. If it is not clear (i.e., the SI reading is close to the required value), thendo not enter the order but wait until the closing price is available andthen make your decision. If there has been a trigger, then enter on theopening of the next day.
3. Every trade has a stop-loss as it appears on the top of the seasonal
historical listing. All stops are close only.∗
∗Not all exchanges accept “close-only” orders. In such cases use the next day openingfor entry or exit.
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4. More details about the stop-loss and follow-up are given in the next lesson
on follow-through.
5. If a trade does not trigger on the exact entry date, then you can allow 15percent more time as measured by the length of the trade. As an example,if a trade is to be entered on 6/1 and exited on 6/15, then the length of thetrade is 14 days. If it does not trigger on the entry date, or on the closeof trading the next business day, then allow the trade 15 percent moretime. In this case it would be 15 percent of 14 days, which is 2.1 days.Round all fractions up to the next highest full day or, in this case, threedays. These are trading days.
AN EXAMPLE
I took two of the seasonal setups from Lesson 3 to use as examples of theseasonal trigger procedure here. The lean hog trade is shown in Table 4.1.This seasonal setup shows the historical record of buying Jly Hogs onthe close of trading July 2 and exiting July 6 with a 1 percent stop-lossclose only, over a period of 35 years. As you can see, the performance wasimpressive. The trade met all but one of our ﬁve required factors. The idealentry date was 7/2. The market was closed on 7/2/05 and also on 7/3/05 and7/4/05. Accordingly, the trade was entered on the close of trading 7/5/05 andexited on the close of trading 7/6/05.
The SI timing chart (Figure 4.2) contains notes on the trigger. This exitwas without the follow-through method, which will be discussed in Lesson 5.Now let’s look at a sell setup and trigger. The seasonal setup Table 4.2
was also shown in the last lesson.
This setup shows a short sell seasonal in the Sep Canadian Dollar overthe last 28 years from 7/17 to 7/24 with a 1 percent stop-loss close only. Therecord here is also impressive with over 82 percent accuracy. This trademet all ﬁve of our ﬁlter criteria. Figure 4.3 shows the chart as of the closeof trading on 7/18/05 along with my notations.
This trade has triggered. The outcome is to be decided since the trade
is only now being entered as the present lesson is being written.
REVIEW
In this lesson, you learned how seasonal setups with the highest odds ofsuccess are triggered using the SI. You learned the correct triggers for thesesetups and you were given some examples of trades and their application.
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TABLE 4.1 The Seasonal Trade in July Hogs with the Timing Trigger as
Noted Earlier
Jul LeanHogs Long
Enter:7/2
Exit:7/6
Stop %:1.00
P/L Ratio:11.1
Trade#119061106
ContractYear
Date In Price In
Date Out Price Out Proﬁt/Loss Total
19701971197219731974197519761977197819791980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004
7/27/27/37/27/27/27/27/57/37/27/27/27/27/57/27/27/27/27/57/37/27/27/27/27/57/37/27/27/27/27/37/27/27/27/2
26.3521.7530.4043.4736.9553.6750.0548.1247.2740.2042.7553.4760.0245.7754.7049.6759.6760.1044.0747.1761.2753.7546.7249.2744.6245.9057.3283.2557.6041.7570.3573.5552.3064.1579.12
7/67/67/67/67/87/77/67/67/67/67/77/67/67/67/67/87/77/67/67/67/67/87/67/67/67/67/87/77/67/67/67/67/87/77/6
26.4021.7530.2243.6038.9755.7049.0248.5748.1741.3742.5053.9560.1246.2255.1249.9761.5560.5744.5746.7761.6054.8546.6549.1244.8046.7259.6583.2057.9542.5771.1574.5554.9065.8579.37
0.050.00−0.180.132.022.03−1.030.450.901.17−0.250.480.100.450.420.301.880.470.50−0.400.331.10−0.07−0.150.180.822.33−0.050.350.820.801.002.601.700.25
0.050.05−0.130.002.024.053.023.474.375.545.295.775.876.326.747.048.929.399.899.499.8210.9210.8510.7010.8811.7014.0313.9814.3315.1515.9516.9519.5521.2521.50
Trades: 35
Winners: 27 Losers: 8
Avg. Proﬁt:0.8751
Avg Loss:0.2662
% Avg. Prof:1.69
Daily PF:0.2187
% Winners:77.14% Avg. Loss:−0.57
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LH-200507: Lean Hogs (Pit) Jul 2005 (Daily bars)
www.GenesisFT.com07/15/2005 = 68.675 )+0.150)
70
Sl triggered;buy on close.
