This action might not be possible to undo. Are you sure you want to continue?
@ JOHN WILEY & SONS, INC.
Preface 1 Taylor's Contribution The Book Method 2 The Buy and Sell Envelopes: Measuring 3 Support and Resistance to Technical Analysis:
5-Day Period Range
The LSS Pivotal Buy and Sell Numbers: The Trend Reaction Numbers
Putting Numbers on Support and Resistance: An Example Using a Hypothetical
5 6 7
The Early Range and the Anticipated Bond Calculations The Five-Day LSS Oscillator: How to Measure Market Strength
21 25 27 31 35 37 41
8 9 10 11 12 13 14
The 3-Day Difference:
How to Measure Market Momentum in the Market "Fails"
Chart Patterns: Finding Symmetry
Price Reversals: When the Symmetry
Thursdays: The Weakest (Strongest) Day of the Week Stops: Where to Pull the Plug Mondays: The Ideal Day to Buy Time and Price Trading: How to Target the Exit Level and the Point of Maximum Adversity
vi SNIPER TRADING WORKBOOK Confirming Pinpoint Indicators: Divergence Tools That 15 Price Reversals Strength Indicator 47 51 53 55 16 Yesterday's Close: How to Use the l-Day to Measure Strength 17 18 19 Gap Trades: When to Fade the Opening Self-Assessment: Can You Learn from Mistakes< Finding the Two Major Daily Trends: The Best Ti mes to T rade Every Day 59 61 20 21 Pit Traders: The Basics The Five-Day Average Range: Measuring the Market's Volatility 65 69 22 23 Stock Market Seasonal Trends: The Best Time to Buy and Sell Learning to "Embrace the Uncertainty": Finding Profits on the First Trade 71 73 24 25 Price Rejection: What It Means Strategies for Getting out of Trouble: Exit-and-Reverse and Averaging of Yesterday's Close to Today's Open: 81 83 87 77 26 The Relationship Where Should You Buy< Where Should You Sell< 27 28 29 Market Sentiment: Another Timing Tool Opportunity Tuesdays: The Afternoon Market Engineering: and a Decline How the Market Stages a Rally- 89 Component: Pitfalls 30 The Psychological 31 32 33 34 35 The Weekly How to Avoid the Most Common 93 97 99 105 109 113 Stock Market Pattern: How the Market Trades Your First Trade: How to Place an Order Market on Close Orders: A Useful Exit Strategy Limiting Losses: When to Pull Back Tool Slow Stochastics: A Divergence .
For this reason. The chapters are designed to stand by themselves. Whenever possible. While the formulas are cut-and-dry. Do not let this frustrate you. VII . I've tried to present examples that are realistic and likely to occur during the normal course of trading. the better off you will be. the market is complex and does not always offer an easy answer. not substitute for.This study guide is designed to be used with Sniper Trading. the textbook. some of the accompanying material is interpretative in nature. you may arrive at more than one answer for some of the questions. This is so you won't have to flip back and forth as you move through the text. All the formulas and strategies covered here are outlined in that text. Please note that this material is designed to complement. The sooner you recognize this complexity and integrate it into your trading. enabling you to tackle one strategy before moving on to another one. I've tried to pose a question and suggest a possible solution within the same chapter.
George Douglas Taylor's contribution to technical analysis cannot be underestimated. the decline. let's first look at Taylor's original four key numbers-the rally. 1 . the buying high. and then averaging the numbers to arrive at some approximation of what should occur on the next trading day. and the buying under. Leaving aside this additional formula. adding an additional formula that I called the Trend Reaction Numbers. He believed in measuring both market rallies and declines. He called this the "Book Method. These same numbers were later called the LSS Pivot Buy and Sell Numbers." I later incorporated these numbers into my LSS 3-Day Cycle Method.
the decline is 8. Hence. the rally would be the difference. we can estimate a rally of approximately 2°h2. the market rallied 2°h2 in price. This number tells us that on this particular two-day period. If yesterday's high was 1294.00 points is the rally number. What is the decline number and what does it measure? 3. What is the buying high number and what does it measure~ 4.00. What is the buying under number and what does it measure~ Answers 1 The rally number measures how far the market rallies from one day to another. 2 The decline number measures how far on average the market tends to decline from a prior day's high to today's low. Given an 8.00. if today's high is 1274.00-point average decline. We might use this information to determine how far above today's low price the bond market might rally tomorrow. let's say. with a low today of.00 and the previous day's low is 1231. Let's say today's high is 1323. If one is trading U.00. Accordingly. It is the difference between today's high (the last completed day's high) and the previous day's low.S. or 2°h2. what can we expect for tomorrow's low? The answer is 1315.00 and today's low is 1286. or 8 points lower. 104-19. the difference of 43.00 points.00. based on . Treasury bonds and today's high (after the close) is 105-18 and the prior day's low is 104-30. assuming we are going to use the 2%2 number. or a high of 105-07 (10419/32 + 2°h2 = 1057h2).2 SNIPER TRADING WORKBOOK Questions 1 What is the rally number and what does it measure? 2.
s. In a rising market. The buying high number measures how far above the prior day's high the market traded today (the day just finished). Let's say yesterday's low was 1260. When you go to subtract . The buying under number measures how far today's low traded under yesterday's low. for a positive number to occur in the buying under. Hence.00. 3.00 for the buying under. So if today's high is 1249. The market has been rising. Let's say you are trading bonds and you arrive at a decline of 1-17.00 points. you will have negative numbers. The formula for buying high is today's high minus yesterday's high. Let's assume the prior day's high was 10517h2. By subtracting the decline number. as reflected in a buying high of 26h2. 4. the buying high number. we would average several declines. we simply add on the buying high to today's high. A rising market will give you a negative number for the buying under. you would arrive at an answer of 104-00.00 (1249.00. you will have positive buying high numbers. In a declining market (with lower tops).00 and today's low was 1267.00 buying high = 1255.00). the market has been rising rapidly. Treasury bonds. the difference is 6. since the calculation is yesterday's low minus today's low.00 and yesterday's high was 1243. you must have a lower low today. This will give us a target of 1255. If the market continues to rise at this rate tomorrow.TAYLOR'S CONTRIBUTION TO TECHNICAL ANALYSIS 3 just one day's reading. the buying high would give us a target top of 104-05 (103-11 today's high + 26h2 = 104-05). In an actual example. Let's say you are trading the u.00 today's high + 6. Today's high is 103-11 and yesterday's high was 102-17. You would then subtract this number from a previous day's high to arrive at a possible low or support on the following day. If we want to assume the same buying high number will prevail tomorrow. Obviously. This will give you a negative number of -6.
00). .00 buying under = 1073.00-since two negatives added together result in an addition. 1077.00 points. The difference is 2.00 today's low -2.00 as the target low (1075. An easier example is when yesterday's low was.00.00. and today's low is 1075. let's say.4 SNIPER TRADING WORKBOOK this number from today's low of 1267. Using the buying under to generate a new low tomorrow will result in 1073. you will arrive at a higher number-namely 1274.00.
These are the key support and resistance numbers that traders use for short-term buying and selling. They also serve another purpose: range prediction. this range can be superimposed on the market to predict the day's high or low. s .2 Among the many uses of Taylor's numbers is the creation of the buy and sell envelopes. The numbers can be averaged to determine what tomorrow's range should look rike. Once the market has opened and traded awhile.
