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FUNDED TRADER TRADE OF THE WEEK This week’s trade of the week is again in Gold. After opening lower, short term buyers moved the market back to settlement, searching for balance and looking to bring new buying into the market. A narrowing series of lower highs and higher lows alerted our trader to a potential energy build in the market. Watching for increasing volume and price action on highs revealed a lack of new buying. Suspecting the short term buyers and not seeing follow through, our trader began to get nervous and liquidated accumulated long inventories. At 10:11 AM CST, our trader entered a short position at $1434.90 with a stop loss just 10 ticks higher. Within a few minutes, price action began to confirm his thoughts and at 10:42 AM CST, he was able to cover his position at $1428.60 for a profit of $630. This showed great prediction of participation of the short time frame trading herd. JOHN HOAGLAND'S SCOUTING TIP OF THE WEEK As day traders, we need to constantly account for market state. Studying charts from longer term to shorter term and being aware of what traders of all time frames MIGHT be thinking can lead you to be positioned with the longer time frame traders (where you want to be) as they are the ones who really make markets move, even for your short time frame trades. Understanding how the masses of shorter time frame traders make mistakes collectively will help you avoid the short term "herd" mentality trades that get stopped out or just don't work. Remember - 90% of traders fail - do what they do and you can expect the same results. Avoid the herd!

There is a pattern that is very typical in the equity futures markets. I don't know if also holds true in other futures markets -- you will have to figure that one out for yourself. Please note the following charts for Monday, Tuesday, and Wednesday of last week. Note what is in common with all three charts of the S&P mini's: 1) They started out strong at the Open, and 2) They had a pullback at about the same time each day However, there is one other important distinction to make about these charts. After the mid-day pull-back, all three charts show the S&P mini's end strong with the close being very close to the highest price of the day. There is good reason behind this. What is going on is that brokers are ranked and given more business based on what price they buy at relative to the Close. In other words, if a broker's average price he bought throughout the day was 145500 on October 17, then it hurts his reputation and his business if the market closes below that price. So what does a broker do to prevent that from happening? He will hold on to some of buying until near the Close to make sure he can push up prices right up to the Close. That will make him look good to his clients. (I couldn't tell you which book I read all this in.....) So when you see a strong bull market at the Open, wait for the mid-day pullback to play itself out, and watch for the first sign of buying afterwards. You will generally want to buy and hold until just a few minutes before the Close. It has a high percentage of being a profitable trade. This is just one of many patterns that repeat over and over that can be exploited for a nice trade. PS. This pattern holds true in the stock market also. Many Profitable Returns, Trader Gregg Mr. Killpack has been studying the markets since 1988. He has read over 40,000 pages about trading and investing strategies, fundamental and technical analysis, and related topics. He began day trading in 2001.

We are day traders. We only trade for short time-frames that are by definition, within the trading day. So why look at daily charts? Daily charts show the big picture or in other words, the overall trend. This is important to watch because it gives us an edge to trade in the same direction as the dominant trend even if we are intra-day traders. If a trend is going to go up over several days, it will also go up intra-day. As day traders it is easy to get tunnel vision, see only what is going on minute-by-minute, and forget what the overall trend is. I use the daily charts to help me see the overall trend and then use 30-minute and 10-minute charts to locate good entry and exit points. This is what I see right now, as of Saturday October 13, 2012 in the S&P mini's. The chart below is a daily chart covering the last 2 months or so in the S&P mini’s. In that time, we have bounced off resistance twice at about 1465.00. On Friday we went about 5 handles below the support level of September 26 (the mid-point between Support on September 11 and last Friday, October 12). Although the market has been reaching new lows, these lows were not much lower on Thursday and Friday of last week. I’ll be keeping a close eye on this, as it suggests we may be reaching support levels and due for another climb back up to resistance. I will be watching for signs of reversals that may include sideways action for a few days, or I’ll be looking for more days that barely reach new lows. I will want to see the market start to go above the high of a previous candle 1-4 days prior to it, in order to get confirmation. In addition, I would like to see the market NOT go lower on bad news -- this is an excellent sign that support is firming up. What I'm talking about really, is just an analysis of the Value Areas that Hoag prepares every morning for the recruits here at TopstepTrader. Value Areas are basically previous support and resistance levels that all traders can see. They represent where the balance has shifted between buyers and sellers, making such an indication worth paying attention to. I'm going to be watching for an Open that initially trends down, then reverses 30-90 minutes after the Open and goes up the rest of the day. I'm expecting that to happen this week or next week at the latest. However, if we drop convincingly below the September 11 lows, then all bets are off and the next support level is down near 1400.00. Many Profitable Returns, Trader Gregg Mr. Killpack has been studying the markets since 1988. He has read over 40,000 pages about trading and investing strategies, fundamental and technical analysis, and related topics. He began day trading in 2001.

