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Elite Trading Strategies Guide

The document introduces a trading guide titled 'Trade Secrets: Proven Strategies from Elite Trading Gurus,' featuring insights from industry experts on various trading strategies. It emphasizes the importance of understanding seasonal trends and chart patterns in trading, particularly in the crude oil market. The guide aims to equip traders with actionable strategies to enhance their trading skills and financial outcomes.

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0% found this document useful (0 votes)

619 views150 pages

Elite Trading Strategies Guide

Uploaded by

james3turner

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

You are on page 1/ 150

FOREWORD

Hello Traders

At Investing Target, we’re thrilled to bring you the latest installment in our
series, “Trade Secrets: Proven Strategies from Elite Trading Gurus.” This
book is a masterclass for traders who are committed to elevating their
skills and taking control of their nancial future.

Inside, you’ll nd actionable insights from the top minds in the industry.
Silas Peters breaks down the complexities of crude oil futures in “Back
Gold”, while Alexander Hayes dives deep into the psychology and tactics
of the best in “The Elite Trader’s Playbook.” John Thomas walks you
through options in a way only a seasoned hedge fund pro can, and
Matthew Buckley reveals the one stock every serious trader should own
in “Trading The Death Star.”

Now while there is no guarantee in investing, each chapter is designed to

give you a potential edge in your trades.

From Jeff Tompkins’ precision training in short selling to Lawrence G.

McMillan’s powerful strategies to turn your results around, every
contributor brings hard-earned wisdom you can apply today.

We’re proud to work with these thought leaders, and we know their
expertise will push your trading to new heights. Stay sharp, stay curious,
and keep growing your skillset.

Welcome to Investing Target.

John James
Editor in Chief
Table Of Contents

CHAPTER 1: Black Gold: A Case Study in the Fast-Moving

Crude Oil Futures Markets 2
CHAPTER 2: The Elite Trader's Playbook: Strategies,
Psychology, and Success 12

CHAPTER 3: How to Find a Great Options Trade 26

CHAPTER 4: Trading the Death Star: How to Maximize
your Investments in 2024 34

CHAPTER 5: Anatomy of a Stock Trade 36

CHAPTER 6: Zillion Short Training 41

CHAPTER 7: Long Ideas 43

CHAPTER 8: Trading the $VIX Futures Term Structure 53

CHAPTER 9: The Smart Trader’s Toolkit: Strategies for
Success in Financial Markets 63

CHAPTER 10: The Rubber Band Reversal Strategy 80

CHAPTER 11: Smart Money Trading Secrets 90
CHAPTER 12: Trend Report: Wall Street's Best Ideas for
2024 102
CHAPTER 13: Best (High Return- Low Risk) Option
Strategy - The Butter y 107
CHAPTER 14: The Power of Three: Reward-Focused
Strategies Every Successful Trader Uses (But Won’t Tell
You) 120

Chapter 15: Basics of Day Trading 134

CHAPTER 16: The Ichimoku Method 136

Chapter 17: How to Double Your Investing Account With 5
ETFs and Little Risk 146
CHAPTER 1: Black Gold: A Case Study in
the Fast-Moving Crude Oil Futures
Markets
Silas Peters | www.tradestrending.com

IMPORTANT NOTICE! No representation is being made that the use of this strategy or any system or trading methodology will generate pro ts. Past
performance is not necessarily indicative of future results. There is substantial risk of loss associated with trading securities and options on equities.
Only risk capital should be used to trade. Trading futures, options, futures, forex, and securities is not suitable for everyone. Disclaimer: Futures, Options,
Securities and Currency trading all have large potential rewards, but they also have large potential risk. You must be aware of the risks and be willing to
accept them in order to invest in these markets. Don’t trade with money you can’t afford to lose. This website is neither a solicitation nor an offer to
Buy/Sell futures, options, stocks, or currencies. No representation is being made that any account will or is likely to achieve pro ts or losses similar to
those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE
4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD,
SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE
UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED
TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO
REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
Dear Trader,

Thank you for downloading our FREE E-book. We will get right to the
heart of some very powerful, reliable, and predictable actions that occur in
the market but let me tell you two things that rule in trading:

Historically reliable seasonal patterns

AND
Historically reliable chart pattern analysis

When you combine the two together, any trader can put signi cant odds
in their favor to capture seasonal trends and project moves as dictated by
simple chart patterns. Let’s dive in…

CRUDE OIL

Crude Oil, by and large, does not behave in a seasonal nature during the
bulk of the year, but there are particular times of year that do behave very
seasonally and I will show you in real chart examples later on. The energy
market can offer excellent opportunities for seasonal traders, as the
fundamental cycles cause an ebb and ow due to the ever-changing
supply/demand used for a multitude of energy and transportation
purposes.
Crude Oil and all of the petroleum contracts follow distinct seasonal cycles
and these patterns of supply and demand usually hold true regardless of
the actual price of Crude. What causes this? While demand remains
relatively stable throughout the year, Crude really starts to pick up as we
enter the new year that tends to lead to spikes in demand for retail
gasoline. To meet the “upcoming demand,” distributors begin to stockpile
supplies as early as January. While re neries are shut down temporarily to
prepare for their supply, this can often lead to an immediate boost in
prices until their facilities are back in full operation.

Want to test drive our proprietary AI and Cycle Software? CLICK HERE!

Enough talk about fundamentals, let’s take a look at how we can take
advantage of these opportunities.

Below is a monthly chart of Crude Oil (continuous contract) dating back to

2001. Notice the “blue arrows” where I have highlighted the seasonal
turning points from December/January 2001 to December/January 2022 --
- Yes, 22 YEARS OF HISTORICAL DATA!!

You can see that some of the moves are larger than the others. For those
that may not be familiar with the price of Crude Oil and how it moves,
each contract represents 1,000 barrels (BBL). Each tick, or minimum move
is 1/100 (0.010000) US Dollars per Barrels and worth $10.00 per contract. A
full point movement is 1 (1.00) US Dollars per Barrels and worth $1,000.00
per contract.

PORTANT NOTICE! No representation is being made that the use of this strategy or any system or trading methodology will generate pro ts. Past
performance is not necessarily indicative of future results. There is substantial risk of loss associated with trading securities and options on equities.
Only risk capital should be used to trade. Trading futures, options, futures, forex, and securities is not suitable for everyone. Disclaimer: Futures, Options,
Securities and Currency trading all have large potential rewards, but they also have large potential risk. You must be aware of the risks and be willing to
accept them in order to invest in these markets. Don’t trade with money you can’t afford to lose. This website is neither a solicitation nor an offer to
Buy/Sell futures, options, stocks, or currencies. No representation is being made that any account will or is likely to achieve pro ts or losses similar to
those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE
4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD,
SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE
UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED
TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO
REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
Below, you can see these seasonal “price averages”:

YELLOW = 10 year price average

RED = 20 year price average

BLUE = 40 year price average

Here is a chart example from December 2008 / January 2009 :

A very easy and identi able bottom formation began developing in early
January as the world was spiraling into nancial crisis, and CRUDE was
spared no exception. The fallout in the global equity markets sent Crude
Oil from an all-time high of $147.00/barrel to $32 and change in less than 6
months time. While panic ensued, patient traders were on the sidelines
waiting for technical setups aligned appropriately with historical seasonal
basis probability. There is no need to guess direction….the patient trader
will be rewarded handsomely.

We have also found that when you combine Commitment of Traders

(COT) data with seasonal and technical analysis, your odds of achieving
success can be even greater.

In this example below, we can see ‘Non-Commercials’ have been resting

at extreme short positions. Non-Commercials are often referred to as the
‘Large Speculators’ or the ‘Smart Money.’ When we see that they are
coming off of extreme short positioning and start going long (ie, buying
the market), we want to follow them.

We have built a suite of proprietary tools that allows us to track BOTH

historical price cycles and seasonality, as well as the ‘Smart Money’ using
Commitment of Traders data.

Want to test drive our proprietary AI and Cycle Software? CLICK HERE!

Take a look at this chart example on oil ETF US Oil Fund (USO):

_________________________________
Trade Stocks? ETF’s? Other Commodities? Currencies?

NO PROBLEM. Trades Trending covers over 35+ commodity and currency

markets and over 100+ stocks, indices and ETF’s.
There you have it folks. We could go on and on about daily news,
government petroleum reports, or where the talking heads on TV “think”
the price of oil should be heading.

Experience shows that it is most favorable to ignore the noise and simply
pay attention to the annual supply and demand seasonal cycles of the
markets…and let simple price action guide you into a position. It does not
have to be complicated.

We thoroughly hope that you have enjoyed this report and can see the
importance of adding seasonal trading as a part of your overall trade plan.
Whether you are a stock, futures or options trader, Trades Trending has a
trade idea for you.

Test drive our proprietary AI and Cycle Software! CLICK HERE!

Trade well,

Silas P.
www.tradestrending.com
Name: Silas Peters
Company: Trades Trending
Website: www.tradestrending.com
Services Offered: Trading Signals, Scanners, Market Analysis,
Charting

___________________________________________

SECURE YOUR ACCESS TO TREND INSIDER

ACCESS INCLUDES

✅ Scanner Dashboard (cloud-based)

Top 5 Picks Weekly
7-Day Playbook
Trade Entry Checklist
CHAPTER 2: The Elite Trader's Playbook:
Strategies, Psychology, and Success
Alexander Hayes | TradingTipsForYou.com

We begin this chapter by acknowledging that while traditional

fundamental and technical analyses have long been the backbone of
trading strategies, they often fall short in today's fast-paced and always-
changing markets. Fundamental analysis can be time-consuming and
may not account for sudden market shifts driven by geopolitical events or
unexpected economic data. Technical analysis, on the other hand, relies
heavily on historical patterns that may not always predict future
movements, especially in volatile or unprecedented market
conditions. Relying solely on these traditional methods can leave traders
exposed to unforeseen risks and missed opportunities.
That's why we're excited to introduce you to the "secret" strategies
employed by elite trading gurus—methods that transcend the limitations
of conventional analysis. These are not complex algorithms reserved for
Wall Street insiders, nor do they require advanced degrees or expensive
software. Instead, they are straightforward, effective techniques that you
can implement immediately to enhance your trading performance. We'll
unveil approaches that focus on market psychology, risk management,
and strategic planning—tools that are often overlooked but incredibly
powerful.

What makes these strategies stand out is their simplicity and proven
effectiveness. You don't need to be a nancial wizard to grasp them; all
you need is the willingness to learn and adapt. Whether you're a novice
trader eager to make your mark or an experienced investor looking to
re ne your approach, these insights are designed to be accessible and
impactful. By the end of this chapter, you'll be equipped with the
knowledge and con dence to navigate the markets more effectively and
achieve your trading ambitions.

Get ready to unlock the secrets that have propelled elite traders to
success. Join us on this journey together to transform the way you
approach trading.
Mastering the Mental Game

The Psychology of Winning Traders

In the high-stakes arena of trading, success is as much a mental game as

it is a strategic one. Winning traders distinguish themselves through a
mindset characterized by discipline, emotional control, and unwavering
focus. They understand that every decision they make is in uenced not
just by market conditions but also by their psychological state. Self-
awareness is paramount; recognizing one's biases and emotional triggers
can prevent impulsive actions that lead to losses. Patience allows
successful traders to wait for the right opportunities rather than forcing
trades out of fear or greed. Resilience equips them to bounce back from
setbacks, viewing losses as learning experiences rather than failures.

The concept of trading psychology goes into how emotions like fear and
greed impact decision-making. For instance, fear may cause a trader to
exit a pro table position too early, missing out on potential gains.
Conversely, greed might tempt them to hold onto a losing trade in hopes
of a turnaround, leading to even greater losses. By mastering their
psychology, traders make rational decisions based on strategy rather than
emotion, setting themselves apart from the majority who fall prey to
emotional pitfalls.
Developing a Trading Plan and Sticking to It

A well-de ned trading plan is the blueprint for consistent success in the
markets. It outlines clear entry and exit rules, risk management
parameters, and pro t targets, serving as a guide to navigate the
complexities of trading without succumbing to emotional impulses.
Here's a step-by-step guide to creating your personalized trading plan:
. De ne Your Trading Goals: Determine what you aim to achieve—be it
short-term gains, long-term growth, or income generation.
. Choose Your Trading Style: Decide whether you will be a day trader,
swing trader, or long-term investor based on your goals and time
commitment.
. Set Risk Management Rules: Establish how much capital you're
willing to risk per trade and overall. Common advice is not to risk
more than 1-2% of your trading capital on a single trade.
. Develop Entry and Exit Criteria: Use technical indicators,
fundamental analysis, or a combination of both to decide when to
enter or exit a trade.
. Establish Pro t Targets: Set realistic expectations for each trade to
help you know when to take pro ts.
. Monitor and Review: Regularly assess your trading plan's
effectiveness and make adjustments as needed.

Impulsive trading and emotional decision-making are among the biggest

threats to a trader's success. Without a solid plan, it's easy to make hasty
decisions based on market hype or panic, which can lead to signi cant
losses. By committing to your trading plan, you maintain control over your
actions and enhance your ability to achieve consistent results.
Managing Risk Like a Pro

Effective risk management is the cornerstone of long-term trading

success. Understanding and applying the risk-reward ratio helps in
preserving capital and making informed decisions. For example, a risk-
reward ratio of 1:3 means you're willing to risk $1 for the potential to earn
$3, ensuring that even if some trades are unsuccessful, pro table ones
can offset the losses.

Here are some professional risk management techniques:

Position Sizing: Determine the appropriate amount of capital to

allocate to each trade based on your total portfolio and risk tolerance.
Stop-Loss Orders: Set predetermined points at which a trade will be
automatically closed to prevent further losses. This helps in
controlling risk without constant monitoring.
Diversi cation: Spread your investments across different assets,
sectors, or markets to reduce exposure to any single risk factor.
Protecting your capital is more important than chasing high returns.
Successful traders prioritize minimizing losses over maximizing pro ts
because they understand that preserving capital provides the
opportunity to trade another day. By implementing these risk
management strategies, you not only safeguard your investments but
also create a stable foundation for sustained trading success.

Unconventional Strategies for Consistent Pro ts

Sentiment Analysis: Gauging the Market Mood

Understanding the market's emotional landscape is a powerful tool for

traders. Sentiment analysis involves assessing the overall attitude of
investors toward a particular market or asset. This can be done by
analyzing news headlines, monitoring social media trends, and reviewing
investor surveys. Platforms like Twitter, Reddit, and nancial news outlets
provide real-time insights into what traders and investors are thinking
and feeling.
Fear and greed are the two primary emotions that drive market
movements. When fear dominates, investors tend to sell off assets,
leading to declining prices. Conversely, when greed takes over, markets
may experience irrational exuberance, pushing prices higher than
fundamentals justify. By gauging these emotions, traders can anticipate
potential market reversals. For example, extreme pessimism might
indicate that a market is oversold and due for a rebound.

Tools like the Fear & Greed Index, sentiment indicators, and social media
analytics software help measure market sentiment quantitatively. By
incorporating sentiment analysis into their strategies, traders can make
more informed decisions that align with the market's emotional
undercurrents.

Seasonality and Cyclical Patterns

Financial markets often exhibit seasonality, where certain time periods

consistently show similar performance due to recurring events or
behaviors. For instance, the "January Effect" refers to the tendency for
stock prices, particularly small-cap stocks, to rise in January. In
commodities, agricultural products may experience price increases
during planting or harvest seasons due to supply and demand dynamics.

By identifying these cyclical patterns, traders can anticipate market

movements and position themselves accordingly. For example, if
historical data shows that a particular asset tends to appreciate during a
speci c month or quarter, traders can plan to enter positions ahead of this
period. Tools like seasonal charts and historical performance records assist
in spotting these trends.

Capitalizing on seasonal patterns involves combining this knowledge

with other analysis methods to con rm trading signals. It's important to
remember that while seasonality provides a statistical edge, it's not a
guarantee, so risk management remains crucial.
Exploiting Market Inef ciencies

Market inef ciencies occur when assets are not priced accurately due to
information gaps, behavioral biases, or structural market issues. Traders
can exploit these inef ciencies through strategies like arbitrage, where
they pro t from price differences of the same asset in different markets.
For example, buying a stock at a lower price on one exchange and
simultaneously selling it at a higher price on another.

Algorithmic and high-frequency trading have increased the speed at

which markets operate, sometimes creating temporary pricing anomalies.
While these technologies are often used by institutional players,
individual traders can still nd opportunities in less ef cient markets or
during periods of high volatility.
Strategies to capitalize on market inef ciencies include:

Statistical Arbitrage: Using statistical models to identify mispriced

assets based on historical correlations.
Event-Driven Trading: Exploiting price movements that occur as a
result of corporate events like mergers, acquisitions, or earnings
announcements.
Mean Reversion: Assuming that asset prices will revert to their
historical averages over time, traders can pro t from overbought or
oversold conditions.

By staying alert to these inef ciencies and employing disciplined

strategies, traders can uncover hidden opportunities that the broader
market may overlook.