1 .What are the components of the buy envelope~
1. The buy envelope consists of the following four numbers: the average of the last three decline numbers subtracted from the last high; the average of the last three buying under numbers subtracted from the last low; the last low; and the Trend Reaction Buy Number (the LSS Pivotal Day Sell Number). 2 The sell envelope consists of the following four numbers: the average of the last three rally numbers added to the last low; the average of the last three buying high numbers added to the last high; the last high; and the Trend Reaction Sell Number (the LSS Pivotal Day Buy Number).
. but serves as a breakout sell number when the market is trending. since the notion of the support becoming the resistance-and vice versa-is an accepted concept in technical analysis. but serves as a breakout number when the market wants to trend higher. These two uses of the numbers are not contradictory.8 SNIPER TRADING WORKBOOK Question What is the formula for the LSS Pivotal Buy and Sell Numbers? Answer The formula for the LSS Pivotal Reaction Numbers) is as follows: High + Low 3 Buy and Sell Numbers (Trend + Close = X 2X2X- High = LSS pivotal sell (trend buy (trend reaction reaction buy) sell) Low = LSS pivotal Note that the low number serves as a support when constructing the LSS envelope. The reverse is also true for the higher number. which is a resistance when the market is choppy.
buy and sell envelopes is a relatively simple task. the reader is asked to take five days of data and create 9 . In the following .. The comes in interpreting the results.
30 1063.80 (Sell Number) We now have another set of numbers for our envelopes. how do you create both the)ers for tl buy and sell envelopes and the buy and sell numbers for the nexpally num trading day? Day 'allied thl High 1125.00 1117.802119. respectively. 1074.20 103.00 1103.50 (Buy Numberj 1042.80- 1074.80 2119. These will be entered into the sell and buy envelopes.90 1088.00 1097.90 Therefore.30 (high) = 1045.00 1121.00 1097. The avl Sinc ber is .50 *Note: I .90 1084. Let's start with the trend reaction numbers: Now paring negativ~ ~ x= 1059.00 (low) = 1077.60 1042.20 5 Answer 1074.50 Starting with the simplest observation first.00. ia negative 2 3 4 1121. take note of the last high and low. That leaves three additional numbers for each envelope.70 Close 110.30 and 1042. 2X= 2119.50 Low 1100.10 SNIPER TRADING WORKBOOK'UTTING !' Question This lec )ers for t~ Taking the following five days of data.
50) -6. Let's start with the calculations for the rally number.20 = -3. Since the market was declining.80 -20. these will be negative numbers.00) 3 (1074. We know that on the past three days.90= (1074.30 and the buying high number is added to that number.20 -1121.80 (rally number) Now let's turn to the buying high number.50.80) = -20.80 Last low + average rally = rally number 1042.00 -22. Average of last three declines = +. as follows: Day 1 2 Buying High -3. Since the previous high was 1074.30 -1084.70 (1097.60 = 19. the market has rallied the following Day 1 2 amounts: Rally 19.30 + .70)* 3 = -10.00 + .90 (1117.70 -10.30-1097.50 -6.90) The average of these three buying high numbers is -15.20=-22.00 (1097.30 (1117. This will happen when the market is breaking hard.20 -1097. this resulted in a negative number.30)* *Note: Because the next day's high was below the previous day's low.20 -1117. the result IS 1058.PUTTING NUMBERS ON SUPPORT AND RESISTANCE 11 This leaves the calculations for the buying high and rally numbers for the sell envelope and the buying under and decline numbers for the buy envelope.80 [1074.80 = 1042. Here we are comparing high to high.20-1103.
90 = -6. Since the market has been breaking.60- 3 42.60 = 32.60) . the average decline number and the buying under number. The last three declines would appear as follows: Decline 1 17 0 2 007. This is the average decline over the past three days.90 = 17. the last low exceeded the low on the prior day. resulting in positive numbers as follows: Buying Under -6.00 = 55.30 1103. the market was breaking fast.30) 9.00 (average three-day decline) = 1039.20 -1042.10) 1084. For the buying envelope.50) the sell i ng envelope. Hence: 1074. however. This leaves us with the buying under number. We want to know how far.12 SNIPER TRADING WORKBOOK = 1058.60) 32.20) = 19.20) We now average these three declines and come up with 35.20 2 1097.00 points.20- 1103. we need two additional numbers.60 084. we can look for large positive numbers in this column. since the low three days back was higher than the previous low. We subtract this number from the last high to arrive at the decline number. First.80] .30.60 1042. let's look at the average decline.We now have all the numbers we need for (-15. we'll have one negative number and two positive numbers in this category.60 55. In our example. On the two prior days.30 (last high) -35.70 - 103.00 = 42. on average.90 -1084.20 1097.
.I . . ~ .
to create a target top or bottom. it creates an early range. or subtracted from the early high. the anticipated range can be added to the early low. Because the probabilities favor one side of this range being the actual high or low of the day. 15 .Once the market has traded for approximately 30 minutes to one hour.
the difference between the buy and sell number (1244.00. the target top is 1255. The target bottom is 1196.00 = 17. what will be the target top and bottom? Answer The range you expect on the day is 38.00).30 and the early low is 1217. Note that it is extremely unlikely that both numbers will be hit.00 anticipated range = 1255.00 (1217. The probabilities do favor. If the early high is 1234.00. .00 = 38.00 anticipated top). you reach an anticipated top (or sell) number.00 early low + 36.30). In this example.00 and the sell number is 1244. you reach an anticipated bottom (or buy) number.30 anticipated bottom). By subtracting the anticipated range from the early high.301217.30 early high -38.00 points.00 anticipated range = 1196. By adding the anticipated range to the early low.16 SNIPER TRADING WORKBOOK Question Assume the day's buy number is 1206.30 points (1234. The early range is 17. however.30 (1234. one of the numbers being near the high or the low of the day.001206.
the September contract had the following range: High = 101-22 U. Treasury bond Low = 100-24 Close = 100-30 What are tomorrow's trend reaction buy and sell numbers? Answer This is a relatively straightforward problem. you need to know the formula for the trend reaction numbers: High + Low 3 + Close = X 2X- High = Buy (LSS pivot sell) number 2X- Low = Sell (LSS pivot buy) number Next. you need to convert the 32nds as follows: 101-22 = 101 x 32 = 3232 + 22 = 3254 100-24 = 100 x 32 = 3200 + 24 = 3224 100-30 = 100 x 32 = 3200 + 30 = 3230 Now. do the math: . First.18 SNIPER TRADING WORKBOOK Question At the end of today's trading.S.
you know that 3168 is equal to 99-00. You know that 3200 equals 100.20 SNIPER TRADING WORKBOOK Anytime you arrive at a number that falls within one of these groups. you just need to subtract the round number and leave the remaining digits as 32nds. If the number is 3192. So you subtract 3168 from 3192 and you have the answer: 99-24. 3212 translates into 100-12. For instance. Hence. . let's say the number you want to translate is 3212.
a period of three readings. 21 .are many ways to measure market strength. :ated traders will want to smooth the oscillator numbers .that takes into account the previous five trading days.or more extreme overbought or oversold markets. This is just one . Yet the reading itself is helpful in it can be used to gauge mildly bullish or bearish market con0.
