Ed Burke- Tutorials

Greetings! Ed Burke here. By now you have had the opportunity to read MAKING MONEY IN STOCK TRENDS: HOW I DID IT. Welcome to TUTORIAL #1 - Basic trade setups.

This segment will briefly cover the best way to set up your entries and control your risk. Using a 'setup' procedure on any given security performs much better than attempting to move long and short your favorite stock or commodity. The latter will predispose you to more false signals and error because you won't want to miss a move. Remember, the idea here is to trade a very STRONG TREND. You'll want to ignore any 3x6 EMA crossovers if the crossover occurs below the 18 EMA (for longs). This is a sign of poor momentum. Enter long when the 3 crosses the 6 if they are both much higher than the 18. Reverse this process for shorting.

Although I trade both stocks and the Forex, I always wait for a strong trend (up or down) to emerge in any market before I set up a trade. This is the real 'secret' to gauging trend strength: the strongest trends exist when the short and intermediate term EMAs are very diverged from the long term EMA. Be patient. Focus ONLY on the strongest trends and set up your trades accordingly.

Follow these steps to most effectively SET UP your LONG ENTRIES: 1) Use the Investor's Business Daily (IBD) or stocktables.com to find HIGH RELATIVE STRENGTH (RS) stocks. (I typically only watch stocks with a 99 RS).

2) Wait for a pullback from a high after a strong uptrend. The 3 EMA should cross over the 6 EMA DOWN. This is your countertrend.

3) Ensure the trend is strong (both 3 and 6 EMAs are trading above the 18 EMA).

3) Look for the stock to 'TEST' the 18 EMA. It should bounce on it.

4) Enter LONG when the 3 EMA crosses UP over the 6 EMA. Enter a BUYSTOP 0.01 above the high of the trigger bar (bar which triggers trade).

5) Perform steps 1 through 4 when the 3 EMA is trading over the 6 EMA on a WEEKLY CHART of the the DOW JONES INDUSTRIAL AVERAGE (DOW) The stock should make a NEW HIGH in a few days. Be careful if it doesn't.

I have attached several screen shots to instruct. TEN and DTG are trades I made recently. These are excellent entries and profits in both positions exceed $6 so far. NOTICE HOW THE COUNTER TREND PULLBACK TESTS (bounces squarely on) THE 18 EMA. THIS IS VERY IMPORTANT. These screen shots detail the basic entry. The purpose of this tutorial is to familiarize you with the fundamentals and lay the groundwork for further instruction.

In upcoming tutorials I will discuss a variety of price action entries in depth and demonstrate how to achieve the lowest risk/highest reward setups.

I hope you find this tutorial helpful. Please email any questions or concerns

to info@tradeshadow.com. Stay tuned! The next tutorial will cover stock screening, after which we'll discuss how to achieve 80% winners, timing your entries with the market, Daytrading vs. End-of-day, Risk control and price action setups to name a few.

Welcome to Tutorial #2: Stock screening.

In this segment we will briefly cover how to build and maintain your watch list. You will achieve the best results from monitoring a few VERY HIGH MOMENTUM stocks, Forex pairs, commodities, ETFs, etc. This watch list will produce your largest winners.

Following is the stock screen I employ. Historically it has produced the largest winners in the shortest period of time.

RS (Relative Strength): 99 Average daily volume: 100K Stock within 15-20% of its 52wk high Float < 25 million (this is variable - info can be found at yahoo finance/key statistics) Doublers (52wk high/52wk low > 2) - the stock should have doubled or more off the year low If you're trading Forex pairs, you'll want to target weekly, monthly and yearly breakouts. The latter two are more significant than the former and are demonstrative of the strongest trends.

The momentum stock screen can be done in a few minutes a week using the Investor's Business Daily (IBD) or www.stocktables.com. Typically, a scan of RS > 80 will produce well over 1,000 stocks and ETFs - an unmanageable lot. The RS 99 scan with volume will produce about 50. These can easily be monitored on a daily basis in 15 minutes or so. Of course you can watch as many stocks as you prefer, but I would suggest targeting those with an RS of 97 or better.

If you recall, the first tutorial had screen shots of recent entries in DTG and TEN. Both of these stocks made the above RS 99 screen prior to the signals. That is all you need.

You now know which stocks to watch and you should be familiar with the basic trade setup. In the next tutorial we'll discuss how to achieve 80%+ winners.

You might be concerned at this point about variation in how each stocks set up.

Don't be. Once we cover the next segment we'll take an in depth look at more precise price action setups.

Thanks for listening. Stay tuned!

Welcome to Tutorial #3: 80%+ WINNERS. This is probably THE most important tutorial. The reason it did not come first? I wanted you to have time to digest the concept and also have a firm understanding of how to set up your trades with the correct stocks.

IT IS POSSIBLE TO ACHIEVE 80% OR EVEN 90% WINNERS USING THIS STRATEGY. To do this, you must understand RESPECT of the Long Term Trend however you define it. That is, whatever system you are trading (3X6X18 or 3X13X39), the price action MUST TEST (bounce squarely on) YOUR LONGEST EMA. I'll repeat this: CONFINE YOUR ENTRIES TO ONLY THOSE WHICH INCLUDE A 1 or 2-BAR BOUNCE ON YOUR LONGEST EMA PRIOR TO THE 3 RECROSSING THE 6.

It will also help if the market, stock, Forex pair, commodity or whatever security you are watching has a HISTORY OF RESPECTING YOUR LONG TERM EMA. Once you understand this, you'll realize this is not just a moving average crossover system. It is a cash machine. Even very experienced traders tend to look only at 'indicators'. I watch PRICE ACTION. By doing so I allowed my intuition to hand me the secret to continuation trend trading. It's not so much a moving average system but a method for trading continuations after pullbacks to support in established trends. And it doesn't require a ton of work .

Used as indicators, moving averages lag the market. This is a mathematical certainty. Used as moving SUPPORT AND RESISTANCE lines they are LEADING INDICATORS. You can achieve absurdly low-risk entries with overwhelming odds of ending the trade with a profitable transaction.

There are two types of setups which lead to continuation moves: 1) PULLBACKS (uncongested); and 2) PATTERNS. I will show you how to trade each one.

If you master the PULLBACK which RESPECTS your Long Term EMA, you will control your destiny. It is truly an amazing thing to watch this work over and over again on almost any time interval.

These two setup types will be covered in Tutorial #4. For now, study the screen shots attached to this email. As always, I am available for questions at info@tradeshadow.com.

Have a great day!

ED

Welcome to Tutorial #4: PULLBACKS AND PATTERNS. Let's review our progress. We understand the basic continuation entry as one which must TEST (find support at) the LONG-TERM EMA somewhere in the COUNTER TREND. The subsequent 3X6 EMA crossover results in our entry signal.

Furthermore we know how to gauge strong momentum by ensuring the 3 and 6 EMAs are quite diverged (some distance away from) the 18 EMA. We also know which stocks and/or markets to watch.

Now we can review the second most important aspect of the system: PRICE ACTION. By price action I mean the behavior of the price chart (in terms of highs and lows) during the COUNTERTREND. This behavior is immensely important. By learning to read PRICE ACTION you will know exactly which trades to take, what to expect from the setup, how to let the market hand you low-risk entries, and how to manage it once you're filled.

OK, price behavior in the countertrend falls into one of two categories: PULLBACKS and PATTERNS. Let's define them: PULLBACK: A brief series of sequential, uninterrupted highs and lows in the direction of the trend.

There are no swing high or low points in a pullback. There is no resistance in a pullback other than the high or low price at which it began. Inside bars are not a factor.

PATTERN: A consolidation area of mixed highs and lows (or higher highs/lower lows) which may or may not form some type of geometric shape. The swing high/low points can be connected by trend lines which better enable the trader to identify the pattern.

With concepts defined, let's proceed to the attached screenshots. Review each one until you are familiar with both types of setups.

A note about my charts. I use an advanced charting tool which enables me to program color changes. The bars automatically turn green with the 3 over the 6 (up trends/short countertrends) or red with the 3 below the 6 (down trends/long countertrends). Also, my drawing tools can be magnetically attached to price highs and lows for precise accuracy.

The PULLBACK is the easiest and most probable entry. It's like a lay up shot in basketball if you're familiar with that. It has no resistance other than the high or low from which it began.

Follow through is easy to gauge with a new high or low. Master the PULLBACK and you can quit your day job....

PULLBACK KEY: THE BETTER.

THE FEWER BARS IN IT AND THE MORE SHALLOW IT IS,

The PATTERN is trickier. Still probable, it has resistance built in at the swing high/low points which define it. This is because the price action is counter trending in earnest. I'm more careful with entry and follow through on these.

PATTERN KEY: ONLY TRADE THESE WHEN YOUR CROSSOVER SIGNAL COINCIDES WITH A PATTERN (Trend line) BREAKOUT. Go back to the sample screen shots if you must.

NOTE: MANY CROSSOVERS OCCUR WITHIN LARGER CONSOLIDATIONS. DO NOT TRADE THESE (Refer to attached screen shot Tutorial 4 Patt 5 and Tutorial 4 Patt 6).

You'll immediately notice PATTERNS are more complicated. So don't trade them if you don't want to do the work. Wait for pullbacks. That's what I do most of the time.

There is a tendency to over analyze these. Don't make it more complicated than it is.

WORK BACKWARDS. Use the following plan to organize your work: 1) Wait for a 3X6 CONTINUATION ENTRY SIGNAL 2) Look for a TEST OF THE LONG-TERM EMA (18 EMA for me) 3) Verify the HIGH or LOW (which precedes the COUNTER TREND) as significant 4) DETERMINE COUNTER TREND PRICE ACTION to be a PULLBACK or a PATTERN 5) COMPLETE ANALYSIS (if pattern, does 3X6 coincide with Pattern BREAKOUT?) 6) ENTER THE TRADE when the price breaks OVER (long) or UNDER (short) the TRIGGER BAR All you really ever have to do is wait for your 3X6 signal and then call the ball. Let the crossover mechanism do most of the work; your Price Action assessment will do the rest. No need to waste time watching these things form.

There you have it. Once this clicks you'll understand why a discretionary trader will outperform a mechanical system in any environment. No wonder trading random crossover

signals produces mediocre returns. The essence of the system is mechanical, but learning to read the tape and assess price action will make your trades tactical, efficient and profitable.

Welcome to Tutorial #4.1: CROSSOVER SETUP ENTRIES. If you're reading this tutorial you should have some theoretical mastery of the continuation setup pattern. In the course of learning about moving average respect, pullbacks, patterns and low-risk entries, you may have noticed that breakouts over the long term moving average can be sharp and profitable.

Breakouts over the 18 EMA and 21 EMA have considerable technical merit. This tutorial will detail how to profit from Crossover breakouts and achieve the same objective of low-risk, consistently profitable entries.