Knowing how to trade the Open is an important part of becoming a profitable trader, because it is here where you have the opportunity to start out correctly right out of the gate, or get impatient and do the wrong thing. I have fond memories of my P.E. class in junior high school, because of this game we played with "the ball". It wasn't any ball, it was a 5-foot high ball like a giant volleyball (and believe me, when you're in junior high school, that ball looked huge). The game was simple -- roll the ball over your opponents goal line to score. Starting out was the best part: about 20 kids on each side would start perhaps 20 feet from the ball, the teacher would blow the whistle, and then everyone would run toward the ball to start pushing. Inevitably whoever got there first had the initial advantage, and if he/she was a big kid, the initial push would send bodies flying on the other side of the ball, or sometimes the ball steam-rolled over some poor sap. However, this didn't mean that the initial move always followed through, because the kids who got the first move on the ball reached a wall of opponents that stopped them in their tracks, they would go flying over or bounce off the ball, and the other team pushed the ball in the other direction for a while. Sooner or later, one side would get organized and gain a steady advantage long enough to score. As much as I am enjoying this walk down memory lane, there is a point to this story -- this is exactly how the Open trades. I do NOT like trading the first 30 minutes of trading and rarely do it anymore; I always seem to lose money when I do. It is usually very difficult to see if any moves are a trend or just a short move that will quickly lose power. Last Friday, October 5, is a very good example of what I'm talking about. On Friday, the market had a few quick moves both up and down in the first hour of trading (just like bodies flying off the ball). At this point I'm still not clear if the market is going to trend and if so, in which direction, so if you do trade the Open, you better play a tight game -- only rarely does the market go in one direction all day from the Opening bell. After the first hour of trading, though, the market slows down and becomes easier to read -- the sizeable move up was countered and brought the market down to opening prices, then they started to go sideways. Then they started to slide slowly down from there, and that is when I'm starting to feel very confident about going short. That is waiting patiently about an hour after the Open before entering the first trade of the day. This is in-line with my general long-term trading style. This knowledge can certainly help you find other profitable strategies besides this one. Believe me, this is by no means easy to read. But with time and experience, you will start to get a better feel for what the market is doing. Many Profitable Returns, Trader Gregg Mr. Killpack has been studying the markets since 1988. He has read over 40,000 pages about trading and investing strategies, fundamental and technical analysis, and related topics. He began day trading in 2001.

There is an excellent book I recommend all of you read, called: "Four Steps to Trading Success," by John Clayburg. I don't agree with everything in the book, but he does make many several very good points worth considering. That is the mark of a good trading book -- it makes you think and gives you something to test or consider vs. your trading methods. One of the ideas that I completely agree with is (Pg. 10): It is necessary to evaluate stop placement thoroughly over a significant amount of historical data if one is to formulate a profitable long-term day trading strategy.