1185.30 1130.70 1128. generate the LSS five-day oscillator number.50 1117.00 1127.30 The place to start is with the formula for the oscillator: Highest price in last 5 days -Open price 5 days ago = X Last close -Lowest in last 5 days = y (X + Y) x 100 (Highest price in last 5 days -Lowest price in last 5 days) x 2 Highest price in last 5 days = 1185.90 1172.22 SNIPER TRADING WORKBOOK Question Using the following set of numbers.80 1131.00 5 Answer 1153.40 11 61 .80 1146.40 Low 1151.50 Therefore. Does this number suggest that the current market is bullish or bearish~ Day 1 2 Open High 11 80.40 Open 5 days ago = 1175.90 = X Last close = 1128.40 (highest price) -1175.40 1175.50 1144.50 1141.50 (open 5 days ago) = 9.20 1129.80 .60 Close 1154.30 3 4 1157.00 1185.00 1127.00 1144.
30 (lowest price) = [lowest price]) 2140 -68.6 percent = LSS five-day oscillator value reading suggests that the market is currently bearish.30 11 .1 = 34.90 [X] + 11.-DAY LSSOSCILLATOR 23 Lowest price in last 5 days = Therefore.50 = y (9. . 1128.30 17.40 [highest price] -1117.50 [Y]) (1185.80 (last close) -1117.
at which a market rises or falls can be an important indi- that a top or bottom is near. conversely. when a market '" the time will come when it is still falling. 25 . but at a slower -l when the descent first began.. As a market soars higher.. the rate rise will slow as it nears the top.
3 -15.26 SNIPER TRADING WORKBOOK Question Using the following oscillator numbers. the bottom day was either Day 6 or 7 when the 3-day difference was still negative.9 s 6 -39. No market can continue lower.6% 52.5% 52. As the negative numbers become more negative (see Day 5). there may have been good opportunities to buy early in the day near the lows. . These numbers suggest that there was a good buying opportunity on Day 6 or 7.8% 67. This tends to slow the rate of negative momentum. and the market gains strength.3 -15. By Day 8. the market gains negative momentum.4% 3-Day Difference 2 88.1 8 77.0% +27. Day 1 Oscillator Value 77. the market staged a strong rally. determine whether the market is bullish or bearish and whether the rate at which the market is rising or declining is increasing or decreasing. given the high oscillator reading. but less negative than Day 5.7 Answer In this example. without bargain-hunters and profittakers entering. however. Later.4% 3 4 -9. the market had clearly turned the corner.5% 49.3% 37. By Day 8.
This is the symmetry . What's so amazing about ~ .patterns tend to mirror one another. If a market breaks morning. rising morning patterns are mirrored by afternoon risclassic trend day up. 27 . in so many markets.is how symmetrical they are. it may regain the entire lost ground by day's end. it its gains during the afternoon. Likewise. weak mornings be reflected by weak afternoons. If a market rises in the morning.
28 SNIPER TRADING WORKBOOK Question Where is this market going? Figure 9. by a .1 Note that the trend is up. followed consol idation phase.
you reevaluate your position. Typically.time and price. This offers the classic opportunity to get out 31 . a failure swing sugprice reversal. however. When the symmetry fails.time and price trading is having a pulse You know what to expect in terms of market action .
of the .618 .1 retracement Note the penetration line.32 SNIPER TRADING WORKBOOK Question Can you see the failure swing in the chart below? Figure 10.
The ideal pattern for buying on Thursday is following two or three days of falling prices. The idea pattern for selling on Thursday is following two or three days of rising prices-the classic 3-day pattern. Thursdays tend to rally as the countertrend day. During bear markets. .36 SNIPER TRADING WORKBOOK Questions In what kind of a market do you want to be an aggressive seller on Thursday? I n what ki nd of a market do you want to be an aggressive buyer on Thursday~ What is the ideal pattern leading up to a Thursday when you want to sell? What is the ideal pattern leading up to a Thursday when you want to buy? Answers Thursdays tend to be the weakest day of the week in bull markets.
37 ~ .think you should place your stop based on how . lose. This is a mistake. Stop placestop must not be placed too close to the curA distant stop creates other problems.
When trailing a stop. chances are the market is going to continue to trend in its current direction. If the market is moving higher and you are long.618 point. The market swiftly moves lower. but slightly below or above that level. if you are short and the market is moving lower. Conversely. Stop-running is characterized by what is known as price rejeclion. stop-runners will often target the stops at that level.618 of the initial move.38 SNIPER TRADING WORKBOOK Questions Where's the one place you must never place a stop? When trailing a stop.618. you must move the stop in a positive direction only. This is because many stops are often jammed together at these prices. Prior intraday highs and lows are also areas where stops will accumulate. you must move your buy stop down-never higher-as the position gains profits. what's the one thing you don't want to do~ What's the maximum percentage distance you want to let the market retrace. The maximum amount you want the market to retrace is . your trailing sell stop must be moved higher. depending upon whether you are buying or selling. only to stage a sudden . The reason is. Once the market has retraced more than . You don't want the stop placed exactly at the . inviting stop-runners to raid the stops. prior to a resumption of positive prices~ How do you detect stop-running~ What's the relationship of stop placement to volatility? Answers Just above prior highs or just below prior lows is a dangerous place for stops.
THE PLUG 39 the market will often surge up on shortat the top. . This only makes sense. Once the moves in the opposite direction. your stop where other traders have placed at one price will trigger panic buyyou will receive a bad fill as a result. random moves will cause the stops to be hit. and quickly move lower. the stops must be moved further current market price. increases.
so you must be careful when looking to buy on a Monday. A higher open is always good for buyers. The one-day strength index will provide you a good reading on how bullish the market was on the prior day. A sharply higher or sharply lower open on Monday presents real problems. Second. with a percentage over 50. to be strong. you want the recent market action. you want the market to demonstrate strength at the close of trading on the prior trading day. If the prior day closes on or near the low. chances are the market will continue lower on Monday instead of moving higher. . With a sharply lower open. Last. First. With a sharply higher open.42 Question What's the ideal pattern for a Monday SNIPER TRADING WORKBOOK buying opportunity? Answer Not all Mondays offer excellent buying opportunities. usually a Friday. you want a steady-to-higher open to occur on the Monday buying day. This is not hard to determine. it helps if you are already in a bull market.and five-day strength index. Third. as measured by the one. the market may spend the rest of the day trading down to more reasonable levels. the market may continue to sell off the rest of the day.
and. the subsequent point. the parameters of the trade are once you know important key information-namely. you are ready to map out a strategy.and price trading. . 43 .of the move.with this information. the length of time of the . significantly. the size of the first leg.
00 (first-Iegrange) x . To arrive at this stop-loss number. you need to take the range of the first leg (7. Once you have purchased the market. The market should rally this amount off the 1187.00 Low of first leg: 1181. This stop-loss should be placed slightly below 1183. You will try to buy the market at or near the equilibrium price.] Here's how these numbers were generated: 7. and where you would place your stop.618.00 Minutes to create first leg: 11 Equilibrium point: 87.618 = 4. you need to have a stop-loss order incase you are wrong. your profit point.70. [Note: If the market were breaking.00).00) and multiply it by .00 the target sell price. Direction of first leg: Up High of first leg: 1188. making 1194. so you are looking for a 7.30 1188.00 Answer The range on the first leg is 7.00 equilibrium point.00 points (1188. when it is going to get there. You then subtract this amount from the high of the first leg.00 -1181.618 of range) = 1183.30 (.44 SNIPER TRADING WORKBOOK Question Given the following information. determine where the market is going. you would add this amount to the low of the first leg.00-point rally on the second leg.00 (first-Ieg high) -4.70 .