TREND CYCLE Letâ&#x20AC;&#x2122;s review the trend cycle as described in the eBook. A stock or market will be in a confirmed trend when price action has sustained the 3-EMA system sequentially in one direction. This generally includes a counter trend and subsequent continuation.

Prices will begin to move against the trend until the Price EMA (3) and Short Term EMA (6) trade above the Long Term EMA (18). This is our focus: the Crossover.

CROSSOVER SETUP/ENTRY RULES (3x6x18 System assumed) An entry signal occurs when a price breakout over the 18 coincides with the3 crossing over the 6 (refer to screenshot 4.1.1).

To reiterate, the price bar which crosses over the 18 is also the one at which the 3 crosses over the 6 in the same direction. Ideally, prices should have been trading on the opposite side of the 18 for some time; preferably in a confirmed directional trend (refer to screenshot 4.1.2).

This tutorial will only detail the basic strategy. Trade management and risk control will be thoroughly discussed in Tutorials #5 and #8.

LONG ENTRY**

Price X 18 / 3x6 Crossover (up) simultaneously = Trigger bar (enter 0.01 above) INITIAL STOP: TRIGGER BAR LOW (1-2 cents below) LONG EXIT 3x6 Crossover (down) - the beginning of the countertrend SHORT ENTRY** (Signal should coincide with weekly 3x6x18 sell signal) Price X 18 / 3x6 Crossover (down) simultaneously = Trigger bar (enter 0.01 below) INITIAL STOP: TRIGGER BAR HIGH (1-2 cents above) SHORT EXIT 3x6 Crossover (up) - the beginning of the countertrend **I almost exclusively time Crossover Breakout entries with an MACD breakout.(See Basic Entry Signal Improvement below for filter information)

NOTES Long Crossover Breakouts are typically more profitable than Short Breakouts Trade Crossover Breakouts which follow a confirmed trend in the other direction Use Crossover Breakouts to time the market and/or trade indices (refer to screenshots 4.1-3, 4.1-4, 4.1-5, 4.1-6) Weekly Crossover Breakouts have historically preceded large market moves An excellent strategy: TRADE LONG SIGNALS, exit market on SHORT SIGNALS Use Weekly Crossover Breakouts for long term equity positions > (refer to screenshots 4.1-7, 4.1-8)

The combination of the 18 breakout and the 3x6

crossover is a very powerful impulse. Empirical evidence suggests that the win rate is about 70% with proper money management. Although not as probable as the CONTINUATION setup, it gives the trader optimal flexibility and choice. You will see this pattern repeat over and over in any time interval on any stock, index, Forex pair or commodity price chart most frequently in sideways, choppy markets.

BENEFITS The advantages of this strategy are numerous. It makes a great companion entry to the Continuation setup. It will enable you to profit from early trend changes in momentum stocks and sustained sideways markets which can appear in Forex pairs and broad market consolidations.

Additionally it can provide more consistent entries in shorter time intervals and day trading strategies. It can facilitate single market trading or permit you to follow fewer issues since you can take advantage of more market movement (refer to screenshot 4.1-9).

It also compliments a variety of option strategies (some of which will discussed in a subsequent tutorial). Covered Calls and spreads are much more profitable when some directional bias is established.

The only disadvantage to the setup is the very concept. It is not a continuation move.

Since it lacks the countertrend characteristic that precedes a trend continuation, you will never know if it is the beginning of a long term rally or just another run in a broad consolidation. That said, any disadvantage is outweighed by the flexibility and probability offered by the pattern. Just like Continuation entries, it is all about risk control and trade management.

(Refer to screenshot 4.1-10)

BASIC ENTRY SIGNAL IMPROVEMENT

The astute trader can improve upon basic entries in a variety of ways. Let's look at a few ways to do this.

MACD BREAKOUT / CONFIRMATION The 12/26/9 parameter MACD (used also in Tutorial #14) provides an excellent, high probability filter. This can be used three (3) ways: 1) CONFIRMATION - trade only breakouts in which the MACD line is on the proper side of the zero (0) line (long - MACD > 0 line, short - MACD < 0 line); 2) MACD Signal Line BREAKOUT - trade only crossover breakouts that coincide with the MACD line crossing the signal line in the direction of your trade (long MACD X signal line UP, short - MACD X signal line DOWN). refer to screenshot 4.1-12 for a CONFIRMATION EXAMPLE. refer to screenshot 4.1-13 for a MACD Signal Line BREAKOUT EXAMPLE. I generally use the MACD Signal Line Breakout filter for all my Crossover entries. It allows me to shed risk and get to break even virtually every time. The filter provides great impulse and allows me to control my risk more effectively. I encourage you to test it.

Try it on ten (10) random Crossover Breakouts. See if they don't all pop.

It's really cool.

V-PATTERNS As you study the attached screenshots and do your own analysis, you'll notice that in the best setups there evolves a sharp V-pattern prior to the breakout. By definition, this consists of 3 or more higher (long) or lower (short) closes. This helps determine a meaningful trend change and the greater likelihood of a sustained move (refer to screenshot 4.1-11).Keep in mind that 3 or more higher or lower closes is not necessary, however, to produce a winning signal.

EMA RESPECT

Respect (testing) of the 3, 6 or 18 EMAs in the V-pattern is also an indicator of strength and sustainability. Please refer to Tutorials #3 and #4 if you are still unclear about MA respect.

RISK An excellent method of improving basic signal entries is risk. Select only those trigger bars where the range (high-low) is less than or equal to the average interval range (most easily calculated on the daily interval). It may seem obvious but a massive breakout bar3 or 4 times the height of an average interval will almost have to consolidate. Stick with low-risk entries that market gives you.

A low-risk trigger bar provides better control and a greater risk/reward ratio. It pays to be patient.

TRADE / MONEY MANAGEMENT As stated previously, trade and money management will be the same method used for Continuation setups. Please refer to Tutorials #5 and #8. You can dramatically improve your win rate and profit factor by managing the trades properly. There is almost always some type of follow through after a signal. If this strength (for longs) or weakness (for shorts) is used to shed and/or eliminate risk you will be much more consistent, less frustrated by false signals and a lot less stressed.

There you have it...a Crossover strategy to compliment the Continuation setup.

Once mastered you'll have a powerful tool in your arsenal. You'll be able to trade any market, any time interval. ...it slices....it dices......

Until next time...

Cheers, Ed

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Welcome to Tutorial #5: TRADE MANAGEMENT. OK...let's review our progress. We are familiar with the basic strategy and know which stocks to watch. We've learned how to dramatically increase performance with respect of the long term EMA. Finally, we understand PRICE ACTION and the two types of countertrends. Best of all we know how to set them up.

This segment's importance is second only to setups. Now we can talk about TRADE MANAGEMENT. You're in the trade....NOW WHAT DO YOU DO? The focus must immediately shift to PROCESS. You are finished analyzing. You have committed to the trade. You either own it or you're short it. All you have to do now is PROCESS the trade WITH DISCIPLINE and take it home -- and try not to do anything stupid.

Our primary focus from beginning to end is SHEDDING RISK. That's correct.

We want to always be thinking about how we can reduce and eventually eliminate real and theoretical risk. Control risk and you control the game. A trader can shed risk in one of only three (3) ways: 1) PRICE REJECTION -- the bid/ask moves sufficiently in the direction of APPRECIATION. 2) STOP ADJUSTMENT -- an exit stop order is moved in the direction of appreciation so as to reduce or eliminate margin or profit risk.

3) LIQUIDATION -- some or all of the position may be exited, resulting in either 1) reduction of margin exposure; or 2) profit.

The trade management strategy will employ all three. Let's briefly discuss each one.

PRICE REJECTION is nothing more than the market moving favorably in your direction.

Plot a theoretical risk curve and you'll see that your position has the most risk when it is at or below profitability. When delta has pushed the price sufficiently toward profitability such that a move of X standard deviations will not result in loss, you have no theoretical risk. Buy a stock for $1.00. When the price hits $99 you have no risk.

STOP ADJUSTMENT is self-explanatory. LIQUIDATION involves systematically exiting or SCALING OUT of your position (as you achieve price rejection) to eliminate risk.

TRADE MANAGEMENT PROCEDURE (Long position assumed - reverse for shorting) 1) Place your maximum risk STOP LOSS order (SELLSTOP) 0.01 below the lowest price of your TRIGGER BAR (3X6 bar)

THE DISTANCE BETWEEN THE HIGH AND LOW OF THE TRIGGER BAR IS YOUR RISK. This is very important and will be used for MONEY MANAGEMENT. TRIGGER BAR HIGH - TRIGGER BAR LOW = MAXIMUM RISK 2) When the stock appreciates by an amount greater than or equal to your MAXIMUM RISK, SELL 1/3 of your position and move your SELLSTOP to the low of the ENTRY BAR PROFIT = MAXIMUM RISK than CLOSE (Sell) 1/3 POSITION SELLSTOP 0.01 below ENTRY BAR LOW 3) Set a target for liquidating your remaining position when price appreciates to 3 TIMES THE MAXIMUM RISK. PROFIT = 3 X MAXIMUM RISK, CLOSE remaining 2/3 POSITION TRAILING STOPS 1) Place trailing stops 0.01 below any swing low bars (pullbacks) where price resumes trend and makes higher high. These will be apparent in the attached screenshots.

2) Place stops under ANY BAR WHICH BREAKS OUT OVER AN EXISTING HORIZONTAL PRICE LEVEL (See screenshots for examples of these as well). This is the 'trader vic' short setup.

INTEGRATION TRAIL STOPS AT ANY TIME THEY EVOLVE DURING THE TRADE MANAGEMENT 3 STEP PROCEDURE SHEDDING = BREAKEVEN Step 2 of the management procedure is your RISK SHED. This move should bring you to BREAKEVEN if stopped on the remaining 2/3 position (provided your entry bar is reasonably close to your trigger price).

Simple math will tell you if you're in the ballpark. If you're still under water, SHED more shares.

If you're taking too many cookies off the plate, sell fewer shares. YOU WANT TO OWN AS MANY SHARES AS POSSIBLE FOR THE REST OF THE RIDE. TARGET = 2.5 X RISK If you SHED RISK at the appropriate 1 X MAX RISK level and achieve the target on remaining shares, you should realize a profit of 2.5 TIMES YOUR RISK (2.33 actually but close enough). Again, this figure is important for MONEY MANAGEMENT - which will come later.

ALTERNATIVE STRATEGIES: You may wish to stay at the party longer than 2.5 RISK. Many strong trends (specifically in high RS stocks early in the broad market move), can last weeks and result in the stock price doubling or tripling.

