your free  commission  now?  I  think  it  isimportant to understand that nothing is FREE.  We always pay for it one wayor another.
So, how can one go about selecting a broker to open an account with?  I willuse the process of elimination, just as  if I was taking a multiple-choice test.
First, I will eliminate all  browser-based brokers, because there  is  no way Ishould wait more  than six seconds, at the most,  for confirmations on execu-tions  and cancellations  on NASDAQ  stocks.  There  is  also  no way I  shouldclick the refresh button again and again to get confirmations of pendingtrades and cancellations.  That will  cost me a  lot of money in  the  long run.  Iwant to see my orders and cancellations live, in real-time.  Consequently, Irequire a stand-alone program.
Next, I will eliminate all online brokers who do not offer direct access to allECNs and Market Makers.  Day traders who  trade w i th brokers who do notoffer direct access are at an obvious disadvantage because  their orders arcrerouted, ralher than placed directly with the buyer or seller. This means thatthey do  not  have direct access  to  the  best possible prices  to  buy or sell  astock.  I am amazed by how many day traders are trading with inferior plat-forms, robbing themselves of the best possible  fills.  I  have narrowed downmy selection  to  a  few brokers  who offer a  stand-alone program  and direct ac-cess  to  the  market.
Finally, I will take into consideration the brokerage firm's customer serviceand commission  rates.  I  had a handful  of final candidates whom I  was goingto interview at the upcoming Online Trading Expo in New York.  I wanted tosee  the  trading software  they offered  and get my  in-person  impression of theway  they conduct business.
After doing my homework and interviewing the different brokerage firms, Iselected  MB Trading to be my broker for the  following reasons:
1.  I  found  the software MB Trading uses,  RcalTick1M III,  to be verypowerful and user-friendly.  I must disclose that I have been usingthis software in the past, so I felt very comfortable with it.  This is, ofcourse,  a personal  preference,  but as you  will  see  throughout  thisbook, I am a technical  trader who uses charts to help  identify entryand  exit points.  Charts  are visual,  and  the  charts  provided  by Real-Tick™  III  software  were  of high  quality,  and  were  brighter,  clearer,and  sharper than  charts  provided  by  other  trading  software.
2.  MB  Trading  offered  direct  access  to  the  market  from  8:00  AM
through  8:00 PM.  An hour and a  half before  the official  open,  andfour hours after the official  close,  via both the trading software andtheir trading desk.  I can call and place a trade with a live person at
their trading desk anytime  between  8:00-8:00 at  no  additional  cost.
3.  Slate of the  art customer service,  I  couldn't say enough  about the  im-portance  of reliable  customer service.  MB  Trading  has  always  prideditself on  providing such  service,  and  I  was  very impressed  to  find  outthat  my calls  were  consistently picked  up  by the second  or third  ring.
4.  Reduced  commission:  uWc at MB  Trading understand  that  many cli-ents  are  new  to  the  RealTick™  III  software and need some  time  toadjust to  the different order routing system and wish to do so withfewer shares,  MB  Trading  has  created  a  special  60-day programavailable  to all  clients  in which you  may trade in lots of 300 shares orless  for a  reduced commission  rate  of five  dollars  -  $5.00  per  trade."I  felt that MB Trading was giving new traders a better opportunity asthey cut down  Ihc slippage cost on smaller lot trades.
5.  The most  impressive  thing about  MB Trading was  the  testimonials.When  I  asked  traders  who  use  direct  access  software  the  question,"Whom  do  you  trade  with?"  MB  Trading  was  one  of the  most  com-mon  answers,  and  when  these  traders  were  praising  MB  Trading'scustomer service,  it  made  my decision  a  lot easier.
