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NOTE: This document is in the making. The format is a bit ugly. Focus on the value of the information.

With the help of Online Trading Academy, the creators of this course curriculum includes
educational experts and seasoned traders. The material has been sequenced to build upon each lesson
and its previous lessons, so it is recommended to start at the beginning and move at your own pace.

If while reading through the lesson, it says to use “Clik”, use your preferred trading platform. I
recommend Thinkorswim in the event you do not have access to Clik. However, It is not the platform
that is relevant necessarily, it is the technique and strategy. However, regardless of the platform you
choose it should allow you to submit “bracket orders”. This means your order contains the Stop, Entry,
and multiple Targets all together as one order. If your platform does not allow you to submit “bracket
orders”, find another.

If you see a reference to a lesson #, understand it is only referring to the information you
already have within this documentation.

If the lesson calls for an exercise looking at an ETF on an actual chart, understand that an ETF is
QQQ (Nasdaq), DOW (Dow Jones), SPY (S&P 500), or IWM(Russel 2000).

To navigate the Table of Contents, simply click the section of the document you would like to
visit. You will see a link for a bookmark pop up. Click the bookmark and it will take you to that portion of
the document to make it easier to pick up where you left off. You may also use the document outline on
the left. Each title within the Table of Contents can be found within the Document Outline on the left
hand side bar. If the Document Outline is not listed, click the icon. There you will find the Document
Outline. Each title within the Document Outline corresponds with a video from the YouTube channel
(genoTrades). To get back to the Table of Contents, scroll to the top of the Document Outline in the left
hand sidebar and click ‘Table of Contents’. You may also double click the page number located at the top
of each page to reveal a bookmark. Simply click the bookmark and it will take you back to the Table of
Contents.
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Table of Contents
1. Course Expectations
2. Terms Related to Trading and Investing
3. Terminology: Bulls and Bears
4. Fundamental vs Technical Analysis
5. Market Participants
6. The Flow of Trading
7. Reward to Risk Ratio
8. Long Position
9. Short Position
10. Chart Components
11. Components of a Candlestick
12. Life of a Candlestick
13. Candle Sentiment
14. Candle Structure
15. The Rally, The Base, The Drop
16. The Three States of an Order
17. Filled and Unfilled Orders
18. Order Flow
19. Two Key Trading Components
20. Two Key Mistakes of Novices
21. Lab Exercise 1: Setting Up Your Online
Trading Environment with thinkorswim
22. Market Balance and Imbalance
23. Base and Leg Candles
24. Gap Candles
25. Lab Exercise 2: Identifying Imbalance
26. Supply and Demand Formations
27. Three Key Elements of Zone Formation
28. Four Basic Candlestick Formations
29. Proximal and Distal Lines
30. Base Isolation Technique
31. Proximal Line Placement - Demand
Zones
32. Distal Line Placement - Demand Zones
33. Lab Exercise 3: Proximal and Distal Line
Placement - Demand Zones
34. Proximal Line Placement - Supply Zones
35. Distal Line Placement - Supply Zones
36. Lab Exercise 4: Proximal and Distal Line
Placement - Supply Zones
37. Odds Enhancers Explained
38. Odds Enhancers - Strength
39. Odds Enhancers - Time
40. Odds Enhancers - Freshness
41. Zones Defined
42. Zoning: Five Step Process - Drop-Base-
Rally
43. Zoning: Five Step Process - Rally-Base-
Rally
44. Lab Exercise 5: Zoning Process - Demand
45. Zoning: 5 Step Process - Rally-Base-Drop
46. Zoning: 5 Step Process - Drop-Base-
Drop
47. Lab Exercise 6: Zoning Process - Supply
48. Summary: Four Formations
49. Lab Exercise 7: Five-Step Zoning Process
- Supply & Demand
50. Trend Overview
51. Impulsions of a Trend
52. Correction Phases
53. Swing Lows, Swing Highs, Up and Down
Segments
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54. Lab Exercise 8: Identifying Elements of a 79. Lab Exercise 12: SET the Trade - Stop,
Trend Entry, Target
55. Trend Segments 80. Lab ExerciseBookmark 13: Finding Entry
56. Uptrend Explained Zones within the Trend - Stop, Entry,
57. Formation, Continuation, and Target
Termination of an Uptrend 81. The Four Types of Buy and Sell Orders
58. Uptrend Identification Process Defined 82. Market Orders
59. Lab Exercise 9: Uptrend Identification 83. Limit Orders
Process 84. Stop Market Order
60. Downtrend Explained 85. Stop Limit Order
61. Formation, Continuation, and 86. Reviewing the Four Order Types
Termination of a Downtrend 87. Bracket Orders: Order Sends Order and
62. Downtrend Identification Process Order Cancels Order
Defined 88. Long Bracket Order
63. Lab Exercise 10: Downtrend 89. Short Bracket Order
Identification Process 90. Lab Exercise 14: Order Placement with
64. Sideways Trend Explained Bracket Orders
65. Finding a Zone in a Trend 91. Trade Plan Blueprint
66. Strategy for Buying in an Uptrend 92. Trading Styles, Time Frames, Purpose,
67. Strategy for Selling in a Downtrend and Duration
68. Strategy for Trading in a Sideways Trend 93. Trend Reversals
69. Lab Exercise 11: Combining Trend and 94. Higher Time Frame Supply and Demand
Zone Curve
70. Odds Enhancers - Trend 95. Setting the Curve
71. Entry, Stop, and Target 96. Lab Exercise 15: Set the Curve
72. Entry Types Overview 97. Odds Enhancers - Curve
73. Entry Type #1 - Proximal Entry 98. 6 Step Process for Setting the Trade
74. Entry Type #2 - Zone Entry 99. 6 Step Process: Step 1 - Curve
75. Entry Type #3 - Confirmation Entry 100. 6 Step Process: Step 2 - Trend
76. Two Components of Exiting a Trade 101. 6 Step Process: Step 3 - Identify
77. Reward to Risk Ratio part 2 Zones
78. Core Strategy Buy and Sell Set-Ups 102. Odds Enhancers - Profit Zone
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103. Lab Exercise 16: Set Curve, 120. Review 6 Step Process
Check Trend, Identify Zones 121. Pre-Steps to Trade Plan
104. Decision Matrix Blueprint
105. 6 Step Process: Step 4 - Score
the Trade
106. Odds Enhancers Review 122. Checking Trading and

107. Score Out the Trade Investment Accounts

108. Lab Exercise 17: Score the 123. Economic Reports

Trade Using the 6 Odds Enhancers 124. Company Reports

109. Create a Watchlist 125. Headline News

110. Setting Risk and Reward Rules 126. Psychology

111. Stop Buffer 127. Lab Exercise 18: Trade

112. The 3 Zone Entry Types Management Strategies

113. Reward to Risk Ratio part 3 128. Gaps

114. Target Buffers 129. Inside Gaps

115. Position Sizing and the 2% Rule 130. Outside Gaps

116. Calculating Position Size 131. Novice Gaps and Professional

117. Cash Account vs Margin Gaps

Account 132. Log the Trade

118. S.E.T.S. - Stop, Entry, Target, 133. Reviewing Trade Results

Position Size 134. Significance of a Trade Plan

119. Place the Order 135. Building a Trade Plan

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pt.1 Course Expectations:

pt.1 Course Expectations | Becoming a Trader

We’ll start with what you can expect from this material and what you should expect from yourself. You
can expect to work. If you’re looking to take a few quick classes and become a successful trader, you’re
mistaken. However, once you understand the strategy it can get much easier. So, take notes, ask
questions, participate, and practice on a virtual account.

Trading is NOT gambling. It is about

probability. However, if you don’t have a
plan, you are in fact gambling. Using the
probability tools specifically listed above,
we can be very successful with only, for
example, a 34% win rate by making
informed decisions based on price action
and placing the odds in our favor. As we
scan charts for opportunities, we will be
scanning the chart using specific criteria to
help us identify high probability trades, low
probability trades, and trades not worth
considering.

In a perfect world we’d win 8 out of every 10 trades and build our account. However, even a novice
trader who wins 8 out of 10 trades will still have a negative account by accepting large losses.
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A strategic and professional trader, using OTA strategy, can lose more trades and still build their
account.
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It all boils down to risk management. There are only 5 different outcomes to any trade. By eliminating
large loss outcomes, we are left with a formula for success. Why do traders have such large losses?
What prevents traders from using a stop loss? The answer is fear of taking a loss and/or failure to use a
stop loss. This is not effective money management. We will go over stop losses in depth. Trading is
about longevity and using methods such as position sizing, money management, reward to risk ratios,
asset selection, and market correlation.

The strategy is to always have a plan and always stick to the plan.
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This is a very specific blueprint and step by step process to establish a successful P&L curve.

You can expect to learn. BUT, you must put in the work. Take notes, study, and practice using a virtual
trading account or begin with a small amount of $100.
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Be sure to immerse yourself to achieve maximum results.

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pt.2 Terms Related to Trading and Investing:

Before we get into the charts over the course of the next few videos..

pt.2 Terms Related to Trading and Investing | Becoming a Trader

For me to communicate with you effectively you need to understand the nomenclature and linguistics of
trading terminology. We can summarize this terminology into two categories, Demand and Supply.
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The only action anyone can take in the market is either buy or sell. This produces an output of buy
orders or sell orders and ultimately the movement of price. This is how we will view the market. We can
buy low and then sell high to make money. This is going long, or we can sell first and buy later after
prices have fallen. This is called going short, which we’ll cover later on. The area of price which we buy is
a demand zone with expectations, based on the chart's price action, prices will climb due to greater
demand. This is also referred to as a long position. The area of price in which we sell is called a supply
zone also based on price action, but where we expect prices to fall as a result of greater supply. This is
also referred to as a short position. It’s like when the summer ends and certain clothes go on clearance
due to the lack of demand for those items. The retailer or seller needs to liquidate to make room for
more inventory. Therefore, the price on those items falls or goes on sale. When there’s too much
supply, the price falls.
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In the business world, businesses buy at wholesale and sell at retail to turn profit. Buy low, sell high. Our
investment goals should be the same. By reading price action we will distinguish between a wholesale
buying and retail selling opportunity. Conventional technical analysis refers to buying areas as support,
and selling areas as resistance. However, these are just lines on a chart where price was unable to pass.
BUT lines on a chart do not cause prices to go up or down. The OTA approach which we will use,
analyzes support for STRENGTH, that STRENGTH is Demand or real support and the real reason prices
rise. Resistance alone tells us nothing, but when there is an abundance of Supply the odds of price falling
is greater. This is real resistance or the real reason the price keeps going down.
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Now, the turning point we see price rise is a bottom. This is where price falls, hits a bottom and turns to
go higher. The turning point where we see prices fall from an upward climb up is called a top.
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The emotion associated with buying or rising prices is greed and the emotion associated with selling or
falling prices is fear. Hope is associated with buying and holding or HODLing. We buy and hold HOPING,
prices will go up.
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The color associated with prices rising or the act of buying is green. The color associated with falling
prices or the act of selling is red. These terms are industry standards.
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pt.3 Terminology - Bulls & Bears:

pt.3 Terminology - Bulls & Bears | Becoming a Trader

These terms derive from the attack style of the bull who strikes its horns upward, and the bear who
strikes its paws downward. When bulls are in control, market prices are going up, bias is to higher prices,
the stock is in an uptrend, and
the stock or even market is
“bullish”. When bears are in
control, market prices are
going down, bias is to lower
prices, the stock is in a
downtrend, and the stock or
even market is “bearish”. In a
bull market we expect prices to
rally and go higher. In a bearish
market we expect prices to
drop and go lower.
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pt.4 Terminology - Fundamental vs Technical Analysis:

pt.4 Terminology - Fundamental vs Technical Analysis | Becoming a Trader

PE Ratio is the ratio of a company's share price to the company's earnings per share. The ratio is used for
valuing companies, and to find out whether they are overvalued or undervalued.

In business, a "pipeline" is a source where products and services flow into a business or company and
out to an eventual customer. It is the flow of information or products generated by supply & demand.
This pipeline is the connection between the factory - retail store - and customer. The purpose of
fundamental analysis is to have an understanding of the company’s current condition and long term
trends to gauge the market potential for possible investment opportunities with the company.
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Many fundamental analysts are also hedge fund managers with large sums of money to invest over time
and they want to see a company that is healthy and has a good probability to succeed.

There is a difference between trading and investing. Trading lasts hours, days, and weeks. Investing lasts
months, years, and decades.
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Trading focuses on technical analysis and the study of price movement through charts, range, trend, and
much more in order to determine what may happen in the near future. So for trading, fundamental
analysis is secondary.
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Conventional technical analysis looks at a data driven picture of price action that has already occured.
Our strategy will be looking at the same data and beyond, in order to understand what this data is
telling us about the future with a high degree of probability.
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pt.5 Terminology - Market Participants:

pt.5 Terminology - Market Participants | Becoming a Trader

All markets fall into two components. The first is the buyers and sellers, these are the people who are
trading. Second is the products they trade; goods and services, wheat, oil, gold, currencies, and stocks.
Buyers & sellers and the products they trade make up the market. OTA strategy will aim to identify the
imbalances between buyers and sellers caused by major players in the market.
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So, who actually makes up the market and who are the big players? This includes many categories of
investors...

Mutual Funds - are mainly companies managing 401k plans and other long term investments that make
up trillions of dollars in managed money. With that much money, they definitely have the power to
influence the market.

Hedge Funds - come with a prospectus that define and limit their types of investments. Unlike mutual
funds, hedge funds can go short and invest in foreign currencies, and commodities to heavily influence
the market.

Small investors - don’t necessarily influence the market but speculate, or invest, some of which make a
living from trading.

Companies - some of which are the same companies we spend money with and are actively trading in
the market. Did you know that Starbucks has traders working in the Futures market? This is done to
hedge against risk in the event that coffee beans jump in price due to lack of supply and Starbucks has to
raise the price of their coffee, which in turn would affect their retail sales. Therefore, their traders
ensure the price of coffee stays relatively the same. In fact, any big company relying on commodities is
involved in trading those same assets. Companies also invest in the market and in other companies.

Portfolio Managers - these fall under the mutual and hedge fund category.

Banks - invest their customers’ money to achieve a higher rate of return than what they pay their
customers.

Governments - invest in the market as well through signing contracts with big companies, raising
interest rates, and passing legislation and therefore have an enormous amount of influence in the
market.

Investment Bankers - invest large sums of investor money into the markets by investing in new
companies and bringing them to the market via any one of the exchanges: Nasdaq, S&P 500, Dow Jones,
or Russell 2000.

Lastly… there’s us… Our small investments generally will not impact the market or affect an asset's price,
which is actually an advantage. The bigger you are, the more people follow your trades to manipulate
your actions. That gives us plenty of opportunity to watch big players and profit from their influence and
power as they create imbalance in the market. Our strategy will be to identify these imbalances in the
market and turn a profit from them.
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pt.6 Terminology - Market Flow:

pt.6 Terminology - Market Flow | Becoming a Trader

When we talk about flow we are referring to order execution and how those orders get to an exchange.
Below you’ll see a visual of how orders have been executed for over a century. The old school way was
to send the orders to a broker. And without a broker, there was no access to the market. The broker is
basically a middle man or median between you and the exchange. They take your order and route it to
the appropriate exchange and earn a commission and/or charge a fee. As technology advanced, this
process became slow, old, outdated and insufficient. Imagine trying to place an order and your broker is
on the phone, out of the office, or among any number of reasons they aren’t available to execute your
order. Until the 90’s, only financial firms had electronic access to the market. It took a lawsuit to open
up these electronic methods to the public for placing orders. Through Direct Access Platforms such as
Thinkorswim, Tradestation, and others, we can now place our orders to go directly to the exchange.
Traditional brokers are still available and may be a better option depending on your level of
comfortability with using a Direct Access Platform. However, it is not uncommon for brokers to charge
additional fees and to work for companies who trade against a retail traders order flow.

If you haven’t already, now is a

good time to find, download, and
familiarize yourself with a Direct
Access Platform such as
Thinkorswim (recommended),
Tradestation, Tradingview, or
others.
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pt.7 Terminology - Reward, Risk & Reward to Risk Ratio:

pt.7 Terminology - Reward, Risk, & Reward-to-Risk Ratio | Becoming a Trader

Below we have a long entry of $10, a target sell of $13, and a stop loss of $9. Using these numbers, we
can calculate our reward, risk, and reward-to-risk ratio (RRR).
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Our reward is the difference between our target and our entry, in this case $3. This is how much we
expect to profit on the transaction, which would be $3 per share. Our risk is the difference between our
entry and our stop, in this case $1. This is how much we are willing to risk and potentially lose on this
transaction. Our reward-to-risk ratio is the reward divided by our risk, in this case $3 divided by $1.
Which would be $1 per share. Giving us a ratio of 3 to 1 or 3:1.
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Reward to risk ratios give us the potential for profits and losses for trades we want to take. We
understand risk comes with any trade but we will use the stop-loss to keep it small. The reward to risk
ratio will help keep us away from trades that do not offer an adequate reward for the risk we’re taking.
Generally we look for a reward to risk ratio of 3:1 or higher.

Let’s pull up a chart and look at an actual example

(see video >>> pt.7 Terminology - Reward, Risk, & Reward-to-Risk Ratio | Becoming a Trader).
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pt.8 Terminology - Long Position:

pt.8 Terminology - Long Position | Becoming a Trader

A trader or investor takes a position when they place an order and their order is filled or executed. The
entry on a long position is a buy order to open the position. Looking at the example below we see where
price fell into the demand zone, triggering a buy order to open a position at $30. Then when price
reached the target near supply the position was closed at $40. Your profit is the difference between
where you sold or closed the position and where you bought or opened the position. In this case your
profit is $10 or 10 points.
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pt.9 Terminology - Short Position:

pt.9 Terminology - Short

Position | Becoming a Trader

In the example we see here the market has traded its way into supply at $40, where we open our
position by selling. As price drops, we close the position when it hits our target at $30. Like a long
position, our profit is the difference between where we sold and where we bought. In this case $10 or
10 points. Whether we buy first or sell first all depends on market direction. In order to sell shares you
don’t own you can borrow the shares from your broker. Looking at the example below, your broker
loans you one share worth $40, which you sell for $40, and now you have $40. As price drops you buy
the share back at $30. You now have the share loaned to you by the broker and you also have $10 left
over. You return the share back to your broker, and you keep $10 as a profit. This is the process of a
short position and how we can make money in declining markets.

.
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When you place money in a bank the bank does not just hold your money, they invest it and loan it out
to earn interest from it. In order to borrow shares, you must have a margin account. On a margin
account if you deposit $5,000 you can trade up to $10,000 worth of stock using an additional $5,000 of
the total $10,000 as leverage, which you borrow from the broker.
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In the example above we can see there are some situations where shorting a certain stock is simply not
available. Let’s pull up an actual chart to see how this might look.
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pt.10 Chart Components:

pt.10 Chart Components | Becoming a Trader

Open your Direct Access Platform and follow along. When you’re looking at a chart you are looking at a
representation of price movement or price action. This represents the orders that were placed in the
market and executed. The horizontal x-axis measures time from left to right with the most current time
being at the far right. The vertical y-axis measures price. Generally, the current price is highlighted in the
right column.
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The colored vertical bars on a chart are referred to as candlesticks. A candlestick represents executed
orders within a specified period of time. Any chart on any given platform will provide the Ticker symbol,
which lets us know which company’s price chart we are looking at. You will also find a time frame, this
time frame will identify how much time each individual candle represents. On Thinkorswim, they also
provide an aggregate time frame to let you know the length of time the candles span across the chart all
together. The chart will also provide the opening price of the candle within its time frame, the closing
price within its time frame, the highest price reached within the candle’s time frame, and the lowest
price point reached within the candle’s time frame. The chart will also provide volume for the amount of
transactions conducted within each candle’s time frame, as well as volume for the day.
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pt.11 Components of a Candlestick:

pt.11 Candlestick Components | Becoming a Trader

A candlestick records four pieces of information; The open, the close, the high, and the low. These are
the four prices at which an order is filled during the time window represented by the candle. You can
choose whatever time frame you’d like based on your investment objective.
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pt.12 Life of a Candlestick:

pt.12 Life of a Candlestick | Becoming a Trader

If you’ve ever watched a price chart you probably noticed it was moving, documenting the chart within a
time period. So, think of the process of getting a tattoo, which is not drawn with lines but dots or needle
pokes. When enough dots are grouped together we see an image or permanent record of many data
points. Take a look at the 5 minute tick chart, which is basically a connect the dots graph over 5 minutes
of time. Each transaction is a dot, strung together with other transactions within the 5 minute window.
This chart is then translated to create candle and bar charts. To start, we can map out the highest, and
the lowest points with the 5 minute window. We now have the range of the candle and how much that
security moved within that 5 minute period. Now we can add in the open, which is far left and the close,
which is far right. As in the example below we now have enough information to make a bar chart. On a
bar chart, as in the example, the left side is the open and the right side is the close. Since we now know
the price closed lower than when it opened, we can color in the difference between the open and close
of price red. This now becomes the body of the candle.
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The market is open from 0930 am to 0400 pm EST. Each candle can represent thousands or millions of
transactions.
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As an exercise, let’s open our Direct Access Platform and pull up a 1 day chart. Take a square drawing
tool and place a rectangle around any given candle. Then one by one, move to lower time frames to see
how the candles change to represent the 1 day candle.
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pt.13 Candlestick Sentiment:

pt.13 Candlestick Sentiment | Becoming a Trader

The first step in gauging candle sentiment is to establish the range of the candle. Next is to determine
where the price closed in the candle. The higher the close, the more bullish the sentiment. The lower
the close, the more bearish the sentiment. The color coded meter in the example helps clarify candle
sentiment based on where price closes in the candle’s range. That being said, never let the color of the
candle alone influence your analysis.
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Looking at the candle range, the #1 candle is very bullish. Despite its color, the #2 candle is a bullish
candle because it closed within 80 to 100% of it’s range. #3 would be considered very bearish. However,
the #4 candle, even though it is green, is also very bearish because it closes within 0 to 20% of its range.
#5 would be considered neutral because it closes within 40 to 60% of its range. #6 appears neutral but
would be considered bearish because it closes within 0 to 20% of its range.
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pt.14 Candle Structure:

pt.14 Candlestick Structure | Becoming a Trader

The first candle we will cover is referred to as a Doji (pronounced dо̄ -jee). The doji candles means that
the price opened and closed at or near the same price point during the time represented by the candle.

The next candle is a candle with no wicks. This means the opening and closing price of the candle is also
the high and the low within the time frame represented by the candle.

In our third structure we see candles containing one wick. Depending on the candle's color, the open or
the close is also the high or the low. So, looking at the red highlighted candle below, the close is also the
low. Looking at the green highlighted candle, the close is also the high.
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Finally we have candles containing two wicks. Candles with two wicks indicate the high and the low are
distinct from the open and the close.

pt.15 The Rally, The Base, The Drop:

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pt.15 Terminology - Rally, Drop, Base | Becoming a Trader

A rally is a series of candles closing consistently higher than the previous candle. They do not all have to
be green. The idea is that the candle closes higher than the previous candle. It is possible that a rally or a
drop may contain gapping candles where we can find a gap or large difference between where one
candle closes and the next candle opens. In that case we simply imagine the candle is actually there and
extends the length of the gap.
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Basing candles are candles that close in the range of the previous candle. We’ll open up a chart and see
if we can identify these three formations (see video >>>pt.15 Terminology - Rally, Drop, Base |
Becoming a Trader).
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pt.16 Terminology - Order States:

pt.16 Terminology - Order States | Becoming a Trader

These three states are sent, executed/filled, and unfilled. Assuming you “sent” an order to buy a certain
amount of stock at a price point, the exchange would search to find someone willing to sell that amount
of stock at your price point. Once a seller is found, your order would be immediately “executed” or
“filled.” These two terms executed or filled identify partially and fully completed transactions in the
market. Candlesticks on a chart are showing these executed orders.
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If a buy order is sent to the exchange and a seller cannot be found, the order to buy will remain unfilled
until a seller is found and vice versa for sell orders. Until a buyer is found, the sell order will also remain
unfilled. If we recall, it is large institutional orders that influence price action and have the power to turn
prices. Our focus will be to analyze the charts and with high probability, determine the locations of
where we can find unfilled orders in the market.
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pt.17 Terminology - Filled vs Unfilled Orders:

pt.17 Terminology - Filled vs Unfilled Orders | Becoming a Trader

As OTA traders and investors we use the chart to decide at what point we're going to engage the
market. That makes it crucial to understand what the charts represent and how to read them.

Charts represent filled orders in a market. The classic definition of a chart is that it represents price
movement through time, since the vertical axis measures price and the horizontal axis corresponds to
time. But that doesn't explain how price actually moves through time, and this is where filled and
unfilled orders come in.

We are going to view the charts as filled orders through time, not just price movement. We understand
that charts are made up of candles and that a single candle represents a unit of time and all the
transactions recorded or filled within that time. However, filled orders have already come and gone.
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What we want to know is what the price is going to do next and to do that we need to find those stacks
of unfilled orders.

When you know where the unfilled orders are, specifically the ones from Big institutions, you unlock the
ability to time the markets. Finding unfilled orders in a chart will be the key to our success.
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pt.18 Order Flow:

pt.18 Order Flow | Becoming a Trader

You may hear people run off any number of things that influence the markets.

They are either scared, excited, or greedy, which equates to either a buy or sell order. Buying and selling
alone is what causes prices to move. That is the picture of supply and demand in action on the charts.
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However, this does not stop the markets from moving. All this means is that we have no more sellers at
$41.30. But we can expect to find sellers at $41.31, or $41.40. The difference in price is commonly
known as “the spread.” Therefore, the market reaction of sellers in this case going to zero is an increase
in price. If there was at least 1 seller left at $41.30, price would remain the same. It is only when there
are no more willing sellers left at any given price point, that price will go up and rally. Now, if all the
sellers went to zero, meaning a lack of supply, then that means not all the buyers (demand) had their
orders filled. This results in unfilled buy orders at the origin of the rally in price as well as an imbalance
between supply and demand.
 56

In either situation, will prices go up or will prices go down? Make sure you can answer these questions
and the reason why before you move to the next lesson.
 57

pt.19 Two Key Trading Components:

pt.19 Two Key Trading Components | Becoming a Trader

Now that you have an understanding of how market imbalance affects market price, we’re going to add
another element to increase perspective.

WIth supply and demand, market prices turn higher when demand exceeds supply, not support.
Conversely, market prices turn lower when supply exceeds demand, not resistance.

In addition to this, we need to understand who is on the other side of our trade, a professional or a
novice? Provided we cannot see these individuals we will learn how to spot fear and greed while reading
the charts.
 58

We need to understand where

market prices turn. The origin of
any turn in price is where supply
and demand are out of balance. Let’s use the example here before us. We see where prices began to
decline. Prior to that, prices were going back and forth within a range. As long as price remains there, it
means we have people both buying and selling within that price range.

Suddenly, we see price drop. This means there were no more willing buyers at that price range, which
also means there were sellers who did not get their orders filled before price fell. This is what we mean
by “supply”. Price continued to fall until it was met with demand. Shortly after, we see the price leave
and go higher because sellers stopped selling. This means there were no more sellers, leaving behind
unfilled buy orders at the origin of that price rally. The unfilled orders is what we refer to as “demand.”
So, we now know we have a stack of unfilled sell orders at supply and a stack of unfilled buy orders at
demand.
 59

And we can see this on an actual chart below. From far left we see a great imbalance between supply
and demand creating unfilled buy orders at the origin of the rally. Then we see price fall leaving behind
unfilled sell orders. When price returns to the demand zone at the 7th candle from the left, we see the
sellers are exhausted and we see a turn in price going the opposite direction back toward supply, where
we see buyers exhausted, and price turns again to the downside.
60
 61

pt.20 Two Key Mistakes of Novice:

pt.20 Two Key Mistakes of Novices | Becoming a Trader

The first is buying after a rally in price. We have an inclination to buy because the price is visibly rising
with each candle closing higher than the previous candle. This Fear Of Missing Out (FOMO) causes
people to just jump into the trade for fear of missing out of more money. The second key mistake
novices make is not looking left to see if they are buying in supply zones. What should we be doing at
supply? …. Selling! Keep in mind, zones can and will many times be stacked on top of one another.

A novice trader likewise makes two key selling mistakes. They sell AFTER a decline in price and at levels
where demand exceeds supply. Again, it is not uncommon to find multiple demand zones stacked on top
of one another.
 62

Before placing an order, ask yourself are you buying when you should be selling? Are you selling when
you should be buying? Why did you choose to ultimately make the decision to buy or sell?

pt.21 Lab Exercise 1: Setting Up Your Online Trading Environment - thinkorswim

Purpose of Lab:
 63

pt.21 Lab Exercise 1: Setting Up Your Online Trading Environment w/ thinkorswim | Becoming a
Trader

The purpose of this lab is to become familiar with the basic tools used when trading. Visit the link above
where we will cover the tools within the thinkorswim application and assist you with setting up your
trading environment.

Working with a clean workspace will minimize computer issues. You will then become familiar with the
Thinkorswim workspace icons, tools, navigation settings, charting, and etc. Visit the link to download
Thinkorswim >>> thinkorswim desktop

Before you move on:

● Download the Thinkorswim trading platform if you don’t have access to a platform already.
● Make sure that whatever platform you choose, you have the ability to submit bracket orders.
● If using Thinkorswim, make sure you’ve gone through the lab and completed the tasks
mentioned in the video to customize your online trading environment.

NOTE: This will improve the success rate of your execution and assist with eliminating human errors
when it comes to placing orders and interacting with the User Interface of your trading platform. As
you move through the labs, try to keep any drawings you’ve created on the charts. We will be coming
back to some of them going forward.
 64

pt.22 Market Balance and Imbalance:

pt.22 Market Balance and Imbalance | Becoming a Trader

By now you know price moves as a result of an imbalance between supply and demand.

If you think in terms of a scale containing two items of similar weight, the scale is in balance. The same
applies here. If buyers and sellers remain relatively equal...

Once we have no more willing buyers or sellers there is a change in price which is reflected as an
imbalance.
 65

A demand imbalance means more willing buyers than sellers. Price moves higher resulting in an
explosive rally relative to a previous high, resulting in a higher high. This is key because an explosive
move up in price that fails to make a higher high is NOT truly a rally in price because it does not create
an uptrend.
 66

A supply imbalance means more willing sellers than buyers. In this case price moves lower resulting in
an explosive drop relative to a previous low, which results in lower lows.
 67

Understanding how to identify these will assist us with making sure we are on the right side of any
trade.
 68

pt.23 Base and Leg Candles:

pt.23 Base and Leg Candles | Becoming a Trader

Candles give us the immediate result of the balance and imbalance, supply and demand equation. In this
case, each candle tells a story.