IN ANY CASE -- ALWAYS FOLLOW TRADE MANAGEMENT PROCEDURE AND COMPLETE STEP 2. I REPEAT: ALWAYS SHED RISK. YOU'LL NEVER BE SORRY AND YOU'LL THANK ME FOR SOUND SLEEP! 1) After SETP 2 - SHED 1/3 AT 3 X MAX RISK and hold remaining 1/3 (choose a stop listed below:) 2) After STEP 2 - TRAIL swing low stops (as described above) until stopped out.

3) After STEP 2 - HOLD remaining position until 3X6 countertrend signal evolves.

4) After STEP 2 - PLACE trailing stops 0.01 below ANY BAR WHICH BOUNCES ON THE 6 EMA and rallies.

5) After STEP 2 - Trail stops 0.01 below the LOWEST OF THE LAST 2 BARS (2-BAR LOW) This permits a 1-bar pullback (to be discussed later) but no greater correction.

The screenshots attached to this email should clarify the procedure. I'm offering a variety of stop strategies so that you may develop your own style. In any case you'll be letting your winners run and managing your risk on every bar of the trade. Don't feel as if you have to do it all. Follow the 3-step management strategy and you'll be ordering the Porsche in no time...if that's your thing.

In the next TUTORIAL (#6) we'll discuss how to time your signals with the broad market. By now the strategy should be coming to life for you.

Welcome to Tutorial #6: TIMING THE MARKET. You know the drill. Let's quickly review our progress...By now you should be familiar with: 1) Basic strategy logic; 2) How to locate and maintain watchlists of high momentum stocks; 3) Respect of the Long Term EMA - the technical criteria necessary to greatly increase the odds of strong follow through; 4) How to setup each trade with pullbacks and patterns; AND 5) How to manage each entry effectively and control your risk The above components in total are all you really need to know in order to consistently profit whether you're trading stocks, lumber or the more rare 500lb. stone currency of the Easter Island aborigines...given that it can be charted, of course.

Timing the market is a knack that will greatly enhance your performance over time. The eBook discusses the difference between timing and forecasting, so you are familiar with both. What we will be doing here is TIMING THE MARKET. To be more specific: POSITIONING YOUR TRADE IN THE DIRECTION THAT THE BROAD MARKET IS MOST LIKELY TO GO. THIS DOES NOT MEAN YOU KNOW WHERE THE MARKET IS HEADED; NOR DOES IT ASSUME YOU WILL BE CORRECT. There are Three (3) ways to accomplish this feat. I will begin with the easiest: 1) IGNORE MARKET DIRECTION AND CONSISTENTLY TRADE LONGS I know this contradicts the effort of this tutorial. Don't ask for a refund yet.

I'll explain. Typically 3 out of 4 stocks will move in the general market direction.

This means that statistically if you're seeing lots of longs the market is probably going up. Here's why you will consistently profit: IF YOUR LONG-TERM EMA IS SHORT ENOUGH (15, 18, 21 etc) AND THE MARKET HEADS LOWER, COUNTERTRENDS WILL TRADE THROUGH THE LONG TERM LINE (becoming CROSSOVERS) AND SETUPS WILL NOT APPEAR. It's the coolest thing. I've watched this for years.

SINCE YOU NEED A FIRM BOUNCE ON THE LONG-TERM EMA TO GENERATE A SIGNAL, EVEN MILD MARKET CORRECTIONS WILL CAUSE YOUR STOCKS TO SLICE THROUGH IT AND CROSSOVER. You can instantly become your own advisory. Works great at cocktail parties.

Many people ask me WHY I WAIT FOR A 3X6 COUNTERTREND. WHY NOT TRADE THE PULLBACK TO THE 18, Ed? Several reasons, but chiefly because the COUNTER TREND permits me to assess how well the price is supported at the Long Term EMA.

If it trades through it, I don't even bother. Remember, as I stated in the eBook, YOU NEVER KNOW IF THE COUNTERTREND IS JUST THAT OR THE BEGINNING OF A DOWNTREND VIA CROSSOVER. No need to sweat it. Let the market tell you.

2) TRADE STOCKS AS SURROGATES FOR THE BROAD MARKET This is rather self-explanatory. When the DOW makes a continuation move in any given interval, find a stock that is doing the same thing. Pictures help. Refer to screenshots Tutorial 6-1 and Tutorial 6-2.

3) USE THE 3X6 ON THE WEEKLY DOW INTERVAL AS A 'RED/GREEN BULLBEAR' INDICATOR This strategy will always keep you on the proper side of the long term trend. Turn 'cautiously bearish' when the 3X6 crosses down while over the 18 until it goes through it. Turn 'cautiously bullish' when the 3X6 crosses up while under the 18 until it passes through it. Then simply watch the DAILY DOW interval for earlier turns. These will or will not be confirmed by the weekly chart. You can catch an early turn this way. DON'T WORRY ABOUT MISSING A BOTTOM OR TOP. WAIT PATIENTLY FOR YOUR SETUPS AND FOLLOW THE PLAN. This may sound more confusing than it is. We'll analyze the March 2009 low as an example.

Refer to screenshots Tutorial 6-3 and Tutorial 6-4.

Strategy 3 works extremely well for long term investments to which you add funds on a regular basis (such as a 401k) because re-entry is not a factor. I was able to use this simple RED/GREEN tool to completely avoid the 2008 meltdown. I told all my friends to go to cash after the first week of November, 2007 and again at the end of December.

Some of them listened (Refer to screenshot Tutorial 6-5).

IGNORE A WEEKLY 3X6 CROSSOVER DOWN AT YOUR OWN PERIL. If you heed the warning, you will NEVER SIT THROUGH A LONG TERM BEAR MARKET. The result can be life changing.

There you have it. Everything you ever wanted to know but were afraid to ask about timing the market.

Welcome to Tutorial #7: System Logic.

With Tutorials 1-6 you now possess all the tools necessary to consistently set up low-risk entries in the direction of broad market trends. You should feel like you are in control. You are more capable now, probably, than 90% of all other market participants. Think not? Then why is everyone talking about losing money; how the market has 'changed'; that there is 'no profit in this market'?, etc. Why is there twenty-four hour financial news?

You might be asking why this system really works; why it consistently picks winners year in and year out. The answers to these questions and other mysteries of the universe are contained in this tutorial.

SYSTEM LOGIC consists of two (2) main principles: 1) COUNTERINTUITIVE PREMISE 2) VERIFICATION AND VALIDATION OF LONG TERM TREND COUNTERINTUITIVE PREMISE The setup pattern, whether the PRICE ACTION be a PULLBACK or a PATTERN entry, establishes a counterintuitive premise. Assuming a LONG position, the countertrend is a short-term downtrend which begins OVER the Long Term EMA. Sufficient selling has emerged to facilitate this. Most popularly followed canned indicators, found in any free charting tool on the web are flashing SELL SIGNALS. The uninitiated trader concludes that the market has topped. The bears have taken control and sellers establish short positions.

Additionally, the weak hands exit long positions.

The short sellers will place stops at or near the top of the pattern. When the price bounces firmly on the Long Term EMA and quickly reverses, the shorts are forced to cover. At the new high, more buying ensues as this strategy is a common momentum entry popularized by the IBD. But you will have already established your long and may even have shed risk. Refer to screenshots Tutorial 7-1 and Tutorial 7-3.

VALIDATION OF LONG TERM TREND The second system logic principle is Long Term Trend validation. Since you are familiar with reading trends and gauging momentum, you can verify if the 'TEST' of the Long-Term EMA will hold and result in a CONTINUATION pursuant to the rules of 3-moving average systems.

Also, since price strength is necessary to terminate the countertrend and continue the uptrend, you will have an obvious place to enter (the 3x6 crossover). YOU CAN THEN ANALYZE PRICE ACTION, ASSESS RISK AND DECIDE IF YOU WISH TO TAKE THE ENTRY. Refer to screenshot Tutorial 7-4.

A WORD ABOUT PULLBACKS TO MOVING AVERAGE SUPPORT

Pullbacks to moving average support that result in continuations of the trend ARE MORE PROBABLE if there exists a COUNTERTREND prior to entry. My empirical evidence suggests that pullbacks to support without countertrends are much less probable and DO NOT ALWAYS POSSESS THE COUNTER INTUITIVE PREMISE. Therefore, I only trade continuations after countertrends.

Also, if you attempt an early entry on a pullback to Long Term support (before the 3x6 confirmation, YOUR ENTRY IS RANDOM AND YOU ARE MERELY GUESSING THAT SUPPORT WILL HOLD. Why complicate it? Make it simple. Follow setup procedure, stop over-analyzing and take more vacations.

There you have it....SYSTEM LOGIC. Why this system worked for me in the 1990s, why it worked last week...and why it will work 20 years from now.

Welcome to Tutorial #8: MONEY MANAGEMENT / POSITION SIZING. At this point you should be familiar with setting up low-risk entries and managing the trade. Your management style will evolve as you develop a better understanding of your own discipline, preferences and tolerance. Everything will eventually culminate in a unique process that will be your own.

This segment is an addendum to the trade management tutorial. Here I'll introduce you to a key ingredient necessary to make any strategy truly effective: POSITION SIZING. Here is what we want to do: 1) Master the entry setup and trade management technique 2) EMPLOY POSITION SIZING TO ACHIEVE OUR GOALS Every trade has PREDETERMINED RISK and a PROFIT TARGET. This will enable us to enjoy an expected value. Join me in the following though experiment: I have a sample of 10 trades with the following DISTRIBUTION: 6 WINNERS each one equal to 2.5 times my risk (2.5 X R) 2 BREAKEVENS - the trade reached SHED target but resulted in no total trade profit 2 LOSSES each one equal to my maximum risk (1 X R) Let's think in terms of RISK: 6 WINNERS = 15 times RISK 2 Breakevens = 0 (no risk) 2 LOSSES = -2 times RISK TOTAL

= 13 times RISK (net gain)

"OK, Ed.....but what does this mean?

Let's assume that each time I complete a 10 trade sample (enter, manage and effectively exit a trade) I generally net 12 times RISK, give or take a few.

This 12 X RISK (R), or 12 R becomes my expected outcome.

Let's further assume I can complete one sample (10 trades) each month and that my monthly trading goal is $6,000.00. Simple math dictates that I must risk $500.00 to achieve my goal. Why? Because if my expected outcome is 12 R and each R is equal to $500.00, then I can expect to generate 6K in profit.

12 X R = $6,000.00 (R = $500.00) SIZING POSITIONS FOR RISK (R) The concept of taking the same amount of risk for each trade is not new but most investors don't do it. THIS WILL GIVE YOU TOTAL CONTROL AT ALL TIMES. By knowing exactly how much you are willing to risk, you can decide which trades suit your tolerance and which trades do not.

