Power Spike

THE
Power Spike
Stock Trading System
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Logical Trades, Inc.

http://www.logicaltrades.com/combospecials/psss&ltma/
Copyright © 2005 Logical Trades, Inc.
This book is Presented by Logical Trades, Inc.
St Cloud, Florida
Author: Kevin Butler, Technical Analyst
Copyright© 2003, 2005 Kevin Butler
All rights reserved
info@logicaltrades.com

THE POWER SPIKE
Stock Trading System
INTRODUCTION
My name is Kevin Butler and I want to thank you for the

opportunity to share exciting and important information that
can dramatically affect your stock trading performance.
As a technical analyst and active stock trader with over

twenty years of experience, I know the ups and downs every
trader faces. Earning consistent, long-term, superior profits
is not an easy task. Let’s be honest, if it were easy to make
money in the stock market, everyone would be doing it.
Trading success can be achieved, but only by investors who

take the business of trading very seriously. Stock trading is
NOT a game, a hobby or entertainment medium. Those who
treat it as such will pay for it. Stock trading is a serious
venture with real financial consequences.
The stock market is the most fiercely competitive arena in

the world. And the money at stake is real. As I often say in
the opening remarks of my personal appearances, “Get
serious or get out, otherwise you WILL get broke!”

A serious trader achieves consistent success by using high
quality tools and applying those tools properly. The Power
Spike Stock Trading System is a powerful, high-quality tool.
I’m going to reveal this technical pattern, explain why it

works and detail how this system should be applied or used
to achieve consistent, maximum performance.
When you have completed this book, you will have a very
powerful weapon in your arsenal. And if you use this system
as detailed, you will achieve consistent, profitable
performance. I use this system all the time; it is one of my
favorite trade patterns. Therefore, I’m not going to just talk
about trade theory or hypothetical situations, I’m going to
discuss concepts and principles that are practical and
actually work in the real world of stock trading.
If you are serious about your trade performance, then you

are about to discover a trade system that consistently
produces explosive results.
But this is not an elementary level trade system.
The approach I use and the information I publish is

professional level. It is designed for those who are serious
about pursuing consistent profits in the trading business.
There is a right way to use the trade tools at your disposal.

And I will clearly explain how this trade system should be
used to achieve maximum profits with minimum risk. If you
deviate from the principles I reveal, you won’t achieve
consistent success. But if you follow the information
presented, this will be a power weapon.

Let’s begin this exciting adventure!!

1. POWER SPIKES
Most technical analysis tools, by themselves, do not provide

enough information or do not offer a high enough level of
reliability to warrant a strong level of confidence in predictive
value. This is a sad truth, but one that only a short amount
of trading experience will reveal as factual.
As a result, most traders and analyst do not usually rely

solely upon a single technical indicator to make important
trade decisions or analysis conclusions. Most will use a
combination of indicators to understand the current condition
and make a logical prediction about the short-term price
movement.
The theory is that while indicators "A", "B" and "C" are, by
themselves, not accurate to a high level of confidence; their
combined information becomes far more accurate. This
theory is proven generally correct in practical application.
But there exist a very few indicators or technical conditions

that are, by themselves, highly accurate and reliable. The
Power Spike is such an indicator.
Unlike many other indicators or technical patterns, when a

Power Spike is located, one does not need to refer to other
technical tools for confirmation or wait for follow up action to
verify the meaning or importance of the signal.
A Power Spike is a truly unique indicator that is technically

strong enough to stand on its own.

1.1 POWER SPIKES DEFINED
Stock charts, in their most common form, are presented with

two types of data: price and volume.
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The price section of the chart shows the opening, high, low
and closing price of the stock during the chart period.

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In the chart above and below, each bar represents the price
movement of a single day, so the chart period is referred to
as a “daily chart”.
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There are many chart periods available to traders, from tick
charts (where each bar represents any movement in price
and isn’t tied to a specific time frame) to yearly charts (where
each bar represents the price movement that has occurred
during an entire year).
The technical principles of The Power Spike Stock Trading

System will work in ANY time frame. So no matter what
chart period you may be viewing, the system will work
equally well.
The daily chart is, by far, the most common time frame used
by stock traders. We will be using the daily chart for
illustration throughout this book.
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In addition to the price action, the chart also displays the
volume for each bar. The volume represents the number of
shares that have been traded during the chart period.
In this case, each volume bar represents the number of

shares traded each day, since our chart period is daily.
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As one can see, a chart provides an excellent way to

compare one day’s action to another day’s action. It visually
presents a history of price and volume action.
Why does the standard chart present both price and

volume?
Because there is a basic principle in technical analysis that

states, “volume confirms price movement.”

Volume and price have a cause and effect relationship.
Price movement is the “effect” where volume is the “cause”.
Another way to understand this concept is to view volume as

the fuel, the gas that powers price movement. In this sense,
volume equals power. The Power Spike is a trading system
that is built upon this important technical principle.
A Power Spike is a high surge in volume. It is a situation

where an abnormally high level of volume occurs during a
single bar, no matter what time frame that bar may
represent.
Volume will, of course, fluctuate from bar to bar. But volume

will tend to fluctuate within a standard range.
A surge in volume, volume levels far above the recent

activity, will be prominent and easy to spot. Take a look at
the volume chart of Microsoft below. Do you see any
prominent volume surges?
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A couple of volume surges, or “Power Spikes” literally jump
off the chart at you, don’t they?
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In addition to the two spikes indicated, we may also include

a third. The third spike occurs a bit after the first one.
Remember that a Power Spike is a large surge in volume
compared to recent volume action.

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So within a six-month period of time, from November through

early April, Microsoft demonstrates three distinct Power
Spike events.
It is easier to spot a volume spike when one applies a 25-

day moving average to the volume. The moving average
line helps to define the average level of recent volume
activity. When the Volume level substantially exceeds the
25-day moving average, it may indicate a Power Spike.

MICROSOFT (24.6700, 25.1000, 24.6000, 24.6700, -0.37000)
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Notice how our three Power Spikes represent situations

where the volume on that specific day or two is substantially
greater than the average volume of the past 25 days.
Also notice how easy the spikes are to recognize since they
contrast so prominently with recent action.
There are several ways to locate potential Power Spikes, but

the method I prefer is to apply Bollinger Bands to the volume
data. Use the standard settings for the Bollinger Bands
(time period = 20, moving average = simple and deviation =
2).
If the volume is able to penetrate the upper envelope of the

Bollinger Bands, a Power Spike has been produced.

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The use of Bollinger Bands is extremely beneficial due to the

way this indicator works. The outer envelopes of the
Bollinger Bands are set at 2 standard deviations off the 20-
day moving average. As a result, the outer envelopes will
contract and expand, depending upon the direction and
angle of assent or decent of the moving average. The result
is that 98% of the action will be confined within the outer
envelope boundaries.
When the volume is able to pierce the upper envelope, it is

an unusual event and indicates an immediate and very sharp
increase in trading volume. For one reason or another, the
trading activity of this specific stock has exploded during this
bar.

The amount of volume that occurs beyond the upper
envelope can be used to categorize or rank the strength of
the spike event.
For example, here’s another volume chart of Microsoft with

Bollinger Bands applied. See if you can find Power Spikes:
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In this chart there are a few spike events.

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Notice that the first spike event is a huge one. There is a

deep penetration of the upper envelope and a lot of volume
that occurs beyond it.
What does this mean?
You’ll find out in a moment.
The second spike is a small one. Although the volume was

able to penetrate the upper envelope on a couple of days,
the amount of penetration was relatively small.
The third spike is another nice, strong spike.
By using the Bollinger Bands to identify spike events, we can

rank the strength and quality of the spike events. This is

accomplished by determining what percentage of the total
volume occurs beyond the upper envelope.
This isn’t as difficult as it may sound. Here’s what we do:
Step #1: Subtract the location of the BB upper envelope

from the total volume (total volume – BB upper envelope).
This gives the amount of volume existing above the upper
envelope, often referred to as the “spike volume”.
Step #2: Divide the spike volume by the total volume (spike
volume ÷ total volume). This provides the percentage of
volume penetration.
Let’s use this procedure to compare the first and third spike
events that occurred in Microsoft.
Let’s look at the first spike event. In this event the upper
envelope was located at 1,622,134.5 while the total volume
for that day was 2,582,975.
Step #1: We must subtract the location of the upper

envelope from the total volume. We find that the spike
volume was 960,840.5.
2,582,975.0 total volume

- 1,622,134.5 location of upper envelope
960,840.5 volume occurring above upper envelope

Step #2: We then divide the spike volume by the total
volume. We find the spike penetration percentage is 37.2%.
960,840.5 volume occurring above upper envelope

÷ 2,582,975.0 total volume
.372 or 37.2% of the volume penetrates the upper envelope
In the third spike event the total volume is 2,015,640 and the
upper envelope is located at 1,377,663.5. Try doing this one
yourself.
Go ahead, I’ll be here when you’re done.
Are you ready? The let’s see if our calculations agree.

The spike penetration percentage of the third spike event is
31.66%, or you may have rounded it to 31.7% or 32%.
When the two spike events are compared, we find a 37.2%

spike vs. a 31.7% spike.
While the total volume of the first event was substantially

greater than the third event, the two spikes are fairly equal in
strength. It is true that the first spike was a greater event
than the third, but the first event wasn’t a lot greater, contrary
to what one may think by simply looking at the chart.
The penetration percentage shows the strength levels of the

two spikes are fairly close, 37.2% and 31.7%. This is one
reason why I prefer this method of locating and ranking spike
events.
Visual observation alone may sometimes be misleading.
While these two spikes appear quite different on the chart,

they are actually very close in strength and quality.
“Kevin, this is really terrific stuff. But I don’t have a new

fangled, high-priced chart program with all the bells,
whistlers, gismos and gadgets needed to find and rank
spikes.
And I couldn’t create the software formulas to do all this stuff

even if I did have those great tools. I’d have better luck
writing a recipe for fortune cookies! What do I do??”

Relax.
Right now I am explaining the specifics of the Power Spike.

And after we cover the Power Spike in detail, I’ll show you
an easy way to get all the information you need to use this
powerful system with incredible effectiveness.
And you won’t have to be a rocket scientist to do it. But for

the moment let’s continue learning about this awesome
technical pattern.
Okay, now we know 1) what a Power Spike is, 2) how to

recognize a spike on a volume chart and 3) how to rank
spike events using the spike penetration percentage.
But what does a Power Spike mean?
What predictive information does a Power Spike provide?
What technical conclusion can be deduced from a Power

Spike?
And how can one use this information to consistently and

profitably enter trade positions?
These are excellent questions! Let’s discover the answers!

1.2 THE TECHNICAL SIGNIFICANCE OF POWER
SPIKES
In order to fully understand the importance of a Power Spike,

a brief explanation of the activity that creates a spike must
be presented. One should understand what is happening to
produce the spike event.
A Power Spike is a large surge in volume compared to

recent volume action. This means that far more shares are
being traded in a very short period of time. There is a mad
rush to either buy or sell that specific stock.
The high volume level means that a lot of traders have taken
positions in the stock. These positions have been taken
because there is an expectation that the price will move
either up or down.
The spike indicates strong expectation, and that expectation

actually creates the reality of a strong move. The stock is
now set to make a run.
Why?
Because once the stock price begins to move, it will confirm

and build on the expectation expressed by the spike. The
expectation creates reality.
Suppose, for example, you believed that a specific stock was

going to move up and you invested some money in it. The
stock then begins to move as you expected. What is the
logical thing for you to do??