PRICETRADING 45 represents the point of maximum adversity. perhaps. In a truly bullish environment this case. you the target sell price before the pattern becomes fultime. Or. However. the second leg will have an 11-minute rally (move You cannot pinpoint the exact minute without rally This could occur within ten minprice." You then count forthe eleventh minute going forward. Rather. near or at the target sell price. Look for the lowest price of that rally that one-minute bar "minute one.the market can move lower and sti II be good to the Do not confuse this with thinking that the market must by this amount. If the symme. this is the maximum adversity you the position.00. or as long as 45 hour after it's first established. This is the . and that bar-hopefully. of points below the target price. take the profit and move on to the . want to deal with the element of time. once the to break out above the prior high of 1188. not always fulfill themselves in both time and may occur on the eleventh minute into the rally. you . In either case.
one or more the of the the right side of indicators may direction of the to poised moving occurs. this demonstrate whether these the marindicators In most instances. in the opposite market is often 47 .indicators lower. other When times.
Answer Premium. TICKI. cash. Question In the following chart. can you spot the divergence price and leading indicator~ between the .48 SNIPER TRADING WORKBOOK Question Name five or more leading indicators for stock index futures. TICK. Dow Jones Averages.
a strong is vitally close important will to how higher it suggest prices close a weak close will suggest lower we want to translate yesterday's today.-yesterday Typically. into a 51 .
a close in midrange should be in the 50 percent area.20) 1240.20 (1268.10 = 60.20 Close = 1257. High = 1268. and lOO percentage represents a close at the high. culate the one-day strength percentage for tomorrow.52 SNIPER TRADING WORKBOOK Question Given the following set of prices for the day just completed.50% one-day strength percentage bullish condition at This particular reading suggests a slightly the close of yesterday's market.20) - 1700 28. .30- -1240. Here's the formula for calculating the one-day strength: (Close (High-Low) Low) = one-day strength percentage (1257.30 Low = 1240.20 cal- Answer Since 0 (zero) percentage represents a close at the low.
54 SNIPERTRADING WORKBOOK Questions What's the best way to trade an opening gap to the upside or downside? What's the probability that the gap will be filled at some time during the trading day? Answer Opening gaps to the upside should be sold. The percentages favor the filling of a gap approximately 75 percent of the time. opening gaps to the downside should be bought. . So-called extreme gaps-when prices open far away from the prior day's closing price-should not be faded/ since such extreme moves suggest continued movement in the direction of the gap.
an assumption learn from a person who the past 55 . .trader ever made . but from your mistakes~ The real transformation lessons and paid learn or can a mistake presented People who itself to you.r failures.has and learn comes from mechanical internalizing in the market rules. cannot Are you Can you Did it help you challenge or belief~ to repeat their .memorize from --have formulas .
If life were a series of effortless exercises. upon adversity as a minor setback. few of us would have the character to withstand adversity. tend to question authority. Answers There are no right or wrong answers here. I look grow. am willing to acknowledge mistakes. Is refusing to take a loss an ego . You need to be rigorous with yourself. An hour spent thinking about what motivates you in the market is well worth whatever effort it takes. how do they cope with market adversity? Do they take losses in stride? Or are they devastated by losses? Good judgment comes from experience. or do you rely on the advice of others? Are you an independent thinker? What was the last important lesson that you learned in the market? What did it cost you? If you knowanyone who has been successful in the market. resulting in large losses~ Perhaps you need to think about what you are doing. an opportunity to . persevere in the face of obstacles. Consider the following statements: . I learn from my mistakes and rarely make the same mistake twice.56 Questions SNIPER TRADING WORKBOOK Are you ever deceived by your opinions? Are your opinions truly your own. Do you repeatedly become stubborn in the face of market adversity and refuse to accept the inevitable. .
. asily won. You have to expend effort You always give au cannot leave a good thing rhen large profits are there for the I"he greatest sense of accomplishment orrectly identify one of the mistakes you ~top doi ng it.:ARN FROM MISTAKES? "/ re you trying to prove yourself right by proving ~ -"here are many ways to self-destruct in the 5 one of them. You need to spend some time Ihat motivates you on an unconscious basis. nd try and try before an answer appears.
it is impossible to put a point value on what constitutes a major trend. Due to changes in volatility and the differences among markets.There are two major daily trends per day. you will begin to see when these trends appear. But if you study daily chart patterns. 59 .
60 SNIPER TRADING WORKBOOK Question When do the two major trends occur? Answer In most markets. one in the morning and one in the afternoon. When the morning trend fails to occur before 12 noon East Coast time. . Because of the symmetry in the market. though not always in the same direction. you will see two daily patterns occur. the trend will typically occur during the noon hour. you often have trends which are of similar point value.
There is no centralized trading pit for this In recent years. First and foremost. every trade is consummated in pit. 61 . a needs to understand that there are a buyer and seller . in every trade. this form of on-line trading has become popular. The sole exception to this is when you trade a conas the E-mini. Moreover.the basics of how orders are exeon the floor of a futures exchange.
your order will be sent to the Chicago Board of Trade or the Chicago Mercantile Exchange. The bid is the highest price the buyers are willing to pay. For a trade to be consummated. So you place a limit order to buy bonds at 102-10 on a limit. The order is then given to an order-filling broker who bids or offers the order. Let's say the Treasury bonds are trading at 102-13. If you are trading a metal such as silver or copper. and the offer is the lowest price at which the sellers are willing to sell. If you are trading grains or meats. will exist. The job of the broker is to get you the best possible price as soon as possible given the restrictions you have placed on the order. how is it executed~ How is the price established~ What ki nd of orders can I place~ Answers All orders are transmitted to the floor of the appropriate futures exchange where the contract is traded. there will likewise be an offer. The broker understands that you are willing to pay less-called or better-but not more. You want to buy them. but you only want to pay 102-10. Since a bid. you place a limit on how high you will buy or how low you will sell. depending on whether you want to buy or sell. If you place a market order. the order is sent into the trading pit via runner or hand signal. The difference between the two is known as the spread. both buyer and seller have to agree on a single price. your order will be sent to the futures exchange in New York. Once the order arrives at the desk of the firm that your broker is using to clear its trades. If you place a limit order. or selling price. the broker will often just hit the offer if you are buying. The spread . or buying price. which is below the market. Now he must find a seller willing to sell at that price. or hit the bid if you are selling.62 SNIPERTRADING WORKBOOK Questions When I place an order with my broker at the xYZ brokerage house.