To be a profitable trader, you don't have to master every technique in existence. There are many different strategies and styles of trading and there are many different financial instruments you can trade. We trade futures, among which you can trade equities (the S&P mini's, the Dow mini's or the Nasdaq mini's), you can trade currencies or debt (bonds & notes), or you can trade commodities such as oil, corn, and natural gas. Each style of trading can be different and each futures product trades in its own way. The key point is that you need to find a trading strategy and a specific product that you are comfortable with and that fits your personality. I have read extensively, and several authors have said that the best traders they know only trade one or two products using one or two strategies over and over. Those traders have come to know that specific type of contract so well in every market condition, that they experience almost a Zen-like awareness of what that market is likely to do next. Author and renowned trader, Larry Williams, said he only has a few strategies (around 5 if I remember correctly) in his bag of tricks that he uses to profit from over and over. Therefore, using your time at TopstepTrader should be considered a search for a strategy and a product that works for you. It is true that there are lessons in common that all traders need to learn, but you only need one strategy with one product that works consistently for you to have a profitable career. Finding that strategy and product and then producing consistent results will take time and effort, but is ultimately what you should be working to accomplish. Most traders I've talked to took at least a year to learn it, so don’t think it will come quick and easy. Some trader-authors even say it took them several years to become consistently profitable. We are smart enough to recognize what professional traders and experts say; therefore we need to understand that it can be accomplished if we are willing to put in the work. Trading doesn’t have to be a solitary thing. We need to be open to learning, listening and communicating with others as this serves to help us better understand ourselves as well as the dynamic of the market and how to achieve long term success. This is the essence of the TopstepTrader community. Use this to your advantage and the rewards will certainly come. Many Profitable Returns, Trader Gregg Mr. Killpack has been studying the markets since 1988. He has read over 40,000 pages about trading and investing strategies, fundamental and technical analysis, and related topics. He began day trading in 2001.

Successful traders have learned that the most valuable and difficult skill to develop is the ability to wait for the market to align with their trading strategies. This ability is developed by placing ourselves in a process empowering us to gain a more complete understanding for the work that needs to be done, why we are doing it, and how best to support our efforts every day. This is the level of commitment needed to become aware of the subtleties making the difference between success and failure. The process of a successful trader ensures they only participate in the market when they are certain of market state, confident in their strategy, and committed to waiting for market alignment. In other words they know precisely what they want to do, why they want to do it, and how they are going to do it. They are waiting for the market to tell them when they can do it. Deep connections to their trading activities at functional, psychological, and practical levels make this possible. The first essential step required to build your process is to identify your core beliefs and detail why they best support your development and performance. Trade well, Ray Burchett

You should know that the big money moves markets, not us small traders. You always need to remember that behind this amorphous monster out there we refer to as "the market", there are people who control a lot of money, and they have strong emotions about this money, just like we do. The only difference is, they feel stronger about it because their careers, in addition to their paychecks, are on the line. As of the close on Monday, September 17, this is daily chart for the S&P mini's: So, now that the markets have had some major upward movement over the last two weeks, it is good to ask yourself: 1. If I was long from a month ago and had a sizeable profit now, do I think the market has more room to go up and so I hold on for greater profits? Or do I think this is the end of the line and, since I don't think it will go up more, it's time to sell? 2. If I just bought into the rally a few days ago, do I want to try for more profits or get out now? 3. If I just entered a short position, how do I feel about my position at the current market state? 4. If I'm flat, do I want to take a long or short position here? Last Thursday, the market had another big rally up based on the Fed QE3 stimulus announcement. It is very telling how the market has reacted since then. The next day, Friday, the market extended its rally only to be pushed down before the end of the day. And Monday, the day I wrote this, the market had a small pullback, showing some profit-taking. All this tells me the bulls aren't sure yet if they want to push prices higher after such an extended rally; most contract holders aren't ready to say the rally is over and are still holding on to their positions; shorts aren't ready to bet on the downside yet. We may be in a relatively tight range for a while until the market collectively decides if the news was worth the run up, or if it was a knee-jerk reaction and will come sliding down again as more sellers take profits. Either way, I'm going to watch very carefully where trend and volume gains momentum to move the market from here. Many Profitable Returns, Trader Gregg Mr. Killpack has been studying the markets since 1988. He has read over 40,000 pages about trading and investing strategies, fundamental and technical analysis, and related topics. He began day trading in 2001. TopstepTrader http://www.topsteptrader.com seeks to find and develop undiscovered trading talent from around the world. While in our program, those who display a strong trading skill and aptitude will be backed as a fully-funded trader.