Obviously, you invest even more money because you
believe your expectation is being realized. In actuality, your
action of investing additional funds is the key factor that
helps to pull the price even further up.
It was your expectation, combined with that of many other

traders, which produced the reality of price movement.
This is what occurs when a spike event develops, only it

happens on a much larger scale. The spike event indicates
that there are a huge number of traders with a strong
expectation of price movement in that specific stock. And
when the price begins to move, those traders will invest
additional funds and propel the move.
Thus, a spike event is a very reliable indicator that a strong

price move will soon occur in the stock. This is the
predictive value that a spike provides.
The high level of trading activity that creates a spike event

also creates a support and resistance level in the price
action. These levels are created at both the high and low
price of the spike bar.
A support or resistance level restricts or hinders further price

movement. It’s like an invisible wall or speed bump that
blocks or slows the price movement of the stock.

Let’s go back to our original Microsoft chart and take a closer
look at the first Power Spike to understand this important
concept. Microsoft had a Power Spike on Nov. 8, 1999.
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If we draw a line extending from the low of the spike day, we

notice something very interesting.

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Notice how the low price of the spike day created an invisible
wall, a support level. This price was at $42.19. The stock
came back down to the wall, but couldn’t break through.
At this point, the stock exploded upwards to reach a high of

$48.59 on Dec. 6, 1999.

MICROSOFT (24.6700, 25.1000, 24.6000, 24.6700, -0.37000) 49.0
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The important thing to understand at this point is how the

abnormally high volume level that creates a Power Spike
also creates an invisible wall.
This invisible wall is a crucial factor that makes the Power

Spike technically significant. It is the key to being able to
make a prediction about the future movement of the stock.
In other words, if we know there is a high probability against

the stock moving below that $42.19 level, then there exist a
high probability that the stock will move up.
Realize that, as with any market tool or indicator, we are

dealing with probabilities, not absolutes. No indicator works
100% of the time. But the strength of this specific tool lies in
the high accuracy rate that it provides.

The predictive accuracy of the volume spike is around 80%
when properly used in harmony with the broad market. For
a single indicator, this is phenomenal.
Since the support and resistance levels (S/R levels) created

by a Power Spike are critical to trading this pattern, let’s
discuss S/R levels in greater detail. It is important to
understand what they are and how they influence the
movement of price.

1.3 SUPPORT AND RESISTANCE LEVELS
As was previously pointed out, a Power Spike creates

boundaries that tend to prevent further price movement.
These levels are called “support levels” or “resistance
levels”.
What is the difference between support and resistance?
The location of the current price action determines whether a

level is support or resistance. Take another look at the level
created by the Microsoft Power Spike.
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Notice how the level is below the price action. When the
level is below the current price action, the level is a “support
level”.

You can see how the level supports or “holds up” the price.
When the level is above the price action, the level is a

“resistance level”. In this case, the level “holds down” or
resists further upward movement.
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A Power Spike creates both a support and resistance level.

The support level is located at the low price of the spike day
and the resistance level is located at the high price of the
spike day.
These levels created by a Power Spike trend to prevent

further price movement. Remember, whether the level is
support or resistance is determined by the location of the
level in relationship to the current price action.
Price action occurs above a support level and below a

resistance level.

1.4 MORE ABOUT SUPPORT & RESISTANCE
There are a couple of other important points that must be

made about support and resistance levels. First, one should
understand that support and resistance levels actually
indicate an area of support or resistance, not just a specific
price point.
Support and resistance levels (S/R levels) are drawn at

specific prices, such as the $42.19 support level in our
Microsoft example. However, the level actually represents
an area of support. The power or influence of the level can
extend a little above and below this specific price.
This means that the price action could react a little above or
a little below the line drawn on the chart. The reaction
doesn’t necessarily have to occur exactly at the price where
the line is drawn.
This is true because the stock price is reacting to thousands

(sometimes even millions) of transactions. When one is
observing the results of thousands of stock transactions, it
would be unreasonable to expect specific reactions down to
the penny.
It is like a large ocean liner attempting to stop or make a U-

turn. That isn’t accomplished in a short distance, it takes a
lot of room to stop or turn an ocean liner.
In the same way, one shouldn’t always expect price reaction

right at a S/R level. One can expect to see a stock react
“around” a level, meaning near a level. This could be either

a bit above or below the actual line drawn to represent the
area of support or resistance.
Sometimes one will see a reaction right at the S/R level, it

does occur. But a reaction slightly above or below the S/R
level is equally as valid as one that occurs right at a level.
Does this make sense?
Another concept that is important to understand is the

difference between the “penetration” and the “breaking” of a
S/R level. Penetration occurs when the S/R level is pierced
intraday, but the stock does not close beyond the level.
Take a look at the chart below.
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Here we see a resistance level created by a Power Spike.
We also see a penetration of the level that occurred on July
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Notice how the level was broken intraday, the price moved
up through the level. However, the stock closed back below
the resistance level.
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July

An intraday or intra-period penetration, depending upon the
time frame of the chart, does not indicate a cause for
concern. Penetrations are situations where the bulls or
bears unsuccessfully attempt to break through the S/R level.
Since the close occurred inside the price range of the spike
day, the S/R level held the price movement in check.
In contrast, a break is identified as a close beyond the S/R

level. A break of a S/R level is an alert that the situation
should be monitored. It is not automatically a cause for
excitement, but a warning flag that warrants close
observation.
Sometimes a battle will occur over the S/R level, the bulls
and bears fighting for control of the price movement. The
odds strongly favor the side in harmony with the volume
spike.
Let’s look at an example to understand this. On June 15,

2001 Wal-Mart experienced a Power Spike.

WAL-MART STORES (53.0300, 53.5200, 52.6800, 53.1300, -0.41000)
51.0
50.5
50.0
49.5
49.0
48.5
48.0
47.5
47.0
46.5
15000
Power Spike
10000
x10 5000
14 15 18 19 20 21 22 25 26 27 28 29 2 3 5 6 9
July
The price action following the spike was above the level, so
this is a support level. This being the case, the odds
strongly favor an up move, the bulls have a strong
advantage over the bears.
However, on July 6 the bears were able to break the support

level, closing the stock below it. This is not a cause to get
excited or jump into short trades just yet.
Instead, it is an alert that one should watch closely the action

that follows. As was previously stated, sometimes a battle
occurs over the S/R level. We don’t take immediate action
because the bulls still have an advantage over the bears at
this point. S/R levels don’t like to be broken.
So we begin to closely watch the action. What are we

looking for?

We are watching to see if the bears are able to follow up on
their break.
A second, CONSECUTIVE close beyond the level would

confirm the initial break. A second, consecutive close
beyond the level is in indication that it may be time to take
action.
Let’s take a look at the Wal-Mart example again.
WAL-MART STORES (53.0300, 53.5200, 52.6800, 53.1300, -0.41000)

50.5
50.0
49.5
49.0
Above 48.5
48.0
47.5
Below
47.0
Below 46.5
15000
10000
x10 5000
27 28 29 2 3 5 6 9 10 11
July
Here we see a battle over the support level. The bears were
initially able to close the stock below the level, but then the
bulls were able to close the stock above the level.
The bears came back and closed the stock down again. We
have two closes beyond the level, but they were NOT
consecutive closes, so the break was not confirmed.

WAL-MART STORES (53.0300, 53.5200, 52.6800, 53.1300, -0.41000)
50.5
50.0
Above 49.5
49.0
Above 48.5
48.0
47.5
Below
47.0
Below 46.5
15000
10000
x10 5000
27 28 29 2 3 5 6 9 10 11 12
July
The bulls came back again and closed the stock above the
level. But something occurred on this day that provides
even more evidence that the bears will not be able to make a
move. For the first time during this little battle, the stock
opened and closed above the level.
We know the bulls had an advantage over the bears

because S/R levels don’t like to be broken, so this extra
indication provides a clue that the stock is about to move up
at this time.
Before we view what occurred in this example, let’s make

sure we understand the concepts being explained. First,
remember that the difference between a penetration and a
break is whether or not the stock closes beyond the S/R
level.

Second, a penetration is not a cause for concern or
excitement.
Third, a break is not an immediate cause for concern or

excitement, but an alert that the price action should be
closely watched. A battle can occur over the S/R level. One
should watch to see if the break is confirmed by a second,
consecutive close beyond the level.
Forth, a confirmed break (which is qualified by a second,

consecutive close beyond the level) may be a signal that it is
time to take action.
So what happened in the Wal-Mart example?
WAL-MART STORES (53.0300, 53.5200, 52.6800, 53.1300, -0.41000) 55.0

54.5
54.0
53.5
53.0
52.5
52.0
51.5
51.0
50.5
50.0
49.5
49.0
48.5
48.0
47.5
47.0
46.5
15000
Power Spike
10000
x10 5000
18 25 2 9 16 23
July
Wal-Mart went on to make an up move and earning a nice

profit.

1.5 TIME VS. RELIABILITY
As you may have observed, a Power Spike does not

necessarily indicate an immediate move. In some cases, the
stock may immediately, and even explosively, move in a
specific direction.
However, at other times the stock may fluctuate a bit,

perhaps even a battle may occur over a S/R level before the
expected strong move is made.
The Power Spike is a very reliable indicator, indicating that

the price is going to make a strong move. But there is a
trade off for this high level of accuracy. That trade off is the
fact that the expected move may take a little time before it
develops.
So with this trading strategy, one must sometimes forfeit

quick action (time) in exchange for a higher accuracy level
(reliability). In this author’s view, it is a highly profitable
exchange. I’m in no hurry to achieve a higher loss rate…
are you?

1.6 SUPPORT OR RESISTANCE?
We have seen that a Power Spike is relatively easy to

locate. We also know that a Power Spike is a highly
accurate and reliable indicator. But when one locates a
Power Spike, how does one determine whether it will break
the support level (created by the low of the spike day) or the
resistance level (created by the high of the spike day)?
When a spike occurs, is the low of the day creating a strong

support level, in which case one should trade long, or is the
high of the day creating a strong resistance level, in which
case one should short trade?
Will the strong move be up or down?
Which direction should one trade?
This determination is the most difficult aspect of the Power

Spike. And this important determination requires some good
technical analysis skills. The more technical knowledge one
has, the better one will be able to quickly and confidently
make this judgment.
What follows is a framework, a blueprint for making this

crucial conclusion.

1.6.1 Technique #1
When a Power Spike occurs, one should focus upon the

high and low of that day or bar. The high will create a
resistance level and the low will create a support level.
In some cases, one only needs to perform a simple technical

technique to make the determination regarding direction.
This technique is to look for recent reactions at either the
support or resistance levels. Simply draw a line from the
high and low backwards across the chart.
Frequently, the strong support or resistance level is not a

new reaction level. Often, the stock will have made
reactions at the same level in the recent past.
Let’s look at the Microsoft Power Spike of 6/21/00.
MICROSOFT (24.4700, 24.7000, 24.2500, 24.3500, +0.14000) 41

40
39
38
37
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Power Spike 15000
10000
5000
x100
1 8 15 22 30 5 12 19 2
May June

Now let’s draw a line from the high and low of that day
backwards and see if we can spot any recent reactions at or
very near either line.
MICROSOFT (24.4700, 24.7000, 24.2500, 24.3500, +0.14000) 46

45
44
43
42
High of the Day
41
40
39
38
Low of the Day
37
36
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33
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30
3 10 17 24 1 8 15 22 30 5 12 19
April May June
Pretty neat, right? Do you see the reactions?
The stock has recently made two reactions at or very near

the same price as the high (resistance level) of the spike
day.

