Gaps 63
risk. Consider the following procedure: Rather than establish your ini-tial position with one contract, you establish your initial position withtwo contracts. Assuming the market moves in your favor, you exit onecontract at a predetermined target either determined technically or ona dollar basis while you retain the remaining position with a specific break-even plus commission and small profit stop loss to protect you during the dayand exit the position on the close or shortly before the close. The multiplecontract procedure combines, what I feel is the best of both situations,allowing you to have your profit and keep your trade as well.
= A trailing stop loss may also be used. Although there is evidence to sug-gest that trailing stop losses for position trades do not work well, thisis not necessarily true for day trades where the time length of a posi-tion is clearly finite. In the case of a runaway move in your favor, Isuggest you follow up with either an hourly or a half-hourly stopusing the last half hour low or high as your stop loss point. So, forexample, if you have entered an S&P gap trade on the long side whichthen moves sharply in your favor and continues to move in your favorfor a fairly extended period during the day, follow up that position by _placing a stop loss below the low of the previous half hour or the pre-vious hour if you prefer. In the case of a short position which hasmoved strongly in your favor, follow up by placing a stop loss abovethe high of the previous half hour or hour if you prefer and changeyour stop loss every hour. By doing this, you will be taken out of yourposition fairly quickly once the intraday trend has reversed itself.
Three-bar stop loss procedure. In addition to the hourly or half hourlyfollow-up stop loss procedure recommended above, consider using atrailing stop loss below the lowest low of the last three price bars forlong positions and above the highest high of the last three price barsfor short positions. In other words, if the last three 5-minute price barsshow lows of 34.50, 34.20, and 33.97, then your trailing stop loss for along position would be below 33.97, since this is the lowest of thethree lows. When the next bar posts you can change your stop loss ifnecessary. In the case of a short position, your trailing stop loss will beabove the highest of high the last three price bars.
Remember that these stop losses must be mental stop losses. Don’tkeep changing your stop loss every 5 minutes, or both you and yourbroker will go crazy, and you will be reprimanded.
Delayed Gap Open Signals (DGO)On occasion a market will make a very large gap opening up or down.The gap size (difference between previous day’s low or high and the64
Chapter Six
open) will be much larger than usual. In such cases, the market willneed to make a considerable move up in the case of a gap lower open-ing, or down in the case of a gap higher opening, before it can triggerentry on the first gap method (GO) I have just described. By the timethis occurs, a great deal of the day’s potential profit may have passedyou by. In order to deal with this situation, I have developed the delayedgap open method (DGO) which is designed to provide entry more quickly,and which may be used in conjunction with the first gap method I dis-cussed, thereby resulting in two possible entry signals on any given day.See Figure 6-5 for the ideal GDO buy signal. Here’s how the methodworks.
Delayed Gap Down Buy Signal
1. Gap lower opening. In the event of a gap lower opening, you will placea buy stop two ticks above the low of the previous day. This is similarto the basic GO method.
2. If at the end of the first hour of trading the buy stop has not been elected, inother words if the market has not triggered you on the long side, youwill examine the current price in relation to the current day’s openingprice. If the current price is higher than the opening price by two ticksafter the end of the first hour of trading, you will enter the long posi-tion at market. Let me review this. If at the end of the first hour of trading
 
Figure 6-5. Delayed gap down buy signal.Gaps, Gaps,Gaps 65
the traditional buy gap stop order has not been hit, you will check the currentprice and the opening price for the day. If the current price is above the open,you will buy at the market. Your initial stop loss will be either a moneymanagement stop loss or a stop loss several ticks below the low of theday at the time you are filled.
3. If the current price at the end of the first hour is below the opening price,you will enter a buy stop two ticks above the current high of the day.Furthermore, you may also retain your original buy stop two ticks above thelow of the previous day in the event that the market begins to make a verylarge move in the anticipated direction. Should this occur, you will then belong multiple units capitalizing hopefully on both possible signals. SeeFigure 6-6.
Delayed Gap Up Sell Signal
1. In the event of a gap higher open, the initial procedure will be the sameas the original gap method (GO). You will enter a sell stop two ticksbelow the high of the previous day.
2. After the first hour of trading, you will check the market. If the currentprice is below the opening price, you will sell short at the marketusing either a risk management dollar stop or a stop loss several ticksabove the current high of the day.
Aw Ww i 2 al/\¢
oN
aco oon aly i
Serco)
 