Exit date out on close at a profit.
StochK (14,5)
Sl below 25%
Sl above 25%trade triggersbuy on close.
06/24/05
07/11/05
FIGURE 4.2 Notes on the trigger.Source: Courtesy of www.GenesisFT.com.
69.5
69
68.67568.5
68
67.5
67
66.5
66
65.5
65
100
90
80
69.09
60
50
40
30
20
10
0
Now that you have learned to ﬁnd the seasonal setups at the H.O.S.T.Web site, and now that you know how to apply the seasonal triggers, youwill want to practice. The next chapter describes three follow-throughmethods—which one you use depends on how aggressive you want to be.The key to effective application of this method is practice and a thoroughunderstanding and application of the rules as discussed. Lesson 5 completesthe setup, trigger and follow-through for method #1, seasonality.
CD-200509: Canadian $ (Pit) Sep 2005 (Daily bars)
www.GenesisFT.com07/19/2005 = 0.8217 (−0.0016)
0.835
Sl above 75%
StochK (14,5)
Sl sell trigger
0.83
0.825
0.82170.82
0.815
0.81
0.805
0.8
0.795
100
90
80
70.98
60
50
40
30
20
10
0
06/09/05
06/23/05
07/08/05
07/22/05
FIGURE 4.3 The seasonal trigger using stochastic 14 and 5 as discussed earlier.Source: Courtesy of www.GenesisFT.com.
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TABLE 4.2 Canadian Dollar Seasonal Trade with the Trigger
Short SepCanada $
Enter:7/17
Exit:7/24
Stop %:1.00
P/L Ratio:5.6
Trade#107869168
ContractYear
Date In Price In
Date Out Price Out Proﬁt/Loss Total
1977
1978
1979
1980
1981
19821983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
18-Jul
17-Jul
17-Jul
17-Jul
17-Jul
19-Jul18-Jul
17-Jul
17-Jul
17-Jul
17-Jul
18-Jul
17-Jul
17-Jul
17-Jul
17-Jul
19-Jul
18-Jul
17-Jul
17-Jul
17-Jul
17-Jul
19-Jul
17-Jul
17-Jul
17-Jul
17-Jul
19-Jul
0.942
0.8903
0.8598
0.8665
0.8283
0.79210.812
0.7509
0.7399
0.7251
0.7564
0.8266
0.8352
0.8587
0.8672
0.838
0.7808
0.7247
0.7371
0.7291
0.7284
0.6723
0.6717
0.6761
0.6487
0.6475
0.7141
0.7634
25-Jul
24-Jul
24-Jul
24-Jul
24-Jul
26-Jul25-Jul
24-Jul
24-Jul
24-Jul
24-Jul
25-Jul
24-Jul
24-Jul
24-Jul
24-Jul
26-Jul
25-Jul
24-Jul
24-Jul
24-Jul
24-Jul
26-Jul
24-Jul
24-Jul
24-Jul
24-Jul
26-Jul
0.9399
0.8899
0.857
0.8642
0.8195
0.78750.8116
0.7575
0.7383
0.7177
0.7455
0.8191
0.837
0.8578
0.8637
0.8367
0.7802
0.7242
0.7364
0.7301
0.726
0.6677
0.6629
0.6838
0.6489
0.6354
0.7134
0.7507
0.0021
0.0004
0.0028
0.0023
0.0088
0.00460.0004−0.00660.0016
0.0074
0.0109
0.0075−0.00180.0009
0.0035
0.0013
0.0006
0.0005
0.0007
−0.001
0.0024
0.0046
0.0088−0.0077−0.00020.0121
0.0007
0.0127
0.0021
0.0025
0.0053
0.0076
0.0164
0.0210.0214
0.0148
0.0164
0.0238
0.0347
0.0422
0.0404
0.0413
0.0448
0.0461
0.0467
0.0472
0.0479
0.0469
0.0493
0.0539
0.0627
0.055
0.0548
0.0669
0.0676
0.0803
Trades:28Avg. Proﬁt:0.0042
Losers:Winners:235Avg. Loss: % Avg. Proﬁt:−0.0034
0.56
Daily PF:0.0006
% Winners:82.14% Avg. Loss:−0.47
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LESSON 4 QUIZ
37
Instructions: Label the SI buy and sell triggers on the following charts.
1.