Looking at base candles, where price is

going sideways, the candles are neutral in
appearance and tend to close in the range
of the preceding candle. Institutions will
look to accumulate or distribute.
 69

Leg candles on the other hand represent imbalance in the market and where buyers or sellers have gone
to zero. The origin of these leg candes is where we will find stacks of unfilled orders. As we look at the
charts, we will learn to identify basing and leg candles within several formations.
 70

pt.24 Gap Candles:

pt.24 Gap Candles | Becoming a Trader

A gap occurs when a candle opens at a different price than where the previous candle closed.

To help visualize the movement of price in a gap you can 1) enable extended hours on your chart,
and/or 2) simply color the space between the close of the prior candle and the open of the candle that
gapped as we see in the example before us. By coloring in the space we can see how gaps represent a
significant move in price. We also see how gapping candles can be referred to as leg candles, which
represent imbalance in the market.

Before you move on you should be able to explain what a gap candle is, what it looks like on a price
chart, and how it can be considered a leg candle.
 71

pt.25 Lab Exercise 2: Identifying Imbalance

pt.25 Lab Exercise 2: Identifying Imbalance | Becoming a Trader

The way this lab and other labs will run, I will give instructions on how to do an exercise, I’ll demonstrate
the exercise and then you’ll pause the recording and perform the task at hand. Once you’re finished,
you’ll unpause the video, and I’ll provide the correct way of performing the exercise to give you the
opportunity to see if you’ve done it correctly. For the first part of the exercise we will go through the
chart and try to determine if the candles are either base or leg candles.

ANSWERS ARE ON PG 74
 72

Again, leg candles represent imbalance between buyers and sellers, are typically very bullish or bearish
in appearance, and close outside the range of the preceding candles. Leg candles should visually catch
our eye as expanded range candles that are directional, meaning they showcase the strong movement
of price in either a bullish or bearish direction. Base candles on the other hand show supply and demand
are balanced, are typically neutral in appearance, closing inside the range of preceding candles, and
where institutions typically look to accumulate or distribute.
 73

Now in the first part of this lab we were looking at individual candles for the most part to determine if it
was a base or leg. Next we will move into looking at the overall context, not just one or two candles but
rather a series of candles to see how they work together. So, in the next part of this lab we will look at
areas of balance and imbalance on a price chart.
 74

ANSWERS TO PG 71:

1 = leg, 2 = base, 3 = leg, 4 = leg, 5 = leg, 6 = base, 7 = leg, 8 = base, 9 = base, 10 = leg, 11 = base, 12 = leg
 75

pt.26 Supply and Demand Formations:

pt.26 Supply and Demand Formations | Becoming a Trader

We will train our eyes to spot these pictures in the chart. These are the formations where we will find
the big stacks of unfilled orders. We’ll start with our two pictures of demand. The first is the Drop-Base-
Rally, often referred to as DBR. When identifying an uptrend, this formation would be found within the
swing low, or controlling swing low of the uptrend leaving behind a stack of unfilled orders at the base
or origin of the rally in price.

The second picture of Demand is a Rally-Base-Rally otherwise known as RBR. Both pictures of Demand
share a Base-Rally formation. When we find these strong rallies in price we simply follow them to the
origin or base of the rally where we will always find unfilled buy orders that create Demand. The action
we take is to buy the retracement or pullback of price down into our Demand zone with a limit order to
buy at or near the Proximal line of our Demand zone. Think of it as the stock going on sale, like Walmart
rolling back prices.
 76

Now let’s look at our Supply formations, which are an exact inverse of our Demand formations. The first
formation of Supply is a Rally-Base-Drop or RBD. When identifying a downtrend we can find this
formation within a swing high or controlling swing high. This is where we can typically find unfilled sell
orders at the origin of the drop. The second picture of Supply is a Drop-Base-Drop or DBD. Once again,
these two pictures of Supply share a common formation. Can you see it? The formation they share is a
Base-Drop. It is this strong drop in price away from the sideways base where we can always find our
stack of unfilled sell orders, which is what we refer to as Supply. Again, we don’t chase prices. Rather,
the action we take here is to sell the retracement or pull back up into the Supply zone with a limit order
as a seller at or near the proximal line, just as we did with our Demand zone.
 77

In summary, there are two formations that show Supply and two formations that show Demand. Supply
is created when price drops down from one or more base candles. Demand is created when price rallies
up from one or more base candles.
 78

pt.27 Three Key Elements of Zone Formation:

pt.27 Three Key Elements of Zone Formation | Becoming a Trader

Moving from left to right, all supply and demand zones make up 3 elements: a leg in, followed by a base,
followed by a leg out. The leg in candle is always the candle prior to the base which extends beyond the
range of the base. The base is found between the leg in and leg out candles. The base is where we will
find our stack of unfilled orders. The leg out candle is always the candle after the base, and extends
beyond the range of the base. We look to see the leg out with an explosive move to the upside or
downside.
 79

The leg out is significant because it determines the type of zone it leaves behind. If the leg out of the
base is a rally then it leaves behind a Demand Zone. This means the unfilled orders in the base are
unfilled buy orders.

If the leg out of the base is a drop then it leaves behind a Supply Zone. This means the unfilled orders in
the base are unfilled sell orders.

Two keys to identify zones are 1) Change of direction = change between leg and base candle and 2) small
body base candle is followed by tall body leg candle.
 80

These formations identify a change in direction or continued upward or downward momentum in the
same direction and can be identified in any time frame. Let’s pull up a chart and see if we can identify
any one of these four formations.

pt.28 Four Basic Candlestick Formations:

 81

pt.28 Four Basic Candlestick Formations | Becoming a Trader

What you’ll notice among the four formations is the change between the leg-in and the base, or the
base and the leg out is a shift in direction. This directional change takes place at each junction of the key
elements that make up the overall formation. The base is a moment of sideways action in between leg
candles that represent bullish or bearish movement.

Looking at the Rally-Base-Drop, a classic reversal formation, we have a strong green leg in candle,
followed by one or more base candles which are generally narrow in range and alternate colors. The
base is then followed by a strong red leg out candle or red gap candle. The Rally-Base-Drop is a reversal
pattern and represents unfilled sell orders at the base level.

The next reversal pattern is Drop-Base-Rally which begins with a large red leg in candle, followed by a
base with one or more base candles which are narrow in range and alternate colors. The base is then
followed by a strong green leg out candle or a green gap candle. The Drop-Base-Rally is also a reversal
pattern and represents unfilled buy orders at the base level.

The bearish continuation pattern is Drop-Base-Drop. It begins with a strong red leg-in candle, followed
by a base of one or more base candles. The base is then followed by a strong red leg out candle or red
gap candle. This formation tells us while price was in a strong decline, buyers attempted to drive price
back up but were unable to reverse the pattern as sellers were too strong and drove price down to new
lows. The Drop-Base-Drop represents unfilled sell orders at the base.
 82

Finally we have a bullish continuation pattern, the Rally-Base-Rally. This begins with a strong green leg in
candle, followed by one or more base candles. The base is followed by a strong green leg-out or gap
candle. The Rally-Base-Rally is also a continuation pattern and represents unfilled buy orders left at the
base level. This formation tells us while price was in a strong rally, sellers attempted to reverse the
pattern to drive price down but were overpowered by buyers who pushed price to new highs.

These four formations are made of leg and base candles. We will spend a lot of our time looking for
these formations within the charts as they represent the best buying and selling opportunities because
they present the greatest areas of imbalance in the marketplace.

pt.29 Proximal and Distal Lines:

 83

pt.29 Proximal and Distal Lines | Becoming a Trader

All we start with is where the current price is. The Distal line is farthest from current price and the
Proximal line is closest to current price. It’s easier to remember if you think of the Distal line as distant
from the current price and the Proximal line as closest within proximity of the current price.

Supply zones where we want to sell will always be above current price and Demand zones where we
want to buy will always be
below current price.

On a Supply zone, the Distal

line will always be on top of
the zone and the Proximal
line will always be on the
bottom of the zone.

Demand zones will always

have the Proximal line on
top of the zone and the
Distal line on the bottom of
the zone.

For Demand zones we start at the current price and move down looking for a strong rally in price. The
Proximal line makes up the top of the Demand zone and the Distal line makes up the bottom of the
Demand zone.

For Supply zones we start at the current price and move up the strong decline in price. The Proximal line
makes up the bottom of the Supply zone and as we move higher in the zone we find the Distal line,
which makes up the top of the Supply zone.
 84

Our strategy will be to identify high quality zones where Supply and Demand are well out of balance.
This is where we will find our unfilled orders. This technique allows us to look beyond the data on the
chart to predict price action in the future with high probability.

These Supply and Demand zones marked off and defined by Proximal and Distal lines provide us with
low risk, high reward, and high probability opportunities.

pt.30 Base Isolation Technique:

 85

pt.30 Base Isolation Technique | Becoming a Trader

The base isolation technique consists of three simple steps to help you mechanically draw out zones.

This technique will help with identifying the elements of the formation in order to classify the type of
zone formation, draw the Proximal and Distal lines around the base and finally evaluate the overall
quality of the zone formation. We’ll look at an example of both a Demand zone and a Supply zone.
 86

To draw a demand zone using the basing isolation technique, the first step is to mark off the leg out.
Going from right to left, we locate the leg out of the formation, which in the case of Demand will be a
rally. A rally can be a gap up, one tall big green candle, or a series of candles with consecutive higher
closes. Now, move down and left until we come to a base candle at the bottom of the rally. Draw a
vertical line on top of the leg out candle of the rally following a base candle.
 87

The second step is to find and mark the leg in. To do this, continue to move left on the chart, candle by
candle, until we find the leg in candle leading into the zone. Then draw a second vertical line on top of
the leg in candle, prior to the base. Everything between these two leg candles makes up the base of the
Demand zone.
 88

Now that the base has been isolated between the two vertical lines we can easily apply the third step of
drawing the Proximal and Distal lines. Now, whether the formation is a reversal such as a Drop-Base-
Rally, or a continuation, a Rally-Base-Rally… This will determine where to place the Distal line. By
isolating the base we see we have a drop on the way in, a base, and a rally on the way out giving us a
DBR. Soon, we will discuss how to appropriately place the Proximal and Distal lines in lessons to follow.
Feel free to delete the vertical lines after the zone is drawn.
 89

Now we’ll go over the process for a Supply zone. We begin with locating the leg out, which in this case
will be a drop. Remember a drop can be a gap, one tall red candle, or a series of candles closing
consecutively lower. Once the leg out is identified, we continue to move up and find the base candle or
base candles at the top of the drop. Now, draw a vertical line on top of the first leg out candle of the
move out that follows a base candle.
 90

Step two, locate and mark off the leg in. To do this, continue to move left on the chart, candle by candle
until we run into the leg candle leading into the zone, prior to the basing candles. Once found, draw a
second vertical line on top of the last leg in candle prior to the base candles.

The candle or candles between the two vertical lines make up the base of the Supply zone. The third
step after isolating the base with the vertical lines is to draw the proximal and distal lines around the
base. Now the type of formation whether it be a reversal, such as Rally-Base-Drop or continuation
formation, such as Drop-Base-Drop will determine where to place the Distal line for the Zone.

By isolating the base, we can now see we have a rally on the left side, a base, and a drop on the right
side resulting in a bearish reversal formation, the RBD.

We will learn how to appropriately place the Proximal and Distal lines in lessons to follow. Once the
Proximal and Distal lines have been drawn we can delete the vertical lines. This simple set of guidelines
will help us mechanically isolate the base of any Supply and Demand zone, identify the type of formation
that it is, and draw the Proximal and Distal lines around it.
91
 92

pt.31 Proximal Line Placement - Demand Zone:

pt.31 Proximal Line Placement - Demand Zones | Becoming a Trader

Now, looking at this example, I want you to notice how the Distal Line is drawn exactly the same in all
three illustrations. Unlike the Distal line, which is always at the same point, we do have flexibility with
where we choose to place the Proximal line. In the first example we see the Proximal line is drawn at the
highest wick within the base. In the second it’s drawn at the top of the highest candle body within the
base. Lastly in the third example we see the Proximal line drawn at the bottom of the lowest candle
body within the base.

The difference between them is the size of the zone. We will use the Proximal line to determine our
entry point and the Distal line to determine our trade failure point, where we want to place our stop
losses. This will determine the amount of Trade Risk. Now, we also need to make a distinction between
Trade Risk and actual Capital Risk. For now, just understand the wider zone will not increase our Capital
Risk, which is controlled through Position Sizing, which we’ll go over later in the course.

The first example with the wider zone increases the chances of our order getting filled because the
market does not have to move as far to reach the zone, getting us into more trades. The disadvantage is
a greater stop loss, which per Risk Tolerance, will decrease our Position Size so we do not exceed our
Capital Risk.
 93

In the last example we see the Proximal line placed very close to the Distal line. This will reduce our
trade risk, allow for a greater Position Size, but will allow us to get into fewer trades because the market
has to come farther to meet our entry.

Therefore, a good balance choice is to use this illustration. Preferred placement is to use the highest
candle body in the base to place our Proximal line. Ultimately, to place the Proximal line per these
illustrations, there is no wrong answer. Where you ultimately place the Proximal line is per your
personality and trade plan.
 94

pt.32 Distal Line Placement - Demand Zones:

pt.32 Distal Line Placement - Demand Zones | Becoming a Trader

First we draw in our Proximal Line across the top of the highest base candle body. However, this much is
up to you. Then we’ll draw in the Distal Line at the lowest price within the entire Drop-Base-Rally
reversal formation. The lowest price in the formation may be on the leg in, the base, or the leg out.
 95

Here is an example of a Drop Base Rally Demand Zone in an uptrend. Notice how there was a strong rally
in price when it left the zone, indicating an imbalance between supply and demand leaving unfilled buy
orders behind at the base. Using our guidelines, the Distal and Proximal lines are drawn outlining our
zone of unfilled buy orders. If we were to trade this, our entry order would be placed at the Proximal
line.

We see in the illustration how price pulls back and falls into the zone where the entry to go long would
be filled Then price turns to go higher. We want to be able to spot these types of quality zones and
formation, which is what we’ll uncover during the course.
 96

Now let’s look at Distal Line placement for a continuation formation, the Rally Base Rally. We first draw
the Proximal line using the preferred placement method as shown. Next we draw the Distal Line.
However, guidelines for drawing the Distal Line on the Rally Base Rally formation are slightly different.
WIth this formation we only use base candles or the leg out candle, the leg in candle is not used.
 97

Here we can see an example of a Rally Base Rally Demand Zone in an uptrend. Notice there was a strong
rally in price when it left the zone showing us imbalance. In this formation, buyers exceed sellers,
moving the price to higher prices, and leaving behind unfilled buy orders. If we were to trade this, our
entry would be the proximal line. Per the example, we see price retracing back to the zone filling the buy
order, then reverses and continues trending higher. This is just another example to demonstrate how
high quality demand zones tend to hold.

And now you know how to place distal lines for the two bullish patterns, Drop Base Rally and Rally Base
Rally formations.
 98

pt.33 Lab Exercise 3: Proximal and Distal Line Placement - Demand Zones

pt.33 Lab Exercise 3: Proximal and Distal Line Placement - Demand Zones | Becoming a Trader

We will utilize the base isolation technique to identify a formation and draw the proximal and distal lines
around the demand zone. As in previous labs I will give you instruction on how to complete the lab and
then demonstrate the exercise. Afterward you can pause the recording and practice the technique, and
then resume the recording to see if you’ve done it correctly. Initially we’re going to practice isolating the
base with two vertical lines around the zone, one on the first leg out candle and then one vertical line on
the leg in. Afterward we’ll practice both the proximal and distal line placement.

ETFs are as follows: QQQ (Nasdaq), DOW (Dow Jones), SPY (S&P 500), or IWM(Russel 2000).
 99

pt.34 Proximal Line Placement - Supply Zones:

 100

pt.34 Proximal Line Placement - Supply Zones | Becoming a Trader

Looking at the examples here, notice the Distal Line is placed in the exact same location on each
example. Unlike the Distal Line which is always at the same point, we have flexibility with where we
place the proximal line. In the first example the proximal line is drawn at the lowest wick of the base. In
the second the proximal line is drawn at the bottom of the lowest body in the base. The third example
shows the proximal line drawn at the top of the highest body in the base. As with Demand zones, we will
use the proximal line as our entry price and the distal line as our trade failure point, which is where we
will place our stop losses. The difference between the entry and the stop loss is referred to as trade risk.
Again, recall there is a difference between trade risk and capital risk. For now, just understand that a
wider zone with greater trade risk, will not increase our capital risk, which is controlled through position
sizing.

The first example has the widest supply zone, increasing our chances of getting our position filled
because the market does not have to move as far to reach our entry. This is to our advantage since it will
allow us to get into more trades. However, the disadvantage is we will have a greater stop loss and will
have to decrease our position size to avoid exceeding our maximum capital risk. In the third example the
proximal and distal lines are very close, minimizing our risk, allowing us to take greater position sizes,
and make more money as a result if the trade works out. However, the disadvantage is we will not get
into as many trades because the market has to come farther to meet our entry and we may miss out on
a lot of good trades.
 101

A good balance between the other two methods is to use the preferred method by placing the proximal
line at the bottom of the lowest candle body for our supply zone. Ultimately there is no wrong answer.
Where you choose to place your proximal line to form your supply zone is up to your personality and
your trading plan.
 102

pt.35 Distal Line Placement - Supply Zones:

 103

pt.35 Distal Line Placement - Supply Zones | Becoming a Trader

Let’s start with the reversal formation, the rally base drop. The first task is to draw in the proximal line,
which is again up to us, our personality and trade plan. The distal line however, is drawn at the highest
price point in the entire rally base drop formation. It could be on the leg in, the base, or the leg out. In
this example the highest price is on the leg in candle, therefore we place the distal line there.

In the example at the bottom we see a rally base drop supply zone inside a downtrend and how price
reacted when it traded back up into the zone. Notice how there was a strong drop in price after it left
the zone and not many base candles. These are tell signs that there will be enough unfilled orders to
turn the price lower if it retraces back to the zone. Therefore, we place a limit order at the proximal line
and wait.
104
 105

Let’s take a look at line placement for a continuation formation, the drop base drop. The first step is to
draw in our proximal line. Again we’ll use preferred placement and draw the proximal line at the bottom
of the lowest body of the base. Next we’ll draw in the distal line. The guidelines for drawing the distal
line on a drop base drop is slightly different from the previous rally base drop. With this formation we
only use the base or leg out candle to draw the distal line, whichever has the highest price. The leg in
candle is not used. In this example the highest price is on the base candle.
 106

Here is an example of a drop base drop supply zone in a downtrend and how price reacted when it
traded back into that zone. Notice how there was a strong drop in price when it left the zone and not a
lot of base candles. We can expect that in this type of move out of the zone there will be a significant
amount of unfilled sell orders left behind in the zone to turn price back toward the down side if it should
retrace or pull back into the zone. This is simply another example of how quality zones can provide us
with high probability trading opportunities.
 107

pt.36 Lab Exercise 4: Proximal and Distal Line Placement - Supply Zones:

pt.36 Lab Exercise 4: Proximal and Distal Line Placement - Supply Zones | Becoming a Trader

We did a lab for demand zone line placement. However, for the purpose of this lab we will practice
using the base isolation technique to draw proximal and distal lines specifically for supply zones. For the
first part of this lab we will focus on the base isolation technique. After we’ve gone through the three
step process for isolating the base we will then draw our proximal and distal lines for the supply zone.
108
 109

pt.37 Odds Enhancers Explained:

pt.37 Odds Enhancers Explained | Becoming a Trader

Odds enhancers are exclusive to Online Trading Academy and are not asset class dependent. The basis is
to buy and sell where institutions are buying and selling. Odds enhancers compose a robust scoring
system that enables traders and investors to objectively measure the quality and odds of a trade
opportunity based on the imbalance between supply and demand as well as the unfilled orders left at
the base. These key conditions on a price chart provide a significant advantage and an edge to trading.
 110

pt.38 Odds Enhancers - Strength:

pt.38 Odds Enhancers: Strength | Becoming a Trader

The strength odds enhancer determines how price left the base in the leg out of the formation. A strong
leg out demonstrates imbalance which you should be able to visibly see on a chart, meaning a sharp
incline or decline in price. There are two quantitative aspects to assess: 1) a strong move out must be
one where price rallies from a demand zone or declines from a supply zone by at least two times the
height of the base. 2) did the move out cross beyond a previous opposing zone?
 111

So for a demand zone the move out begins with the first leg out candle rallying out of the base with a
series of leg candles and consecutive higher closing candles. For a supply zone the move out begins with
a leg out candle dropping from the base followed by a series of lower closing candles. Strength is
measured from the proximal line of the zone to the most extreme price of the move out. Did the move
out reach a distance of at least twice the height of the base, which is the distance from the proximal to
the distal line of the zone.
 112

A breakout demonstrates a clear winner of either buyers or sellers. For demand zones we look to see if
the move out broke above the distal line of an opposing supply zone. In the example on the left, we see
a white line accompanied by a blue arrow demonstrating where demand broke out of an opposing
supply zone. For the supply zone, we look to see if the move out broke below the distal line of an
opposing demand zone.
 113

Now, the strength odds enhancer has a maximum score of two: one point for the move out, and one
point for the breakout. To score both points, the move out would have to be equal or greater than twice
the height of the zone and move beyond the distal line of an opposing zone. If the zone only exhibits
one or the other, then the zone scores 1 out of 2 points. Failure to meet both criteria means the zone
scores 0 points out of 2 for the strength category.
 114

Basically, the greater the strength of the zone, the more out of balance supply and demand are in that
zone. As we demonstrate the odds enhancers we will use this chart as an example. Here we can visibly
see a strong move out of the base. As we measure the height of the base, we can see that the move out
distance is greater than or equal to twice the height of the base, earning one point. Secondly, price
crossed beyond the distal line of a supply zone earning a second point.
 115

Once we’ve scored the strength of the zone we can begin filling out the Odds Enhancers Scorecard,
which you can find within the Google drive account. This is the first portion of grading a zone. As
demonstrated here, there are 5 other odds enhancers to measure the quality and probability of any
given zone.
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pt.39 Odds Enhancers - Time:

pt.39 Odds Enhancers: Time | Becoming a Trader

The odds enhancer time measures how long price spends basing at the supply or demand zone. A short
time spent in the zone suggests more unfilled orders and a greater imbalance in the base. A longer time
spent in the zone suggests fewer unfilled orders. Since we’re looking for unfilled orders it is not
desirable to have a lot of candles in the base. To quantify this time, simply count the number of base
candles at the zone to get your score. The fewer candles the better.
 117

Remember, before we assess the quality of time, we’ve already isolated the base between two vertical
lines, drawn the zone, and scored the strength of the zone. With the base isolated, we simply count the
number of basing candles in the zone. If the base has 1 to 3 candles, the zone gets a maximum score of
1. If the base has 4 to 6 candles, the zone gets .5 points, or half a point. If the base has more than 6
candles, the zone gets zero points for the time odds enhancer. It’s important to note that while it is
better to have less base candles, we need to have at least 1 base candle. The major takeaway is that the
less time price spends at that zone, the more out of balance supply and demand are at the zone.
 118

In our working example, we see there is only one base candle at the zone meaning pricing spent a very
short amount of time there. Based on our scoring method for time, this zone gets the maximum score of
1 point for the time odds enhancer.
 119

Now that we’ve scored the zone for time, we need to document our Odds Enhancer Scorecard (<<< link),
which you can find within the Google drive account. You can also access the Scorecard by clicking the
blue link within this document.

Adding 1 point for time, gives us a running total of 3 points out of 10, on our Odds Enhancer Scorecard.
 120

pt.40 Odds Enhancers - Freshness:

pt.40 Odds Enhancers: Freshness | Becoming a Trader

Freshness refers to price returning to a zone. When looking for opportunities with a high probability of
turning the price, we’re looking to identify a big block of unfilled orders. More unfilled orders will remain
at a base or zone that has not been tested. Meaning, the price has not returned. A zone that is not fresh
suggests fewer unfilled orders at the zone because as a zone is tested, any pending orders left there will
get filled at their respective price points. This decreases the odds of price turning at the zone.
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Freshness is the measure of how far, if at all, price has entered into the zone upon return. A zone is no
longer fresh once price has returned and made contact with the proximal line. If price has gone
completely through the distal line of the zone, the zone is disqualified and cannot be used to place a
limit order because price has cleared any remaining unfilled orders at the base.
 122

To score for freshness, we measure how far, if at all, price has returned to a zone. A fresh zone is a zone
that has not been tested at all. In that case, the zone would receive the highest score of 2 points. If price
comes back to a zone and re-enters the zone 50% or less, then the zone earns a score of 1 point. If price
has returned to the zone and re-enters the zone greater than 50% or half way, the zone is disqualified.
The deeper the price re-enters the zone, the fewer unfilled orders will be left at the zone. The key
takeaway is the fresher the zone, the higher the probability that price will reverse once it reaches the
zone.
 123

Looking back at our working example, when identifying our scoring a zone, we have to ask ourselves if
price returned to the zone. At one point, depending on when we drew the zone, price had not returned.
For example purposes we’ll assume the zone was drawn prior to price testing or returning to the zone.
Once price did return and test the zone, price changed direction due to the amount of unfilled orders
left at the zone. As per the example, price rallied away from the zone then declined back into the zone.
Because of the unfilled orders remaining at the base from the first rally in price, we see a second rally
away from the zone once price finally returned.
 124

Looking back at the running total of our Scorecard, we add two points for freshness, taking our running
total to 5 points. This concludes our zone structure odds enhancers, Strength, Time, and Freshness.
Although the zone structure odds enhancers are completed, we still have 3 other odds enhancers to
score the quality of our trade.
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pt.41 Zones Defined:

pt.41 Zones Defined | Becoming a Trader

Conventional technical analysis tells us to use support and resistance lines on a chart. The problem with
this approach is that it is difficult to pinpoint the exact price where the market will turn. What’s more
than likely to happen is that the price will turn within a zone, an area between two prices.

Some of the advantages of using supply and demand zones are they provide low risk entries to minimize
loss, reason being, we’re identifying areas containing unfilled buy or sell orders which have the power to
turn price. We will eventually refine our risk with a stop loss later in the course, the risk involved in the
trade is based on the width or height of the zone. Zones also provide high reward potential which we
can read and gauge prior to entering the trade by evaluating the zone’s potential and only select zones
that offer high reward to risk ratios. By identifying where institutions are buying and selling, zones also
provide high probability trades for buying at wholesale and selling at retail. As we start to learn more
about trends, you’ll be able to identify when novice traders are buying at retail highs, and selling at
wholesale lows by defining quality supply and demand zones. Finally, zones establish the foundation for
our simple rule based strategy.
 126

People fail at trading because they don’t have rules, they fail to adhere to the rules they have, or they
change their process with every trade. By having a specific set of steps to follow on every trade we can
reduce the odds of making mistakes. The zoning process is a simple 5 step process we will use to identify
both supply and demand zones on any time frame and on any asset class be it stocks, futures, forex, etc.
 127

pt.42 Zoning - Five Step Process - Drop Base Rally:

pt.42 Zoning: Five Step Process - Drop-Base-Rally | Becoming a Trader

We know the formations that define a demand zone and a supply zone. We know how to isolate the
base using the base isolation technique, and we know how to place the proximal and distal lines for all
four formations. We’ve also learned the zone structure odds enhancers to qualify the formation. Now
we will bring all of this together in a 5-step zoning process to identify and qualify supply and demand
zones.

Step 1 is to start with the current price, the candle farthest to the right on the chart. Demand will always
be at or below current price. Step 2 is to look down and left sequentially, candle by candle, looking for
an explosive rally in price. Step 3 is to apply the base isolation technique. One vertical line on the first leg
out candle, and one vertical line on the last leg in candle, and then identify the formation. In this
example, we have a drop base rally. After identifying the formation we move on to step 4, placing the
proximal and distal lines. And finally in step 5 we score the formation using our zone structure odds
enhancers; Strength, time, and freshness.
 128

For strength, the zone

has a move out at least
twice the height of the
base, and the move out
breaks out of preceding
supply. For time there is
only one basing candle.
And for freshness there
have been no
retracement, meaning
price has not returned
to the zone.

So far, we now have 5 out of 10

points on our odds enhancer
scorecard. This is the 5-step process
for identifying demand zones
located in a drop base rally
formation. You’re also seeing how
to fill in the odds enhancer
scorecard. Be sure to download the
Odds Enhancer Scorecard from the
(link >>>) Google Drive account.

In the following lessons we will go over the 5-step zoning process on the charts for the remaining 3
supply and demand formations.
 129

pt.43 Zoning - Five Step Process - Rally Base Rally:

pt.43 Zoning: Five Step Process - Rally-Base-Rally | Becoming a Trader

Step one is to start with the current price on the chart. Step two, without cutting through candles you
will look down and left, sequentially candle by candle, looking for a strong rally in price. Once identified,
step 3 is to use the base isolation technique to isolate the base. Step 4 is to place your proximal and
distal lines. Finally step 5 is to core the zone with Strength, Time, and Freshness.
 130

With that, you’ve now seen both bullish formations scored the drop base rally and the rally base rally. In
our next lessons we’ll identify our supply zone.
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pt.44 Lab Exercise 5: Five Step Zoning Process - Demand:

pt.44 Lab Exercise 5: Five Step Zoning Process - Demand | Becoming a Trader.

Part of this process is scoring the formation using the zone structure odds enhancers of strength, time,
and freshness to identify a quality trading opportunity. Visit the link to get started For the first part of
this lab we will focus on how to score a demand zone using those three zone structure odds enhancers.
For this exercise I’ll use ticker IWM on a 1 month (1mo) time frame, looking at the formation between
2020 and 2021, and we’ll score it out for strength, time, and freshness.

Strength has two parts, move out and break out. Move out refers to distance. Has the move out from
the zone gone a distance at least twice the height of the zone, which is the difference between the
proximal and distal line of the zone. We want to see that each candle CLOSES higher than the previous
candle. They do not all have to be green.

From the zone upward we see two red doji candles that both close higher than the previous candle,
which means they are a part of the move out which continues until the third red candle where the move
 132

out stops. We want to see that the move out is equal to or greater than the height of the zone. Visually
we can see that happened but there are ways we can measure it. Mathematically we can take the price
at the proximal line 155.43 and subtract the price at the distal line 133.28 multiply the difference 22.15
by 2, which is 44.30 and add it back to the proximal line coming to 199.73. And we can see that price
moved beyond 199.73 therefore strength would earn a point for move out. We can also draw two
rectangles equal to the height of the zone and then stack them on top of the zone to measure the move
out.

Break out refers to whether the move out crossed above the distal line of an opposing supply zone or a
structure that represents selling. Looking at the purple representation of a supply zone below we can
see that price moves beyond the distal line of the supply zone or previous high. Therefore since the zone
has both move out and break out it would earn the full 2 points for strength.

The next zone structure odds enhancer is time. To score time we simply count the number of candles
between the two vertical lines. We have 5 basing candles there, so time would earn half of one point.