Last Thursday, September 6, news came out before the Open that the European Central Bank would be buying the debt of troubled Euro-zone countries -- and the equities markets sky-rocketed on the news. It is said that the market hates uncertainty, and the uncertainty coming from Europe (that could drag down the U.S. economy) went down a lot with this news. The S&P mini's went straight up nearly all day on one of the biggest single-day moves of the year. You need to understand what's going on in this situation, besides the obvious. The first thing you need to know is that big players move the market, not small players (like us). When I buy 2-4 contracts of the S&P mini's, that doesn't move the market. But when Goldman Sachs buys 500 or 1000 contracts, not only will that move the market, but it gives a big signal which direction they think the market is headed. And when lots of big players are all on one side of the market, you get a day like last Thursday. When the market reacts like this to news, it's because the big players know the news will have a big effect, and that makes current prices suddenly very out-of-line with reality. So on Thursday they loaded up, and loaded up big. The thing I want you to learn is this: even after such a strong move up, the market is probably still not in line with reality and will usually keep going up. The way the market reacted on Friday is confirmation: the market moved sideways all day then went up in the last few minutes before the Close. Someone out there thinks the S&P mini's still has room to go up. This happens all the time in the stock market when a company announces much better-than-expected or much worse-than-expected earnings -- on the news a stock will have a big move up or down, respectively. For example, on August 15, 2012, NetApp announced better-than-expected earnings and the stock has gone up about $5/share (more than 15%) in the past 3 weeks -- see chart below. Notice the accompanying volume spike of about 3 times normal volume as the big players loaded up on the stock. In addition to the news from Europe, we may also get QE3 stimulus from the Federal Reserve. They say that the Fed chairman is politically independent, but I don't believe that for a second. Any sitting President of the United States will put any kind of pressure he can on the Fed Chairman to increase stimulus, which will help him get re-elected. You think that's going on in a tight election year like we have this year? You can bet the house on it. Put these things together and it shows the equities markets can still go higher from here. Many Profitable Returns, Trader Gregg Mr. Killpack has been studying the markets since 1988. He has read over 40,000 pages about trading and investing strategies, fundamental and technical analysis, and related topics. He began day trading in 2001. TopstepTrader http://www.topsteptrader.com seeks to find and develop undiscovered trading talent from around the world. While in our program, those who display a strong trading skill and aptitude will be backed as a fully-funded trader.

Although it is not labeled as such, the chart below is a 10-minute chart of the S&P mini’s for Wednesday, September 5, 2012. Late in the day the market had a sell-off over a 20- to 30-minute period. Then, at the point marked “1.”, we see a black inside candle (an inside candle is one where the entire range of the candle is inside the range of the previous candle). Then we see higher lows and higher highs as the market carefully tests the reversal up, briefly dips back into the range, then climbs consistently up again. Professional traders know not to arbitrarily jump in front of a trending market – that’s a great way to get slaughtered. The reason is simple: you never know how far the market will move before it reverses. It’s a lot like jumping on the train tracks and hoping the train stops before you get run over. Wait until the market shows it has stopped, then enter your position. The correct way to play most reversals is to let the market show you the move is over. How? By watching the move stop, and then go sideways for a time before moving up again. That’s what the big players do – they have to (they are risking a lot more than we are). The right place to enter a buy is the third candle after the candle marked “1”. The first two candles following the candle marked “1” show a possible end to the downward trend – meaning selling strength is over for the time being. But as the market climbs above the 140200 area where momentum has shifted, we get a new uptrend, by definition: higher highs and higher lows. And as confirmation, we have already seen an entry signal in our stochastics indicator. Also, the low was established and has not been broken for 20-30 minutes. By buying at this point, you could risk 150-200 (6-8 ticks) to make 200-400 (8-16 ticks), not the best risk-to-reward ratio, but not bad for a trade with good odds for success. Many Profitable Returns, Trader Gregg Mr. Killpack has been studying the markets since 1988. He has read over 40,000 pages about trading and investing strategies, fundamental and technical analysis, and related topics. He began day trading in 2001. TopstepTrader http://www.topsteptrader.com seeks to find and develop undiscovered trading talent from around the world. While in our program, those who display a strong trading skill and aptitude will be backed as a fully-funded trader.

