The Advanced Trend Trade

2.0 Guidebook
By Rob Booker
Updated June 21, 2018

Link to the class materials:

https://tfl.mykajabi.com/products/the-rob-booker-trend-trade
https://tfl.mykajabi.com/products/the-rob-booker-advanced-trend-trade

PART ONE: Setting Up Your Charts

Missed Daily Pivot Points

What’s a Daily Pivot?

A daily pivot is yesterday’s High Price, added to yesterday’s closing price, added to yesterday’s
Low Price, then divided by 3.

It shows up (on my charts) as a blue horizontal line.

A daily pivot is sort of a “mid range” or “average” price. By themselves, daily pivots aren’t that
interesting.

But a MISSED daily pivot - that’s interesting.

A missed pivot point was not touched by price on the day it was created.

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The blue levels circled in red are missed pivot points. They were not touched by price on the
day they were created.

90% or more of big trends begin with a missed daily pivot. Maybe more.

Daily Pivot Point Clusters

When multiple pivots cluster next to each other, the market is generally gearing up for a
breakout.

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In the chart above, you can see that the daily pivots (the blue lines) are all sitting next to each
other. Day after day, they form and they’re close to the previous day’s pivot.

This means that price isn’t moving very much.

Volatility is low.

Price is ready to break out.

We’ll come back to this later on - but for now - just remember this: ​clusters of pivots precede
new trends.

The Moving Averages

You’ll need two moving averages on your charts.

The 9 Exponential Moving Average

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The 72 Simple Moving Average

Moving averages are easy to set up.

You don’t even need to set them up immediately - we’re only going to use them later when we
discuss profit targets.

The Kumo Implied Volatility Indicator (FX / Futures / Stocks)

The Kumo Implied Volatility indicator is a measure of market volatility.

NOTE: Inside your course materials you’ll find the source code for the Kumo indicator for
TradingView, and a download of the Kumo Vol indicator for MT4.

If you are using TOS - you can simply use Historical Volatility - and I will show you how to set
this up in the next chapter/section.

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For now, here is a chart with the Kumo indicator:

The Kumo line is pink. The higher the line, the greater the volatility.

The Kumo indicator measures the distance between the SpanA and SpanB lines in the famous
Ichimoku Cloud indicator. We don’t need to see the whole entire Ichimoku Cloud indicator - we
just want to see how wide the SpanA and SpanB lines are - ​and this indicator does it for us.

We use the Kumo indicator because there is no accurate or useful implied volatility indicator for
FX, like their is for stocks.

The greater the volatility, the more likely our stops are to get hit.

The lower the volatility, the better.

Remember that: ​The lower the volatility, the better.

Remember: ​Low volatility market conditions lead to big, big breakouts and new trends.

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The Historical Volatility Indicator (for Stocks)

Historical Volatility simply measures … well, ​volatility going back X periods.

In this case, the lookback period is 20.

For most stocks, I like to see the historical volatility below .40, and if you’re looking at a really
fast-moving stock (TSLA, etc), then you might want to lower that number to .35 or even below
.20.

Here’s what a chart looks like with historical volatility:

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PART TWO: The Advanced Trend Trade, 2.0

Here are the rules:

1. Financial instrument must miss a pivot. This requires a full day of no touching of a pivot,
on the day it was created.

2. Volatility must be low. This is measured by the Kumo IV indicator or, if you are trading
stocks, by Imp. Vol. Volatility must be low at some point while the pivot is missed - see
later sections of this document for ideal readings for different financial instruments.
When volatility is low and a pivot is missed, it’s a sign that the market is steadily gearing
up for a big break and a trend.

3. If both conditions are met, then a momentum breakout trade is placed in the direction the
financial instrument was moving all day. Trades are stacked to increase the size of the
position as the position moves in our favor. Stop loss is placed at halfway the distance to
the daily pivot that was missed or closer.

I do all of this from the 60m charts in FX and Futures.

And the 30m charts in Stocks. (15m would be ok as well).

This is a trend trade:

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1. The pivot is missed.
2. The Kumo IV during the time that the pivot was missed had gone under 33 (this is a
good number for JPY pairs, which can be extra volatile - so we are looking for really
really low volatility - see the table in later sections for more information about volatility
readings for each financial instrument).
3. Sell stop trades are placed below the lows.
4. Price breaks lower and the trend trade is opened.

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This is a trend trade:

1. The daily pivot is missed. It is not touched by price on the day it was created.
2. The Kumo IV was below 33 during the day that the pivot was missed.
3. Buy stop order is placed above the high of the day.
4. The buy trade is open, with a stop placed halfway the distance to the daily pivot that was
missed.

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This is NOT a trend trade:

1. The daily pivot is missed.

2. The Kumo IV indicator is NOT below 33 at any time on the day the pivot is missed. ​This
means volatility is too high and there is too great a chance that we will be stopped out of
any trade that we take.

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This is a trend trade, BUT we don’t take it:

1. The daily pivot is missed.

2. The Kumo IV was below 33 during the day that the pivot was missed. ​Note that it does
not have to remain below the 33 the entire day.
3. Sell stop orders are placed below the lowest price of the day (the day that the pivot was
missed).
4. Orders are canceled after 48 hours - so the sell stop trades never opened. ​If more than
48 hours pass since the missing of the pivot, then there is not enough evidence that
traders did not intend to start a new trend.