Finally we look at freshness and whether price has returned to the zone. For that we start at the base
and look all the way right to the current price and we can see that per the example below the price has
not returned to the zone and so freshness would earn the full 2 points.
133
134
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pt.45 Zoning - Five Step Process - Rally Base Drop:

pt.45 Zoning: Five Step Process - Rally-Base-Drop | Becoming a Trader

For the most part it’s going to be the same process we went through with our demand zones. The only
real difference is that everything is inverted. In step 1 we start with the current price, which is the most
recent candle farthest right on the chart. Since supply is above current price, during step 2 we move up
and left, looking for a strong explosive drop in price action indicating an imbalance between supply and
demand. In step 3, apply the base isolation technique by identifying the last leg out and the first leg in
candles before identifying the formation; In this case a rally base drop. Now that we’ve identified the
leg candles, the base, and the formation, we draw our proximal and distal lines in step 4. Finally in step 5
we score the zone formation using the zone structure odds enhancers strength, time, and freshness.
 136

In this example we see strength has a move out twice the height of the base and breaks out beyond the
distal line of an opposing demand zone. We also see price spent a short time in the zone with only two
basing candles. Lastly, price has not returned to the zone, meaning the zone is still fresh, all of which
increase our odds of finding unfilled sell orders left at the zone.

Moving into our scorecard, which you can find in the Google Drive account below
(https://drive.google.com/drive/folders/11Xpcgxq1hzzHqYlNZcFHbgQU5msOS9Mu?usp=sharing), we
have a total 5 out of 10 possible points for our odds enhancers. For our zone structure odds enhancers
we have a total 5 out of 5. However, we still have 3 more odds enhancers that we have yet to go over in
order to score the probability of our trade.
 137

However, before we get to the remaining odds enhancers we’ll continue going over the 3 step base
isolation technique and 5 step zoning process for our remaining zone structures.
 138

pt.46 Zoning - Five Step Process - Drop Base Drop:

pt.46 Zoning: Five Step Process - Drop-Base-Drop | Becoming a Trader

As usual in step 1 we start with the current price. Then in step 2 we sequentially move up and left candle
by candle, looking for an explosive drop in price. Then in step 3 we go through the base isolation
technique to identify the formation and isolate the base. Then in step 4 we can place the proximal and
distal lines. Recall for a drop base drop the distal line will go on the highest wick either in the base or the
leg out candle. We never use the leg in candle to place the distal line on a drop base drop formation.
Again the proximal line may either be placed on the lowest wick or the bottom of the lowest body in the
base. The preferred method is to use the bottom of the lowest body in the base. Finally, we score the
formation using the zone structure odds enhancers, strength, time and freshness.
 139

Using the example, we can see strength has a move out at least twice the height of the zone. We can
also see price break out dropping beyond the distal line of an opposing demand zone, earning strength 2
points on the scorecard. With the base isolated between the two vertical lines on the leg out and leg in
candle the time odds enhancer earns 1 point. Lastly, we see price has not returned to the zone giving us
2 points for freshness and a total 5 out of 5 for our zone structure odds enhancers and 5 out of 10 for
our overall trade probability.

Before you move on, practice identifying quality drop base drop formations on a chart and practice
scoring each zone formation using strength, time, and freshness.
 140

pt.47 Lab Exercise 6: Five Step Zoning Process - Supply:

pt.47 Lab Exercise 6: Five Step Zoning Process - Supply | Becoming a Trader

In the first part of the lab we will focus on the zone structure odds enhancers strength, time, and
freshness for scoring a supply zone. As with other labs I will demonstrate how to perform the exercise
before presenting you with an opportunity to perform the exercise on your own.
 141

pt.48 Summary - Four Formations:

 142

pt.48 Summary: Four Formations | Becoming a Trader

The first two formations we have here, the rally base drop and the drop base drop are the two bearish
formations representing supply.

A rally base drop occurs, when price rises,

bases, and then drops away from the sideways
basing. The drop from the base represents
imbalance and shows there will be unfilled sell
orders left at the base. It is considered a
reversal formation.

Next we have a drop base drop. This

formation occurs when price pauses after a
decline in price and then continues to decline
after the pause, leaving behind unfilled sell
orders. The drop base drop is referred to as a
continuation formation indicating buy orders
are outweighed by sellers who control the
price move. The action we take with either
supply formation is a put option or sell short
order inside the zone.

The next two formations, the rally base rally

and the drop base rally represent demand
zone formations, which are our two bullish
formations. A rally base rally occurs when price moves up, begins to base, and then rallies out of the
basing. When price rallies out of the base it leaves behind unfilled buy orders at the base. The rally base
rally is a continuation pattern because price continues in the same direction before and after the basing.

Next we have a drop base rally. The drop base rally is considered a reversal formation because price
reverses direction in creating the formation by dropping, moving into a sideways base, and then turns
and rallies to the upside. Price moving higher from the base signals there are no more sell orders left
and buy orders are remaining at the base level. The action we take for either demand formation is a buy
order at the zone.

So we have four formations, each containing three elements. Two are bullish, two are bearish, two are
reversals, and two are continuations. In the next video, we will conduct a lab going over the five step
zoning process on a chart to identify each formation, one at a time.

pt.49 Lab Exercise 7: Five Step Zoning Process - Supply & Demand:
 143

pt.49 Lab Exercise 7: Five-Step Zoning Process - Supply & Demand | Becoming a Trader

This
includes
the base
isolation
technique,
placing the
proximal
and distal
lines, and
scoring the
zone for
strength,
time, and freshness. We’ll begin with exercises for demand formations first. . Now, take your chart to
ticker ETR on a monthly chart from a date of 9/1/2015, which per our example will serve as current
price. You can place a vertical line on top of the candle located at 9/1/2015 to serve as a marker for
current price and simply move the chart left to cut off any candles to the right of current price. From
that date of 9/1/2015 (our current price), use the five step zoning process to locate the demand zone,
isolate the base, and score the zone with strength, time, and freshness.

Now, take your chart to CMG on a monthly time frame from 2/1/2018, which will serve as the current
price. You can place a vertical line on the candle for 2/1/2018 as a marker and starting point by simply
ignoring the candles to the right of the vertical line. You can also move the chart to the left to cut off any
candles to the right of the candle located at 2/1/2018. Now try to find two demand zones using the five
step zoning process, isolate the base, and score the zone.
 144

For the supply zone, pull up ENDP on a weekly chart with a vertical line as a marker on the date of
8/22/2016 which will serve as the current price. In addition, you may move the chart left to cut off any
dates to the right of the candle at 8/22/2016. From our current price of 8/22/2016 go through the five
step zoning process for supply zones, isolate the base, and score the zone for strength time and
freshness.
 145

For our last exercise pull up FCEL, still on a weekly chart, but place your vertical line on the date of
4/20/2015 to serve as our current price. Feel free to move the chart left and cut off any candles to the
right of the candle located at 4/20/2015. Again, go through the five step zoning process for supply
zones, isolate the base, and score the zone for strength, time and freshness.
146
 147

So, this was to once again go over the zoning process which you’ll do repeatedly to identify demand and
supply zones where you’ll be placing orders. You really want to make sure you have this process down.
Ideally you want to be able to simply look at the chart and see all these things within the price action
and then draw out the zones and score them as more of a confirmation of what you’re looking at on the
charts. Continue going through the process until it becomes second nature.

pt.50 Trend Overview:

 148

pt.50 Trend Overview | Becoming a Trader

Think of a trend like a force such as a river or ocean pushing in a specific direction. Is it easier to go with
or against the current? Obvious answer right? Going with the current, you’ll go farther faster, with less
effort. Going against the current, well… that’s a problem. And in trading it may cost you.

The OTA core based strategy combines supply and demand, which tell you where to buy and sell, with
market trends, which tell you when to buy and sell.
 149

This will increase the probability of us making more probable trades by telling us the right and wrong
times to buy or sell and it is always in our best interest to trade with the trend, not against it.
 150

Historically market cycles run in four stages, progressing through each one of the three trends.

The first stage on the left within the diagram begins with a sideways trend where price stays relatively
within the same range of highs and lows and traders are both buying long and selling short or potentially
waiting for price to break out into an up or down trend. As the market starts to move it heads into the
second stage, the uptrend. An uptrend is made up of higher lows and higher highs with the trading bias
to buy long. From there, price tends to move into another period of sideways trending, before the
fourth stage, the downtrend. The downtrend is made up of lower highs and lower lows with the trading
bias to sell short. Afterward, it usually moves back into another sideways trend. The sideways trends are
very much the same within the market cycle. The only difference is the direction they move into or out
of, either an uptrend or downtrend. An uptrend or downtrend following a sideways trend can tell us
whether the sideways trend was an institutional accumulation phase, meaning institutions were
accumulating or buying shares; or whether the sideways trend was a distribution phase, meaning
institutions were distributing or selling shares.
 151

Notice on the illustration in the green area, price continues to move higher with small pullbacks
downside. The same is true for the downtrend. We see very strong moves downward with very little and
minor pullbacks to the upside. These are the characteristics of the trends and the pieces which assist in
successful trading.

Now you have a basic understanding of trends and the four stages a market cycles through. Trends are
key in determining which direction to take trades, long or short. In future lessons we’ll learn the
components of a trend, how to identify trends on a chart, and the strategy in each trend environment.
 152

pt.51 Impulsions of a Trend:

pt.51 Impulsions of a Trend | Becoming a Trader

Whenever identifying a trend, understand it will vary depending on the time frame being viewed on a
chart and the time frame is specific to your trading or investment objective.

Looking at the chart here we have a long term uptrend. We do see some pullbacks where the market
consolidates before moving higher. Eventually the uptrend runs out of buyers. Once sellers exceed
buyers and buyers go to zero the demand and supply relationship shift in favor of the sellers resulting in
a significant drop in price.
 153

The impulsion phase is the dominant direction of price whether it is an uptrend or downtrend and the
movement is typically sharp and steep. In a downtrend the impulsion moves are the steep red candles
heading to the downside. An impulsion phase is characterized as high speed candles, often all one color,
powerful, relentless, and persistent. Impulsion demonstrates commitment to the trend direction as the
price easily breaks through the distal line of any opposing zones on low time frames. Following the trend
is the path of least resistance. We do so with an understanding that the market moves in the direction
where the imbalance is greatest. However, before jumping into a trade we want to identify the areas in
an uptrend when impulsion is greatest to ensure we’re joining the largest flow of money in the market.
 154

With trend analysis we can use these examples to help visualize and identify the impulsion phases. In
the uptrend on the left we have very steep and short lived upward movement which are the impulsion
phases of the uptrend. Notice the candles are all mainly green and one color.

On the right we see a downtrend and the tallest sharpest moves in price are long and fully red. The red
highlighted trend boxes assist with seeing the difference between the up and down moves in different
trend environments.

By now you should have a basic understanding of what the impulsion phases of a trend are and the key
characteristics to help identify them. In the coming lesson we’ll learn about the counterpart to the
impulsion phase, the correction phase.
 155

pt.52 Correction Phases:

pt.52 Corrections Phases | Becoming a Trader

The correction phases are what we find between the impulsions. This can be described as the reversion
to the mean or the intermediate values between impulsions. This represents consolidation in the market
where supply and demand are approaching a balance or equilibrium. Corrections can be described as a
pullback from the primary impulsion direction. In an uptrend correction phases are the down and
sideways moves. In a downtrend the correction phases are the up and sideways moves.

Correction phases are typically slower and cover less price movement. They can be very choppy or zig-
zaggy and a lot of time is eaten up by these corrections. If you’re a good “range” trader, which we’ll go
over, you’ll find this is where you can make a lot of trades for short distances. As we begin tying it all
together, we can follow the series of impulsions and corrections in what’s called a swing trade manner,
and ride the trend through the phases for larger profits and a better reward to risk ratio.
 156

We’ve already looked at the

impulsion phases in our
example, which were the
steepest movements in
price. In between the
impulsions, we will find the
corrections. Take a look at
these candles. Notice within
the correction phases the
candles tend to be multi-
colored with choppy,
sideways, or corrective
activity. Most of the candles
in an impulsion phase tend to be one color with strong conviction to either the up or down side.

It is the combination of impulsion and correction phases that give us the key characteristics of “trend”
components. As traders we want to enter the trade just at the last moment before the correction turns
back into an impulsion.
We must learn to gauge
the market to identify
the trend, and join the
trade during a
correction, just before
the next impulsion
begins. We will be
moving into the
mechanics of that
technique and strategy in
the coming videos.
Understanding these
differences will help us
“time” the markets
better when we combine
this information with supply and demand zones.
 157

pt.53 Swing Lows, Swing Highs, Up and Down Segments:

pt.53 Swing Lows, Swing Highs, Up and Down Segments | Becoming a Trader

The question we need to ask is where is the market most likely to turn next. We start by looking back to
see where the market has already turned. Understanding this gives us something to anchor off of. These
are the price points where the market has gone from down to up and up to down. We call these points
on the chart a swing or pivot. A swing low occurs when price stops falling and starts rising. Many times a
Drop Base Rally is found at these swing lows and then a Rally Base Rally typically follows.

The swing low itself is the lowest closing candle’s lowest point within the turn in price. A swing high
occurs when price stops rising, turns and starts to drop. A Rally Base Drop is often found at swing highs
and is generally followed by a Drop Base Drop formation. A swing high is the point at which the market
has risen to its highest within the formation of the turn in price.
 158

So now what we want to do is connect those swings. When we connect swings as price moves from a
swing low to a swing high or from a swing high to the following swing low, these moves in price are
referred to as segments or ranges. In math, a segment is merely a line between two points. The
movement between the point of the swing low and the point of the swing high or vice versa is the
segment.

An up segment is the range of price movement from a swing low up to a swing high. Looking at the up
segment example below you can see the area of price movement from the point on the left to the point
on the right, which makes the up segment or up range highlighted in green.
 159

A down segment is the range of price movement from a swing high down to the following swing low. It’s
just the opposite of an up segment.

Keeping in mind that price moves from left to right, while we typically look at charts from right to left or
from current price back; We have to remember where the market came from. Looking at the example
we see the highest point on the left moving to the lowest point on the right, is what forms the down
segment.

In this lesson we defined a swing low, swing high, an up segment and a down segment. In the coming
lessons we’ll look at how these components on a chart come together and combine to form “trends.”

Before you move on:

● Review the characteristics of a swing low and a swing high.

● Review the characteristics of an up segment and a down segment.
● Open your preferred Direct Access Platform and practice identifying swing lows and swing highs
● Practice identifying up segments and down segments.
 160

pt.54 Lab Exercise 8: Identifying Elements of a Trend

Welcome to Lab 8, identifying swings and segments. Click the link to get started.

pt.54 Lab Exercise 8: Identifying Elements of a Trend | Becoming a Trader

We’ll start with identifying swing points, which are swing highs and swing lows. For this exercise we’re
going to be on a weekly chart looking at stock HOV. Then we’re going to place two timelines as
reference points. Place your first timeline anywhere on the chart and then go into the settings cog and
change the date on the timeline to 10/27/2008. Don’t be alarmed, the timeline will move out of sight
from the chart temporarily, we’ll get to
it in a moment. Now, repeat the
process for the second timeline but
change the date to 12/08/2003. Now,
move the chart to the right so that you
can view both timelines. Adjust the
chart so both timelines are within view
and the candles are also easy to view
and as large as you can make them
while keeping both timelines on the
screen. Now place a down arrow at
each swing high and an up arrow at
each swing low, between the two
timelines. If you’re using thinkorswim
you can use the arrow tool or draw
circles on each swing low and swing
high. All together you should end up
with about 20 or so swing lows and
highs combined. You may find more or
less depending on how detailed you
want to be. Keep in mind you must
have a swing low between two
consecutive swing highs and vice versa
unless it’s on either end of the chart.
 161

Now that we’ve identified the swing highs

and lows we want to connect the swing
highs and lows together so we can draw
out the segments. To do this we can use a
trendline, connecting each swing high and
swing low from one end of the chart to
the other. Keep in mind we want to use
the highest and lowest points on each
respective candle.

Finally, take an additional step to draw

boxes to identify the segments between
each swing low and swing high. For a
better visual, change the color of each box
to represent the direction of price; green
for price moving upward and red for price
moving downward. Once the boxes are
drawn you should have the high and low
corners of the boxes touching a swing high
and a swing low. You should also see only one trend line cutting directly and evenly through the center
of each box as a diagonal, effectively creating two symmetrical triangles. Now, from left to right, if the
candles in the box traveled higher, it’s an up segment and if downward, it’s a down segment. And as a
visual aide we’d color the box respective to the move in price. From there you can easily see the trend in
the chart. If we pretend the boxes are as a staircase we’re either traveling up the staircase, down the
staircase, or sideways across the staircase. You should also notice that as price moves up the green
boxes are taller and as price moves down the red boxes are taller. Food for thought.
 162

pt.55 Trend Segments:

pt.55 Trend Segments | Becoming a Trader

In the most basic definition an uptrend is price moving upward and a downtrend is price moving
downward. However, as we dig deeper we see there are some basic building blocks for trends which
must be broken down. In the previous lessons we talked about swing highs and swing lows and how
they connect to create segments within each trend whether up, down or sideways.

A simple approach to trend analysis is to focus on a series of at least three segments. While trends
indicate a consistent movement of price in a certain direction, there are pull backs and corrections or
retracing in the opposite direction of the dominant trend.

Let’s look at the basic elements of the three different trends. Uptrends are composed of higher swing
lows, and higher swing highs. Looking at the trend analysis example below we have segment 1, which is
a strong impulse move to the upside, segment 2 is a correction which does not move beyond the prior
low, and segment three another impulse move up, which breaks up above the high.
 163

A down trend consists of lower swing highs, and lower swing lows. As you can see, segment one is a
strong impulse move down, segment 2 is a correction which does not break above the previous high,
and finally segment 3 is another impulse move downward moving lower than the previous low.

A sideways trend shows relatively equal highs and lows in price. Sideways trends may also occur with
conflicting highs and lows, either higher highs and lower lows, or lower highs and higher lows. These are
much more trickier market conditions and we’ll go into those details later.

It’s important to understand that a trend is made up of three segments, not just one. Often we’ll see a
few of the candles dropping and rush to the conclusion that price is in a downtrend when in reality it
could just be a minor pullback within the context of an overall uptrend. So with that in mind we don’t
want to assume the trend direction is based on one segment alone.

Now you should have a basic understanding of how swing highs and swing lows, up and down segments
form trends. In the next lessons we’ll look at the specific combination of segments that form an uptrend,
a downtrend, and a sideways trend.
 164

pt.56 Uptrends Explained:

pt.56 Uptrends Explained | Becoming a Trader

In an uptrend prices are consistently moving to higher prices as a result of demand exceeding supply. It
continues to reflect that an imbalance exists where the number of sellers becomes zero and buyers
continue to buy at higher prices because they want to own the security and they’re willing to pay a
higher price. The buyers are in control during an uptrend. The swing lows are holding the security up
from dropping to lower prices. One of the hallmarks noted in an uptrend are higher highs and higher
lows. Helping that happen, is the strong impulse moves and up segments as well as the mild corrections
either down or sideways segments. With uptrends we look to buy in qualified demand zones.

One question we might ask, when does an uptrend begin? An uptrend always starts with a low, makes a
high, has a pullback or mild correction making a higher or equal low. The moment the price is
mathematically higher than the previous high, the uptrend has begun. Notice any trend consists of three
segments. In the case of an uptrend, it begins with an upsegment, followed by a down segment that
does not cross below the previous low, followed by an upsegment that travels above the swing high of
the preceding down segment.
 165

A few key components of the uptrend are the controlling swing low, and the break out segment.
Uptrends occur because institutions are buying and a large flow of money is to the upside. As price
trends up, the lows become equal or higher, showing buyers are controlling a certain price level and
moving the markets higher. Therefore, the lows control. The controlling swing low of an uptrend is by
definition the higher low. Looking at these candlesticks we see we have an uptrend; From the low to the
high, from the high to the higher low, and then the price crosses above the high. A breakout occurs.
When the breakout occurs the higher low becomes the swing or pivot in control of that uptrend. The
trend is controlled by that higher low because if price falls below that point then the trend is
discontinued. We’ll learn more about discontinued trends in the following lesson. Just keep in mind that
the controlling swing low of the uptrend is very significant to us and our determination of the trend in
the current market environment.
 166

Since an uptrend may have multiple swing lows, the controlling swing low of an uptrend is the lowest
swing low that is located between the nearest high and the breakout of that high. The breakout portion
of the uptrend is the impulsion phase that is connected to the controlling swing low. It is the entire up
segment starting from the controlling swing low, to the following swing high. Determining the breakout
segment of the trend is particularly important because it will play into our strategic decision about
where we want to find demand zones to join the trend. So while an uptrend always begins with a low, it
is not official until price makes a higher or equal low, and a breakout occurs above the previous high. For
a confirmed uptrend we defined the controlling swing low and the breakout segment. When combined
with supply and demand zones will determine where we engage an uptrending market.

pt.57 Formation, Continuation, and Termination of an Uptrend:

pt.57 Formation, Continuation, and Discontinuance of an Uptrend | Becoming a Trader

 167

Every trend has a beginning, middle, and end.

As we learned in the previous lesson, a trend consists of three segments. The formation of an uptrend
always begins with an up segment, starting from a swing low to a swing high, followed by a down
segment that does not cross below the preceding swing low, (this is a sign that buying is coming into the
market) Then following the higher low we have segment three, an up segment that breaks out and price
crosses above the preceding swing high. The last segment on the right is the break out segment and the
higher low is the controlling swing low of the newly formed uptrend.
 168

That uptrend continues every time the market continues to make higher lows and higher highs. Each
time the price crosses above the high and a new higher low has been created, that new higher low
becomes the controlling swing low of the uptrend. As you’ll notice here the original higher low is no
longer in control because the new high has been broken and therefore, the new higher low is the swing
in control. Price remaining above the controlling swing low and breaking above the high tells us the
trend is continuing. Then the market makes a new high. Once price crosses above that high and not until
that moment, then the new higher low becomes the controlling swing.

So you notice that the controlling swing low of the uptrend is adjusted to higher lows as the trend
continues to make higher lows and higher highs. Now, why do you think we put such an emphasis on the
swing in control of the uptrend? Ask yourself this question… Would the market still be in an uptrend if
price crosses below the controlling swing low? The answer is No. The market would not still be in an
uptrend and it can’t be because at that point the market would be making a lower low. And by definition
an uptrend is not made of lower lows.

So once price crosses below the controlling swing low, then the uptrend is discontinued. Once the
trend is discontinued how would we classify the movement of price from the very first low of the
uptrend, to the very last high of the uptrend? It’s no longer a trend because the uptrend is
discontinued. However, it doesn’t just vanish, it’s still an object on the chart. So, if not representational
of a trend, what does it represent? A discontinued uptrend is what we say has reverted to a “range.”

A range is simply a low to a high. So the discontinued uptrend reverts to a range from the first low of
the trend on the left to the last high on the right. Once the trend is discontinued it is no longer the
 169

dominant direction of price. While we haven’t fully defined downtrends yet, notice that something that
resembles a downtrend has formed before the uptrend actually terminated. Keep in mind a trend
terminates on it’s own. It has nothing to do with an opposite trend forming. The most recent controlling
swing low is the price that must be crossed in order for the uptrend to terminate, regardless of a
sideways or downtrend developing prior to price breaking below the swing in control. However, just
because an uptrend is discontinued, it does not mean a downtrend has begun. So again, a trend
terminates on its own uniquely. It has nothing to do with an opposite trend forming. Being able to
identify the formation of an uptrend, the continuation of the uptrend, and the adjustment of the
controlling swing low, and the termination of the uptrend will aid in our decision making process for
entering trades.

pt.58 Uptrend Identification Process Defined:

pt.58 Uptrend Identification Process Defined | Becoming a Trader

 170

We can follow a simple step by step process to identify a trend, starting with an uptrend. Since we now
know how an uptrend forms, continues, and terminates from left to right. Now we can look all the way
to the right to the current price, and work our way backward into the three segments defining the
current trend. In this lesson we’ll learn how to determine the most current trend through the trend
identification process.

Step one, going from right to left, we start with the current price. In step two we look down and left to
identify the most recent swing low. We then draw a vertical line on top of the swing low. In step three,
continue down and left to identify the next lower or equal swing low, and draw a second vertical line on
that low. Step four takes us somewhere between the two vertical lines.
 171

By drawing these two vertical lines it’s given us a sideways boundary and isolated a number of candles.
Next we want to find the highest price point within the set of candles between the two vertical lines and
draw a horizontal line on that price point. Finally in step five we want to ask ourselves two questions;

a) Did price cross above the swing high which we previously isolated between the vertical lines?
Per the example, yes it does. This is referred to as a breakout, which is what creates an uptrend.
b) Did the price cross back below the higher low where we drew our first vertical line? if the
answer is no, we have a valid uptrend, and the uptrend has not been discontinued.

So what we have here are three segments. We have a low to a high, a high to a low, and a low to a high
with two conditions;

1) Price broke above the high

2) The higher low has not been crossed

With all of that determined, we officially have an uptrend. Now it’s a matter of what we do with that
information.
 172

An easy way to see the trend is to draw each segment of the trend, connecting the swing highs and
swing lows. To do so we can either draw trend lines, or boxes to see the trend, either or. The important
thing is that we clearly understand what the price is doing. So, we’ll place green trend boxes on up
segments and red trend boxes on down segments with a trend line as well, connecting the low and high
of each segment. Looking at the boxes you’ll notice the green boxes are taller making it that easy to
identify the trend. However, we can also be linear and mathematical if necessary. However, for the most
part after drawing out the segments we’ll visually see that the green boxes are taller, the up segments
are the impulsions, and the green box farthest right, extends above the red box preceding it;
demonstrating the breakout, and making that particular segment the breakout segment of the uptrend.
You should also now notice there is a connection between the trend boxes and the core formations.
Look closely and see if you can identify any one of the four formations. You should be able to see a rally
base rally using the trend boxes. Moving forward we’ll be using this same information as we begin to
combine some of the major topics of supply and demand zones with trends. Keep that in mind,
understanding that identifying the exact price points of the swing highs and lows through trend lines or
boxes is very important because where one segment ends the next begins. So, when drawing trend lines
or boxes to identify the highs and lows of each segment we must be precise, even to the penny to aid us
in appropriately identifying the trend.
 173

With that, we’ll go over the trend identification process quick steps:

1) First start with the current price

2) Second, draw the three most recent segments using trend boxes or trend lines or both
3) Lastly in step three, evaluate the trend and confirm it is valid.

When price broke out, the uptrend was formed. Since price has not crossed below the controlling swing
low, the trend is still valid, it hasn’t been discontinued. The breakout segment is the green box on the
right, which is also the impulsion phase that is connected to the controlling swing low. Bear in mind that
if you ever attempt to draw out the trend, and the market is currently in the corrective phase of a trend
at that time, then drawing three segments in that case, would only take you back to the previous
corrective phase and wouldn’t give you a defined uptrend. Therefore, there may be some cases where
you’ll need to draw a fourth segment in step two, in order to identify the current trend.

And that’s it. We’ve learned what defines an uptrend, how an uptrend forms, continues, discontinues,
and the steps to identify the current trend.

Before you move on:

● Review this lesson and practice identifying uptrends.

 174

pt.59 Lab Exercise 9: Uptrend Identification Process:

pt.59 Lab Exercise 9: Uptrend Identification Process | Becoming a Trader

Welcome to lab number 9, identifying uptrends.

If you recall from the

previous lesson we have the
trend identification process
as well as the trend identification quick steps. For the lab we’re going to jump into the quick steps but
we must remember the two conditions we have in place whenever we find a trend. This is to make sure
the trend is confirmed and still valid. We’ll start with ticker TLT on a weekly chart. As usual I’ll
demonstrate how to complete this lab. The first thing we want to do is place a vertical line anywhere on
the chart, then go into the settings cog and change the date to June 10th, 2019. This vertical line will
serve as the current price. From there we’ll look left, beginning the trend identification process quick
steps. To do this with your own
platform it may be easier to use
trend lines rather than boxes to
eliminate having to go through
the extra step of changing the
color of the boxes. Remember,
the important part is that we are
precise in identifying our swing highs and lows to accurately determine what price is doing.

From right to left you want to start at the highest point and drag your trend line to the lowest point,
before the price starts to go back up. Remember, we’re going from right to left. Next we draw another
trend line from the low point we just identified to the next high point bearing in mind where one
segment ends, the next segment begins. So again, we must make sure the price points are exact. We
then draw another trend line from the high point previously identified to the next lowest point. By now
you should have three trend lines drawn identifying three segments.
 175

If we were to take an additional step to draw boxes with their respective colors we would see that the
green boxes are taller suggesting that we have an uptrend. If we were to check our two conditions;

1) Price has crossed above the swing high to create the uptrend
2) Price has not crossed below the higher low also referred to as the controlling swing low

To check our first condition we can take a horizontal line and place it on the high anytime it is not visibly
obvious that the green box is not taller than the previous red box. To check the second condition we can
place a horizontal line at the higher low or controlling swing low if it is likewise not clearly obvious that
price has or has not crossed the higher low. These are two linear methods to verify the trend.
Mathematically we can verify the trend by notating the price point of the high and the price point of the
higher low in relation to current price. If the current price is mathematically higher than the swing high,
the uptrend is confirmed. If the current price is mathematically lower than the higher low or controlling
swing low, the uptrend is discontinued. So, if the price has made a higher high, but none of the candles
 176

have crossed below the controlling swing low, the uptrend is still valid.

Now you’ll have a chance to try. Take your chart to AMZN on a daily time frame. To create a common
starting point place a vertical timeline anywhere on the chart, then go into the settings cog of the
timeline and change the date to September 05, 2018. Next, drag the chart to the left to give yourself
plenty of candles to the left of the timeline. This is where you’ll look to identify the trend. Imagine your
vertical line is the current price, and draw the three most recent segments, connecting them with a
trend line. It may be easier to use trendlines rather than boxes to eliminate the extra step of changing
the color of each individual box. Next confirm the trend by checking both conditions to ensure the trend
is valid and still intact. Pause the recording, go through the exercise, unpause once you’ve completed
the exercise and I’ll display the correct answer.
 177

Once you’ve checked your chart against the correct response in the video, pause the recording again
and see if you can determine where the controlling swing point is. To do so you can draw a horizontal
price line from the controlling swing low to identify the exact price point of the swing in control. Then
see if you can identify which segment is the breakout segment. Once you have those identified, resume
the video to display the correct answer.

Once you’ve checked

your chart against the
correct response, pause
the video and try the
exercise again using
ticker CSX on a monthly
time frame. Place a
vertical timeline on May
01, 2015. Next, go
through the trend
identification process to
identify the trend using
the vertical line as the
current price. Draw the
three most recent
segments to identify the
trend. Then identify the
controlling swing low, and
the breakout segment.
Afterward, resume the
recording to display the
correct answer. Once
you’ve checked your
answer against the
correct response in the
video, you will have
completed this lab.
 178

pt.60 Downtrend Explained:

pt.60 Downtrend Explained | Becoming a Trader

Let’s talk about downtrends.