What I am sharing is my interpretation of Open Interest in futures. What is “Open Interest” in futures? For every single futures contract of open interest there is a buyer who is “long” and a seller who is “short”. There are never more longs than shorts and vice versa. At the end of the day each contract that has not been closed out between the “long” and the “short” equals one digit of “open interest”. If open interest is increasing it means that there is an increase of both buyers and sellers that are building a position or putting one on. This has nothing to do with volume increasing. Volume can decrease on a trading day and open interest can increase. Likewise, volume can increase on a trading day while open interest can decrease for that day. A single digit of “volume” is a transaction between a buyer and a seller but not necessarily between a long and a short. Now how does that make sense? There are two types of buyers, those who are buying to initiate a “long” position, and those who previously sold “short”, and are now buying to close out a position. If you are the buyer of a contract and you are going “long”, what affect will that have on open interest? It all depends on whether or not the seller who is selling it to you is liquidating an existing “long” position or if they are initiating a “short” position? Next… If you are looking to buy because you are closing out an existing “short” position, what effect will that have on open interest? Again it would depend on whether or not the seller who is selling the contract to you, is closing out an existing “long” position or if they are initiating a “short” position. The two types of sellers are those who want to sell and initiate a “short” position, and those who were previously “long” and are selling to close out their position. This is why volume or transactions don’t have to be between a “short” and a “long”, just a buyer and a seller. The topic of open interest and volume along with their implications can be as confusing as it gets in this business.If you are confused or having difficulty understanding this so far I would suggest coming back again and re-reading before moving on. Let’s look again at the scenario where you are buying to initiate a “long” position. If the seller who sells you the contract was already “long” and closing out their position, then open interest will stay the same. There is still someone short on the other side of that contract out there.So you have volume for this transaction but open interest does not change. In this same scenario, let’s say the seller of that contract to you was instead actually someone initiating a “short” trade, than the open interest will increase. Volume can be down from a previous day and open interest can still increase and vice versa. In summary, if the NET buyers of the total contracts traded on a given day want to initiate “long” positions and so do the NET sellers want to initiate “short” positions, we will see open interest increase. If the NET sellers of the total contracts traded are liquidating their “long” positions and the NET buyers are also closing out their “short” positions on a given day, then open interest will decrease. If “longs” are buying or selling to other “longs”, and if the “shorts” are buying or selling to other “shorts”, open interest will not change. What is also important to add to this conversation is that money is never made or lost in the open interest as a whole. This is what it means when futures are stated to be a “zero sum” game. If you make $1,000 in profits trading futures today, you can be sure there are positions that have an equal $1,000 in losses today somewhere else as well. Profits and Losses are debited and credited in equal amounts at the end of each day from those who traded or have positions on. In order for you to make $100,000 trading futures, other traders or investors will lose $100,000. One should know their competition AND know themselves before considering whether or not they can thrive or even survive in this business. Lastly, the greater the open interest the greater the speculation and/or hedging and vice versa in the futures markets. I believe this is extremely important in determining the probabilities for supply and demand within the profile of the auction market in the weekly time frame. Questions for the readers: If open interest is increasing or decreasing is that bullish or bearish? What if volume is decreasing or increasing in either scenario? Are you bullish, bearish or neutral? What if the commercial traders are going NET long or NET short in each scenario? What if price is increasing or decreasing with each one of these different scenarios? Do you know which one of these scenarios gives you the greatest “edge” with your system? Ignore the changes to open interest and you may be wrong on what the changes to price, volume, and the COT report mean. Yours truly, Scott Pluschau This piece was written by one of TopstepTrader's Funded Traders Scott Pluschau TopstepTrader http://www.topsteptrader.com seeks to find and develop undiscovered trading talent from around the world. While in our program, those who display a strong trading skill and aptitude will be backed as a fully-funded trader.