Building a Winning Trading System

Backtesting and Optimization

Creating a successful trading system hinges on thorough testing and

re nement. Backtesting involves applying your trading strategy to
historical market data to assess its potential effectiveness. By simulating
trades using past data, you can evaluate how your strategy would have
performed without risking actual capital. This process helps identify
strengths and weaknesses, re ne entry and exit points, and understand
how the strategy behaves under different market conditions.
Various tools facilitate backtesting, such as MetaTrader, TradingView, and
specialized software like NinjaTrader or AmiBroker. These platforms allow
you to input your strategy parameters and run simulations across
different time frames and assets. Techniques like walk-forward
testing and Monte Carlo simulations add robustness by testing the
strategy under varying scenarios and randomizations.

Optimization takes backtesting a step further by ne-tuning your

strategy's parameters to enhance performance. This involves adjusting
variables like stop-loss levels, pro t targets, and indicator settings to
achieve the best possible results. However, it's crucial to avoid over tting,
where a strategy is too closely tailored to historical data and fails in live
markets. Balancing optimization with simplicity ensures your trading
system remains effective and adaptable.

Developing a Trading Journal and Performance Analysis

Maintaining a detailed trading journal is vital for continuous improvement.
Recording every trade allows you to track performance, analyze decisions,
and identify patterns or mistakes. A comprehensive trading journal should
include:

Date and Time: When the trade was executed.

Asset Traded: Speci c stock, currency pair, or commodity.
Position Size: Amount invested in the trade.
Entry and Exit Prices: Including stop-loss and take-pro t levels.
Trade Rationale: Reasons for entering the trade based on your
strategy.
Outcome: Pro t or loss realized.
Emotional State: Notes on emotions or mindset during the trade.
Analyzing your journal helps calculate key performance metrics like win-
rate, average pro t/loss, risk-reward ratio, and maximum drawdown.
Interpreting these metrics uncovers strengths and areas needing
improvement. For instance, a high win-rate but low average pro t might
indicate premature exits, while consistent losses in certain conditions
could suggest adjusting your strategy for those scenarios.

Continuous Learning and Adaptation

The trading landscape is ever-evolving, in uenced by market trends,

economic shifts, and technological advancements. Staying updated is
essential to remain competitive. Regularly following nancial news,
subscribing to market analysis reports, and participating in trading forums
keeps you informed about factors that could impact your strategies.

Continuous learning enhances your skills and knowledge. Reading books

by renowned traders, enrolling in advanced courses, and seeking
mentorship provide deeper insights and new techniques. Engaging with
a community of traders fosters the exchange of ideas and experiences,
contributing to personal growth.

Adapting your trading strategies to changing market conditions is crucial

for long-term success. Markets may shift from trending to ranging phases,
volatility levels can change, and new nancial instruments may emerge.
Regularly reviewing and adjusting your strategies ensures they remain
effective. Embracing new technologies like algorithmic trading, arti cial
intelligence, or machine learning can also offer a competitive edge.
Conclusion

In this chapter, we've explored the core principles and strategies that
distinguish successful traders from the rest. From mastering the mental
game to leveraging unconventional tactics and constructing a solid
trading system, these elements collectively contribute to consistent
pro tability in the markets.

The journey begins with mastering the mental game. Developing a

disciplined mindset, emotional control, and self-awareness is crucial. By
understanding the psychology of trading, you can make rational decisions
unaffected by fear or greed. A well-de ned trading plan serves as your
roadmap, guiding your actions and helping you avoid impulsive decisions.
Effective risk management protects your capital, ensuring you can
withstand market uctuations and stay in the game for the long haul.

Utilizing unconventional strategies like sentiment analysis, recognizing

seasonality and cyclical patterns, and exploiting market inef ciencies can
give you an edge. These approaches allow you to tap into opportunities
that traditional fundamental or technical analyses might overlook. They
highlight the importance of thinking outside the box and being
adaptable in a dynamic trading environment.
Building a winning trading system involves diligent backtesting and
optimization to re ne your strategies. Keeping a detailed trading journal
and analyzing your performance helps you identify strengths and areas
for improvement. Continuous learning and adaptation are vital, as
markets evolve and what works today might not work tomorrow. Staying
informed and being willing to adjust your strategies ensures long-term
success.

As you move forward on your trading journey, remember that success is

not a destination but a continuous process of growth and adaptation.
Stay disciplined, remain open to new ideas, and never underestimate the
power of a well-crafted plan combined with effective risk management.

We encourage you to take your trading journey to the next level by

visiting our website, Trading Tips For You, for more insights, tools, and
resources. Subscribe to our newsletter to receive regular updates, expert
advice, and strategies that will help you stay ahead of the markets. Your
path to becoming a successful trader starts now—keep pushing forward
and re ning your craft. Happy trading!
Name: Alexander Hayes
Company: TradingTipsForYou
Website: www.tradingtipsforyou.com
Services Offered: stock picks, investing ideas, market insights,
trading strategies, and newsletters and real-time SMS
updates for market tips.

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CHAPTER 3: How to Find a Great
Options Trade
John Thomas | The Mad Hedge Fund Trader
You’ve spent vast amounts of time, money, and effort to become an
options trading expert.

You know the difference between bids and offers, puts and calls, exercise
prices and expiration days.

And you still can’t make any money. Now What?

Where do you apply your newfound expertise? How do you maximize

your reward while minimizing your risk?

It is all very simple.

Stick to ve basic disciplines and you will suddenly nd that the number
of your new trades that are winners takes a quantum leap, and money will
start pouring into your trading account.

It’s really not all that hard to do. So here we go!

1. Know the Macro Picture

If you have a handle on whether the economy is growing or shrinking, you

have a major advantage in the options market.

In a growing economy, you only want to employ bullish strategies, like

calls, call spreads, and short volatility plays.

In a shrinking economy you want to execute bearish plays, like puts, put
spreads, and long volatility plays.

Remember, the only thing that is useful for your options trading is a view
on what the economy is going to do NEXT.

The government only publishes historical economic data, which is for the
most part useless is predicting what is going to happen in the future.
The options market is all about discounting what is going to happen next.
And how do you nd that out?

Well, you could hire your own in-house staff economist. Or you could rely
on economic research from the largest brokerage houses.

Even the Federal Reserve puts out its own forecasts for economic growth
prospects.

However, all of these sources have notoriously poor track records.

Listening to them and placing bets on their advice CAN get you into a
world of trouble.

For the best possible read on the future of the US and the global
economy, there is no better place to go than Global Trading Dispatch,
published by me, John Thomas, the Mad Hedge Fund Trader.

This is where the largest hedge funds and brokers go to nd our what
really is going to happen to the economy.

Do you want to give yourself another valuable edge?

There are over 100 different industries listed on US stock markets.

However, only about 5 or 10 are really growing decisively at any particular
time. The rest are either going nowhere, or are shrinking.

In fact, you can nd a handful of sectors that are booming, while others
are in outright recession.

If you are a major hedge fund, institution, or government, you may want
to cover all 100 of those industries. Good luck with that.

If you are a small hedge fund, or an individual working from home, you will
want to conserve your time and resources, skip most of US industry, and
only focus on a handful.

Some traders take this a step further and only concentrate on a single
high growing, volatile industry, like technology or biotech, or even a single
name, like Net ix (NFLX), Tesla (TSLA), or Amazon (AMZN).
How do you decide which industry to trade?

Brokerage houses pump out more free research than you could ever read
in a lifetime. Government reports tend to be stodgy, boring, and out of
date. Big hedge funds keep their in-house research con dential
(although some of it leaks out to me).

The Mad Hedge Fund Trader solves this problem for you by limiting its
scope to a small number of benchmark, path nder industries, like
technology, banks, energy, consumer cyclicals, biotech, and cyber security.

In this way, we gain a handle on what is happening in the economy as a

whole, while lining up ri e shots on the best options trades out there.

We want to direct you where the action is, and where we have a good
handle on future earnings prospects.

It doesn’t hurt that we live on the edge of Silicon Valley and get invited to
test out many new technologies before they are made public. My Tesla
Model S1 is a perfect example.

That encouraged me to recommend Tesla stock at $16 before it began its

historic run to $295. It was the best short squeeze eve.

2. The Micro Picture is Ideal

Once you have a handle on the economy and the best industries, it’s time
to zero in on the best company to trade in, or the “MICRO” selection.

It’s always great to nd a good target to trade in because positions in

single companies can deliver double or even triple the returns compared
to stock indexes.

That is because the market will pay a far higher implied volatility for a
single company than a large basket of companies.

Remember also that you are taking greater risk in trading individual
companies. The options market will pay you for that extra risk.

If the earnings come through as expected, everything is hunky dory. If

they don’t, the shares can drop by half in a heartbeat. Large indexes buffer
this effect, which is why they have far lower volatility.
Of course there are gobs of market research about individual companies
out there from brokers. Some of it is right, some of it is wrong, but all of it
is con icted. Recommendations are either “BUY” or “HOLD”.

Brokers are loath to issue a “SELL” recommendation for a stock because it

will eliminate any chance of that rm obtaining new issue business. Who
wants to hire a broker to sell new stock when their analyst has already
dissed the company?

And brokerage rms don’t make their bread and butter on those piddling
little discount commissions you have been paying them. They make it on
new highly lucrative new issues business. In fact, a new issue can earn as
much as $100 million from one rm. I know because I’ve done it.

I have been following about 100 companies in the leading market sectors
for nearly half a century. Some of the management of these rms have
become close friends over the decades. So, I get some really rst class
information.

When markets rotate to sectors and companies that I already know, I

have a huge advantage. Needless to say, this gives me a massive head
start when selecting individual names for options Trade Alerts.

3. The Technicals Line Up

I have never been a huge fan of technical analysis.

Most technical advice boils down to “if it’s gone up, it will go up more” or
“If it’s gone down, it will go down more.”

Over time, the recommendations are accurate 50% of the time, or about
equal with a coin toss.

However, the shorter the time frame, the more useful technical analysis
becomes.

If you analyze intraday trading, almost all very short-term movements can
be explained in technical terms. This is entirely how day traders make
their livings.

It’s a classic case of if enough people believe something, it becomes true,

no matter how dubious the underling facts may be.
So it does behoove us to pay some attention to the charts when
executing you trades.

Talk to old time investors and you will fund that they use fundamentals
for long term stock selection and technicals for short-term order
execution.

Talk to them some more and you nd the best fundamentalists sound
like technicians, while savvy technicians refer to underlying fundamentals.

Get the technicals right, and you can provide one additional reason for
your trade to work.

4. The Calendar is Favorable

There is one more means of assuring your trades turn into winners.

I am a big fan of buying straw hats in the dead of winter and umbrellas in
the sizzling heat of the summer.

There IS a method to my madness.

Have you heard of “Sell in May and go away?”

According to the Stock Trader’s Almanac, $10,000 invested at the

beginning of May and sold at the end of October every year since 1950
would be showing a loss today.

This is despite the fact that the Dow Average rocketed from $409
to $18,300 during the same time period, a gain of 44.74 times!

Amazingly, $10,000 invested on every November and sold at the end of

April would today be worth $702,000, giving you a compound annual
return of 7.10%.

It gets better.

Of the 62 years under study, the market was down in 25 of the May to
October periods, but negative in only 13 of the November to April periods.

What’s more, the market has been down only three times from
November to April in the last 20 years!
There have been just three times when the "good 6 months" have lost
more than 10% (1969, 1973 and 2008), but with the "bad six month" time
period there have been 11 losing losses of 10% or more.

So it’s clear that trading according to the calendar can have a signi cant
impact on your pro tability.

Being a long-time student of the American, and indeed, the global

economy, I have long had a theory behind the regularity of this cycle. It’s
enough to base a pagan religion around, like the once practicing Druids at
Stonehenge.

Up until the 1920’s, we had an overwhelmingly agricultural economy.

Farmers were always at maximum nancial distress in the fall, when their
outlays for seed, fertilizer, and labor were the greatest, but they had yet to
earn any income from the sale of their crops.

So they had to borrow all at once, placing a large cash call on the nancial
system as a whole. This is why we have seen so many stock market
crashes in October.

Once the system swallows this lump, it’s nothing but green lights for six
months.

After the cycle was set and was easily identi able by computer
algorithms, the trend became a self-ful lling prophecy.

Yes, it may be disturbing to learn that we ardent stock market

practitioners might in fact be the high priests of a strange set of beliefs.
But hey, some people will do anything to outperform the market.

It is important to remember that this cyclicality is not 100% accurate, and

you know the one time you bet the ranch, it won’t work.

Bene ts of the Tailwinds

So there we have it.

Adopt these ve simple disciplines, and you will nd your success rate on
trades jumps from a mere coin toss to 70%, 80%, or even 90%.
In other words, you convert your trading from an endless series of
frustrations to a reliable source of income.

If a potential trade meets only four of these ve criteria, please do it with

your money and not mine. Your chances of making money have just
declined.

And I bet a lot of you poor souls execute trades all the time that meet

NONE of these criteria. No wonder you’re losing money hand over st!

Get the tailwinds of the economy, your industrial call, your company pick,
the market technicals, and the calendar working for you, and all of a
sudden you’re a trading genius.

It only took me a half a century to pull all this together. Hopefully you can
learn a little bit faster than me.

I hope it all works for you.

Your Guide to Winning Trades,

John Thomas
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CHAPTER 4: Trading the Death Star:
How to Maximize your Investments in
2024
Matthew “Whiz” Buckley | TOPGUN Options

You’ve been lied to since the rst day you invested in the market. You
were told you “Must diversify, diversi cation is important, and it’s
dangerous to put all your eggs in one basket.” Nothing could be further
from the truth.

Matthew “Whiz” Buckley from TOPGUN Options will demonstrate how

“diversi cation is for stupid people.” If that hits you a little hard, Warren
Buffett said “Diversi cation is a protection against ignorance. It makes
little sense to those who know what they’re doing.”

In this action packed brief Whiz, a decorated former Navy ghter pilot &
Wall Street executive, shows you the one stock you must own, a stock he
calls the ‘Death Star’ because it’s taking over everything it touches
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CHAPTER 5: Anatomy of a Stock Trade
Sean Kozak | Neurostreet Trading Academy

LONG SHORT
Pro t from Buying Low & Selling Pro t from Selling High & Buying
Higher Lower
Long Bias Market

• Market is consistently bullish despite bearish activity. The market buys

the dips and rides the rally.

• Many inexperienced short sellers will experience losses in Long Bias

Markets due to them ghting the market trend.

Neutral Bias Market

• Market is consistently sideways and operates in an oscillating range. The

market buys the lows and sells the highs.

• Many inexperienced trend trades will experience losses due to

expecting trends to unfold before the market is ready

Short Bias Market

Market is consistently selling off despite bullish activity. The market

sells the rallies and rides the drops
Many inexperienced buyers will experience losses in Short Bias
Markets due to them ghting the market trend.

Shorting Stocks…AKA/Borrowing:

To short the stock means to pro t from a decline in prices (selling

high and buying low)
You must borrow shares from the broker to short the stock since you
don't own the stock in the rst place to sell. And even if you did own
the stock as an investor you would not be shorting the stock you
own, otherwise this would be closing out your positions.
When you cover your position, this is when you buy back the stock
(preferably at a lower price for a pro t) then return he shares back to
the broker.
Borrowing is for shorter term short sellers of stock.
If brokers don't have shares to borrow, you can't short the stock
Key Points On Shorting Stocks

You can’t short sell in a registered account!

You can’t short all stocks
Some brokers charge extra to borrow and short the stock.
You sometimes must reserve stocks to short and do this premarket
You can only short stock on regular trading accounts or self
directedaccounts.
IPO’s are rarely shortable since brokers won't have shares available.
Stocks under 10$ are harder to borrow. (This why we mainly trade
small caps to the long side!)
Some brokers charge a borrowing fee. This is like an extra
commission for borrowing
over and above your trade commission.

Short selling is discouraged by institutions (therefore there are so many

restrictions and loopholes to jump through as an active trade to perform
such trading activity)

Days to Cover

Brokers will give a borrowing deadline of how long they can borrow the
shares to short sell. Sometimes 7 14 days etc. at the end of this period, the
trader must return the shares by closing the position or they can liquidate
your trade and charge a late liquidation fee.

Short Squeeze

When a stock starts to rally and all traders who are short the stock
startbuying to cover their positions, or their broker covers for them
as a resultof maxing out their margins. This creates a mass buying
imbalance and can lead to stocks making large rallies.
A short squeeze is an extreme move higher fueled by short sellers
forced to cover their positions on the continued momentum.
Normally due to news, catalysts etc.
This ends up being short sellers forced to Buy to cover positions as
well as long traders buying up the rally! These make big trades for us!
When met with added buyers this is what creates parabolic moves!
The Biggest Risk Of Shorting Stock

If a short trade goes against you, it can create an unlimited loss (since you
never owned the stock you borrowed it) This causes traders to blow out
their accounts and owe the broker. Most simulators will allow short selling
all the time for practice however this is not the real world of trading a live
account (Be careful)!

Short Selling Restrictions

(SSR’s) occurs when a stock drops 10% vs the prior days Once a stock has
an SSR traders can't take a short position except when the stock is
moving up. Positions can only be taken on upticks in price. This means a
trader can only short at the asking price and they must wait for a buyer to
buy the shares they are trying to sell. During an SSR a trader cannot short
with market orders at the bid price!