You can place in the of trading. broker also makes a note of your clearing firm so that properly credited for having taken the trade. depending upon the liquidity and of the market. That means that bids and offers single price for to take place. Meanwhile. and it prevents private deals from the prevailing market price. are consummated on the opening You can place fill-or-kill orders that are limit orders. . All the trades are consummated in the pit ! -known as open outcry.is reached. it is transmitted back to your reversing the process. The fill may be hand-signaled to the firm's desk. MIT (market if like stop orders. You can place stop orders .THE BASICS 63 be one or more ticks. on the the buyer and seller of your trade card the information: contract month. In either instance. is filled in the pit. understandably. There are also market on open (MOO) which. the inforto known to all parties right away. 150 years. or a runner may take the physical piece of carry it back to the desk. This open outcry system gives everyone a to participate in the trading. quantity. must be executed immediately or not at all. with few problems. This is a efficient system that has worked. price and initials of the opposThis information is then entered into a centralized and sent to the clearinghouse that is a party to all trades.
When comthe range of the day just completed. 65 . You average range over an early high or market bottom or top. the five-day range a yardstick against which to measure the likelihood of falling within its parameters. the average range can often tell you left in the market. Should you wish to trade late in the day.the five-day range has a variety of uses.
00 Answer The formula for calculating the five-day range is to take each daily range (high -low).70 2 16.60 1193.80 1166.50 24.70 89. the sum is 99.20 21.30 Low 23.80 points. sum the five ranges.00.90 5 215.20.90 4 23. the calculations are as follows: Day Range 3. calculate the five-day average High 37. eleven points difference. the five-day average range is 19.20 40.10 5 When you add these range numbers together.66 SNIPERTRADING WORKBOOK Question Taking the prices shown range: Day 1 below. On Day 6.00 and an early low of 1219. Accordingly. Assuming that . and divide by five.30 24.80 2 3 4 66.00 4 . Divided by five. let's assume you have an early high of 1230.
hit. numbers to the entries is very or very day will relative low-volatility and you A -. anticipated anticipated average 1238. may generate market. higher or get in prematurely prior Hence. With average range close range.80 will being average be hit. range but the = 1238. on the other hand. far away .80 It is do would be 1210.80).20 = 1210. The 67 and you at least the five-day and low. day's range. -on don't is unlikely average range the following expect to can also be used as a guideline day. points.80 the anticipated high would be 19. day you on a random will may generate find your- lower.FIVE-DAY AVERAGE RANGE of these numbers will will then calculate the hold through equal high the close of trading average. from high-volatility the market.00 early high -19. A you range buy must and sell numbers are generated these on be careful high prior in using low. and early that high + (1230. Because the LSS pivotal --range. both numbers probabilities numbers The five-day .20). of to the are a 13-point move 30 although exceptions possible.
By late March or early April the market often reaches a peak. but the overall pattern is remarkably consistent. perhaps related to the April 15 tax deadline. and the trend into the end of the year. . There are always exceptions to these genuine trends. the general trends favor a decline in early January (perhaps profit-taking selling). The Christmas hol idays are typically quiet. July or August. with the first two weeks in December characterized by a robust market. The early summer months are often characterized by a midsummer rally. with choppy and thin markets. September and October are typically down months in the stock market (witness the 1929 Crash and the 1987 October decline).70 Question SNIPER TRADING WORKBOOK Name the most basic seasonal trends in the stock market for the following periods of the year: January. The trend into the end of the year is typically bullish. with the lows occurring sometime in late October (a good buying opportunity?). followed by a choppy market in mid-April. culminating in a market top in late July or early August. October. late March or early April. Answer In a nutshell. followed bya mid-January rally.
how do we know for certain that we are right~ 71 .Yet this very desire often us at a disadvantage in the market.if so. Is there a better time to enter or exit the . typically are late in getting in the market. and late in taking when getting out. By seeking a sure-thing.
To expect a winning cycle to occur unabated is a big mistake. Chances favor a winning trade coming off a series of losing daysif you have a winning strategy. Assuming your trading methodology wins profits over time. . Should you~ Answer No matter how brilliant your trading strategies. Even the best systems have periods of losses. winning streakslike losing streaks-tend to repeat in cycles. The market just completed a four-day winning streak of your buy and sell signals. you are better off waiting until you sustain several days of losses than jumping in at the top of the equity curve. Tomorrow you want to back up your opinion with real money. but you were only trading on paper.72 SNIPER TRADING WORKBOOK Question You've just witnessed the most amazing confirmation of your trading methodology.
rejection lows.. prices back to the middle. little time at daily highs or lows. Once rejected. usually manifests itself at daily or intraday highs Price rejection usually occurs quickly. retreat 73 . since the market .
"' ~ ~~g~re 2.1 ~hen prices are rejected at a prior high or low. stop running @ intraday hi9h! UT )1~~.270 V-I738700 9:408 .1 ? /26/2001 12:10pm (MOT) 04/27/2001 OT-10 nOn0&'08/2001 0-18470 +070 0-17000 H-17000 l-18.74 SNIPER TRADING WORKBOOK Question Can you identify the point of price rejection on the chart in Figure 24.~~--~...4. I~ I:: fl ~ J ~ ~ -. it almost always signals a price reversal ~ .
. they should continue in the direction of the breakout.PRICEREJECTION: WHAT IT MEANS 75 Answer Notice how the market reverses direction once the stops have been run. When this does not occur. When prices go to new lows or new highs. it means prices will reverse.
you back on the road to profits. specific 77 .. .every trading strategy . . work. or selling aggressive .. however.to works as one would like. . . side of the market. strategies. at other times.. Sometimes. your These two and strategies require are designed They market is premature.
shortly after the open or just before a significant trend is about to occur. the market moves higher. it must be implemented quickly. You can also implement this strategy as one transaction. Should you wait too long. For this strategy to work. Let's say you are bearish on the market. First. you immediately reverse by buying three contracts. This strategy can be accomplished with one order. Second. and the market is about to run in the opposite direction. This strategy is best utilized. you need only five ticks on two contracts i n order to break even . you take the loss on the initial position. in which case you will lose on both positions. but you usually want to think of the strategy as two distinct transactions. Fearing the market is about to shoot higher. The exit-and-reverse strategy is used when you are fairly certai n you are on the wrong side of the market. you immediately reverse direction by taking the opposite position. You also risk getting whipsawed in the position. A conservative exit-and-reverse strategy is to use this technique only to . One contract offsets the loss in the short position. This means if you lose ten ticks on one contract. though. An aggressive variation of this strategy is to double the number of contracts when you reverse. Now you only need one-half the move in the second two-lot position to offset the entire loss in the first single-lot position. creating a loss on the position. the move in the opposite direction may have already occurred. The other two make you net long two contracts. therefore. You sell one contract in anticipation of lower prices. as soon as you sense that your initial position is wrong. As soon as you sell.78 SNIPER TRADING WORKBOOK Question What are the market conditions that best lend themselves to utilizing the exit-and-reverse strategy and the averaging strategy~ Answer The two are decidedly different and used under differentcircumstances.
is used you exit the second in an entirely different strategy use this strategy but when as the you sell more reluctant sense. against the position market as the market rises against declines most to try this because a loss. In time from sell within losses. as long where however. The advantage additional contracts. when you. than three times.OF TROUBLE 79 position market the buyMost this it is out and When losses. Once . and price the equilibrium the sell zone. trade. hence. any gains will is that you get a you have taken be magnified. selling. Beyond When equilibrium ---lest up to the . as it doesn't This means you must know levels are. of averaging Moreover. trading. I probably don't you must keep a tight want to average more rein on your position. -you average. the rule average is consolidating. break the support or sell more.618 you end up with pullback. down from you the entire position immediately! zone. market Under the they are following circumstances. When to buy when you may have entered still looks good.. and Ifitisnot.618. serious . the .. you.next averaging prematurely you you buy never more you are even.