A downtrend is simply a mirror image of the uptrend. In a downtrend prices are consistently moving to
lower prices because supply exceeds demand. Downtrends reflect that an imbalance exists and sellers
exceed the buyers. When the buyers go to zero it allows sellers free movement, giving way to the
market moving lower. In a downtrend the sellers are in control. So in that case, the emphasis of the
trend is on the highs. This is illustrated with lower highs and lower lows on a price chart. During a
downtrend we should see strong impulse moves on the down segments with small corrections moving
up or sideways, including mixed colored candles. We look to sell short in downtrends at qualified supply
zones.
 179

Let’s look into when a downtrend begins. A downtrend starts with a high, a low point follows, then an
equal or lower high, and then the market begins to move down. As soon as a breakout occurs below the
previous low creating a lower low, that’s the moment a downtrend is official. The downtrend is created
as soon as the price crosses below the low and at that point the focus is on selling short. Now notice just
as in an uptrend there are three segments. Recall that any trend consists of three segments. In the case
of a downtrend it consists of a down segment, followed by an up segment that does not cross above the
preceding high, followed by a down segment that drops below the low of the preceding up segment.

Now let’s define the swing in control and the breakout segment of the downtrend. Downtrends occur
because institutions are selling and a large flow of money is to the downside. As price trends down, the
highs become equal or lower showing that the sellers are controlling a certain price level and moving the
markets lower. Therefore, the highs of the trend control the trend. The controlling swing high of a
downtrend is not the
highest high in the
trend but rather, it is
the lower high that is
the controlling swing
high. Looking at the
controlling swing
chart, we see we
have a high, a low
(L), a lower high (LH),
and then price
crosses below the
low (L). At this point, once the market breaks out to the downside below the low(L), the lower high
becomes the controlling swing high of the downtrend. Now ask yourself why is that important? As we
learned with uptrends we have a continuation and discontinuation of a trend that hinges on the swing
point or pivot in control. If price ever goes above that lower high(LH) then the trend would be
discontinued. It basically serves as a line in the sand, so to speak. We’ll learn about when a downtrend
terminates in the coming lessons. For now, keep in mind that the controlling swing high of the
downtrend is a very significant point. A downtrend may have multiple swing highs so it’s important to
know which swing high is the swing in control.
 180

The controlling swing high is the highest swing high located between the breakout segment and the
swing low that was crossed creating the breakout segment. The breakout segment is the segment that
begins from the lower high and breaks out below the preceding low. It’s the impulsion phase connected
to the controlling swing high. It is the entire down segment starting from the controlling swing high to
the following swing low. Identifying the breakout segment of the trend will be important in determining
where we want to find supply zones to sell short with the trend.

In summary, though a downtrend always begins with a high, it is not official until price makes a lower or
equal high and then a breakout occurs below the previous low.

For a confirmed downtrend we’ve defined the key components: the controlling swing high, and the
breakout segment. When combined with supply and demand zones these key components will play into
our strategic decision of where to join a downtrending market.
 181

pt.61 Formation, Continuation, and Termination of a Downtrend:

pt.61 Formation, Continuation, and Termination of a Downtrend | Becoming a Trader

As we learned in the previous lesson a trend consists of three segments. The formation of a downtrend
always begins with a down segment, starting from a swing high to a swing low, followed by an up
segment that does not cross above the preceding swing high, a sign that selling is coming into the
market; And three, a down segment breaks out where price crosses below the preceding swing low. It
just needs to cross the low by one penny, one tick, or one pip to confirm the downtrend. The last down
segment on the right is the breakout segment, and the lower high at this point is the controlling swing
high of the newly formed downtrend.
 182

A downtrend continues every time the market continues to make lower highs and lower lows. Each time
price crosses below the low after a new lower high is created, that new lower high becomes the
controlling swing high of the downtrend. As you’ll notice here, the original lower high is no longer in
control because the new low has been broken and therefore the new lower high is the swing in control.
Price remaining below the controlling swing high and breaking below the lows tells us the trend is
continuing down. Then the market makes a new low. Once price crosses below that low and not until
that moment, then the new lower high becomes the swing in control. We’ll anchor our entry points off
the controlling swing high and the breakout segment. Notice that the controlling swing high of the
downtrend changes as the trend continues. This means that we can join the downtrend at lower prices,
which we’re okay to trust because trends tend to continue. We’ll get into the strategy of it later. But
keep in mind that trends tend to continue and as they do the swing in control moves with it.
 183

Why do you think we put such an emphasis on the swing in control? For starters as we just mentioned
it’s what we’ll anchor our entry points off of. But consider this, would the market still be in a downtrend
if price crosses above the controlling swing high? The answer is no and it can’t be because at that point
the market would be making a higher high, which by definition is not part of a downtrend. So, once the
controlling swing high is broken the downtrend is discontinued. Once discontinued, we would then
classify the movement of price from the last high of the downtrend to the last low of the downtrend as a
range. Once the trend is discontinued it is no longer the dominant direction of price. You’ll notice a
resemblance of an uptrend has formed before the downtrend has terminated. Keep in mind the most
recent controlling swing high is the price that must be broken in order for the downtrend to discontinue,
regardless of a sideways or uptrend developing prior to price crossing above the swing in control. On the
contrary, just because a downtrend discontinues, it does not automatically mean that we are in an
uptrend. To reiterate, a trend terminates on it’s own uniquely and has nothing to do with an opposite
trend forming. We’ve now discussed the full story of the downtrend, the beginning, the middle, and the
end. Being able to identify the formation of the downtrend, the continuation of the downtrend, the
adjustment of the controlling swing high, and finally the discontinuation of the downtrend will help us in
our decision making process for entering trades.
 184

pt.62 Downtrend Identification Process Defined:

pt.62 Downtrend Identification Process Defined | Becoming a Trader

So one, going from right to left

we start with the current price,
then in step two we look up
and left until we identify the
most recent swing high and
draw a vertical timeline on the
high. In step three we continue
up and left to find an equal or
higher swing high and draw a
second vertical line. Step four
will take us somewhere
between the two vertical timelines. We then locate the lowest price point between the two vertical lines
and plot a horizontal price line on that price point. Finally in step five we ask ourselves two questions: a)
Has price crossed below the low which we isolated between the two vertical lines (in this case, yes it did
which created the downtrend), and b) has price crossed back above the lower high where we placed the
first vertical timeline (in this case, no it did not which means the downtrend is still valid).

So what we have here are three segments: we have a high to a low, back up to a high, and then down to
a lower low. But instead of moving left to right, we start at the current price on the right of the chart
 185

and back our way into the current trend. As long as when we back our way into the trend, working away
from the current price, we identify at least three segments. We define the trend by working our way
back toward current price from the third segment and find we have a high to a low, back up to a lower
high, and then back down breaking out to a lower low, while noticing that the previous lower high
(which is now the controlling swing high) has not been crossed, which results in a confirmed downtrend.
Now it’s just a matter of what we do with that information. So with lower highs and lower lows we have
an official downtrend.

An easy way to see the trend is to draw each segment of the trend by connecting the swing highs and
swing lows. We can either draw trend lines or boxes to see the trend. As we’ve previously learned with
uptrends it does not matter which you use. It may be easier to use trend lines to eliminate the extra step
of changing the color of the boxes.

To accomplish this task we place green boxes on up segments and red boxes on down segments with a
trend line as well connecting the swing highs and swing lows, bearing in mind where one segment ends
the next segment begins. We should not see gaps between the boxes or the trend lines.

Looking at the boxes you should notice the red boxes extend beyond and are longer than the green box.
The trend is confirmed as down by the high, the low, the lower high, and the breakout below the low. By
drawing out the segments we can visually see that the red boxes are taller, the down segments are the
impulsions, and the red box on the right extends below the green box preceding it; demonstrating the
breakout, and making that particular segment the breakout segment of the downtrend.

You also may have noticed the connection of trend boxes resembles one of the four of our core
formations, the Drop-Base-Drop. This is a look into what is to come as we begin to combine some of the
major topics of supply and demand zones with trend analysis.
 186

Identifying our highs and lows appropriately and making sure we are drawing out our trend lines
accurately will aid us visually in identifying the trend. So with that, let’s go over the trend identification
quick steps, three simple steps to identify the trend. Again start with current price, next draw the three
most recent segments using trend boxes, trend lines or both, finally evaluate the trend and confirm it is
valid. Since price broke out, the trend has formed. Since price has not crossed back above the controlling
swing high, the trend is still valid and has not been discontinued. The breakout segment is the red box
on the right. It is the impulsion phase that is connected to the controlling swing high.

Now, in the event you happen to analyze the trend for an asset whose current price is currently in the
corrective phase of the trend, then drawing three segments will only take you back to the previous
corrective phase of the trend, and would not give you a defined down trend. So, their may be some
instances where you’ll need to draw a fourth segment to identify the current trend.

Before you move on:

● Review this lesson and practice identifying downtrends.

 187

pt.63 Lab Exercise 10: Downtrend Identification Process:

pt.63 Lab Exercise 10: Downtrend Identification Process | Becoming a Trader

During this lab we’re going to use the quick step process, although you can find the five step process
located below as a reference.
 188

With the quick step process you’ll notice it is the same as the process for uptrends where we 1) start
with the current price, which is far right on the chart and then 2) we back into the current trend by
drawing the three most recent segments. Finally in step 3 we analyze the current trend to evaluate what
trend it is and confirm that it’s valid by working back from the left toward the current price. For our first
exercise we will be looking at ticker CLI on a weekly time frame (1w), so feel free to take your charts
there. Once you’re there we need a common starting point. For that you will plot a timeline anywhere
on the chart then go into the settings cog and adjust the date to 11/02/2020. For this exercise we are
going to assume that the candle located on 11/02/2020 is the location of the current price. Feel free to
move the chart over to cut off any candles to the right of our timeline to avoid confusion during our
analysis. Next we want to draw the three most recent segments working from the current price going
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from right to left. Before you start, pause the recording and once you’re done resume the recording and
we’ll take a look at how
you’ve done…

Now that we’ve identified

the trend we can place
numbers from left to right,
at each point and
intersection of the trend
line. There should be a total
of four. By looking at each
point in the trendline, we
want to identify which point
is the controlling swing point
of the trend: 1, 2, 3 , or 4?

Next we want to look at the

three segments of the trend,
moving from left to right, and see if we can determine which segment is the breakout segment of the
trend…

To give ourselves another chance at this we’re going to take our charts to ticker BIDU on a weekly time
frame. Again we’ll pick a common starting point. So go ahead and place a vertical timeline anywhere on
the chart and go into the settings cog and adjust the date to 07/01/2019. Move your chart over to cut
off any candles to the right of our timeline to avoid confusion when conducting our analysis. Next go
ahead and pause the recording and draw out the three most recent segments, starting from current
price, moving from right to left. Forewarning, there will be some situations when drawing out the trend
you may have a few candles not included in the overall trend. These candles will be located farthest
right, to the immediate left of current price. These candles will represent a bit of pullback in relation to
the overall trend.

Now, after you’ve drawn out the trend, identify the swing in control by placing a horizontal price line on
that price point. Then lastly, identify the breakout segment by drawing a box with the corners of the box
attached to each end of the breakout segment. Once you’ve completed the exercise, resume the video
and we’ll go over the correct response…

In the final exercise I'm going to pull up ticker ZVO on a weekly chart in three separate windows. This is
going to be a bit of a test. I'm going to draw out three versions of the trend, one for each chart. You will
pause the video, then identify the correct drawing(s), and then resume the video and we will go over the
correct response…

That will conclude this lab.

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pt.64 Sideways Trend Explained:

pt.64 Sideways Trend Explained | Becoming a Trader

Last but not least is a sideways trend.

In a sideways trend supply and demand are relatively balanced and therefore, price is contained within a
range. This range represents a period of consolidation and could be a wide range or a tight range.
Ranging markets, which would resemble a base, tend to expand and contract but may not contain any
breakout segments like you would have with uptrends or downtrends. With a sideways trend we see
relatively equal highs and lows remaining within a range.
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With any ranging market we look to trade at the extremes. So with that, we look to sell near the highs,
and we look to buy near the lows. For sideways trends we’ll apply the exact same science as we did with
uptrends and downtrends, which is to look at the three most recent segments

While we need three segments to define a trend as sideways, it could have more if it’s been ranging for
a while. It begins with either an up or a down segment, followed by a segment in the opposite direction,
that doesn’t break out. Finally a third segment that is likewise contained. Now there can be expanding
ranges which is a bit more of an advanced trend market condition, but just know that it exists. Typically
however, the ranges would be contained within one another.

Here’s an example of a sideways trend. Starting at

the far right and working away from current price
we’ve drawn a box that represents the most
recent segment, which was a down segment; a red
box. Backing up from that to the lowest preceding
point, we see we have an up segment; a green
box. And finally what precedes that is another red
box, from a high to a low. All in all, we have a
sideways ranging market. Working from left to
right we have a small, medium and large box. In
other words, as the market continues to move
from left to right, the left segment, the red box,
engulfs the middle segment; the green box, the middle box engulfs the far right segment; the red box.
This shows us a consolidation is occurring. In a sense, you can think of the colored boxes within this
range as similar to basing candles in a candlestick formation, all representing a period of consolidation.

And that’s it, you’ve just learned about sideways trends, which wraps up the definition of each trend. In
the coming lessons we’ll talk about strategy and what we do once we find the trend.
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pt.65 Finding a Zone in a Trend:

pt.65 Finding a Zone in a Trend | Becoming a Trader

Now that we’ve learned about zoning and about trends, we will begin combining the two.

What we ultimately want to think about is how to find the correct Formation in the correct Location. In
other words, we want to locate the right basing candles in the right place. Finding a zone within the right
location within the trend sets us up with a higher probability of opportunity. Reason being is that we are
looking to time the turning points price in the markets. One element that turns price is a supply or
demand zone where there is a big imbalance between buyers and sellers and unfilled orders get left
behind. Another element is the trend because it provides an anticipated turning point. So, for example a
downtrend is made of lower highs and lower lows. So price is therefore expected to turn at a lower
point than the previous high. But the expectation of where price is likely to turn, from a trend
perspective, and combining that with a quality zone, will not only provide us with a low risk entry point
but it also increases the probability of price turning at our entry zone.
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Trend indicates the direction of the large flow of money in the markets. It is the path of least resistance.
In this way the trend direction indicates whether to go long or short. If we identify an uptrend, this
shows us that institutions are buying and paving the way for prices to move higher. In this case, we look
for buying opportunities, i.e. demand zones.

If we identify a downtrend, this shows the opposite, institutions are selling. In this case we look for
supply zones to go short, joining the downward movement of price. In a sideways trend there is
opportunity in both directions. A sideways ranging market is showing us that price is stopping and
changing directions at the highs and the lows. So in this case we look for supply to sell short near the
highs, and demand to buy long near the lows.
 194

The key point is that trends tend

to continue. We’re in the
business of buying low and
selling high. It’s not just another
catch phrase. We do that by
being right regarding the
direction of price. The direction
in play is whatever the current
trend is. Therefore, the highest
probability of a successful
opportunity is to join the market
by placing an order consistent with trend direction. Proper trend identification not only indicates which
type of zone to look for, but also shows where to look for that zone. In other words, it shows the
location within the trend to look for an entry zone within the breakout segment of the trend. This
simplifies our process and keeps things efficient. If all you had to do was find a zone and you had no
anchoring point from the trend, you could end up with 5, 10 or 20 zones and what is referred to as
‘analysis paralysis’ where choosing between so many options becomes a problem. By narrowing our
focus to looking only within the breakout segment to find our entry not only eliminates the guessing
game but increases the odds of getting our order filled, and increases the probability of the trade
moving in our favor by joining the market within the current trend. Recall the breakout segment is
always attached to the controlling swing, and the controlling swing price point determines whether a
trend is valid or discontinued.

In this lesson we’ve previewed the strategy for combining trend and zone. Next we’ll get into the
specific details for finding an entry zone within each trend; up, down, and sideways.

pt.66 Strategy for Buying in an Uptrend:

pt.66 Strategy for Buying in an Uptrend | Becoming a Trader

An uptrend signals that big banks and institutions are buying, and in doing so they are controlling a
certain price level, which is the higher lows. Therefore, the direction to trade in an uptrending market is
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to buy long, and to do so we look for a demand zone. But we don’t want to look anywhere on the charts
for a demand zone. Where the demand zone is located in the uptrend is critical. Consider this carefully,
for any demand zone that is below the controlling swing low of the uptrend, price would need to cross
the controlling swing low to fill that order. Understand that when price crosses below the swing in
control of an uptrend, the uptrend is no longer valid, which defeats the purpose of placing an order to
go long. This is why we only go long within demand zones located within the breakout segment of the
uptrend, above the controlling swing low, and below the most recent high.

Recall that when we

previously went through
the trend identification
process we related the
three trend boxes to our
core formations; rally-
base-rally, drop-base-
rally, drop-base-drop,
and rally-base-drop. In
this case the trend boxes
look like a rally-base-
rally. Now consider that if
we were to move to a
higher time frame, these
candles would merge
together to form a rally-
base-rally formation, per
the example. Now, what
do we do with a rally-
base-rally? The action we
take is to buy as price
retraces to the base of
the rally-base-rally. We can apply this concept as well looking within the breakout segment, above the
controlling swing low, and below the most recent high. In doing so we increase our probability of
success by weeding out lower probability zones. We then go back to the five step zoning process to test
the quality and structure of the zones we’ve identified within the breakout segment using the odds
enhancers. Again for strength, we look for a move out of at least two to one, and a breakout above the
distal line of an opposing supply zone or a structure that represents selling. We also check for time to
ensure there aren’t too many basing candles, and we want a zone that is fresh where price has not yet
returned.
 196

We look to buy the retracement within the uptrend, where we can determine with high probability that
unfilled institutional buy orders will be left behind. This is where we will place our limit order.

Now you know the basic strategy for buying in an uptrend; Confirm the trend and identify a quality
demand zone within the uptrend’s breakout segment.

pt.67 Strategy for Selling in a Downtrend:

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pt.67 Strategy for Selling in a Downtrend | Becoming a Trader

A downtrend signifies that big banks and institutions are selling. If they’re looking to sell, we should do
likewise. This means we look for supply zones. The strategy in a downtrend will be an exact inverse of
our strategy in an uptrend. Recall the point when a downtrend is discontinued, which is when the
controlling swing high is crossed. That’s the line in the sand, so to speak. For this reason, we will not look
for supply zones above the controlling swing high. This means we only look for the supply zone below
the controlling swing high of the downtrend in order to join the downtrending market. In previous
lessons you learned how to confirm the downtrend by starting at current price and identifying the three
or four most recent segments and verifying the downtrend by identifying the high, the low, the lower
high, and a breakout below the previous low creating a lower low. Once you’ve identified the
downtrend it’s time to identify a quality supply zone.

You should easily see

how the red, green, and
red boxes resemble a
drop base drop. And as
with uptrends, if we
move to a higher time
frame, that is what we
would see. So what do
we do with a drop-base-
drop? The action we take
is to sell at the base of
the drop-base-drop,
which we can apply in
this situation as well.
Notice we have a drop
base drop supply zone
located within the
breakout segment of the
downtrend, above the
most recent low and
below the controlling
swing high. We then go
through the five step zoning process and our zone structure odds enhancers. We first look at strength
for move out and breakout, we then look at time and the amount of basing candles, finally we look to
see the zone for entry has not been penetrated prior to getting our order filled. As per the example, we
look to buy the retracement and place our order where we can predict with high probability that unfilled
institutional sell orders will be left at the zone.

Now you know the basic strategy for selling in a downtrend. Confirm the downtrend, and identify a
quality supply zone within the breakout segment. Following this simple process will keep you focused on
quality setups with the best potential.
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pt.68 Strategy for Trading in a Sideways Trend:

pt.68 Strategy for Trading in a Sideways Trend | Becoming a Trader

 199

The big question is where is the price going to turn? In an uptrend, the tendency is for the price to turn
up somewhere above the controlling swing low. In a downtrend, the price should turn down somewhere
below the controlling swing high. So, what we take away from all of this is that we must anchor our
entry points off of the lows and highs respective of the trend direction whether up or down. But what
about a sideways trend? In a sideways trend we see the market contained in a range as price oscillates
back and forth between the highs and lows. When you identify this type of price action, look to sell at
supply zones near the highs of the range, and look to buy at demand zones near the lows of the range.
Typically the segments in a sideways trend are relatively equal in height. With that in mind, once we’ve
identified a sideways trend, we want to look for supply zones at the high end of the major down
segment. We also want to look for demand zones at the low end of the major up segment. One thing
that is particularly important in a sideways trend is how wide the range is. Reason being is the profit
potential for trades in a sideways trend will be the boundaries of the range. Therefore we must set the
expectation for profitability accordingly. If the range is too narrow the profit potential is too small and it
may be better to wait for price
to break out of the range
before joining the market.
However, if the range is wider,
then there may likely be
sufficient profit potential
when trading at the extremes.
Now you know the basic
strategy for trading in a
sideways trend; confirm the
trend, then look for supply
zones near the highs and
quality demand zones near the
lows. In simple terms, in a
range, we trade the extremes.

We’ll get into more details regarding time frames later down the line but as a general rule the entry
zone should be located on an equal or lower time frame than the time frame used for trend analysis. We
can expect to find the lowest risk zones by looking three to four time frames lower than our trend
timeframe.
 200

Let’s look at an example. We’ve identified an uptrend here on a 60 minute chart. To identify an entry
zone we take our chart down to 15 minute candles. Notice the qualified demand zone which has good
zone structure, it’s located within the breakout segment of the uptrend, above the most recent low, and
below the most recent swing high. When price comes back to this demand zone we see price turn at the
zone, and rally out, continuing the uptrend.

This will wrap up the strategy for each trend, up trends, down trends, and sideways trends. Drawing
segment boxes will assist with painting a clear picture of what price is doing and help define controlling
swing highs and lows. This visual helps us identify the breakout segment of the uptrend and downtrend,
and of course with the sideways trend there are no breakout segments. As you may have figured out by
now, having a process is critical to trading. Following these simple steps will create good routines,
 201

healthy trading habits, and discipline which will carry you throughout your trading career. Now that we
know how to classify trends, our next step will be scoring trend as an odds enhancer.

Before you move on:

● Go back to any previous sideways trends you identified and practice locating the major swing
highs and lows of the range.
● Look to buy at the low end of the range.
● Look to sell at the high end of the range.
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pt.69 Lab Exercise 11: Combining Trend and Zone:

Welcome to lab 11, combining trend and zone.

pt.69 Lab Exercise 11: Combining Trend and Zone

So far we’ve talked about trends, how to find the trend, how to determine the controlling swing low or
swing high, and we’ve also done a lot with zoning. We’ve discussed how to find a zone, how to draw a
zone, and how to qualify a zone, and score it with the zone structure odds enhancers. Now we’re going
to bring those two together. As a reminder in an uptrend we look to buy at a demand zone to go with
the uptrend. That demand zone needs to be located at or above the controlling swing low, which means
it needs to be located within the breakout segment.
 203

Now previously from our lesson on uptrends we looked at an uptrend on ticker TLT within a weekly
timeframe. Going back to that we have a green box, a red box, and another green box giving us the
segments of the uptrend.
Here we can see the
green segment on the
right is the breakout
segment because it is the
impulsion that is
attached to the
controlling swing low. So
now combining zones
with trend, we want to
look for a demand zone
inside the breakout
segment, which is the
green box on the right.
Now once we find the
zone we want to score it
out and ask ourselves
two questions; Did the
price move out go a
distance of at least two
to one, which is twice the
height of the zone?
Secondly, did the move in
price breakout beyond
the distal line of an
opposing supply zone? In
this case yes, so strength
gets two points. We want
to ask, how much time
was spent in the zone?
With only one base
candle present, time gets
1 point, and since the
zone is fresh it gets
another 2 points. So this
zone in our example for
TLT would get full marks
for structure for a total 5
out of 5 possible points.
204

Now, in a downtrend everything

is flipped or inverted. So in this
case we would look for supply
zones because we’re looking for
opportunities to sell short within
the downtrend. To do that we
would look at or below the
controlling swing high of the
downtrend. So again, this means
we look within the breakout
segment, which is the red box on
the right per the illustration. This
is the down segment that is
connected to the controlling
swing high.

In our previous lessons

discussing downtrends we
looked at a downtrend on
BIDU within a weekly
timeframe. Now, to sell
short in this downtrend we
would look for a supply
zone inside the breakout
segment of the
downtrend. The breakout
segment is the highlighted
red box on the right hand
side.
 205

Now if you recall, what we did on TLT is we stayed on the weekly time frame to find the demand zone.
However, we can also go to a lower time frame as well.

Now, what you’ll see in the coming lessons is that we will start on a High Time Frame (HTF) based on our
trading purpose in order to set the curve. Then we’ll move into an Intermediary Time Frame (ITF) to
check the trend, and then finally we’ll move into a Low Time Frame (LTF) to locate our entry zone. In
some cases we may even drill down further into a Refining Time Frame (RTF) in the event we are not
able to find a quality zone in the Low Time Frame.

So in the case of BIDU, if we drill down from the weekly into the daily chart we will then narrow our
focus to the red box on the
right hand side, looking for
a supply zone inside that
segment. As we can see
there are many more
candles on the daily chart
compared to the weekly
but keep in mind we’re
looking at the same chart
as before, however once
we move from weekly to
daily, each weekly candle
will now break up into 5
daily candles on the daily
chart. This allows us to locate
new pockets of supply as we
take the time frame down.

Now looking at the photo

here, if we assume the green
candle in the lower right
corner is the current price, we
would look up and left into
the red box to find a strong
drop in price, which can also
come in the form of a gap.
Recall a gap is treated as a leg
candle. We can see we have a
large gap down, representing
a big drop in price, so we
would wrap our proximal and
distal lines around that area
to draw out our supply zone.

Now we do not want to forget

about the zone structure odds enhancers. Location within the downtrend is very critical when finding
 206

our zones within the breakout segment at or below the controlling swing high. But we also want to
make sure the zone has a strong move out at least twice the height of the zone and that breaks out
beyond the distal line of an opposing demand zone or an opposing structure that represents buying,
which will give us full marks on the strength odds enhancer, and not too many candles in the base for
the time odds enhancer. In this case we see we have four candles which would give time only half a
point opposed to the full point, and then we want to make sure price has not returned to the zone prior
to our entry, meaning the zone is still fresh and has not been pierced. We want to make sure we only
take quality zones with the greatest zone structure and within the proper context when referring to the
trend.

So, that is a demonstration

of how we would find a
demand zone in an
uptrend or a supply zone in
a downtrend once the
trend has been identified.

So now for your task in this

lab what you’re going to
do is find the trend, and
then find a zone within
that trend.

For the first exercise we will use the monthly time frame looking at ticker AAPL. We’ll identify a common
starting place, so go ahead and place a timeline on the chart then go into the settings cog for the
timeline and change the date to 10/01/2020. Move the chart over to cut off any candles to the right of
the timeline, and this will serve as the current price. Your task is to find the trend for ticker AAPL using
 207

the vertical line as our start date to serve as current price. So go ahead and pause the video then resume
the video once you’ve identified the trend and we’ll take a look at it…

Now that we’ve identified the trend, we want to go long or short based on the direction of the trend. So
now, go ahead and pause the recording again and locate a zone that goes with the trend, located within
the breakout segment of that trend. Resume the recording when you’re ready…

Recall anytime we are looking for zones we want to look for one of the four basic formations
appropriate for the trend we’ve identified. Do you remember what they are? The two bullish formations
are the rally-base rally, and the drop-base-rally. Our two bearish formations are the rally-base-drop, and
the drop-base-drop.

The leg out candles ultimately determine the type of zone and we want to see a series of leg candles or
one big leg candle or gapping candle with a move out equal to or greater than twice the height of the
zone, and we want to see price break through the distal line of an opposing zone. This will give us full
marks, 2 out of a possible 2 points for strength. Next we look at the candles within the base, preferably
3 or less and then again, we want fresh zones where price has not returned. Finally we want to ensure
the zone is located within the appropriate location of the trend, meaning when finding demand zones
we want to find zones located above the swing low in control; and when finding supply zones we want
to find zones located below the swing high in control.

Understand when finding zones it matters more what the trend ‘will’ be when price returns to our zone
because that’s when we’ll be entering the trade. So, we want to enter the trade, going with the trend.
We do not want to enter the trade going against the trend after the trend has reversed, as this would
not be within the proper context of the trend.

We’ll have a chance to try this again using ticker SNAP on a daily time frame. For a common starting
point place a timeline anywhere on the chart and change the date in the settings cog of the timeline to
12/17/2021. We’ll assume that to be the current price. Now we want to identify what then is the trend?
Feel free to pause the recording at this time and draw out the three most recent segments from current
price, going right to left, then work your way back to current price from left to right. Resume the
recording when you’re done and we’ll go over it…

Now that you’ve identified the trend, it’s time to find an opportunity to join the downtrend. For that we
look to the breakout segment to locate one of the four basic formations; RBR, DBR, DBD, or RBD. Go
ahead and pause the recording and identify as many zones as you can within the breakout segment.
Once you’ve identified the zone(s), score the zone(s). Resume the recording when you’re ready…

We’ll try this exercise again using ticker AGO on the monthly time frame. Place a timeline on the chart
then adjust the settings cog to 08/01/2013, which again will serve as current price. Your first task will be
to draw out the trend. Pause the recording, complete the exercise and resume the video when you’re
done..

Now that you’ve identified the trend we need to identify a zone for entry. In the event your trend looks
different than mine, pause the recording and copy what I have just so we’re on the same page when we
draw out our proximal and distal lines for our zone. However, this time we’re going to go down a time
frame from the monthly to the weekly. Then afterward, pause the recording, identify the zone(s) for
entry, draw out the zone(s), and resume the recording when you’re ready…
 208

Moving on to the next exercise, take your chart to UCTT on a weekly chart. For our common starting
point you can place a vertical timeline anywhere on the chart and change the date to 02/26/2018. From
there I trust you know the drill. Pause the video, draw out the three most recent segments and identify
the trend. Resume the video when you’re ready.

Now that we’ve identified the trend it’s time to find our entry point to take a position, going with the
trend. For this portion of the exercise we’re going to move into the daily chart. From here we will locate
our zone(s) within the breakout segment, and draw out our proximal and distal lines for our zone(s) and
score the zone(s).