Once  I  chose  MB  Trading  to  be my broker,  I  filled out a  new account appli-cation  and  sent  it  in  with  a  check  for $300.00 for  the data  feed.  My accountwas  issued  w i t h in  a  couple of days,  and  I  wired  $50,000  into  the  account on3/17/00.  I  was  ready  to  make  the  first  trade  on  Monday  3/20/00.  The  timeframe  for the challenge would  be  for the  four weeks starting on Monday,3/20/00 and ending on  Friday, 4/14/00.  I  feel  it is extremely important that Idisclose t h at  I  have never had an account with MB Trading prior to theabove date.  Consequently,  it made the challenge very real.  I  was going totrade a  new account with a  new  broker just as a  beginner trader would.
Setting the  Rules
The  first  rule  has  to  do  with  risk management.  When  you  manage  risk,  youalways  have to  think of what would  happen  should  something go wrong.  Al-though  this  may seem  like a pessimistic  point of view,  it  is an essential  ele-ment of proper risk management.  We  have  set  the  following guidelines  formoney management and risk exposure  for all  trades  that will  take place  inthe following  four weeks,
Risk capital  is set at $50,000.  Margin may be used  for a total  buying powerof $100,000.  Maximum  amount  of money  to  be  allocated  to  one  stock  posi-tion  may  not exceed  $30,000  on  the  most  aggressive  position  and  should  bearound  $25,000  for most  stocks.  This  will  ensure  I  will  not  put  all  the  eggsin  one  basket.  The exception  to  the rule will  be  index-tracking stocks  suchas  SPY,  QQQ  and  DIA.  Since  these  stocks  track  a  basket  of 30  to  500stocks,  a  single  position  in  one  of these  stocks  is  already  diversified.  Conse-quently,  the  entire  buying  power  of $100,000  may  be  allocated  to  such  a  po-sition.
I must take into account the volatility of certain stocks, and manage  riskproperly.  I  may use the entire  buying power to hold  positions  overnight andbe  fully extended  if I  so  choose,  but  I  must  have a  very good  reason  for do-ing so.
At the end of each week, all  realized profits will  be swept out of the account.If I  have $800  in  profits  for the  week,  I  will  order a check  for that amountand  start the next week  fresh  with  $50,000  in  risk capital.  If I  have a  losingweek,  I  do  not add  money back into  the  account.  I  will  work with  the  re-maining capital  until  I  get back over $50,000,  in which case  I  will  drawchecks  again.  This  will prevent me  from  losing a  lot  if I hit a slump.
To  keep  things  more  challenging,  I  may  not short sell  stocks.  This  seemed  alittle odd  to  me at  first,  but  the  argument made  was  that many traders  don'thave  access  to  an  extensive  short  list  or  are  trading  accounts  that  are  re-stricted  from  short  selling.  In  order  to  not  distort  any  of the performance,  Iwill  have  to  trade  only  one  side  of the  market -  the  long  side.  I  had  no  ideahow  much  more challenging  this  rule  was  going  to  make  things  during  thenext  four  weeks.
Preparing  for  Day  One
Candlestick Charts
Sunday,  March  19,2000.
My day begins  when  the  market  is closed.  At some point between  the  closeof llic market and  the open on the following day, I will do my research.  Inormally  like  to  do  it  at  night.  When  I  am  finished  with  my research,  1should have an idea as to what positions I want to be in during the next trad-ing day.  I w i ll take notes, write out trading plans, and go to sleep.
I use technical analysis  lo help me find potential stock trades for the nextday.  Technical analysis is used lo determine supply and demand for a stockbased  on  price behavior over a  certain  period  of time.  There arc  many pat-terns in which a stock has traded in the past that will help me forecast the po-tential  future price movement for that stock.  I try to keep things very simpleand  I  only  trade  patterns  that  I  understand.
I  w i ll  use  two  types  of charts  to  illustrate  the  setups  that  I  will  be  tradingover  the  next  four  weeks,  bar charts  and  candlestick  charts.
Bar Charts
Each  bar shows  four different price  fields  for any given  day.  These  pricefields  include the opening price of the day,  the high price of the day, the lowprice  of (he day, and  the  closing price of the  day.