Furthermore, by choosing the number of open positions to maintain, you can control THE EXACT AMOUNT OF PORTFOLIO RISK (open position risk) YOU WISH TO TOLERATE. Let's first look at sizing for risk. REMEMBER HOW TO DETERMINE YOUR RISK: SUBTRACT THE TRIGGER BAR LOW FROM THE TRIGGER BAR HIGH (HL=RISK) (the trigger bar is the one at which point the 3 crosses the 6...you will be placing a BUYSTOP order 0.01 over the high of this bar). As discussed in Tutorial #5 you will be placing your SELLSTOP 0.01 below the low of the trigger bar.

Use the following formula (given risk) to determine your POSITION SIZE: POSITION SIZE = AMOUNT OF RISK / (divided by) TRADE RISK (trigger bar H-L) Let's say I want to risk $500 per trade and my trade risk is $1.00 POSITION SIZE = $500 / $1.00 500 = $500 / $1.00 - POSTION SIZE IS 500 SHARES.

USING RISK PERCENTAGES TO DETERMINE IF PROFIT TARGET IS REALISTIC The next thing I always do is CALCULATE THE ENTRY RISK AS A PERCENTAGE OF THE STOCK. I know from experience that for momentum stocks 20% is an attainable target. If 2.5 times risk is the target but my trigger bar is very long and equal to 15% of the stock value, I will need the trade to go over 40% in order to achieve my target. This may not be realistic.

Hence the purpose of my ramblings: FOCUS ON THE LOWEST RISK ENTRIES THAT THE MARKET GIVES YOU. You will be surprised at the number of times an entry will appear with only 5% in risk. This will enable you to TAKE PROFIT SOONER. IT WILL NOT REQUIRE UNREALISTIC APPRECIATION.

GLOBAL PORTFOLIO RISK MANAGEMENT Let's continue my example of $500.00 risk amounts. Assume, for sake of argument, my trading account value is $100,000.00. Knowing my own risk tolerance, let's say I never want to risk more than 2.5% of the account's total value. I would therefore maintain no more than five (5) open positions.

RISK (R) = $500.00 5XR = $2,500.00 $2,500.00 = 2.5% of my portfolio (100K) If I can SHED RISK on several entries and/or achieve sufficient price rejection to

theoretically reduce or eliminate risk, then I can open an additional position or two.

Imagine that. TOTAL CONTROL. Never again will you have to ask your broker if a 30% loss is really OK. Let me tell you...if the worst I can do is a 2.5% drawdown I'll surely survive to play another day. Of course no one will believe that I don't have to assume more risk. I am in control of my money. The choices are mine.

But what is the upside? Well, if I hit the target in the thought experiment I profit $6,000.00.

That's 6%....72% a year......144% if I leverage the account 2:1 with standard margin. Buffet never did that well.

Welcome to Tutorial #9: WEEKLY ENTRIES FOR WEALTH. In this segment I'll address what I consider to be the best way to implement this system: the WEEKLY CHART. In addition to being the most probable time interval I've found, it is also the easiest to implement. One scan per week, a few minutes Sunday night or Monday morning to execute and manage your positions, and the rest of the week is yours.

During the last few years, with the advent of new technology, faster internet connections and advanced analysis tools, I've noticed a trend toward trading shorter and shorter intervals.

I'll admit I do it. Although theoretically more profitable, ultra short intervals introduce selection, management and statistical error issues which are absent in the weekly chart.

Somewhere in the middle exists the ideal interval between lag and the law of diminishing returns. I don't know quite where that is. It depends largely on the individual. All I know is that my biggest winners of all time were weekly setups....and a stock will never be allowed to triple trading a 10 minute chart.

Add to this the tax benefit of IRAs and long-term positions, and in weekly charting you have the potential for massive wealth accumulation. Most well-known historical investors such as Nicolas Darvas or Richard Dennis amassed multi-million dollar fortunes in long-term trends.

So let's get to it....

The weekly setup is no different than that of any timeframe. It's how I manage account positions that is different. I prefer to trade weeklies in an IRA or some type of tax sheltered account.

What to do: 1) Regardless of account size, divide the balance into five (5) equal parts.

Consider these 'sub-accounts' within one larger account and treat them as such.

2) BUILD A PORTFOLIO AT A RATE OF NO MORE THAN ONE ENTRY PER WEEK. This will prevent you from 'loading the boat' in one market move that may not be as profitable as others.

3) When a trade is closed, ADD THE PROFIT TO THE INITIAL AMOUNT AND REINVEST THE ENTIRE NEW BALANCE IN THE NEXT ENTRY (this way you are compounding profits trade to trade TAX FREE).

4) Continue until 'sub-accounts' are impractically large. At this point, add

sub-accounts. And hire a butler...

Let's look at an example: Bill has an IRA worth 100K. He divides it into five (5) $20,000.00 lots.

Each lot is invested into a weekly entry one at a time. His sub-account spreadsheet will look like this when he begins: 20,000 (cash) - 1 20,000 (cash) - 2 20,000 (cash) - 3 20,000 (cash) - 4 20,000 (cash) - 5 _________ 100,000 - balance On a weekly scan in July, 2009, (7/20/09), Bill sees a setup in CROCS INC (NASDAQ: CROX) (see attached screenshot Tutorial 9-1). At $3.61 he buys 5500 shares making his total investement (less commissions) $19,855.00. He risks 3.3% of his portfolio.

THIS RISK IS ACCEPTABLE TO BILL. Bill decides to TRAIL STOPS UNDER WEEKLY LOWS because this is the easiest way to manage weekly entries. If stopped above breakeven he will SHED RISK and move the rest of the position to a breakeven stop. Bill also decides to exit the entire position if he doubles his investment prior to a stop execution.

On 8/21/2009 CROX trades to $7.22 during the day. Bill's SELLSTOP is hit and he exits his position. He doesn't know this because he is out buying flowers for his wife who appreciates him SO MUCH MORE since he stopped daytrading and started giving her more attention.

Over the weekend Bill checks his accounts for weekly management and sees the closed position. He is pleased, NOT BECAUSE HE MADE MONEY, BUT BECAUSE HE FOLLOWED THE PROCESS OF TRADE MANAGEMENT WITH DISCIPLINE. Now his account spreadsheet looks like this: 39,855 (CROX closed position) -1 20,000 (cash) - 2 20,000 (cash) - 3 20,000 (cash) - 4 20,000 (cash) - 5 _________

119,855 - balance Bill does a scan the next week. He will place a new trade in sub-account 2. When he has assembled a portfolio with accounts 2-5 he'll return to position 1. When he finds a setup for this sub-account (1) HE WILL INVEST 39,855.

Could Bill have made 20K in four (4) weeks daytrading and watching screens all week? Maybe....

Could he have done it as effortlessly? NO WAY, MAN! (and he DOESN'T OWE TAX! ) Attached are some additional screenshots of a few of my all time runners. Some I managed well, others not, some I sold way too early. In TUTORIAL #10 I'll discuss how to use options for these setups....very exciting indeed.

Welcome to Tutorial #10: OPTIONS. If you're still with me then you must be a hit at cocktail parties... thrilling one and all with your new found acumen.

In this segment we'll be covering options in two parts. PART 1 will discuss how to choose the best option contract to trade AS A SURROGATE FOR YOUR STOCK ENTRY. PART 2 will briefly discuss some really cool option strategies I've employed over the years to enhance my entries.

WARNING - WARNING - WARNING THIS DISCUSSION OF OPTIONS ASSUMES THAT YOU WILL BE USING THEM FOR DAILY OR WEEKLY POSITIONS. I STRONGLY SUGGEST THAT YOU DON'T DAYTRADE OPTIONS, unless the contract has average daily volume of 5,000 (or more) and a spread of $0.05 or less...and even then...

WARNING - WARNING - WARNING THIS OPTION TUTORIAL ASSUMES THAT YOU HAVE SOME OPTION TRADING EXPERIENCE. If you have NEVER traded them or define an option as leather seats instead of upholstery in a new car DO NOT PROCEED. It is way beyond the scope of a Tutorial to introduce and familiarize you with the esoteric and wild world of option trading.

Still here? We'll let's proceed.

Options are probably the most flexible of all things to trade. Properly used they will help you control risk and maximize gains. Improperly used and your wife, or husband, is likely to leave you for the neighbor.

PART 1 - OPTIONS AS A SURROGATE FOR DAILY AND WEEKLY SETUPS Here is the best way to select an option position for your trade: 1) Choose a LEAP (although these typically have an expiration month 1 or 2 years out, four (4) to six (6) months out is fine). For the remainder of this Tutorial, I will define any contract with a 4-6 month expiration date (or greater) as a LEAP. This will come in handy for the second part.

2) AVOID THE WASTING ASSET CYCLE. DO NOT hold an option position if it has 2 MONTHS OR LESS UNTIL EXPIRATION. During this time, THETA (the theoretical daily decay of premium) goes exponential, especially if the option is OTM (out of the money).

3) CHOOSE A STRIKE PRICE THAT IS SLIGHTLY ITM (In-the-money). Try 1 or 2 strikes in the money (depending whether the option chain trades in 1, 2.5 or 5 point strike prices).

4) CHOOSE AN ITM OPTION THAT HAS A DELTA OF 65 or greater (low 70s is the best).

5) Ensure the option is liquid and doesn't have a big spread. If you're an option trader you know this is very relative. You have to work with what you're given. Also, if you're trading a weekly chart and you know the stock is a potential doubler or tripler, you can be less choosy here.

Ok, let's put it all together. Most people try to buy really cheap options a month or two out because the premium is absurdly low and the potential return is high. This doesn't work effectively as a long term strategy. Time keeps tickin'. If the stock slows for a few days or a week, Theta (decay) will sack you.

Therefore, choose an option about 6 months out (no wasting asset cycle), that is slightly ITM (again, low theta and you're buying MORE INTRINSIC VALUE than speculative premium), with a delta of 65 or better (as your stock rallies you're premium will rocket into the 90s faster and may even achieve parity).

Raise your hand if you've ever bought an option with a 30 or 40 delta (OTM), watched the stock rally and simultaneously watched your option do NOTHING..... Yes, I know.

DON'T LET THIS HAPPEN. LEARN TO TRADE OPTIONS AS SURROGATES FOR STOCKS BY FOLLOWING THE STEPS ABOVE. AVOID THE PREMIUM LAG THAT EXISTS FROM OTM to ITM. Start with ITMs and your premium will appreciate as soon as the stock rallies.

EXAMPLE - It's August 2009. Stock ABC has evolved a great setup around $40 per share. You investigate the option chain and discover the JAN 2010 37.50s and 35.00s are good candidates with 65 and 72 deltas respectively. You choose the 37.50 with a $4.25 premium.

This gives you plenty of time for the trade to work out and the best chance to avoid volatility burn.