S-200511: Soybeans CBT (Pit) Nov 2005 (Daily bars)
www.GenesisFT.com07/19/2005 = 691^0 (−36^6)
770^0
760^0
750^0
740^0
730^0
720^0
710^0
700^0
StochK (14,5)
690^0690^0
680^0
670^0
660^0100
90
80
70
60
50
40
30
20
10
0
06/09/05
06/23/05
07/08/05
07/22/05
Source: Courtesy of www.GenesisFT.com.
2.
DJ-200509: DJIA Index (Pit) Sep 2005 (Daily bars)
www.GenesisFT.com07/19/2005 = 10655 (+38)
10700
10655
10600
10550
10500
10450
10400
10350
10300
10250
10200
10150
10093.3690
80
70
60
50
40
30
20
10
0
StochK (14,5)
06/09/05
06/23/05
07/08/05
07/22/05
Source: Courtesy of www.GenesisFT.com.
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3.
30 DAYS TO MARKET MASTERY
O-200509: Oats CBT (Pit) Sep 2005 (Daily bars)
www.GenesisFT.com
06/30/2005 = 156^0 (−2^2)
162^0
160^0
158^0
156^0
156^0
154^0
152^0
150^0
148^0
146^0
144^0
142^0
140^0
138^0
136^0
100
90
79.68
70
60
50
40
30
20
10
0
StochK (14,5)
05/19/05
06/03/05
06/17/05
Source: Courtesy of www.GenesisFT.com.
4.
SP-200509: S&P 500 Index (Pit) Sep 2005 (Daily bars)
www.GenesisFT.com
07/19/2005 = 1231.3 (+4.8)
1235
1231.31230
1225
1220
1215
1210
1205
1200
1195
1190
100
9088.17
80
70
60
50
40
30
20
10
0
StochK (14,5)
06/23/05
07/08/05
07/22/05
Source: Courtesy of www.GenesisFT.com.
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5.
GC-055: Gold Comex (Pit) Cont 1st (Daily bars)
www.GenesisFT.com
07/19/2005 = 420.2 (-0.8)
StochK (14,5)
444442
440
438436
434432
430428
426
424422420.2
418416
414
100
90
80
70
60
50
40
30
20
06/10/05
06/24/05
07/11/05
9.9482
0
Source: Courtesy of www.GenesisFT.com.
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L E S S O N 5, D A Y 5
Follow-Through
INTRODUCTION
An integral part of all trading is follow-through. As you will recall, follow-through is the third part of the STF method discussed in the ﬁrst four lessons.For all too many traders, this is the weak link in the chain inasmuch as theyare unable to manage risk. But managing risk, in the form of a stop-loss,is only part of the your success formula. Traders must also know how tomaximize proﬁts. In the absence of a proﬁt maximizing strategy, you willnot make money. In the absence of a proﬁt maximizing strategy, your fatewill be like that of most traders—you will make your broker rich, you mayhave fun trading. but in the long run you will not make money—in fact, youwill lose money.
This lesson shows you my recommended proﬁt-maximizing strategy forseasonal trading. The same approach, with some variations, is used in theother methods you learn in this course.
RISK MANAGEMENT USING A STOP-LOSS
The most common form of risk management is the stop-loss. There is muchto be said for the use of stop-losses. They are, however, often used incor-rectly and more often misunderstood. Most traders are misguided in their
41
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30 DAYS TO MARKET MASTERY
use of stops. Here are the common fallacies associated with stops:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
If you use a small stop-loss with every trade your losses will be small.The good news about this belief is that your individual losses will besmall. The bad news is that you will lose almost every time becauseyour stop-losses are too small to allow the markets room to make theirnormal random ﬂuctuations.A stop-loss should be based on how much you can afford to risk ona trade. This is utter nonsense. The markets “don’t give a hoot” aboutwhat you can afford to risk. Stops should be a function of the systemor method you are using!A stop-loss alone is not the key to proﬁts. A stop-loss is only part of theprocedure.Many traders like to use trailing stop-losses. A trailing stop-loss is usedto protect proﬁts as a trade moves in the right direction. The problemwith trailing stops is that they are often too close to the market. Thisresults in trades being stopped out before the big proﬁts are made.
TYPES OF STOP-LOSSES
For the methods I use and teach the following types of stop-losses will beemployed:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Initial stop or money management stop (MMS). The purpose of thisstop is to limit your loss. Such stops are ideally based on the system ormethod being used as opposed to what you are able to risk. As notedearlier, what you are willing or able to risk is not a factor as far as themarkets are concerned.Break-even stop (BES). Once a trade has achieved its initial proﬁt targetor ﬂoor level (FL), the stop-loss will be raised to breakeven. Breakevenis the price at which you entered. I do not consider commissions as partof the break-even calculation.Trailing stop (TS). This is a stop that is entered once a trade has reachedits ﬂoor level.Parabolic stop (PS). This is a trailing stop based on the parabolic indi-cator. The PS is used only when a market has made a very large movein your favor.