Figure 6-6. Delayed gap down buy signal actual example.66 = Chapter Six
3. If the market is not below the opening price, you will enter a sell stoporder two ticks below the then-current low of the day in order to getyou short. In addition, you may retain your original gap-sell-stop two ticksbelow the high of the previous day in the event that the market begins tomove strongly down, thereby giving you two units on the short side.
Figures 6-7 and 6-8 illustrate the 1-hour delay gap sell signal.
As you can see, the one hour gap signal is a technique which allowsquicker entry in the event of potentially large moves on the opening,which could limit the potential profit from a delayed buy gap or adelayed sell gap. The best time to use this approach is of course in mar-kets which have opened on significantly large gaps down or up fromthe previous day’s low. Finally, remember, that the DGO requires wait-ing one hour. I have not experimented with different time delays.
Some Observations about the GapTechniqueI’ve said previously that the gap technique is one of my favorite day-
trading methods. I say this because I have seen many instances in whichthe gaps have worked extremely well and have produced very signifi-
 
Figure 6-7. Delayed gap up sell signal.Gaps, Gaps,Gaps 67
: A :wie wote
 
Figure 6-9. Gap signal actual examples, sugar.68 Chapter Six
NA au ihe Nil Hn er
 
Figure 6-11. Gap signal actual examples, heating oil.Gaps, Gaps,Gaps 69
 
Figure 6-12. Gap signal actual examples, Swiss franc.
cant intraday price moves. Naturally, it is important to remember thatthis approach should be used primarily in markets which will have sufficientintraday volatility to permit reasonably profitable moves. Among myfavorites for the gap trades are S&P, currency, treasury bond, crude oil,and precious metals futures. But this list will not be constant; it willchange as a function of market conditions and trading volume.
History shows that some of the largest intraday price moves haveoccurred following gap higher or gap lower openings, particularly fol-lowing a major news event or government report. One thing I like tolook at in terms of gaps is the direction of the market prior to the gap.I’ve found that if the market has been trending down for a fairly extend-ed period and if the gap lower opening is prompted by bearish newsthen the signal tends to be more accurate as well as offering greater dol-lar potential if it occurs. However, a gap higher opening following abullish trend and bullish news which then turns into a gap sell signaltends to produce very good profits with reasonably low risk. Therefore,I would suggest very strongly that you monitor markets very closely forgap openings following bearish or bullish reports.
Gap trades also seem to work better with market sentiment as a filter.This will be explained more fully later on when I discuss my DSI (dailysentiment index).70
Chapter Six
Get Some Experience
Although the two techniques I have just described are very simple tounderstand and implement, they do require some experience. Beforeusing them, I strongly suggest you monitor some markets closely, or getsome price charts and mark the gap signals on the price charts so thatyou will see for yourself how they have developed and how accuratethey’ve been. I reiterate that these two are among my favorite approach-es for day trading and I expect they will serve you well, at times trigger-ing major intraday price swings and potentially very large profits.
Remember, however, that you can’t trade a gap unless youtrade a gap. Unfortunately, too many traders fail to enter theirgap signals until well after the penetration has occurred,therefore missing many profitable opportunities.
If you are going to trade gaps, then by all means beorganized, watch those markets when they open, find thegaps, and enter your orders. If you don’t, then the method
won't work for you.
 
What do gaps mean for the longer term? From the perspective of a daytrader, this question is irrelevant. Unfortunately, too many traders thinktoo much. The human mind not only seeks answers to questions but alsoattempts to extrapolate beyond the current data and beyond the ruleshoping that relationships will be found which may allow us to predictthe future. To be perfectly honest with you, this is anathema to the daytrader.
    
  
The day trader must not think beyond today.
The day trader must not attempt to think about what mayhappen tomorrow as a result of what has happened today.
     
