempt toperform a tonsillectomy on a friend tomorrow morning, having had no previous medical training at all? Extremely unlikely, I’d say. Would you care totry to compete in the Daytona 500 next year? Not to worry, even if you’d liketo, NASCAR very prudently wouldn’t let you anywhere near the track without substantial prior experience, and no racing team would even return yourcalls. Absent thorough legal training, would you consider attempting to pleada case before the Supreme Court, or even before a local magistrate?Barring the occasional egomaniac or psychotic, no one would attemptany of these activities. Yet, some tens or hundreds of thousands of peopleevery year enter the world of trading with the same lack of training and experience. They plunk down some capital and away they go, dollar signs in
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their eyes. Well, I’ll be happy to take their money, but this is purely unreasonable on their part. Trading isn’t the most complex activity in the worldby a long chalk, but trading profitably in a consistent and disciplined fashion, from scratch and without any experience, is just a trifle more difficultthan most activities requiring specific skills. Granted, there are so-called natural traders. There are natural plumbers, too, and natural athletes and people with green thumbs who can grow anything. I’m delighted at these folks’abilities, and more than a little envious, wish I had them, any of them.All of these naturals, though, are a tiny minority of the set of people engaged in their respective activities. For the rest of us, acquiring knowledgeand experience about an activity is essential before we can rationally expect to succeed at the activity. If I were to want to re-wire the circuitry inmy house by myself, I’ll guarantee you that I’d acquire every book on practical applications of the principles of electricity that I could find. And, youbet your sweet ol’ grandma that I’d bend the ear of every electrician whowould give me the time of day. Why? A priori, and absent learning about thesubject at hand, and in the best case obtaining a good deal of practice at it,I know that I don’t know how to succeed, how to do it right, or even how todo it in a marginally acceptable fashion.The would-be instant trader, however—and I’ve met hundreds, andlikely so have you—doesn’t ordinarily hold this view. They’ll say somethinglike, “Hey, I’m a successful lawyer (or pediatrician, or professional athlete,or businessman), I know what it takes to make a buck!” They ignore or forget how they came to be successful in their own field—through study, practice, and experience—and they assume their future success in tradingbecause of their success in their own field. Oops. When they turn to trading,they have exactly one advantage, namely, that there is no one right way toturn a profit in trading, and they might get lucky. This advantage doesn’thelp them much, though. This is philosophically a very interesting topic.After all, have you ever met a successful trader who believes he’d also be asuccessful beekeeper or doctor or, for that matter, a successful chef, just bypurchasing a toque and an apron, snapping his fingers, and saying, “Shazam!Now I’m a chef!”? I can’t think of a single one, can you?The would-be instant trader will do what he likes. Perhaps he will discover his information and experience deficit in his own time. Traders, meaning specifically you and I, will continue to study our craft. Out of nothingless than pure self-interest, I try to find something worthwhile about tradingor markets to look at and to learn from every week (it’s tempting to sayevery day, but that would be an exaggeration in fact). In short, read!It would be silly in the extreme for me to try to name exactly whichbooks to read in order to improve your trading. You’d be entirely withinyour rights to tell me to get stuffed. You and I are unlikely to have the samestrategic views about markets or the same preferences as to markets in
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which to trade, and that’s fine. I would, however, like to suggest severalworks that have improved my profitability significantly.On the subject of options, the world’s most popular writer (and withvery good reason) is Larry McMillan. Get out the stone tablets and your engraving tools right now. Thou shalt acquire the current edition of Optionsas a Strategic Investment (NYIF, 2002) if thy wish is to prosper in optionstrading, no matter thy strategies. His other major book-length work, McMillan on Options (Wiley, 1996) should definitely be on your bookshelf, too.If the traders on the exchange floors swear by a certain book, I know Iwant to read it. Sheldon Natenberg’s Options Volatility and Pricing (Irwin–McGraw-Hill, 1997) is one such book. Some of the mathematics in the bookis a bit daunting to non-mathematicians, but his discussions of numerousfacets of options trading are very clear and he has quite a knack for gettingright to the heart of matters, in my view. As a nice bonus, he offers a usefullist of works on options by other authors and conveniently ranks theseworks by their relative degree of difficulty. On a whim, I bought one of thebooks he rates as “advanced,” and, while I’m certain that that author knowsvery well whereof he writes, I got lost on about page 36 . . . and I used to bea, er, half-slow mathematician in my youth. To