I can guarantee that if the stock trades to $45 in the first week your premium will be worth 7.50 to 8.00...right on track with the delta skew. And it will probably have a delta well over 80.

YES, OPTIONS TRADED PROPERLY WILL COST MORE. SO WHAT? It's safer and you're more likely to walk away a winner. Trust me....I know.

PART 2 - SOME GREAT OPTION STRATEGIES TO USE WITH THIS SYSTEM

1) OPEN THE POSITION AS A COVERED CALL. If you're more concerned about income and steady return than shooting for the moon, try this. Don't do it unless you can get at least 3-4% in premium, however. Remember, the stock is likely to move in your favor.

2) OPEN THE POSITION AS A DEBIT SPREAD. Similar to the above strategy except you use the LEAP instead of buying the shares. This gives you the best bang for the buck when it comes to covered write strategies. I've been able to get 30% or more in a month when the stock rallied only slightly. WARNING: DON'T SELL YOUR CALLS 1-1 AGAINST YOUR LEAPS. Remember your LEAP delta is NOT AT PARITY (it's only 65 or 70).

Try selling 7 or 8 for every 10 leaps you own. This should keep you near delta neutral.

This strategy is referred to as calendar spreads or time spreads: go long the LEAPS, short the near term calls.

3) SELL BULL PUT SPREADS FOR INCOME. Put these on at a strike price at or below the 18 BOUNCE in your setup. For the uninitiated, this means selling the near month PUT at a strike at/below the 18 bounce and then buying the next strike down. Even if the stock does nothing you can typically pocket the premium because the price almost never trades down to the 18 bounce (which precedes the 3x6 continuation crossover).

In the 1990s I used to put these on to make the car payment. Those were the days...

Once I mastered the art of option selection I really had some amazing winners. I remember the fall of 2004....I was in southern California, north of San Diego near Del Mar. Anyway, I was long PACIFICARE HEALTH (PHS). I didn't know it but some weeks later the company entered into a merger (it was eventually bought). I opened the option position for $4 or so in premium. When I sold them they were $28 and had been at parity since 16. It took all morning to find a buyer. I also remember the time I thought I understood naked strangle risk and iron condors and lost my shirt. There's a story...

Welcome to Tutorial #11: FLOAT AND DOUBLERS. In this segment we'll be discussing two key components or characteristics of momentum stocks typically found in securities which historically have made exceptional gains: FLOAT and DOUBLERS. First I'll have a quick word about how I arrived at these conclusions. Also, I'll put this information in the proper context.

About ten years ago I became fascinated with why certain stocks achieved startling momentum and others did not. I figured that if I could identify whatever was causing these securities to double, triple or even quadruple in price over a period of weeks or months, I would be able to create a screen 'template' which would accompany my technical 'trigger' for the trade. The rest would be left to risk control and trade management.

The more experience I had with trading high RS (relative strength) stocks, the more I was able to examine their individual characteristics.

Let's begin the two most important criteria....

FLOAT When I analyzed massive winners like TASR (2004), TIE, BOOM (2005) or TZOO (also in 2004) I immediately noticed that they were smaller capitalized companies which had an interesting common trait for publicly traded firms: LOW FLOAT. The number of available shares for public consumption was very low when compared to, let's say, a DOW component.

In most cases these stocks had fewer than 10 million shares in the float. Sometimes, the number was less than 5 million. This meant simply that after being underwritten, the company did not have sufficient share appreciation to facilitate a stock split. Stocks splits increase float.

Obviously, after a 2 for 1 split company ABC will now have twice its original float. That is why IBM's float is in the billions: decades of trading, price appreciation and stock splits.

A small float with good average daily volume (100K shares or greater) sets up an interesting supply and demand quirk. Once the stock has momentum (it's rallying), shareholders have less incentive to sell.

A dearth of sellers creates immediate 'mark-up' in the stock price as buyers have to go to the sellers. Interested buyers have to pay higher and higher prices to enter; sellers must be enticed to liquidate positions.

This is why a low-float stock can double in a month and IBM could take years to double.

FLOAT TURNOVER A point to remember is that float is relative. THE HIGHER THE AVERAGE

DAILY VOLUME, THE HIGHER THE 'LOW FLOAT' CAN BE. A good way to measure this is with simple math: DIVIDE THE FLOAT BY THE AVERAGE DAILY VOLUME to arrive at approximately HOW LONG (in days) IT WILL TAKE TO TURN THE FLOAT OVER (theoretically).

For example, in JUL-AUG 2009, CROCS, INC (NASDAQ: CROX) doubled in a few weeks. The float was around 80 MILLION. HOWEVER, the average daily volume was 3.6 MILLION shares. This means that FLOAT TURNOVER occurs once every 22 days (about once per month - 80 / 3.6 = 22).

THAT'S LOW FLOAT! By contrast, IBM has a float of 1.3 BILLION. The average daily volume of trade is about 7 MILLION shares. It would take about 185 days to turnover the float (1.3B / 7M = 185).

THAT'S NOT LOW FLOAT!

DOUBLERS The next criteria I noticed about these massive winners was that prior to my setup entry the stock had doubled in price off its 52-week low. This means that if I divided the 52 week high by the 52 week low, the quotient was more than 2. Pretty simple.

It makes an obvious conclusion. If a stock is going to rally 5 or 10-fold over a year it must first pass through the doubling point.

A POINT TO PONDER Before you send an email with some stock that rallied 10 points and had neither doubled in the last year nor had low float.....hold on....

Let me clarify what I consider to be a huge momentum gainer: a stock that triples, quadruples or (in the case of TIE in 2005) yields a 10-bagger (rallies 10-fold). I'm not talking about a few points here. I'm talking about companies with massive earnings growth potential that undergo LONG TERM INSTITUTIONAL ACCUMULATION. Yes, you can trade the setup on any security and achieve profit with a trend continuation entry. And, yes I suggest YOU DO FOCUS ON THE SETUP. But learn to spot high RS stocks which are low-float doublers and you can position yourself in what later will be considered massive historical moves.

Next time I'll discuss a few additional fundamental elements which can greatly improve your momentum stock screens.

Welcome to Tutorial #12: FUNDAMENTAL ANALYSIS. This segment will complete our analysis of non-technical momentum

stock attributes. Following are the nine (9) criteria I believe to be the most important characteristics of major momentum winners: 1) 2) 3) 4) 5) 6) 7) 8) 9)

Relative Strength (RS) Market Direction Float INSIDER Ownership Institutional Ownership Short Interest Revenue Growth Earnings Growth Infant Industry

We have covered RS, Market Direction and Float in previous Tutorials.

Let's finish the job and get on to the more important work of finding setups.

NOTE: THIS INFORMATION CAN BE FOUND IN YAHOO FINANCE. WHEN YOU GET A STOCK QUOTE THERE WILL BE A LIGHT BLUE COLUMN ON THE LEFT SIDE OF THE PAGE. THE FOURTH SEGMENT DOWN IS 'COMPANY'.

CLICK ON 'KEY STATISTICS'.

To simplify, I use a relative scale for analyzing fundamental criteria: CRITERIA SCALE Insider Ownership > 50% (preferably > 75%) Institutional Ownership < 50% (preferably < 15%) Short Interest > 25% Revenue Growth (qtrly) > 50% (preferably > 100%) Earnings Growth (qrtly) > 50% (preferably > 100%) Infant Industry New technology / Innovation INSIDER OWNERSHIP is the amount of outstanding shares held by insiders. It has been speculated that when insiders are willing to own large stakes in the company they are less likely to err on its fortune. Much has changed in the last few years and headlines assure us there are plenty of fraudulent insiders. That said, large insider ownership can't hurt.

INSTITUTIONAL OWNERSHIP is the amount of outstanding shares (as a %) held by institutional investors (hedge funds / mutual funds). GROWING institutional sponsorship (from low percentages) is excellent for long term price appreciation. However, when saturation occurs (over 70 or 80%) the former impulse is missing. The stock will move at the whim of the funds.

SHORT INTEREST is the amount of shares held in SHORT positions (as a % of float). Large SHORT INTEREST ratios indicate (possibly) excessive bearishness.

There are cases where the shorts or correct, but in a strongly uptrending momentum stock which makes new highs week after week, their positions must be liquidated to avoid margin calls. In some cases, these 'short squeezes' are responsible for doublers or triplers in days or even weeks. I never cease to be amazed by traders who will short a stock in a strong uptrend...

REVENUE GROWTH (QTRLY) is the % change for quarter over quarter revenue.

This one is obvious. The higher the better.

EARNINGS GROWTH (QTRLY) is the % change in Earnings per share quarter over quarter. No surprise there. The higher the better.

INFANT INDUSTRY - Microsoft Windows, Starbucks Coffee, the Apple IPOD, Memorex cassette tapes in the 80s....All these companies had cutting edge products or services with phenomenal growth potential. The massive ROE (return on equity) of these firms demonstrated little competition and burgeoning new industries.

I remember in 2005 when I first took positions in Valero Energy (NYSE: VLO). The company had a unique method for refining very sour crude oil. It was innovative technology. The stock became a 'story' and was a leading momentum gainer that year.

A WORD ABOUT EPS (Earnings Per Share) RANK There are several data feeds which offer an EPS RANK similar to that of Relative Strength (RS): a scale of 1-99. This measure is propriety. Investor's Business Daily does not disclose the algorithm other than to state that EPS RANK measures how quickly one company grows its earning relative to another. You can certainly include this criteria in momentum scans. However, I've noticed over the years that if you set this screen too high, you'll eliminate a lot of good trend trades.

The market is inefficient. Never forget this. RUN from those who tell you it is. If this was so I would not be able to buy shares at a 5 point discount from next months valuation (because the stock continued to appreciate). Give EPS its due, but don't weigh it too highly. Theoretically all you'd have to do is buy all the EPS 99 stocks and wait for the Ferrari to arrive....not going to happen.

SPECULATIVE MOMENTUM VS. QUALITY MOMENTUM This is an excellent time to briefly discuss speculative momentum. Obviously, the setup can be traded on any stock, index, commodity or other security irrespective of any fundamental analysis.

However, it is quite obvious that earnings growth and growing institutional sponsorship (from low percentages) are necessary for a stock to achieve price appreciation similar to a Titanium Metals (NYSE: TIE) or Nutrisystems (NASDAQ: NTRI). These stocks were able to double or triple (in the case of TIE, increase 10-fold) over a period of months.

This type of price appreciation can only be achieved with some type of solid fundamental foundation or speculative momentum, or both.

For this reason I will separate my speculative momentum scans (RS 99, Price < 15) from my higher priced 'quality' momentum scans (IBD 100 Index). I'll look to take weekly and daily positions in the latter category and use the 3x6 crossover exit after I shed

risk.

I'm looking for long term winners in the 'story' stocks with outstanding growth potential.

