, I coined the name of a pattern that occursfrom time to time with the MAC. I call it the Cuban Missile Crisis (CMC)pattern. The rest of the lesson provides the details.
SETUP AND TRIGGER
The CMC pattern occurs after a market has triggered a MAC buy or sellsignal. As you will recall, two consecutive price bars above the movingaverage (MA) of the high triggers a buy while two consecutive price barsbelow the MA of the low triggers a sell. Once there has been a trigger in agiven direction, we consider the trend of the market to be consistent withthe direction of the trigger.
What if a setup occurs that is opposite from the current trend? In otherwords, the market is in an uptrend and then you see one bar below thebottom of the channel. What’s the worst-case scenario if you went long(that’s right, long) at the end of that bar? The worst case would be one moreconsecutive bar below the channel that would trigger a sell, in which caseyou would exit the long and reverse to short.
However, what if the setup failed to trigger? What if the market wentshooting back up? What you would have is an excellent position (at leastfor the short term). As an example, consider Figure 14.1.
As you can see from this example, the market shot right back up, rallyingstrongly and giving you a major proﬁt. What if there had been a second barbelow the channel low? The answer is simple—you would exit the trade oreven reverse to the short side.
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CL-200510:  Crude Oil NY (Pit) Oct 2005 (Daily bars)
MovingAvg(L,8) MovingAvg(H,10)
www.GenesisFT.com08/24/2005 = 67.32 (+1.61)
2nd day above MA highBuy trigger. Trend is up.
68
67.567.326766.7566.5
66
66.5
6564.8664.5
64
63.5
63
62.5
62
61.5
61
60.5
60
59.5
59
58.5
58
57.5
57
One day (bar) below MA low.Worst-case scenario? Another daybelow the low, which would trigger a sell.What would be your maximum exposurein time if you went long on this day?
07/22/05
08/05/05
08/19/05
FIGURE 14.1 An example of the CMC pattern.Source: Courtesy of www.GenesisFT.com.
Let us review the rules and then I will give you the follow-through for
the CMC pattern, along with a few more chart examples.
(cid:2)
(cid:2)
Buy trigger. After an MAC buy signal has occurred and the market isin an uptrend, buy on the close of trading of a bar that is completelybelow the moving average channel low.Sell trigger. After an MAC sell signal has occurred and the market isin a downtrend, sell on the close of trading of a bar that is completelyabove the moving average channel high.
FOLLOW-THROUGH
There are several types of follow-through for this method. Here are threetypes of follow-through for this method:
(cid:2)
(cid:2)
(cid:2)
Exit your position if the next day is completely below the channel lowif you are long or completely above the channel high if you are short.Exit your entire position at the channel high MA if you are long or thechannel low MA if you are short.Exit part of your position at the channel high MA if you are long or atthe channel low MA if you are short and trail a stop-loss that locks in75 percent of your maximum proﬁt.
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30 DAYS TO MARKET MASTERY
CL-200510:  Crude Oil NY (Pit) Oct 2005 (Daily bars)
MovingAvg(L,8) MovingAvg(H,10)
www.GenesisFT.com08/24/2005 = 67.32 (+1.61)
Exit at a profit at MA highand/or use trailing stop.
2nd day above MA highBuy trigger. Trend is up.
One day (bar) below MA low.Worst-case scenario? Another daybelow the low, which would trigger a sell.What would be your maximum exposurein time if you went long on this day?
71
70
69
68
67.326766.75
66
6564.86
64
63
62
61
60
59
58
57
56
55
07/22/05
08/05/05
08/19/05
FIGURE 14.2 Another CMC signal.Source: Courtesy of www.GenesisFT.com.
Use this method only during the most active portion of a futures con-tract (usually the last three months prior to ﬁrst notice day) or in activelytraded stocks.
EXAMPLES
Figures 14.2 through 14.5 show examples in stocks and commodities. Thechart labels in the ﬁgures provide explanatory notes.
SBUX:  Starbucks Corporation (Daily bars)
MovingAvg(L,8) MovingAvg(H,10)
www.GenesisFT.com08/24/2005 = 49.42 (-0.82)
Trend is up.
Trend is up.Buy on closethis day.
2nd day below channel.Trend is now down.Exit long at a profit.
07/29/05
08/12/05
08/26/05
FIGURE 14.3 A CMC signal that failed but still produced a small proﬁt.Source: Courtesy of www.GenesisFT.com.
54.4
54.2
54
53.8
53.6
53.4
53.2
53
52.8
52.6
52.4
52.2
52
51.851.6651.6
51.4
51.2
51
50.850.6650.6
50.4
50.2
50
49.8
49.649.42
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LH-200510:  Lean Hogs (Pit) Oct 2005 (Daily bars)
MovingAvg(L,8) MovingAvg(H,10)
www.GenesisFT.com08/10/2005 = 58.150 (-1.075)
MAC buy trigger
Exit at top of channeland/or trail stop.