Circuit Breakers (CBH) / Short Sale Restrictions (SSR/Uptick Rule)

(CBH’s) are when the regulatory authorities enable a threshold that

says once a stock has reached a certain (7%, 13%, 20%) threshold
(each stock has different thresholds due to price and volatility) the
market triggers a circuit breaker halt. halt.(this means all trading is
stopped until the volatility takes a breather and then trading
resumes after a period of time (5 mins).
SSR’s) are when a stock moves more than 10% lower. All short selling
is restricted until the market is triggered by an uptick in price due to
a limit order.
Be very careful with SSR and CBH (these are dangerous for new
traders) If you get stuck in one....be calm and be ready for when
trading resumes so you know how to manage trades!
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CHAPTER 7: Long Ideas
David Trainer | New Constructs

Key Materials Provider Trading at a Large Discount

We rst made Warrior Met Coal (HCC: $52/share) a Long Idea in June
2023 and recently reiterated our opinion in November 2023. Since our
original report, the stock has outperformed as a Long Idea, rising 72%
while the S&P 500 is up 24% over the same time. Even after
outperforming, the market still underappreciates this company’s pro t
potential and its stock remains undervalued.

HCC still offers favorable Risk/Reward based on the company’s:

position to bene t from long-term global steel demand,

investment in additional capacity to meet market demand,
industry leading pro tability,
strong cash ows, and
cheap valuation.

What’s Working

Steel Demand Rising Over the Long-Term

As a major supplier to the global steel industry, Warrior Met Coal directly
bene ts from increased demand for steel. Due to investment in
manufacturing facilities and public infrastructure, as well as a rebound in
global manufacturing activity, global steel demand is projected to rise in
the coming years.

In the short-term, the World Steel Association projects global steel

demand to grow 1.7% year-over-year in 2024 and 1.2% YoY in 2025.
Longer-term, Grand View Research projects the global steel market, on a
dollar basis, will grow at a 5.3% compound annual growth rate from 2024
to 2030. See Figure 1.

Figure 1: Global Steel Market Size: 2020 – 2030

Sources: Grand View Research

Important Disclosure Information is contained on the last page of this

chapter. The recipient of this report is directed to read these disclosures.

Investing in Capacity Expansion

Warrior Met Coal’s ongoing development of its Blue Creek Mine is a

signi cant catalyst for future growth. The company expects incremental
annualized production of 4.8 million short tons of steelmaking coal once
the longwall operation is fully online. For reference, Warrior Met Coal’s
existing mines have a capacity of 8.0 million short tons.

The company announced in its 2Q24 earnings call that they “are now able
to begin development of the initial longwall panel with the rst
continuous mining unit expected in the third quarter [of 2024]”.
Management expects to produce ~200,000 short tons of steelmaking
coal at the mine in the second half of 2024. Production will increase over
the next few years and reach full production in 2027.
Sales Volumes Continue Rising

While demand is expected to rise long-term, it is not without ups and

downs. In the 2Q24 earnings call, management noted they’re seeing
“softer steel demand across all regions”, which accounts for the quarter-
over-quarter decline in volume. However, Warrior Met Coal continues to
grow both sales and production year-over-year (YoY). In 2Q24, the
company’s metric tons of met coal sold increased 18% YoY, which
represents the eighth straight quarter of YoY growth in metric tons sold.
See Figure 2.

Figure 2: Metric Tons of Met Coal Sold: 3Q21 – 2Q24

Sources: New Constructs, LLC and company lings

Pro ts Still Near Record Highs

While pro ts are down from record 2022 levels, Warrior Met Coal
continues to generate strong Core Earnings. In the TTM ended 2Q24,
Warrior Met Coal’s Core Earnings were $418 million, which are higher than
any year except 2022 and 2023 in our model.

Warrior Met Coal has grown revenue and Core Earnings each by 7%
compounded annually from 2019 through the TTM ended 2Q24. See
Figure 3. The company’s net operating pro t after-tax (NOPAT) margin sits
at 23% and its ROIC is an impressive 26% over the TTM.
Figure 3: Warrior Met Coal Revenue and Core Earnings: 2017 – TTM ended 2Q24

Potential for Some Yield

Since 2019, Warrior Met Coal has paid $438 million (~15% of market cap) in
cumulative special and regular dividends. The company’s current regular
dividend, when annualized, provides a 0.6% yield.

The company is also authorized to repurchase over $59 million worth of

stock, though it has not repurchased shares since 2019.

While the regular dividend yield is minimal, should the company continue
issuing special dividends on top of its regular dividend, the yield could be
even higher.

Strong and Rising Free Cash Flows Continue

Warrior Met Coal has not only increased sales volume, invested in its Blue
Creek Mine, and returned capital to shareholders, but also done so while
generating positive free cash ow (FCF).

In the trailing-twelve-months (TTM) ended 2Q24, Warrior Met Coal

generated $14 million in FCF and has generated a cumulative $1.5 billion
(~60% of enterprise value) in FCF since 2017. See Figure 4.
Figure 4: Warrior Met Coal’s Free Cash Flow: 2017 – TTM ended 2Q24

Sources: New Constructs, LLC and company lings

Strengthened Capital Structure

A strong business can be wiped out by poor capital allocation or

overleveraging. Luckily for investors, Warrior Met Coal’s management has
been working to improve its balance sheet. The company has reduced
total debt from $418 million in 2020 to $171 million in the trailing-twelve-
months ended 2Q24. See Figure 5.

Reducing debt while generating strong cash ow creates a strong

balance sheet and gives Warrior Met Coal a Very Attractive Overall Credit
Rating. Warrior Met Coal earns an Attractive-or-better rating in all ve
criteria that drive our Credit Ratings. Even if economic conditions
deteriorate, the company’s strong nancial footing secures its operations
for the foreseeable future.

Figure 5: Warrior Met Coal Total Debt: 2017 – TTM ended 2Q24

Sources: New Constructs, LLC and company lings

Industry Leading Pro tability

While building out additional capacity to capture more market share,

Warrior Met Coal continues to have the highest pro tability among its
publicly-traded peers.

Warrior Met Coal maintains one of the highest net operating pro t after-
tax (NOPAT) margins and invested capital turns amongst its peers. High
margin and IC turns combined help Warrior Met Coal generate the
highest return on invested capital (ROIC), at 26%, amongst its
competitors. See Figure 6.

Competitors in this analysis include Arch Resources (ARCH), Consol

Energy (CEIX), BHP Group (BHP), and other large materials companies.

Figure 6: Warrior Met Coal’s Pro tability Vs. Peers: TTM

Sources: New Constructs, LLC and company lings

What's Not Working

Prices Squeezing Margins

Despite growing sales volumes 18% YoY in 2Q24, revenue grew just 4% YoY
in the quarter. In the rst six months of 2024, revenue is up just 1% over
the same period in 2023. The difference in magnitude between volume
and revenue growth comes from falling prices. Average net selling price
per metric ton was down 11% YoY in 2Q24 and down 10% YoY in the rst six
months of 2024.
Going forward, management notes that they’ll be patient and capitalize
on “opportunities to maximize price realizations, even if we need to
temporarily manage higher-than normal inventory levels.” Furthermore,
management noted that they will not “jump in the market just to dump
tons.”

From a supply perspective, management expects steelmaking coal

supply with be “slightly tighter” in the second half of the year. On the
demand side, management is expecting opportunity in India and
Southeast Asia. It believes the company is well-positioned to capitalize on
increasing demand in these regions in the second half of the year. For
reference, 38% of sales in 2Q24 were in the Asia region, with majority of
sales in the region going to Japan, China, and India.

The good news, despite pressure on margins, is that Warrior Met Coal’s
stock is priced as if the pricing pressure never improves, and that the
company’s pro ts are permanently cut in half. Such expectations seem
overly pessimistic, given the industry dynamics noted above. We think
this stock continues to offer investors an opportunity to get a good
business at a good price.

Shares Have 60%+ Upside at Current Price

At its current price of $52/share, Warrior Met Coal has a price-to-economic

book value (PEBV) ratio of 0.6, which means the market expects pro ts to
permanently fall 40% from current levels. Below, we use our reverse
discounted cash ow (DCF) model to quantify the cash ow expectations
for different stock price scenarios for HCC.

In the rst scenario, we quantify the expectations baked into the current
price. We assume:

NOPAT margin falls to 12% (from 23% in the TTM and 26% average
since 2017), and
revenue grows 1% compounded annually from 2024 – 2027
(compared to 6% compound annual growth since 2017).
In this scenario, Warrior Met Coal’s NOPAT would fall 17% compounded
annually through 2027 and the stock would be worth $63/share today –
nearly equal to the current price. For reference, Warrior Met Coal has
grown NOPAT by 4% compounded annually since 2019 through the TTM.

If we assume Warrior Met Coal’s:

Shares Could Go 35%+ Higher

NOPAT margin falls to 15% (still below its 5-year average of 22%) from
2024 to 2033,
revenue grows at consensus estimates in 2023 (-1%) and 2024 (-1%),
and
revenue grows 3% compounded annually from 2026 to 2033 (versus
6% compounded annually since 2017), then
HCC would be worth at least $85/share today – a 35%+ upside to the
current price. In this scenario, Warrior Met Coal’s NOPAT still falls 4%
compounded annually over the next decade.

Should Warrior Met Coal grow pro ts, even at all over the next decade, the
stock has even more upside.

Disclosure: David Trainer and Hakan Salt own HCC. David Trainer, Kyle
Guske II, and Hakan Salt receive no compensation to write about any
speci c stock, sector, style, or theme.

Questions on this report or others? Join our online community and

connect with us directly.
DISCLOSURES

New Constructs®, LLC (together with any subsidiaries and/or af liates, “New Constructs”) is an independent organization with no
management ties to the companies it covers. None of the members of New Constructs’ management team or the management
team of any New Constructs’ af liate holds a seat on the Board of Directors of any of the companies New Constructs covers. New
Constructs does not perform any investment or merchant banking functions and does not operate a trading desk.

New Constructs’ Stock Ownership Policy prevents any of its employees or managers from engaging in Insider Trading and restricts any
trading whereby an employee may exploit inside information regarding our stock research. In addition, employees and managers of
the company are bound by a code of ethics that restricts them from purchasing or selling a security that they know or should have
known was under consideration for inclusion in a New Constructs report nor may they purchase or sell a security for the rst two days
after New Constructs issues a report on that security.

DISCLAIMERS

The information and opinions presented in this report are provided to you for information purposes only and are not to be used or
considered as an offer or solicitation of an offer to buy or sell securities or other nancial instruments. New Constructs has not taken
any steps to ensure that the securities referred to in this report are suitable for any particular investor and nothing in this report
constitutes investment, legal, accounting or tax advice. This report includes general information that does not take into account your
individual circumstance, nancial situation or needs, nor does it represent a personal recommendation to you. The investments or
services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent
investment advisor if you are in doubt about any such investments or investment services.

Information and opinions presented in this report have been obtained or derived from sources believed by New Constructs to be
reliable, but New Constructs makes no representation as to their accuracy, authority, usefulness, reliability, timeliness or completeness.
New Constructs accepts no liability for loss arising from the use of the information presented in this report, and New Constructs makes
no warranty as to results that may be obtained from the information presented in this report. Past performance should not be taken
as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future
performance. Information and opinions contained in this report re ect a judgment at its original date of publication by New
Constructs and are subject to change without notice. New Constructs may have issued, and may in the future issue, other reports that
are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports re ect the different
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that such other reports are brought to the attention of any recipient of this report.

New Constructs’ reports are intended for distribution to its professional and institutional investor customers. Recipients who are not
professionals or institutional investor customers of New Constructs should seek the advice of their independent nancial advisor prior
to making any investment decision or for any necessary explanation of its contents.

This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in
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or which would be subject New Constructs to any registration or licensing requirement within such jurisdiction.

This report may provide the addresses of websites. Except to the extent to which the report refers to New Constructs own website
material, New Constructs has not reviewed the linked site and takes no responsibility for the content therein. Such address or hyperlink
(including addresses or hyperlinks to New Constructs own website material) is provided solely for your convenience and the
information and content of the linked site do not in any way form part of this report. Accessing such websites or following such
hyperlink through this report shall be at your own risk.

All material in this report is the property of, and under copyright, of New Constructs. None of the contents, nor any copy of it, may be
altered in any way, copied, or distributed or transmitted to any other party without the prior express written consent of New
Constructs. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or
service marks of New Constructs.

Copyright New Constructs, LLC 2003 through the present date. All rights reserved.
Name: David Trainer
Company: New Constructs
Website: www.newconstructs.com
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CHAPTER 8: Trading the $VIX Futures
Term Structure
By Lawrence G. McMillan

The CBOE introduced the Volatility Index ($VIX) in 1993. The calculation of
$VIX has changed a couple of times over the years, and due to the
complexity of those calculations, $VIX itself cannot be traded. However, in
2004, $VIX futures were listed, and in 2006, $VIX options were listed. $VIX
futures are the underlying instrument for all of the Volatility ETN’s and
ETF’s that exist today (VXX, for example).

There is a lot of information in the $VIX futures – primarily in their

relationship to $VIX (discounts or premiums) and in their relationship to
each other (the term structure). We use those two things to determine
the “construct” of volatility derivatives – a stock market indicator that we
track in our general Market Commentary in our newsletters. But in this
article, we’re not concerned with stock market predicting as much as we
are in trading the market.

What is The Term Structure and Why Does It Slope?

The term structure of the $VIX futures refers to the price relationship that
the futures have with one another. For example, an upward-sloping term
structure generally occurs during a bullish stock market. The nearest-
term futures would be the lowest-priced, then the second month futures
would be slightly higher-priced, and the third month higher than both,
etc.

The reason that the term structure slopes upward in bullish times has
nothing to do with the futures market attempting to predict implied
volatility. In fact, it’s just the opposite: due to the vagaries of attempting
to predict where long-term volatility is going to be, market makers will
price longest-term $VIX futures somewhere near the average of long-
term volatility. But in a bullish market, volatility is low, so the near-term
futures will be trading with a volatility that is below average.
Consider an option buyer who approaches a market maker and asks “At
what implied volatility would you sell me a 3-year option?” Since the
market maker has no idea where volatility will be in three years, he will
price it an average long-term volatility – say 25% in this case. Then the
option buyer says, “At what implied volatility would you sell me a 1-week
option?” Supposing that the stock market is bullish, and near-term
implied volatility ($VIX) is 13, the market maker will price the near-term
option with a 13 volatility. These two implied volatility points are shown in
Figure 1. Futures at those time frames would re ect the same volatilities.
By inference, points in between would line up accordingly. Two-year
options are still very dif cult to price, but in a bull market they might
trade with a slightly lower implied volatility than the 3-year option.
Similarly, a 1-month option is going to be somewhere near the current
level of $VIX, but because there is less certainty about where $VIX is going
to be in a month as compared to where it’s going to be in a week, the 1-
month option will price with a slightly higher volatility than the 1-week
option would. The result is that various implied volatilities of different
lengths will fall along the curve, as shown in Figure 2. Hence, in a bull
market, the term structure slopes upward like this.

Conversely, in a bearish stock market environment, $VIX is elevated and

near-term options trade with a higher-than-usual implied volatility. Long-
term options are still as dif cult to price as ever, so a 3-year option in a
bearish environment is still going to price with an implied volatility
re ecting the average volatility. But the near-term option will have a
much higher implied. Hence the term structure slopes downward in a
bear market (Figure 3).
So, putting this information together, we can see that the term structure
of the $VIX futures will transition from upward-sloping to downward-
sloping when stocks fall after a period of rising stock market prices.
Conversely, after a bearish period in the stock market, the term structure
will transition from a downward-sloping one to an upward sloping one.
These concepts are shown in Figure 4.
Trading the Term Structure

We can take advantage of these facts in order to trade the stock market
itself, although we would be using $VIX futures to do this, rather than
“normal” stock market instruments such as SPY, SPY options, $SPX
options, or e-mini S&P futures and options.

I do not mean that we would be trading $VIX futures outright. That is, if
we were bullish on the stock market, it might be pro table to short $VIX
futures. Conversely, if we’re bearish on stocks, if might be pro table to
buy $VIX futures. That is not what I’m referring to here, though.

What I mean is that we will trade the $VIX term structure in order to
capitalize on bullish or bearish stock market opinions. Why would we do
this? For leverage. According to the CBOE Futures Exchange (CFE) –
which is where $VIX futures trade – margin requirements, there is a
reduced margin requirement if one has a spread (long one contract, short
another contract) in the rst three months of the $VIX futures. So that
would be a spread between the rst two months, or a spread between
months one and three. In the early days of $VIX futures trading, the
margin for this spread was a mere $50! Then, after the CFE realized this
was way too speculative, the margin requirement was raised a few times
to a still-very-lenient $625. Over the years, the margin has been raised
further, to be more in line with the risk/reward characteristics of the
spread, and it currently stands at $3,311. You can always quickly check the
various $VIX margin requirements by going to the CFE web site, at the
following URL: http://cfe.cboe.com/margins/cfe-margins.

In contrast, the margin for trading the front-month $VIX futures contract
as an outright long or short is currently $8,800. So you can see that
trading the term structure requires less margin than trading the $VIX
futures outright. At today’s level, the difference is probably right in line
with the risk-reward, but in the early days, spread margins of $50, $100,
$500, or $625 (which is where they were at one time or another) for the
$VIX spread were overly low.
Example of A Bullish Trade

So, let’s see how this would work in practice. In this example, suppose the
stock market has been declining rather sharply, and you get buy signals
from your indicators. You could trade them in the traditional manner,
using SPY options, for example. But you may also want to consider
trading the term structure.