Here we are again sailing in the wind of massive end of month buying amidst a worldwide recession, less than stellar GDP estimates, earnings with declining revenues, and a severely depleted workforce. Nothing surprises me anymore. I suppose all we need is the Fed Chairman or ECB President to tell us that they will “do whatever it takes” to support the dollar and Euro respectively, and the markets will scream higher. We are so inclined to buy the rumor and sell the fact that this current formula, although may not really add up, actually makes sense. We've come to expect the unexpected. I’m a trader and I’m looking for trades. Volatility and price action create opportunities, so even if there is no rhyme or reason to the movement, this flow allows me to increase my profit potential and find good if not great trade locations. The best way to be proficient in capturing these opportunities is to know how to trade the rest of the time when the market isn’t creating such large price movements. Most of the time the markets don’t move as swiftly and definitively and the monotony can be tough to cope with. We find ourselves reaching for trades that aren’t necessarily there and displaying a clear lack of restraint in our trade execution. If your trading has been suspect, it may not mean you lack focus, but just seem to not care about losing. Going for broke and then getting mad at the market is not the answer. We know it doesn’t owe us anything and it certainly doesn’t care. We seem to believe “I’m right” and the market can’t possibly go against me. As soon as this emotion is triggered trading should be halted. You’ll tell yourself you're right no matter how wrong you are. Learn to be more satisfied with smaller profits and consistent, profitable trading will be the result. We act out of character because we’ve done well before but want more. This market, with limited resources, presents infrequent opportunities. We should only be looking for a few trades. Stay in the game and don’t force the issue. Greed is an evil you don’t want to know. Uncontrollable trading has never proved to be beneficial. If it has, it’s only been luck. We can’t rely on that. If you know how to control your trading during the tedious market days, you will know how to recognize major moves and be able to capitalize on them when they happen. Focusing on the grind will ultimately allow you to be more profitable more often. Trade well, Brian Welsh AKA Jayhawk TopstepTrader Senior Scout and Trading Coach Brian Welsh is a professional Broker and Trader on the floor of the Chicago Board of Trade. Brian also serves as TopstepTrader's Senior Scout. Brian is featured daily on the Live Squawk Radio during his "Chalk Talk with Jayhawk" sessions at 10:30am CST. Brian is also one of our professional Trading Coaches and is available for private coaching. TopstepTrader seeks to find and develop undiscovered trading talent from around the world. While in our program, those who display a strong trading skill and aptitude will be backed as a fully-funded trader.http://www.topsteptrader.com/

As you can see from the chart below, the S&P mini's had a big up day on Friday, August 3, and in the trading week since then (last week), a rising triangle has appeared. Rising triangles are generally considered bullish, because, while sellers continue selling at the same Resistance level (about 140300), buyers are buying before it goes all the way back down to Support. This shows that buyers want to buy early so as not to miss getting the contracts. You can think of this like a battlefield between Buyers and Sellers. Buyers are infantry who are gradually advancing but sellers are holding their ground at a certain area. This is not the best example of a rising triangle, because the support line is barely advancing over 5 trading days. Still, it is rising. There is something you should know. For the last ten weeks, every single trend in the S&P mini's, all 9 of them, lasted between 3-6 trading days. This past Friday, August 10, was 6 up days in a row, signaling a strong chance for a reversal. In addition, we have reached Resistance once again. I don't know if the buyers or sellers will overpower the other and take us out of this range, but it will probably happen soon. I'm not sure which direction it will be, but I want to trade in whichever direction it goes. In other words, I want the market to show me which way it is going and then enter a position in the same direction. I will keep a very close eye on this market starting Sunday night. Many Profitable Returns, Trader Gregg Mr. Killpack has been studying the markets since 1988. He has read over 40,000 pages about trading and investing strategies, fundamental and technical analysis, and related topics. He began day trading in 2001.