MICROSOFT (24.4700, 24.7000, 24.2500, 24.3500, +0.14000) 46
45
Reaction 44
#1 Reaction 43
#2 High of the Day 42

41
40
39
38
Low of the Day
37
36
35
34
33
32
31
30
3 10 17 24 1 8 15 22 30 5 12 19
April May June
This simple technique is often all that is required to

determine whether the odds favor the stock breaking the
support or resistance level. In this case, it is clear that the
odds favor the resistance level being stronger than the
support level and, therefore, one would short Microsoft.
Here’s what happened…

MICROSOFT (24.4700, 24.7000, 24.2500, 24.3500, +0.14000)
47
46
45
44
43
High of the Day 42
41
40
39
Low of the Day 38
37
36
35
34
33
32
31
30
29
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27
26
25
24
23
3 10 17 24 1 8 15 22 30 5 12 19 26 3 10 17 24 31 7 14 21 28 5 11 18 25 2 9 16 2
April May June July August September October

Even if one exited the trade at the end of July, missing the
huge move from Aug. through Oct., one would still have
made a hefty profit.
The main concept here is the importance of this simple, but

often very revealing, technique. This is one procedure used
to determine the expected direction of the strong move that
follows a Power Spike.
Here is another point to consider, although a Power Spike

indicates abnormally high volume, it is not an unusual event.
In fact, Power Spikes occur frequently, often in several
stocks at the same time.
If one is not very confident in their analysis skills, one can

use this simple technique as part of a trading criterion. In
other words, if you use this high/low historical reaction
technique as the primary method to determine direction, and
you cannot find a previous reaction at either level, reject that
signal.
You don’t have to trade every Power Spike that occurs. And
they occur often enough to pass on any that you do not feel
confident in trading.
Another point to understand concerning these historical

reaction levels is that the closer in time the previous reaction
occurred, the greater confidence you have in the evaluation.
Time tends to weaken S/R levels. So recent reactions

indicate a level that still holds strength. If the most recent
reaction occurred a long time ago, it may be questionable
whether that level is still powerful or has strength.
In the previous example, the reactions occurred just two

months prior to the Power Spike. If we had another spike in
a different stock where the most recent reaction occurred six
months ago for example, which stock would more likely
define a level that is still showing strength?
It would be the reactions that occurred only two months ago.

The point is this; the more recent price action provides the
better predictive value.
One final point of this historical reaction concept should be

made. Take another look at the chart…
MICROSOFT (24.4700, 24.7000, 24.2500, 24.3500, +0.14000) 46

45
Reaction 44
#1 Reaction 43
#2 High of the Day 42

41
40
39
38
Low of the Day
37
36
35
34
33
32
31
30
3 10 17 24 1 8 15 22 30 5 12 19
April May June
Notice that the reactions occurred the last time the stock was
at the $38 - $41 area. This is significant. From the time of

the reactions to the Power Spike there wasn’t a lot of price
movement in this area (notice all the white, empty space
between the blue and red lines from the reactions to the
spike day).
If the price had moved up and down through this $38 - $41
area without any further reactions, this movement would
weaken the effect and power of the potential support and
resistance level being created by the Power Spike.
In other words, if we saw the price moving through the S/R

levels without much noticeable effect upon the movement,
this technique becomes ineffective in determining which way
the stock is now going to move.
It is the fact that we see previous reactions at either the

support or resistance level that makes this technique useful
in predicting the direction of the strong move induced by the
spike.
There are a couple of other techniques that can be used to

determine the most probable direction of the impending
move.

1.6.2 Technique #2
Power Spikes that occur in conjunction with a gap usually

indicate a continuation in the direction of the gap.
A gap is an event where the stock opens higher or lower

than the previous closing price. Microsoft again provides an
example of this situation.
On 3/31/00 Microsoft closed at $53.13 and opened on 4/3/00

(the next trading day) at $47.22. This created a noticeable
down gap.
MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000) 58

57
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54
53
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25000
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6 7 8 9 10 13 14 15 16 17 20 21 22 23 24 27 28 29 30 31 3 4
April
Also notice that a Power Spike accompanied the gap. In this

case, since the gap was down (the stock opening lower than
the previous close) the odds favor a continued move in the

direction of the gap. The down move is expected to
continue.
The odds of a continued down move increases by the fact

that the spike day was also a down day (the stock closed
lower than it had opened). The action of the day (or price
bar) was in harmony with the gap direction.
Additionally, the price formation itself adds to the evidence of

a continued down move. The stock closed very near the low
price of the day.
When all these technical factors are considered, one can be

fairly confident in a continued down move.
And here’s what happened…
MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000) 55
50
45
40
35
30000
25000
20000
15000
10000
x1005000
30 31 3 4 5 6 7 10 11 12 13 14 17 18 19 20 24 25
April

As you can see, the down move ended with a gap - Power
Spike on 4/24/00. We’ll cover this Power Spike event later.
Here are a couple more examples of Power Spikes that

accompany a gap.
MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000) 37

36
35
34
33
32
31
30
29
28
Gap Up & Power Spike
27
followed by Up Move 26
10/19/00 25
24
25000
20000
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10000
x100
16 17 18 19 20 23 24 25 26 27 30 31 1 2 3 6 7 8 9 10
November
MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000)

30
29
Gap Down & Power Spike 28
followed by Down Move
27
12/15/00
26
25
24
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35000
30000
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x100
13 14 15 18 19 20 21 22 26 27

1.6.3 Technique #3
Power Spikes that occur after an extended move usually

signal a reversal.
On 9/21/01 Microsoft experienced a Power Spike.
MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000) 39

38
37
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20000
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25 2 9 16 23 30 6 13 20 27 4 10 2
July August September
Microsoft had been in an extended down move for some

time. The stock went of a high of $38.08 to a low on the
spike day of $23.75 (a 37.62% decline) without making a
normal 25% - 50% pullback for consolidation.
The move was basically one big slide down.
A move, either up or down, requires energy. A healthy move

consists of a surge in one direction followed by a pullback
against the surge. This pullback allows the move to regain

momentum and consolidate the gains that have been made
in the surge.
An extended move is one that gains substantial distance but

allows little, if any, pullback distance to consolidate the
gains. As the bulls or bears, depending upon the direction of
the move, continue making progress, they become
exponentially weak.
A power surge under this condition signals that either the

surge team is making a last attempt to gain distance or the
opposition is overwhelming the surge to stop and reverse the
move.
Either way, the result is often a reversal of the extended

move. In the Microsoft example, the spike day was an up
day following an extended down move. This indicates that
the opposition (the bulls) are overwhelming the bears and
taking control.
MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000) 32.0

31.5
31.0
30.5
30.0
Spike Day was
29.5
an Up Day following 29.0
an Extended Down Move 28.5
28.0
27.5
27.0
26.5
26.0
25.5
25.0
24.5
24.0
23.5
20000
15000
10000
5000
x100
24 27 28 29 30 31 4 5 6 7 10 17 18 19 20 21 24
September

Given this technical picture, the odds strongly favor the bulls
and signal that it’s time to take long positions. The low of the
spike day would represent a strong support level and the
predicted move direction would be up.
Here’s what happened…
MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000) 36

35
34
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20000
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10 24 1 8 15 22 29 5 12 19 26 3 10 17 24 31 7 14
mber October November December 2002

1.6.4 Technique #4
This final technique is very simple is the method I prefer.
We know that a spike event creates a support level at the

low price of the spike day and a resistance level at the high
price of the spike day. We also know that sometimes a
battle will occur over the support or resistance level.
However, the odds strongly favor a move in the direction

where a full bar’s action occurs beyond the level.
This simply means that if all the price action (open, close,
high and low) occurs above the resistance level, the odds
strongly favor the impending move to be up.
Conversely, if all the price action (open, close, high and low)
occurs below the support level, the odds strongly favor the
impending move to be down.
My normal approach is to simply wait until one of these two

events occur and then enter a trade in that direction.
All you need to know is the high and low price of the spike
day, then just watch the action. We wait until all the action of
a day or bar occurs either above the resistance level or
below the support level, and then we enter a trade in that
direction.
Simple, right?

1.6.5 Summary
The Power Spike is a highly reliable indicator because it

consistently creates a support and resistance level. It
signals either an up move or a down move to follow. The
move may or may not begin immediately, but it will occur.
The most difficult aspect of trading a Power Spike is

determining whether it will break support or resistance. Will
the following move be up or down? Should one go long or
short?
This book has provided four techniques that can help one
make this determination with high confidence. These
techniques are highly accurate and reliable.
The first technique is to extend the spike day high price

resistance level and the spike day low price support level
backwards across the chart. One then determines if the
stock has recently reacted (caused a change in the direction
of price movement) to either of these levels.
A recent, definable reaction indicates a stronger level. If the

stock recently reacted to the support level, the odds of an up
move are greater than the odds of a down move.
Conversely, if the stock recently reacted to the resistance
level, the odds of a down move are greater than the odds of
an up move.
Remember that between the spike day and the reaction days
there should not be a lot of action that moves through the
levels.
The second technique for determining the most probable
direction of the move involves the evaluation of gaps that
occur in conjunction with the spike event. In general, the
odds favor a move that continues in the direction of the gap.
This general principle becomes stronger when the action of

the spike bar harmonizes with the gap direction. If the stock
gaps down on a spike day and the stock closes lower than it
opened (a down day), this provides stronger evidence of a
down move. If both the spike day gaps up on an up day, this
provides greater evidence of an up move.
The third technique involves spikes that occur at the end of

an extended move. When the price makes a long move up
or down that does reflect the pullback pattern of normal price
progression, the odds favor a reversal in direction. The
expected strong move is favored to be opposite the direction
of the extended move.
The fourth and final technique is to extend the spike day

support and resistance levels forward and wait for a full
action break. When the stock is able to cleanly break either
the support or resistance level, the odds will favor a move in
that direction.
As with any technical methodology, nothing will work 100%

of the time. There will be occasions where the evidence
indicates a down move only to have the stock make an up
move.

But the Power Spike is unique as a single pattern that works
consistently and with a higher degree of accuracy than most
other tools available. The Power Spike truly is a powerful
technical pattern.
The Power Spike is unique in another aspect as well. This

pattern indicates an imminent move that is much stronger on
average than other technical patterns. The stronger move
produces more profit per trade than the average profit of
other patterns.
And there are ways to increase your average return even

more. We’ll discuss that in a moment.
The next section covers how to trade the Power Spike. This
will also include some profitable approaches for those
situations where one cannot confidently determine the
direction of the expected move.

2. TRADING POWER SPIKES
Power Spikes are a phenomenal trade pattern. When

properly traded, this pattern produces incredible profits that
are superior to most other technical patterns.
But, as with all trade methods, this pattern must be traded

properly to achieve consistent, superior performance. The
balance of this book will be focused on this objective.
The specific way one should trade a Power Spike can vary
somewhat depending upon the level of confidence one has
in the direction of the expected move. Therefore, we’ll
address the way one should trade when confidence in the
direction is high as well as the way one should trade when
confidence in the direction is low. Additionally, I’ll show you
what to do when you get it wrong and the stock moves
opposite the direction you expect.
Finally, we’ll discuss important ways to maximize profits and

minimize risk. When all these elements come together as a
single trade plan, the result is truly astonishing.