Trend is up.Buy on closethis day.
06/29/05
07/14/05
07/28/05
FIGURE 14.4 A CMC signal in lean hog futures.Source: Courtesy of www.GenesisFT.com.
62
61.5
61
60.5
6059.800
59.5
59.10059
58.5
58.15058
57.5
57
56.5
56
55.5
55
54.5
54
53.5
REVIEW
This lesson deﬁned the CMC pattern with concise speciﬁc examples anddeﬁnitions. Practical application of the method was stressed with speciﬁcexamples. Spend some time studying CMC examples and applying yourknowledge to the charts in the quiz that follows.
MSFT:  Microsoft Corporation (Daily bars)
MovingAvg(L,8) MovingAvg(H,10)
www.GenesisFT.com05/25/2005 = 25.71 (-1.04)
26.4
Buy trigger
Take profit at channelhigh and/or trail stop.
Buy at the end of this day.
03/31/05
04/14/05
04/28/05
05/12/05
FIGURE 14.5 A CMC signal in Microsoft (MSFT).Source: Courtesy of www.GenesisFT.com.
26.2
26
25.825.71
25.625.53
25.4
25.2
25
24.8
24.6
24.4
24.2
24
23.8
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LESSON 14 QUIZ
Instructions: Follow the indicated instructions carefully. Mark the signals,trades, and exits according to your best estimate. You need not indicate theexact prices at which trades were triggered or closed out unless you haveaccess to a chart with exact prices.
For items 1 through 5 ﬁnd and mark the CMC signals and exits.
1.
SP-200509:  S&P 500 Index (Pit) Sep 2005 (30 minute bars)
MovingAvg(L,8) MovingAvg(H,10)
www.GenesisFT.com08/24/05 13:18 = 1209.5 (-11.7)
1228
1227
1226
1225
1224
1223
1222
12211220.651220
1219
1218
12171216.451216
1215
1214
1213
1212
1211
12101209.51209
1208
1207
0.926
0.924
0.922
0.92
0.918
0.9160.91480.914
0.9120.9104
0.908
0.906
0.904
0.902
0.9
0.898
0.896
0.894
0.892
0.89
0.888
0.886
0.884
0.882
0.88
08/23/05
08/24/05
08/25/05
Source: Courtesy of www.GenesisFT.com.
2. There are four triggers here. Mark them and their outcome.
JY-200509:  Japanese Yen (Pit) Sep 2005 (Daily bars)
MovingAvg(L,8) MovingAvg(H,10)
www.GenesisFT.com08/24/2005 = 0.9104 (-0.0028)
07/05/05
07/19/05
08/02/05
08/16/05
Source: Courtesy of www.GenesisFT.com.
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3. There are two triggers on this chart. Find and mark them and mark their
follow-through.
LC-200510:  Live Cattle (Pit) Oct 2005 (Daily bars)
MovingAvg(L,8) MovingAvg(H,10)
www.GenesisFT.com08/02/2005 = 83.225 (-0.425)
06/21/05
07/06/05
07/20/05
Source: Courtesy of www.GenesisFT.com.
4.
KC-200512:  Coffee Dec 2005 (Daily bars)
MovingAvg(L,8) MovingAvg(H,10)
www.GenesisFT.com08/24/2005 = 100.00 (-2.75)
85.4
85.2
85
84.8
84.6
84.2
84
83.8
83.6
83.483.225
83
82.8
82.6
82.482.32582.2
82
81.881.70081.6
81.4
81.2
81
80.8
80.6
80.4
80.2
80
115
114
113
112
111
110
109
108
107
106
104.95
104
103
102
101
100.00
99
98
97
08/04/05
08/18/05
Source: Courtesy of www.GenesisFT.com.
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5.
30 DAYS TO MARKET MASTERY
TT-200509:  T-Notes 10Yr CBT Pit Sep 2005 (60 minute bars)
MovingAvg(L,8) MovingAvg(H,10)
www.GenesisFT.com∧00)
24.5 (0
∧
08/25/05 05:21 = 111
112∧04
112∧02
112∧00
111∧30
111∧28
111∧26111∧25.5111∧24.5111∧24
111∧22111∧21.5111∧20
111∧18
111∧16
111∧14
111∧12
111∧10
111∧08
111∧06
111∧04
111∧02
111∧00
08/19/05
08/22/05
08/23/05
08/24/05
08/25/05
08/26/05
Source: Courtesy of www.GenesisFT.com.