The great trader, Larry Williams, said: For the most part, commodity prices are like a drunken sailor, wandering down the street without any knowledge of where he is going, or where he has been....Although he swaggers, staggers, and seemingly moves in a random way, there is method to his madness. He is trying to go someplace, and we can usually find out where. (Long-Term Secrets to Short-Term Trading, Pg. 14). He's right -- the market does leave clues about where it is going. The chart below is how the S&P mini's looked on Monday, July 30, 2012. On a strong rally, the market had briefly poked above resistance. The following day, the market went largely sideways showing a lack of strength to continue the move up. That's when I forecast in the chat room two days in a row that the S&P would move back down to the black horizontal Support line as shown on the chart. There has to be a seller for every buyer, and no one wants to buy at the top, so how does the other guy sucker you into buying at these prices? By making it look like a breakout above resistance. That is exactly what happened here. The very next day, the last day shown on this chart above, barely went above the previous day's bar then pulled back and closed in the middle of the day's range. That's a sign to watch carefully what comes next: a continuation move up or reversal -- at some point it's got to be one or the other. That's where the suckers are getting reeled in to buy. The difficult part is, sometimes that is a legitimate continuation move up. When the following day fails to show enough strength to continue the move, watch for the definition of a reversal: lower highs and lower lows. That occurs on the very next bar, the first red one shown of the past 3 down days in a row (see chart below). Here's how the chart looked later in the week, as of Thursday, August 2, at 8 pm Mountain time: You can see that the market dropped pretty hard. To summarize, here are the signs of a potential reversal based on the past week of trading: 1. The market goes up to or slightly above resistance. Remember, resistance is not an exact price but a general area 2. A day that barely goes above the previous up day, showing potential loss of momentum at resistance 3. Lower highs and lower lows, by definition, signals a new down trend on the daily charts. These daily charts don't show the whole story. The chart below is very important, because it shows you the big picture about how the market moves during a reversal. I'll let you study it to see how the market moved intra-day, and how to best profit from it based on your individual strategy. If this is too small, you can see it on my web site at http://www.tradergstocks.blogspot.com Many Profitable Returns, Trader Gregg Mr. Killpack has been studying the markets since 1988. He has read over 40,000 pages about trading and investing strategies, fundamental and technical analysis, and related topics. He began day trading in 2001.

Trading is like walking through a mine field. There are only a few right ways to go, but lots of wrong ways to go; and one step in the wrong direction – kaboom! One of the most critical things to consider in your trading plan is how you handle your stop loss orders. It is important because, initially, you need to give the trade enough room to work. If your stop is too close from the start, at times you will be out of the trade with a loss that otherwise would have been profitable. Of course, the closer the initial stop is to your entry, the more likely it is to get hit. At the same time, if it is too far away, you’re giving it too much room to run against you. After the trade is profitable, how much room you give your trailing stop is another critical decision. You need to give some room for pullbacks or you will be out of a trade that keeps on going without you still in the trade. On the other hand, if the market does reverse, you want to get out as close to the end of the move as possible. The tough part about this is that the answers to these questions are different depending on your trading style (ie. Do you want to trade a few times or many times throughout the day?), what you trade, and how that market moves. Every market is different. It goes back to observing your market very, very closely until you know it extremely well. Remember, the markets are not random, although they certainly seem that way at first. Behind the markets are real people with a lot more money at stake than we do. It seems to me that over very short price distances, markets appear more random and over larger price movements more consistent and predictable. If we can take a step back from the “noise” of the market and see the big picture, doing so will help us make profitable trades. I want to share with you two experiences I’ve had at TopStep. On one occasion, I put my initial stop a little too close in the hopes of saving money if I was wrong. If I had given the initial stop one more tick of room it would have been a very profitable trade. On another occasion, using an OCO order without a trailing stop, the Dow mini’s went up nearly a full handle, coming very close to hitting my large profit target, but then coming all the way back down and stopping me out with a loss. A good rule of thumb is, after a small or moderate profit, bring your stop to break-even; as the profit grows, don’t give back more than 50%. Many Profitable Returns, Trader Gregg Mr. Killpack has been studying the markets since 1988. He has read over 40,000 pages about trading and investing strategies, fundamental and technical analysis, and related topics. He began day trading in 2001.