In the speculative momentum category I'll generally employ the 3:1 risk/reward strategy.

To wit, I don't expect speculative momentum to continue in my direction forever.

That about does it as far as fundamental analysis. Don't get too distracted or try to discern WHY a stock is trending. JUST RECOGNIZE THE TREND, WAIT FOR A LOW RISK SETUP, CONTROL YOUR RISK AND TAKE THE TRADE. One can spend years performing superfluous, complex technical and fundamental analysis. Or one can focus on the setup, manage the trade properly and benefit from the ancient law of PROBABILITY. The former may or may not prove beneficial. The latter will get you early retirement.

Welcome to Tutorial #13: TREND ANALYSIS. In this segment we'll discuss how to analyze trends. After you enter the position and control risk, one of two types of market action will ensue.

Understanding these individual trend characteristics will enable you to choose the best trade management technique.

Once understood you will know when to sit in a strong trend and simply trail stops; conversely you'll know when to establish a target and take profit in those 'flash in the pan' trends.

Let's begin by defining each type of trend.

QUIET TRENDS - Steady, upward/downward price movement (about 45 degrees), NOT PARABOLIC - Average range price bars, typically within normal range - 3 and 6 are equidistant and relatively close, NO DIVERGENCE (3 pulling away from 6) - 3/6 remain equidistant to 18, NO DIVERGENCE (3/6 pulling away from 18) - Frequent 3 or 3/6 testing (3+ times) - Small one bar pullbacks to moving averages (3, 6 EMAs) - Price closely follows a trend line VOLATILE TRENDS - Parabolic moves, prices bolting up/down at unsustainable angles - Large range bars, often several times larger than those in the countertrend - 3 diverges from the 6 - 3/6 diverge from the 18 - Price may diverge/pull away from 3, NO 6 TESTING - No pullbacks initially - Price diverges from a trend line

With this knowledge you want to determine the trend type and react accordingly.

For quiet trends you're looking to trail stops according to one of the several methods detailed in Tutorial 5. In many cases it is possible to profit 5-10 times risk (R), or more.

For volatile trends, you'll want to establish the price target (3 times Risk) and exit the trade when the target is reached.

WHY, ED? WHAT'S THE LOGIC? .....well, several reasons, thanks for asking: 1) PULLBACKS greater than 2 bars are potential REVERSALS (frequently).

2) The above method will allow you to land a WHALE on the daily or weekly interval and actually STAY IN IT (so you can stop telling fish stories at cocktail parties) 3) You're competition doesn't understand this and blindly treats all entries the same with some static mechanism while you trust your intuition, use your head and allow the the market to guide your management decisions.

4) By learning to EXIT VOLATILE TRENDS you won't spend lots of time in multiweek/ month consolidations which tend to evolve after very quick, parabolic (volatile) price action.

5) YOU WON'T WASTE TIME. Profits from volatile target exits can be funneled into QUIET TREND trades. You can maximize your effort.

6) THE BEST TRENDS DEMONSTRATE SMALL RETRACEMENTS, USUALLY 1BAR PULLBACKS.

DON'T BE LIKE THOSE ROBOTIC SYSTEM TRADERS WHO THINK HISTORY REPEATS ITSELF, THAT THEIR 'SYSTEM' SHOULD PERFORM EXACTLY LIKE THE 'BACKTEST', AND THAT EVERY ENTRY SHOULD BE HANDLED THE SAME WAY. This is a rule-based strategy, but flexibility, awareness and choice will make your life so much easier.

A QUICK TRICK If the price is really far above or below (if short) your stop, you're probably in a volatile trend. Think of it this way...if you wouldn't want to give back that much profit if

your stop is hit, the trend is probably volatile.

ALWAYS SHED RISK That's correct. You never know what is going to happen. SHED RISK, follow the trade management plan, analyze the trend, and manage the trade accordingly. Once you shed risk and get to breakeven, you can unemotionally and OBJECTIVELY allow the market to determine your course.

ANYTHING CAN HAPPEN Just in case you weren't aware of this by now. Yes, anything can happen. A quiet trend can go volatile. A volatile trend can retrace and become quiet. Cats and dogs living together....DETERMINE YOUR ENTRY, CONTROL RISK, SHED RISK, OBJECTIVELY ANALYZE / MANAGE THE TRADE (trust your intuition) AND EXIT ACCORDINGLY. FOLLOW YOUR PLAN. And invite me to your next yacht party...

REMEMBER THIS IS RELATIVE You don't have to be 'right' about the trend and you don't have to know what is going to happen next in order to make money. Occasionally, trend analysis can be tricky. QUIET and VOLATILE assessments are RELATIVE. Use your best judgment, follow through and accept the results. DON'T OVER ANALYZE. However, I think you'll be surprise at how simple and effective this method really can be. It will give you a tremendous edge; you'll know exactly how to trade the trend.

Attached are screenshots detailing some example of both trend types. Study them.

Then practice spotting historically QUIET and VOLATILE trends. Notice what happens next. Once you have a firm grasp of the concept, move forward. After your setup follows through (2-5 bars) analyze the trend and proceed.

Welcome to Tutorial #14: AVOIDING FALSE BREAKOUTS. This segment will cover how to use a popular indicator found in any price chart software to avoid false 3x6 breakouts.

There is no crystal ball of course, but this method will prevent you from taking entries in late cycle trends with unconfirmed new highs (or new lows if shorting).

MACD (12-26) The indicator in question is Gerald Appel's Moving Average Convergence/ Divergence (MACD) Indicator. Quite simply it plots the DIFFERENCE between two moving averages (popularly the 12 and 26). This 'line' oscillates around 1) a moving average of itself - the trigger line (generally a 9 period EMA); and 2) a zero (0) line.

AVOIDING FALSE BREAKOUTS Stocks will often make UNCONFIRMED higher highs (false new high breakouts) before sharply correcting. The MACD INDICATOR is a great way to visually see these unconfirmed moves. When the stock or market makes a new high and the indicator does not, the price action is said to be DIVERGED. If the high which precedes the countertrend is NOT CONFIRMED BY THE MACD or IS NOT THE FIRST HIGH AFTER THE MACD CROSSES ITS SIGNAL LINE, consider passing on the setup and finding one what is not diverged.

Let's put is this way: IF THE STOCK HAS BEEN MAKING HIGHS, THESE HIGH POINTS SHOULD CORRESPOND TO HIGHER HIGHS IN THE MACD INDICATOR (see screeshot Tutorial 14-1).

IF THE HIGH THAT OCCURS BEFORE THE COUNTERTREND CORRESPONDS TO A LOWER HIGH IN THE INDICATOR, do not take the trade.

KEEP IT SIMPLE Use the indicator for nothing more than CONFIRMING NEW HIGHS or CONFIRMING NEW LOWS. Remember, a new high in price should be confirmed with a new high in the indicator.

Be especially aware of these situations when the DOW has turned RED (3x6 down) after an uptrend. You can frequently avoid entries at the beginning of a downtrend or market correction.

WARNING - WARNING - WARNING DO NOT USE THE MACD FOR ANY OTHER PURPOSE THAN CONFIRMING

HIGHS AND LOWS. Doing so will result in confusion. If you recall Tutorial #7, continuation trend trades involve countertrends which produce conflicting (counterintuitive) signals in popular indicators. Taking advantage of these reversals is the cornerstone of the system logic.

For that matter I would not recommend using any other indicator for confirmation.

You will be wasting your time. Trust me, I've tried them all. The best you can do is pass on continuation setups that are diverging. Doing so, in addition to finding low-risk, high probability continuations (bounces off the 18), will guarantee your success. All you have to do after that is control your risk and manage the trade effectively.

A FEW WORDS FROM THE AUTHOR OF THIS TUTORIAL 'Diverged (unconfirmed) highs' will typically occur at the end of broad market trends.

You will not see them too often at the beginning of a bull run, unless the stock has been bucking the trend for some time.

Downside divergences seem to be more volatile than their uptrend counterparts.

The stock (or market) will often make the lowest low of the trend on a diverged spike and quickly reverse to the upside. This is how 'bottoms' form. The public has capitulated, sold in panic and handed their shares to the smart money.

But you, my friends will not care. You'll simply be aware of the situation and stay alert for LOW-RISK, HIGH PROBABILITY CONTINUATION ENTRIES. YOUR FOCUS WILL BE ON THE SETUP AND CONTROLLING YOUR RISK. You...will be in control. This should make you smile.

Welcome to Tutorial #15: DAY TRADING. This segment will attempt to tackle the monumental task of conveying the necessary concepts requisite to applying the setup patterns on an intraday basis. Most people associate daytrading with first-hour breakouts, pairs trading, ECN arbitrage or a host of other, high volume strategies.

For me, it is really a miniaturization of the daily or weekly model. I locate low-risk, high-probability entries in the same manner I would on any other interval. I seldom make more than 3 or 4 trades per day. The short-term interval, order flow and real-time charting, however, change ALL the rules.

KEY DIFFERENCES TIME Ultra-short intervals require decisiveness, precision and skills not necessary or even desirable for daily or weekly intervals. It can resemble a day job.

ERROR Technical difficulties, real-time chart/data errors, physical trade error, misplaced orders and a host of other pitfalls can trigger emotional responses and imbalance even a seasoned trader.

SCANNING Easily spotted in retrospect, real-time entries can slip through your fingers like sand at the beach. A very organized, focused desktop with appropriate technology is necessary to locate and effectively manage even a moderately sized watch list.

ONE MARKET CONSPIRACY Watch only one market or stock and you risk wasting an incredible amount of time.

Watch too many and the best moves will slip past like a burglar though an unlocked door in a dark alley. The best trades come from individual stock moves. So why is everyone touting single-market systems? Because managing a watch list adds a whole new dimension to the crime. I knew a guy who bragged about trading only the S&P mini contract. Now he teaches other people to trade the S&P mini contract. What does that tell you? Indexes and ETFs can stagnate for hours or an entire day. Guess he was a few setups short of an income...

COUNTERINTUITIVE TIME DEMON Everything about our culture encourages diligence and hard work. "Hard work is rewarded."

The 40 hour work-week....blah, blah. These axioms are inverted in daytrading.

Trade the first and last two hours and you can make a fortune...or not. Trade all day like a desk job and you'll soon have one. Your friends will probably stop calling as well.

The less you do, the more you'll make.

BROKERS, RULES AND LEVERAGE Thank the tech bubble bust at the turn of the century for the SEC daytrading rules

and minimum account requirements. To play the game you need huge leverage (much more than the 4:1 offered by most brokers) and DIRECT ACCESS execution capability. That's right...you want to be able to post bids and offers directly into the ECN or DOT (NYSE) system. Choose any other way and you won't be competitive.