There are patterns that the best opportunities for buying and selling. and . does it make much difHow about selling in a declining market~ could make the case that bottom-line profits are the only criteria for a winning strategy. 81 .is an important relationship between yesterday's close and If the market is going higher. ones we will examine here.
On the contrary. and the market opens 7. You don't want to buy too high above yesterday's close and you don't want to sell too low below yesterday's close. But if the average daily range is 20. chances are you have another 13. in reverse. you may be looking at only 6. but lower still may offer a buying opportunity. One way to look at the relationship between the prior day's close and today's open is in terms of the average daily range.00 points. When you buy above yesterday's close.1ing strategies do better when the market opens lower. however.00 points to the top.82 Questions SNIPER TRADING WORKBOOK How do you want the market to open if you are buying today? How do you want the market to open if you are selling? What is the key relationship between yesterday's close and today's open? Answers There is a paradox at work here. If the average daily range is 20. since the bottom may be falling out. The same is true when you sell below yesterday's close. If the market opens extremely lower. applies to selling on the open. and slightly lower when selling.00 higher. Chances are. . you want the market to open slightly higher when buying. Se1. Doesn't this contradict the notion of buying low and selling high? No. If a market opens too low. Buying strategies do better when the market opens higher.00 points to the upside. the large gap up on the opening will be filled and the market will trade lower. The paradox is that slightly lower is a good sell. So much of what works is a matter of degree. in this scenario.00 points higher. the probabilities favor the position. The same notion. bargain-hunters may bid the market up. It is difficult to have one blanket rule that covers all situations. you want to be a seller.00 points and the market opens 14. closing the gap.
can remember the bullish enthusiasm for purchasing stocks March 2000, right at the market top, you will understand The market is always the most bullish at the top and at the bottom. This notion of trading against marsentiment is known as contrary opinion, and it almost always ---substantial profits for those willing to bet against the
What does contrary opinion measure~ How can you use it to pinpoint turning points in the market~
Contrary opinion attempts to measure market sentiment, specifically, the degree of bullishness or bearishness among traders at a given time. There are companies that specialize in generating market sentiment numbers on a daily and weekly basis. The numbers are published in Barron's and other periodicals. Another source is "Market Vane's" Bullish Consensus percentages that are available to subscribers via e-mail on a daily basis. Typically, the higher the percentage reading, the more bullish the market. If the Bullish Consensus percentage is just 12 percent, you have a very bearish sentiment; a reading of 97 percent would be extremely bullish. The key to using the numbers is to fade-or trade against-extreme readings. Hence, a market that has a 94 percent bullish sentiment is ripe for a selloff and should be sold, because everybody has already done their buying at that stage. They are waiting for new buyers to enter the market and push prices higher. At the first sign of weakness, the buyers will all rush to the exits at once, offering the market lower. This, in turn, will generate additional selling and soon you will be off to the races-Iower. This phenomenon works in reverse at a market bottom. Gloom and doom will prevail when prices have fallen to their lows. This will be reflected by a low market sentiment, typically 10 percent or lower. Such a market is ripe for reversal. There are other ways to use market sentiment, but its most significant value comes as a reversal signal in overbought or oversold markets. One disadvantage with interpreting the numbers
regularity to warrant a market signal.12-year study of day-of-the-week "_"___'L on Tuesday afternoons. 87 . '. with tend to be a lackadaisical by mid-afternoon. a genuine opportunity seems to occur . Tuesday mornings patterns reveals a hidden Following on the heels of a affair.
East Coast time.M.88 SNIPER TRADING WORKBOOK Questions What is the prevalent market pattern that occurs on Tuesday afternoon~ When does it occur~ Answers The composite chart for S&P futures clearly demonstrates a buying opportunity for Tuesday afternoons. The typical rally occurs at approximately 2:30 P. .
hence my designation of to mean long/ sell/ and sell short. In observing a variety of --. and a short sell day. and equity markets. a sell day.Douglas Taylor first observed this phenomenon in the markets in the 19505. in the 89 .since Taylor first made this observation.. He claimed the market was "engiwithin" to repeat a three-day cycle that consisted of a day. The same patterns appear routinely ~ options. it appears that little has changed.
the strong hands. these transactions were manifested by a decline followed by a strong rally. By the third day. you better think again.90 SNIPER TRADING WORKBOOK Question What is market engineering market? and how does it manifest itself in the Answer Human nature today is very much as it was fifty or even a hundred years ago. caused the market to decline. or below the previous day's high. On the so-called buy day. One is likely to let down his guard if he thinks the profits will continue to flow. The ensuing losses then caused the weak hands to abandon positions and sellout their positions-to. so they created a rally to cause the weak hands to want to jump aboard lest they miss a spectacular opportunity. Now the strong hands wanted a selling opportunity. slightly above. the strong hands. the same people who are now covering their short-sale positions and earning big profits. the market engineering was back in full force. and the strong hands sell at the artificial highs. Likewise. the weak hands throw in the towel and sellout their positions at a loss-to. according to Taylor. Once the market fails to rally off the highs. the strong hands would often take profits at. In the market. . naturally. of course. The weak hands jump in as buyers. the greed side of the equation hasn't changed. through. On the second day of the three-day cycle. Strong hands. People don't like to lose money and they can be intimidated into acting against their own interests by inducing the element of fear. Taylor claimed that knowledgeable market forces sold the market down in order to create a buying opportunity for themselves. This is the central premise of Taylor's theory of market engineering. If you don't think the rich get richer in the market. either.
the sellers at the bottom are selling because they --the market will break lower. the buy day. That's the fear component. the buyers want to get albeit three days late. Unfortunately.ENGINEERING 91 cannot find anything illegal about this activity since everyone in his or her own self-interest in the market. at another way. everyone gets he or she wants. the market goes down to go up-and . lest they miss an excelThat's the greed component. only those who buy low and can earn the profits. In a sense. the short-sale day buying at the top.
Can he endure the risks or must he have certainty before he enters a The reckless trader might view the market the way a ---a video game-perhaps a fun way to pass the time. The fearful trader needs to reevalhis reasons for being in the market. the thrills of trading.people are caught between the proverbial rock and a hard when it comes to trading. But can he make 93 . enjoys the rush. ideal is a middle course. or their reckthem to overtrade. Either their fear of losing keeps picking up the phone and taking a trade. in which case they cannot put down.