That will conclude this lab, though we covered quite a bit going over how to identify the trend and
locating a zone within that trend. Now something I want you to take away from all this, and you can
compare it to what other people who teach similar trading styles regarding supply and demand is this;
Supply and demand trading is about identifying zones within the appropriate context of the trend that
coincides with the type of position entry, whether we’re going long or short. In other words, supply and
demand trading IS NOT, a process of simply identifying a zone and waiting for price to return. Rather, we
want to identify a zone, and enter the trade while the trend is still valid. If I identify a demand zone in an
uptrend, I want to enter the trade while the uptrend is still valid. If I identify a supply zone in a
downtrend I want to enter the trade while the downtrend is still valid. And again, we need to identify
zones within the breakout segment of the trend. The idea is to buy the retracement or pullback and get
our order filled at a price point and a time, where we can predict there will be “unfilled orders” based on
how that zone scores using the odds enhancers. Remember, there is a Y axis for price and an X axis for
time. Don’t get so hung up on finding a good zone that you forget about ‘timing’. It defeats the purpose
of finding a zone if I find the zone anywhere, and wait for the price to return and now the trend is no
longer valid but has reversed.
 209

pt.70 Odds Enhancers - Trend:

pt.70 Odds Enhancers - Trend | Becoming a Trader

Trend is an odds enhancer because it represents the direction of price movement, which can be up,
down, or sideways. But a trend tends to continue in the direction that it’s already going in. Looking at
the smaller chart on the left we see we have an uptrend, so it makes sense to buy or join the market in
that direction. If we sell against the trend the probability of profit potential is lower because it is much
harder for price to turn at a supply zone when the supply zone is part of an uptrending market.
Hopefully that makes sense. You can think of trends like a river, so to speak, flowing in one direction; it’s
much easier to go with the flow, opposed to struggling against the current. We have control over the
way we trade, we can buy and make money as price goes up, or sell short first and make money as price
goes down. Whichever way we choose to trade it makes more sense to follow the direction of the trend.

Let’s look at how trends are scored in a supply zone. The Best scenario is selling in a downtrend and
going with the flow of the trend. If the supply zone is located at or below the controlling swing high of
 210

the downtrend, the zone in that case scores 2 out of 2 possible points. A supply zone at the high end of a
sideways trend does have some profit potential and gets a score of 1 out of 2 possible points. If you’re
considering selling at a supply zone located in an uptrend the zone gets a score of 0 out of 2 possible
points due to the lack of profit potential and low probability of success.

Now let’s look at how to score the trend in a demand zone. Buying in an uptrend is going with the flow
of the trend. If the zone is at or above the controlling swing low of the breakout segment, the zone gets
a score of 2 out 2 possible points. A demand located at the low end of a sideways trend has some profit
potential and gets a score of 1 out of 2 possible points. There is not much profit potential for buying in a
demand zone located in a downtrend, nor much probability. Therefore, the zone in that case would
score 0 out of 2 possible points. The lesson here is to always go with the trend. Going with the direction
of the dominant trend increases the probability of price turning at the zone.
 211

To continue scoring our trade

take notice of the example
here. We see a security in a
strong uptrend made of higher
highs and higher lows. We
know the security is trending
up and we look to join the
trend at a strong demand zone.
Throughout the working
examples we’ve been using for
the odds enhancers, we’ve
always found our entry on a
low timeframe. Looking here,
we’ve identified a demand
zone within the breakout
segment where demand exceeds supply. When price returns to the zone we are on the side of the trade
as buyers, with a stop loss below the distal line of our demand zone. Since this is an uptrend and our
entry zone is at or above the controlling swing low, this zone would receive 2 out of 2 possible points.

The next step is to update our

scorecard to add 2 points for the
trend, which brings us up to 7 points
out of a maximum of 10 possible
points with two more odds enhancers
to go. Now you know how to test and
score a supply and demand zone
using the odds enhancer for trend.
The more odds enhancers you use to
score a zone, the better the
opportunity of the zone working in
your favor.
 212

pt.71 Stop, Entry, and Target (S.E.T.):

pt.71 Stop, Entry, and Target (S.E.T.) - The Bracket Order | Becoming a Trader

Let’s begin with the entry. The entry is the act of opening a trade or opening a position in the market. A
good entry is one with a greater potential for profit, a low potential for risk, and a higher probability the
trade will work in our favor.
 213

The exit is the act of

closing a position or
getting out of a trade.
A proper exit is always
pre-planned as a result
of discipline. Don’t
forget that!
Unfortunately, it is also
often overlooked. Most
people are more
concerned with the
entry and do not
consider the exit until it is often too late. The exit requires very special consideration because it carries
an extra element with it, the enemy to any market trader, emotion. Think about it. Everytime the price
of a trade rises or falls you’re either making money or losing money. If we’re making money, greed
creeps in. Now you are faced with the decision of whether to stay in the trade and get more money or
get out and take the money you have now. If we’re losing money, fear creeps in. Now you are faced with
the decision of whether to get out and cut your losses or stay in and hope it comes back up into
profitability, but yet again risk losing even more. The very last thing you want to do, or rather not do at
all, is to let your emotions dictate how you trade the markets. That is NOT a formula for success.

FOREWARNING!!!

The exit to any trade must always be pre-planned, and we must exercise the discipline to follow through
with it. Anything less is a segway into gambling. Your emotions and lack of planning will betray you!
Don’t be surprised when you lose or even worse, when you blow your account!
 214

The stop loss is the order to exit the position for a predefined loss. Having a stop-loss determines a
predefined loss, which allows us to know the worst case scenario before we even enter the trade.
Before you enter the trade, you determine the amount you are comfortable with losing. Nobody ever
likes losing, anymore than we like admitting our mistakes when we’re wrong. However, your stop-loss
should be based on your risk tolerance, which is based on the size of your account. It should be a
number that makes sense for you. In trading, you have to risk money to make money, which is entirely
normal. However, we never want to risk frivolously, emotionally, or unplanned.

The stop loss is critical as it measures the risk of the trade and permits small losses instead of large
losses. Small losses we can handle but large losses are not only damaging to your trading account but
also to your mind set, also known as your trading psychology. Therefore, when we exit a trade at our
stop loss, we have lost a little money but don’t think of it as a failure. You need to understand that it is
just part of the game of trading and a small cost of doing business as no trade is risk free. You must get
comfortable with that idea and thinking in terms of probabilities. Recall that any trade is going to go one
of 5 ways; a large gain, a small gain, break even, a small loss, or a large loss. By eliminating large losses
with a stop loss we have already improved our odds of a success by 3 to 1, which simply means we still
have the potential to build our account, even in the event we lose more trades than we either win or
break even.
 215

Now, the target is the other possibility for our trade. The profit target is the order to exit a trade or
position for a predefined gain. This is critical to our trading because trading can become very emotional.
If you don’t have your profit target set up with a plan to exit the trade profitably, the spirit and ideology
of greed comes in to persuade you to go for more, and a little more, and a little more.

Worse case scenario, the trade turns against you after experiencing some profits and your profits end up
getting dissolved; Your mindset then shifts into justifying staying in the trade longer, hoping the price
goes back up only to potentially experience a larger loss. And hypothetically, if you didn’t bother setting
a target, you probably didn’t bother setting a stop loss.

A profit target measures the reward of the trade, which can have multiple targets as well. This permits
small and large gains based on market conditions. Once again, the key and major takeaway is having a
predefined plan and it’s crucial to plan your profit targets.
 216

Now you know the three elements of every trade. A good way to remember them is to remember that
all trades need to be S.E.T. up with a Stop, Entry, and Target. More importantly, remember that all three
elements need to be preplanned and you must have the discipline and exercise good stewardship over
your investment funds to follow that plan.

Also visit the link within the Google Drive account below and begin to familiarize yourself with the
“Engineered Risk Strategy” (<<< link). Practice going through the calculations once you’ve drawn a
quality zone and have identified an entry and a stop loss.

BE FOREWARNED!!!

Your commitment or lack thereof to this portion of your trading will ultimately determine your level of
profitability and what type of trader that you will become. Again, if your entry order is not accompanied
by a calculated stop-loss and a target, do not enter the trade. A calculated stop loss and a target
submitted along with an entry order will assist us in staying disciplined, exercising good stewardship over
our investments, and it will keep every trader's worst enemies of fear, greed, and false hopes from
compromising their trading objectives. Always plan the trade, and trade the plan!
 217

pt.72 Entry Types Overview:

pt.72 Entry Types Overview | Becoming a Trader

As you begin mapping out your trades, it’s important to know which entry to use and when. As we take
another look at S.E.T, we see entries are a critical component of our trade construction. When combined
with a target and stop-loss placement we can begin to quantify our risk and reward on every trade, as
well as assess the probability of entry. This is why entries are so important.
 218

The OTA Core Strategy includes any one of three entry types for long or short positions. The first entry
type or number 1 entry (per the example) is a Proximal Entry. It’s named as such because we look to
enter the trade once price reaches the price point associated with the proximal line of the zone.
Proximal entries may also be referred to as Limit entries because we’ll be using limit orders for this trade
entry. The second entry type is the number 2 entry or Zone entry. It’s named as such because in this
case we look to enter the trade somewhere inside the zone. Not at the proximal line but somewhere
between the proximal and distal line. This type of entry is a little trickier but can be used as limit or
market orders. Finally we have entry number 3 or confirmation entry. This can be the same price as the
proximal entry but at a different time. In this scenario we wait for price to come back to the zone then
turn around and switch directions. The entry would be made as price makes its way out of the zone.
Confirmation entries are a bit more challenging from an execution perspective because you would have
to use market orders if you were watching the trade or use stop orders if you were planning a set and
forget trade. We’ll take a look at both of these later.

During the course we will use all three of these entry types in order to tailor each specific trade. The goal
is to find the right entry, which will allow for the maximum reward potential with the minimum amount
of risk. As we’ll discuss shortly, each of these entries has some advantages and disadvantages.
 219

pt.73 Entry Type #1 - Proximal Entry:

Let’s dive deeper into entry type number 1, the proximal entry.

pt.73 Entry Type #1 - Proximal Entry | Becoming a Trader

As you see here, we have a drop base rally formation in the example, establishing a demand zone. This
would be a point where we are looking to buy at. With a proximal entry we use a limit order. We would
place a buy limit order at the proximal line price. We would then wait for price to come back and as
soon as price touches the proximal line, our order would be filled.

For a supply zone we see we have a rally base drop formation.Once we see that drop out of the zone,
that tells us there are unfilled institutional sell orders left at the base of the zone. We want to sell so we
would submit our sell order at the proximal line price, after the price has dropped out of the zone. Then
we wait. We wait for the price to retrace back to the zone. As soon as it touches the proximal line, that’s
when the sell order can be filled.
 220

pt.74 Entry Type #2 - Zone Entry:

pt.74 Entry Type #2 - Zone Entry | Becoming a Trader

As price moves deeper into the supply or demand zone, we will be using zone entries. Zone entries can
use both limit and market orders. Instead of buying and selling right at the proximal line, we’ll wait for
price to move deeper into the zone. In a demand zone, we submit a buy limit order, at a price inside the
proximal and distal lines or a market order at a price within the zone. In a supply zone we’ll place a sell
limit order at a price within the zone, slightly above the proximal line and below the distal line. If it is a
sell market order, we submit it at a price inside the zone. The choice on when to use limit and market
orders is up to each individual trader. Let’s look at the zone entry for a supply zone first.
 221

In this example, we have chosen the Healthcare ETF (XLV) and used the closest supply levels from the
grid. This puts our supply zone between 93.17 and 93.64. Now that we have the lines on the chart, we
can plan out the entry. Since price is currently a fair distance below the supply zone, we’ll use a limit sell
short order in the middle of the zone at 93.45.
 222

Several days later, price works its way back to our supply zone, entering the zone and hitting our short
entry. If we were using a market order, you would need to be physically at your computer, waiting for
price to enter the zone to execute the sell order..
 223

For our demand zone example, we once again go to the Mastermind supply and demand grid, and find a
nice zone on the Energy ETF (XLE). Once we transfer our proximal and distal lines at 67.72 and 67.39,
we’re ready to plan our entry. In anticipation of price returning to the demand zone and bouncing back
up, we, again, place a limit buy order at a price of 67.50, around the middle of the zone.

Shortly after, price sells off and retreats to our demand zone, filling our limit order at 67.50, before
resuming the trend to the upside. Using a market order, you’d have to be present in front of your
computer screen to submit the market order, as price is inside the zone.
 224

You now know the zone entry with a couple of examples. Next up, our final entry type: the confirmation
entry.
 225

pt.75 Entry Type #3 - Confirmation Entry

pt.75 Entry Type #3 - Confirmation Entry | Becoming a Trader

WIth confirmation entries we wait for price to come back to the zone, reverse direction and exit the
zone, and that’s the point where we enter the trade. In a demand zone we wait for price to drop into
the zone, reverse and cross above the proximal line before we buy. For a supply zone we wait for price
to rally into the zone, then drop below the proximal line before we enter a short position.
 226

For our example of a demand zone confirmation entry we pulled levels from a grid using a 20 year bond
yield ETF with a ticker symbol of TLT on a five minute chart. It shows a zone between 120.81 and 120.91.
With those price points on our chart we can plan out our confirmation entry. Once price comes back
into the zone, we want price to move back above the proximal line. To do this we will have to use a
market order as price moves out of the zone above the proximal line. Another option is to use stop
order which we’ll get into during future lessons. In this example we would have entered right above the
proximal line where you can see it is highlighted by the blue circle.
 227

Our supply example is again from the 20 year bond ETF, ticker symbol TLT, on a five minute chart. We
have a supply zone here between 121.28 and 121.17. Now that we have the price range for our supply
zone on the chart, we can begin planning our entry. Since this is a confirmation entry, we’re waiting for
price to return to our supply zone, enter into the supply zone, and then drop back below the proximal
line confirming supply outweighs demand before we enter our short position. To enter the short
position we’ll use a sell short market order the moment price crosses below the proximal line; or we can
use a sell short stop order which we’ll talk about in future lessons.
 228

There are advantages and disadvantages to each entry type. However, for now we’ll focus on proximal
entries for our execution and we’ll go more in depth about zone and confirmation entries later in the
course.

You now know the confirmation entry and as you can see there are a few but subtle differences to each
entry type. As we progress further we’ll be using all three entry types based on what the particular trade
setup dictates.
 229

pt.76 Two Components of Exiting a Trade:

Most traders think of an exit as simply getting out of a trade, generally for a profit.

pt.76 Two Components of Exiting a Trade | Becoming a Trader

Just like a watch functions when all the parts are working together, so do your trades. All parts of the
trade need to be considered before entering into any trade. Those basic elements are the Stop, the
Entry, and the Target. Within that, we
have our two components of the exit;
the stop, which is the predefined risk
or loss we’re willing to take on the
trade, and the target, which is the
predefined profit we hope to make on
the trade.

All decisions about a trade and its

management are made prior to placing
the order because that’s when we’re the
most objective. Once the order is placed
we become biased and we naturally want
the trade to work. That is why it is critical
to pre-plan our initial stop and target.
 230

Exiting a trade for a loss is never something we want to do. But if the plan doesn’t work, we must get
out. Above we can see two exit strategy examples. The first is a short trade; one where we anticipate
price coming back up to the supply zone and reversing direction and coming back down. We’ll know that
the supply zone didn’t work once the price breaks above the distal line of the zone. Therefore, we place
a stop loss as a Buy Stop Market order just above the distal line of the supply zone. Recall that in a short
position we sell to open the position and we buy to close the position. We also see there, an example of
a long trade. In that example we buy to open and we sell to close the position at a predetermined loss.
In that case we use a Sell Stop Market order just below the distal line of the demand zone. Notice that
both stop loss orders are placed at market price.

To exit a trade once we’ve hit our predetermined profit target, we’ll be using limit orders. Looking at the
two profit target examples, the top example is a short. Here we have a target set for the opposing
demand zone. We can place a buy limit order to cover and close our short position, once price falls to
those levels of our profit target. In the bottom example of a long position, we have a target set at the
opposing supply zone. We place a sell limit order just below the proximal line of the opposing supply
zone to take profit.
 231

Since all decisions about a trade’s management are made prior to entering the trade, we complete our
preplanned setup using S.E.T, which stands for stop, entry, and target. In the top example of a short, we
will be entering the trade using a sell limit order. From there, we can now define our risk by
appropriately placing our buy market stop order above the distal line of the supply zone. In any scenario
we calculate our stop as 2% of the stocks ATR for income trades and 10% of the stocks ATR for wealth
trades. We’ll get into ATR later in the course. The final step is to set our target at the opposing demand
zone by using a buy limit order defining our potential reward. For a long position, it’s just the opposite.
In the second example, our entry is a buy limit order to open a long position. Our initial stop is a sell stop
market order, and at our target, we will be using a sell limit order. A stop always goes just beyond or
outside the distal line.
 232

If we’re going long, the stop goes below the demand zone. If we’re going short the stop goes above the
supply zone. In this example of a long, we have our #1 entry, the proximal entry, right on the proximal
line of the zone. As the market pulls back into our zone, our buy limit order is there to enter us into the
trade. We set the initial stop just below the zone, and our target is set just in front of the opposing
supply zone.

Here are some

important
considerations to make
with your exit strategy;
1. always make sure
you have a clear, pre-
planned stop and price
targets. Trading can get
emotional, so make
sure to set up your
trade when you are
most objective. 2. look for opportunities where your Target represents at least a 3:1 Reward to Risk
Ratio. Even better, try to find one with a 5:1 ratio. Even if you don’t hit that, you have a better chance of
at least getting closer to your three to one reward to risk trade result. 3. always exit the trade before the
competitive buying and selling begins. If we’re buying, we set our profit target right before our opposing
supply zone, where institutional sellers are waiting in the market, and we exit just in front of them,
taking our profits and closing down our trade before the real selling begins. When you’re selling, it’s just
the opposite. We set our profit target just before the opposing demand zone where institutional buyers
are waiting in the market and exit just in front of them. Finally, we manage a trade by moving the stop
Market order in the direction of profitability.
 233

Take a look at this set up of a short. If you look closely you can see the drop base drop supply zone. Our
entry would be at the proximal line and our initial stop is just above the supply zone. Our initial obvious
target will go in front of the opposing demand zone, but as we look at this, can you see if there are any
trouble spots between our entry and our target? Right in the middle, we have a drop base rally. That
means there are buyers there. As the market trades into that area our amount of risk increases. To
mitigate risk in that location, we place another target; a more conservative target, which ultimately
becomes our first target. If the market reverses there, and we stop out, we have a profitable trade, but
we’ll make a little less money by the time it hits our initial obvious main target. The more conservative
target has a better chance of getting filled, but it’s up to us as traders to determine what to do next. We
can close the position entirely at target one, or we can just reduce some of our risk by selling a portion
of our position, keeping the rest of our main goal. Remember, it’s important to set our targets in front of
those opposing supply and demand zones. And we need to make sure that our main target is at least a
three to one Reward-to Risk Ratio. If your first target has a three to one, and your second target is at five
to one or greater, that’s even better.
 234

Now you know the two components of the exit; the stop and the target. Exiting a trade for a loss is
never desirable, but it is necessary to avoid taking large losses. Recall that a trade will end one of five
ways; a large loss, a small loss, break even, a small gain, or a large gain. By eliminating the large loss with
a stop market order, we increase the odds greatly in our favor and can still be profitable even if we lose
more trades than we win. Remember, large losses can not only destroy your account, they can ruin your
trading psychology. We all want to exit for profit, that’s why we’re trading. As we progress, stops and
targets should be integrated into every trade that you make, regardless of the desired outcome. Plan
the trade and trade the plan.
 235

pt.77 Reward to Risk Ratio part 2

pt.77 Reward to Risk Ratio part 2 | Becoming a Trader

The reward to risk ratio is simply the amount of profit you may earn on a trade in comparison to what
you could lose on that trade. The goal for any trade you take, per this strategy, is a reward to risk ratio of
at least three to one, meaning the reward that the trade offers is three times the increment risk size.
This is important because, for example, say a trader were to make four trades and each trade they risk
one dollar per trade with a potential profit of three dollars per trade. This would satisfy the three to one
reward to risk ratio.

Looking at the example, the first trade is a loss. The second trade is another loss, stopping out at one
dollar, our risk size per trade. We are now at 0/2 for our win rate. The third trade is another losing trade.
And now, we’re 0 for 3. The fourth trade however hits the target, and results in a three dollar profit. The
final numbers show that the trader was only successful 25% of the time, but still managed to breakeven,
meaning in the end they didn’t lose any money. What’s important to understand is that the loss side is
not and should never be flexible. This is why we use a stop loss, so that losing trades never pass that
point, in this case one dollar. On the target side however, we may be going for a three to one, perhaps
five to one, or it could turn into a greater number. We target trades that provide a minimum of three to
one reward to risk ratio, although five to one is preferred.
 236

Here’s a visual example of the importance of the reward to risk ratio. Which of these two types of win
loss ratio equations do you think makes a better trader? The top one combines 70 percent wins with a
low reward to risk ratio. In this case you’re winning more, but the reward for winning the trade is less. If
we go back to our previous example where our reward to risk was 3 to 1, and assume that our reward to
risk is now 2 to 1, losing three trades and winning one trade would put us at a loss. In that case we
would need to win at least 50% of our trades to break even.

Looking at the equation on the bottom we have a mix of 30 percent wins. Remember, that’s losing 70
percent of the time, but with a high reward to risk ratio.

Surprisingly, the trader with less wins and a higher reward to risk ratio, will ultimately be more
successful in the long run. Both combinations target trades that provide a minimum of a three to one
ratio, but the bottom prefers a reward to risk ratio of five to one or greater.

If you plan on intraday trading, which simply means ‘within the day’ or regular business hours, you
should consider reaching your objective or profit target within your daily trading session.
 237

This is a price chart for XLE, the ETF for energy. Don’t worry about not being able to see it very well.
However, it illustrates a demand zone from 61.50 to 61.41. The zone is mapped out when we see prices
come down and touch the zone several times. At the top we can see a supply zone which is also mapped
out and highlighted in yellow, which is based on past levels. In a perfect world we love a profit potential
of at least 20 to 1. But since the setup is a potential day trade, there is a low likelihood of reaching that
full reward to risk potential. Since we want a higher probability of success, we set a predefined target of
three to one or greater. On the example chart, we have targets set for two to one, three to one, five to
one, and eight to one. Each target has a different probability of success, yet giving us a better idea of
what we’re trying to achieve.

As you progress through

the course you will apply
the reward to risk ratio on
every trade you take. Keep
in mind three to one is the
minimum, five to one is
preferred. And again this
will assist you with
remaining profitable in the
event you lose more
trades than you win. Now
you have a basic
understanding of reward
to risk ratios, and why it’s
so important to your
success as a trader.

● Review where you placed your pre-planned entry, stop, and targets in previous lessons and
determine if your setups achieved the minimum 3:1 reward-to-risk ratio.

● As an experiment in probability, take a coin such as a quarter and flip it. For every heads you win
$5 and for every tails you lose $1. Flip the coin in multiples of 10. Do this on multiple occasions
and track your progress to gain a better understanding of trade probability and why a reward to
risk ratio of 5 to 1 is preferred.

● Also visit the link within the Google Drive account below and begin to familiarize yourself with
the “Engineered Risk Strategy” (<<< link). Using the Engineered Risk Strategy, practice going
through the calculations as stated in this video to determine your reward, your risk, and reward
to risk ratio after you’ve drawn a quality zone and have identified a stop loss, an entry, and a
target.
 238

pt.78 Buy and Sell Set-Ups:

Everything we’ve discussed is now going to begin coming together, and we’ll begin picking up pace.
We’ve talked alot about trends and how to locate an entry zone within the trend. We also talked about
how to S.E.T. the trade: Stop, Entry, and Target while considering the Reward to Risk Ratio for the trade.

pt.78 Buy and Sell Set-Ups | Becoming a Trader

Let’s review the trend stages we’ve already covered: The uptrend, the sideways trend, and the
downtrend.

Starting with the Uptrend our focus is to buy at Demand zones within the breakout segment, ride that
trend out through the impulsions and corrections, and let the profits run.
 239

With a sideways trend our profits are confined to the boundaries of that sideways range. In a tight
sideways range, where profits are not worth our while, we look for a breakout either up or down to
form an up or downtrend so we can follow that trend and let profits run. But in a wider sideways range,
we would trade within the trend by simply buying at the low end of the range and selling/shorting at the
high end of the range.
 240

In a downtrend, we want
to short at Supply zones
within the breakout
segment of the trend to
ride the trend through the
impulsions and corrections,
and let the profits run.

Now, let’s move into Buy and Sell Setups where we will be buying in an uptrend and shorting in a
downtrend. Beginning with the Buy Setup, we identify the uptrend with a Low, High, Higher Low, and a
break from the high to a Higher High. From there we identify a Demand zone for entry using the 5 step
zoning process while making sure the Demand zone is located in the breakout segment of the trend or
impulsion phase connected to the controlling swing low. The 5 step zoning process incorporates our
zone structure odds enhancer as we identify the zone. We’re looking for a strong move out of at least
2:1 that breaks out above a preceding Supply zone. A zone that has less than 6 candles at the base, and
is fresh. Once we’ve done that, we need to find our Target zone (in this case of going long, the nearest
Supply zone to current price). Entering at Demand means our exit is at Supply. From here, we can S.E.T.
up our trade. We’ll buy when price drops into our Demand zone for entry and place our stop below the
Distal line of the Demand zone. Finally we’ll place the target beneath the nearest opposing zone, which
is the nearest Supply zone.
 241

Now we’ll look at the Sell Setup. First we identify the downtrend with a High, Low, Lower High, and a
break of the Low into a Lower Low. Now we look for a Supply zone in the breakout segment to join the
direction of imbalance, which we can do by using the 5 step zoning process, which incorporates the zone
structure odds enhancers of Strength, Time, and Freshness. We specifically want a Supply zone within
the breakout segment. This is the most recent red box linked to the Controlling Swing High of the
downtrend. Then we find our target zone. If we enter at Supply then our exit will be Demand. So we’ll
find the nearest opposing Demand zone to base our target profit off of.

And now it’s time to S.E.T. up the trade. We’ll sell short once price rallies into the Supply zone, placing
the stop loss above the distal line at Supply, finally we place a target above the Proximal line of the
nearest opposing target zone, that nearest opposing Demand zone.

Now you know the steps required for both the Buy Setup and Sell Setup. Both include identifying the
direction the market is trending in, finding a quality zone to join the trend, and finding a target zone to
base our target off of.. Then we can place our entry, our stop, and our target.

In the next couple of lessons we’ll go through two labs to practice finding Buy and Sell Setups.

Before you move on:

● Review the 6 steps in the Core Strategy Sell Setup

● Review the 6 steps in the Core Strategy Buy Setup

pt.79 Lab Exercise 12: SET the Trade - Stop, Entry, Target:

Welcome to lab number 12, core strategy buy and sell setups.
 242

pt.79 Lab Exercise 12: SET the Trade - Stop, Entry, Target | Becoming a Trader

What you’ve learned so far is all about trends, all about finding a zone in that trend, and now we’ve
added the component of finding a target zone, and setting the trade stop loss and trade target. So, for
the core strategy buy setup we see that when we have an uptrend, we’ll look for a demand zone for
entry, a supply zone
for the target, and
the last three steps
are setting the
trade stop loss,
entry, and target.

For the core strategy sell setup, when we identify a down trend, we’ll look for a supply zone for entry, a
demand zone for the target, and then set the trade stop, entry, and target. So now what we’ll do is go
ahead and practice those two set ups.
 243

For the first exercise,

we’re going to find
the trend and a zone
in that trend that
we’d used in a
previous lab, and
we’re going to add
those extra
components of
identifying the target
zone, and setting the
trade. So, first up is
the ticker symbol TLT
and you’ll want to
pull up TLT on a
weekly time frame.
You should have a
timeline located on
June 10, 2019 to serve as the current price. Once you’re there, find the trend between Feb 25 2019 and
June 3, 2019. You should see the demand zone for entry inside that trend between $123.66 and
$122.85, again on a weekly time frame. Now that we have a demand zone to go long with the up trend,
we need to identify a supply zone to set our target. I’ll give a demonstration on how to do that and then
you’ll have an opportunity to try it on your own. We start with the current price and look up and left to
the nearest supply zone. There is a rally base drop there so we can go ahead and draw that out. So, at
this point we have identified the trend, we’ve identified a demand zone for entry, and a supply zone for
the target, and now it is time to set the trade stop, entry, and target. So to set the trade, you would
simply place a limit order on the proximal line of your demand zone at $123.66 cents. Next you’ll want
to set your stop loss. We won’t be too precise about the price points for setting the stop loss or the
order type but it should go just below the demand zone’s distal line. Next we want to set our target
which is going to go just below the proximal line of our supply zone.

You’ll now have a chance to try this on your own using the ticker symbol AGO on a weekly chart, which
we’ve also used in a previous lab. If by chance you no longer have the drawings on your chart, go ahead
and make your chart similar to mine. As you can see I have trend boxes identifying an uptrend between
11/21/2011 and 5/13/2013. I have a demand zone between 18.89 and 17.90, located within the
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breakout segment of the uptrend. I have a vertical timeline representing the current price located at a
date of 7/29/2013, and I’ve moved the chart over to remove any candles to the right of the timeline so
that they are out of view and do not create confusion. Once your chart looks identical to mine, go ahead
and pause the video, draw out the opposing supply zone using the 5 step zoning process, so that we can
use it to set our target. Afterward determine the approximate area for your stop, entry and target. Once
you’re done, unpause the video and we’ll go over it.

You should have been able to locate the supply zone between $24.73 and $23.95. If you weren’t able to
identify that zone you may want to revisit the zoning process; pt.49 Lab Exercise 7: Five Step Zoning
Process - Supply & Demand, where we cover the process of identifying supply and demand zones.

So now the plan in this case is we are waiting for price to return to our demand zone where we would
have a limit order waiting at the proximal line of the demand zone, our stop loss would go just below
the distal line of the demand zone, and now that we have our supply zone, we would set a sell limit
order just below the proximal line of the supply zone as our target.

You’ll have an opportunity to try this again but this time on a sell set up. Go ahead and take your charts
to the ticker symbol NVDA on a weekly time frame. For purposes of the exercise go ahead and make
your chart identical to mine. I’ve identified a downtrend between 11/22/2021 and 1/24/2022. We have
a vertical timeline placed at 2/7/2022 to serve as the current price and we have identified a supply zone
between $313.30 and $294.11. Once your chart is identical to mine, pause the video, go through the five
step zoning process to locate a demand zone. Then once the opposing demand zone is identified, locate
the approximate area for the stop, identify the proximal entry, and identify the approximate area for the
target. Again, don’t worry so much about the exact dollar amounts of your stop, entry, and target. We’re
simply familiarizing ourselves with the general basics and the process of setting up our trade for placing
a bracket order. Once you’ve completed the exercise, unpause the video and we’ll go over it.

Okay so, using the 5 step zoning process you should have identified a demand zone between $228.40
and $208.88. Again, if you were not able to identify the zone, you’ll probably need to review pt.49 Lab
Exercise 7: Five Step Zoning Process - Supply & Demand. Recall, all the lessons and videos are numbered
and are meant to be completed sequentially. Since we’re going short on this trade set up, our sell short
limit order for entry would go at the proximal line of our supply zone, our stop loss would go just above
the distal line of our supply zone, and a buy limit order would go just above the proximal line of our
demand zone to set the target. And again, the strategy is to wait for price to retrace back to the zone,
and fill our order along with the unfilled institutional orders left behind in the zone.