Since our assumption is that the stock market has been falling, let’s
assume $VIX has risen and is trading at 26. The following prices exist:

$VIX: 26.00

$VIX August futures: 24.35

$VIX September futures: 22.80

$SPX: 2750

The futures are trading at a discount to $VIX and the term structure (at
least for the rst two months) is sloping downwards. These are typical
characteristics of $VIX futures during a bearish trend in the stock market.

If we are getting buy signals on the stock market (perhaps from put-call
ratios, breadth oscillators, or any other trusted indicators), we would
expect the term structure to begin to atten and perhaps even reverse
to the point where the term structure would slope upwards. The way to
take advantage of this projection is as follows:

Bullish (stock market) trade: Sell the front month $VIX futures

And Buy the second month $VIX futures

In this example, then, we’d Sell August futures @ 24.35 and Buy
September futures at 22.80.

We have entered this spread at a price of 1.55 (August over September).

Futures spread markets aren’t quoted as “credits” or “debits” as option
trades are; rather, one speci es the price and which side is at the
premium.
$VIX futures terms state that a one-point move is worth $1,000. So, if the
spread were to atten out in a rallying stock market, and the two futures
traded at the same price, one would make 1.55 points, or $1,550 at $1,000
per point.

In fact, suppose that a strong stock rally takes place, and a week later
these prices exist:

$VIX: 19.00

$VIX August futures: 19.70

$VIX September futures: 19.90

$SPX: 2850

In other words, the stock market has rallied ($SPX is up 100 points), $VIX
has fallen, and the term structure has a very small upward slope. Here is
the P&L on our trade:

Position Current Price Current Pro t/Loss

Sold 1 Aug $VIX future @ 24.35 19.70 +4.65 points (+$4,650)

Bot 1 Sept $VIX future @ 22.80 19.90 –2.90 points (–$2,900)

Total: +1.75 points (+$1,750)

So the spread has made $1,750 on a margin requirement of $3,311 – a very

strong return, re ecting the leverage that exists in this trade, even using
today’s “in ated” spread margin requirements.

At this point, one might still have buy signals in place and could continue
to hold the $VIX futures spread, or could take pro ts. One would normally
act in line with his indicators. Any further rally in the stock market should
cause the spread to continue to move in our favor – up to a point. The
term structure won’t get ridiculously steep, but if $SPX were to rally
strongly for another week, the spread might widen out to 1.00 or so,
increasing our pro ts. After that, it probably can’t widen much more.
So, this type of approach has a limited pro t (and limited loss), although if
the stock market suddenly crashed, the spread could move very steeply
against us. For example, in the nancial crisis of October 2008, the front
month $VIX futures traded 18 points above the second month. That
would be a loss of over $16,000 in this spread! Hence, despite the fact
that the two futures will eventually come back into line when the market
stabilizes, that does one no good if he were to be stopped out via a
margin call while the spread was in place. That’s why it’s important to use
trusted indicators that have stops, when using this highly leveraged
approach to trading buy and sell signals from your indicators.

To trade bearish stock market sell signals, one would buy the front-month
$VIX futures and sell the second month. Then he would want the term
structure to invert (slope downwards).

Other Uses of Trading The Term Structure

One can trade the $VIX term structure for other purposes – it doesn’t
have to only be a speculative position on the stock market. For example,
with the bearish version, one might trade it as a hedge against a stock
portfolio. I wouldn’t routinely use it – that is, I wouldn’t just have the
bearish position in place at all times as a hedge against a long stock
portfolio, because most of that time that would just be wasting money.
But when sell signals arise, then you could put it on as partial protection
for your stocks.

The nice thing about the $VIX term structure futures spread is that there
is no time value premium being spent for the spread itself, as compared
to other forms of hedging/protection: put purchases in $SPX or SPY, or call
purchases in $VIX. Of course, put and call purchases have limited risk, and
the term structure spread does not have de ned risk, but at least if you’re
losing money in the hedge, you should be making money with your stock
portfolio.

This approach can even be used to hedge any portfolio of options with
downside stock market risk. For example, this might be a portfolio of
naked puts or put credit spreads. This is the approach that we use to
hedge our risk – when it is called for – in the Volatility Capture
CTA strategy for our managed accounts. In the Volatility Capture CTA
strategy, we solely use futures products – no $VIX calls, for example – so
the approach of using the $VIX futures calendar spread is one that ts will
within the parameters of this strategy.
So the next time you have speculative signals on the stock market
consider using this highly leveraged approach to trade “the market.”
Furthermore, if your signals are sell signals – and you want to speculate
bearishly, or maybe you just want to hedge your stock portfolio – you can
also consider trading the term structure.
Name: Lawrence G. McMillan
Company: McMillan Analysis Corp.
Website: www.optionstrategist.com
Services Offered: Option trading newsletters, educational
products, Asset Management, Option Mentoring.

Lawrence G. McMillan is the President of McMillan Asset Management and McMillan Analysis Corporation, which he
founded in 1991. He is perhaps most well-known as the author of Options As a Strategic Investment, the best-selling
work on stock and index options strategies. The book – initially published in 1980 – is currently in its fth edition and
is a staple on the desks of many professional option traders.

His career has taken two simultaneous paths – one as a professional trader and money manager, and the other as
an educator and proponent of using option strategies.

In these capacities, he currently authors and publishes "The Option Strategist" a derivative products newsletter
covering options and futures, now in its 24th year of publication. His rm also edits and publishes three daily
newsletters, as well as option letters for Dow Jones. He has spoken on option strategies at many seminars and
colloquia, and also occasionally writes for and is quoted in nancial publications regarding option trading.

Mr. McMillan is the recipient of the prestigious Sullivan Award for 2011, awarded by the Options Industry Council in
recognition of his contributions to the Options Industry.

Although he has personally been trading listed options since their inception in 1973, his professional trading career
began as a proprietary trader at Thomson McKinnon Securities, where he was a Senior Vice President in charge of
the Equity Arbitrage Department from 1981 to 1989. In that capacity, he traded the rm's own money – primarily in
advanced option strategies and risk arbitrage. Prior to that, he had been the rm’s retail option strategist, from 1976
to 1980.

Today, as a registered investment advisor and CTA, he manages option trading accounts through his Volatility
Capture program.

Mr. McMillan has a B.S. in Mathematics from Purdue University, and a M.S. in Applied Mathematics and Computer
Science from the University of Colorado. He initially worked for Bell Telephone Laboratories in Whippany, NJ, from
1972 to 1976, as a computer programmer at the highest technical level of that rm.

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CHAPTER 9: The Smart Trader’s Toolkit:
Strategies for Success in Financial
Markets
Jody Samuels | The FX Trader’s EDGE

INTRODUCTION

Hello traders! Greetings and welcome to this “Smart Trader’s Toolkit”, your
portal to the revolutionary Wavy Tunnel PRO ELITE Tool SCANNER and
Strategies. Designed to boost your con dence in trading and investing,
especially during these turbulent times, this tool is your reliable
companion. Whether you're a novice venturing into the world of trading
or an experienced investor with a wealth of knowledge, you understand
the value of having a trusted guide to navigate the complex landscapes
of the nancial markets. Today we illustrate setups on Ninja Trader and
TradeStation.

Commencing my trading journey on Wall Street in the early 1980s has

afforded me the opportunity to witness and acclimate to a wide array of
complex trading environments. An indisputable fact is that each trading
day is distinctly unique. Nonetheless, I wholeheartedly endorse the
adoption of a rational approach that instills con dence in your ability to
make trading and investment choices, irrespective of the current market
conditions.

Within the pages of my book, "The Trader's Pendulum," I explore the idea
of traders encountering both the market's uctuations and the emotional
swings regularly. Those facing challenges in trading often discover
themselves oscillating aimlessly, lacking a clear understanding of the
pendulum's movements. In contrast, accomplished traders possess the
insight to recognize the pendulum's shifts and guide it with mindfulness.
As a result, they are able to make well-informed decisions and execute
trades more effectively.

The incapacity to withstand these uctuations is what turns trading into

an emotional and psychological rollercoaster for traders, emphasizing the
signi cance of developing the necessary skills to endure such variations.
The core of this valuable addition to "The Smart Trader's Toolkit: Strategies
for Success in Financial Markets" is rooted in our Framework, which equips
us to navigate the market's uctuations and emotional pendulum with a
sense of mindfulness. Emotions frequently act as the traders' "Achilles
Heel," highlighting the need for an objective system to mitigate their
in uence. This transformative toolkit serves as the cornerstone, offering a
comprehensive guide to effectively navigate unpredictable market
conditions. The breakdown of this Roadmap is as follows:

1. Acquire the skill to predict market direction through adept

interpretation of the "Market Map." This invaluable pro ciency enables you
to develop a sense of the market's trajectory prior to executing a trade.

2. Harness the cutting-edge ELITE Tool SCANNER in order to identify the

top setups deserving immediate attention. This powerful tool, personally
employed by myself, functions as a lter to pinpoint the most promising
Wavy Tunnel PRO setups – essentially, the low-hanging fruit.

3. Embrace a disciplined approach to trading, concentrating solely on the

most productive setups offering maximum potential. Implement well-
de ned risk management techniques and establish effective trade
management strategies to optimize your results.

By adhering to this three-step process, you can revolutionize your trading

approach, mitigating the impact of emotions and empowering yourself to
make well-informed decisions, thereby achieving better outcomes.
PRESENTING MY SYSTEM

1. ANALYSIS: THE MARKET MAP

The rst step towards achieving consistency involves gaining a profound

understanding of the market. This knowledge equips traders to anticipate
potential future scenarios and be prepared to capitalize on emerging
opportunities. In our system, we utilize the Market Map as a central tool to
provide market context and enhance the likelihood of successful
outcomes.

The Market Map encompasses the 8-wave market cycle, covering both
uptrends and downtrends. Each phase of the cycle presents optimal
setups, and it's essential to adjust your trading strategy accordingly. For
instance, trading in Wave 3 differs from trading in Wave 4, as the approach
to anticipate the movement in Wave 5 varies. The critical element lies in
comprehending the primary trend's direction and identifying the signals
that suggest its potential culmination.

In the diagram below, potential trades are marked with blue and red
arrows, signifying buying and selling opportunities, respectively. These
visual cues aid in navigating the market and seizing favorable prospects.
To provide a clearer understanding, the optimal market map depicted on
the candlestick chart below highlights three speci c trades to consider at
different stages of the cycle. These patterns are applicable across various
instruments, asset classes, and time frames.

Let's delve into the psychological aspect of trading the Market Map and
how it aligns with price action, speci cally exploring the fear-greed
scenario. When entering a trade, there is an initial sense of optimism,
expecting prices to continue their upward momentum. Amidst a buying
frenzy, the fear of missing out (FOMO) can prompt us to enter at the
market peak. Our optimism and exuberance fuel greed, leading to a
desire to "Load Up" on positions.
Nonetheless, it's crucial to acknowledge that markets don't follow a linear
path; retracements and selloffs are bound to occur. In the Market Map
illustrated below, we observe a correction unfolding in an A, B, C pattern.
Just when we should be buying, fear, panic, and discouragement take
hold, leading us to opt for selling instead. Our inherent human instincts
prompt us to buy when others are buying and sell when others are
selling, which contradicts the fundamental principle of purchasing at low
points and selling at high points. To effectively navigate the market, we
must embrace a contrarian perspective and deviate from the herd
mentality.

Through recognizing and accepting these psychological inclinations, we

can cultivate the self-discipline to withstand actions driven by fear and
capitalize on opportunities that emerge during market corrections.
Embracing a contrarian approach enables us to make decisions grounded
in reason and analysis, rather than yielding to emotional impulses.

In accordance with the famous quote by Warren Buffet, "Be fearful when
others are greedy. Be greedy when others are fearful," I will explore the art
of timing market exits when the risk of buying is at its peak and entering
the market when the risk is minimal. I will share one of my preferred End
of Trend setups that offers a high likelihood of successful trades,
underscoring the signi cance of adopting a contrarian approach and
avoiding herd mentality at market in ection points. This strategy is
applicable to a wide range of asset classes and timeframes, making it
suitable for stocks, forex, and futures markets.

In our ongoing Wavy Tunnel PRO Accelerated Training Program, we have

introduced an exciting addition known as the ELITE Tool SCANNER. This
robust tool scans the market for these valuable Market Map setups, which
I will introduce shortly. For more details on our ELITE Tool SCANNER,
please visit wavytunnelpro.com.
Now, let's proceed to Step #2, where we delve further into the topic.

2. STRATEGY: Wavy Tunnel PRO – The 4 Lenses Checklist and ELITE Tool
SCANNER

The next crucial step in my System entails the implementation of a highly

ef cient and easily understandable strategy for making trading decisions.
Once a comprehensive analysis is conducted, this strategy comes into
play, aiding in the precise identi cation of entry points, stop-loss levels,
and pro t targets. It serves as a roadmap for determining when to
execute trades and when to stay on the sidelines. By employing such a
strategy, the goal is to eliminate emotions from the equation, enabling a
more objective approach.

To achieve this, we employ the 4 Lenses Checklist. This straightforward

strategy is used to trade the TOP Setups in conjunction with the
SCANNER. Frequently, traders impulsively enter trades prematurely, only
to encounter market whipsaws. Thus, it becomes key to have multiple
con rmations aligning with each other, and this is where the checklist
proves its worth. The chart below presents the checklist for identifying
the conclusion of Wave C, representing a correction in an uptrend—one of
the TOP Setups. The same principles apply to downtrends as well.
In my 4 Lenses Checklist, I stick to a set of highly speci c criteria to
determine whether a particular setup is suitable for trading. These criteria
are crafted to remove subjectivity from the decision-making process. By
relying on these objective guidelines, I minimize the sway of emotions in
my trading. As I endeavor to enhance objectivity, the in uence of
emotions diminishes, facilitating a more disciplined and rational approach
to trading. The speci c criteria employed in the 4 Lenses Checklist ensure
a structured and systematic evaluation of each setup, empowering me to
make well-considered trading choices.

Introducing the ELITE Tool SCANNER

The BO-4 trade, which marks the end of Wave C, plays a crucial role in
paving the way for Wave 5. Our SCANNERS are currently compatible with
popular platforms such as MT4, TradeStation, MotiveWave and most
recently Ninja Trader. Additionally, our Indicator Suite can be accessed on
WealthCharts, providing traders with a wide range of options. To offer a
clearer understanding, let's examine the following chart illustration of the
BO-4 trade. When the price descends below the Tunnel represented by
the black lines, it indicates a potential trend reversal, and in this instance,
a resumption of the uptrend.

NINJA TRADER SCANNER

Now, let's explore a few BO-4 setups in the Futures markets, as

pinpointed by the Scanner below and marked in red. Pay attention to the
"Ready" and "Signal" columns. "Ready" signi es that it's time to start
monitoring the market for a potential reversal and prepare for the Signal.
This Scanner runs on the Daily, 4-Hour, 1-Hour, and 15-Minute charts. Let’s
highlight the 4-Hour YM and RTY Ready inside the red outline.
YM SEP24 4-HOUR CHART WITH BO-4 PATTERN
RTY SEP24 4-HOUR CHART WITH BO-4 PATTERN

As soon as the candle closes over the green moving average, the SIGNAL
will appear with a green arrow and pro t targets. Next, I will show the ES
and NQ, where we are in a different part of the cycle. In both, the Wave is
below the Tunnel, and we have a purple arrow. We will therefore
anticipate a BO-4 READY on the Daily Chart for both ES and NQ, as the
corrections for these indices are steeper than that of YM and RTY.
ES SEP24 4-HOUR CHART WITH BO-4 PATTERN

NQ SEP24 4-HOUR CHART WITH BO-4 PATTERN

TRADESTATION SCANNER

Let’s examine some BO-4 setups. On August 2, 2024, we ran the

SCANNER on the S&P500 stocks using the Daily time frame. When a
setup is "READY," it means that it is time to watch for trade entry. This is
where the Four Lenses Checklist for Pulling the Trigger becomes
invaluable. Although the "READY" signal is generated on the Daily time
frame, it is advisable to review the checklist on a 4-hour, or 1-hour chart. Or,
you can wait for the SIGNAL to trigger. Many of these stocks were in the
"READY" state over the last 6 days.

The SCANNER also provides crucial information such as the Entry, Stop,
PT1, PT2, and PT3, representing three different pro t levels. It’s worth
emphasizing that these pro t targets are determined using Fibonacci
retracements and are not linked to percentage movements. The three
pro t targets are situated at 38.2%, 50%, and 61.8% from the prior swing
high to the present swing low. In the displayed Scanner below, we
simplify the view by presenting only the "Ready" and the "Signal" for your
convenience.

The rst table scanned the Daily time frames, and the second table
scanned the 4-Hour time frames. Because of the signi cant selloff over
the last few days, new prospects are appearing on the Scanner. That is
why it is important to use the 4 Lenses Checklist before entering a trade.
The 4-Hour Scanner also shows trend-line breaks which are for another
discussion.

DAILY SCANNER
FOUR-HOUR SCANNER

Let’s look at some examples now. The rst example shows all 3 targets
being met.