SEASONAL TRADE STOP-LOSS ANDFOLLOW-UP
As noted in previous lessons, every trade has a stop-loss. The stop-loss is aninitial stop. In other words, the stop will change as part of the follow-through
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technique. All stops for the seasonal trades are shown at the top of thehistorical trade listing. The stops are close only. Once a seasonal trade hasachieved its average proﬁt per trade, as shown on the seasonal historicallisting, the stop is moved to a break-even stop. On the exit date for the trade,it is closed out at the end of the day using a market-on-close (MOC) order if ithas not already been stopped out at the break-even stop. Aggressive traderswill want to stay in winning trades beyond the exit date as discussed laterin this lesson.
THREE TYPES OF FOLLOW-THROUGH
I believe that traders should employ three types of follow-through on trades.How they do this depends on how aggressive or conservative they want tobe in their trading. Generally, these methods apply to all of the methods youwill learn in this course. The following sections outline the three types offollow-through, step by step, for the seasonal trades.
Trading in One Contract
Many traders can only trade one contract because they do not have muchcapital in their account. Without a doubt, the odds of success are consider-ably lower if you begin with a small amount of money. Traders who beginwith a small amount of money (i.e., $5,000 or less) tend to have what I calla “proﬁt-taking” mentality. They want to grab proﬁts as quickly as they cansince they believe that this will allow them to build up their account equity.In a perfect world, this would be the case, however, in reality this does notwork. Why? Because all too often it takes only one large loss to obliterateall of the small proﬁts that can be accumulated by using the “proﬁt taking”mentality. It is far, far better to let the proﬁts run.
Here is the strategy for one contract:
1. Assuming setup and trigger are in line, you enter the trade on the close oftrading on the entry date. If you are not certain about the trigger havingbeen hit, then wait for the close of trading that day and if the trigger hasoccurred, then enter on the opening the next day.
2. Place your stop-loss as a close-only order, good till cancelled. If theexchange does not accept a close-only order, then you will need to watchthe closing price every day to see if the stop-loss has been penetrated.
3. Make note of the average proﬁt per trade for the trade you are in. Thisnumber appears at the lower left of the historical trade listing (i.e., thedetailed report).
4. Once this target has been hit, your stop-loss moves to breakeven.
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30 DAYS TO MARKET MASTERY
5. If the trade has not been stopped out by the exit date for the trade, then
you can:
(a) Exit on the close at a proﬁt.
(b) Or hold the position and implement a trailing stop per step 6.
6. Hold the proﬁtable trade with a 75 percent trailing stop (to be explained
later in this chapter).
Trading in Units of Two Contracts
If you trade in units of two (i.e., 2, 4, 6, etc.), then you will have much moreﬂexibility. All of the procedures are the same as those for one contract withone addition. You will take proﬁt on one of your positions at the averageproﬁt per trade and then raise the stop-loss on the remaining position tobreakeven.
Trading in Units of Three Contracts
If you trade in multiples of three (i.e., 3, 6, 9, etc.), then the procedures areexactly as in steps 5a. and 5b. in Trading in One Contract and in units of twocontracts with the following additions and changes:
(cid:2)(cid:2)(cid:2)
(cid:2)(cid:2)
One third of the position is exited at the average proﬁt per trade.The stop-loss on one-third is raised to breakeven.The stop-loss on one-third is raised to a trailing stop of 75 percent (tobe explained in this section).On exit date, one third of the position is closed out if trade is proﬁtable.Remaining one third is kept with a trailing stop of 75 percent.
Figure 5.1 is a graphic representation of a trade, along with my noteson entry, exit, and follow-through from start to ﬁnish for each of the threemethods discussed so far.
Let’s begin with a seasonal setup shown in Table 5.1.As you can see, the trade above meets all ﬁve of our setup factors.Figure 5.1 shows the timing chart with my notations and explanations fortrading in units of one, two, or three.
Here is my analysis:
(cid:2)
One contract. A long was entered on the close of trading 10/27/04, thesetup entry date because SI %K has been below 25 percent and wasabove it. The long entry was on the close at 1128.80. The average proﬁtper trade was 14.906 points. The market did not achieve this target priorto exit date. Price on exit date close was 1130.80. The conservative
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SP-055: S&P 500 Index (Pit) Cost 1st (Daily bars)
www.GenesisFT.com12/09/2004 = 1190.7 (+