2.1 TRADING THE PATTERN
At this time we’ll address the specifics of trading the Power

Spike pattern, including proper entry, stop loss placement
and stop loss adjustment. As was previously stated, the
best method to trade a Power Spike often depends upon the
level of confidence one has in the direction of the impending
move.
For this reason, we’ll address the stock trading approach in

three ways. The first is a method of trading when confidence
in direction is high. The second is a method of trading when
confidence in direction is low. And finally, we’ll discuss how
to trade a situation where the stock moves against the
expected direction.
2.1.1 High Level of Confidence in Direction
Let’s go back to the 9/21/01 Microsoft Power Spike we

examined earlier.

MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000) 39
38
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20000
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x100
25 2 9 16 23 30 6 13 20 27 4 10 2
In this instance we have a Power Spike following an

extended down move. Since this down move is extended,
the odds favor a reversal in direction resulting in an up
move. Additionally, the spike occurred on an up day, lending
evidence that the bulls were overwhelming the bears and
further supporting an up move.
So we have a fairly high level of confidence in the direction

of the future move. So how do we trade it?
TRADE ENTRY
At this point we know we want to enter a long position. We

want to get in quickly because although the action could
fluctuate before making the move, the stock may just as

likely make an immediate move upwards. There’s no way to
know if the action will fluctuate or how long it may do so.
And since we have good evidence supporting an up direction
(high confidence), we want to get in quickly.
The best entry method is to take a position using a market

order. This gets one into a position as quickly as possible.
If, for example, the Power Spike is identified after the market
closes on 9/21/01, one could enter the long position upon
opening the next trade day.
The point is that we have located a Power Spike and have

high confidence in the direction of the imminent move, and
that move could begin immediately. So we want to get into
the trade quickly. A market order is the fastest way to get
into the stock.
INITIAL STOP LOSS PLACEMENT
Once a position has been taken, one should immediately

enter a stop loss order. NEVER trade without a stop loss.
The stop loss is an order to get you out of a trade once the
price reaches or exceeds a specific amount. Once the price
reaches or exceeds the price amount you define, an order is
automatically issued to exit the trade.
If you have a long trade, the stop loss triggers an order to

sell the shares once the price reaches or exceeds the stop
loss level. Conversely, if you have a short trade, the stop
loss triggers an order to buy the shares once the price
reaches or exceeds the stop loss level. The order to buy or
sell depends upon whether your trade is long or short, and it
happens automatically once the stop level is reached or
exceeded.
But where should the stop level be set? At what price

should the stop loss be placed?
There are many theories, ideas, concepts and strategies

about the best stop location and method of adjustment. As
with most aspects of trading, there are pros and cons to any
method. Every “pro” has a corresponding “con” associated
with it.
A stop loss placed close to the current price action reduces

the amount of financial risk assumed. However, the closer
the stop level is to the current action, the greater the risk that
the stop will be hit on an intraday basis, due to the normal
fluctuations in price.
So while the financial risk may be reduced, the risk that the
stop will be hit increases.
A stop loss placed further away from the current price action
increases the amount of financial risk assumed. However,
the further away the stop is from the current action, the risk
that the stop will be hit on an intraday basis is reduced.
So while the risk of being stopped out intraday is reduced,

the financial risk increases.

Place a stop too close to the current action and you increase
the chance that you will get stopped out right before the
stock moves in your favor.
Place a stop too far away from the action and the potential
loss suffered makes the trade a bad play.
So proper stop loss placement is a matter of balance. The

goal is to balance the financial risk against the risk of being
stopped out at the wrong time.
There is no perfect formula to this objective.
No matter where you place your stop loss, there will be

occasions where your stop is hit right before the stock
moves in your favor. Be prepared for it, it will happen.
Likewise, there will be times when your stop is hit and you
will question whether you should have placed your stop
closer or tighter to reduce the loss.
Don’t second-guess, don’t get too frustrated, just remind

yourself that there is NO perfect formula.
What would have worked perfectly on trade #1 would have

trapped you on trade #2.
With this understanding in mind, the optimal approach to

applying and adjusting a stop loss is to define a method that
works reliably on a consistent basis. The objective is to find
a method that works “most” of the time.

This is with the knowledge that the method will not work
perfectly, every time. But then again, there is no method
that shall.
Since we have high confidence in the direction of the

expected move, the stop loss should be place just under the
support level (for an expected up move) or just above the
resistance level (for an expected down move).
MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000) 39

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25 2 9 16 23 30 6 13 20 27 4 10 2
Let’s take a closer look at this spike day.

MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000)
29.0
28.5
28.0
27.5
27.0
26.5
26.0
25.5
25.0
24.5
24.0
23.5
Support Level at $23.75
23.0
20000
15000
10000
x100
5 6 7 10 17 18 19 20 21 24 25 26 27 28 1 2 3 4
ptember October
Since the expected move is up, we would enter a long trade

position and use the low price of the spike day as the
support level. Our stop loss would be entered just below this
level.
We could enter an initial stop at $.10 to $.25 below the

$23.75 support level.
It is important to understand that the area between the high

and low of the spike day is “no man’s land”. The price can
move up or down within this area without providing any real
technical information.
For example, we see the price move down without breaking

the support level before it made the up move. This doesn’t
mean the stock will make a down move. Again, the stock
may make an immediate move or it may fluctuate a bit.

Unless the stock closes below the support level, the odds
still strongly favor an up move. So don’t let a little price
fluctuation make you nervous.
Additionally, the initial stop level should remain in place until

the price action of a complete bar exceeds the high of the
spike day.
MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000) 29.5
First bar where all 29.0
the price action 28.5

exceeds the high 28.0
of the spike day 27.5
27.0
26.5
26.0
25.5
High of the Spike Day 25.0
24.5
24.0
23.5
15000
10000
x100
17 18 19 20 21 24 25 26 27 28 1 2 3 4 5 8
October
Remember that the stock may begin moving immediately in

our favor. However, the stock could fluctuate a bit before
making the move.
One doesn’t want to adjust the stop too soon, adjusting

when the stock is only fluctuating rather than making the
expected strong move.
By waiting until the action of a complete bar exceeds the

high of the spike day, one increases the odds of adjusting

the stop only when the strong move has begun. This
reduces the chance of getting stopped out right before the
stock moves in one’s favor.
By waiting until the price action of an entire day (or bar)

exceeds the high of the spike day, we allow the stock
enough room to make this normal fluctuation. Remember
that our stop is currently just under the support low of the
spike day.
MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000) 29.5
29.0
28.5
28.0
Initial Stop Loss stays in place 27.5
throughout this action 27.0
26.5
26.0
25.5
24.5
24.0
23.5
15000
10000
x100
17 18 19 20 21 24 25 26 27 28 1 2 3 4 5 8
October
Once the action exceeds the high of the spike day, we have
a good indication that the expected move is underway and
we can effectively begin adjusting the stop level.
The reverse would be true if the expected move were down.

We’d place the stop just above the high of the spike day and
wait until the action of a whole day or bar exceeded the
spike day low before adjusting the initial stop level.

The action that follows the spike day is important. It can
provide information or confirmation about the direction that
the move will take. For example, notice how immediately
following the spike day, the stock experienced two days, the
24th and 25th, where both the open and close were above the
spike day high.
Then the price moved down, but never closed below the
$23.75 support level.
MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000) 29.5
29.0
28.5
28.0
26.5
26.0
25.5
24.5
24.0
23.5
15000
10000
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17 18 19 20 21 24 25 26 27 28 1 2 3 4 5 8
October
On the 28th the price began moving back up and closed

above the spike day high. The initial action above the high
plus the fact that the bears were unable to break through the
$23.75 support level, even on an intraday basis, provides
more confirmation that the probable move will be up.

Additionally, the close above the spike day high on the 28th
provides more evidence of an immanent up move.
So even before the move actually begins, we receive

confirmation that we have made the right conclusion about
the direction of the impending move.
“What happens if I made the wrong choice about direction

and the stock begins moving against me?”
Don’t worry. We’ll cover in-depth how to adjust in situations

where the stock moves against the expected direction.
ADJUSTING THE STOP LOSS
The stock has begun to move in our favor. The stock has
now completed an entire bar above the spike day high (or
under the spike day low for a down move).
If you will recall, I stated that my preferred approach to

trading spikes is to wait until the action of a complete bar
exceeds either the support or resistance level before
entering a trade position. But if you have good evidence of
the direction of the impending move, you may enter a
position earlier and manage the trade as just explained.

With the action of a complete bar exceeding either the
support or resistance level, we now should begin to adjust
our stop loss as the move progresses in our favor. Again,
the goal of the placement of the stop loss is to balance the
financial risk with the risk of being stopped out on an
intraday basis.
The optimal stop loss position strategy is The Price Range

Adjustment Strategy. This method allows the stock itself to
define the best balance between financial risk and stop out
risk.
And this terrific strategy works with ANY trade system.
To determine how the stop loss should be adjusted, we must

first determine the average distance that the stock has
covered during a day, the average daily price range.
For example, if the stock has been moving an average of $1

distance in a day, it would be unwise to place the stop loss
at $.50 from the current action. The price could easily hit our
stop during the course of a normal day’s fluctuation.
By determining the average daily price range, we define how

much fluctuation or breathing room the stock needs.
So let’s determine the average daily distance covered for the

past five days. If desired, one could use the past ten days or
15 days, etc. But no matter which specific method is
chosen, the concept to understand is that one needs to
determine the average fluctuation or distance covered during
a normal bar’s action.
Let’s go back now to our Microsoft move.

MICROSOFT (25.1000, 26.0000, 25.1000, 25.7200, +1.37000) 29.5
29.0
28.5
28.0
26.5
26.0
25.5
24.5
24.0
23.5
15000
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17 18 19 20 21 24 25 26 27 28 1 2 3 4 5 8
October
We’re going to begin adjusting our stop once the action of an

entire bar exceeds the high of the spike day. This occurred
on Oct. 2.
So let’s determine the average daily fluctuation for the five

days preceding Oct. 2.
High Price Low Price Distance
Oct. 1 $26.25 $25.21 $1.05

Sept. 28 $25.80 $24.49 $1.31
Sept. 27 $25.34 $24.00 $1.34
Sept. 26 $25.90 $24.78 $1.13
Sept. 25 $26.50 $25.08 $1.42
5 Day Average Distance: $1.25

Using the past five days, we find that the average daily
distance is $1.25. This will set the distance of the stop loss
from the current close. If you are used to setting a stop at
only $.25 or $.50 away from your entry or the latest close,
this may seem like a long distance. But remember, the stock
itself has revealed that it fluctuates an average of $1.25 each
day. Setting the stop any closer to the action would be
simply asking to get stopped out.
Each day the stock moves in our favor by closing higher, we

will adjust the stop loss to $1.25 under the highest close.
Let’s examine this procedure in action. The closing price on

Oct. 2nd was $26.525.
MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000) 30.5

30.0
29.5
29.0
28.5
Closing Price 28.0
$26.525 27.5
27.0
26.5
26.0
25.5
25.0
24.5
24.0
23.5
20000
15000
10000
x100
7 10 17 18 19 20 21 24 25 26 27 28 1 2 3 4 5 8 9 10 11
October
We therefore adjust our stop loss from under the $23.75

support level to$1.25 under the $26.525 close. This will
place our stop at $25.275.

MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000)
28.5
28.0
Closing Price
$26.525 27.5
27.0
26.5
26.0
25.5
Stop Adjusted 25.0

to $25.275 24.5
24.0
23.5
20000
15000
10000
x100
19 20 21 24 25 26 27 28 1 2 3 4
October
The adjustment procedure is simple. Each day the stock

closes higher, the stop is moved up to $1.25 under the high
close. If the stock closes lower, the stop is not adjusted.
This allows the stop to follow or trail the move.
MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000)

29.0
28.5
Adjust #5 28.0
Adjust #4 27.5
Adjust #3
27.0
Adjust #2
26.5
26.0
25.5
Adjust #1 25.0
24.5
24.0
20 21 24 25 26 27 28 1 2 3 4 5 8 9 10 11
October

MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000)
29.0
28.5
Adjust #5 28.0
Adjust #4 27.5
Adjust #3 27.0
Adjust #2
26.5
26.0
25.5
Adjust #1 25.0
24.5
24.0
1 2 3 4 5 8 9 10
October
After adjusting our stop for five consecutive days, we got

stopped out on Oct. 9.
The high close was on Oct. 8 at $29.02, putting our stop for
the 9th at $27.77 ($29.02 - $1.25).
Remember that we entered the trade immediately after the

Power Spike. The spike occurred on 9/21 and the opening
price the next trading day, 9/24, was at $25.325.
With an entry at $25.325 and an exit at $27.77, that

produces a profit of $2.445 per share or 9.65%. Our total
time in this trade was just 11 trade days.
Consider that, 9.65% profit in 11 days (double that if you use

margin!!). That’s an exceptional return. If one took the

profits at this point and simply moved on to the next trade,
the end result would be highly profitable.
But it doesn’t have to end there. The trade was stopped out
by a normal pullback of the thrust move that we traded. The
stock went on to make several more thrust moves.
Each of these thrust moves could be profitably traded using

the methodology covered in my book “The Double Thrust
Stock Trading System”. If you haven’t examined the
benefits of this trade system, you’re missing a powerful
weapon in your arsenal. Get the details now by clicking the
link below:
http://www.logicaltrades.com/DT/
An effective trader should have several high quality trading

systems in his arsenal. Each system provides a different
type of trading opportunity.

As seen in the case just presented, one will often find that as
a trade ends using one system, the stock will form a pattern
that can be profitably traded using another system.
I often compare trading systems to various weapons in an

arsenal. The weapon that is selected depends upon the
target and the desired effect. In the same way, trading
systems are designed for different technical patterns that
develop.
The more trade systems one has at his disposal, the more
patterns one can confidently trade. That simply results in
more trade opportunities.
Now let’s examine how to approach those Power Spike

situations where one does not have a high degree of
confidence in the direction of the impending move.

2.1.2 Low Level of Confidence in Direction
There will be those occasions where one locates a Power

Spike, but the totality of the technical evidence does not lead
to a firm conclusion as to future direction.
There may be some evidence suggesting an up move while

other evidence suggests a down move. We know that the
odds favor a strong move because the Power Spike is a
highly reliable indicator.
We simply can’t make a firm technical determination about

the direction of the move immediately following the spike.
There is a way to profitably trade this type of situation. But

before we cover how to trade this situation, let’s examine a
case where the technical evidence is inconclusive.
Let’s go back to the Microsoft Power Spike of 6/21/00 to see

an example.
MICROSOFT (24.4700, 24.7000, 24.2500, 24.3500, +0.14000) 41
40
39
38
37
36
35
34
33
32
31
30
Power Spike 15000
10000
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x100
1 8 15 22 30 5 12 19 2
May June

The first technique is to check for recent historical reactions.
In this case, we find two recent reactions to the high of the
spike day.
MICROSOFT (24.4700, 24.7000, 24.2500, 24.3500, +0.14000) 46

45
44
43
42
High of the Day
41
40
39
38
Low of the Day
37
36
35
34
33
32
31
30
3 10 17 24 1 8 15 22 30 5 12 19
April May June
These reactions suggest that the high will become a strong

resistance level and the impending move will be down.
But wait a minute; the spike day also occurred in conjunction

with a gap up.

MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000)
41
40
39
38
37
36
35
34
33
32
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30
15000
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x1005000
22 30 5 12 19
June
Also, the spike day was an up day, where the stock closed
higher than it opened. The gap up suggests an impending
up move and the price formation adds to the up move
evidence.
As a result, we have conflicting evidence. Some evidence

suggests an up move while other evidence suggests a down
move.
In this situation, we don’t have a high degree of confidence

about the direction of the impending move.
So what does one do?
The answer is really simple.
Use technique #4, my preferred method of trading spikes.

Draw a line from the spike day high and the spike day low.
Trade the direction where an entire bar exceeds one of the
S/R lines.
In other words, we don’t know for sure whether the spike is

creating strong support or strong resistance. So we draw
both the support and resistance lines. When one of lines are
cleanly broken, that’s the direction the odds favor the move
to occur.
MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000)

41.5
High = Resistance Line
41.0
40.5
40.0
39.5
39.0
38.5
Spike Low = Support Line
Day 38.0
37.5
37.0
20 21 22 23 26 27 28 29 30 3 5 6 7 10 11 12 13 14
July
As one can see, there was a lot of price fluctuation within “no
man’s land”, the area between the high and low of the spike
day. But so far, there hasn’t been a day where all the action
is either above the resistance line or below the support line.
Finally, on 7/19 the stock both opened and closed under the
support line.

MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000)
41.5
41.0
40.5
40.0
39.5
39.0
38.5
Day 38.0
37.5
37.0
36.5
26 3 10 17
July
While the intraday action did penetrate up through the

support line, the vast majority of the action was well under
the line.
This is the first clear indication that the probable move will be
down. This is confirmed on 7/20 when all the action was
under the support line.

MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000)
41.5
41.0
40.5
40.0
39.5
39.0
38.5
38.0
Day
37.5
37.0
36.5
36.0
35.5
26 3 10 17 24
July
At this point we can confidently enter a short position.
Use The Price Range Adjustment Strategy previously

explained to set and adjust the stop loss. We will
immediately begin adjusting our stop loss since the action is
already beyond the spike day low when we enter the trade.

MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000) 42.0
41.5
41.0
40.5
40.0
39.5
39.0
38.5
Spike Low = Support Line 38.0
Day 37.5
Stop Loss 37.0
follows move 36.5
36.0
35.5
35.0
34.5
34.0
33.5
19 26 3 10 17 24 31 7
July August
Again we have a short, quick down move before we are

stopped out with a nice profit by a normal pullback.
And again, the trade method explained in “The Double

Thrust Stock Trading System” would allow one to continue
trading each successive down thrust.
What is the total potential?
Take a look at the whole down trend.

MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000)
42
41
40
Stop Loss 39
follows move
Spike 38
37
Day
36
35
34
33
32
31
30
29
28
27
26
25
24
23
5 22 30 5 12 19 26 3 10 17 24 31 7 14 21 28 5 11 18 25 2 9 16 23 30
June July August September October
As you can see, there is still a lot of potential profit. Potential

profit that “The Double Thrust Stock Trading System”, in
conjunction with The Power Spike Stock Trading System,
can help you capture.
Are you beginning to see how various trade systems can

work together? Discover the benefits of “The Double
Thrust Stock Trading System” now…

2.1.3 When You Choose The Wrong Direction
The most difficult part of trading this explosive pattern is

determining which direction the strong move will go. Even
when there is substantial evidence indicating a move in a
specific direction, there will still be times when the stock
moves in opposition to the technical evidence.
The flip side to maximizing profits is minimizing risk. So let’s

cover a Power Spike stock trade where the move goes
against the expected direction.
On 4/24/00 Microsoft had a Power Spike in conjunction with

a gap down.
MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000) 45

44
43
42
41
40
39
38
37
36
35
34
33
32
35000
30000
25000
20000
15000
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x100
7 10 11 12 13 14 17 18 19 20 24 25

The stock had not been down to the $33 - $34 range in well
over a year, so there were no recent reactions at either the
spike day high or low.
The stock had been moving down, but had experienced

some pullbacks along the way. So one couldn’t really say
that the move was extended.
MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000) 59

58
57
56
55
54
53
52
51
50
49
48
47
46
45
44
43
42
41
40
39
38
37
36
35
34
33
32
31
3 20 27 3 10 17 24
April
The fact that the stock opened and close very near the same
price could give a clue that the current move may be ending.
We have a day with extremely high volume, yet very little
distance between the opening and closing price.
But this evidence can be questioned since the stock did

make a substantial gap down, had high volume, yet wasn’t
able to move up to close the gap.

The primary evidence that can be examined is the gap
evidence itself and based upon this; the expected move
would be down.
The action immediately following the spike alerts us that

something is wrong with this deduction.
MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000) 41.5

41.0
40.5
40.0
39.5
39.0
38.5
38.0
37.5
37.0
36.5
36.0
35.5
35.0
34.5
34.0
33.5
33.0
32.5
32.0
31.5
31.0
14 17 18 19 20 24 25 26 27
We can expect fluctuation between the high and low of the

spike day. But we see that the day following the spike opens
and closes above the high.
Remember that the fluctuation action that follows the Power

Spike, if there is any, should confirm the direction. If we
concluded the expected direction is down, we don’t mind
seeing action between the spike day high and low (no man’s
land). Action under the spike day low would tend to confirm

our expected downward move, especially an open and close
under the low.
But here we immediately see a problem. The action is

gravitating upwards, above the spike day high.
With both an open and close above the spike day high
(strong movement against our expected direction), I would
recommend waiting to enter the trade or exiting if you
already jumped in.
Even if one didn’t take quick action to exit after the day
following the spike, the ensuing days provided more
indication that the expected down move wouldn’t occur.
MICROSOFT (25.7600, 25.8000, 24.9300, 25.0900, -0.64000) 41.5

41.0
40.5
40.0
39.5
39.0
38.5
38.0
37.5
37.0
36.5
36.0
35.5
Spike 35.0
Day 34.5
34.0
33.5
33.0
32.5
32.0
20 24 25 26 27 28 1 2 3 4 5 8 9 10
May

There was a substantial amount of time where the stock
action remained above the spike day high and several days
where all the action (the whole bar) was above the high.
In these situations the stock is warning that it doesn’t want to

make the expected down move, it wants to move UP.
Don’t wish, hesitate or make guesses, get out if you are

already short in this stock.
The stock could develop a trading range where it simply

moves a bit up and then a bit down for some time. But even
so, there’s no reason to keep capital locked in a trade that is
not producing. The price action following the spike changes
everything from a technical perspective.
The stop loss also provides risk protection for movement

against our expected direction. It is possible that the
intraday action can reach out and touch our stop level.
Anyone who has had some experience trading stocks has

probably experienced this.
But understand that there is a difference between having the

entire move go against a trade and being stopped out simply
due to unusually volatile intraday action.
Let’s look at a Power Spike that occurred in Intel on 6/7/02.