CAT (Daily Chart - READY 33 days ago/ SIGNAL 30 days ago)

In the given example, the BO-4 READY setup is illustrated on the Daily
chart with the gray dot. CAT exhibited a "READY" signal on June 14, 2024,
and a "SIGNAL" 3 days later, when the price moved above the green
moving average indicated by the green arrow. By examining the Daily
chart, one also notices the 2 blue dots which visually map out a 123
Reversal, which is part of the 4 Lenses Checklist. Notice that the three
pro t targets were met before the market reversed. The three pro t
targets appear as 3 green hash marks on the chart, which are
automatically drawn. Pro t targets are customizable, depending on how
conservative one wants to be. The Weekly chart shows the Daily entry at
the weekly Wave with a red dot.
BA (Daily Chart - READY 2 days ago/ SIGNAL 1 day ago – short trade)

The Scanner can also be used for pro t targets on a long trade. BA is an
excellent example of this. After rallying since April 26th almost $40, the
Scanner provided the gray dot top side which suggested a market
reversal (an area to take pro ts if long).
MSFT (4-Hour Chart - READY 1 day ago/ SIGNAL not yet)

Here's an example which illustrates a BO-4 setup on the 4-Hour MSFT

chart. The READY is when the gray dot appears, and the SIGNAL is when
the Green arrow appears. The Green arrow has not appeared yet, as
READY is an early entry, or time to look at the smaller time frames for
entry.

4-HOUR CHART FOR MSFT

For day traders, running the SCANNER on the 4-hour or 1-hour charts can
generate more signals. These setups can occur on any time frame since
the patterns are fractal and repeat time and time again.
The versatility of the SCANNER extends across various asset classes and
markets, including stocks, forex, futures, and cryptocurrencies. It can also
be utilized on different time frames to cater to the preferences of day
traders, swing traders, and position traders.

While this article focuses primarily on the NEW Ninja Trader and
TradeStation SCANNERS, rest assured that forex traders will appreciate
the MT4 SCANNER, and enthusiasts of Elliott Wave analysis will nd great
value in the MotiveWave SCANNER. Once you grasp the high probability
setups based on the Market Map, the SCANNER will become more
intuitive in terms of the trade opportunities it presents.

3. TRADE MANAGEMENT: OPTIMAL RISK/REWARD FOR ACHIEVING

CONSISTENT PROFITS

The third crucial step in my System is Trade Management. This entails

implementing optimal Risk and Money Management strategies,
combined with a comprehensive Trade Management methodology, to
maximize pro ts. This step can prove to be the differentiating factor
between achieving pro tability or not. For instance, by exclusively trading
setups that adhere to a pre-de ned minimum risk/reward ratio (e.g., 1.5:1),
you can re ne your analysis and signi cantly enhance your performance
statistics.

Trade management plays a vital role because, with a well-de ned plan for
identifying pro t targets and employing multiple positions, you can
capture pro ts incrementally as the trade progresses in your favor. As a
result, you can maintain a portion of the position for a longer duration
than usual. Consequently, having a structured approach to managing
trades enables you to attain success even with a smaller win/loss ratio.

CONCLUSION

The approach presented in this comprehensive Toolkit revolves around a

three-step framework: Analysis, Strategy and Scanner, and Trade
Management. By following these steps, traders can navigate any market,
instrument, or time frame with mindfulness and con dence. This
systematic approach lays the groundwork for proactive trading in
uncertain times. Let's summarize the three steps:
1. Analysis: Begin by reading the Market Map, which provides valuable
insights into market trends and cycles. This analysis sets the stage for
informed trading decisions.

2. Strategy and Scanner: Utilize the powerful ELITE Tool SCANNER to

identify potential trade setups. This tool streamlines and speeds up
nding solid trade opportunities. Further re ne your entry by employing
the 4 Lenses Checklist, ensuring precision timing in your trading
decisions.

3. Trade Management: Emphasize well-de ned risk and trade

management techniques to limit risk. Implement optimal Risk and
Money Management strategies and employ a structured approach to
managing trades, allowing you to capture pro ts along the way.

To enhance your trading skills, consider exploring our Wavy Tunnel PRO
Accelerated Training Program, which includes our ELITE Scanner Tools and
Indicator Suite designed to scan for Market Map setups. You can access
our program at wavytunnelpro.com. We hope you have found this
framework valuable and wish you the best of luck in your trading
endeavors!

To your trading success!

Jody Samuels, CEO, The FX Trader’s EDGE with The Wavy Tunnel PRO
Name: Jody Samuels
Company: The FX Trader's EDGE
Website: www.fxtradersedge.com
Services Offered: Trading Signals, Scanners, Market
Analysis, Charting

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CHAPTER 10: The Rubber Band
Reversal Strategy
Casey Stubbs | www.tradestrending.com

If you have been trading for any length of time, you have probably noticed
that the markets are moving sideways A LOT. Consolidation is a huge part
of the market’s balance and so it makes sense to learn strategies that
take advantage of the sideways/consolidating type of market conditions.

Often, ranging strategies are high probability but they do not offer a good
Risk to Reward. But today, you will learn a strategy that has both a high
win rate and the opportunity for some very good R:R.

The entire strategy can be boiled down into just a few steps. If you read
the report carefully, you should be able to begin implementing the
strategy virtually right away. Though, as always, I do recommend trying
new strategies on a demo account and getting comfortable with them
before trading them live.

With that, let’s dive into the steps.

Step 1
Identify rangebound markets on Daily or 4 Hour Charts

A ranging market is simple to identify. We are looking for clearly de ned

sideways movement that is sustained with several tops and bottoms.

One thing to remember is that a sideways market should have similar

priced tops and bottoms. They do not have to be identical for us to
consider it a range, but if the back and forth movement doesn’t have a
consistency to it, it’s very dif cult to take advantage of.

You can see in situations, demonstrated by the green example, that a

more consistent top and bottom will improve the chances that the
market reacts at the expected time so that is what we are looking for.

The red example shows you a sideways market that is not in a cleary
de ned range. So while the price is certainly going back and forth, the
market is less responsive to a clear top or bottom range that we can
utilize.

The truth is that once you’ve mastered this strategy you can still use it on
less predictable ranges, but I recommend beginning with the more
clearly de ned ranges until you see some success.

Here are a few examples of real ranging market conditions:

In the second example, I used a 20 and 50 EMA to show you how moving
averages can also signal a ranging market as they quickly begin to atten
and intertwine with one another. This is, of course, a lagging indicator but
for those of you who like indicator con rmations, moving averages are an
easy way to con rm a ranging market.

Once you nd a ranging market, you can move on to the next step.

Step 2: Identify an OverExtension within a Dead Market

In this step, we are looking for the market to extend itself within a
sideways market.

More often than not, extended steep moves will pull back to settle
toward reasonable prices, but this is even more true when the market is
in a de ned range. When it begins to accelerate and get overbought or
oversold we are very likely to see it “snap back” like a rubber band once
the it runs out of orders to ful ll.

It’s this “Snap” that we are eventually looking to take advantage of within
the Rubber Band Reversal, but rst we must de ne the stretch point of
the band.
As always, I like to use multiple time frames to get a complete, accurate
view of the market, so once we have a ranging 4 hour or Daily market
condition, we’ll zoom into a 60 minute chart to nd an overextended
point within the market.

On the 60 minute chart, we’ll add a Bollinger Band (standard settings)

and RSI (standard).

The Bollinger Bands and RSI give us a double con rmation to nd over-
extended conditions.

Bollinger Bands are a great indicator for this because they shrink down
and quickly de ne a range which, in turn, makes it obvious when the
market is stretching out of that range.

When you combine the de ned ranges with stretched Bollinger Bands,
you get a pretty good idea of when price might make a turn around. But
we also like to use the RSI to make sure that price is clearly overbought or
oversold.
The vertical lines represent when the RSI is above 65 or below 35.

*Please Note: The RSI is NOT an entry signal. It simply helps our patience
and discipline as we are forced to con rm an overbought or oversold
condition before going to the next step.

The Bollinger Band and RSI are what allows us to be certain that the
market has stretched like a Rubber Band and is ready for a potential snap
back in the opposite direction.

Now we know that the market is in position for our Rubber Band Reversal,
but we do not have the ability to enter the trade yet.

This is where a LOT of traders get tripped up. The see the RSI shoot over
65 or 70 and they are too trigger happythey just begin shorting the
market. The problem is that more often than not, when the market hits
65 or 70 it is still in a momentum phase and we simply don’t know how
long that momentum will last. We do not know how far the rubber band
is going to stretch.

So it’s very important to utilize the next steps in the strategy to make
sure you have a complete plan and are jumping into trades early.

We wait for the price to pierce the upper Bollinger band and
simultaneously, we want RSI levels to be above 65 levels. After both
conditions are met (Bollinger Band pierced and RSI overbought/oversold)
we can go to Step 3.
Step 3: Find an Entry

To nd a high probability entry, we look for a unique combination I have

used for a long time.

The combination is a 15 Minute Reversal Candlestick (pin bar, inside bar,

engul ng, etc.) at a whole number.

Whole numbers are important because of their psychological value. A

maximum number of orders are placed closer to the 50 or 100 levels, for
example, at the 1.3050 or 1.3100 levels.

In this shorter time frame, we consider anything ending in a 0 (for 4 digits)

or 00 (for digits) to be a whole number. The key is that almost every time
the market shows rejection around a whole number, we get SOME follow
through.

Often, it is only a few pips but when you combine it with the right market
conditions like we are doing in this strategy, your odds of catching a
reversal that moves 20,30, 50 or even 100 pips is very, very high.

Many times, price pushes slightly above the whole numbers and then
quickly reverses, sucking in amateur longs, who get trapped and are
forced to cover, thereby aggravating the fall.

On other occasions, the institutional orders push price right at the whole
number or even a few pips before.

Either way, if you are prepared with a plan to trade around these whole
numbers, you can take advantage of these scenarios.

Once we see a 15 minute candle show rejection at a whole number, we

are ready to place our entry.
Here you can see a real trade example of the market spiking through to
the tops, piercing the band, above 65 on RSI and getting our 15 Minute
rejection candle right at 1.4340.

With our criteria met, we can go ahead and set up the trade.

Step 4: Execution, Stop Loss and Take Pro t

With a market order, we will enter as soon as the 15 Minute candle closes
(advanced traders can zoom into a 5 minute and anticipate the reversal
momentum to improve R:R)

For this particular strategy, our Stop Loss and Take Pro t are very easy.

Once the entry is made, we can place the Stop Loss a few pips above the
entry candle or previous candle (whichever has a higher high) and we can
place our Take Pro t at the midband of the Bollinger Bands.
The midpoint of the BB will change as the trade progresses but it should
remain at the price of the midpoint at the time of the entry candle. So the
full trade setup would look like this:

Here, you have an ENTRY (green line) right as the candle closes, a TARGET
(blue line) at the midpoint of the BB bands at the time of the entry candle
and a STOP LOSS (red line) a few pips above the high of the piercing
candle.

In this case, the entry candle is relatively long given the high piercing
wick so our Risk/Reward is about 1:1 (still not bad for a range trading
strategy). But as you’ll see with practice many entry candles are smaller
and the R:R can be 2:1 or even 3:1 in some cases.

Plus, once you become a Rubber Band Reversal Expert, you can zoom in
even closer to a 5 minute chart and get ahead of the momentum. Often,
once the rejection of the whole number begins to happen, price falls
quickly and waiting for the 15 Minute to close can cost you a fair amount
of pips.

So I like to get in early when I see that rejection taking place.

Either way, it is a great strategy for ranging markets and I hope you take
advantage of it!
Summary Points to Remember:

1. Look for a rangebound market on the Daily charts and 4 Hour Charts.

2. Once you have chosen your currency pair, select the 60minute time
frame and overlay,

3. Wait till the price pierces the upper Bollinger band and RSI is above 65
or below 35.

4. Zoom into the 15 Minute chart to nd our entry.

5. On the 15minute chart, we want two important conditions to be

ful lled. a. We want a reversal bar
b. We want to enter the trade close to a whole number

6. The pro t objective is at the midpoint of the Bollinger band, where we

take our pro ts.

With those few steps you can take advantage of the very common
consolidating markets we see. If you have any questions about trading
the strategy, you can email me at Jcrawford@learntotradeforpro t.com

Thanks!
Name: Casey Stubbs
Company: Trading Strategy Guides
Website: www.tradingstrategyguides.com
Services Offered: Trading Resources For Forex, Stocks, And
Cryptocurrency Traders

As I conclude this chapter on my journey through the ups and

downs of trend trading, I hope that my experiences have shed
light on the challenges and opportunities that come with this
fascinating world of nancial markets. It's been a rollercoaster
ride, lled with both triumphs and setbacks, and through it all,
I've learned invaluable lessons about discipline, risk
management, and adaptability.

Remember, no matter how well you prepare or how thoroughly

you analyze the markets, there will always be moments of
uncertainty and doubt. But these moments are not the end of
your trading journey; they are opportunities to learn, grow, and
become a better trader. The key is to adapt, continuously learn,
and stay true to your goals. The path to success may be
challenging, but with the right mindset and the right resources,
you can nd your way.

Thank you for joining me on this journey through the world of

trend trading, and I wish you the best of luck in your own trading
endeavors. May your future trades be lled with success and
prosperity. For more trading strategies and guidance, visit
tradingstrategyguides.com and continue your pursuit of trading
excellence...
CHAPTER 11: Smart Money Trading
Secrets
John Seville | Acorn Wealth Co.

In today’s economic climate investors are faced with a multitude of

different sources of information, from Facebook, stock twits, business
news, stock newsletters and everyone else’s opinion who is willing to give
it to you – which is everyone.

Unfortunately, recent statistics show that over 85% of investors generally

lose money.

Since the Global Pandemic situation this noise has now turned into a roar!
In fact, in a recent documentary I watched discussing the value of
‘experts’ it was reported “economists have studied the wrongness rate in
economic journals and have concluded it’s very close to 100%”. In
conclusion, “virtually all the studies published in economic journals are
wrong”.

Therefore, where does an investor turn to nd the TRUTH of what is going

on? More importantly how to nd good investment idea’s knowing that
the likelihood is that 85% of them will be wrong?

The most valuable method I have found to predict major market moves
and capture signi cant pro ts is by tracking the smart money, how it
moves and the key indicators signaling which way the money is owing.

Amazingly these indicators have predicted every major crash in the

market in the last 25 years, including the recent meltdown in February
2020. Incredible right? In this chapter we will discuss the ways in which
we do this, key elements and checkpoints. A suggested video workshop
discussing the concepts and patterns discussed in this E-book will be
provided at the end.

Market Structure and Dynamics

Firstly, to set the premise of the ideas set out in this article we must rst
look at the nature of how money moves through the stock market in
today’s modern age.
JP Morgan recently estimated that as much as 90% of volume in the
stock market is accounted for by buy and sell decisions made my
computerized trading.

These powerful algorithmic systems make investment and trade

decisions almost entirely based on certain patterns.

These patterns occur in the charts of a stock and follow extremely precise
pre-determined buy and sell targets based on the relative rules for the
algorithm being used. Often fundamentals won’t be factored into the
decision making at all.

Love it or hate it, we therefore feel that regardless of what opinions we

may have of the fundamentals of the market, or what we feel ‘SHOULD’
happen next, it is far more important to track what the patterns are
saying.

Once we know the pattern, we can then utilize quanti able indicators to
look at what the’ smart money’ is doing and piggy back of their invaluable
expertise and insight which would be almost impossible to get through
conventional research.

Based on this approach, we can observe how some of these techniques

predicted the market crash of 2008 long before so called ‘experts’ even
started talking about it. These methods gave the same identical signals in
the crash of 2008.

We will break down the methods into several categories.

1)The Powerful Patterns Upward Channel Break

One of the most easily identi able patterns is the upward channel. You
can see this illustrated on the S&P 500 weekly chart over 2018. While this
is an upward trending pattern the rules almost always dictate that after
three touches of the support line there is a very high probability of a
breakdown correction to occur.

So despite popular belief the upward channel is in fact a BEARISH pattern

as it predicts the next move to be a breakdown instead of further upward
moving.

As indicated in the chart to the left, it can be seen that we have indeed
touched three times on both the short term upward channel shown in
green as well as the larger upward channel showing in black. After the
third touch, in both examples , we broke through support and broke
down to the rule driven channel target.

This ‘Rule of Three’ not only applies to upward channels but also to
patterns such as ascending and descending triangles, head and
shoulders, rising and falling wedges and almost all other oscillating
patterns.

Often investors are sucked into buying support they have seen touch
multiple times feeling the more times support has been respected the
better, however, it is quite the opposite. By understanding this rule, we
can anticipate when big money is about to step in and short the stock
and avoid getting sucked into buying into perceived support at the worst
time.

Head and Shoulders

While this pattern is harder to recognize for many beginner traders, this
pattern is one of the most highly probable and pro table bearish patterns
to occur in a bull market. This pattern is one of the most powerful and
highest probability patterns to predict the top of a market or a stock’s run.

This is a pattern designed to fool investors and traders into thinking the
chart is making new highs resulting in investors being lured into buying
in right before it begins its downward decent and as smart money sells
into the rally.
Head and shoulders patterns are characterized by a stock creating a
symmetrical triangle up and down forming the left shoulder. This is
followed by a larger symmetrical triangle representing the head and then
a nal right shoulder triangle usually of equal size and shape as the rst.