That will conclude this lab of buy and sell setups. The examples we used already had the trend and trade
entry identified. We simply added the target zone and stop loss to each scenario and you learned how to
place a trade with the stop, entry and target. In the next lab, we’ll practice going through the whole
process of the core strategy buy and sell setups, starting from step one, identifying the trend.

pt.80 Lab Exercise 13: Finding Entry Zones within the Trend - Stop, Entry, Target:

Welcome to lab number 13, trend and zones.

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pt.80 Lab Exercise 13: Finding Entry Zones in the Trend - Stop, Entry, Target | Becoming a Trader

What we’re going to practice in this lab is going through the full steps of the core strategy buy and sell
setup. That means when you first pull up a chart the first thing you will do is check the trend, then based
on the trend direction, up or down, that will dictate the type of zone you’re going to find for your entry
and exit. If the trend is in an uptrend you’ll enter the trade using a demand zone within the breakout
segment using the odds enhancers strength, time and freshness. Then finally, you’ll identify a supply
zone for your profit target. If instead you identify a downtrend everything is flipped; you would locate a
supply zone for entry within the breakout segment using the odds enhancers and locate a demand zone
to set your profit target. Then once you have your entry and exit zones you’ll set the trade using a
bracket order. So, let’s get started.
 246

I’ll demonstrate this from start to finish first, and then you’ll have opportunities to do it on your own. So
here we have the ticker symbol QQQ on a daily time frame. We have a vertical timeline as a starting
point to serve as the current price located at 2/25/2022. If you have any candles to the right of that start
point adjust your chart so those candles are off screen to avoid confusion. So now, from the current
price we want to identify the three most recent segments, then we work back toward the current price
to identify the trend.

So, as you can see we have a confirmed down trend. Now we want to use the 5 step zoning process for
either uptrends or downtrends to identify an entry zone. Again, you can review pt.49 Lab Exercise 7:
Five-Step Zoning Process - Supply & Demand. We have a supply zone on the day chart from $357.09 to
$352.91 however, this zone is pierced earning the zone four out of five points. We have a zone between
$366.49 and $360.00 however the move out is not equal to two to one, also leaving the zone with four
out of five points. And finally we have a zone between $370.10 and $368.49 however this zone does not
break through an opposing structure that represents buying, likewise earning the zone four out of five
points. Now it is time to identify our target demand zone. We always start at the current price and since
we’re looking for a demand zone we look down and left from the current price. There we see a demand
zone between $327.87 and $326.64. And now we have all we need to place our bracket order. Therefore
we place a sell limit order at the proximal line of our supply zone, we place our buy stop market order
just above the distal line of our supply zone, and we place a buy limit order just above the proximal line
of our target demand zone. From here we have everything we need to place our bracket order.
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You’ll now have a chance to

try this on your own using
chart GDX on a weekly time
frame, and for a common
starting point go ahead and
place a vertical timeline on
the chart then go into the
settings cog and change the
date to the timeline to
5/21/2012 to serve as
current price. Adjust the chart to remove any candles to the right of the timeline. From here go ahead
and pause the recording and go through the process of identifying the trend using the Trend
Identification Process. Once you’re done, unpause the video and we’ll go over it.

You should have been able to identify a downtrend. Moving from right to left I have a segment from
5/14/12 to 1/30/12, then from 1/30/12 to 12/26/11, and from 12/26/11 to 11/07/11 identifying a
downtrend. If you were not able to identify a downtrend you may want to review pt.63 Lab Exercise 10:
Downtrend Identification Process. If you were able to identify a downtrend, for purposes of the exercise
you may want to make your chart identical to mine for purposes of identifying our zones.
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So at this point go ahead and pause the video again, identifying your entry zone(s), a target zone, then
S.E.T. the trade with a Stop, Entry, and a Target. Once you have the trade S.E.T., resume the recording
and we’ll take a look at it.

Okay so starting from the current

price using the 5 step zoning
process from pt.49 Lab Exercise 7:
Five Step Zoning Process - Supply
& Demand, we move up and left,
looking within the breakout
segment of the downtrend to
identify a strong decline in price.
In this case, you should have
identified a supply zone between
$48.33 and $45.41, another
between $50.95 and $49.54, and
another between $57.91 and
$54.79. Going back to the current
price, again using the 5 step
zoning process, this time looking down and left, for a qualified quality demand zone to set our profit
target; You should have been able to locate the demand zone between $41.62 and $39.08 and if you
chose to move the chart left you should have found a demand zone between $36.95 and $34.05. If you
were not able to locate any zones, please review pt.49 Lab Exercise 7: Five Step Zoning Process - Supply
& Demand. Now that we have our entry zone and our target zone, we can now S.E.T. the trade. We
place our sell limit order at $49.54, our buy stop market order is placed just above the $50.95 distal line
of our supply zone and our buy limit order is placed just above the $36.95 proximal line of our demand
zone.
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You’ll have a chance

to try this again using
chart GLD on a weekly
time frame. Place a
vertical timeline
anywhere on the chart
then go into the
settings cog for the
timeline and change
the date to 12/28/2009. This
will serve as our common
starting place and the current
price. Afterward, adjust your
chart to cut off any candles to
the right of the timeline.
Once your chart is set, pause
the video, and identify the
current trend. Once you’re
done, resume the recording
and we’ll go over it.

Okay, you should have been

able to identify an uptrend. If
you weren’t able to identify
an uptrend or did not feel
confident in doing so, do not
hesitate to review pt.59 Lab Exercise 9: Uptrend Identification Process. If you were able to identify an
uptrend, don’t worry if your trend lines and or boxes do not look exactly like mine. However, for
purposes of the exercise you may want to adjust your chart so our charts are identical when we look to
identify the entry and target zones. Moving from right to left, my first segment is from 11/30/09 to
4/13/09. 4/13/09 is where the second segment begins before moving up to 2/16/09. And then finally
the last segment is from 2/16/09 down to 10/20/08.

So now what you’ll do is identify an entry zone within the breakout segment of the trend, identify a
target zone, and S.E.T. the trade using a stop, entry, and a target. Go ahead and pause the video,
complete the exercise, then resume the recording once you’re done and we’ll go over it.

Okay so starting from the current price using the 5 step zoning process, you may have noticed a demand
zone for entry between $103.49 and $100.65 as well as the demand zone between $98.78 and $96.77.
From there we can continue using the 5 step zoning process to identify our target zone which you
should have found between $119.54 and 113.75. We now have all we need to set our trade. We place
our buy limit order for entry at the proximal line of our demand zone, our sell market order serving as
our stop loss will go just below the distal line of our demand zone, and our sell limit order will go just
below the proximal line of our supply zone to set a target.
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That will conclude this lab.

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pt.81 The Four Types of Buy and Sell Orders:

pt.81 The Four Types of Buy and Sell Orders | Becoming a Trader

Institutions and retail traders can only do two things, they can buy or they can sell. However, by
combining different types of orders, investors can go long and make money when markets move up, or
go short and make money when markets move down. There are four basic order types; a market order,
a limit order, a stop market order and a stop limit order. Each of these order types have important
details that you do not want to overlook. In upcoming lessons we’ll be focusing on each order type. But
first we’ll go over how orders work.

There are three key terms we need to know. The first is the bid, which represents willing buyers in the
marketplace. The buyers are using limit orders, which is an order to buy at a specific price. Next is the
ask, often referred to as the offer. This price represents sellers in the marketplace. These sellers are
likewise using limit orders
to sell at a specific price.
Finally we have the
spread, which is the
difference between the
bid and the ask. To help
make these concepts
clear we’ll go over an
example.
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The illustration here is referred to as level 2 or market depth. It is data that groups limit orders by price.
The bid side of the grid on the left represents limit orders for investors willing to buy. The ask side of the
grid on the right represents people willing to sell with limit orders set at specific prices.

The top row of the table on either side is referred to as the inside bid shows a bid of thirty dollars and
twenty-six cents, which means that somebody wants to purchase shares at that price. These are
considered passive buyers. In the next column, you can see “Size”. This means that the same person
wants to buy 100 shares at that price, thirty dollars and twenty-six cents.

Right below on the next line, there’s someone else who’s willing to pay one penny less at thirty dollars
and twenty-five cents, and they want 50 shares.
253

The best price that

someone is willing to pay
with a limit order, will
always be at the top of
the grid.
 254

On the ask side, the top level is called the inside ask and represents passive sellers. This is also the
lowest price that someone is willing to sell their shares at. In this example, we see four offers to sell
shares at thirty dollars and forty-two cents. In the size column, there are various quantities of shares
available to buy at that price; 100, 11, 300, and 100 shares.

Below that, there are two people willing to

sell 100 shares each for one penny more at
thirty dollars and forty-three cents.
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The difference between the bid and the ask is called the spread. As you can see here the bid price is
thirty dollars and twenty-six cents and the ask is thirty dollars and forty-two cents, which gives you a
sixteen cent spread on this specific security. Now on current markets, spreads are usually between one
and two cents. A sixteen cent spread would be a red flag for risk

Here are three more terms we need to know. When a trade order meets its entry price and the trade
becomes live in the market, it’s called an execution. A filled order is when an order is completed. When
you receive the shares that you bought, the order is filled. It works the same way if you decide to sell
something. Once all of your shares are sold, it is considered a filled order. Depending on the security
you’re trading, slippage may occur. Slippage is simply the difference between the quoted price at the
time the order is sent
and the price when the
trade executes. In a
nutshell, it means you
didn’t get the price that
you wanted. This
happens to securities
that are thinly traded
and don’t have a lot of
volume.
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Now you know what the four types of orders are, and you’re familiar with some of the basic order
terminology and principles. As we progress, we’ll dive deeper into when and where to use each type of
order.
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pt.82 Market Orders:

pt.82 Market Orders | Becoming a Trader

Essentially, a market order is

equivalent to the trader telling
the market, I don’t care what
price I get my shares, and I
want them right now!

A market order is filled at the price available the moment it’s processed. The order is aggressive because
it doesn’t negotiate with the market. Instead, it looks for the best buyers or sellers to get its shares
filled immediately. Investors who want to enter or exit a position immediately will use a market order.
The good thing about a
market order is that it does
execute immediately as we’ve
discussed. Using a direct
access trading platform,
shares can be filled in less
than a second. Submitting it
through an online brokerage
firm may take a little longer,
but it’s still the fastest
execution available. The not
so good thing about a market
order is slippage. If you recall, the slippage is the difference between the quoted price at the time the
order is sent, and the price when the trade executes. This means when you use a market order, you may
not get the best price.
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In this example, we see a quantity of 500 selected from the order entry bar. That’s how many shares we
want to buy. When we hit the buy button, our order is immediately sent to the ask, where the sellers
are lining up to sell. Since
we want to buy, our order
is going to look for those
sellers. It’s also a good idea
to see if there could be
slippage on this specific
order. Since the example
illustrates a buy of 500
shares, notice how many
are available on the inside
ask, or the top level of the
ask at $30.42. There are
100 shares, 11 shares, 300
shares, and 100 shares.
Since there are enough
shares available, that
means that we should get all 500 shares filled at $30.42. If there aren’t enough shares available at that
level, our market order would continue to move down that list, finding a next available seller, probably
at a higher price.

If you own the stock and want to sell it fast, or you want to sell it short, you do the same thing. You can
see in this example that our quantity is still 500, but now we want to sell. Since we’re selling, market
order looks for buyers lined up on
the bid. When we hit the sell button
for 500 shares, we get 100 shares at
$30.26, 50 shares at $30.25, 100
shares at $30.23, another 100 at
$30.22, and another 100 shares at
$30.20, then finally the remaining
50 shares of our order will be filled
at $30.19. As you can see our
market order is pushing this market
down. In a thinly traded stock like
this one, a market order has the
ability to move prices, and we could
incur a significant amount of
slippage. In this case, it costs us
seven cents. Remember, a market
order is an aggressive order type
used to get in or out of a position immediately. It doesn’t negotiate with the market. It simply seeks out
the best sellers if you’re buying and the best buyers if you’re selling. Prices may not be the best, and if
it’s a thinly traded stock, you could take a pretty big hit from slippage.
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Now you know what a market order is, how it works, and when it’s used.
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pt.83 Limit Orders:

pt.83 Limit Orders | Becoming a Trader

Unlike a market order, which will execute at whatever price is available, a limit order has a specific price
attached to it. A limit order is restricted to a specified price, or better, and is considered a passive order
because it waits to be filled until a specific price is met. Investors who specifically plan their entries and
exits use a limit order.

The good thing about a limit order is that you won’t incur slippage and you may actually get a better
price than expected, which doesn’t happen often, but just know that it can. The not so good thing about
a limit order is that it may only get partially filled, or may not be filled at all.
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In the example, we want to set our limit price at $30.26 and buy 500 shares. When we click the buy
button, it’s unlikely that the order will be filled immediately because the inside ask, or top level of the
ask is at $30.42, and we only want to pay $30.26. That’s a difference of 16 cents. Since the sellers are
unlikely to drop their price by 16 cents just to sell to us, we line up at the bid with other traders waiting
to buy at $30.26. If another seller decides to sell at $30.26, our order would most likely be filled.
 262

If you own the stock and want to sell it, or want to go short, you would do the same thing. In this
example, we set our order limit at $30.42. Our quantity is still 500, but this time we want to sell. Since
we’re selling with a limit order, the system knows not to sell for anything less than $30.42. As you can
see, the most that anyone is willing to pay right now is $30.26 at the inside bid. When we hit the sell
button, our order will not get filled immediately. It will become a passive order, waiting to sell in the
queue on the inside ask at $30.42. The great thing about a limit order per this example, is that it won’t
sell for anything less than $30.42.
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Let’s take a quick quiz.

Looking at this book
of orders, let’s say
that you wanted to
buy at the best
available price in the
market, and you
wanted it now. What
type of order would
you use? It’s almost given away in the question. If you were buying at the best available market price,
then this would be a market order. What if you wanted to join the bid with other hopeful buyers at let’s
say $10.82. What order type would this be? If you said limit, then you would be correct. Remember,
anytime you’re specifying a price, it would be a limit order.

Let’s do the same

thing, but with a
selling example. If you
wanted to sell right
now at the best price
available, what order
type would that be? It
would be a market
order. In this example,
a market sell order would be selling to the buyers at the bid starting at $10.83. If you wanted to join the
other sellers on the ask and sell for no loss than let’s say $10.85, what order type would that be? It has
to be a limit order, since you are specifying a particular price. Remember, a limit order is a passive order
type used for specifically planned entries and exits. If we’re buying, it waits for someone to sell the
shares that we want. If we’re selling, it waits for someone to buy the shares that we’re selling at the
price we want or better. There is no slippage with limit orders. There may come times when a limit
order is only partially filled, whereas market orders are aggressive and will fill at whatever price is
available at that moment the order is placed

Now you know what a limit order is, how it works, and when it’s used.
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pt.84 Stop Market Order:

As we’ve emphasized over these lessons, risk management is a significant factor to your success as a
trader.

pt.84 Stop Market Order | Becoming a Trader

Essentially a stop market order is a conditional order. It asks the simple question, did the price hit the
specified number? If it did not, then don’t do anything. If it did, then close the trade out. It’s that simple.

A stop market order is triggered at a specific price. Once it’s triggered, a market order is placed to exit
the position. As you map out your trades and set your entry target and stop loss, you use a market order
as a stop loss to exit a trade
to protect yourself from
large losses. The good thing
about stop market orders as
a risk management tool is
that it gets you out of a bad
trade no matter what. The
not so good thing about a
stop market order is once
again, slippage. Let’s look at
a couple of examples.

Here’s our trade setup. We identify the demand zone and wait for price to drop into the zone. Once it
does, we want to protect our position. In this example, we enter long at $34.30 cents and want to make
sure that we get out at $34.15. Every trade is different, but in this setup, we’re willing to risk 15 cents
 265

per share. So, how do we protect ourselves? We go down to the order bar and select stop market under
order type. The platform will then ask you at what price you want to trigger the stop loss. If the price
hits that number, an order goes to the market to get us out of the trade. Think of it as an if-then event. If
the price hits $34.15 then a market order is sent. Since we’re going long, we hit the sell button to set our
stop market order. Now we’ve protected this trade from significant loss. We estimate a 15 cent stop loss
based on the stop market order. If price falls quickly, we may not get filled at $34.15, it may be $34.14,
$34.12 or even $34.10 depending on how fast the price is moving, but at least we are out of the trade
with only a small loss.

We use a stop market order for short positions as well. In this example, we identify the supply zone and
as price enters the zone, we open a short position at $34.30. After analysis, we place the stop loss at
$34.45 cents. This means that if the price continues to move up, we’ll take a small loss; 15 cents per
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share, instead of a larger loss. To place the order, we go down to the order bar and select stop market
order, under order type. We enter the price at which an order will be sent to exit the trade. In this case,
$34.45 cents. Since we’re going short per this example, we hit buy to cover, telling the program to buy
to close out our short position. Once the order is sent to the market, we’re now protected from taking a
significant loss. There is a chance of slippage, and if it’s a fast-moving security or has a gap, we could
lose more than 15 cents. The important thing is that there is a mechanism in place to prevent us from
taking a significant loss.

Remember, a stop market order is a risk management tool used to prevent large losses. It’s used
primarily as a stop loss and sends out a market order to exit a position once a specific price is triggered.
It’s good for getting you out of a trade, but it’s also susceptible to slippage. Now you know what a stop
market order is and how it’s used as a risk management tool to protect you from large losses.

pt.85 Stop Limit Order:

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pt.85 Stop Limit Order | Becoming a Trader

We’ll show you what it does, then tell you why it’s the most dangerous of the order types and you
probably shouldn’t use it, or at least not yet. A stop limit starts off very similar to a stop market. It asks
the question, has the stop price been hit? If not, then nothing happens. If it has been hit, the system will
send an order to close the trade, but it does it with a limit order in an attempt to limit slippage and this
increases risk. We’ll show you an example here in a second. A stop limit order is triggered at a specific
price and once it’s triggered, a limit order is placed to enter or exit the position. A stop limit order is
more complex than other order types. For one, it’s more difficult to enter into the system, and two, it
carries some risk. That’s why it’s typically only used by more experienced traders. The good thing about
using a stop limit order, is that since it’s a limit order, you may get filled at a price better than what you
anticipated. The bad thing is, that you may not get filled at all, which makes it dangerous to use as a
protective stop. For stop losses, your best bet is always a stop market order.
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Let’s look at an
example of why using a
stop limit is a bad idea.
On the chart here, let’s
assume that the trader
is long and wants to
use a stop limit to
protect their trade. On
the order bar they first
put in the trigger to
send the order, which
is the stop price. Here
you can see that the
price is $112.31. Next, you put in a limit price, which tells the system to not sell for less than a specific
price. In this example, $109.50. Think this trader is safe? Look at what happened the next day. The stock
gapped down beyond the limit price of $109.50. Remember, since the price is below the trigger of
$112.31, the order will be sent to sell. However, we also said to not sell for less than $109.50, so since
price jumped to below 90 dollars, we would still have the position and be taking larger losses. The moral
of the story, don’t use stop limits for stop losses.
 269

While we don’t recommend using a stop limit order to exit a position, once you know what you’re doing,
you can use it as a confirmation entry, which seems almost counter intuitive to its name, stop limit.
Recall, there are three types of entries, the proximal entry, the zone entry, and confirmation entry. In
the example we’re not using a stop limit order as a stop loss, but rather as an entry tool for buying long.
Here’s how. We can see that the price came down into the identified demand zone. If we want to enter
a trade going long on a confirmation entry, we can do it with a stop limit order. Once the price is below
the price that we want to enter at, in this case it’s $34.30, and we want to buy at $34.31, we can use a
stop limit on the order bar. The stop limit sets two prices. The first is the stop price. That’s the price that
we want to pay, $34.31. The second is the limit price, the highest price that we are willing to pay. In this
case, the limit price is $34.33, which allows for two cents of slippage. Since we know that’s a possibility
as price moves up. Once we submit the stop limit order, if price moves up to $34.31 and confirms that
it’s leaving the demand zone, a limit order is sent telling the market that we’re willing to buy the security
at no more than $34.33. That’s how to use a stop limit order as an entry tool. Again, we strongly
recommend not using a stop limit order as a stop loss because it can potentially gap over your stop
price.
 270

Now , let’s look at using a stop limit order to enter a short position. In this example, the price has rallied
above $34.34 cents into our identified supply zone. Our strategy is to use a confirmation entry once
price leaves the zone. We can use a stop limit on the order bar and enter the price we are willing to
short the security. In this case $34.33, just below the proximal line. We then set the limit order to
$34.31, again, telling the market that we won’t accept more than two cents worth of slippage. Once we
hit that sell short button and submit the stop limit order, if price moves down to $34.33 and confirms
leaving the supply zone, a limit price is set at $34.31. It’s a way to wait for price to leave the zone and
sell with a confirmation entry.

Now you know what a stop limit order is, why you should never use it as a stop loss, and how, with a
little more experience, you can use it as a confirmation entry to buy into or sell shares short.
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pt.86 Reviewing the Four Order Types:

pt.86 Reviewing the Four Order Types | Becoming a Trader

Let’s begin by looking at a summary of stop orders. In the top left, you see a simple entry to go long at
$34.30, with a stop market order to exit placed just below the demand zone at $34.15. In the upper
right hand corner, we see a short entry with a sell limit at $34.30. You can also see the short exit which
would be a buy to cover type of stop loss at $34.45. Remember, since we are short in that case, we
already sold the shares. Therefore, our stop loss is going to be a buy to cover at market. In the bottom
left hand corner, we’re looking at a stop limit order. The difference here is we will not be using a stop
limit order as a stop loss but as an entry into a confirmation trade. As you can see, price came into the
demand zone. So, we set up our stop trigger at $34.31, one penny above the proximal line of the
demand zone with a limit price of $34.33. This tells the system that we want to send an order only once
the price hits $34.31, but we don’t want to pay any more than $34.33. In the lower right corner we have
a short example of a stop limit entry. Here you can see the price has come up to our supply zone, and
once it leaves that price point, that’s where and when we want to go short. So for this example we set
our stop price at $34.33, one penny below the proximal line of the supply zone, and a limit of $34.31.
This tells the system that we are willing to accept two pennies worth of slippage on our order.
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So now let’s review some basic orders for buying. The first step when looking to go long is to identify
where the current price is. In this example, it’s at $40. If we’re looking to buy at the current price or a
price higher than the current market, we would be using a market order, a buy stop limit order, or a buy
stop market order. If you’re looking to buy below current prices, you would be using a limit order. When
entering long, the exit is a sell order. To protect your trade, you would place a sell stop market order to
exit for a small loss below the current price. For the profit target on a long trade, you would be using a
sell limit order at a price higher than the current price. Let’s look at an example.
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Here we can see prices in a strong uptrend. We identified a demand zone where we would be looking to
buy long if price pulls back to that demand zone while the trend is still valid. To map out our trade our
entry will be a buy limit order below current price at $48.26. The stop loss would be a sell stop market
order below current price at $48.18. Our profit target would be a sell limit order above the current price
at $48.97. Let’s see how this trade played out. As you can see, the price fell to the demand zone. Having
gone below our proximal line, it would have triggered our buy limit order to go long at $48.26. Then the
price proceeded to rally up to our profit target where our limit order would be waiting to sell at $48.97.
 274

Now let’s flip things upside down and take a look at a shorting example. The first step is to identify
where the current price is. In this example it’s at $40. If you’re looking to short below the current price,
you would be using either a sell market order, a sell stop limit order, or a sell stop market order. If
you’re looking to short above current price, you would be using a sell limit order. If you’re short, and
prices start to rally up and go against your position, you would look to exit for a loss using a stop loss as
a buy stop market order above current price. If you’re short, and the trade moves in your favor to the
downside, you’d look to exit for a profit at a target using a buy limit order. Let’s look at this on a price
chart.
 275

The left side of this chart shows an aggressive sell off, followed by a lengthy price recovery back up
towards prior supply. We have identified a supply zone between $60.60, and 60.93. We’ll begin by
looking at our entry. That will be done by utilizing a sell limit above current price at the proximal line of
$60.60. Next, we need to plan out our stop loss should this trade not work out. The stop loss would be a
buy stop market order above the supply zone. In this case, that would be at $60.93. And finally, we look
to set a profit target using a buy limit below current price. In this example here, we have targeted a
previous area of demand at $57.85. As you can see the price rallies back up to our supply zone and the
trade is short at $60.60. Knowing we have our stop loss in place and are protected, we let the trade play
out. Price begins to drop, and ultimately, falls back to our target.
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So when do we use these orders? A market order is used for entering and exiting a position
immediately. The good thing about this is that you’re going to be executed immediately. The negative
side is that you may suffer from slippage, which is where you might not get the price that you thought
that you were going to get. Limit orders are used to specifically plan entries and exits. The good thing
about limit orders is that you will not suffer any slippage because you are specifying a particular price,
and you may even get price improvement. The downside here is that you may only get a partial fill or
you may not get filled at all. The stop market order is used primarily to exit a trade for a loss. However,
you may also use this for an entry as well. The positive side of a stop market order is that you are going
to get out of the trade, should the price movement go against you. The bad news is that you may suffer
slippage because it utilizes market orders. And finally, the stop limit order. This is used as a stop loss or
for breakout entries. However, as you can see under the negatives, we strongly recommend that you do
not use a stop limit order as a protective stop, as there is no guarantee that you will get filled. Since it
uses a limit order, the positive side of this is that you may be filled at a better price.

So, there you have it; all the order types including stops, all wrapped up. As you practice, use a virtual
account to work with each order type to get used to entering them into the market and your trading
platform. Identify when to utilize their strengths to your advantage or to avoid using them at all.
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pt.87 Bracket Orders - Order Sends Order & Order Cancels Order:

Many traders dream of putting on some trades, and then going golfing, fishing, traveling, clubbing,
shopping, or any other number of things that allow them to just enjoy life, period. All the while, not
thinking about their trades. Well, this is not a dream, it is simply using something called a bracket order.

pt.87 Bracket Orders - Order Sends Order & Order Cancels Order | Becoming a Trader

A bracket order is an order that has an entry, a stop, and a target, all set at the same time. It’s an entry
order bracketed with a stop and a target. A bracket order accomplishes three things at once, it sends an
order to open a position, and once it’s filled, automatically sets your stop-loss and target.

Many traders call this a set it and forget it order because once you set it, you can go about your
business, knowing that your stop and your target are in place. You can use a bracket order for almost
every trade that you make, and they work for both long and short-term trades. Bracket orders are easy
to use, allowing you to manage all aspects of the trade with one button. The only downside to using a
bracket order is that it can become confusing when you’re just starting to trade.
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A bracket order consists of two components that are basically two different sets of instructions. The first
set is the OSO, also known as the Order Sends Order. An OSO places a bracket order around entries.
Once the entry order is filled, the exit bracket orders for the predefined stop-loss and profit target are
activated. It’s also referred to as One Sends Other because one action sends another action. The entry
gets us in, and the order that the bracket sends, both the stop and the target order, get us out of the
trade at our specified prices.
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The OCO or Order Cancels Order, is the second set of instructions. The OCO ties two orders together,
the stop and the target. If the target order is filled first, then the stop order is canceled, since the trade
has closed at a profit target. If the market moves against the position and the stop loss is triggered, then
the target is canceled. If one is filled, the other is canceled.

So, now you have a basic understanding of how bracket orders function. They are designed to help
remove the human emotion aspect of trading by letting you put in all of the variables for your stop, your
entry, and your target. Next, we’ll show you how to use these powerful tools for both long and short
trades.

pt.88 Long Bracket Order:

Bracket orders are a great way for us to manage our trades and protect our risk, all in one.

pt.88 Long Bracket Order | Becoming a Trader

Here’s what happens with an Order Sends Order, on a long position. It all starts with our entry. This can
be done immediately with a market order, or by using a limit order, and specifying when to send that
order. To protect the position, we will also input a stop loss. This will be done with a stop market order
at a predetermined price below our entry. And finally, what we’re all looking forward to, profit.
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If the trade works in our favor, we want to have a target set where we will take profit. This is done with
a sell limit order above current price.

On a price chart, an order on

a long position looks like
this. In this example, we
have identified our supply
and demand zones, we were
anticipating price moving
down, to the demand zone,
then reversing and heading
back to supply. Our first step
is to place a buy order at our
desired entry price. In this case, that would be a buy limit order at $34.30. Now we want to get the other
two orders ready and create our bracket order. Our second step is to map out our stop loss. This will be
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done with a stop market order just below the demand zone. In this example, that would be $34.15.
Finally, we set our target with a limit sell order just below the opposing supply zone at $35. Once we hit
the send button, the entry order will be sent to the market with the other two orders, the stop, and the
target, waiting to be sent.

Now let’s assume that price has

fallen into the demand zone. When
it hits our limit buy order and
executes our long position, we will
now be long the security at $34 and
30 cents. Then, the system will
automatically send out the Order
Cancels Order, or OCO portion of
the bracket order. It’s an OCO order
because if the price rallies up to
$35, and we exit the trade for profit, the stop order will automatically be canceled. And if price falls to
our stop loss of $34.15, our target order would automatically be canceled. Either way, we are protected.

Now you know how a bracket order works for a long position. If you’ve never used them before, don’t
worry. With a little bit of practice, perhaps on a virtual account such as platforms like thinkorswim, you’ll
become comfortable using them on all of your trades. Moving forward, we’ll look at how it works for a
short position.

pt.89 Short Bracket Order

A bracket order for a long position is rather simple as most people understand the concept of buying low
and selling high.

pt.89 Short Bracket Order | Becoming a Trader

Here’s what happens with an Order Sends Order on a short position. It all starts with our entry. This can
be done immediately with a Market order or by using a Limit order and specifying when to send that
order. To protect the position we will also input a stop loss. Remember, since we are taking a short
position, we sell first. Therefore, we must buy to close the position. This is done with a Buy Stop Market
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order at a predetermined price above our entry. And finally if the trade works in our favor we want to
have a target set where we will take profit. This is done with a Buy Limit order below current price.

On a price chart, an Order Sends Order on a short position looks like this. In this example we’ve
identified our supply and demand zones. We are anticipating price moving upward to the supply zone
then reversing and heading back towards demand. Our first step is to place a Sell Short order at our
desired entry price. In this case that would be a Sell Short Limit order at $34.85. Now, we want to get
two other orders ready and create the bracket order. One new term that you will want to remember is
the term Buy To Cover. This simply means that you will be buying to close out a current short position. If
you’re short you will be buying to cover at stop losses as well as targets. Our second step is to map out
our stop loss. This will be done with a Buy Stop Market order just above the supply zone. In this example
that would be at $35.00. Finally we will set our target with a Limit Buy order just above the opposing
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demand zone at $34.00. Once

we hit that send button the
entry order will be sent to the
market with the other two
orders, the stop and the target,
waiting to be sent.