INTEL CORP (17.6300, 17.6800, 16.8000, 17.0500, -0.52000) 29
28
27
26
25
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23
22
21
20
19
18
17
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15000
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8 3 10 17 24 1 8 15
June July
This was a Power Spike in conjunction with a gap down, so

the expected direction is down. The spike day high creates
a resistance level and our stop would be placed just above
the spike day high, if we immediately entered a short
position.
However, notice that on the 18th the intraday action

penetrated the spike day high.

INTEL CORP (17.6300, 17.6800, 16.8000, 17.0500, -0.52000) 28.5
28.0
27.5
27.0
26.5
26.0
25.5
25.0
24.5
24.0
23.5
23.0
22.5
22.0
21.5
21.0
20.5
20.0
19.5
15000
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x1005000
5 6 7 10 11 12 13 14 17 18 19
It is possible that this penetration could have hit our stop and
taken us out of the trade. But should we stay out?
No!
The technical picture hasn’t changed. The stock opened

and closed on the 18th below the resistance level. The odds
still strongly favored an impending down move.
Additionally, all the price action that occurred since the spike
day, especially the opening and closing prices, had been
below the resistance level.
In this case, even though we were stopped out, we would be

correct to re-enter the trade because the overall technical
evidence hadn’t changed.
The expected move is still down.

The intraday action may have bitten us in the behind, but the
move itself didn’t go against us. In fact, the expected down
move did occur.
INTEL CORP (17.6300, 17.6800, 16.8000, 17.0500, -0.52000) 30

29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
15000
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x100
28 3 10 17 24 1 8 15 22 29 5 12 19 26 3 9 16 23 30 7 1
June July August September October
The point is that one must determine if the move itself is

progressing against the expected direction. If the evidence
suggests the move itself is going against us, perhaps the
stock closed above the resistance level followed by more
days above the level, then the trade should be abandoned.
But if it appears that one was stopped out simply due to

intraday action while the expected direction hasn’t
technically changed, then one should re-enter the trade.

These types of situations are frequently avoided by using
technique #4. And that’s another reason why this technique
is preferred.
Suppose that, as in our previous Microsoft example, there is

clear evidence that the move itself is going against our trade
direction. It has become obvious that we are “in the wrong
way”.
When this becomes evident, the first step is to immediately

exit the trade, whether the stop level has been hit or not.
When you know you’re wrong, don’t stay in a bad trade.
Once the bad trade has been closed, there remain only two
alternatives. The first option is to flip the trade, switching
from a short to a long position or a long to a short position.
In other words, going from a trade in the wrong direction to a
trade in the right direction.
The only time I would consider a flip as a viable option is

when there is very strong, to the point of overwhelming,
evidence of the move direction. In fact, the stock must
almost force me into the trade.
As a general rule, I won’t do a flip. The stock has failed once

to follow the technical evidence on this move, why give it a
second chance? One could view it as a failed move, since
the stock failed to follow the initial odds.
In almost every instance, the best play is to go with option

#2. That option is to close the bad trade and move on.

The Power Spike pattern occurs frequently enough that
locating an alternate trade presents no difficulty.
When it is obvious that you’re in the wrong way, get out

immediately. This is true even if your stop loss hasn’t yet
been triggered.
Then move on.

2.2 A QUICK WAY TO LOCATE POWER SPIKES
We have previously discussed the use of Bollinger Bands.

I’d like to emphasize this technical tool as a quick and easy
way to locate Power Spikes. Bollinger Bands are a technical
analysis tool created by John Bollinger.
The most common way that Bollinger Bands are used is to

apply them to the price data. The Bollinger Bands consist of
three lines. The middle line is a moving average, a 20-day,
simple moving average being the most common.
The top and bottom lines form a channel around the price
action. These lines are the outer envelopes and are plotted
two standard deviations above and below the moving
average.
Two standard deviations is the optimal formula since 98% of

all price action will occur within these two envelope lines.
That means, when action occurs outside these lines,
something “intense” is happening.
What does this have to do with Power Spikes?
Excellent question!
Did you know that you could apply an indicator to any type of
data? You can! In fact, my little trick is that I don’t apply the
Bollinger Bands to the price at all.
Apply the Bollinger Bands to the VOLUME.

Oh wait a minute, I already told you about that, didn’t I?
Repetition is the key to learning ☺.
When applied to the volume, the bottom envelope is of no

value.
However, the top envelope is of great value. Remember that

98% of the action will occur between the envelope bands, so
if the volume exceeds the top envelope, this indicates that
there is “intense” volume occurring.
This identifies a Power Spike. It definitely deserves closer

inspection.
For those who desire to use computer software to scan for

Power Spike, this is the method I would recommend. It is
the method we use at Logical Trades, Inc.
MICROSOFT (26.5300, 26.7100, 26.4500, 26.6600, +0.22000) 25000
Power Spike Penetrating

The Top Envelope
98% of the Volume 20000
Action will occur Bollinger Bands
within the envelopes Applied to the Volume
15000
10000
5000
x100
7 10 17 18 19 20 21 24 25 26 27 28 1 2 3 4 5
October

As we previously discussed, the percentage of total volume
that occurs above the upper envelope provides an excellent
method of ranking various spikes. The higher the
penetration percentage, the better the potential.
This provides a good initial trade selection method.
Power Spikes are an emotional event. There is a fury of

activity in a stock within a very short period of time. A spike
indicates extreme levels of greed or fear.
The greater the penetration percentage, the more extreme

are the levels of greed or fear. And this fact will have
tremendous importance when viewed in the context of the
whole market. We will discuss this in greater detail in the
next section.

3. GET MAXIMUM PERFORMANCE
The Power Spike is truly a superior trade pattern. It is highly

reliable and, when used properly, consistently produces
trades with an impressively high rate of return.
This section is incredibly important because we will discuss

the proper application of this powerful trade weapon and the
way to achieve optimal performance, maximum profits and
minimum risk.
Many traders know only one method of trading, that being to

simply pick a signal and throw some money at it. This is a
“fund and wait” approach, where one simply funds a trade
and then waits to see what happens (profit or loss).
You are about to discover a completely different approach.

The information and methodology that is revealed in this
section is a professional level trade approach.
If you really want to know how professional traders earn

consistent profits, then pay very close attention to this
section. This approach can be applied to any trade system
and any time frame. You will discover that achieving optimal
performance requires work throughout the entire trading
process.
If you are willing to exert the effort and apply the principles
and concepts that will be presented, you will achieve
consistent profits. If not, your trading activity will be little
more than a gambling enterprise and any trade system
reduced to the method of the gamble.

The importance of this information cannot be over stressed.
No matter how technically sound a trade system may be,
consistent performance is dependent upon the proper
application of the tool. You can’t just have a good trade
system; you must also use that system correctly to succeed.
Let’s begin by addressing just a couple general trade rules.

3.1 GENERAL TRADE RULES
There are a few general rules that should be applied to your

trades. Each will help to ensure the best possible results.
Rule #1:
Trade stocks with a price between $5 and $25.
Keep in mind that we are in the business of trading stocks.

Our purpose is not to invest for a long period of time, but
rather to use the stock to secure a reasonable profit or rate
of return.
We neither love nor hate any stock or underlying company.

A stock is simply the mode of realizing potential profit.
For trading purposes, stocks that range in price from $5 to

$25 offer the optimal performance parameters.
While one may be tempted to trade stocks with prices lower

than $5, the odds of being stopped out intraday increases
dramatically. And the only correction for this problem results
in a stop loss level that is far too loose.
Remember I previously stated that stocks would tend to

have the same range of intraday fluctuation (the distance
between the high price and low price) regardless of the stock
price. The average fluctuation range is around $1 per day
(the amount is dependent upon the time frame of the chart),

meaning that a stock will tend to fluctuate up and down
about $1 on an average day.
As a result, when one trades a lower priced stock, the

location of the stop loss entails a greater level of risk
assumption.
To illustrate this, let’s take two stocks with a $1 average daily

fluctuation amount. The first stock closed at $5 when we
decided to enter the trade. Assuming we are taking a long
position in the stock, we would set our stop loss $1 under the
current close. The second stock is a $25 stock and, using
the same procedure, we’d set out stop at $1 under that
current close (because both stocks have the same average
daily fluctuation).
With both the $5 and $25 stock we are initially assuming a

$1 risk. While the dollar risk is equal, profit and performance
are NOT measured by dollar amounts. These are measured
in terms of percentages.
With the $5 trade, we are initially assuming a risk of 20% of

our invested capital ($1 risk divided by $5 invested). With
the $25 trade, we are initially assuming a risk of just 4% of
our invested capital ($1 risk divided by $25 invested).
That’s quite a difference, isn’t it??
The assumed risk increases exponentially the lower the

price of the stock. And setting the stop loss closer to the
close or trade entry price won’t solve the problem, as I
explained in the stop loss section. That will only put the stop
too tight, not allowing the stock enough room to fluctuate and
resulting in more trades being stopped out.
Additionally, stocks with a very low price range are subject to
high volatility swings and the risk of stock manipulation is
greater.
“Kevin, that sounds like you have made a great argument for
only investing in higher priced stocks.”
If only it were that simple. Again the principle that average

price movement is equal across all stocks must be
remembered. The higher the stock price, the more difficult it
is to achieve a superior rate of return.
We can again compare a $5 stock to a $25 stock to illustrate

this. In order to achieve a 10% profit, the $5 stock must
move only $.50 while the $25 stock must move $2.50. And,
on average, both stocks are likely to move about the same
distance over the same period of time.
Therefore, while the risk assumed increases exponentially

with lower stock prices, the profit potential likewise
increases. Conversely, while the risk assumed is reduced
with higher priced stocks, so is the potential. The axiom that
potential has corresponding risk holds true. And there is no
escaping this simple, but profound principle.
For trading purposes, the best price range is found from $5

to $25. This price range holds the best balance of risk vs.
potential for our objective.
But even this range is somewhat subjective. As a trader,

you must decide what price range you are comfortable in
trading.
Rule #2:
Trade stocks that have a strong average volume.
Apply a 25-day or 50-day, simple moving average to the

volume. I want to make sure the average daily volume of the
stock is greater than 100,000 shares traded per day.
The goal is to secure a reasonable level of trade liquidity.

You want to make sure you can easily enter and exit your
trade (trade liquidity).
Believe me, the only thing worse than not being able to get
into a good trade is not being able to exit a bad one!
If the stock has been averaging more than 100,000 shares

traded per day over the past 25 or 50 days, then one can be
relatively confident that one will be able to both enter and
exit the trade when one issues the order.
Again, this level is somewhat subjective, though I trade a

fairly large account and have experienced very few problems
with the 100,000 shares per day rule. Keep in mind that if
one increases the minimum number, one will reduce the
number of potential trades available (since some stocks will
be excluded due to the lower average volume level). And as
you’ll soon discover, we want as many trade candidates as
possible.
Therefore, unless you have solid reasons, I’d stick the

100,000-share minimum.

3.2 MARKET HARMONY TRADING
No stock moves in isolation. Each stock is just a drop of

water in the sea. That sea, comprised of all stocks, is called
the broad market.
The broad market, just like individual stocks, moves up and

down. The movement and momentum of the market can be
charted, evaluated and predicted.
The broad market exerts a powerful influence over the price

movement of all… ALL individual stocks. And no stock can
escape this influence nor successfully fight against it for
long.
The direction and strength of the current broad market action

is the single greatest factor to trade success.
Re-read that sentence over and over, until you fully grasp
the importance of that concept. It has tremendous
implications.
In fact, if I were given the choice between 1) using the most

technically solid trade system ever devised or 2) being able
to consistently predict the action of the broad market, I’d
chose the latter without hesitation.
Trade systems focus solely on the technical condition of the

stock. They locate stocks that have a high probability of
making a specified move, based upon one or more technical
factors. A trade system can only tell you what the stock
wants to do.