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L E S S O N 15, D A Y 15
The Eight-BarOpen/ClosePattern and Howto Use It
T he third pattern in this series is the eight-bar open/close moving av-
erage pattern. It is a simple pattern that is based on the relationshipbetween the opening and closing price of a price bar. Typically, mar-ket lows are preceded by a period of accumulation while market highs areoften preceded by a period of distribution. One way to determine pendingprice tops or bottoms is to monitor the relationship between the openingand closing price of a market over a given period of time. If the close ofa given price bar is higher than the open of a given price bar for a givenperiod of time, then a low is likely. If the close of a given price bar is lowerthan the open of a given price bar a given period of time, then a high islikely.
The best way I have found to monitor this pattern is by using an eight-bar moving average of opening prices versus an eight-bar moving average ofclosing prices. Those who have attended my seminars and my former one-on-one mentoring students will remember the ﬁve-bar open/close indicatorthat I developed many years ago.
Since then I have used the method considerably, during which timeI have reﬁned it to the eight open/close pattern with a variety of follow-through approaches. Note that this method is not totally mechanical orobjective. I offer it to you because it is a very effective method for spottingshort-term price trend swings in active and trending markets.
Figure 15.1 is one example of the eight open/close pattern. As you cansee, although it is a lagging indicator, it is fairly good at spotting trends. The
125
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30 DAYS TO MARKET MASTERY
three keys to effective use are:
1. The ability to trail a stop.
2. The ability to ﬁlter out small or minor crossovers that only last a day ortwo. One of these is illustrated in the noted section on the chart repre-sented in Figure 15.1. In this case, the crossover lasted only one day. Theway to deal with such situations is by requiring the crossover values tobe more than a given amount (i.e., more than just one or two ticks infutures and more than a given percentage of the price of a stock).
3. Very often you will have a proﬁt by the ﬁfth day after the crossover. You
can exit or trail a stop-loss.
GC-200512:  Gold Comex (Pit) Dec 2005 (Daily bars)
8 close < 8 openSell.
8 close < 8 openSell.
www.GenesisFT.comMovingAvg (O,8)  MovingAvg (C,10)   08/26/2005 = 442.1 (-1.0)
8 close < 8 openSell.
8 close > 8 openBuy.
8 close > 8 openBuy.
May-05
Jun-05
Jul-05
Aug-05
Sep-05
TT-200509:  T-Notes 10Yr CBT Pit Sep 2005 (Daily bars)
www.GenesisFT.comMovingAvg (O,8)  MovingAvg (C,8)   08/26/2005 = 111^18.5 (-0^09)
8 close > 8 openBuy.
8 close < 8 openSell.
8 close < 8 openSell.
See text.
8 close < 8 openSell.
8 close > 8 openBuy.
454
452
450
448
446444.8444443.3
442.1
440
438
436
434
432
430
428
426
424
422
420
114^08
114^00
113^24
113^16
113^08
113^00
112^24
112^16
112^00
112^00
111^24
111^18.5111^18.5
111^08
111^00
110^24
110^16
110^08
110^00
109^24
Jul-05
Aug-05
Sep-05
FIGURE 15.1 An illustration of the eight open/close method.Source: Courtesy of www.GenesisFT.com.
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SP-200509:  S&P 500 Index (Pit) Sep 2005 (Daily bars)
www.GenesisFT.comMovingAvg (O,8)  MovingAvg (C,8)   08/26/2005 = 1205.9 (-7.7)
See text.
See text.
8 close < 8 openSell.
8 close < 8 openSell.
8 close > 8 openBuy.
Jul-05
Aug-05
FIGURE 15.2 The eight open/close pattern in S&P futures.Source: Courtesy of www.GenesisFT.com.
125212501248
1246
1244
1242
12401238
1236
1234
12321230
12281226
1224
1222
1219.551217.651216
1214
1212
1210
1208
1205.91204
1202
1200
1198
11961194
1192
1190
1188
11861184
Figure 15.2 gives another example of this pattern. Here is a chart of S&Pshowing the eight open/close pattern. Note that there are two potentialspots (labeled See Text) where the method reversed and then reversedback again. My suggestions in the next section help you minimize suchinstances.
SETUP AND TRIGGER
Note that the open/close indicator is not a trading system. It is merely amethod for determining the relative strength or weakness of a market and/orthe timing of a short-term trend change. It is best when used with anothershort-term indicator.
Now let’s look at the setup and trigger for this pattern, after which I will
show you a few suggested applications.
(cid:2)
(cid:2)
A buy setup and trigger occur when the eight-bar moving average of theclose goes above the eight-bar moving average of the open. Entry is onthe close of the.the bar or on the open of the next bar.A sell setup and trigger occur when the eight-bar moving average of theclose goes below the eight-bar moving average of the open. Entry is onthe close of the bar or on the open of the next bar.
The method can be used in various time frames.