THE BIG BOYS ARE OUT FOR BLOOD From hedge funds whose primary strategy is running public stops to greedy specialists and front-running clearing firms, everyone is out for your lot. Think they don't know how you cleverly placed that stop at the same place there are 400 other orders?

Think again. Think they won't come get them? Think again.

ED BURKE'S DAYTRADING SURVIVAL GUIDE: 1) TAKE HIGH-QUALITY, LOW-RISK SETUPS DURING THE MARKET HOURS WHICH TYPICALLY PRODUCE THE BEST MOVES (first 2 hours and the last 2 hours).

2) BUILD A SAMPLE OF TRADES OVER A LONG PERIOD OF TIME USING RULE #1.

3) BE PATIENT ENOUGH TO WAIT FOR A VERY PRECISE SETUP TO EVOLVE (I'll show you which one).

4) USE ONLY 'MENTAL STOPS' UNTIL YOUR HARD STOP IS BREAKEVEN OR BETTER (This way, if and when it's hunted you can at least breakeven).

5) LEARN TO READ A LEVEL II AND AVOID 'FAST' STOCKS OR MARKETS (Those with sparse volume at various prices which cause excessive price movement and slippage when triggered).

6) TRADE ONLY HIGH BETA STOCKS WITH LARGE VOLUME. AVOID LOWVOLATILITY STOCKS WITH EXCESSIVELY LARGE VOLUME. 7) TRADE NYSE STOCKS. The stop order system is much more fair, trade is more orderly and the largest volume securities trade there.

8) IF YOU'RE CONVINCED THAT ETFs ARE THE WAY TO GO, TRADE ONLY HIGHLY LEVERAGED ETFs (2 or 3 Xs). Consider the DIREXION broad market products.

9) FIND A DIRECT ACCESS BROKER WHO WILL GIVE YOU AT LEAST 10:1 INTRADAY LEVERAGE. (Preferably 20:1 or 30:1). Don't put your precious capital or IRA at risk. Put up 5K to 10K in collateral and use good old OPM (other people's money). You'll do better,

be more focused, and free to deploy your larger accounts for daily and weekly entries.

10) ENSURE THIS BROKER IS USING A COMPETITIVE DIRECT ACCESS PLATFORM (Try Instaquote or RealTick). Some 'prop' firms have their own proprietary platform with more bugs than an outdoor barbeque. Be careful.

11) GIVE IT TIME. It can take a year or two to master the game, build and outfit your trading desk and acclimate to real-time price ticking. The setup you have learned will severely reduce your learning curve, however.

ED BURKE'S EXACT DAYTRADING STRATEGY: 1) Choose a timeframe that will allow your trade to reach its trend potential BEFORE the market closes (if you must liquidate all positions at day's end). I would suggest nothing longer than a 10 or 15 minute interval. 60 minute charts, although desirable, will frequently require holding overnight. That's fine, but that isn't leveraged daytrading.

2) TRADE ONLY PULLBACKS. The only resistance level you must manage is the swing high which preceded the countertrend. This keeps it simple and much more probable.

There are more false breakouts during the day than demonstrators at a World Trade Organization (WTO) conference.

3) Look for the following sequence AFTER YOU LOCATE AN ENTRY (if long): * DOWNTREND (3,6 below 18 - RED MODE) * CROSSOVER (3 crosses over 6, 3/6 crossover 18) * COUNTERTREND PULLBACK PATTERN * ENTRY What you're looking for is the FIRST COUNTERTREND after a primary trend change from DOWN to UP (or reverse if shorting). This 'Pattern' will be demonstrated in attached screenshots.

USE THE DIVERGENCE TOOL (MACD INDICATOR) FOUND IN TUTORIAL #14.

4) ONLY TRADE LONGS. Statistically, Long entries meander farther and are more likely to evolve into lasting trends than their short counterparts. Yes, there are great short entries, but statistically you fare much better long. And you won't have to struggle with 'hard to borrow' stocks. If you do wish to short, try a leveraged

broad market or index ETF. These have a 'bull' or 'bear' fund. You can long the bear sibling in lieu of shorting - IF the pattern appears. It very well might not.

5) FOCUS ON THE STOCKS WHICH ARE 'UP THE MOST' (highest percent change) FOR THE DAY. These are most likely to resume an uptrend after a morning countertrend.

6) FOCUS ON GAPS. Stocks with 'unfilled gaps' are excellent candidates for continuation moves later in the day.

7) BUILD A MANAGEABLE WATCHLIST OF HIGH BETA (LARGE RANGE), HIGH VOLUME, EXPENSIVE (greater than $30) LISTED STOCKS. No more than 100 is necessary.

8) ACQUIRE THE NECESSARY TECHNOLOGY (I recommend Esignal) WHICH INCLUDES SOME TYPE OF SCANNING SOFTWARE. Try a resource-rich gaming PC with ample screen space (monitors) to reduce the workload and stress.

9) IF ALL ELSE FAILS....FOCUS ON THE SETUP. IT WON'T LET YOU DOWN. I REPEAT: FOCUS ON THE SETUP.

Every time I read this tutorial I find about twenty things that are missing. Frankly, I believe it only skims the surface of how to best trade in real time. Is it worth it?

For most, probably not. But the above checklists will give you a fighting chance if you're one of the few who can manage it. Just remember, FOCUS ON THE SETUP. REDUCE RISK. FOLLOW THE TRADE MANAGEMENT PLAN. Please...if you can't successfully master the setup and yourself on a weekly, daily or hourly interval, you won't be able to do it daytrading. I would suggest you work down from a long-term interval until you locate the best spot for YOU on the interval scale.

Study the attached screenshots to familiarize yourself with the cycle flow of down to up trend then countertrend setup. When your eyes are blurry I'll see you for #16. :-

Welcome to Tutorial #16: ADVANCED ORDERS. This tutorial installment will cover order placement and the effective use of advanced orders for two (2) key purposes. You should be familiar with BUY and SELL STOPS, LIMITS, etc. Knowledge of rudimentary order placement is assumed.

ADVANCED ORDERS Advanced orders are relatively new to online trading. In the last few years many commercial deep discount brokers have moved to totally electronic platforms. It wasn't always like this. In the early 1990s you entered your orders electronically (online) but typically there was a human 'middle man' between you and the exchange, presumably for risk or margin purposes.

These orders permit much more flexibility. Used properly they can automate trade management and drastically reduce screen time and stress. This is good.

First we'll cover the various types and then proceed to strategy.

CONTINGENT ORDERS A contingent order is exactly that. It places some type of market, limit or stop order when a predetermined price is traded on any given market, stock, option, etc. For example, let's assume for some preposterous reason I want to enter a LONG POSITION for IBM when the DOW hits 10,000. Assuming I'm using the DIA as a DOW surrogate, I will place a CONTINGENT order where the TRIGGER PRICE of the DIA is 100. Accompanying this contingent trigger will be a MARKET ORDER for 100 IBM LONG. If or when the DIA trades through 100, my broker will automatically execute an order to buy 100 IBM at market.

Contingent orders are popular for options. You can use the underlying stock or index as a contingent trigger and buy or sell a call or put when the contingency criteria is met.

OTO - Stock / Option OTO signifies One Triggers Other. This order is effectively two (2) orders.

When the first order is executed, a second (predetermined stop, limit, etc) is entered and becomes active. An OTO can be used to automatically place a stop order after you enter a position. Cool.

OCO OCO signifies One Cancels Other. This order is similar to an OTO (two orders are placed simultaneously) except that the first executed order results in a cancellation of the second. An OCO could be used to manage, let's say, a trailing stop and a target stop. Once the stock hits the target price it would be sold; simultaneously your trailing stop would be canceled so you don't have an open order to sell something you don't down. Really cool.

OCO - One Triggers Two

Not available on all platforms, this order will trigger two (2) subsequent orders if one is executed. An example of this phenomenon would be to place a BUY STOP LIMIT for a trade setup and (when executed) automatically enter your TRAILING STOP ORDER and your TARGET SELL STOP ORDER. Really, really, ridiculously cool.

THE BOOK When a stop is placed on an ECN or exchange it is listed and available for any specialist, operator - or anyone else who has access to order flow information to see. This knowledge lends itself to manipulation on the form of stop hunting, stop running or whatever you wish to call it. To that end you may want to hide your stops - or effectively not advertise where you will be selling that juicy 10,000 share lot.

PROPRIETARY DIRECT ACCESS PLATFORMS Some prop firms have orders that can be placed within their software platform that act as effective Contingent Orders. The software must typically be booted and running for these orders to be effective. The benefit, obviously, is that your stops are not listed. That isn't to say that your hidden stop won't be placed in an obvious spot and triggered anyway because of a constellation of listed open orders.

Stops are like really hot girls in a nightclub. Who doesn't instantly spot them and know exactly where they are?

PSEUDO / STEALTH STOPS If your broker offers advanced orders you can easily build a 'stealth' or hidden stop similar to a contingency found in prop direct access software. Let's assume I'm placing my trailing stop order on 1000 shares of IBM at 99.99 Good-til-Canceled. I can hide the stop by placing a contingent order. I first place the order to SELL 1000 IBM AT MARKET GTC. On the same screen I attach a contingency of IBM Trading BELOW 100. Now, when IBM trades through 99.99, my MARKET SELL ORDER will trigger and (I assume) be executed.

STRATEGY - ADVANCEDS ORDER AS NON-SALARY EMPLOYEES The idea here is to use any and every tool to 1) reduce your work load; 2) eliminate error; and 3) control risk and give yourself an edge over everyone else out there who is trying to do the same thing.

Since I trade daily and weekly setups in addition to intraday intervals, I use advanced orders to automate my daily/weeklies and eliminate ANY intraday effort. I can't be worried about order placement during the day when I must focus on short term setups. Think of advanced orders and stops as employees who always arrive on time and work for no salary!.....(you hope!).

TRY THIS Use an OTO or One Triggers Two to simultaneously post a maximum risk

SELL STOP (below) and SHED RISK SELL STOP (above - when the price advances 1 times RISK). You may have to revisit Tutorial #5 to be certain about trade management.

Or, you can place a One Triggers Two to simultaneously post a maximum risk SELL STOP (below) and a TARGET SELL STOP (above - at 3 times RISK).

Either way you can achieve much more peace of mind and control. Simply use an audio or email alert to inform you that some action has taken place. And you won't have to interrupt your appointment to test drive the new Porsche Boxster S, or afternoon tea...or that spa appointment at the Agave.

OPTIONS Contingent strategies function for options but I still prefer to work my ENTRY orders manually. Unless the option bid/ask spread is 0.05 or less and very liquid (and I'm certain I can achieve a reasonable fill), I prefer to check the bid/ask market action prior to entry. I don't know how volatility may have affected prices.