Candlestick charts record the same data; however, it is somewhat easier tosee  the  range  between  the  opening  price  and  the  closing  price  for  the  timeperiod  the candle stick covers.  Here  are  the  differences between a  white can-dle and  a  black  candle.
A white candle means that the closing price was higher than the openingprice.  A  black  candle  means  that  closing  price  was  lower  than  the  openingprice.
There are a  few patterns, that 1 base most of my trading decisions on, which  Ifound easy to understand and implement.  Those patterns consist of the trendor overall price direction a stock  is trading in, and support and  resistance.  Istrongly  believe  that  most  complex  patterns  and  indicators  which  will  derivefrom certain mathematical calculations of price behaviors will try to confirmthe  obvious  pattern.  I  learned  that  focusing  on  the  simple  pattern  has  beenvery profitable  for me over the years.
Opening  Price  -This  is  the  execution  price  of the  first  trade  of the  day.High  - This  is  the  highest price  point that the  stock  traded  at  that day.Low - This  is  the  lowest price  the stock  traded at that day.Closing Price-This is the price of the  last trade of the day.
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9
Support and Resistance
I will  try and use a very simple example of how I look at support and resis-tance levels or liovv I  implement (lie laws of supply and demand in my trad-ing.  I will use a hypothetical example to illustrate the idea of support and re-sistance.  Let's say that at 9:30 AM,  XYZ stock opened  for trading at 43  1/2.The stock started  trading clown, and at  10:30 AM the stock was at 41  1/2.The slock then started to trade higher and at  1:30 PM it was trading at 44  1/2.The stock then  traded  in a tight trading range between 44 to 44  1/2, and thelast trade at 4:00 PM was at 44  1/8.  Let's chart the data of the trading dayfor XYZ  Stock.
As you can sec, XYZ traded down  from 43  1/2 to 41  1/2 where it found abottom (support),  then  traded back up to 44  1/2 where it topped out(resistance).  The question is, why?  Why didn't XYZ go lower than 41  1/2.Why didn't  it go higher than 44  1/2?  The answer, of course, is found in thelaws of supply and demand.
The  laws  of supply and  demand  for any product  or service  are  very simple.
1.  If quantity demanded is greater than quantity in supply, prices will go up.2.  If quantity in supply is greater than quantity in demand, prices will go
down.
The reason XYZ share price did  not go any lower than 41  1/2  is simply be-cause the quantity in demand was greater than the quantity in supply.  The
reason XYZ share price did  not go higher than 44  1/2  is simply because thequantity in supply was greater than the quantity in demand.
The next question is, why was the quantity demanded higher than the quan-tity supplied at 41  1/2, and why was the quantity in supply greater than thenthe quantity in demand at 44  1/2?  In other words, what determines supplyand demand  in  the  stock market?
The reason (here was more quantity in demand at 41  1/2 is simply becauseinvestors'  expectations were  for the stock to go up  in price.  The reason therewas more quantity in supply at 44  1/2 was because investors'  expectationswere for the stock to go down in price.  In other words,  supply and demandin the stock market is determined by investors' expectations.
If we study the price behavior for XYZ slock in more depth, I can expect afew things  to happen  in the  future based on what took place in the past.  Thefirst thing will be that if XYZ traded back clown to 41  1/2, buyers should stepin and buy the stock.  Next, if XYZ trades back up to 44  1/2, it will  facesome selling pressure.  This easy to understand concept is the foundation  ofmy trading system, and almost every setup I  trade is based on this simpleidea, that is to say, on changes in supply and demand.
Changes  in  Supply  and  Demand
If XYZ would be able to trade at a higher price than 44  1/2, then it wouldsuggest that investors' expectations have changed.  If XYZ is able to trade ata lower price than 41  1/2, then it would suggest that investors' expectationshave changed, as well.  These changes in investors' expectations, or changesin supply and demand, for a slock are very common, and  I would try lo capi-talize and profit from  these changes over the next four weeks.