At least for the moment. "Wait a minute. It looks like it might trade lower. How do you react? Answers In both instances. When the market reached that price. The challenge is to rise above. So you double the number of contracts on a market order. your shortcomings. If you see yourself here. You sustain the biggest loss of your trading career. You've been making reckless and uninformed trades lately and your equity is down. and overcome. What held you back from executing your game plan? Or consider this scenario. that was the bottom. You are feeling good. The psychological aspects of trading are among the hardest to master. You knew you wanted to buy the market at a specific price today. At first. After the dust settles. But then adversity hits. It is one thing to know what to do and qu ite another to do it. and you decide you won't give up without a fight. however. Never mind that most people face the same pitfalls. the answer is the same: Stop trading. But then disaster hits. You need to score big today to make up for those reckless losses. you are not alone. the market goes your way. This is a little like saying that misery loves company. you said. . Both can be mastered if you are determined to succeed. you are going to be at a disadvantage in the market. Let's watch it for a while. you begin to get some of your profits back. U nti I you can wed your market knowledge with your psychological knowledge. At first. The market surged higher and you weren't aboard. The reckless trader needs to learn discipline. The fearful trader needs to learn to step up to the plate. you need to go back and reevaluate what you are doing. You are not in a psychological frame of mind that permits dispassionate self-analysis.94 Questions SNIPERTRADING WORKBOOK You mapped out your strategy last night." Needless to say.
you will be training yourself to overcome your fear-which. can be a formidable obstacle to success in the market. By doing this. There's no failure in trying. Perhaps the market isn't for you.ll begin to earn profits and have confidence in what you are doing. This means back to the trading boards. and that should compensate you for any loss of thrills that you used to gain from trading. Trading is a little bit like drinking. Your account will start to grow. By putting down the phone and concentrating on the best opportunities. you will be allowing yourself to succeed. and so on. If you try and fail. Think about where you want to go and try to find a path that will take you there. You will sustain losses because your trading strategies are faulty. . Having discipline in your life creates an inner confidence that is hard to duplicate in practically any other endeavor. Or you wi.96 SNIPER TRADING WORKBOOK the second day. I understand. Having a predinner cocktail can be highly stimulating and enjoyable. The outcome for the trader who lacks discipline should likewise prove valuable. but guzzling a whole bottle will create problems in your life like you wouldn't believe. you will have learned a valuable lesson. The best traders are disciplined traders. There can be only two outcomes to your decision to do this. You can move on to something else.
In this instance. 3 Wednesday tends to be the choppiest day of the week. 4. 2 Tuesday tends to consolidate in the morning hours with additional upward pressure on prices in the afternoon. Friday tends to open strong and rally temporarily. though. The exception is when you are in a bear market and the prior three days have been lower.98 Question SNIPER TRADING WORKBOOK What is the typical weekly pattern for stock prices as reflected in the major averages and indices~ Answer Given that a variety will of factors there will determine how pattern any one-day that appears: price pattern appear. is a consistent Monday tends to be the strongest day of the week with upward price pressure beginning at the open. look for selling to push prices lower on Thursday. In general. Thursday typically will rally. in anticipation of Monday's price boost. Initial selling will often push the market lower on Friday morning following a higher open. bullish markets will see prices closing near the highs on Wednesday. Thursday is the countertrend day. whereas bearish markets tend to close near the lows on Wednesday. This is particularly true if the averages closed in the upper range of the day's range on the prior trading day. By early afternoon. bargain hunters. will bid up prices into the close. . If the market has been up on the prior three days. 5.
99 . you must be able to give the both accurately and quickly. it is -vital that you place your order with precision. there is less hands-on help in the brokers and more anonymous order takers on the end of the line.2 the easiest things about trading create the most questions. Because mistakes can prove costly. Morebecause timing is so important. does a new trader go about placing an order? In the current -of discount brokerage.
50 per contract) below your entry price. you decide to place a limit order to buy two September bond futures contracts at 101-00.S. Your ticket number is 752. you want to write down the order. Even before you call the broker. With the nearby September Treasury bond contract trading at 101-03. Once you agree. you want to place a stop-loss order six ticks ($187. Once you call. Here's what you write down: "Buy two September bond futures 101-00. at 102-00.100 SNIPERTRADING WORKBOOK Question You see an opportunity to make money in the U. you want to buy two September bond futures at 101 even. your order will go into the floor broker's deck. so you want to treat each order separately. saying: "For account No. You also know that once you are in the position. I want to buy two September bond futures at 101 even. assuming the order is filled and the stop not hit. an exit order. an order is an order. or better.23848. a stop order (if you are filled). Should prices move down to 101-00 . and." Assuming the market is still above 101-00. To the person taking your order.23848." He will repeat what you just said and ask for your confirmation.is not. day only. you plan to take profits one basis point higher. For Account No. he will typically assign this order with a ticket number so that it can be tracked. Treasury bond futures by purchasing bonds in anticipation of rumors of an impending interest rate cut by the Fed. What do you tell your broker~ Answer We are talking about three separate orders here: a limit entry order. Assuming the order is filled and the stop ." Here's what you tell your broker when he picks up the phone: "This is John Jones. the broker will read back the order and ask you if you are in agreement with him.
Now the market must cooperate. You give him the specific price. If there is even a remote chance turn around and hit the stop. resulting in a half-basis-point profit." Now you will receive another ticket number. you must canthe order. Otherwise. the market begins to rally. You don't tell him you want to place a stop-loss order six ticks below the market or the entry. Since it is understood that most are good for the day only. as anticipated. "This is john jones. you may then cancel your stop if the market is trending higher. I want to sell two September bond contracts at 100-26 on a stop. and soon it is trading at. "You bought two september bond futures at 101-00. Knowing you want to risk just six ticks. The price of 101-00 represents 3232 when translated into 32nds. You call your broker again.YOUR FIRST TRADE: HOW TO PlACE AN ORDER 101 and he can find a willing seller at that level. ---~ I want to sell two September Treasury bond futures at 102 or better. At this point. you may decide to place your exit order to take profits at your desired limit at 102-00.000 minus commission fees. Your broker will then call you back. For Account No." This is the time to place the stop. If you want to be out at the end of the day regardless of price. sell order will be executed and you will have a $2. You tell your broker: "For Account No. You now have a resting stop order below the market. you now give him the stop order." He repeats the order and gives you another ticket number. hopefully the stop-loss order will not be hit. For your sake. Rather. you will find yourself short two conprofits. If prices rise above 102-00. 101-16. let's say. he will fill the trade for you.23848. or simply allow it to expire end of the day's trading. Six ticks below their number (3232 -6 = 3226) is 100-26. both the stop order and the profit-taking order .
The trading month (March. etc. Whether you want to buy or sell 4. Swiss stop) While confusing to new traders. you want to make a note that the order was filled. with one exception: If you initially bought. if you initially sold. limit price. For example. Here's a summary of what the broker needs to know: 1 Your name 2. June. you must sell. if the order is executed. to get in. market on contract (U. Treasury bonds. The futures francs." When the time comes to get out. September. The number of contracts (1. order placement is very straightforward once you get the basics down.) 7.102 SNIPER TRADING WORKBOOK and exit via a market order. December. 6. and the . that when you decide to get out you place the identical order. whatever) 5. The close. etc. however. you must buy.S. S&P 500. 2. Each time you place an order. Most traders keep a log of all thei r trades. the contract month. or type of order (market. you want to write down the order. But the number of contracts. Your account number 3. if any. 10. It is vitally important. So you would say: IiI want to sellone September bond futures at the market. Then. you might say: IiI want to buyone September bond futures at the market. you must sell the identical number of contracts with the same expiration month." Whether you get in or out on a market or limit order is up to you. 6.