But as was previously stated, no stock moves in isolation.
No stock can escape the powerful influence of the broad
market.
Therefore, if a stock wants to move up when the broad

market is moving down, there is little chance the stock will
succeed in making the move. And even if the stock is able
to move against the momentum of the broad market, the
move is likely to be weak and not cover the distance it would
if the move had been in harmony with the market.
The broad market momentum is more powerful than the

technical condition of individual stocks. This is a fact novice
traders don’t fully grasp and, as a result, are doomed to
failure.
The key to consistent trade success is to use technically

solid trade systems in harmony with the broad market. This
is the proper application of powerful trade tools.
An up-to-date evaluation of the broad market allows a trader

to answer three critical trade decisions: 1) WHEN to trade, 2)
WHICH DIRECTION to trade and 3) HOW AGGRESSIVELY
to trade.

3.2.1 WHEN to Trade
Traders who always have positions in play never achieve

success.
Just like individual stocks, the market will make moves with
varying levels of strength. Some moves will be strong, some
weak. Some will begin strong and become weak, others
begin weak but grow strong as the move progresses.
Sometimes the market moves sideways, neither up nor
down.
There is an optimal time to enter new trade positions, a time

to ride existing trades without opening new trades and a time
to simply sit safely on the sidelines watching the action.
The best time to enter new trade positions is when the

market is beginning to make a strong move in a specific
direction, using stocks that are also beginning to make a
move in harmony with the market. Therefore, the optimal
entry time for new trades is limited.
As a professional trader, I can tell you that trade entry is the

most critical time of the entire trading process. It is the time
when the trader faces the greatest level of risk, since no
trade has yet demonstrated profitable performance. And
making sure the broad market condition justifies the risk of
capital is the most critical element in this decision.
This book is not designed to detail the procedure of

performing the critical technical evaluation of the broad

market. We do offer an excellent e-book devoted to this
subject:
Professional Power Trading

(http://www.logicaltrades.com/PPT/).
Most average traders have neither the time nor desire to

perform this very important daily task. And because a broad
market analysis is vital to the proper use of your trade
system and consistent success, we have included this
service in The Power Spike Trade Signal Service
(http://www.logicaltrades.com/combospecials/psss&ltma/).
This terrific program provides daily Power Spike trade

signals and a high-quality broad market analysis. It provides
everything you need to use this powerful system effectively.
I hope you will investigate this program. It is very highly
recommended.

3.2.2 WHICH DIRECTION to Trade
Some traders frequently have both long and short trades in

play at the same time. This is almost never correct.
It is true that trade systems will yield both long and short
trade signals, since there will always be some stocks poised
to move up and others poised to move down. But remember
that trade systems can only reveal what the individual stock
wants to do.
However, individual stocks must move within the context of

the market as a whole. And the broad market, which is more
powerful than the technical condition of any individual stock,
doesn’t move both up and down at the same time.
Therefore, a savvy trader will only use those trade signals

that identify stocks poised to move in harmony with the
broad market. If the market is about to move up, he’ll only
be interested in long trade signals. If the market is about to
move down, he’ll only be interested in short signals.
The single greatest error a trader can make is to trade

against the current broad market momentum. It is financial
suicide. The broad market will be your greatest enemy, your
worst nightmare.
But when a trader uses the combination of market

momentum together with stock momentum, the results are
maximum performance. The broad market becomes your
greatest ally.

In order to know which direction the market momentum is
moving and being able to make the decision of which way
one should trade, one must have a current broad market
analysis. One must know what the market is doing and is
likely to do.
Again, the broad market evaluation is critical to trade

success. And that’s why we include this service as part of
The Power Spike Trade Signal Service


3.2.3 HOW AGGRESSIVELY to Trade
Capital exposure defines trade aggressiveness. And most

traders make the critical mistake of always trading very
aggressively.
There’s a management principle that states, “Capital

exposure should be inversely proportional to the risk”. This
simply means that when risk is low, capital exposure can be
high. Conversely, when risk is high, capital exposure should
be low. Capital exposure should balance or offset the
corresponding risk in the broad market.
Another common mistake is that most traders don’t adjust

exposure to changing risk conditions.
I’d like to offer a simple, example scenario that illustrates the

concepts thus far presented. This may help to shed light on
the procedures a professional trader uses and clarify any
confusion that may exist.
The first task is to obtain a high-quality market evaluation.

There’s no need to touch our trade systems unless the
current evaluation indicates it is time to enter new trade
positions.
The market analysis will reveal the current technical

condition, therefore understanding what the market is doing
and providing the ability to deduce what it is likely to do.
Let’s suppose the market has previously made a nice thrust

move up followed by a normal pullback. It is now providing
good evidence that the pullback move is completed and
another thrust move up is imminent. The up move is
imminent, but since it hasn’t yet begun we can’t determine
the probable strength of the move.
Therefore, the market is indicating it is time to enter new

trades. However, we can’t yet determine move strength.
We know it is time to get in and we know which direction we
need to trade (we want to trade long positions since the
market move is expected to be up).
How aggressive should we trade? Since the strength of the

move can’t be determined at this point, we don’t want to
jump in too aggressively. The current evidence would only
justify a light to moderate exposure level.
So now we grab our trade system to locate as many long

trade candidates as possible. Contrary to what many traders
think, fewer signals are NOT better. You’ll see why when we
discuss the details of using a trade pool and leveraging trade
positions.
Let’s say we enter the game with a total capital exposure of

25%. Then the market begins to move as we expect.
Once the bulls begin to move the market up, we can then
make a determination of probable move strength. We see
the bulls are showing a lot of power and this thrust should
develop into a nice strong move.
As a result, we conclude the conditions justify a rather

aggressive capital exposure at this time. So we now
increase our exposure from 25% to 70%, a fairly aggressive
level.
All throughout the move we perform a market analysis. We
want to be aware of any changes in the condition of the
move, so we can adjust to those changes.
Suppose we begin to see weakness in the bulls. At that

point we’d reduce our total capital exposure to better match
the current condition and balance the increasing level of risk.
Also, as the move progresses, it moves closer to the point

where another pullback is needed to consolidate the gains.
In other words, the further up the bulls go, the greater the
odds that the bears will make a counter attack.
So as the move progresses, we’ll want to begin reducing our

total exposure. Again, the goal is to constantly balance our
capital exposure to the corresponding risk.
Finally, the market analysis indicates that the up move is at

or very near its end. The market indicates an imminent
change in direction.
Even though our current trades haven’t hit their stop loss
and they have performed great, it is time to exit all trades
and book the profits earned.
As you can see, in reality a trader uses stock positions to

ride moves in the broad market. And a savvy trader is
constantly working his trades and capital to achieve the best
performance.

The broad market analysis is, obviously, a vital tool in this
process. When you use your trade system in harmony with
the broad market momentum, the result is amazing.
The Power Spike Trade Signal Service scans a database of

over 8,000 stocks to provide a daily list of current Power
Spike trade signals. When the market indicates it is time to
enter new trades, you’ll have the signals.
And of course the daily broad market analysis will clearly

indicate what the market is doing and is likely to do. You’ll
know exactly how to use your trade system for maximum
effectiveness and maximum profits. Explore all the benefits
of this awesome program today:

3.3 TRADE MANAGEMENT
Professional level trade management involves a whole lot

more than just the placement and adjustment of a stop loss.
As you can see from the previous sections, this book
provides information beyond that provided by most trade
systems.
And it should be clear, real success requires a lot of work.

There is a lot of information here, and you may need to re-
read this book several times to fully grasp all the concepts
presented, but the effort will be rewarded many fold.
I don’t want to just throw a trade system at you; I want you to

achieve consistent success using it. And the only way you
will accomplish this is by using the tools properly (a major
detail other retailers fail to mention).
Novice traders expect their trades to work for them.

Professional traders work their trades. There is a vast
difference.
Working and managing trades doesn’t end with the constant

adjustment of capital exposure. We have discussed how to
handle total capital exposure, but we need to talk about how
the invested funds should be disbursed over the trades.
You’ll discover that the process of working and managing

trades is a continual process, but one that yields superior
results. For most, this approach will be completely new and
hopefully solve many mistakes that have cost potential
profits. Let’s begin by addressing the use of a trade pool.

3.3.1 Use A Trade Pool
Many traders only pay attention to the stocks they have

money in. When they decide to enter new trades, they whip
out their trade system, grab a few signals, throw money into
those stocks and then simply watch to see what happens.
In a moment we’re going to discuss a method used to

leverage the best trades. But the only way to effectively
leverage the best positions is by using a trade pool.
What is a trade pool?
It is a pool of signals generated by your trade system

WHETHER OR NOT you have actually invested in those
signals.
Here is how the signal pool is used…
When the broad market analysis indicates it is time to enter

new trades, technically strong systems are used to locate
stocks poised to move in harmony with the market. All of the
corresponding signals generated at that time form a signal or
trade pool.
Let’s suppose we have a total of 20 signals generated on the

day we decide to enter new positions. We may invest in only
ten of those stocks, but we are going to track the
performance of ALL the signals.
Why is this important?

Each stock has formed a technical condition or pattern
indicating a move in harmony with the expected market
move, that’s why they triggered a trade signal. But we don’t
yet know just how well each of those stocks will perform on
this specific market move.
There are several ways that the signals can be ranked to

make an initial selection. The Power Spike Trade Signal
Service uses the penetration percentage to rank Power
Spike trades, as was previously discussed, while The
Double Thrust Trade Signal Service (our other trade system
program) uses historical performance to rank those types of
signals.
There are specific reasons why each system uses a different

method to rank the probable performance of the signals, and
the ranking procedure is a logical method of INITIAL trade
selection.
But, as I just stressed, this is only an initial trade selection

process. We really don’t know which trades are going to be
incredible performers and which will be poor performers until
the trades begin to… well, perform.
It is quite possible, even highly probable, that some of the

best trades will be among those signals we did not initially
invest in. But how will one ever know if one only tracks the
performance of the invested trades?
For this reason, it is important to track the performance of all

the signals generated at the time the decision to enter has
been made.

3.3.2 Diversify, then Consolidate to Leverage Trades
The broad market analysis reveals that the market is going

to begin a move. It is time to enter new trade positions.
Based on your analysis, you have determined the proper
level of capital exposure you will place at risk.
You have used one or more technically solid trade systems,

like this one, to locate stocks poised to move in harmony
with the market. You’re all set to get into the game and
make a play.
But how many stocks from your signal pool should you
invest in? And do you hold those initial selections the entire
time?
At the very beginning of a market move, you have virtually

no information about how these trade signals will perform.
The method used to rank the signals provides a good
starting point, a small indication as to which stocks are likely
to perform better than others.
But until the stocks actually begin to move, you can’t really
tell which stocks will prove to be the best trades on this
particular market move. For this reason, it is important to
diversify your invested capital at the beginning.
I usually like to spread my funds over 10 – 15 signals at the

start, even more if I am going in with an aggressive or high
exposure level. The goal, at the very beginning, is that my
invested capital will earn a return comparable to the move in
the broad market.
I don’t expect to initially make a huge return, because I don’t
yet know which trades will be the better trades. I just want to
earn enough to show a profit and get the move started off on
the right foot.
It is important to diversify at the beginning because there will

be stocks that, even though they have signaled a move in
harmony with the market, will move the wrong way. Not
every signal will move the way we expect.
If one invested in only three signals and just one of those

stocks moved wrong, 1/3 of the invested capital would be
showing a loss. And that could have a very negative effect
on the total return.
With only three invested signals, it wouldn’t be highly

unusual for even two of those stocks to move wrong. And
one will even have situations where all three move against
the trade.
That’s not a good way to begin the move, especially if the

market is beginning to move as expected.
If one begins the trade session with good diversification, it is

very unlikely that a high percentage of those trades will
move wrong if the market moves as predicted. A couple of
trades may move wrong, but because one has good
diversification, those wrong trades are offset by a couple of
trades moving better than average.
The end result is an overall return comparable to the market

move.