Mr. Natenberg, “advanced”means advanced. Just be advised.One of the most helpful books I’ve ever read, mentioned previously, isthe late Harrison Roth’s LEAPS (Irwin, 1994). Harry Roth was concernedonly with stock markets, and his book only deals with long-term stock options, but his thorough discussion of option strategies (written in a wonderfully readable and enjoyable style) is an excellent precis of the nuts andbolts of strategizing and applied tactics in options trading. One additionalquality of Harry’s writing is that he is occasionally hilarious—and there’snothing like a good laugh to keep the mind clear, is there?A gent named David Caplan has written about options for years. Hemay have offered one of the best shortcuts for options traders ever written.One of his works, essentially just a long article with lots of graphics, titledTrade Like a Bookie, is very worthwhile for option writers to read. I’venever met Mr. Caplan, but I can tell you right now that some of his strategies are highly similar to those we’ll be examining a little later on in thistext.The Internet comes into our picture yet again regarding the subject ofuseful tools. There are several popular discussion and commentary forumsthat are Internet-based. This is not to say that we can wantonly jump intoany of these forums and expect to be told all or any of the secrets of the universe. That’s just not going to happen. The sundry forums I’ve visited, andthe one I participate more or less actively on, though, do offer us a clear contrary indicator occasionally. If you visit one of these forums, and you observe that some large fraction of the contributors are talking about gold, or
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wheat, or soybeans, or coffee, it’s time to look around for a statistically orhistorically profitable way to trade against these enthusiasts in the currentsupposedly hot market.Cynical? Moi? Not a chance. Skeptical? Absolutely, because, once again,most traders lose, and the louder the voice, the more likely the loss, in myexperience. Ask yourself: who posts messages on Internet forums, statingthat such-and-so a market will or will not behave in thus-and-such fashion?A few of those who do are individuals of good will and considerable trading or analytical skill and experience, offering the best information andideas they have. Most are not, however. These others range from the inexperienced trader with good intentions, to the consistently losing trader whofor some perverse reason wants to see other market participants share hisfate. Doubtless, too, there will be some political ideologues, conspiracy theorists, and DNA-damaged people in the mix. Stated very baldly, the presence of such unfortunate individuals tends strongly to work to ouradvantage, provided we regard these latter folks as contrary indicators. Wetake our advantages anywhere we can find them.
Time Waits for No Man . . . or TradeThere’s one more tool in our kit, one that may not seem obvious. It’s enormously powerful, but many traders apparently have some difficulty in usingit to their advantage. This tool is time. It’s just sitting there waiting for us touse it, we don’t have to spend a dime to acquire it, and all its power is available to us just for the price of understanding.When we trade options, we can usually put time on our side to one degree or another, and we are utterly negligent if we don’t at least try to claimthis trading edge. Options are famously described as “declining assets” because they lose value over time. Look at any table of striking prices andmarket prices on the options available in any market and you’ll see one absolutely constant condition. Go ahead, pick up a copy of Investor’s BusinessDaily any day you like. Or, visit quote.cboe.com for stock option prices orcheck the futures options’ closing prices each day at www.bohlish.com (a remarkably useful, and free, Internet site, by the way, provided by a very savvyintroducing broker named Bernie Bohl) after about 4:15 P.M. Central time.One thing is absolutely plain, every single day. The price of any option,per unit of time remaining in its life, is highest for the shortest-dated andlowest for the longest-dated options. Option premiums also vary directlywith their IVs. The general principle of time with regard to options tradingis this: when buying options, buy as much time as you can convenientlyafford, and prefer buying options with lower IVs to options with higherones. When writing options, sell the smallest chunk of time you can manage
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(consistent with caution and a satisfactory notional return on capital, ofcourse), and prefer writing higher-IV options over lower-IV ones.Please note that, regarding options, this buy-the-long-date, write-theshort-date, buy-the-low-IV, write-the-high-IV advice is nothing new. One wayor another, virtually every book or article ever written has acknowledgedthese basic principles of options trading. One thing is puzzling, though.How is it that there are still so many traders who willfully misapply theseprinciples in their trading? More curiously yet, there is another sizeablegroup of traders who, for whatever reason, simply refuse to exploit the advantages that a proper consideration of time would offer them. I’ve no ideawhy these camps don’t use time to their advantage, but I’ve a very good ideaof how