Observing Your Market Gregg Killpack of Topsteptrader.com Why is trading so difficult? It is because there is no trading strategy that works 100% of the time. Different strategies work better for different markets, and under different market conditions for the same market. Therefore, the first thing to consider in trading is to observe what the market is doing and respond with the proper strategy. For example, it may be appropriate to have one strategy for a trending market, and another for a choppy market. Since most traders profit in trending markets, unless you have found a good strategy for a choppy, range-bound market, a good strategy for choppy markets may be not to trade and wait until the market starts to trend again. The second thing to profitable trading is to develop confidence in your trading strategy. This is tough to do. We need to look at the strategy, determine if it appears to work well by seeing how it would have worked in the past, and then trade it on the simulator for a period of time to see if it is profitable. There are many excellent, highly profitable strategies that will have several losing trades in a row, so you can’t have a few losers in a row and conclude you have a losing strategy. You have to see the big picture and trade the same thing consistently to see if it really works or not. We have been advised by the experienced traders at Topstep to trade only 1 or 2 markets at the most. Why is that? It is because trading 2 or fewer markets helps you to become intimately familiar with how the market moves, not to mention be able to follow in real time. This is critically important to match your trading parameters (entry points, stops, and targets) to match how your market moves in order to be profitable. The parameters that are profitable for one market can very drastically for times when it is choppy vs. trending or between different markets. Here is a list of things you should know about your market in order to create profitable strategies: 1. After the Open, how much time typically passes for the initial volatile period before your market starts to trend? 2. What is the typical distance of the intra-day moves for your market? 3. What is the average pull back? 4. How far is the average daily move? 5. When your market starts to trend fast, how big are the moves and the pullbacks? (Any market that is having a larger move than normal will also typically have a larger than normal pull back / counter-trend move.) If you don’t know the answers to these questions, how can you create a strategy that best fits that markets movements? If you can’t answer these questions, it is time to start analyzing the charts. You only need to become expert at one trading strategy on a single market, and know when to use it, to become a profitable trader and have a long career. I have heard of traders who have been trading one strategy on a single stock for 40 years and made a lot of money. When you find that one winning strategy, fine tune it and then follow it religiously. Systems traders do this by programming. I think all discretionary traders who succeed do this subconsciously by remembering what works and what doesn’t. Many Profitable Returns, Trader Gregg

Catching the Trend Gregg Killpack of Topsteptrader.com Yes, we have all heard the saying, “the trend is your friend”, and for good reason: that’s where the money is. The easiest way to make money is by catching the trend in the time frame you are trading and ride it as far as you can. However, that’s easier said than done. If you think about it, the earlier you catch the trend, the more money you’re going to make and the less risk you will take. Novice traders usually haven’t developed the skill of seeing the trend until it is well-developed – and by that time, it is more likely to reverse soon. Ever felt like the market kept reversing on you soon after you entered a position? That may be what’s going on – you’re noticing the trend too late. At the other end of the spectrum are traders who are constantly trying to catch reversals too early, which is a very difficult thing to do. They jump in on the opposite direction of the trend thinking a reversal is coming without evidence on the charts to back them up. Their experience is something like jumping in front of a train repeatedly and hoping it stops in time. My experience is – most of the time it doesn’t and I get run over. The worst thing about it is that on occasion these trades are successful and make a lot of money because they catch the market just as it changes direction. However, in the long-term this is not going to be a winning strategy. There are just too many losers and too infrequent, albeit large winners. The correct way to catch a new trend is to notice when a trend that has been going on for a while is losing steam – that’s momentum. After a trend is losing energy, it shows in two ways: time and price. Most of the time a trend doesn’t sharply change directions and then run in the opposite direction (unless there’s some big news item). Instead it usually stops moving in the direction of the trend and stays there for a little while going sideways. In an uptrend, it is as if the sellers are looking at the buyers and wondering, Are you done buying? After a while, if the buyers don’t continue buying the sellers will assume the buyers are done and will take the market lower. (Buyers and sellers are constantly sizing each other up to see how strong the other is.) In terms of price, an excellent way to determine a high is to see a candle with lower highs on the two bars before and after the high. That’s an excellent low-risk place to go short, because if it hits a new high you place your stop there, but there is a lot of room to go down for a big move vs. the risk you take. This is taught in detail by the most excellent book by Larry Williams, Long-Term Secrets to Short-Term Trading. A low, of course, is the opposite – a candle with higher lows two bars before and two bars after that candle. If you can see when the trend is reversing, it will help you be more profitable by entering and exiting your trades in better spots. Many Profitable Returns, Trader Gregg