When this forms, it is assumed the stock/index will then breakdown to

the amount of at least what the measurement of how large the head was.
Also note that the breakdown occurs after three touches of the support
line.

In the market meltdown of 2007-2008 the top of the market was

characterized by a series of this exact head and shoulders setup. In other
words, experts and news aside, the ‘chaotic’ breakdown of 2008 was in
fact a drop that was highly predictable and in fact where it dropped to
and where it reversed from were levels that were almost exactly what the
pattern of the head and shouldesdrs had predicted.

This illustrates how vital it is to understand the role such a powerful

pattern plays in predicting big money moves.

Understanding the Patterns of the chart is one of the most vital aspects
of trading in being able to determine where the money is moving and
also tells us the key levels at which the pattern dictates us to buy and sell
with highest probabilities.
2) The Smart Money Money Flow

There are two critical factors that we as technical analysts observe to track
where the smart money is going. The rst is an indicator called Twiggs
Money Flow and is similar to Chaikin Money ow with a few adaptations to
account for gapping and some other factors.

Developed by Collin Twiggs, it is a method of tracking if a stock has the

key factors that de ne a true uptrend.

These qualities include:

Price making higher highs and higher lows

✔ Higher amounts of money or volume trading in the stock each day
Closing higher and higher in its daily trading range
Whether the range is expanding or contracting

If all of these qualities are in play traders agree this con rms an uptrend is
truly in place and therefore the smart money is likely accumulating a
position in the stock/index the indicator is applied to.

If this is taking place the indicator will rise in value and continue to make
new highs along with the stock’s movement.

However, if we see that the levels of the market or a stock is increasing

and this indicator is in fact going the opposite way, it could quite likely
indicate that a bubble is building. This is called the distribution zone and
means the rally that the stock or index is enjoying is likely the smart
money off loading their positions to the public before a big drop takes
place. Inversely if we see that the price levels of a stock or the market are
dropping but the Twiggs Money ow is moving opposite this, in the
upwards direction, than this indicates accumulation is going on an a
possible strong reversal could be coming in the stock. So let’s apply this
indicator to the previous scenario discussed regarding the Head and
Shoulder pattern during the market crash of 2007-2008. See below a
chart of the S&P 500 with the Twiggs Money
Flow indicator charted underneath the stock. Note, that as the market
climbed higher and higher, eventually going into a sideways movement
and then the head and shoulders pattern, the Twiggs Money Flow
indicator was actually making substantially lower highs and lower lows
and diverging (moving the opposite way).

Now if we compare that to a weekly chart of the S&P 500 in the 2018
scenario, we discussed earlier will notice a strikingly similar image (above).

Of course, we do not only apply this to the market but also for also for
nding highly potentially powerful moves in stocks.

We will discuss some recent trade setups we alerted our students to

recently where the Twiggs Money Flow played a key role in being able to
predict the major move in the market.

In the example below you can see a chart of CROX where you will notice
two strong upward channels were present leading into January of 2020.
Not only do we have the pattern in place, but you will also notice the
Twiggs Money Flow going down as the stock went up!
This divergence tells us that as the stock trended upward in a bearish
upward channel smart money was selling into it and the Twiggs Money
Flow trended lower as a result.

The stock the broke down to the target of the rst upward channel and
then further sold off to the target of the larger upward channel. This of
course produced a very pro table setup one can then take advantage of
by shorting the stock or buying put options and was indeed something
we highlighted to our followers at the time this occured.

The same approach can be applied for Longs.

In the below example you can see a chart of BBOX where you will notice
a strong downtrend in place from the 21st of October 2015 onwards and
you will notice that the money ow was dropping along with it. However
as of the 17th of December all of sudden the Money Flow takes a sharp
change to the upside and continues to make higher highs and higher
lows as the stock continues to decline.
This divergence tells us that accumulation is going on and that the smart
money is starting to shift in the bullish direction. Now of course the trick is
to pick the right timing for entering this trade.

This perfect SmartMoneyTrading.com entry point occurred on the 2nd of

February. Not only did the Money ow continue to diverge, but it also
crossed above 0 making it an even stronger signal.

At the same time, we also had perfect pattern con rmation with the
stock breaking its downtrend line as well as the 9-day exponential
moving average and the 20 day simple moving averages that were
previously holding this stock down

The resulting move produced almost a 50% pro t for anyone entering the
trade.

For shorter term traders it is worth nothing that this divergence can also
occur over a shorter period. For example, below is a trade we took on
BCRX. After a massive drop the stock was going sideways yet the money
ow was going up sharply. We therefore took advantage of getting into
the trade on the 2nd of March.

If you were a stock trader and entered in at the open this would of a
resulted in a 20% intraday pro t.
Bond Traders

The second key factor we look at when determining big moves of ‘smart’
money is following the High Yield Corporate Bonds using one of the
relevant ETFs ‘HYG’. Typically speaking in a strong bullish market money
will ow into corporate high yield bonds showing con dence in Corporate
America. If you observe the chart below you will notice that HYG indeed
correlated with the S&P in 2008 perfectly (see image below).

It followed the market down in 2008 during the crash and reversed with it
from the lows of 2009. However, in the middle of 2013 while Quantitative
easing pumped more and more money into stimulating the market the
big money started to move the opposite way. This divergence was a key
factor in how we predicted the crash of 2008 on June 6 along with the
recent crash of the S&P back in July of 2015. Watching for when HYG is
moving in the opposite direction of the S&P 500 is a fantastic way of
predicting when big money moves are about to come and reversals in
either direction of the indexes.

Insider Trading (the legal kind)

It should be no surprise that insiders of a company are going to have a

much more intimate and specialist understanding of their company’s
long-term value that the average investor or even expert analysts and
rms. Looking for opportunities within stocks where there is the presence
of strong buying or selling to piggyback of their expertise and add
probability to the direction and conviction of our trade is an essential part
of our analysis. It can often be an incredible powerful indicator, if used
correctly, to predict explosive moves in stocks before they happen!
Let’s take CNST for example. On the 3rd of October 2019 it was reported
that one 10% owner and a separate director loaded up on their own stock
adding $11,999,994 and $23,999,997 to their holdings respectively.

In fact the gentleman who added the almost $24 million dollars in
increased their holdings of the company by a massive 112% in that one
transaction!

Shortly after the company announced positive news and the stock shot
up to a high of $59.49!!!

This also applies in looking for shorts! For example. Let us revisit the trade
setup on CROX from January 2020 we discussed earlier.

Not only did were we presented with a perfect technical pattern

suggesting we should short the stock or buy put’s on the stock but the
insiders were also selling. In fact it was reported that Blackstone Holdings
III L.P. which was a 10% owner of the stock at a the time sold 100% of their
holdings on the 4th of November for a whopping $243 million dollars!

This insight clearly paid off as the stock shortly afterwards sold off to a low
of $8.40 in the weeks and months to come!
Scanning For The Perfect Storm

Of course in this chapter we started off by discussing the critical

importance of understanding the pattern. Ultimately trading should
never be about guess work or going to bed stressed over positions that
feel more like unhinged gambles than educated, well managed trades.

This is the whole purpose of understanding how to correctly identify what

pattern a stock is in, what the smart money are doing and then, of course,
being able to decide whether that pattern is one of the highly probable
and pro table patterns worth trading or not.

This is where scanning becomes an extremely powerful asset in our

trading arsenal. Once we are aware of what the highest probability
patterns are we can scan speci cally for only those. We can even combine
scanning for the highest probability patterns with stocks that also have
massive insider buying or selling!

When we nd these perfect storms where all the other factors discussed
are coming together in a such as fashion, we are able to often predict
explosive moves before they happen!

By utilizing scans, it allows us to therefore specialize in only the highest

probability setups and strip away all the noise that distracts us into bad
trades. We can also then become highly effective in knowing the exact
rules of how to trade a small handful of patterns rather than trying to be
an expert at everything, which is almost impossible.
Name: John Seville
Company: Acorn Wealth Corp
Website: www.acornwealthcorp.com
Services Offered: Trading/Investing Education, Trade Ideas,
Courses, Indicators, Scanners

Smart Money Insider’s Club

For taking the time to subscribe to this E-Book, we would like to offer y ou
access to our Smart Money Insider’s Club for only $47! Break down all of
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CHAPTER 12: Trend Report: Wall Street's
Best Ideas for 2024
Serge Berger | The Steady Trader

Gold (GLD ETF)

We see it as an opportune moment to consider the time-tested value

and stability that gold offers in today's economic landscape. With ongoing
uncertainties in global markets, including in ation concerns, geopolitical
tensions, and uctuations in traditional currencies, gold has historically
proven to be a reliable store of value. As central banks continue to
implement accommodative monetary policies, the demand for gold
tends to rise, making it an attractive asset for investors seeking to
safeguard their wealth.
Energy Stocks (XLE ETF)

We see the energy sector of stocks in a secular bull market due to several
converging factors: The global push towards renewable energy sources
and the increasing focus on sustainability have spurred investments in
clean energy technologies.

Simultaneously, as emerging economies improve their standard of living,

there is a near insatiable demand for energy. This renewed demand for
both traditional and alternative energy sources positions the energy
sector for robust growth.

We see the XLE ETF having upside well into the $120s over a 2-year period.

Small Cap Stocks (IWM ETF)

It is within our models that at some point in 2024 (possibly in Q2) we see
rotation from mega capitalization stocks into small capitalization stocks
(via the Russell 2000 IWM etf).

Historically, smaller companies have shown the ability to rebound quickly

as economic conditions improve.

Smaller rms often have more room for growth, agility in adapting to
changing market dynamics, and a potential for outsized returns
compared to their larger counterparts.
Post- recession periods typically see increased consumer spending, which
can disproportionately bene t smaller companies focused on domestic
markets.

Additionally, as economic optimism returns, investors may seek higher-

risk, higher-reward opportunities, and smaller-cap stocks can offer
precisely that. While they can be more volatile, the potential for
substantial capital appreciation makes small-cap stocks an appealing
option for investors looking to capitalize on the early stages of an
economic recovery.

If rotation into small caps were to take hold, we see the IWM being able to
move well into the low $200s… i.e around $220 - $230 or higher.
The Yield Curve

One of the key charts we will be watching in Q2 2024 is the shape of the
Treasury yield curve. The re-steepening of a yield curve is where the
spread between short-term and long-term interest rates widens.

A steeper yield curve often re ects expectations of a strengthening

economy and higher in ation. While this can be positive for certain
sectors, it may increase borrowing costs for companies, leading to
reduced pro t margins. We see a steepening of the yield curve as a likely
outcome as we go deeper into 2024 due to the Fed’s tone of cutting
interest rates (at least marginally), which would bring down shorter dated
rates.

Within this context, the GLD ETF has upside toward $230 - $240 and
beyond.
Name: Serge Berger
Company: The Steady Trader
Website: www.TheSteadyTrader.com
Services Offered: Trading Signals, Scanners, Market
Analysis, Charting

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CHAPTER 13: Best (High Return- Low
Risk) Option Strategy - The Butter y
Larry Gaines | PowerCycleTrading.com

The Option Butter y provides a [low risk - high reward] trading

opportunity that can be used to trade in any market environment, but it’s
this dynamic option strategy that’s my Go-to-Trading Strategy for
Uncertain - High Volatility Markets.

Markets can go through months, and even years, of higher than usual
uncertainty. Technical analysis may be painting one picture, while the
economic or political environment is painting another. This can be both
stressful and costly. But the Butter y strategy offers a solution to this
dilemma that all traders face on a regular basis.

While there’s always some degree of uncertainty that traders and

investors must accept, there can be long frustrating periods of higher
than usual con icting signals. This increases risk for traders and investors.
Yet, waiting on the sidelines has opportunity costs. For traders who have
come to rely on regular income from trading, loss of that income can
cause serious lifestyle problems. These situations call for a strategy that
will work no matter which direction the market heads.

That’s exactly what the highly versatile Butter y strategy does. It gives
you a trading advantage in any type of market environment. This makes it
a powerful strategy that every serious trader will want to add to their
arsenal of skills. Many traders know of the advantages of the Butter y, yet
they may have avoided it because of its complexity. Initially, the setup can
seem overly complicated. This is because most traders try to master the
Butter y without truly understanding a few basic option trading
principles rst. In this presentation, I’m going to simplify the Butter y for
you. The reality is that once you grasp these basic concepts, you’ll see that
the Butter y is just marrying a couple of simple setups that you probably
already know.
Serious traders take the time to master these skills to increase their
returns while lowering their risk and the Option Butter y is one powerful
way to do this. Since many traders avoid the Option Butter y, by taking
time to master it is going to give you a powerful edge up on traders who
continue to avoid it.

Here is what you’ll learn.

I. Best Market Conditions for Butter ies

II. Bene ts of Butter ies
III. The Option Greeks You Need to Know First
IV. The Most Important Option Factor
V. The Butter y Setup

I. Best Market Conditions for Butter ies

Unlike other option strategies such as iron condors, credit spreads, or

debit spreads that only work with an identi ed objective based on
probable market direction, Butter ies can be set up and traded for a
variety of objectives.

It’s (a) ideal regardless of market direction, (b) performs well in high
volatility markets because it’s designed to keep risk low without giving up
the potential for big returns and (c) it’s a strategy that sells premium
which is [selling Volatility and Time]!

1. You Just Don’t Have Any Idea Where the Market is Headed

Non-Directional – Here’s the real beauty of the Butter y! In their simplest

form, butter ies can be delta neutral or non-directional trades. This means
they can be used successfully when you simply DO NOT KNOW the
market direction. Trying to pick the direction of stocks or the overall
market can be stressful and expensive. Delta neutral butter ies can be
set up to take the guesswork out of trading.

2. You Feel Pretty Sure the Market Is Headed Up or Down

Directional – The Directional Butter y Spread can also be used for bullish
or bearish exposure to the market while also managing risk and retaining
large potential returns.
There’s no such thing as a free lunch: Butter y spreads cannot offer
unlimited pro t potential. But they usually cost less than buying options
outright while providing a powerful positive risk reward trade set-up that
simply cannot be found with other trading strategies.

Common Capital Returns of 2-to-1 or “LOTTO” returns of 20-to-1!

Example TSLA:

3. You Don’t Want to Lose Your Shirt!

Hedging – The Directional Butter y can be used as a fast to execute

hedge on positions that are moving against you. This is exactly what the
most sophisticated companies do. They hedge, and so can
individual traders! Note: This lowers trading stress!

Constructing a butter y around a strike that is under pressure from

another core trade (such as a credit spread, or debit spread) controls risk.

This allows you to keep the original position open, buying time. Often,
additional time is all that’s needed for a trade to move back to pro t
territory. At that point you can then remove the butter y hedge and stick
with your original trade.

Butter ies provide cheap protection! Many longer-term investors and

swing traders buy puts for portfolio insurance. Long term out-of-the-
money put butter ies, however, can be a much cheaper method of
portfolio protection than pure long puts.
II. Bene ts of Butter ies:

Income - Butter ies can be used to generate income from stocks that
appear to be going nowhere in the short term. This alleviates overall
portfolio returns in at markets. Low Cost - Butter ies can be structured
and traded at a very low cost. Risk Reward - A 4-to-1 or higher Reward-to-
Risk is common. This fantastic risk reward ratio makes them well worth
the effort to learn the structure.

Low Maintenance – Butter ies are sometimes called “vacation trades” due
to their low risk and need for only very infrequent monitoring.
• Butter y trades are generally very slow moving early on in the trade.
• But get more exciting and volatile as they approach expiration and are
within the pro t tent (Zone).

III. The Option Greeks You Need to Know First

The "Greeks" provide a way to measure the sensitivity of an option's price
to quanti able factors. The Greeks are strictly theoretical. That means the
values are projected based on mathematical models and all of the best
commercial options-analysis packages will do this, and on some of the
better brokerage sites they are free.

Brief Review of the Greeks

Theta – (decay movement) measures your time decay (per day) –

increases each day as it gets nearer EXP. & at zero at EXP.
Implied Volatility – (price movement) what the marketplace is “implying”
the volatility of a stock will be in the future & its effect on where price will
be.
Delta – (price movement) measures the change per $1 change in the
underlying & a measure of price probability.
Vega – (volatility movement) measures the change per 1% change in
volatility, decreases each day & at zero at EXP.
Gamma – (price movement) is the rate of acceleration of delta based on a
$1 change in the underlying – most at risk & largest impact last week of
EXP.
IV. The Most Important Option Factor

The most important option factor for pro t generation using the Butter y
Strategy comes down to understanding the concept of TIME, and its
effect on the price of an option…

Time Value ~ is used for trading strategies that take advantage of the
accelerated Time Decay of an option into its Expiration. Butter y
Strategies are very tied to Time Value (Theta) & the impact it has on the
price of an option.

What exactly is Time Value?

Time value (TV) (extrinsic) of an option is the premium a rational investor
would pay over its current exercise value (intrinsic value), based on its
potential to increase in value before expiring. This probability is always
greater than zero, thus an option is always worth more than its current
exercise value. The change in the value of an option, based on Time Decay,
can be measured using the Greek, Theta…

Option Theta
Theta tells you how much an option’s price will diminish over time, which
is the rate of time decay of a stock’s option.

Time decay occurs because the extrinsic value, or the Time Value, of
options diminishes as expiration draws nearer.