The gap lower, gap higher opening signals discussed in this chapterhave nothing to do with the market’s potential moves up or downtomorrow, the next day, or the next day. Therefore, I urge you not to betempted to hold a gap position overnight no matter how well it has worked foryou during the day. The day trader seeks to establish a day relationship andonce the day is over the relationship is over as well.Gaps, Gaps,Gaps 71
Gap Size and Penetration Size
As you know, some price gaps are relatively small while others are rela-tively large. In researching the gap trades I’ve found that larger pricegaps tend to produce more reliable (i.e., more accurate) signals. I’ve alsofound that just a one-tick penetration is less reliable than a two- or five-tick penetration. The ideal gap size and penetration size for each marketis slightly different and will vary over time depending on marketvolatility and price level. I suggest you monitor your results carefully asto gap size and penetration size.
What You Can Realistically Expect
There are system developers and promoters who will lead you astray,promising you riches untold if you follow their trading systems. Thefact of the matter is, that very few, if any, systems can be applied to the mar-ket totally mechanically for the purpose of generating vast profits. The factis that day trading, whether by the gap method or any other method, isa business and a skill. It must be learned from the ground up. The para-meters and rules I’ve given you are valuable and I believe effective, butyou are the individual who must implement them in order to generatethe profits. And this, my friends, is not an easy proposition.
As you well know, there are myriad factors which impede the path toprofitable day trading, whether you are using gaps or any of the othermethods described in this book. Therefore, what you can realisticallyexpect is that at first you will find the gaps effective, had you done what thegaps told you to do. Unfortunately, there will be many cases in which you willsay to yourself “I should have, I would have, or I could have.” These are allexcuses. You must follow the gap trades religiously using a certainamount of artistic judgment. However, this is not always easy. Onething I can assure you, however, is that the more you do it, the easier itbecomes. And that is certainly helpful.
Realistically, you can expect to make several hundred dollars per con-tract on average in the gap trades in active markets with a high tickvalue (i.e., S&P, T-bonds) once you have mastered the techniques. Thiswould be a minimum expectation. The rest would depend on your skillas a trader, your willingness to assume more risk by trading larger posi-tions, and your skill in entering and exiting multiple contracts usingsome of the techniques I have discussed in this chapter.
In closing, | reiterate that many extremely large moves have occurredfollowing gap higher or gap lower openings. Pay close attention to themarkets, follow those gaps, and when the big moves occur, you will beon board. If you’re not following the gap signals closely, then you can’t72 = ~= Chapter Six
be on board the big moves. It’s that simple. While this may soundridiculous to you, the fact is, that many day traders miss big moves by notfollowing their timing indicators or systems. If you're going to be a followerof the gap trades, and if you have studied them sufficiently to have con-fidence in their potential, then by all means trade them religiously.
A Few Last Words about Stop Orders
Some of you may be adverse to using buy stops or sell stops as the entrymethod for the gap trade or for the purpose of risk management.Although you may be suspicious of having resting orders in the mar-kets, thinking perhaps that they will get you or that the floor will runthe stops, you are wrong. This may happen on occasion, but I sincerelyfeel it is the exception rather than the rule. In very thinly traded marketsyou may not wish to use such orders; however, in the more active ordersI see no problem with using stop orders. If, however, you are still over-come with suspicion and paranoia about the trading floor, then I strong-ly suggest that you use either a stop limit order or that you not place anorder at all, taking the chance that the market will run right throughyour price without your being filled.
Consider using stop limit orders. where the exchange accepts them.They can be very effective. As you know, however, there will be instances inwhich stop limit orders will not be filled; therefore, you will have no positionwhen in fact you should have. In the vast majority of cases, stop limit orderswill work in your favor. Should you find, however, that your stop limitorder was not filled due to fast market conditions, then leave the orderactive. In many cases the market will come back to your price and youwill be filled. The risk of using stop limit orders is that you will not befilled. It’s a chance you have to take if resting stop orders concern you.Support and Resistance:the MAC
Perhaps two of the oldest, most well known, and most time-tested ideasin stock and futures trading are support and resistance. As the namesimply, support and resistance are specific price areas or price levelswhich either support prices on declines in up trends or which resistprices on rallies in down trends. In an up trend, short-term and daytraders will attempt to buy at support or at levels of support. In a downtrend, short-term and day traders will attempt to sell at resistance levelsor in resistance areas.