to relieve them of some of their capital as they fail to do so. Don’temulate these folks in your trading, okay? Get accustomed to enlisting timeas your ally to whatever degree possible, all the time.There are numerous Internet sites that offer lots of data about optionIVs. A Google search using +“futures options” +“implied volatilities” as thesearch key will turn up quite a few very interesting sites (along with, sadly,a lot of brokerage sites which usually require a lot of time and effort tonavigate successfully). One particular page on one of these sites is an excellent time saver regarding option IVs. The multifeatured service site,www.optionetics.com, publishes a summary page of futures options’ IVsevery day. If I’m in a hurry or away from the office, the Web pagehttp://platinum.optionetics.com/cgi-bin/oamergef/www/tablesf/rank6mohas a nice table of 6-month ranges of IVs for most of the major Americanfutures markets. Within the table, the various markets are ranked frommost expensive to least expensive, in terms of the relative level of the options’ IVs within their recent range. Option IV ranges for other lengths oftime are presented on related pages at this site. Additionally, by clicking ona specific market, you can view all the current information about every individual option in that market. Theoretical fair values, option deltas, all theso-called “Greek” figures are all there, right in one spot. Very convenientindeed.If information is the key factor in making trading decisions, then ourtoolkit must be designed with a view toward facilitating our ability to gatherand analyze information, on both an immediate and a long-term basis. Anytool that advances our efforts here is a worthwhile one, and we should spendsome amount of effort to acquire new tools over time, while also improvingour current ones when we can. We should distinctly also realize that information is directional. Most information is positive in that it fills a gap in ourknowledge, clarifies a situation in a market, or assists our decision-makingprocess in other ways. Negative information, that which allows us to drawaccurate negative inferences about a market, should not be allowed to fall
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off our radar screen, though. It’s every bit as useful to fade a losing trader,provided we can identify him, as it is to ride the coattails of a successful one.What we haven’t explored yet is the application of all this informationand the principles I’ve mentioned to profitable real-world trading. Whichstrategies among thousands of possibilities offer us top-notch opportunitiesto profit, and which tactics can be used gainfully within the context of thesestrategies? Why haven’t we done this? Because that’s what we’re going todo for the rest of our time together, starting right now.
CHAPTER 6
Thomas More’sRevengeA Strategy for All Seasons
“Is there any other point to which you wish to draw my attention?”“Only to the curious incident of the dog in the night-time.”“The dog did nothing in the night-time.”“That was the curious incident,” remarked Sherlock Holmes.—Sir Arthur Conan Doyle (Silver Blaze)
ne thing that most traders do almost all the time is to try to anticipatewhere a market is likely to move in future, be it in an hour, a day, ora month. There’s nothing inherently disadvantageous in doing this. Itmight even be called normal in some sense. However, as we’ve observedpreviously, most traders tend strongly to lose, so we must conclude that mosttraders are considerably less than accurate in forecasting where a given market will move over some period of time. We have two alternatives here: wecan either learn to improve our forecasting methods, or we can try a different approach.
O
Have you ever considered trying to anticipate and profit from where amarket is not likely to go, what the dog won’t do in the night-time, so tospeak?It turns out that this is a relatively easier task, for several reasons, thanpredicting future market direction. First, some large amount of the time, anygiven market does nothing. It goes sideways, up a day, down the next two,up the next four, then down for two more. You and I have certainly enteredmany trades and waited for the market participants to make up their collective mind, true? This decision never occurs until the market acquires enoughinformation to move in one direction or the other, and this acquisitionprocess can easily take weeks, even months. During such a period, if a mar100
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ket is mired in, say, a 5% range for months and there’s little prospect ofmarket-shaking developments on the horizon, it’s reasonable to considerthat a 15% move within the next month is an unlikely proposition, barring,as always, the advent of the unpredictable.Next, there is the more complex case of a market that is strongly trending in one direction or the other. As you and I have seen frequently in thistype of market, during the course of the trend there will occur one or morecountertrend moves, “corrections” if you like, sometimes very sharp andextensive ones. This isn’t news to anyone, but when the countertrend movehas apparently stopped and the original trend has resumed, we can askourselves a potentially very profitable question. Are the market factors thatfueled the original trend still in place? Naturally, the answer to this questionis ind