By expiration, options have no extrinsic value and all Out of the Money
(OTM) Option expire worthless. The rate of this daily decay all the way up
to its expiration is estimated by the Options Theta Value.

Understanding Option Theta is extremely important for the application of

option strategies that seek to pro t from time decay.

Options Theta – Characteristics

Option Theta values are either positive or negative. All long stock option
positions have negative Theta values, which indicates that they lose value
as expiration draws nearer.

All short stock option positions have positive Theta values, which
indicates that the position is gaining value as expiration draws nearer.
Theta value is highest for At the Money (ATM) Options
And progressively lower for In-The Money (ITM) and Out-of-The Money
(OTM) options.

ITM and OTM options have much lower extrinsic values, giving little left to
the decay.

For Example: An option contract with Option Theta of -0.10 will lose $10
per contract every day even on weekends and market holidays.

The buyer/holder of an option contract over a 3-day long weekend with a

price of $1.40 or $140 per option contract and an option theta of -.10 will
nd the price of that option at $110 instead of $140 after the 3-day
weekend.

Theta Decay Strikes!

Option theta does not remain stagnant.

It increases as expiration draws nearer and decreases as the options go

more and more In-The-Money or Out-of-The Money.

In fact, the effects of Option Theta decay are most pronounced during the
nal 30 days to expiration where theta soars.

Take a look at the following chart to see just how predictable and
powerful this option paradigm is!
How Option Pricing Works

How to value an option

Time Value (x) Implied Volatility (x) Intrinsic Value

Note: Once you know these variables then you are ready to price an
option & know what its option premium should be.
V. The Butter y Setup

Butter y Foundation: Vertical Debit & Vertical Credit Spread

Vertical Debit Spread:

A “bull call” spread, entails buying one call and selling a higher-strike call
that will be lower in price to offset some of the premium cost & theta
decay.
A “bear put” spread entails buying one put and selling a lower strike put,
that will be lower in price to offset some of the premium cost & theta
decay.

These spreads are done for a debit

Vertical Credit Spread:

A “bear call” spread, entails selling one call and buying a higher-strike call
that will be higher in price to hedge the short call. Premium collection.
A “bull put” spread, entails selling one put and buying a lower strike put
that will be lower in price to hedge the short put. Premium collection.

These spreads are done for a credit

Vertical Bull Call Debit Spread

Vertical Bear Call Credit Spread

Selecting the Right Butter y Option Strategy

One major goal of every trader should be to select trades based on what
provides the most consistent positive return with low, de ned risk. Not
always the greatest return.

And one of the best ways to achieve this is by knowing the Option
Butter y Strategies that are available, how they work and then selecting
the one that is best suited for the market environment you are trading.
Butter y Strategies

• Long Call or Put Butter y

• Short Call or Put Butter y
• Broken Wing Call or Put Butter y
• Unbalanced-Ratio Butter y
• Broken Wing Unbalanced-Ratio Butter y
• Directional Butter y
• Iron Butter y
• Lotto Butter y
• Hedging – Defenses Using Butter ies

The Butter y Foundation = The Balanced Butter y

Long Call or Put Butter y Spread

➡ It’s a combination of a bull call debit spread, and a bear call credit
spread.
➡ It is a limited pro t, limited risk options strategy.
➡ There are 3 striking prices involved in a butter y spread and it can be
constructed using calls or puts.
➡ Called a butter y spread because you are short the body & long the
wings.
➡ Can be used as a neutral or directional option trading strategy.
➡ Trade results in a small net debit & the max risk is the debit paid.
➡ Due to small net debit, this strategy offers a great positive risk-to-
reward.
➡ Short Volatility & Theta Strategy.
➡ A target price pinning strategy.

Max Pro t

The maximum pro t occurs should the underlying stock be at the middle
strike or body at expiration.

In that case, the long call with the lower strike would be in-the-money
and all the other options would expire worthless.

The pro t would be the difference between the lower and middle strike
(the wing and the body,) less the premium paid for initiating the position.
Max Loss

The Maximum loss occurs should the underlying stock be outside the
wings at expiration.

If the stock were below the lower strike all the options would expire
worthless

If above the upper strike all the options would be exercised and offset,
each other for zero pro t.

In either case the premium paid to initiate the position would be lost.
Balanced Butter y Spread Example:

Assuming xyz trading at $45 ~ Directional Price Target $43

Buy to Open 1 contract of JUL $44 Call at $1.06

Sell to Open (2) contracts of JUL $43 Call at $1.67
Buy to Open 1 contract of JUL $42 Call at $2.38

Net Debit = ($2.38 + $1.06) - (2x $1.67) x 100 = $10.00 per spread

Pro t Calculation of Butter y Spread:

Maximum Pro t = (Middle Strike - Lower Strike - Net Debit) x 100

Assuming xyz closed at $43 at expiration.

Maximum Pro t = $43 - $42 - $0.10 = $0.90 x 100 = $90.00 per spread ROC
= $90/$10 = 900% or R: R 9-to-1

_________________________________________________________________

Let’s review what was covered in this Presentation on The Option

Butter y:

I. Best Market Conditions for Butter ies

II. Bene ts of Butter ies
III. The Option Greeks You Need to Know First
IV. The Most Important Option Factor
V. The Butter y Setup

Want To Learn More about this High Reward – Low Risk Option Strategy &
The Other Options Trading Strategies & Tools I Use?

Then Use the Link Below for a FREE, 30-DAY TRIAL to The Power Cycle
Trading Club.

I’ve never seen anyone explain options like this. Excellent. This is exact-ly
what I've been looking for. VERY Informative. No one has anything like this.
Wish I had found you sooner but glad I found you now. Thanks again for
your time today, Larry. Alisha
Name: Larry Gaines
Company: Power Cycle Trading
Website: www.powercycletrading.com
Services Offered: Trading Courses, Bootcamps/ Coaching,
Custom Indicators

Larry Gaines has become one of the leading coaches for successful traders and
investors. He continues to develop and host, every month, new trading
educational programs to help traders and investors generate greater income
from their investment capital with less risk exposure.

He founded PowerCycleTrading.com and the Power Cycle Virtual Trading Room

following over 40 years of professional trading experience in the commodity
and equity markets.

During his tenure as head of an international trading company that often

traded a billion dollars’ worth of commodities in a single day, he learned rst-
hand the necessary elements of a successful trading system and the use of
options.

Using this in-depth knowledge and experience, Larry developed the Power
Cycle Trading™ Model to allow for greater pro ts with a more disciplined,
systematic degree of trading success.

www.powercycletrading.com

Disclaimer The following is purely for educational purposes. Any stocks mentioned DO NOT constitute advice and
should NOT be construed as recommendations. U.S. Government Required Disclaimer – Commodity Futures
Trading Commission. Futures and options trading have large potential rewards, but also large potential risk. You
must be aware of the risks and be willing to accept them in order to invest in the futures and options markets.
Don’t trade with money you can’t afford to lose. No representation is being made that any account will or is likely to
achieve pro ts or losses similar to those discussed on this website. The past performance of any trading system or
methodology is not necessarily indicative of future results. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED
PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED
RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE
RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS,
SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT
THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY
ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. There is a very high
degree of risk involved in trading. Past results are not indicative of future returns. Powercycletrading.com and all
individuals af liated with this site assume no responsibilities for your trading and investment results. The indicators,
strategies, columns, articles, and all other features are for educational purposes only and should not be construed
as investment advice. Information for any trading observations is obtained from sources believed to be reliable, but
we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of
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Af liates of Powercycletrading.com may have a position or affect transactions in the securities described herein (or
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provided strategies.
CHAPTER 14: The Power of Three:
Reward-Focused Strategies Every
Successful Trader Uses (But Won’t Tell
You)
Trading Indicators | www.tradingindicators.com

In today’s markets, traders face an overwhelming ood of data—not

because there’s too little, but because there’s too much. Every day, we’re
bombarded with endless charts, indicators, trends, and signals that can
leave even seasoned traders paralyzed. The real challenge lies not in
having access to information but in knowing what is essential and how to
act on it.

There are countless strategies traders can use to improve their odds—
monitoring market conditions, staying informed, avoiding overtrading,
and sticking to a solid plan, to name a few. While all of these are valuable
tools in a trader’s arsenal, one of the most powerful and often overlooked
approaches is focusing on high-reward, low-risk trades, where the
potential reward far outweighs the risk.

In this chapter, we’re going to uncover three powerful strategies that can
give you a signi cant edge by maximizing reward while minimizing risk.

Imagine achieving a reward-to-risk ratio of over 5:1—this means you’d only

need to win just over 1 out of every 5 trades on average to stay pro table.
These aren’t random tips or overhyped secrets; they’re tried-and-true
methods successful traders use to zero in on key setups and act with
con dence.

By the end of this chapter, you’ll be equipped with the tools to focus on
what truly matters—identifying high-reward opportunities where risk is
controlled. In a market where everyone has access to the same data, it’s
the clarity of your focus and the quality of your strategy that will set you
apart.
Understanding Support, Resistance, and Price Positioning

Before we dive into the three high-reward strategies, we need to lay the
groundwork. Two key concepts form the foundation of each approach:
Support and Resistance Levels and Price Positioning. Shrewd traders use
these building blocks of price action to stack the odds in their favor.

1. Support and Resistance Levels

Every trader knows the importance of support and resistance. These

levels have been talked about in every trading book, course, and forum for
as long as markets have existed. But the truth is, not all support and
resistance levels are created equal. Some of them are merely
psychological barriers—places where traders feel the market might turn
around. Others, though, are where the real battles are fought. This is
where liquidity pools sit, where the big players have their eyes locked, and
where price is more likely to react.

Support and resistance zones are where buyers and sellers face off. And
the outcome of that clash? That’s where you nd your edge.

To pinpoint these critical zones, we use tools like Liquidity IQ. This
advanced indicator helps traders identify where the most signi cant
liquidity pools exist, offering deeper insight into potential price action.

By focusing on liquidity-based support and resistance zones, you can

anticipate potential market moves with greater precision. This approach is
particularly effective when these zones overlap with other technical
indicators, providing multiple con rmations for your trading decisions.

2. Price Positioning

Now, once you’ve mapped out your key support and resistance levels, the
next step is understanding price positioning. Price never stands still. It’s
always moving toward or away from something. Whether it’s heading
toward a support zone, approaching resistance, or breaking through
those levels entirely, each movement tells a story. The story of
opportunity.

There are only a handful of ways price can interact with these zones and
knowing them is critical. The key is spotting these connections and being
prepared to act when the story unfolds.
The goal isn’t to predict every move but to recognize when a pivotal
moment is unfolding. Because when you can identify these crucial levels
and understand where the price is in relation to them, you’re no longer
reacting. You’re anticipating. And that’s when trading becomes strategic,
not emotional.

There are typically six scenarios that can play out in relation to support,
resistance and price.

● Price bounces off support.

● Price bounces off resistance.
● Price breaks through support.
● Price breaks through resistance.
● Price retraces back to test broken support.
● Price retraces back to test broken resistance.

That’s all you need to know about support, resistance and price before we
move onto the next section. Let’s build on these concepts and explore
the reward-focused strategies that will forever impact your trading!

The 3 Reward-Focused Strategies Every Successful Trader Uses (But

Won’t Tell You)

If you’ve traded for any length of time, you’ve probably noticed how
markets move in cycles. Trends don’t last forever. An uptrend
consolidates, and sooner or later, it reverses into a downtrend—or vice
versa. In fact, a surprising 70% of the time, the price is stuck in a
consolidation phase, bouncing between levels of support and resistance.
Eventually, though, something gives. Price breaks out of its range, and a
trend takes over. Sometimes, that trend continues without looking back,
and other times, it takes a quick pause, retracing to test the very levels it
just broke through. But here’s the interesting part: Each of these phases
gives us a unique opportunity to capitalize on the market’s next move.
And the best part? These setups aren’t complex. They’re simple, effective,
and designed to give you an edge by focusing on reward while
minimizing risk.

Let’s learn more about each one.

Strategy 1: Bounce

Support and resistance are like oors and ceilings. When price hits
support (a oor), it tends to bounce upward. When it hits resistance (a
ceiling), it tends to fall back down. These bounce points offer excellent
trading opportunities.

In the example above, the price moves down toward a support zone (the
red area). When it hits support, it stops falling and starts to rise again. This
is the perfect moment for a long trade because you’re entering close to
support. Your stop-loss can be placed just below the support zone, so your
risk is limited, while your potential reward is much higher.

The same works in reverse for resistance. When the price hits a strong
resistance level and begins to fall, it signals a good opportunity for a short
trade. By placing your stop-loss just above the resistance level, you’re
limiting your risk while positioning yourself for a pro table move
downward.
The Bounce Setup is simple and effective because it allows you to trade
with a small risk relative to the potential reward. You’re letting the price
come to you, entering trades when it’s most likely to reverse.

Strategy 2: Zone Break

Like everything in life, nothing lasts forever. Eventually, every support and
resistance zone will be broken. This event can present opportunities for
traders and it’s where the Zone Break strategy materializes.

A Zone Break Setup occurs when support is broken to the downside or

resistance is broken to the upside. On the chart above, we see a classic
support zone break, where price clears the level completely. As a result,
price often continues in the direction of the breakout for a signi cant
move.

This is another high-reward, low-risk setup. Why? Because we can place a

stop-loss just above the broken support zone. In many cases, the
resulting move exceeds the stop-loss distance by a multiple.

The same principle applies to a resistance breakout, where the stop-loss is

placed just below the resistance level, with the potential for a substantial
upward move exceeding the stop-loss distance.
Strategy 3: Zone Break Retrace

The Zone Break Retrace Setup, or breakout retrace, occurs frequently.

More often than you think.

The bullish Zone Break Retrace Setup starts off similar to the Zone Break
Setup: Resistance is broken, and the price moves up. However, instead of
continuing upward, the price retraces back to the broken resistance level,
which now acts as support.

This retracement is common and often seen as a classic fake-out, where

traders expect the breakout to continue, but it brie y reverses before
continuing the breakout move. Many traders might mistakenly give up
on the trade during the retracement, assuming the breakout has failed.
Instead, it presents an opportunity to re-enter the trade.

By placing your stop-loss just below the broken resistance (now support),
the potential move afterward can signi cantly outpace the stop-loss
distance, making it a high-reward, low-risk setup.

In the bearish version of this setup, the principles are the same but in
reverse. Instead of breaking resistance, the price breaks through a
support level and then retraces back to that now-broken support, which
acts as new resistance. This is often seen as a fake breakdown, where the
price brie y pulls back before continuing its downward move. Traders
who understand this can take advantage of the retracement as an
opportunity to short the market, placing their stop-loss just above the
broken support. Similar to the bullish setup, the potential downward
move can far exceed the risk, creating another high-reward, low-risk
scenario.
How Con uence Makes Good Trades Even Better

By now, you’re familiar with the 3 reward-focused strategies—the Bounce,

Zone Break, and Zone Break Retrace. These strategies are already
powerful on their own, offering high-reward, low-risk opportunities. If
you’re using them, you’re already ahead of most traders.

But what if you could take them one step further? What if you could
improve your chances of success even more? That’s where con uence
comes in.

What is Con uence?

Con uence occurs when multiple factors align and forecast the same
price move, thus increasing the likelihood of a trade moving in your favor.
It’s about reinforcing your strategy by combining different signals or
indicators that con rm the same direction. The more these factors line up,
the stronger the trade setup becomes.

The most popular way to use con uence is by ltering your strategies
based on trend direction.

Make Your Setups Even Stronger with Trend!

You’ve probably heard the saying, "The trend is your friend." It’s popular for
a reason—trends tend to continue rather than reverse. A market in an
uptrend is more likely to keep rising, while a downtrend is likely to
continue falling. Understanding this gives you an edge.

For example, let’s say you spot a Bounce Setup where the price is
bouncing off a key support level. On its own, this is a solid trading
opportunity. But when combined with a larger uptrend, the setup
becomes even more compelling. The bounce aligns with the overall trend,
adding an extra layer of con dence to the trade. This is what con uence is
all about; multiple signals working together to improve the odds of a
successful trade.

The same applies to the Zone Break: If the price breaks through support
and resistance in the direction con rmed by the trend, you have
con uence on your side. In a Zone Break Retrace, if the price pulls back to
retest a level while the overall trend supports the direction, that adds
another layer of con rmation.
By combining your setup with trend analysis, you’re no longer trading
based on a single signal. Instead, you reinforce it with the broader market
direction. Con uence is like a lter that helps you focus on the highest-
quality setups, where multiple factors align, reducing noise and
sharpening your decision-making.

This enhances your existing reward-focused strategies, taking your

trading to a more con dent level with the market on your side.

Con uence in Action

Let’s look at how con uence works in a real trade using the Bounce Setup
combined with an upward trend:

Price Tests Support and Trend Remains Bullish: In the above chart, we can
see the price moving down toward a key support level. Even though the
price is declining, the larger context is important, where overall trend
remains bullish. This means that while the price is temporarily falling, the
broader trend is still pointing upward. This is our rst sign of con uence—
the trend is telling us that the larger trend is up, so we should be looking
for potential buying opportunities.