The concept makes a great deal of sense. No matter how complex orintricate methods of market analysis and trading systems becomethrough the years, ideas of support and resistance have been pervasiveand enduring. The only problem with these ideas is that they require areasonably objective method for determining support and resistance inorder that trades may be entered based on these ideas. If support andresistance cannot be determined, then you cannot define concise levelsor areas in which to establish and/or exit positions. Therefore, itbehooves traders as well as investors to develop effective strategies andtechnical methodologies for calculating or determining support andresistance levels.
For many years such levels have been determined using a wide rangeof tools such as support and resistance trend lines, various chart forma-tions, Gann angles, ratio retracements, Fibonnaci numbers, the goldenmean constant, point and figure charts, and others too numerous tomention. Many arcane methods have been employed in efforts to deter-mine support and resistance, some successful at times, others successfulfrequently, and all too many unsuccessful a vast majority of the time.
7374
Chapter Seven
Regardless of the fads in market timing methods which have occurredin the futures markets since the 1950s, ideas of support and resistancehave endured, and with good reason. The simple fact of the matter is, thatif calculated correctly, they work. It is the purpose of this chapter to explainand illustrate for you my ideas of support and resistance, in particularas they pertain to the day trader.
The day trader is in an advantageous position when it comes to theuse of support and resistance levels, inasmuch as the day trader’s rela-tionship with the market ends when the day is over. Therefore, a baddecision or a bad position which was entered based on expectations ofsupport or resistance will not return the next day to haunt the trader. As Ihave said many times in this book, the single greatest benefit of day tradingis to force exit of positions by the end of the day. A day trader who does notdo so is not a day trader and will, of course, suffer the consequences ofriding positions beyond their ideal exit.
Determining support and resistance levels is somewhat different forthe day trader than it is for the position trader. This is because supportand resistance levels for the day trader must be closer to the current marketprice than they are for the long-term or position trader. Markets can onlydrop so far in one day (in most cases), and consequently the determina-tion of support and resistance levels by the day trader must be realisticin terms of what can be expected. This does not mean that the day trad-er must “chase the markets.” It does, however, mean that day tradersmust be willing to use realistic technical support and resistance levels in orderto establish their positions.
As I mentioned earlier, there have been many attempts through theyears to develop methods which will define support and resistance lev-els as precisely as possible. I wouldn't be surprised if there are as manytraders as there are techniques. However, I have developed a techniquewhich has shown itself to be extremely valuable and highly specific.Although this technique was originally developed for use in long-termtrading, I have found it to be applicable to short-term and day trading.
The Moving Average Channel
Borrowing from concepts originally introduced in the 1950s by RichardDonchian, I departed from the traditional use of moving averages. I con-ducted intensive research on moving average channels (MACs) whichconsisted of a moving average of high prices and a moving average oflow prices. Rather than focus on closing prices, I felt that support andresistance should be determined using high and low prices, since highand low prices are specifically geared to ideas of support and resistance.Support and Resistance: the MAC 75
Typically, resistance tends to be found near previous highs, and sup-port tends to be found near previous lows. It therefore occurred to methat rather than examine moving averages of closing prices for supportor resistance, it might be better to use moving averages of lows andhighs to determine support and resistance respectively. What I discov-ered took me several years to fully believe and several more to imple-ment.
My technique uses a moving average of the high and a moving aver-age of the low in conjunction which form a moving average channel thatis used for determining support and resistance. Figure 7-1 illustrates theMAC used on a 5-minute chart. As you can see, the channel has somedistinct characteristics:
1. When the trend of prices is up, the MAC tends to act as support. In otherwords, as price declines to the lower portion of the channel, the mov-ing average of lows (MAL) tends to find support.
2. When the trend of prices is down, the MAC tends to act as resistance. Inbear trends, rallies to the top of the channel, the moving average ofhighs (MAH) tends to serve as resistance.
3. When price bars are completely outside the top of the channel, the pricetrend is strongly bullish. Please refer to Figure 7-1.
4. When price bars are completely below the bottom of the channel, the pricetrend is very bearish. See Figure 7-1.
 