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This is a trend trade that stops out:

1. The daily pivot is missed.

2. The Kumo IV indicator is below 33 during part of the day on the day the pivot is missed.
3. Sell stop orders are placed below the lowest low - and then, just a few hours later, the
first sell trade is opened.
4. Price retraces and moves halfway the distance back to the daily pivot that was missed.
This stops out the trade. This is a loss. We have a good cry and then move on.

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This is a trend trade - but where is our profit target?

1. The daily pivot is missed.

2. The Kumo IV is below 33 during the day that the pivot is missed.
3. Sell stop orders are placed below the lows of the day.
4. The sell trade(s) open. Price falls. But where is our target?

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Profit Targets on Trend Trades

Remember when I mentioned that you’d need two moving averages?

The 9 EMA and the 72 SMA?

Well, we’re going to need them now.

Here’s a trend trade that made a profit:

1. The daily pivot is missed.

2. The Kumo IV is below 33 during the day that the pivot was missed.
3. The sell trade is opened.
4. The 9 Exponential Moving Average (in red) crosses above the 72 Simple Moving
Average (in black). The trade is closed. ​The moving averages act as a trailing stop.

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PART THREE: More Trade Examples
This is a trend trade on the CAD/CHF:

1. The daily pivot is missed.

2. The Kumo IV is below 40 (this is a good reading for CAD pairs, you can refer to the table
in later sections for more information).
3. Sell stop is triggered and a trade is opened.
4. The 9 crosses the 72 - and the trade is done. ​But price continues to rocket lower - so if
you do want to leave one last part of your trade open, you might be able to juice up your
gains.

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Here is another trend trade on the CAD/CHF:

1. The daily pivot is missed.

2. The Kumo IV is below 40 during the day the pivot is missed.
3. Sell stop trade is triggered.
4. The 9 crosses the 72 - and the trade is done. ​Even thought this trade WAS profitable, it
closes at a loss because we’re waiting for the moving average crossover. You might
want to consider testing hard profit targets and/or trailing stops so that you don’t give
back as much of your gains.

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This is a trend trade on the EUR/USD:

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PART FOUR: Stocks
Trend trading on stocks works really similarly.

TOS Chart Setup is ready to go right here:

http://tos.mx/pXEpFl

This is a trend trade on a stock:

1. The daily pivot is missed.

2. Historical Volatility (set to 20 days back) is far below .30. That’s excellent.

At this point - we can set orders to buy the stock above the highs that it made, or we could
simply buy a bull call spread. A bull call spread might buy an option with a strike just above
where we’re trading now - with an expiration 15-30 days away. And then sell a call with a strike

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20-30% higher. Your max gain is the difference between the strike prices - which does cap
gains. But at least the total risk on this trade is limited to the initial debit to start the trade.

Of course, there are other options strategies you might choose:

1. You can buy a call outright. This is a directional bet and the max loss is limited to the
price you paid for the option.

2. You could buy volatility - in any form that you like - because no matter what, it’s very
likely that volatility is going to increase from here.

3. You could sell puts with some kind of expiration.

One thing I wouldn’t do here - I would absolutely not write covered calls (which I hate anyway) -
if there is one thing we believe here, it’s that the stock is headed upward.

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This is a trend trade on a stock:

This is AMAT:

1. The daily pivot is missed.

2. The historical volatility dips below 20 on the day that the pivot is missed.

We can set up an order to short this stock (and there’s a nice rise upward on the day after the
pivot is missed). We could also buy a bear put spread. We could also just buy a put (I have to
admit, I do like doing this)

If we’re going to buy a put, we’re looking for options with an expiration in the next 15-30 days. It
doesn’t have to be an in-the-money option - remember - volatility is going to go way up (that’s
great) and it’s going to start moving fast in our direction (that’s even better). Time decay is not
our worst enemy here - we are going to know within 24-48 hours if this trade will work.

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This is a trend trade on a stock:

This is AMAT, again:

1. The daily pivot is missed.

2. The historical volatility is low. Really low. This is fantastic.

The reason I like the idea of buying calls here - in any form - is that I’m reasonably sure that
within 15-20 days we are going to see the stock rise 2-6% or maybe even much higher. I don’t
want to worry about stop-losses or anything else. I’d be willing to simply buy an option and give
it the chance to do well over time.

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This is a trend trade on a stock:

This is TGNA (random name)

1. The daily pivot is missed. It’s actually missed on the day of earnings (after hours). It falls
- then earnings are released and it pops upward, but it’s not enough to tag the pivot.
2. The historical volatility is really low the day that the pivot is missed.
3. Maybe you wait (this is always an option) - maybe you even wait (for a stock) 3 or 4 days
until price drops below the lowest low on the day that the pivot was missed. ​And then,
and only then, maybe you decide to buy some puts - when volatility has gone lower.

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Appendix
Here are some Kump settings I like:

JPY Pairs: 33
CHF/CAD/EUR: 40
Stocks: .35 on Implied Vol, or .2-.3 on Historical Volatility (20). You have to open up your charts,
and find a setting between .2 and .3 that suits you. (I like the lower settings).

We change the number because not all financial instruments are as crazy as each other.

What is “calm” for one instrument is not for another.

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