The Bounce Setup begins to form as the price approaches the support
zone. When trend aligns with price reaching support, it signals that the
price might hold at this level and reverse. This is a critical point where
traders need to be alert, as a bounce could lead to a strong upward move
in line with the overall trend.
Price Holds Support and Bounces Up to Continue the Trend: Now, let’s
fast forward 2 months. In this next chart, you can see that the Bullish
Bounce Setup played out perfectly. After an initial consolidation above
support, price reversed upward continuing the bullish trend. The broader
trend acted as a tailwind, propelling the price higher.

This is where con uence proves its value. Not only did the price bounce
off support, but this bounce was in line with the larger bullish trend,
making the trade even stronger. This was an ideal setup where price
action, trend analysis, and support/resistance levels all align to give the
trader a high probability opportunity.

Scanning for Opportunities

We’ve already seen how aligning multiple factors, or con uence, can
improve the effectiveness of your trades. However, nding these
opportunities manually can be time-consuming and prone to error. That’s
why a systematic approach to scanning for setups is critical.

By automating your search for high-probability trades, you can focus your
time on execution rather than spending hours combing through charts.
With a structured process, you can streamline how you identify and act
on reward-focused strategies like Bounce, Zone Break, and Zone Break
Retrace setups.
Why Systematic Scanning is Key

In the fast-moving world of trading, time is a precious resource. A

systematic scanning process allows you to quickly narrow down the
universe of trading opportunities to only those that meet your criteria.
Instead of relying on intuition or waiting for the perfect setup to appear,
you use a de ned system to lter the noise and zero in on what matters.

This structured approach offers several advantages:

● Consistency: By scanning the market with the same set of criteria, you
eliminate guesswork and impulsive decisions.
● Ef ciency: You’re able to quickly identify opportunities across multiple
markets without staring at charts all day.
● Accuracy: Scanning ensures you don’t miss the setups you’ve prepared
for—whether it’s a Bounce at a key support zone, a Zone Break in a
trending market, or a Zone Break Retrace to test the broken level.

Building a Systematic Scanning Process

Here’s a step-by-step guide to help you systematically scan for the best
reward-focused setups:

1. Assess the Broader Market Context

Before honing in on individual setups, it’s essential to understand the
overall market environment. Are we in an uptrend, downtrend, or
consolidating phase? Knowing this helps you tailor your search to setups
that are more likely to work in the current conditions.

2. Narrow Down Your Focus

Once you’ve gauged the broader market conditions, focus on the speci c
setups that align with your reward-focused strategies. For example, in a
consolidating market, you may nd more opportunities with Bounces,
while in a trending market, Zone Breaks or Zone Break Retraces could
present better setups.
3. Filter for Con uence
As we discussed earlier, con uence is key. Filtering your setups to align
with the broader trend improves your chances of success. If the market is
trending upward, look for Bounces off support or Zone Breaks to the
upside. In a downtrend, focus on Bounces off resistance or Zone Breaks to
the downside. In a Zone Break Retrace, ensure the trend is bullish as price
is pulling back to test broken resistance before a bullish surge, or vice
versa ensure that the trend is bearish as price is testing broken support
before a bearish drop.

4. Due Diligence and Con rmation

Once you’ve identi ed a promising setup, it’s important to do some nal
checks. Is there an upcoming earnings report that might increase
volatility? Is the market liquid enough to get your orders lled? Is the
volume strong enough to support the trade? These nal steps ensure
you’re not taking unnecessary risks.

Don’t Look Any Further—Use Liquidity View

Applying What You've Learned with Liquidity View

Together, we’ve explored three reward-focused strategies—the Bounce,
Zone Break, and Zone Break Retrace setups. When combined with
con uence, these strategies create a powerful framework for identifying
high-reward, low-risk opportunities in the market. You’ve seen how
aligning key factors such as support, resistance, and trend direction can
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CHAPTER 16: The Ichimoku Method
Jeff Gibby | Meta Stock

Over the decades, many trading systems and methods have come and
gone. Trading systems often fail as markets change, volatilities change,
politics change, and players change. With all of these changes, it's often
surprising that any trading methods have been able to perform for any
real time at all.

Yet, there is one trading method that has remained pro table, not just for
months or years, but for decades. It seems that one of the oldest trading
methods around, to this day, is still one of the most reliable. This system,
known to the west simply as Ichimoku, or by its longer name of Ichimoku
Kinko Hyo, has been successfully traded for almost 5 decades ever since
its release.

The History of Ichimoku

The history of the Ichimoku begins back in the 1930's when Tokyo
newspaper journalist “Ichimoku Sanjin” (real name: Goichi Hosada) began
studying price charts trying to gure out if there were patterns in the
markets. Over the course of the next 30 years, he and various assistants
would go over chart after chart, testing ideas and looking for behaviors
that shows signs of consistency and probability. At the time, Japanese
Candlesticks were the primary trading tool of the markets in Japan. In
1968, Goichi Hosada released his methods to the public. Since then, in
Japan, the method has been a staple in Japanese trading.

In the 1990's, the Ichimoku methods arrived in the western world, but it
wasn't until the 2000's that it began growing in popularity. In this time,
many people have grabbed this bull by the horns, but more than that
have had dif culty understanding and/or implementing it. While the
concepts behind it are simple, the collection of information that the
Ichimoku provides can be overwhelming and dif cult to take action by.

Ichimoku Kinko Hyo

The concept behind Ichimoku is that it is primarily a trend following

method comprised of averages, not of price, but of ranges, and of shifting
some of those ranges around on the chart.
An example of an Ichimoku chart on the USDJPY foreign exchange pair.
(Chart courtesy of MetaStock)

The full term of this method is called “Ichimoku Kinko Hyu” and roughly
translates to “Equilibrium at one look.” The method is based around 5
primary components (represented as indicators) working together to
create a picture as to what is happening at this moment on the chart. The
components are as follows:

Tenkan Sen

The Tenkan Sen, or Turning Line, is the fastest moving component and
tracks close to price. It is based at the midpoint of the highest high and
lowest low for the last 9 periods.

Kijun Sen

Kijun Sen is the Standard Line, and is used as a support/resistance line,

but also as a stop loss value for keeping a trailing stop when desired. It is
calculated the same way as the Tenkan Sen, but for the last 26 periods
instead of 9.

The relationship of the Tenkan Sen to the Kijun Sen is one of the Ichimoku
method's primary entry signal components.
Senkou Span A and B

The difference between the two Senkou Span indicators creates the
Ichimoku Cloud, otherwise known as the Kumo. This is a chart's point of
equilibrium. As prices move away from the Kumo, trends can occur, but
eventually will fall back into the range of the Kumo.

The Senkou Span A is the midpoint of the Tenkan Sen and the Kijun Sen,
shifted 26 periods forward.

The Senkou Span B is the midpoint if the highest high and lowest low for
the last 52 periods, shifted 26 periods forward.

Chikou Span

This indicator is simple but surprising powerful. It is the current closing

price shifted 26 periods backward. Its value is in its relationship to past
prices and the Kumo. The value that the Chikou Span is in relation to price
26 periods ago is an indication of trend direction, but when it's the same
value as 26 periods ago, that refers to a stagnant market that isn't
changing signi cantly.

The Ichimoku Cloud, Tenkan Sen, Kijun Sen, and Chikou Span indicators
labeled on a chart. (Chart courtesy of MetaStock.)
Trading the Ichimoku Method

There is more to Ickimoku trading than can be shown in this article, but
the basics will be shown here so that an understanding of the power of
the method can be seen.

In general, Ichimoku is a method, rather than a system. This means that

the components for determining entries and exits are dynamic. A
decision is not made on a single indicator or signal, but instead by taking
a big picture view as to what the chart is doing. Only by stepping back
and seeing all that is happening can a valuable trading decision be made.

Even though a big picture is required, there are still primary and
secondary signals that are used to make the big picture decisions. Here
are the predominant signals according to the method.

The TK Cross

Though there are many signals within Ichimoku, The TK Cross signal is
one of the two most proli c signals there are. A signal is generated when
the Tenkan Sen crosses above the Kijun Sen for long conditions, or when
the Tenkan Sen crosses below the Kijun Sen for short conditions.

The TK Cross shows where there is a change in short-term trend, but

where the cross occurs matters as well. A bullish cross can have different
meanings depending on whether it crosses below, within, or above the
Kumo. A bullish cross below the Kumo may be the start of a new upward
trend, but often shows a retracement waiting to go bearish again. This is
called a “weak” TK Cross, and usually if it is acted upon, it is typically used
to exit a long position.

When a Bullish TK Cross occurs above the Kumo, this is often tied to a
retracement condition toward the Kumo that is now going back up. For
many, this is a re-entry signal in the long direction and is called a “strong”
TK Cross.

When the TK cross occurs inside the Kumo, this is called “neutral”, as it is
usually a holding position waiting for another signal.
The Price/Kumo Relationship

The other predominant signal is where the price closes in relationship to

the Kumo. As the Kumo is the equilibrium point, trends are viewed as
expansions away from, or contractions towards, the Kumo. Price
movements away from the Kumo show trend movement, but the
equilibrium point of the Kumo will follow the price, acting as the position
that price ultimately wants to converge towards.

Though some modern and advanced trading tactics show methods to

placing trades opposite of the Price/Kumo relationship, the base
components of the Ichimoku System involve placing trades in the
direction that price is to the Kumo. So, if prices are above the Kumo, then
only long positions would be taken, and prices below the Kumo have only
short positions taken.

The TK Cross and the Price/Kumo Relationship

As these two trading concepts are key, neither one of them is intended to
be used alone, and they should be looked as dependent upon each other.

Initially, the Price/Kumo relationship is looked at to see what side (if any)
the price of the Kumo. If the price is above the Kumo, then only long
positions would be considered. As price begins to expand and close above
the Kumo, then the TK Cross is examined. If the last TK Cross was a bullish
one (even if it occurred below or inside the Kumo), then this would qualify
as a long signal. If, however, the most recent TK Cross was a bearish one,
then you would wait for a bullish TK Cross signal to occur. The important
point here is that the Tenkan Sen is above the Kijun Sen AND the price is
above the Kumo at the same time. The reverse would be true for a short
position.
TK Cross and Price/Kumo Relationship Signals (Chart courtesy of
MetaStock)

Seeing the Future

The Kumo doesn't just show current equilibrium, but also where the
equilibrium point in the future is going to be. Seeing this allows you to
know how close or far prices will have to move to break into the cloud. As
the cloud is the equilibrium point, it is the position where trades are
ended and new trades started, and knowing it's future position can allow
a trader foresight as to where protective measures should be set.

Technically, the direction of the Kumo would not be taken into

consideration for trend direction. However, most traders have seen that it
is often best to place trades in the future direction of the Kumo, as this is
seen as a representation of future price direction.

Seeing the Past

The Ichimoku Method includes a very powerful indicator in its simplicity.

The Chikou Span is simply the current closing price plotted 26 periods in
the past. This is a quick measure to see where current prices are in
relation to prices 26 periods ago. Though this could be thought of as a
basic 26 period Rate-of-Change indicator, the value is important not just
to the previous closing prices, but also to the previous highs and lows. As
prices begin to stabilize, the Chikou Span starts to intertwine inside the
highs and lows 26 periods ago, showing clearly that the prices are range
bound or even stagnant.
While this doesn't constitute a message for trades that are already in play,
it is clear that when the Chikou Span is moving inside the prices that new
trades should not be placed in any direction, and that you should wait for
the Chikou Span to exit the price range to take new trades, with new
trades ideally being taken in the direction of the breakout.

The Kumo is extended 26 Periods into the future. The Chikou Span as set
26 Periods into the past. (Chart courtesy of MetaStock Xenith)

Along with the Chikou Span's relation to price, the Chikou Span's relation
to the Kumo is also considered important, as it references the current
prices related to the Kumo's measurement of equilibrium. As with Chikou
Span vs. Price, the same rules apply to its relationship to the Kumo, with
breakouts of it having a similar meaning. This rule is not often followed
among westerners as it often doesn't seem to make sense to compare
the current price to a historical perspective. Never the less, it is a factor in
the Ichimoku process.

The Advantages and Disadvantages of Ichimoku

Every trading method has bene ts and detriments. When searching for a
strategy, the general idea is to nd a system where the bene ts and
successes outweigh the detriments so that overall, a pro t can be made
in a way that makes sense to the trader and works with their way of
thinking about the markets.
Advantages of the Ichimoku Method

One of the best advantages to the Ichimoku Method is that it has held up
over time. At around 50 years since its release, it is still heavily used and
promoted as a very valuable system. Even groups who test with different
parameters for the indicators keep on coming back to the default,
showing that there is little improvement when trying to change such a
well-made system.

The other main advantage is that the Ichimoku Method is excellent in its
trend participation. While there are false entries (as with any system), it
does incredibly well with getting into an actual trend. Because of this,
many traders accentuate their Ichimoku trading with position-scaling
techniques to capture more pro t from existing trends.

A third advantage is its consistency with certain markets. Forex and

commodity traders have great success using Ichimoku with the high-
volume instruments since they are usually highly trended.

Disadvantages with Ichimoku

As with any system, there are some drawbacks.

A very busy chart. While all of the indicators convey a great deal of
information, many people can have dif culty in determining values and
positions as those indicators intertwine with price. Interpretive software
can break through the visual chaos and give clear information quickly.

Not all rules work across all time-frames. As a chart moves to smaller and
smaller timeframes, the more intricate rules of Ichimoku tend to cause
whipsaws. On signi cantly short timeframes, many people move to just
the future Kumo direction to determine their trades as adding in other
indicators can cause too much loss among commissions and spreads.

Dif cult to look at historically with the shifted values. When looking at an
historical chart with the Ichimoku indicators applied, it is dif cult to
quickly gauge where the Kumo and the Chikou Span are in relation to the
data being looked at since the indicators are shifted in opposite
directions. Again, interpretive software can solve this problem by letting
the trader see exactly where everything is in relation to each other.
No real stop and exit criteria de ned. Ichimoku has several suggested
stop-loss areas, but they change as the chart changes over time. When
trading close to the Kumo, the Kumo itself is often used as the stopping
area. When trading far from the Kumo, the Kijun Sen is typically used to
lock in pro ts. These values aren't exact, as the stops are usually
suggested around these areas if directly on them is uncomfortable for the
trader. Many traders also consider a TK Cross in the opposite direction of a
trade as an exit rule.

Advanced Techniques

One of the most fascinating aspects of Ichimoku is how so many other

traders have tried to improve on it. Most researchers and system
developers end up coming back to the basics after rigorous design. Every
once in a while, someone will gure out how to tweak a rule a little bit,
even if it's something that works only for a speci c security. These tweaks
have sometimes been shown to be very pro table.

As with any trading system or method, feel free to experiment with the
signals to nd something that works for you and with your trading style.
Only with time and experience can you get a feeling if the Ichimoku
Method is for you, as so many other traders have found that it certainly is
for them.

Additional Resources

While the Ichimoku is a useful indicator, new users can nd that keeping
track and learning the indicators can be quite complex. To assist users
with this, we’ve built a MetaStock add-on that will help:

Alert users to Bullish and Bearish opportunities

Keep track of the bullish/bearish orientation of the six primary
Ichimoku Signals
Identify key levels of support/resistance using the Kaijun and Kumo
Provide detailed information about the indicators
Scan entire markets to nd the best current entry signals

Ichimoku Master is available as part of MetaStock. To get a special offer

and view more details on the award winning Metastock go to
www.metastock.com/tradingpub3for1
Name: Jeff Gibby
Company: MetaStock
Website: www.metastock.com
Services Offered: Award-winning Technical Analysis
Software.

Watch this 3-Minute Video and See How MetaStock Can Help YOUR
Trades!

MetaStock has provided award-winning charting and analysis tools and

market data for over 30 years. Capitalizing on technical analysis, our
trading software and market data line are designed for active traders of all
levels to backtest, scan, and analyze the markets with con dence in 2024.

There are options for day traders, swing traders, and EOD traders to trade
stocks, options, futures, FOREX, and more. Try MetaStock; we are
con dent you’ll agree t’s the best charting software available to the
private trader.
Chapter 17: How to Double Your
Investing Account With 5 ETFs and
Little Risk
Chris Vermeulen | The Technical Traders

Learn the four key market stages, investor emotions, current trends, and
today's cycles unfolding. In this workshop, you will learn the steps to
identify key market conditions and how to navigate the current market
stage safely. You will see economic data and live charts that will make you
rethink how you trade and invest in stocks, bonds, commodities, and real
estate over the next three years.
Name: Chris Vermeulen
Company: The Technical Traders
Website: TheTechnicalTraders.com
Services Offered: ETF Investing Signals For High Net Worth
Investors

About Technical Traders

We Empower Individual Investors to

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Our founder, Chris Vermeulen, developed the Asset Revesting Strategy through an in-depth
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Trade Secrets: Proven Strategies from Elite Trading Gurus

DISCLAIMER

HIGH RISK WARNING Trading foreign exchange, stocks, options, or futures on margin carries a
high level of risk, and may not be suitable for all investors. Before deciding to trade, you should
carefully consider your objectives, nancial situation, needs and level of experience.

Investing Target and the writers within this book provide general education that does not take into
account your objectives, nancial situation or needs.

The content of this book must not be construed as personal advice. The possibility exists that you
could sustain a loss in excess of your deposited funds and therefore, you should not speculate with
capital that you cannot afford to lose.

You should be aware of all the risks associated with trading on margin. You should seek advice
from an independent nancial advisor.

Past performance is not necessarily indicative of future success

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