Figure 7-1. Characteristics of the MAC.76 = Chapter Seven
Figures 7-2 and 7-3 further illustrate the relationship between the MAChigh and low and prices. Please note that I have indicated support andresistance levels accordingly. Can you think of how these levels mightbe used?
How Support and Resistance Developduring the Day
Please examine Figure 7-4. It consists of several frames which illustratehow support and resistance patterns develop during the day in relationto the MAC. As you can see, prices tend to bounce off their support lev-els. The purpose of the channel is to define precise areas of support andresistance. In an up trend, the day trader will attempt to buy when priceenters a support area and sell when price enters a resistance area in a down-trending market. The key is to specifically define the following:
1. The trend2. Support and resistance
‘ay os
ARE eRe:
  
Figure 7-2. The MAC on an S&P intraday chart—support and resistance.Support and Resistance: the MAC 77
 
Figure 7-4. How MAC support and resistance develop.78
Chapter Seven
Determining Trend, Support, andResistance
In order to use the MAC technique for day trading, the following ruleswill be used:
= Determine if the market is in an up trend or in a down trend. This isachieved as follows.
= If, at any time after market opening or on market opening, the market devel-ops two successive 5-minute price bars completely above the top of the chan-nel (i.e., above the moving average of the high), then the trend is presumedto be up. (See Figure 7-4). Aggressive traders who wish to circumventbuying at support may buy immediately upon the development of thissignal; however, this procedure entails considerably more risk. Oncesuch a signal has occurred, the predisposition or bias will be on thelong side. You can use 10-minute or 20-minute bars if you wish, or,depending upon your willingness to trade more actively and to watchthe markets move actively, you may even use 3-minute bars in somemarkets (e.g., S&P futures and currencies at times).
= Presuming a bullish bias, the day trader will determine the specific price levelof the MAL. This specific price level will also be called the lower buypoint (LBP). Conservative day traders will enter orders to buy at theLBP or will be watching the market for declines to the LBP in order tobuy at the market once this has occurred. Figure 7-5 illustrates thisprocedure. The moving average of highs (MAH) is also called thehigher buy point (HBP). Aggressive traders will buy as prices return to.“test” the HBP. In practice, however, the HBP is often too high a levelat which to buy. Most traders are better off calculating the midpoint ofthe MAC by adding the MAL and the MAH and dividing by 2. Thisyields the midpoint of the channel or the (MBP) mid buy point.
As the day progresses you will want to maintain resting orders at theMBP or, if you’re a very conservative day trader, at the LBP. If you havea quote system that will track these points for you, triggering an audiblealarm when these levels are hit, you can place orders accordingly. Thisis a procedure which requires time and effort; however, it can yield sub-stantial rewards if properly carried out.
= Presuming a bearish bias, the day trader will determine the specific pricelevel of the MAH. This specific price level will also be called the uppersell point (USP). Conservative day traders will eriter orders to sell atthe USP or will be watching the market for rallies to the USP in orderto sell at the market once this has occurred. Figure 7-6 illustrates thisprocedure. MAH is also called the lower sell point (LSP). AggressiveSupport and Resistance: the MAC 79
cH)to)Ca
 
Figure 7-6. The MAC points defined, S&P futures.Chapter Seven
traders will sell as prices return to test the LSP. In practice, however,the USP is often too low a level at which to sell. Most traders are bet-ter off calculating the midpoint of the MAC by adding the MAL andthe MAH and dividing by 2. This yields the midpoint of the channelor the mid sell point (MSP).
= As the day progresses you will want to have resting orders at the MSPor, if you’re a very conservative day trader, at the USP. If you have aquote system that will track these points for you, triggering an audi-ble alarm when these levels are hit, you can place orders accordingly.
As you can see from the illustrations, aggressive traders will havemany opportunities during the trading day, and conservative traderswon't have as many. Regardless of whether you trade conservatively oraggressively, you must trade with the trend as defined by the two-suc-cessive-bar breakout. The number of times you trade during the day islimited only by your ability and your resources.
Trading within an Established Trend
Frequently the market will already be in a trend when the trading daybegins. If this is the case then take your direction from the very last sig-nal. This signal may have occurred the day before or even several daysago. Remember that
The longer the trend has been in existence, the more likely it isto reverse itself, so be cautious.
See Figure 7-7. Naturally, if the trend reverses itself you will followthe indicated procedures for the given trend.
Exiting Positions, Right or Wrong
Well, I’ve told you how and when to get in, now how do you get out?The following are some suggested exit methods.
Stop Loss. The procedure here is simple enough. You have twochoices. Either set a predetermined dollar risk stop loss, which will varyfrom market to market, or exit on technical action.Support and Resistance: the MAC 81
 