If you are trading stocks. Options are more complicated than stocks or futures. Not to confuse matters. But. .YOUR FIRST TRADE: HOW TO PLACE AN ORDER 103 futures must be the same. Your brokerage house will provide you with information on placing option orders. you would initially sell short: 'iI want to sellone September bond futures at the market. you will simply add to the position. use extra caution when placing them. Do you want to buy or sell a put or a call? What is the name of the underlying stock or futures? What strike price option do you wish to buy or sell? Are you entering into an opening (new) or closing (old) transaction." If you try selling when you are already short. you don't have to concern yourself with contract months. of course." When it comes time to get out. if you are trading options. you must buy: IiI want to buyone September bond futures at the market. you must add a number of qualifications to your order. but if you anticipate declining prices. win or lose.
you want the close. The best time to You also want sure you are the market wait until using this order on a day on which you place the order up your in time. That means into emotional buyers. ket and call you with (say lor the MOC may be executed Second. this means the psychology you have to understand approach the losing translates losses. First. to the close). become side. just before direction. to be on the winning at work side are rising. the broker an open 2 minutes position prior why overnight. if the to take the other side. more than you are on the winning the order? prior the close to place 10 minutes Then you will and cancel to the close. moment MOC questions. anything more The winning if prices buying. as the losses to stem the profits to get the order To understand trend. if you wait too long may not be able side of the in the maris starting to the shortto rise.106 SNIPER TRADING WORKBOOK Questions What is the best type of market market always order. order. orders They can help you create of being a winning filled in a have the advantage of high liquidity. ket as you squeeze into the pit in time. emotional sellers are going This panic growing short-sellers to grow For the more panicked as prices continue buyers to escape continued . there will enter when Why market don't a MOC be someone order is trending. broker the order is 5 to 7 minutes you want to buy or sell. thereprior to the close to make on a day side. This means there typically are many buy- ers and sellers at the close. you place the order? What's versus a normal Are MOC orders the advantage Why to using a MOC a position 10 or 15 minutes not hold morning? prior to the close? overnight and get out on the open the following Answers These are all good exit strategy. may change cancel have to exit the marIf you leaving anyway. Whether fore. filled? to use a MOC order? When should order.
going is fine. the close. however. The only exception to this would be when you wait late to place the order and get a busy signal fror:I1'/your broker. so holding on in hopes of a trend into close doesn't make sense. In the absence of a trend. your losses short by getting out well before the close. If the has been down. assuming you understand the risks. all trading must cease. therefore. the probabilities favor back to the middle. Another time when it pays to avoid the close is when you have choppy market. buyers will only work to the advantage of the shorttrend lower. If you are long. this scenario for you. The rule here Winning positions tend to improve in the overnight market. There are always exceptions.to get worse. this works in the opposite fashion. wait for the close. if the trend is against you. the closing bell rings. The rule: you are winning. Market on close orders are almost --filled.ON CLOSE ORDERS: A USEFUL EXIT STRATEGY 107 the market overnight. Going overnight involves taking on a lot more risk. but risk the exposure~ If your perspective is long-term. . selling into a mob of buyers. Otherwise. and . Get out MOC.
in the market. the small loss grows larger. it is already too late. With time.is not enough to place stops-mental or actual-to limit your -. and the hapless trader is grasping at straws in a vain attempt to at all costs. a favor and learn the warning signals. So many trading disaster stories with a small loss. 109 . You need to know when to place your cards and get up and leave. of course. So do . By that time.
This occurs when the market repeatedly violates both the intraday highs and lows. Once the dust settles. Ironically. and both can defy conventional analysis. How do you make sense of random patterns? On the report days. you have to recognize that everyone has losing cycles in the market regardless of what he does. and on report days when the news is subject to varying interpretation. In such an environment. you can begin to try to make sense of the price action. this pattern is especially problematic because his aggressiveness only serves to dig him in deeper. getting aggressive only compounds the losses. indeed. sell the news" market pattern. Just remember that market action is often the very opposite of what might be expected.110 SNIPER TRADING WORKBOOK Questions What is the classic market pattern that is almost impossible to beat? How often does it occur? What should you do if repeated attempts to wi n are frustrated by the market? What do floor traders know about market patterns that goes unrecognized by the trading public? How do you adapt to changing market conditions? Answers To begin. you wilt find the search-and-destroy pattern in the market on two very distinct types of days-when nothing happens. Perhaps the most difficult market to trade is known as the search-and-destroy pattern. you can do yourself a favor by waiting until the report is issued. This pattern manifests itself when a whipsawing price pattern refuses to trend. but on . For the aggressive trader. The market has risen on hopes of a bullish report. This would be an easy call if the market were cooperative. expect them and learn to capitalize on them. Both can generate a whipsawing market. The report hits and the market declines. The idea is to minimize the negative impact of these cycles and to. One explanation for this behavior might be the old "buy the rumor.
exhibit you If you were to find that less patterns. do well market shows directional quiet Tuesday In day-of-thefollowing if only want did for to on buy morning a break way. . Put another you .' from knowing trading when days to run. what you market morning needs of or four I the very hours opposite in the on morning. of the market Even players that will can can three away. to have a strategy has just before to rethink winning to think opens with changing market conditions.. The more ..LOSSES: WHEN TO PULL BACK heels . If you losing end on each one. of course.How You of this news. This most be on narrow-range way or another. one pattern often occurs not on So. morning higher sell.all Apart coping n . equity walk on It is not worth bad portion of your particularly prevalent. probably similar need this particular pattern is not all that . major run higher. be more manipulated in a market come up on losing day. able if you transition experience. higher The by a Tuesday needs time type simple specific However. it needs time to its trending 180 degrees. is always the ' the genuine trends. . ways. rigid losses to make the approach. Fortua liquidity it a shot be a problem times. classic search-and-destroy . tomorrow.. the market sense the might of this~ days soar One higher suggestion until only 111 to crash is that you do you simply make leave report alone some sanity market.The you'd when the trend. . if there is a report the easily sidelines. every trading day. That's when If a market to consolidate you have have been For instance. you would . while cap- . breakouts. of flexibility are open from same: is a difficult to the a more to limit challenge you traders. a/day if you a consistent fading and basis that by buying strategy very this on little is the . In this be followed is the Cultivating most market this a Monday morning to rest.. Tuesday scenario.
of course. Better to use slow stochastics as a divergence tool. running them on a line chart b~low the one. at market bottoms. High readings suggest an overbought market and low readings suggest an oversold market. 113 . The problem with this approach. the premature selling may result in profits left on the table or. worse yet. a short position ina rising market. If you are selling into a strong market.or five-minute bars. as with the bullish consensus. is that this indicator can get high-and stay high.Many traders use slow stochastics as a relative strength indicator. The reverse is also true.
Then prices rise to new highs. . the second rally on the slow stochastics chart fails to rise to new highs. suggesting completion of the upward price pattern. Get out immediately. This is usually a sign that t~ve is over. the pattern was symmetrical in time. The next trend. The move is over. This is particularly true if the second rally in prices occurred over the same time period as the first rally. they create a divergence. What is going on? Answer You have a reversal occurring. When confirming indicators fail to match price patterns. Rather. at least temporarily. is not matched by slow stochastics. however. is down. You consult your slow stochastics chart at the bottom of the screen. The second high on the price chart was probably the final high. The second rally to new high ground. A clear-cut top is formed.114 SNIPER TRADING WORKBOOK Question Prices have been rising and profit-taking occurs. The first rally is matched identically by the slow stochastics chart. In this instance. The market is not returning to that price.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.