Searching for Potential Trades
I have three main sources for potential trades.  The first one is a watch list of35 stocks that I follow on a daily basis.  This  list is my Constant watch list(although  I do  make changes  to  it once in a while).  The  second  source  is  ascan I run after the market closes.  This scan looks for different criteria andpresents me with stocks that require further analysis.  The third source is ascan I run during the trading day, which also looks for specific criteria to bemet.  Over the next four weeks, I will disclose how I  found each and everytrade prior to executing  it.  I  will  be covering methods of producing a Con-stant watch list in Appendix B.  I will also be covering different scanning cri-teria, which you may use in your own trading, in Appendix D.
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11
R u n n i ng  the  Overnight  Scan
The  first scan  I ran was  for stocks  that have pulled back in  price over the lastthree days.  I am  looking for stocks that arc pulling back in price  from their 52-wcck high  and  are at or near support  levels.  The formula for the scan  is:
Oz Fullback  Swing Trade
VolAvg20  >  350,000Last  >  P  LowPI Close  <P2CloseP2C)osc  <  P3CloscP3Closc  <  P4Closc
Explanation:
VolAvg20: Average volume the stock has traded over the last 20 days.1' Low:  Previous Day's  low.PI Close:  Previous  day's  closeP2Close:  The  close  the  day  beforeP3Close:  The  close  (he  day  before  P2P4Close:  The close  the  day  before  P3
Tips  and  Guidelines
What you arc about to read in (his book is very educational.  Therefore, therewill  be  many  illustrations  that  will  require  both  time  and  a  high  concentrationlevel on your part.  This book was not intended to be a novel, but a text bookof many lessons of how I  trade stocks  fora  living.  In order for you to get themost out of this book, I am including the following tips and guidelines, which Isuggest you  follow.
Every case study which features an executed trade w i ll include a chart thatshows the pattern  I  was  trading.  It is  extremely important  that you  take (hetime  to  analyze  each  and  every  chart  and  understand  exactly  what  tookplace.  I understand that there is lot of technical information that slows downthe flow of the action; however,  it is that technical  information that is so im-portant to learn.
Every stock  I  will be trading over the next four weeks  w i ll be referred to by itsticker symbol.  I  will  say  I  bought 200  shares  of INTC  at  33  5/16.  INTC is  theticker symbol  for Intel.  Since I am including charts for every executed trade,you  will  be able to know the company name,  if you simply read  it off the chart.
I will also be referring to Market Makers by their four letter code.  To avoidconfusion, I will put this code in italics to differentiate it from the tickersymbol.  I will  say something  like SBSH was a serious seller.  If you want toknow  who  the  Market  Maker  is,  you  can  go  to  www.na.sdaqtrader.com.Click on  the symbol directory link.  In the search box, check the followingfields:  Symbol,  Start  With,  and  Market  Participant.  Enter  the  four  letter  codeinto  the  Search  For  window  and  click  Execute  Search.
Here are some tips on how to get the information out of the charts that I willfeature in the book.
The technical indicator shown in this chart is MA, which stands  for MovingAverage.  (P=50)  means  that  the  average  covers  50  Period =  50  Bars.  In  thiscase  it  is  a  50-Day  Moving  Average.
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13
Intraday Chart  (Single  Day)
Intraday Chart 
Time Frame for each Bar
Multi-Day Intraday Chart
Date
One of my goals  in writing  this  book was  to give the readers the sense  thatthey are sitting right next to me while I execute the trades,  I wanted readersto know the battles that take place inside my head,  In my attempt to do so,  Ihave included some of the extra important things that takes place while Itrade.  I  wanted  the reader to  be  a  fly-on-the-wall  observing all  the action.