Now let’s assume that price

has risen into the supply zone.
When it hits our Limit Sell
Short order and executes our
short position we will now be
short the security at $35.00.
Then the system will
automatically send out the
Order Cancels Order or OCO
portion of that bracket order.
It’s an OCO order because if price falls to $34.00 and we exit the trade for a profit the stop order will
automatically be canceled. And if price rises to our stop loss of $35.00 our target order would
automatically be canceled. Either way, we are protected.

Now you know how a bracket order works for a short position. The only real difference with a short
bracket is training your mind to remember a short position is where you sold first. Therefore, your OCO
portion of that bracket order will be Buy orders. Now it’s time to practice inputting some bracket orders
in our upcoming lab.

Before you move on:

● Using some examples from previous lessons, create a short bracket order utilizing both OSO and
OCO brackets.

pt.90 Lab Exercise 14: Order Placement with Bracket Orders - thinkorswim:

pt.90 Lab Exercise 14: Order Placement with Bracket Orders - thinkorswim | Becoming a Trader

For that I’m going to use thinkorswim’s OnDemand feature to illustrate how to place the order after
we’ve identified our price points for the stop, entry, and target. And all it is, is practicing placing orders
either long or short with both a target and a stop loss based on supply and demand zone formations. If
you do not use thinkorswim, no worries but you’ll need to pay attention to the type of orders that go
into the bracket order so you can duplicate it on your preferred platform. However, I will include a link
in the video description on how to download thinkorswim and get it customized as a stock trader. Now
for the lab, as per usual, I’ll demonstrate how to complete the exercise and then you’ll have a chance to
try it on your own.
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Looking at the chart you can see we have AAPL on a 1 hour intraday time frame. There’s a demand zone
for entry that begins at 154.43 and ends at 153.27. You can also see the target supply zone beginning at
164.97 and ending at 166.48. Our target is set to 80% of our potential trade reward just below the
opposing supply zone at $162.86; and this is where we plan to exit the trade for a profit. So now what
we want to do is take the data from the chart and place it into our OCO bracket using thinkorswim,
confirm the data is correct, and then send the order.

To do that, I’m going to right click on the chart, or hold the command key, ⌘, if using a Macbook.
Doing that should bring up a pop up box which looks like the photo on the left. If I hover over
“Buy custom”, another pop up box should open allowing me to select “with OCO Bracket”.
Selecting that option should bring up an order bar, which you can see below. From there we
can begin inputting the data from the chart we’ve marked, to place our bracket order. In the
top section of the order bar looking from left to right we see things like Stock, Buy, +100 for
quantity, and the symbol AAPL. If we keep looking right we see Price. The green bar has a price
there and then it says LMT, for limit order. This is where we input our entry price. The next
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price down is our sell limit order for taking

profit. Then finally we have a MKT Stop
order in case our trade works against us.

We need to change each of these prices, so they match what we’ve charted on screen. So I’m
going to change the Buy Limit order to $154.43 to match the Proximal line of our demand zone
entry. I’m going to change the Sell Limit order to $162.86 to match our 80% long order target.
Then finally, I’m going to change the Market Stop order to match my charted Stop Loss at
$153.16. Now you’ll notice an area inside the order bar that says “Day”, three times. This
means that each order will last only for the day, and if it is not
filled within the market day the order is submitted in, then it
will cancel. Typically I will change the two in red to GTC, which
stands for Good ‘Till Canceled. That way, once the order is
filled, the trade will continue until I’m either stopped out or I
hit my target. I’m then going to hit Confirm and Send in the
lower right corner to review if all my data is correct, and then
I’ll hit send. And that’s it. Our order is sent.
 286

You’ll have an opportunity now to do this on your own using SPY on a 1 hour time frame. As you can see
here I’ve drawn out both a demand zone and a supply zone for entry. And this is for purposes of
illustrating both the long and short OCO bracket order so we’ll just be using the data from the chart to
place the order. For the first exercise we’ll use the demand zone for entry. Our proximal line is at
408.66. Our stop loss will go .21 cents below the distal line located at 405.02, which means our stop loss
will be at 404.81. We’ll set a target to go long at 423.35. This is just below the supply zone which begins
at 427.03 and ends at 429.66. So now that you have the price points for your stop, entry, and target, go
ahead and pause the video, and place an OCO bracket to go long using the data from the demand zone
entry. Once you’re done, unpause the video and we’ll go over it.
 287

Additional Exercise:

1. Utilizing the Core Strategy Buy Setup charts from Lab 11 “Combining Trend & Zones”:
a. Place the long bracket order:
i. Set your Entry at the proximal line of the demand zone.
ii. Set the Stop Loss $0.10 below the distal line of the demand zone.
iii. Using the 5 step zoning process, locate an opposing supply zone.
iv. Set the target at least $0.10 below the proximal line of the opposing supply
zone.
v. Confirm and send the bracket order.

Perform all the above as in the example photo below.

NOTE: Set the date within thinkorswim’s OnDemand feature according to the vertical timeline in the
video.

Okay, you’ll have an opportunity to try this again using SPY, same time frame, same place on the chart.
However, this time we are going to use the same zones to go short instead of long. So, as you can see,
 288

I’ve drawn out a supply zone for entry. Our proximal line is at 427.03. Our stop loss will go .21 above the
distal line located at 429.66; that puts our stop loss at 429.87. The target, which is calculated at 80% of
the total reward (distance between supply and demand proximal lines), will go just above our opposing
target zone. And the opposing target zone begins at 408.66 and ends at 405.02. So now that we have
the price points for our stop, entry, and target we will place our OCO bracket to go short using the data
from the chart. Now recall that when going short we are selling first, and buying to close the trade.
Make sure you select the appropriate custom order. So now go ahead and pause the video and
complete the exercise. Once you are done with the exercise, we’ll go over it.

Additional Exercise:
 289

2. Utilizing the Core Strategy Sell Setup charts from Lab 11 “Combining Trend & Zones”:
a. Place the short bracket order:
i. Set your Entry at the proximal line of the supply zone.
ii. Set the Stop Loss $0.10 above the distal line of the supply zone.
iii. Using the 5 step zoning process, locate an opposing demand zone.
iv. Set the target at least $0.10 above the proximal line of the opposing demand
zone.
v. Confirm and send the bracket order.

Perform all the above as in the example photo below.

NOTE: Set the date within thinkorswim’s OnDemand feature according to the vertical timeline in the
video.

That will conclude this lab.

Before you move on:

● Recall that the first part of a bracket order is the Order Sends Order. This is when your initial
entry order is filled, which then sends the Order Cancels Order consisting of two exit orders; the
stop, and the target.
● Using some examples from previous lessons, create a long bracket order utilizing both OSO and
OCO brackets.
● Using some examples from previous lessons, create a short bracket order utilizing both OSO and
OCO brackets.
● Complete the two additional exercises in this Lab using charts from Combining Trend & Zones.
 290

pt.91 Trade Plan Blueprint:

Having a plan is mission-critical when it comes to trading and investing. The trade plan blueprint outlines
the components of the trade plan.

pt.91 Trade Plan Blueprint | Becoming a Trader

Like any blueprint, it’s really just a system. System as in, Saving Yourself Stress, Time, Energy, and
Money. And like any financial plan, you need to make sure that every trade has a purpose and a goal. At
this point, you should have a good understanding of zoning and trend concepts from previous lessons.
Now it’s time to start building a professional trade plan. The trade plan blueprint outlines key elements
necessary to set up and follow through on all your trades and investments.
 291

The trade plan blueprint has two categories: occasional steps and recurrent steps. Occasional steps are
what they sound like, things you need to do and review either annually, quarterly, or monthly,
 292

depending on your style of trading. The occasional steps will be revisited more often if you’re a short-
term trader, referring to income trades, versus a long-term trader which refers to wealth trades.

In any case, the occasional steps include defining your purpose

and duration, setting risk rules and reward goals, creating a
watch list you can refer to and most importantly, reviewing
your results. Like any successful business, unless you go back
and see how you’re doing you won’t be able to keep improving
or make necessary adjustments.

Next let's take a look

at the recurrent
steps. The steps taken
before, during and
after every single
trade. Before you
begin trading you’ll
learn a couple of pre-
steps to take before
you analyze the
charts. Once through
this pre-trading
routine, you’ll work
through a six step
process to plan a
specific trade or
investment.

The six step process will include: setting the curve, checking the trend, identifying trading zones and
target zones, scoring the trade using the odds enhancers, determining the stop, entry, target, and
 293

position size (a.k.a. S.E.T.S.), and finally placing the order. We’ve covered a couple of these components,
but we’ll be diving deeper into each in upcoming lessons. This six step process is crucial to identifying
trading opportunities, and helping you determine if they have or don’t have a high probability of
success.

Once you’re in the trade, it’s important to have a plan to manage the trade which includes monitoring
any reports that are to be released during the life of the trade.

After getting out of the trade it’s imperative to keep a log and a journal of each trade, so you can go
back and review your results on a regular basis.

Now you know the basics of the trade plan blueprint. It gives you everything you need to develop your
trade plan, follow a strong set of rules and map out your road to success. Don’t be overwhelmed, we’ll
break down each component of the trade plan blueprint as we progress through the course.

pt.92 Trading Styles, Time Frames, Purpose, and Duration:

pt.92 Trading Styles, Time Frames, Purpose, and Duration | Becoming a Trader
 294

Looking back at the overview of the trade plan blueprint, you can see that the first occasional step is
defining your purpose and duration, otherwise known as your trading style. It’s important to remember
that core strategy applies to any market, whether it’s stocks futures, forex, or options. Since it’s a
strategy to time the market turning points, all we need is price and trend. It also applies to any time
frame and therefore, can be
applied for both short-term
income and long-term wealth.
Determining the purpose and
duration of your trades is
based on the type of trading or
investing that works best for
you; either short term, long
term or both. It’s important to
understand that the longer the
time frame, the longer the
trade duration. The shorter the time frame, the shorter the trade duration. And this way, your purpose
and duration are tied to the time frames you use as part of your core strategy analysis. You wouldn’t
plan day trades on a monthly chart, just as you wouldn’t plan investments on a 15 minute chart.

Regardless of the purpose or duration, when planning your trades you’ll consider more than just a single
time frame as part of multiple time frame analysis. This ensure that you’re seeing a complete picture of
the overall market conditions when planning out a trade or investment. The first is the higher time
frame, used to set the curve, which we haven’t covered just yet but will be covering in the coming
lessons. Secondly, the intermediate time frame, used to check the trend. Thirdly, the lower time frame,
used to identify supply and demand zones for entering and exiting trades. Optionally, you can choose to
employ a refining time frame, an even lower time frame to help refine proximal and distal lines for a
 295

more specific type of entry. We’ll keep things simple with just three time frames for now (refining time
frames are for XLT).

We will begin by looking at the time frames in considerations for short-term income trading. First is
hourly income. Notice the style gets its name from the higher time frame. Hourly income is meant for
intraday trading, which is buying and selling within the same trading day. These trades last from minutes
to hours, working well for daily income. The higher time frame here for the curve is the 60 minute chart.
Intermediate time frame for the trend is the 15 minute chart. And the lower time frame, where we find
our entry, target and stop is the five minute chart. Daily income trading is also primarily for day trading,
with trades lasting
anywhere from hours
to days. Daily income
trading works well for
those seeking weekly
income. The higher
time frame is the daily
chart. The
intermediate time
frame is the 60 minute
chart. And the lower
time frame is the 15
minute chart. Let’s
switch gears and look
at the time frames used when trading for long term wealth.

These are for traders and investors who hold their trades over a longer period. Let’s start with weekly
income trading, which is also known as swing trading. We do not consider it day trading since trades
generally last longer than a day. It’s not quite investing, either. It’s between. Trades can last from days
to weeks working toward a targeted monthly income. The higher time frame is the weekly chart. The
intermediate time frame, the daily, and the lower time frame will depend on the asset class. For forex
 296

and futures, a 240 minute chart, that’s 4 hours for those of you working through the math, and a 60
minute chart for stocks. Since stocks are open for six and a half hours a day, dropping from a daily on the
intermediate time frame to a 4 hour on the lower time frame, doesn’t really fit for equities. However,
for futures and forex where markets are open around the clock, going to a 4 hour chart as the lower
time frame is perfectly okay. Finally, we have monthly trading, which is really more of an investing style.
These trades last from weeks to months with the goal of long term wealth growth is quarterly or annual
income. For this style, the higher time frame is the monthly chart. The intermediate time frame is the
weekly chart, and the lower time frame, the daily chart.

Here’s a quick summary of the four trading styles and the time frames used for each. These inverted
triangles visually show you the higher, intermediate, and lower time frames depending on the type of
trading. But you can also look at a table.

This table breaks

down the types of
income trading, the
relative duration of
the trades and the
different time
frames. For
example, if your
lifestyle and
financial goals land
you in the daily
income category,
you’re looking for
your trades to turn
over relatively
quickly, more or less within the trading day. Therefore, the duration of your trades is expected to be
anywhere from hours to a day or so. To achieve this, you use a daily chart for the higher time frame to
assess the curve, a 60 minute chart for the intermediate time frame to check the trend, and finally, a 15
minute chart for the lower time frame to identify supply and demand zones. The grid is just another way
to look at the different types of income trading and their respective components. It’s important you
understand that this breakdown of time frames per trading style is a guideline for you. There’s no
magical time frame that’s going to make you money if and only if you use that one time frame or set of
time frames. What you’ll notice is that each set of time frames relates to one another, and that’s key.
However, as a trader you have room to adjust to different time frames as long as the time frames you’re
using are relative to one another.

Now you know how to define the purpose and duration of your trades by understanding the different
trading styles and the time frames for each. Before you start to trade, you need to define your purpose,
taking into consideration what kind of trading style works for you. Do you want to be a long-term trader
for wealth or short term for income? Whatever you end up deciding on will dictate the time frames
you’ll use in your multiple time frame analysis. Spend some time to decide which style best suits you.
 297

pt.93 Trend Reversals:

Many of us have heard the saying, “The trend is your friend until the bend at the end.” We want to be
able to identify the bend at the end.

pt.93 Trend Reversals | Becoming a Trader

A trend reversal is a pattern of highs and lows

that indicates the origin of a trend. You may be
thinking, “Okay, so what does a trend reversal
look like?” The first type of trend reversal is a
Bullish reversal. It looks like a double bottom or
a ‘W’, due to the shape of its movement on a
price chart. An uptrend cannot exist without the
shape of a ‘W’ since it requires a low, a high,
another low, and a break of
the previous high, creating a
higher high. This formation is
most likely to occur at higher
timeframe demand zones.
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A Bullish reversal indicates the start of an uptrend and it shows the sentiment has shifted from selling
pressure to buying pressure, from supply to demand. A bullish reversal does not automatically terminate
a downtrend, which we know from previous lessons on trends. In this example, the Bullish reversal is
represented by this ‘W’ shape and we can see where sentiment shifts and the uptrend begins. We can
also see that where the Bullish reversal originated, the downtrend hasn’t fully terminated based on its
controlling swing high. Looking left on the ‘W’, we notice that in reversing, an opposing supply zone is
crossed by price breaking out, which is a sign of a shift in sentiment. Price then returns to a drop based
rally demand zone on the right leg of the ‘W’, which happens often in reversal patterns and tends to give
us our earliest opportunities to enter a trend. It’s also important to understand that the turn of the
market and the Bullish reversal typically occurs at higher timeframe demand zones.
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A bullish reversal may take different forms. It could have equal lows, where the lows in the ‘W’ are the
same, it could have a higher low, where the ‘W’ has a low on the right hand side that is higher than the
low on the left hand side, or we sometimes see a lower low also called a false breakout where the ‘W’
has a low on the right hand side that’s slightly lower than the low on the left hand side. False breakouts
tend to lead to the biggest reversals.
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The second type of trend reversal is a Bearish reversal, which is the flip picture of the Bullish reversal. So
basically, it’s an upside down ‘W’, or what most remember from their grade school days the letter ‘M’;
also referred to as a double top. The ‘M’ shape is most likely to occur at a higher timeframe supply zone.
A downtrend begins as the shape of an ‘M’ since it requires a high, a low, another high, and a break of
the previous low, creating a lower low.
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A bearish reversal indicates the start of a downtrend and it shows that sentiment has shifted from
buying pressure to selling pressure, from demand to supply. In this example, our Bearish reversal is
represented by the ‘M’ at the top as the origin of the downtrend. Notice the downtrend begins at the
Bearish reversal prior to the uptrend terminating. By spotting the origin of the downtrend even before
the previous uptrend terminates. This provides us with an earlier opportunity to enter short into a
market that’s turning down. A Bearish reversal does not automatically terminate an uptrend, but rather
begins the downtrend. You’ll notice that price finally crosses below the controlling swing low of the
uptrend further on the right, but by then we’ve already had a selling opportunity at a supply zone well
before the uptrend was terminated.
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As with the Bullish reversal, a

Bearish reversal can take
different forms. It could have
equal highs where the highs of
the ‘M’ are reaching nearly the
same point, it could have a
lower high which is like a lazy
‘M’ with a high on the right
that’s slightly lower than the
high on the left, or sometimes,
a higher high, or false breakout
typically into a higher
timeframe supply zone. Here,
the ‘M’ has a high on the right
hand side that pushes higher
than the high on the left hand side. Let’s remember that false breakouts tend to lead to the biggest
reversals.

So the answer to the question of

‘Where is the trend most likely to
reverse,’ is simple. Trends tend to
reverse at a higher timeframe supply
and demand zone. Identifying a trend
reversal increases the probability that
your trade or investment will have
significant reward to risk potential.

Now you should have a clearer

understanding of what trend reversals
are and how to identify their formation on a price chart. These patterns are a reflection of buying and
selling sentiment. Knowing how market participants are most likely to act gives us another edge in the
markets.
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pt.94 Higher Time Frame Supply and Demand Curve:

pt.94 Higher Time Frame Supply and Demand Curve | Becoming a Trader

While the curve happens to be the last component of multiple time frame analysis that we’ll go over, it
is the first thing you’ll check as you analyze the charts. We’ll go over why and how it fits into the process
later. To give a better understanding of what the curve represents we can start with a question; Would
you say that $4 for the coffee mug in the photo here is expensive or cheap? The answer is, of course,
relative right? It will most likely depend on where the price for a mug has been in the past. Instinctively
we do this while we’re out shopping. Let’s say that within a 52 week range, at its lowest, the mug has
been $3 and at its highest, $14. Considering this range, gives us perspective to determine that the
current price of this mug for $4, is actually relatively cheap.
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This “range”, as we’ve discussed, is outlined on the charts by higher time frame supply and demand
zones that we refer to as the curve. The curve defines:

1. The high time frame range of wholesale to retail price levels; which as we’ve discussed in the
past, help us understand whether current price is at wholesale, retail or equilibrium price levels.
This will aide us in determining our trade objective of whether to go long or short.
2. Secondly, the curve defines the intermediary time frame boundaries of expected trend
reversals.
3. Lastly, it defines the maximum profit potential of low time frame trade opportunities.

Let’s look at each of these representations.

On the chart below, there is a supply zone up top and a demand zone on the bottom. On the low end of
the range what we’ve identified here are wholesale price levels. The high end of the price range is where
we’ll find retail price levels. The middle of the price range outlines the equilibrium price levels.

Using the same chart we can see how the curve outlines intermediary time frame boundaries of
expected trend reversals. We can view this range as an endzone, so to speak, which outlines the playing
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field of price action. These endzones help determine where the market is most likely to turn. Looking at
the example chart we can see where the trend reversed into an uptrend moving up and away from the
HTF Demand Zone before reversing into a downtrend at the HTF Supply Zone. The most common
locations for trend reversals is to begin at or near the HTF Supply and Demand Zones.

Lastly, the curve

defines the
maximum profit
potential for lower
time frame trade
opportunities, which
combines the prior
two representations
of the curve. When
looking to take
profits in the
markets we’re
always looking to
buy low and sell
high, and not
necessarily in that
order. However, the point is that we buy at wholesale prices and we sell at retail prices, which is defined
by the curve. This is why understanding the curve and properly charting the High Time Frame zones is so
crucial. Now ask yourself what is going to carry a trade from wholesale prices up to retail prices or vice
versa, from retail prices down to wholesale prices? The answer is the trend… as we learned, our initial
profit target will be based upon the nearest opposing zone on the lower time frame. But if we’re trading
with the trend we can ride the trend wave for larger profit potential. However, since every trend
eventually ends, we always consider a target prior to the expected trend reversal.

So, where and how do we determine with high probability where the trend ends? We use the higher
time frame end zones which define the curve. This way the curve defines for us, the maximum profit
potential. In the example the Initial Profit potential of the lower time frame demand zone is at the lower
time frame supply zone. The maximum profit potential is all the way to the opposing higher time frame
supply zone where we can expect the trend to reverse. Now you have an overview of the curve and the
three things the curve defines on a price chart; the higher time frame range of wholesale to retail price
levels, the intermediary time frame boundaries of expected trend reversals, and the maximum profit
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potential of low time frame opportunities. Defining the curve will allow us to see a bigger picture
context, which is necessary to assess the probability of our trading opportunities.

pt.95 Setting the Curve:

We previously learned the conceptual importance of the curve.

pt.95 Setting the Curve | Becoming a Trader

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Setting the curve outlines a range of price, and the current price will be somewhere within that range.
As such, the curve defines the field of play, if you will. Within these boundaries set by higher time frame
supply and demand zones where price is currently moving, we can identify indications of where the
trend should reverse. This allows us to assess the relative location of where our entries and exits are
through identifying the bigger picture.

Setting the curve is a simple three step process. Recall that the curve is defined on the higher time
frames. Therefore to set the curve, we take the chart to the higher time frame in relation to our trading
style and or trading objective. Recall that if we’re looking for daily income, our high time frame is a daily
chart, if we’re looking for weekly income then we start with a weekly chart; so on and so forth.

Once we’ve identified our high time frame, going from right to left on the price chart, step one is to
identify the nearest quality demand zone. During this step, we use the five step zoning process, which
you can review in pt.49 Lab Exercise 7 to identify the zone. To identify a demand zone we start by
looking down and left to identify a strong rally in price, then we isolate the base using the base isolation
technique, which you can review in pt.30 to draw proximal and distal lines. Lastly, we would assess the
structural odds enhancers of strength, time, and freshness to score the zone. In the case of the high
time frame zones we don’t use all six odds enhancers, rather we only use those which grade the quality
of the zone structure. Step two in setting the curve is to locate the nearest quality supply zone. To do so,
we’re going to follow the same process for the demand zone. However, instead of moving down and left
from current price, in the case of a supply zone we look up and left from current price, looking for a
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strong drop or decrease in price. Finally, in step three we divide the range between the distal lines of
each zone into thirds. This will section off the high of the curve also known as retail prices, the middle of
the curve also known as equilibrium, and the low end of the curve, which is also known as wholesale
prices.

When sectioning off the range, we only use the distal lines of the zones because

1. We want to be able to trade between those lines within the zones of the higher time frame
2. Distal lines are our objective and the same for all zones. In other words, recall that we have
three options for placing proximal lines. However, the distal line is always placed at the
respective wick which is furthest from current price within each of our four zone formations.

Now, why do we set the curve? Money is made when price moves in the direction of our trade, whether
we go long or short. To stretch the potential of the money to be made, ideally we want to hold our trade
until and prior to the trend reversal. Since the curve defines the range of trend reversals, the curve
provides us the maximum profit potential for our trade by defining the field of play for price action.
 309

Now you know the steps to set the curve and the sections it defines. After the upcoming lab exercise,
we’ll look at the curve as an odds enhancer.

Before you move on:

● Be sure to understand how the curve defines the range of price and trend reversals.
● Practice going through the three step process to set the curve.
● Be sure to understand how setting the curve provides us the maximum profit potential.

pt.96 Lab Exercise 15: Set the Curve:

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pt.96 Lab Exercise 15: Set the Curve | Becoming a Trader

The curve is made up of boundaries. While you have not yet set the curve before during any previous
lessons or labs, you have found a lot of supply and demand zones, and setting the curve will be very
similar to that process. However, this time around, you’ll locate your zones on a higher time frame. And
that’s really all that setting the curve is, locating supply and demand zones, and dividing that range
between the distal lines of those zones into thirds. Recall that prior to setting the curve, you must
determine your Trading Style, Time Frame, Purpose, and Duration.

For this first exercise take your charts to the ticker symbol QQQ on a monthly time frame. We’ll assume
the monthly time frame corresponds to our trade style, purpose and duration. Go ahead and place a
vertical timeline anywhere on the chart, then go into the settings cog for the timeline and change the
date to 05/15/2022. Now adjust the chart so any candles right of the timeline are no longer on screen
since the timeline will serve as the location of current price to the corresponding candlestick. I’ll go
ahead and demonstrate by locating a supply zone above the corresponding candle located at the
timeline.

To locate a supply zone, we start at current price looking up and left, to find a strong decline in price as
part of the 5 step zoning process, which you can review in pt.49 Lab Exercise 7: Five Step Zoning Process
- Supply & Demand.

So now that we have a supply

zone, you’re going to draw out the
demand zone on your own. Go
ahead and pause the recording.
Don’t forget to draw the supply
zone as I did if you haven’t
already. Then starting with the
current price, look down and left
for a strong rally in price,
following the 5 step zoning
process. After you’ve drawn the
demand zone, resume the
recording and we’ll go over it. Go
ahead and pause the video now.

Now if you found a different demand zone, no worries. However, for purposes of the exercise, make
your charts identical to mine so we’re all on the same page moving forward. So now, we want to take
the distal line price points for our supply and demand zone, determine what that difference is, then
divide that area into thirds. So, we have our supply distal line located at 371.83. We have our demand
zone distal line at 164.93. We’re going to subtract 164.93 at demand from 371.83 at supply, which gives
us 206.90. Then we take 206.90 and divide it by 3, which comes to 68.96. We’ll refer to 68.96 as our
 311

curve factor. We then take our curve factor of 68.96 and add it to the distal line of our demand zone
which gives us 233.89, so we’ll mark that price point. Then we’ll subtract our curve factor of 68.96 from
the distal line of our supply zone, which gives us 302.87. We’ll mark that price point as well. This now
gives us our wholesale price range, our equilibrium price range, and our retail price range.

For the next exercise you’ll have a chance to try this on your own. Go ahead and take your charts to EFA
on a monthly time frame. We’ll assume the monthly time frame corresponds to our trade style, purpose
and duration. Go ahead and place a vertical timeline anywhere on the chart. Now go into the settings
cog for the timeline and change the date to 10/29/2013. Adjust the chart so any candles to the right of
the timeline are no longer on screen, and let the timeline serve as the location of the current price to
the corresponding candlestick.
Next you’ll pause the video
and using the 5 step zoning
process, you’ll identify a
supply and demand zone, and
divide the difference between
the distal lines of those zones
into thirds, marking off the
curve into wholesale,
equilibrium and retail price
ranges. Once you have
completed the exercise,
resume the recording and we’ll
go over it.

You’ll have a chance to try this once more using the ticker symbol FXY on a monthly time frame. We’ll
again assume the monthly time frame corresponds to our trade style, purpose and duration. Place a
vertical timeline on the chart and go into the settings cog for the timeline and change the date to
04/11/2016. Adjust the chart so any candles to the right of the timeline are no longer on screen, and let
the timeline serve as the location of the current price to the corresponding candlestick. Pause the video
and use the 5 step zoning process to identify a supply and demand zone. Afterward, divide the
difference between the distal lines of those zones into thirds and mark off the curve boundaries into
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wholesale, equilibrium and retail price ranges. Once you have completed the exercise, resume the
recording and we’ll go over it.

You’ll have a chance to try this

once more using the ticker
symbol UUP, still using the
monthly time frame. Again we’ll
assume the monthly is suitable
for our trade style, purpose and
duration. Again, place a vertical
timeline anywhere on the chart
and go into the settings cog for
the timeline, this time changing
the date to 12/02/2015. Adjust
the chart to remove any candles
to the right of the timeline. Now go ahead and pause the video and begin using the 5 step zoning
process. However this time, identify the High Time Frame demand zone only. We’ll discuss the supply
zone as it is a bit unique on this particular chart. Once you have completed the exercise, resume the
recording and we’ll go over it.

So, when looking for a supply zone in

this scenario we’re going up and left
as per usual but we don’t have a clear
cut supply zone or zone formation.
Recall supply zone formations are
Rally-Base-Drop and Drop-Base-Drop.
So what do we do when we have
candles above current price but don’t
actually have a supply zone? In this
scenario we can use the nearest
prominent high. We can see where
the price has rallied and was soon
rejected in that area. And since we
don’t necessarily need a zone per se,
to define the curve, all we really need
is a boundary, which we’d typically take from the distal line of the zone. However, in this case since we
don’t have a zone, we can plot a boundary at the nearest prominent high located on the chart.

Additional Exercise:

1. Using each of the ETFs: QQQ, SPY, DOW, and IWM on a weekly time frame - following the
steps from the lab:
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a. Apply the five-step zoning process, identify the “nearest” quality demand zone using
strength, time, and freshness.
b. Apply the five-step zoning process, identify the “nearest” quality supply zone using
strength, time, and freshness.
c. Divide the range between the distal lines of the HTF supply zone and the distal line of
the HTF demand zone into thirds creating a high range curve (retail), a middle range
curve (equilibrium), and a low range curve (wholesale).

NOTE: Recall that before we set the curve, we need to identify our Trading Style, Time Frame,
Purpose, and Duration; which we’ll use to determine the High Time Frame for purposes of setting the
curve.

Great job setting the curve. That will conclude this particular lab. Just as a reminder, do not over
complicate determining the curve. It is simply finding a supply and demand zone nearest to current
price, on a High Time Frame conducive to our trade style, purpose and duration and using those zones
as a specific application of zoning as boundaries, where we can expect prices to turn and reverse on a
higher time frame.
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pt.97 Odds Enhancers - Curve:

pt.97 Odds Enhancers - Curve | Becoming a Trader

It’s important you

understand that when
setting the Curve we’re
outlining a range, which
happens to be defined by
Supply and Demand Zones.
However, these supply and
demand zones are not
being used as our entry
zones. That is not their role
in our Multiple Time Frame
Analysis. Instead they are
simply defining the Field of
Play, so to speak, for the product we’re looking to trade. When we talk about Zone location within the
curve, we’re referring to where, within the Curve Range the Lower Time Frame Entry Zone is located.
This means determining whether the entry zone is low on the curve, in the middle of the curve, or if it’s
high within the curve. Lower on the curve suggests wholesale prices, higher on the curve suggests retail
prices, and the middle suggests equilibrium. We ask the question, ”How high or low does the Lower
Time Frame Zone sit within the curve”? And that is what we want to determine when we’re thinking
about taking a trade.
 315

Since we’re in the

business of ‘Buying
Low and Selling High,’
that is precisely how
the Curve Odds
Enhancer will be
scored. The idea for a
shorting opportunity
is to sell high,
therefore a lower time
frame supply zone
that is located within
the retail range of the
curve gets the highest
score of one out of
one. For an opportunity going long, we want to buy low and sell high. So a demand zone low on the
curve, also gets the highest score of one out of one. If the zone is in the middle of the curve, whether it’s
supply or demand, the score gets cut in half to .5 out of one. And if the entry zone is in the opposing
curve extreme such as a demand zone located high on the retail portion of the curve, or a supply zone
located low on the wholesale portion of the curve, the zone gets a score of 0 out 1 possible point. The
lesson here goes back to “Buying low and selling high.” A demand zone low on the curve and a supply
zone high on the curve increase the probability of buying at wholesale prices, and selling at retail prices.