Figure 7-7. Using the MAC to trade within an established trend.
If you enter a long position on a decline to the LBP, then you can exit ifthere are two consecutive bars outside the MAL, which would, ofcourse, constitute a sell signal. If you enter a long on the UBP, then youcan use the same exit procedure, knowing, of course, that it entails moredollar risk since you entered at a higher price. A happy medium is buy-ing at the MBP, the middle of the channel. I prefer to use technical actionin the form of a reversing signal to exit my trades as opposed to the useof a dollar risk stop loss for this technique.
If you enter a short position on a rally to the USP, then you can exit ifthere are two consecutive bars outside the MAH, which would, ofcourse, constitute a buy signal. If you enter a short on the LSP, then youcan use the same exit procedure, knowing, of course, that it entails moredollar risk since you entered at a lower price. A happy medium is sell-ing at the MSP, the middle of the channel. I prefer to use technical actionin the form of a reversing signal to exit my trades as opposed to the useof a dollar risk stop loss for this technique.
Trailing Stop Loss. Trailing stop losses should be used once aposition has started to move strongly in your favor. I have a number ofsuggestions to offer you in this respect, all based on extensive personalexperience.Chapter Seven
= Trail a stop loss below the lowest low of the last three bars for longpositions or above the highest high or the last three bars for shortpositions. This procedure has already been described. Do not use atrailing stop loss until you show a reasonable profit. This amountvaries from market to market and from trader to trader.
= Use a stochastic exit signal as your exit once you have a good profit.(See Chapter 5.)
= Exit at a specific price target and do so when the market has “bulged” or“cratered” in your favor, particularly if this occurs late in the tradingsession.
= Remember that you will be out of your trades by the end of the day, so ifneither of the above methods works for you get out either MOC orshortly before the close.
= Consider multiple positions on entry so that you may have the luxury ofexiting them using several different techniques. Although this mayincrease overall initial risk exposure, it will also allow you to capital-ize on strong trends which are consistent with your position.
Sideways Trend Trading—Tradingwithin the Channel
Another good procedure for using the MAC as a day-trading vehicle isto trade within the channel. This simply means that in an up trend, youwill attempt to buy retracements to the moving average of the lows andexit these positions when prices have rallied to the moving average ofthe highs or higher. Then, when prices decline once again to the movingaverage of the lows (if they do), you will buy again hoping to sell on arally to the moving average of the highs or higher. For those traderswho would like to maintain their positions once they are established atthe MAL, a stop loss under the MAL by several ticks may be used.Therefore, the position may be carried through to the end of the day inorder to take advantage of the trend should it continue.
When selling at the MAH in a down trend, the trader will attempt totake profits once prices decline to the MAL, hoping to reestablish shortpositions on a rally to the MAH. Both of these procedures, however,tend to limit profits, since you are cutting profits short not knowingwhether the trend will continue in your favor.
The best time to use the above techniques is when there is no definedtrend. In other words, when the market is moving relatively sidewayswithin the MAC, this technique can allow you to trade many times, buy-Support and Resistance: the MAC 83
ing MAL support and selling MAH resistance. As an example, considerFigure 7-8, which illustrates my point.
A Few Precautions and Suggestions
Because the MAC technique I have just described is a trading methodand not a system, you must be aware that it is adjustable to the needs ofthe trader and will not work in the same fashion for all traders who useit. Once you begin to use this technique, you will develop individualadaptation to the methodology which may suit your purposes betterthan what has been described herein.
This technique may not, in fact, be suitable for all traders. You mustfind your own place with it, and you must determine whether this is thetechnique you wish to use. For those who are interested in trading fre-quently for small moves within the day and within an established trend,I believe that this technique is ideal. If the trend should change drasti-cally during the day you will be stopped out of your position, and youwill then, provided there is sufficient time left during the day, have theopportunity to trade from the other side of the market.
He . t :ts ; :
 
Figure 7-8. Using the MAC to day trade a trendless market.84
Chapter Seven
In many respects, using the MAC technique for day trading is similarto riding a bicycle. A book can only go so far in explaining to you howthe job is done. Thereafter you must take the initiative, you must havethe discipline, and you must take the risk in order to make the tech-nique work for you. What I have provided in this chapter, although Ihave tried to be as specific as possible, is merely the framework of atechnique which combines science and skill. If you are a serious daytrader who is looking for numerous opportunities to buy up supportand sell at resistance, I know of few techniques which can provide themany opportunities that this one can. Yes, there will be days and therewill be times when this technique does not afford you an opportunity,and there will be losing days. However, if you are consistent with it, youwill find that there are many opportunities within trends to establishpositions using the channel and to exit these positions profitably.
Because the channel technique is not totally mechanical and involvessome degree of subjectivity, I urge you to work with it before imple-menting it so that you may adapt it to your particular needs and yourparticular style of trading to this method.
Using the Channel Technique withOther Methods
The MAC technique is especially easy to use in conjunction with someof the other day-trading methods I’ve discussed in this book. Specifi-cally, the channel technique works extremely well once another tradingsystem or method has triggered an entry on the long or short side. Say,for example, that either of the two gap-trading techniques