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30 DAYS TO MARKET MASTERY
FOLLOW-THROUGH
There are several types of follow-through for this method. Note that thisis a trading method as opposed to a trading system. By this I mean that asmall amount of judgment is required as opposed to the purely mechanicalprocedures used in a trading system. There is more about this later onwhen I give you my suggestions for application. Here are four types offollow-through for this method:
1. Exit your position by reversing when the moving averages change theirorientation. This is not recommended because you will give up too muchproﬁt.
2. Exit a portion of your position at a proﬁt target that is equal to the rangeof the last eight bars prior to the trigger. See charts in Figures 15.3 and15.4 for examples.
3. Exit your entire position as noted in item 2 and wait for the next signal.This method is not preferred since you will often miss the very largemoves
4. Exit part or all of your position on the close of the ﬁfth bar after entry if
it is proﬁtable.
Exit part of your position on the eighth bar after the last trigger and/ortrail a stop on the balance of the position. However, if the trade shows aloss after the eighth bar, the odds are it will not be proﬁtable and you maywant to exit the entire position.
S-200511:  Soybeans CBT (Pit) Nov 2005 (Daily bars)
www.GenesisFT.comMovingAvg (O,8)  MovingAvg (C,8)   08/26/2005 = 602^0 (+4^2)
780^0
770^0
760^0
750^0
740^0
730^0
720^0
710^0
700^0
690^0
680^0
670^0
660^0
650^0
640^0
630^0
614^2610^0
602^0
590^0
Jun-05
Jul-05
Aug-05
FIGURE 15.3 Trigger and follow-through on the eight open/close pattern.Source: Courtesy of www.GenesisFT.com.
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Because this method is not a mechanical trading system, but rather amethod for determining short-term trend changes, you cannot use a rigidapproach in trading with this method. In other words, this method is nottotally objective compared to the methods that have been taught in previouslessons.
Figures 15.3 through 15.4 show the eight open/close pattern signals and
a few examples of the applications suggested in this section.
TY-055:  T-Notes 10Yr CBT Comb Cont 1st (Daily bars)
www.GenesisFT.com
8 MA of close
8 MA of open
Selltrigger
Selltrigger
Buytrigger
07/08/05
07/22/05
08/05/05
08/19/05
09/02/05
09/19/05
FIGURE 15.4 Trigger and follow-through on the eight open/close pattern.Source: Courtesy of www.GenesisFT.com.
CL-200724:  Crudy Oil NY (Pit) Apr 2007 (Daily bars)
www.GenesisFT.com
Jan-07
GAS
Feb-07
FIGURE 15.5 Trigger and follow-through on the eight open/close pattern.Source: Courtesy of www.GenesisFT.com.
114^00
113^16
113^00
112^16
112^00
111^16
111^00
110^20.5110^17
110^00109^29.5
66
64
62
60
58.4058
56.9056.5956
54
52
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REVIEW
30 DAYS TO MARKET MASTERY
This lesson taught you a simple method for determining and taking ad-vantage of short-term trend changes using the eight open/close pattern. Iemphasized that this pattern should not be considered a trading system butrather a method or indicator.
Please take a few minutes to answer the questions below. Note that thisquiz requires more attention than some of the earlier quizzes. Take yourtime.
LESSON 15 QUIZ
Instructions: Mark the signals, trades, and exits according to your best esti-mate. You need not indicate the exact prices at which trades were triggeredor closed out unless you have access to a chart with exact prices.
For items 1 through 3 ﬁnd and mark the eight open/close buy and sell
triggers.
1.
LH-200510:  Lean Hogs (Pit) Oct 2005 (Daily bars)
www.GenesisFT.comMovingAvg (O,8)  MovingAvg (C,8)   08/03/2005 = 60.075 (-0.550)
65
64.5
64
63.5
63
62.5
62
61.5
61
60.5
60.075
59.5
59
58.558.150
57.5
57
56.5
56
55.5
55
54.5
54
53.5
Jun-05
Jul-05
Aug-05
Source: Courtesy of www.GenesisFT.com.
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2.
CL-200510:  Crude Oil NY (Pit) Oct 2005 (30 minute bars)
www.GenesisFT.comMovingAvg (O,8)  MovingAvg (C,8)   08/26/05 11:54 = 66.25 (-1.25)
68.2
68
67.8
67.5967.48
67.267
66.8
66.666.466.25
66
65.8
65.6
65.4
65.2
6564.8
64.6
64.4
64.2
6463.8
63.6
63.4
63.2
63
62.8
62.6
08/22/05
08/29/05
Source: Courtesy of www.GenesisFT.com.
3.
S-200511:  Soybeans CBT (Pit) Nov 2005 (Daily bars)
www.GenesisFT.comMovingAvg (O,8)  MovingAvg (C,8)   08/26/05 11:54 = 602^0 (+4^2)
780^0
770^0
760^0
750^0
740^0
730^0
720^0
710^0
700^0
690^0
680^0
67