I think it is also important that you understand that I use MB Trading's orderexecution software in my trading.  This software is not the traditional orderrouting software which  you might be used  (o.  This software allows  me tocontrol  the routing of my trades by cutting the middle man out.  Conse-quently, I have more order routing options to choose from, which may attimes make things a little complicated to understand.  The five order routingoptions I will be using in my trading over the next four weeks will be SOCS,SelectNet, ARCA, ISLAND and  ISI.  All  listed stocks arc automaticallyrouted  to ISI.  As to Nasdaq stocks,  I  will  be using one of the other four or-der execution routs listed above depending on  the situation I am presentedwith.  Appendix E covers a detailed explanation of the currently availableexecution  routes,
Over the next four weeks, there will be trades that I  will enter one day andexit sometime  in  the  future.  In order to keep some mystery as to what takesplace next, I won't tell you where or when I exit the trade until  it actuallytakes place; consequently, I will go on to  feature the next trade I  get into.This  might be somewhat confusing  to you.  In  an attempt to keep things or-ganized, at the end of each trading day, I will  list my open positions that I amholding overnight, along with a daily profit and loss statement.
Every trade that I execute will include a trade record in a table format.  Thistable will show the capital allocated to the trade and the profit or loss real-ized  on  that trade.
With these tips and guidelines in mind, fasten your scat-belt and enjoy theride.
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15
Evaluating Risk/Reward Ratio
A trader should never risk more than he can  make on a trade.  I  try not to  riskmore than  1/3  of what I am looking to make on a trade.  In other words, myreward is normally three times greater than the risk I will take.  Ff I am look-ing to make three points on a trade, I can only risk one point, so if 1 enter astock at 50, and my price target is 53, I w i ll have to cut the trade if the stockfalls below 49.  If the setup  I  look at does  not present  me with  this ratio orbetter, I will not enter it.  This will be one of the rules I will try to follow re-ligiously over the next four weeks.
Stop  Loss
One of the keys to successful trading is an effective stop loss system.  Overthe next four weeks, I will utilize the following strategics to limit my down-side risk.  I will first take into account the risk/reward ratio presented by thesetup I am going to trade.  Next, I will take into account the maximum allow-able drawdown on my position.  Then, I will define where technical  supportis found.
I will  use one of the  following strategics  for the placement of a stop  loss;
Below  today's  low
Below yesterday's  low
Below secondary intrnday support levels
Below multi-day intrndny support levels
Below  50%  retracement  of last  rally
Below  an  index  day's  low  or  intraday  support  levels
Once I am in a trade in which the initial stop loss was never activated, I willuse trailing stops  to protect profit.  I will be monitoring the overall market,the  individual stock,  and the Market Makers to determine such exit points.
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Stop  Loss  Strategics
$5.72 - This is the price level where the 50-day closing price moving aver-age  lies.
$5.50-This  is  the price  level  set by  the  stock  on  1/24/00 on the  high of theday.  This is the same high that was taken out on the breakout on 2/17/00.
If TCLN goes down to these price levels and is able to trade back up, myprice targets will be between  10 -  12 a share.  The  10 level was the high seton 2/22/00, and the  12  level  was the high set on 3/14/00.
The next thing was to determine the stop loss.  I left that field open, and 1made a little note to myself saying that depending on where I enter the stockset a stop loss at 3/16 below the low of that trading day.
The above 2-day intraday chart shows the different strategies for the place-ments of slop loss and trailing stop orders that I will be using over the nextfour weeks.
The  final  candidates  for potential  trades  on  Monday, March  20, 2000
IFMX has made a 52-week high at 21  and pulled back to  17  1/4.  My tradingplan for this stock is to buy it at  16  1/2, which was the high the stock madeon 2/7/00.  My stop loss is at  15  7/8, and my price target is  19 - 23,  My planis to buy 300 shares at  16  1/2.  I will add 300 shares at  16 7/8 should thestock show strength.  I will sell 300 shares at  18 7/8, and trail a stop behindthe remaining 300 shares.  I will give it a chance to move to new highground.
TCLN has conic down  in price from  16 5/8  to 71/2.  I was going to watchthe stock to see if it could  bounce back up in price if it reached the followingsupport  levels:
$6.00 - This was  the  low the stock hit on 2/24/00, and was able  to trade upfrom there.