So having good diversification at the beginning of the traded
move is very important to getting performance started in the
right direction.
Keep in mind that we track the performance of ALL the

signals in our trade pool, not just the stocks we have
invested in. And once we begin to see price movement, I
use an advanced management plan called The Position
Leverage Strategy to systematically leverage the best
trades.
This powerful management approach is detailed in a Special

Report:
Special Report: The Position Leverage Strategy

(http://www.logicaltrades.com/articles/advanced_strategies.htm)
Let me provide just a very brief overview of this strategy so

you can better grasp how this amazing method works. This
strategy, combined with a high-quality market analysis and
technically strong trade systems, allows professional traders
to consistently achieve returns that are well above average.

After the first day in trade, we begin to see how well the
signals are performing. A few of our trades are doing bad, a
few are above average and most are average. Overall we
are earning a return comparable to the move of the broad
market.
It would be a mistake to immediately consolidate all our

invested capital into the very top performing trades at this
point. We have only seen performance from one day,
although this does give us a clue to which stocks are likely to
be the better trades.
Therefore, we will maintain our current level of

diversification, but we adjust the stocks in which those funds
are invested. For example, suppose we began with ten
positions. We would maintain ten active trades, but we
would now make sure that we are in the top ten performing
trades.
So we would close positions in trades that aren’t in the top

ten. We would then open a position in any top ten trade that
we aren’t already in.
This constant adjustment of positions assures that we have

our funds in the top performing trades.
At the beginning of the move there will be stocks that appear

as a great trade, but then lose steam and fall behind.
Conversely, there will be stocks that simply get started a bit
later, lagging at first and then becoming a great performer.

But after a couple of days into the move, the better
performers will become clear. These stocks rise to the top
and stay there. And we are invested in them.
After a couple of days, as the performance becomes clear, I

begin to consolidate my funds. There is less need to
diversify since the performance of the trades is being
revealed, there is far less risk investing in the better trades.
So at this stage of the game I will move my funds into the top
five and finally into the top three performing trades.
As you can see, the basic principal is to strategically and

systematically adjust our funds so that they are consistently
invested in the better trades. The end result is that our
capital earns a higher than average rate of return.
Again, this strategy is fully explained in:
Special Report: The Position Leverage Strategy

(http://www.logicaltrades.com/articles/advanced_strategies.htm)
Keep in mind that throughout this entire process we are

performing a daily broad market analysis to stay on top of

any changes in the technical condition of the market and
adjusting our overall exposure level to balance the risk.
Obviously, there is a lot of work and activity in professional

level trading. But that is what separates those who are
serious about the business and those who simply dream of
making easy money (which is nothing more than an illusion).
Fortunately, there is a way you can avoid all the hard work
and time required to achieve superior performance. Let us
do the work for you!
The Power Spike Trade Signal Service provides everything

you need to earn the results you deserve! As a member
you’ll receive a daily, high-quality broad market analysis
along with up-to-date Power Spike trade signals.
This program is very extensive and provides a lot of

information. Please take just a few moments and review the
incredible benefits of this program now. You’ll see how the
powerful concepts revealed in this book are put into practice
everyday.


3.3.3 Performance History, Track Record
We frequently receive emails asking about performance

history or our track record, it is one of the most common
emails we get. Yet this is a question that is almost
impossible to answer.
As you can tell from the previous sections, our funds are
constantly in motion. And the level of total exposure
fluctuates. Our end result is phenomenal, but it is impossible
to explain how we achieve our success in just a few
sentences.
Since the way we trade is so completely different from

novice traders, simply providing a list of stocks that we have
invested in would be very misleading. Most assume we
enter a trade and remain there until we get stopped out or
earn a big profit. But that is simply not the case.
By diversifying at the beginning, the amount of money

invested in a single bad trade is very minimal. And by using
The Position Leverage Strategy our funds don’t remain in a
poor performing trade for very long.
Additionally, the amount of money invested in the better

performing trades increases as we consolidate our positions
or more exposure is added to the play. And the amount of
exposure can vary greatly from one market move to the
other, or from the beginning of a particular move to the end
of that move.
There is simply too much activity involved to provide a

simple response to the question of our track record.
Even the premise of the question is faulty. A novice trader
usually asks about performance history to form a prediction
about what he or she will earn in the future. But that is
inherently incorrect.
As I have tried to stress, the single greatest factor to trade

success is the action and momentum of the broad market.
The more strong moves the market makes, the more profit
potential exists for a trader.
How many strong moves will the market make over the next
year??
That is anyone’s guess. But that is the only way one will be
able to predict future profit potential.
What I can say with great confidence is that this trade

system, used in harmony with the broad market action as
detailed in this book, produces results well above the market
average.

3.3.4 Brokerage Fees
With the amount of activity required to follow the approach

detailed in this book, brokerage fees can destroy a major
portion of the potential profits. Obviously, we enter and exit
a lot of positions and have money flowing in and out of many
stocks.
Therefore, it is vital that transaction cost be as low as

possible. So low, in fact, that trade fees cannot effect trade
decisions.
It is important to set up your trade account with a broker that

offers incredibly low transaction cost. Remember, you pay
your broker with the profits you earn; every penny sent to
him reduces your overall performance.
One of the best-known deep discount brokerage firms is

Interactive Brokers (http://www.interactivebrokers.com). Even if you
already have a trade account established, you might want to
check them out. They provide good execution and very
good transaction costs.

3.3.5 Summation
You have discovered the details of a powerful trade pattern.

You have learned what the pattern is, why it works and how
to trade the pattern. You have reviewed the details of the
specific trade system.
And I have gone much further by showing you how to use

this trade system, and all trade systems in fact, to achieve
optimal results. I have detailed how to use the system in
harmony with the broad market. I have discussed how to
establish and adjust capital exposure to balance inherent
market risk. I have revealed how positions are tracked and
adjusted to leverage the best performing trades. I have
discussed the importance of securing proper diversification
at the beginning of a traded move, then systematically
consolidating capital into the best trades to earn above
average results.
I have given you a complete blueprint to achieving

consistent, superior performance.
I have also referred to several of our other resources;

resources that will help you apply the information covered.
We have provided a brief description of our products and
services in the next chapter. Take some time and explore
them. Remember, all the information we publish is
information I use daily in my personal trading. So this is not
just theory, it is practical information that really works.
I truly hope you will explore all the exciting benefits of The
Power Spike Trade Signal Service. This program is

designed specifically for this trade system and will prove
invaluable to your success.

Thank you for giving us the pleasure of sharing this

information. I wish you the very best of success in your
trading activities.
If you have any questions, comments or suggestions, please

don’t hesitate to email me. I look forward to hearing from
you.
kbutler@logicaltrades.com
Thank You,
Kevin Butler

4. OTHER RESOURCES
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than a good system. In fact, there’s something that affects your results more
than your system. Get this wrong, and you’ll forfeit a bundle that should be
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Do you want to make consistent money in the market?
If so, our system is easy to use, technically superior and doesn’t

require charting software!
You can get all the exciting details NOW…

Power Principles: Beyond Basic Trading
Move beyond a basic level of trading! Elevate your trading to an

advanced level by learning key principles of professional level
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This fantastic resource covers many trade topics at a depth never

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This is a “MUST HAVE” addition to YOUR library. This

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The Logical Trades Power Program is the ULTIMATE stock
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This incredible package includes not just one, not even two…
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These terrific resources include:

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Power Principles: Beyond Basic Trading
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ITEMS and a special subscription price that will make your jaw
drop!
Are you truly serious about your stock trading business? Then this
is the program for YOU!!
Get the details NOW:
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THE

MICROSOFT (26.5300, 26.7100, 26.4500, 26.6600, +0.22000)

Logical Trades, Inc.

Logical Trades, Inc.

My name is Kevin Butler and I want to thank you for the

As a technical analyst and active stock trader with over

Trading success can be achieved, but only by investors who

The stock market is the most fiercely competitive arena in

Logical Trades, Inc.

I’m going to reveal this technical pattern, explain why it

If you are serious about your trade performance, then you

But this is not an elementary level trade system.

The approach I use and the information I publish is

There is a right way to use the trade tools at your disposal.

Logical Trades, Inc.

Logical Trades, Inc.

Most technical analysis tools, by themselves, do not provide

As a result, most traders and analyst do not usually rely

But there exist a very few indicators or technical conditions

Unlike many other indicators or technical patterns, when a

A Power Spike is a truly unique indicator that is technically

Logical Trades, Inc.

Stock charts, in their most common form, are presented with

MICROSOFT (24.6700, 25.1000, 24.6000, 24.6700, -0.37000)

Logical Trades, Inc.

Low Price 24.1

MICROSOFT (26.5300, 26.7100, 26.4500, 26.6600, +0.22000) 32.0

Logical Trades, Inc.

The technical principles of The Power Spike Stock Trading

MICROSOFT (26.5300, 26.7100, 26.4500, 26.6600, +0.22000) 32.0

Logical Trades, Inc.

In this case, each volume bar represents the number of

MICROSOFT (26.5300, 26.7100, 26.4500, 26.6600, +0.22000)

As one can see, a chart provides an excellent way to

Why does the standard chart present both price and

Because there is a basic principle in technical analysis that

Logical Trades, Inc.

Another way to understand this concept is to view volume as

A Power Spike is a high surge in volume. It is a situation

Volume will, of course, fluctuate from bar to bar. But volume

A surge in volume, volume levels far above the recent

MICROSOFT (24.6700, 25.1000, 24.6000, 24.6700, -0.37000)

Logical Trades, Inc.

MICROSOFT (24.6700, 25.1000, 24.6000, 24.6700, -0.37000)

In addition to the two spikes indicated, we may also include

Logical Trades, Inc.

So within a six-month period of time, from November through

It is easier to spot a volume spike when one applies a 25-

Logical Trades, Inc.

Blue Line 15000

Notice how our three Power Spikes represent situations

There are several ways to locate potential Power Spikes, but

If the volume is able to penetrate the upper envelope of the

Logical Trades, Inc.

The use of Bollinger Bands is extremely beneficial due to the

When the volume is able to pierce the upper envelope, it is

Logical Trades, Inc.

For example, here’s another volume chart of Microsoft with

MICROSOFT (25.0300, 25.3800, 24.9900, 25.3000, +0.30000) 28000

In this chart there are a few spike events.

Logical Trades, Inc.

Notice that the first spike event is a huge one. There is a

What does this mean?

You’ll find out in a moment.