Going back to our working example, we see the Lower Time Frame Demand Zone is situated low on the
curve. This garners a full point for the Curve Odds Enhancer.

Adding one point for the Curve to our Scorecard, brings the score for this zone to 8 out of 10 points so
far. Notice we only have one odds enhancer to go.
 316

Now you know how to assess and score a supply and demand zone, using Curve as an Odds Enhancer.
Remember, the more odds enhancers you use to score a Zone, the better the opportunity of the zone
working out for you.
 317

pt.98 Six Step Process for Setting the Trade:

pt.98 Six Step Process for Setting the Trade | Becoming a Trader

Now that we understand the concepts of curve, trend and zoning, let’s start building a trade using the
six-step process of the Trade Plan
Blueprint. Remember the Trade
Plan Blueprint includes both
occasional steps and recurrent
steps. Over the next several
lessons, we’ll focus on the
recurrent set of steps you take
before every trade, the six-step
process. It begins with the pre-
steps followed by step one:
setting the curve, step two:
checking the trend, step three:
identifying zones, step four:
scoring the trade, step five: determining a stop, entry, target and position size (also called S.E.T.S.), and
finally step six: placing your order.
 318

Here’s a more in-depth look at the process as a flowchart. To plan out a trade, we can navigate our way
through this flowchart, following the process step by step until we reach a decision. You’ve learned the
first three steps of setting the curve, checking the trend and identifying our zones for entry and exit.
You’ll notice that in the course of this class you first learn how to identify a supply and demand zone,
then how to check the trend. We spent time finding a zone properly located within the trend and
combining those two topics. Now, having learned the curve, we’re going to combine that into the mix as
well. You’ve learned these things in the order you needed to learn them in, to properly understand and
digest the concepts being taught, but you’re going to do things in the order they need to be done, which
will differ slightly from the order you’ve learned them in. Now that we’ve established those building
blocks, we’re going to start putting things together in the correct order. This flowchart outlines the
order that things will be done to most efficiently and properly identify an opportunity, and assess its
probability when scoring a trade. We’ll cover the details of this chart in upcoming lessons but right now,
let’s take a quick look at the pre-steps taken before you begin the six-step process of setting up a trade.

When we talk about the pre-steps, we’re focusing on that first recurrent step you take before every
trade.
 319

Notice on the flow chart, the pre-steps start off the process.

It’s important you understand that prior to starting your technical market analysis as a trader or
investor, it’s key to go through a short checklist of items to make sure you’re focused and you’re ready
to tackle anything the trading day may throw your way. We’ll go into pre-steps in detail later on. But for
now, the checklist items include: News, what’s happening and what’s going to happen; Accounts,
 320

wouldn’t want to put a simulated trade in the live account. Finally, a self evaluation of your mindset for
planning out trades and investments.

In this lesson we’ve overviewed the pre-steps and the six-step process of setting up a trade. In the next
lessons, we’ll take a deeper dive into these steps.

pt.99 Six Step Process: Step 1 - Curve

We’re going to begin building a trade using the 6 step process.

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pt.99 Six Step Process: Step 1 - Curve | Becoming a Trader

Setting the curve

begins our process to
identify a trade
opportunity. Let’s
remember the
importance of setting
the curve, which is to
outline a range of
wholesale to retail
prices, to gauge the
likely boundaries of trend reversals. As you see in the flowchart below, the first step will outline the
playing field for the rest of our trade set up.
 322

In short, we’ll set the curve by finding a high time frame

(HTF) demand zone and supply zone and dividing the range
between the distal lines of the supply and demand zones
into thirds. Let’s go through an example.

Make sure that when you begin your analysis you are on the respective high time frame, which will be
based on your investment objective. If you are looking for monthly income, then your high time frame
would be a monthly chart, and etc.

Now that you have your high time frame, going from right to left, identify the nearest quality demand
zone. It needs to be the first demand zone below current price, that meets all three qualities of strength,
time and freshness; the zone structure odds enhancers. Remember to use the five step zoning process
to identify and qualify the zone. Once you identify a quality demand zone, the next step is to find the
nearest quality supply zone. Using the five step zoning process, go up and to the left to find the nearest
supply zone that again meets all the qualities of the zone structure odds enhancers: strength, time, and
freshness. Now that we’ve identified both of the nearest quality demand and supply zones, divide the
range defined by the distal lines into thirds. The top portion of the curve is the high range curve which
represents expensive or retail prices. The bottom portion of the curve is the low range curve which
represents underpriced or wholesale prices. Between the two is the mid range curve where price is
considered an equilibrium; neither high nor low.
 323

In this lesson we identified how to set the curve by identifying quality supply and demand zones on the
high time frame and dividing that range into thirds. Next we’ll add in step two, checking the trend.
 324

pt.100 Six Step Process: Step 2 - Trend

pt.100 Six Step Process: Step 2 - Trend | Becoming a Trader

Checking the trend is step two of the six step process in the trade plan blueprint.
 325

As you can see in the flowchart below we check the trend after we’ve set the curve in step one. Now
that we've set the curve, the next question we need to ask ourselves is how is price moving within this
curve range. Is it coming up off the curve demand and moving into the curve supply in an uptrend? Or is
it coming down from curve supply and moving into the curve demand in a downtrend? We want to
identify who is moving the price. Are the bulls moving price in an uptrend or are the bears moving price
in a downtrend.

Trend tells us who is moving the price, bulls or bears. When combined with the curve odds enhancer we
can look at the curve and trend like a playing field to understand whether the movers of price are
running out of room and where the direction of play is likely to turn around and start moving in the
opposite direction. In trading terms we look to go with the direction of the trend with the curve in mind.
As price reaches the curve end zone, so to speak, and the trend is possibly over extended, it may change
our game plan for the trade.
 326

Remember we check the trend

on the respective intermediate
time frame, looking at the
direction of price within the
curve range; wholesale, retail,
or equilibrium.

Continuing with the example

below, we take the chart to an
intermediate time frame (ITF).

Going from right to left, starting with the current price, we draw the three most recent segments. We
then follow the candles down and to the left to the first low at the end of the first segment, then to the
preceding high creating the second segment, and beyond the high to the next low, drawing out the third
segment. This gives us three segments and four price points. Now that we’ve drawn the green boxes it is
clear the green boxes are taller than the red box in between. Moving back from left to right, the three
segments consist of a low, to a high, to a higher low, and then to a breakout into a higher high. As a
result we determine that price is making higher lows and higher highs and therefore, we’re in an
uptrend. So what we’ve determined is that within the curve range price is currently uptrending and we
have room for the trend to continue before it reaches the opposing curve end zone.

In this lesson we’ve demonstrated how to check the trend in step two of the six step process and how it
relates to the curve range. Since the trend is likely to continue until the opposing curve end zone, we
can trust it. With that, the next step is to find a zone of entry to join this upward movement.
327
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pt.101 Six Step Process: Step 3 - Identify Zones

pt.101 Six Step Process: Step 3 - Identify Zones | Becoming a Trader

Let’s recap where

we’re at so far. We
started by setting the
curve in step one on a
higher time frame to
set the stage for us
outlining the playing
field. In step two we
moved to an
intermediate time
frame to check the
trend to see how
price is moving within
the curve range. This
brings us to step 3: identifying zones. In step three we’ll move to a lower time frame to identify an entry
zone to go with the trend and an exit zone to gauge our target.
 329

Looking at this example above, we’ve moved the chart down to the lower time frame. The first step is,
we want to identify an entry zone. Since we found an uptrend in step 2, we want to look for a demand
zone to join that uptrend. To do so, we’ll use the 5 step zoning process, and in particular, we want to
find the demand zone within the breakout segment of the uptrend. Now, let’s go through the zoning
process, narrowing our focus to the green box on the right, that connects to the controlling swing low.
We start with the current price, which is always the candle farthest to the right on the chart. We look
down and left until we find the origin of a big explosive rally in price. We isolate the base and draw the
proximal and distal lines, and then begin to assess the quality of the zone using the zone structure odds
enhancers of strength, time, and freshness. To assess strength, we want to see that the moves out at
least two to one, and that price breaks out of an opposing supply zone, or in this case, the preceding
high. This zone only has one basing candle and is fresh. Once we identify the entry zone, we need to
identify the opposing supply zone for our target. After identifying the entry zone and opposing target
zone, it’s time to evaluate the profit zone. We’ll introduce the profit zone in its entirety in an upcoming
lesson. But in short, let’s measure the distance between these two zones with a ratio. We see we have
at least a five to one ratio, which will ultimately allow for greater profit potential on the trade.
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In this lesson, to review, we covered step 3 of the six step process. In step 3, we identified the entry
zone within the breakout segment of the trend, using the 5 step zoning process. Then, you find the
nearest opposing zone for target placement. Once you have those two zones, you evaluate the profit
zone. This wraps up the technical steps of the six step process. Next, we’ll begin to set the trade and
place the order.
 331

pt.102 Odds Enhancers - Profit Zone

In step 3 of the six step process we identified an entry zone and a target zone on the lower time frame.
The last piece of step 3 is to evaluate the profit zone.

pt.102 Odds Enhancers - Profit Zone : Becoming a Trader

Profit zone is simply the distance between the entry zone where you’re looking to open a trade, and the
opposing target zone where you’re looking to take your profit. A large profit zone increases the
potential reward-to-risk for the
opportunity, and in addition, a
large profit zone provides a
higher probability that price will
turn at the entry zone. In this
way the profit zone is an odds
enhancer. Sometimes you may
hear the profit zone referred to
as profit margin. They’re one in
the same. Let’s look at a visual of
how to measure the profit zone.

We have here a demand

zone as the entry zone with
the proximal line at sixty
two and the distal line at
sixty one. This is a unit of
one. The nearest opposing
supply zone, the target
zone, sits at sixty seven.
The distance between
these two zones is five.
Putting that into a ratio, we
have a five-to-one reward-
to-risk ratio.
 332

Let’s look at scoring the profit zone as an odds enhancer. The profit zone of an opportunity is measured
on the lower time frame. We should ask ourselves, how far is the opposing zone? If it’s far, this increases
probability, and if it’s not far, this takes away from the probability.

In the first column we see that each set up has a profit zone of five to one or greater. This is the best
case scenario, as it provides great reward-to-risk as well as higher probability of meeting our targets. An
opportunity with a profit zone equal to or greater than five to one gets two points. In the second
column, each profit zone has a set up of three to one or greater. While three to one profit zone is good,
it’s not as good as five to one. So, for opportunities with a profit zone of at least three to one, the score
is one. And finally, in the third column, if a set up has a profit zone of less than three to one, it scores a
zero. Recall that a large profit zone allows for higher profit potential on the trade. Therefore, if an
opportunity has a profit zone of less than three to one, our initial target is limited to less than three to
one. At that point, we need to consider if the trade is worth it or not. The key here is to remember that
the larger the profit zone, the greater the probability of reaching your initial target.
 333

Looking back at our working example, we have our quality demand zone. Staying on the same time
frame, the lower time frame, we identify the nearest opposing supply zone. Notice the profit zone is
greater than five to one, which means this zone gets the full two points.

Let’s add that to our

scorecard. Two points for
the profit zone brings the
total odds enhancer score
for this zone to ten out of
ten possible points. Now
you’ve learned all six
odds enhancers. The
odds enhancers can be
categorized into zone
structure of strength,
time, and freshness;
context odds enhancers
of trend and curve; and
finally the odds enhancer
for reward to risk, the
profit zone. The six odds
enhancers together as a whole indicate the
probability of the overall trade set up.

In this lesson, we explained what the profit

zone is, how to assess it and score it as an
odds enhancer to help determine your
potential reward to risk for your trades.

Before you move on:

● Be sure to understand how the profit zone measures the distance between the entry zone and
target zone.
● Practice identifying entry and target zones to determine the profit zone.
● Be sure to understand how to score the profit zone as an odds enhancer.
 334

pt.103 Lab Exercise 16: Set Curve, Check Trend, Identify Zones

Welcome to lab 16, the six step process, steps 1 through 3.

We started with learning zones, then we learned trend, and now we’ve learned the specific application
of zones through setting the curve. These all come together to help us identify and qualify an
opportunity. Not only do we look at zones on a smaller time frame but we look at the overall setup and
the overall context by combining trend and curve. During that time, we learned things in the order they
needed to be learned in order for it to make sense and build on previous lessons. However, when we
actually look to place a trade, we’ll do it in the order it actually needs to be done; which we’ll go over
during this lab. We’ll start on the
higher time frame to identify the
curve, then move to an
intermediate time frame to
identify the trend before moving
to a lower time frame where we
actually find our entries and
exits and set up the trade from
there.

Go ahead and take your chart to

XLE on a monthly time frame.
I’ve already completed this
particular chart but we’ll go over
it. Using the 5 step zoning
process I have identified a
Monthly High Time Frame Supply
Distal line at $93.31 and a
Monthly High Time Frame
Demand Distal line at $51.66.
Next we take the difference
between those two points and
divide that range into thirds to
set the retail, equilibrium and
wholesale curve ranges.
 335

Now that we have our

boundaries we want to
look at how price is
moving within those
boundaries. I have a
vertical timeline placed on
September 19, 2022 to
serve as a marker for the
current price. Now we
want to go to step two
and check the trend. So,
to do that we’re going to
drill down to the next
lower time frame, in this
case from monthly to
weekly. Then from our
marker which is set to serve as current price, we’ll identify the three most recent segments to check the
trend on a weekly time frame.

So now that we’ve

identified the trend we
want to identify an entry
zone to go with the trend
and an opposing zone to
set our target. To that
we’ll drill down to the next
lower time frame and
again, we’ll use the 5 step
zoning process; but this
time we’ll use it to find our
points of entry and exit.
 336

For the next exercise, you’ll have a chance to try this on your own. Take your chart to AAPL on a monthly
time frame. Go ahead and place a vertical line anywhere on the chart and go into the settings cog for
the timeline and change the date to 09/20/2022. Now what you’ll do is go through the steps to identify
the curve, the trend, an entry zone, and a target zone. Once you’ve completed the exercise, we’ll go
over it. Go ahead and pause the recording now.
 337

pt.104 Decision Matrix

You can see here in the six step process flow chart, all paths lead to the decision matrix. After going
through steps 1 through 3 of the six step process, the technical steps of multiple time frame analysis
have been completed. Now, it’s on to analyzing the curve, trend, and zones together to decide whether
the big picture of the trade set up is high probability or not.
 338

We look at three things; 1) the location of the

entry zone within the higher time frame curve,
2) the direction of the intermediate time frame
trend, and the lower time frame zone type to
see whether it’s a supply zone or a demand
zone. Identifying how these components
combine will suggest if and how the trade
opportunity should be approached.

Looking at the decision matrix. On the left is the curve location; high, low, and middle. On the top is the
trend direction; up, down, or sideways. Within the table are all possible crossover combinations. To read
the table, we first line up which zone we’re trading, either supply or demand. Afterward, we are then
directed to one side of the table. Then we look at the trend direction we’re trading in, up, down or
sideways. This will now place you in a specific column. From there, line up in whichever curve section
the lower time frame entry zone sits; high on the curve, middle of the curve, or low on the curve. The
intersection of the column and row that we land in provides us with a possible action; long, short, or no
action. Notice on the left side for supply, the only action if any, is short and on the right side for demand
zones, the only action if any is long. We don’t go long at supply or short at demand. The decision matrix
is simply letting us know whether or not to take action at the zone, given the big picture curve entrance
within context. Notice the XLT label on four of the boxes. This means the zone is not automatically
deemed no action, but rather represent scenarios a bit trickier in nature and necessitate certain
conditions to make the trade worthwhile, which we’ll get into shortly. On the outer right and left edges
of the decision matrix, notice we have the setups going with the trend; selling short at supply in a
downtrend, and buying long at demand in an uptrend. What do you notice about the action when going
with the trend. It shows us that regardless of the curve location, probability is high when going with the
trend since trends tend to continue. As we reach the opposing curve end zone, we’re reaching the area
where the trend might end and therefore, profits might be limited because there’s not much room left
on the playing field even though we still have a confirmed trend. To make up for the limited profit
potential from the curve range itself, if the opportunity offers at least 5:1 profit zone on a low time
 339

frame, then the trade would have significant enough reward to risk potential to be worth taking the
trade.

Looking at the counter trend scenario, the columns in the middle for a supply zone in an uptrend and a
demand
zone in a
downtrend,
you’ll see
that this
reflects the
trend is our
friend and
going
against the
trend
direction is
not high
probability.
If we were
to consider
going
against the
trend, we
would do so
where we
can
anticipate
the trend to
reverse. Do
you recall
where that
is? It is most
likely to
occur at the
curve
extremes. So
this means
those two
innermost
columns,
referring to
where we
can consider
a shorting
opportunity
 340

in an uptrend or a long opportunity in a downtrend, are at the extremes of the curve range. Not just
within the upper and lower sections but within the higher time frame supply or demand zones
themselves respectively. To learn more about how to handle these more advanced scenarios would
require course enrollment through Online Trading Academy’s XLT course. We will not cover that
material here. Finally we have the sideways trend which provides plenty of opportunity and probability
as long as the zone is not in the opposing curve section. Similarly, when the zone is in the middle of the
curve we defer to the trend, so long as the zone is not counter to the trend, the probability is
worthwhile.

Let’s assume we’ve built out a trade where we’ve set the curve, identified an uptrend, and found a
demand zone on the lower time frame going with the uptrend, and the zone was found low on the
curve. Use the decision matrix below and identify the action we would take in that scenario. You can see
from the example and the yellow arrows illustrated that we would go long in that situation. We’re on
the demand side of the decision matrix, in an uptrend, and low on the curve. Per the matrix, the action
we take is to go long. The decision matrix tells us probability is high when considering these factors.

Now you know how to analyze curve, trend, and zones using the decision matrix to help you determine
the highest probability, lowest risk, and highest reward trading opportunities. The decision matrix is not
deciding the trade for you. Rather it indicates which combinations of trend and curve are higher
probability and lower probability. The next step is to score the trade.
 341

pt.105 Six Step Process: Step 4 - Score the Trade

At this point you may be asking yourself, why do we need an overview of this process, we’ve done it and
I get it already. However, it has been said, repetition is the mother of perfection. The idea being, by
repeatedly revisiting the proper order of steps you’ll begin to commit them to memory, causing you to
subconsciously follow the correct path to mapping out your trades. Scoring the trade takes place only
after we have performed our pre-steps, set the curve, checked the trend, and identified our entry and
target zones. Scoring the trade before these steps will not work as you don’t know the context of the
trade setup.
 342

So the flow is simple. Steps one, two, and three are analyzed to set the framework for the trade. If the
score is not high enough or weak we pass on the trade. If the score is strong enough, we move on to
step five to plan our stop, entry, target, and position size, which are referred to as S.E.T.S.
 343

Now that the components of our setup are complete we’re ready to score the trade using odds
enhancers.
 344

pt.106 Odds Enhancers Review

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Use the Trade Log within the Google Drive account or use your own if you prefer. The link to the Trade
Log is in the video description of pt. 9 of Scoring a Trade Start to Finish for Beginners

Take a trade and log the trade immediately after your trade closes.
411
 412

Review the results in your trade tracker.

413
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 416

Download the trade plan Word doc from the Google Drive account. As you go through the remaining
portion of this presentation, use the examples below to personalize your trade plan.
 417

YO: WHERE can I IMPROVE as a Trader?

Ce rta in cha ra cte r tra its w ill kee p m e from ach ie ving m y 9oa ls Be in9 a wa re of th es e w ill he lp me
manag e th e m a nd improve my ap pro a ch .

Check the appropriate boxes and/or enter additional thoughts regarding your areas for improvem ent in the
"Additional Notes" fi eld.

~ Lack o Dis c iph ne

~ Not Pa tie ri t
D Not Coa ch a ble
D Ind e c is ive ne ss
D Inflexibility
0 Noncom m itt a l
D Diso r9a nized
D Not Goa l Orien te d
~ Im pu ls ive
D Emotiona lly Insta b le
D Dif icu lty Focu s ing
D Eas ily dis cou rag e d
0 Proc ra st inato r
D Slow Le a rn e r

ADDITIONAl N0TES
1
D Use Notes Only
I nee d to pla ri a nd co mm u nic ate be tte r. I te rid to pro ble m s o lve in my head from ori e pe rspe ct ive in a tas k
o r ie nte d chec klis t pa tt e rn . I not ice d last w ee k I a lllowe d myse lf to becom e e mot iona lly com prom ised a nd
place d w o t rades on ass um pti o n. I Lost
 418

YO: My INCOME goals are?

My object ive is to esta b lis h rea lis ti c goa ls wit n re9ar-ds to my tra in in9 a nd invest ing opportun iti es. Th is
wii ll fn e lp m e to stay foc used on m a na9 ing my ris k and rewa rd

Choose the approprjafe fields to complete the goa l. CUck on the+ to add another Income Goal.

@ S 300 inc rease per Wee k ,.. t rading Opt ions ~

a
@ S 10 0 inc rease per Wee k ,.. t rading Stocks/ ETFs ~
a
@ s inc rease per ,.. t rading

Ill
ADDITIONAIL I NC,OME GOALS D Use Notes Only
pe rle ct ing my execut ion a nd w inn ing %.

/,
 419

YO: My WEALTH g,oals are?

My object ive is to estab lis ti rea lis ti c goals w itn r,e gards to my t ra i11 i11g a nd invest ing opportun ities. fti is
w 1ll he lp me to stay focused 011 manag ing my ris k and rewa rd.

Choose the appropriate fields to complete the goal. Click on the +- to add another Wealth Goal.

@ S 100000 increase per Yea r ..,.. t rading Stocks/ ETFs ..,..

a
@ s inc rease per ..,.. t rading

..
ADDITIONAl WEALH GOAlS D lJ se Notes Only
get my da ught e r fa m ilia rized by th e time s ti e 's a tee nage r. la ke a po rlio11 of w i11 ni11gs to i11vest i11 divide nd
ea rni11g s tocks lex : KO, KHCl. w h ile tra d i11 g from a n IRA acco unt
/,

YO: WHICH markets do I trade?

I want to tru ly be divers i ied i11 my t ra ding act ivity; t ti erefo re I w ill be t r-a d ing

Choose the appropriat.e values from the drop down list indicating the markets you ini,end to trade. Be sure
to include the description of rules you will use to build your market specific Watch List. CIiek on the +- to
add another Market to trade .

ASSET iCLASS MARK ET WATC EI LIST RULES

Stoc ks

/,
II
Op ion s ( irectiona l) ..,.. ]

/,
II
.... ]
/,
 420

10: My Trading and Investing ACCOUNTS are listed as f,ollows:

Tii is s ect ion o my trad i11g pla11 takes i11ve 11 to ry of tn e a cco u nts I nave a11d tn e a mou11 t or mo11 ey in
e a ch 011e.

Choos e the appropriate fields to complete your account lis ting. Click on the + to add anoth er account
listing.

Stoc k/ Options .... accoun w i h Ro bin hood .... conta ining $ _J II

Stoc k .... accoun w i h Think or Sw im .... containing $
~ II
Stock .... accoun wi h Fidel i y .... containing [ $
I II
.... accou n w it h .... conta ining $
~
10: Multipl,e Timeframe Analysis
Mu lt iple ti me fra me an a lys is is c rit ica l ' o r nav iga ti ng t nrou gh t ne Blue print s t e ps when pla nn ing and
exe cut ing trad es.

Complete the following table to document the timeframes lo be us ed when tra,ding for the various
purposes.

TIRAD INGPURPOSE
1
CURVE (lil H TREND (I TF J ZONE ( LTF]I REFI NING (RTF )

~ ~ 3 ~
Hou r ly Incom e
60 m ins 15 mins 5 mi ns 1 min

Daily Income
Daily .... ] 60 mins .. l 15 mins .... ] 5 mins .. l
3 3 ~ 3
Weekly Incom e
Weekly Da ily 60 mins 15 mins

~ ~ ~
Mon thly Incom e
Mon hly Wee kly aily
--i 60 mins
 421

10::My Trading Execution - Rules for Entry

Hav ing de' ined r u les fo r e nte ring a trade he lps to keep my l rad ing ru le- based a nd un emot io na l_
Following co ntain s U1e ru les an d cond itions for each typ e o entry I will use when trad ing .

Se lect your trade type and entry rules.

TIRAD IEHPE IEIITRY RU LES

-,
Income Trade
Proxima l en try only w/ bra eke orders [TO S),
>=5:1 RR R. stock mu s t have.a n up ren d on 1.
3. a nd 5 yea r ch.a rt .
D

..
/

ADDITIONAIL CONSIDERATIONS FOR RULES OF EN TRY D Use Notes Only

Sco ring a Tra de & Ris k To le ra nee
10/10 = 100% of acct ,
10/8.5 or + = 50 % of a cct a nd , /

EO: My Trading Execution - IRules for Stop (Loss Exit)

Manag in g my r isk is one of the most im por tant keys to being ab le to trade w ith s kill a nd confidence.
My ru les fo r liow to ex it a trade wlie n tne trad e is not go ing in my favor a re as fo llows .

Tli e Stop Loss sliou ld be placed beyond t ne Dis ta l line us ing a Buffe r Marg in of:

Input the % buffer amount for Income and We alth Trades.

TRAD IING PURP 0SE

1
BUFFIER AIMO UNT

Income Trades
2 % of D.a i!y ATR

Wea lt h Trades
10 % of D.a i!y ATR
 422

EO: My Trading Execution - Rules for Target(s) (Profit Exit)

Know ing wn e n to ex it a trad e is d ired ly re late d lo w ne th e r the tra de w ill be profitab le or no t. Th e
fo llow ing ar-e my rules to ne lp me ac nie ve a prnfitab le ex it.

Se lect the appropriate values for each field to complete your rule for determining the Target for each
trading purpose.

TRADING IPURP OSE TARGET RULE

Income Trades • I Targ et is placed 80 % before the fi rs t oppos ing LTF • zon e
II
Wea lt h Trades • J Targ et is placed E3 befo re the firs t op pos ing HTF • zone

..
EO: My Trading Execution - Placing the Ord,er
Pla c ing th e order o' a trad e mu s t be chec ke d and do ub le checked. Tne re is a set process I go t nrougn
w ne n plac ing a trad e .

List your complete rules and processes for placing your order.

PLAC ING ORDER RULES

Proxima l e n ry on ly, >=5 :1 RR R, 1-5, yea r uptre nd, neve r ord e r a stock I
wou ldn't mind kee ping · o r 20 yea rs.
l II
/
 423

10: My Risk Managem,ent Rules Part 1

It is critica l to list th e ru les t nat I will a ct ive ly fo ll ow in m a nag ing my ris k. I ap ply Co re St rategy to ne lp
find q ua lity trad ing opport un ities wh ile I m a na ge my r isk a nd my e mo t ions fo llow ing a ru le - based p la n
tnat I fo lll ow w ith comm itted dis c ipline

Choose the appropriate fields fo complete your Risk Managem en t Part 1 rules .

l!3 I a lw ays use Stop Orders.

l!3 I cut a ny losses s nort and I le t a ny profits run .
l.!3 1neve r ope n a pos iti on in th e ma rke t w it no ut know ing my init ia l ris k.
l.!3 1de fin e my profi t a nd loss as s om e mu ltiple of my in itia l risk.
l!3 I lim it my losses to 1:1 o r less

l.!3 1on ly la ke opp o rt un iti es with a Rewa rd vs . Ra tio >= 5 : 1 ...,. to my 1st ta rge t.

l.!3 1neve r r isk mo re th a n 2 Yo of my trad ing accou nt fo r a ny s ingle trade .

D With mu lt iple trades in the ma rke t I pos iti ons ) at th e sa me t im e , I nev,e r ris k m ore t na n

[ 2 )%of my acco unt.

10: My Risk Management Rules Part 2

It is critica l to list th e ru les t nat I will a ct ive ly fo llow in m a na g ing my ris k.

Check the appropriate boxes to com plete your Risk Managem ent Part 2 rules.

l.!3 1use a ppropr ia te en try ord e rs to e nte r my positions Tna t way I re move my e mo ti ons out of t ne
trad e
D I a m a lw ays pro perly d ive rs ifi ed ; th ,e r'E!fore I don 't ta ke co r re la te d trad es in th e sa me ma rke ts [fo r
exa m ple Long t ne EURUSO a nd S nort th e USDCH F] If I se t u p seve ra l trades t na t a re corre lated ,
wn e n th e first opport un ity is fille d, t ne otne r ord e rs a re c a nce lled
D I on ly use bro ke rs t na t no ld my o rders in th e ir serve rs s o in a s it ua tion o' a pow e r outage or a n
Inte rn et dro p, I w ill re ma in prote cte d [Sto p Orde r in place] a t a ll tim es
D I ba ckup my trad ing platfo rm eve ry day a nd I bac kup my tra ding comp ute r on a cloud dr ive
l.!3 1log my tra des , I review my resu lts and I lea rn from my m is takes
424
 425

10: My Trading Execution - Checking R,ep orts 1

Be ing a wa r'e o wh e n m a rke t repo rts are pub lis he d is c r itica l to be ing p repa red fo r possib le sh i ts in
price act ion.

Se{ed which reports you wiU include in your trading execution and the how you plan to use them.

REPORT NAME REPORT NOTES AND PURPOSE

Othe r
igh impac or vola ility.

/
II
[
/

EO: My Trading Execution - Logging the Trade

Logg ing Tra d es is critica l lo he lping m e s tay disc ipline d w ith my trad ing a nd he lp m e Lea rn from my
m is ta kes a nd ide ntify w ha t he lps m ee t my goa ls .

Select the appropriate values for each field to complete your rules for es tablishing your plan for logging
your trades.

Eve ry closed rade will be logg ed in My pe rso nal rade log

Trades will be Logg ed Imm ed iately • at e r he t rade has d osed.

YiQ: My Trading Execution - Reviewing Results

I will m a ke s ure to not on ly k,eep t he da ta res ults of eac n tra de , but I will also ta ke sc ree n s ho ts with
notes. In ad d iti o n I comm it to kee ping not es on each t ra de rega rd ing my fee lings, im pressions a nd
wha t I lea med from the tra de .

ADDITIONAL CONSIDERATIONS FOR REVIEWIN G RESULTS1

t houg ht processes a nd reaso ns fo r exec ution [psyc hology]. Why d id you pus h t he butt on?

/,
426