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R R RR has pulled back  from 94 3/4  to 60  1/2.  The last trading day, the stockclosed  below  the previous  day's close,  but  it did  not trade at a  lower pricethan  the previous day's  low.  My plan  is  to buy the stock  if it trades  higherthan  63.  My stop  loss  is  to  be placed at  60 3/8.  My price  target is  75  whichwas  the  low  the stock  made  on  3/13/00.
HIFN pulled  back  from a high  of 116  to  76.  It closed  near the high  of theday at 78  1/16.  My plan  is to buy HIFN if it trades  higher than  78  3/8.  Mystop  loss  is  at 75  7/8,  which  is  1/8  below  the  low  of the  day.  My target  is  89which  was  the  high  on  3/10/00.
RSLC  has  pulled  back  from  a  52-wcck  high  at  32  1/2  and  was  at  support  lev-els around  24.  The stock  did  trade  lower the previous day and hit 23  3/8.The  close  yesterday was  the  lowest  closing  price  in  nine  trading  days.  The50-day moving average  is at 21  1/2 and I will  be looking  for a possiblebounce  at  that price  level.  My price target will  be 24,  and  my stop  loss  willbe placed  1/8  of a point below  the  low  of the day.
DUG  is trading in a rising channel.  It held the trendline and is now lookingto  turn  up.  My plan  is  to  buy  the  stock should  it trade  higher than  103  3/4,my stop  loss  will  be  at  99  3/4.  My price  target  is  115  -  125.  I  found  this  po-tential  trade on my Constant watch  list,  which  I analyze everyday.
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21
The Early Warning
DAY ONE
Monday,  March  20,  2000.
The time lias come, and I was now to capture all my trades, executed overthe next four weeks,  for all  the world to see.  I have to admit I  was extremelynervous, yet anxious to get the show on the road.  I had my potential tradesin my market-minder window ready to be followed.  The trading plans werewell outlined, and now it was a matter of simply executing the trading plan.
The trading day starts very early in Southern California.  I like to get up atleast 90 minutes before the open to check on market conditions and be alertearly in the trading day,  More often  than not,  there is  a big news  story,which sets the tone  for the trading day.  Today was no different, and thestory of the day had to do with a company that might have been cooking thebooks  (the company said  it was  revising  its  1999 and  1998  revenue  and oper-ating results,  "due to its evolving business model" and were later hit with alawsuit by angry shareholders as a result).  I was very familiar with this com-pany and knew of individuals who were long the stock.
Gap  Open
In case you didn't know, stocks which trade today at a certain price and closeat  a  certain  price  can  open  the next morning  at any price.  In  other words,  if astock closed its trading today at 100, there is no saying where it will open fortrading tomorrow.  In fact,  it can open  for trading at 697, or it can open  fortrading at 20.  It might not even open for trading at all the next day.  This issome  of the  risk  that  is  taken  when  you  hold  a  position  overnight.  Here  aresome examples:  On Friday, May  1,  1998, ENMD traded last at  11  3/4.There  was  a very positive  story about  the  company  in  one  of the  major newspublications  over the  weekend.  The  first trade  on  Monday  morning,  May 4,1998  took place  at  82.  This  is  not a mistake!  The stock gapped up  at theopen  almost  600%.  In  March of 1995,  IDC was  halted  intraday.  They  lost alawsuit in which they were trying to  get compensation  from MOT for patentinfringement.  The stock did not trade the  following day at all!  It neveropened  for trading.  The last trade before the halt was at  12 7/8.  When the
23
stock finally opened  for trading,  it was at 5 dollars a share.  This was a 61%haircut for the stock.
Today was  one  of those days  and  the  unlucky ones  were  the share  holders  ofMSTR.
MSTR made an all time high at 333 and pulled back to 226 3/4 where itclosed on Friday.  Following the bad  news,  the stock gapped down  to109  1/4  and closed  at  86  3/4