As for EXITS, contingents are amazing. Once your trailing stops are ITM (in the money), contingents can be used effectively for stop placement and target exits. If I'm long 20 IBM JAN 100 CALLS and my target is IBM trading at $125, I can set a contingency to sell the calls when that price is hit. Always use Limits with options, of course.

LIMITATIONS The caveats here are obvious and numerous. Remember that advanced orders are software-based triggers originated by your broker. And they don't always work. I have actually watched prices trade through a contingency and the platform fail to enter/execute my action order. It happens. Some vigilance is necessary. We put men on the moon by software glitches are a way of life.

I have heard horror stories about contingent orders at some online option brokers.

So be careful with these. You should monitor your trades more closely through the risk and shed areas anyway.

Advanced orders are not a license to be asleep at the wheel, but they can be used effectively to enhance your discipline and effectively manage your trade.

Speaking of that, it's time to manage the rest of this sunny afternoon. I'll see you for #17.

Cheers, Ed

Greetings! Ed Burke here.

Welcome to Tutorial #17: SETUPS VS SINGLE MARKET TRADING. Thanks for joining me. This segment will explore the benefits of trading setups versus mechanical 'system' trading or single-market trading. The logic in support of the former is quite sound.

The EDGE An edge is defined as any circumstance where the probability of one thing happening over another is greater. The trend continuation entry pattern is really just that. It is a specific point in the price expansion/contraction cycle where what is MOST LIKELY to occur next is continued expansion.

It may not happen, but you can place and manage a good bet that it will.

The key to the edge is it's specificity and exact definition.

The PROBLEM Statistical analysis assures us that a very highly-probable circumstance will not be seen very often. This cannot be more true than in time and data series. Variation is so infinite and relentless that it simply cannot happen.

Because of the human element in stock price fluctuation, the more you see a price or indicator pattern the less likely it is to function as a valid entry with any more than 40-50% probability.

This is why mechanical systems or strategies, trade management notwithstanding, will either generate a large number of losing trades (perhaps manageable) or they will seldom trade. Fear and greed will prevent most people from submitting to system rules which only require action once or twice per year in any time/data series, even though these are the most probable edges.

Single Market Dilemma Just one time and data series will never consistently exhibit the highest probability entry pattern - a trend continuation trade. Nor will it enable to trader to use his or her intuition to locate the lowest risk entries resulting from chaotic price movement.

The SOLUTION Setup trading: locate the highest probability entry pattern and attempt to exploit it in a variety of traded securities (data) using various intervals (time).

The trader is allowed to submit to the proper form of rule-based mechanisms, but remain flexible in the right areas: risk control, choice and implementation.

If the trader learns to effectively control risk and manage the trade within the framework of a well defined, highly probable edge, he will be using his resources most effectively. He can learn to effortlessly change as the market

does.

The pattern you have learned and may choose to master was apparent in price charts 30 years ago. It will be apparent somewhere next week. Why does it continue to work when many mechanical strategies fail? Because it is found and traded 'in time'. It's probabilistic. You won't find it everywhere you look.

No Drawdown The best characteristic of the system is that you will rarely, if ever, experience DRAWDOWN associated with mechanisms that frequently and drastically miss changing market dynamics. Why? You'll almost never be on the wrong side of the market other than the occasional small stop out.

Implementation of the strategy lends itself to a wide variety of effective uses.

From hyper-leveraging single positions to portfolio management for retirement funds, there is a solution and means to achieve your goals. A few well-placed high momentum trades per year can easily achieve double digit returns in a single account. Consider it...you can actually control your destiny. Forget financial planning. I did a long time ago.

I hope this brief discussion sheds light on the benefits of trading setups and puts you in a more flexible, yet rule-based frame of mind. The control you'll find is liberating, enjoyable and full of profit.

Have a great day, Ed

Greetings! Ed Burke here.

Welcome to Tutorial #18 - MAXIMIZE YOUR TRADING BUSINESS. Gerald Appel, creator of the MACD indicator and the grandfather of technical analysis, once said that gambling might be gambling for you or for me, but not for the professional. And not because he cheats.

The professional gambler is a master of applied mathematics. He knows the pot odds and plays only when those odds are favorable to his hand.

The professional stock trader is no different. He trades only when historical precedent supports his move. Many market participants do not - fear, greed and ego dictate their play. The results are obvious.

Almost daily you read about a hedge fund which lost billions. Indeed the entire US banking system collapsed on the simple notion of disavowed risk.

This segment will discuss how to guarantee your success over time.

It is really nothing more than attitude and mindset. If you learn to think in proper terms you'll be ahead of the game - and the neighbor with a hot stock tip will be more laughable than ever.

BECOME THE 'HOUSE' The object is to become the House - the casino. The House doesn't always win, but it wins more than it loses systematically, over time.

The house has an EDGE. Ever wonder why there are a few numbers on the roulette wheel that are missing on the felt table? That's the edge. Spin the wheel often enough and you have a probable game.

You can do the same thing with your trading business.

PROBABILISTIC TRADING Probabilistic trading involves the mastery of an edge and a firm resignation that you have no idea what will happen next; that indeed, you do not have to possess that knowledge in order to make money. This is more than many people can accept.

Money and security are at the base of their most fundamental belief systems. They have to be 'right'. To not be so is catastrophic for the ego.

Do not be like these people. Understand that ALTHOUGH HISTORICAL PRECEDENT DICTATES YOUR TRADE, ANYTHING CAN HAPPEN. It is impossible to duplicate an EXACT historical entry because of the thousands of hidden variables. Accept this.

Accept the fact that all the setup claims to be is the higher probability of one thing happening over another. This is why many 'backtested' systems fail or fall short in actual trading. TOO MUCH EMPHASIS IS PLACED ON THE PAST. NOT ENOUGH EMPHASIS IS PLACED ON TRADE MANAGEMENT AND THE 'GAME'.

THE RULES 1) There is a random distribution of wins and losses for anything defined as an 'EDGE' 2) Anything can happen - I do not know what will happen next - I do not have to know 3) Effective trade management can make a mediocre system profitable 4) Each SETUP EDGE is NEW AND UNIQUE Burn these statements into your subconscious. Create a new belief system around embracing the unknown. Love the unknown. In the unknown there is an ironic certainty. It will always be there. Think of it as your favorite holiday destination.

It will make you free. It will also make it easy to enter one trade after another, after another - until your goals are met.

BUILDING YOUR OWN CASINO GAME When I first started trading I read about a very successful investor who had made a fortune with a ridiculously simple strategy. After he bought a stock he placed a sell order down 8% and another up 20%. He never watched that stock again until he received a confirmation of one fill or the other. Consider his game. He was building an objective 2.5:1 reward/risk ratio. Either one or the other was going to happen. He anticipated a rally, obviously.

Even if he won only half the time, and risked $1000 per trade, he walked away with $7,500.00 each time he made ten consecutive trades.

Create your own game. If you set up your trades properly and follow the broad market trend, you should enjoy 80% winners. In some samples you may fare better. But count on winning only 60% of your trades. Maintain samples of 20 entries. The hit rate (winners vs. losers) is not the most important thing. The aggregate amount of net profit vs net loss (referred to as the profit ratio) is most important.

If you size your positions equally for RISK, you will be able to effectively win by taking profit at 2 times the risk. At 60% winners you'll walk away with 8 times your risk in profit for every 10 trades you make (12risk in winners / 8risk in losers). But you'll probably do much better given trade management and setup probability.

OPTIONS

I made a small fortune doing this at the turn of the century in options. I purchased lots in round numbers. For example, I would buy $1,000 worth of premium. I was willing to lose the entire amount as risk capital. However, I would wait until I had $3,000 in profit before offsetting the position. Similar to the game mentioned above, I had effectively achieved a system with a 2.5:1 reward/risk ratio. I never looked at the chart again. I merely managed fluctuating premium.

But it gets better. What I learned after many samples was that I never lost more than $500.00. So I changed my rules to risk only 1/2 of my initial premium. Immediately I realized I could take profit sooner so I reduced my target to $2,500. This way my game built in an expected 3:1 ratio (either a $1,500 profit or a $500 loss) AND I was turning over positions more quickly. For a while I even ran the game with a 2:1 ratio taking profit at $2,000 and any loss at $500.

I had dozens of positions on constantly. I was trading a simple, common breakout system.

The more opportunities I could find, the better. The larger the sample, the more money I made and the more my results became statistically viable.

GRAIL SHMAIL Hence the whole notion of how foolish it is to search for the perfect system. It doesn't exist. But you can waste a lot of time looking. This is commonly referred to as 'grail syndrome'. Traders aimlessly go from one system to another, never achieving desirable results because they simply don't understand the ancient law of probability.

Commit yourself to a period of sacrifice. Learn the setup. Master it and you will master yourself. The discipline you create will allow you to build a game that suits your short and long-term goals. It really is that simple. But I know it's not that easy.

Financial independence, however, is worth the effort.

Have a great day, Ed

Greetings! Ed Burke here.

Welcome to Tutorial #19: THE BIG PICTURE.

I think a better name for this segment would be: ED BURKE'S PREPOSTEROUSLY BRIEF TUTORIAL ON RISK Ok, you waited 18 Tutorials and more than a month...maybe the light bulb went on, maybe it didn't. But here it is....the holy grail of trading in two (2) steps: (1) FOCUS ON THE SETUP - CHOOSE ENTRIES WITH THE LOWEST RISK (in $ or %) (RISK is defined as trigger bar high - (minus) low for those of you asleep in the rear) (2) SIZE YOUR POSITIONS EQUALLY FOR RISK (Position Size = $ Risk Amount / RISK (cents)) There it is. All you need to know to make as much money as you can stuff in your pockets on any given day, week, year, career or lifetime. IF YOU FOCUS ON THE ENTRIES THAT HAVE THE LEAST AMOUNT OF RISK, YOU WILL BE ABLE TO SHED SOONER, HIT YOUR TARGET (3R) SOONER AND ACHIEVE YOUR GOALS SOONER. YOU CAN CONTROL RISK. YOU CAN VIRTUALLY GUARANTEE YOUR SUCCESS BY CONSISTENTLY ENTERING TRADES THAT DON'T HAVE TO APPRECIATE VERY MUCH TO HIT YOUR TARGET. Light bulb....ON. Easy, isn't it? Obvious, no? Took me 10 years to figure it out.

Let me tell you a story: Chuck Tradegood and Tray D. Fiasco are friends. They both have investment accounts at a local brokerage which tries desperately to rip them off. I digress.

Chuck takes only trades that have tiny risk. He waits. He's patient. Generally his risk is less than 5%. Very frequently the market gives him 3 or even 2% risk. He finds a great setup on a $20 stock with only $0.50 in risk. That's 2.5%. The stock only has to rally to $21.50 to hit his 3xRisk target. Very likely to happen. Chuck smiles.

Tray just can't seem to get it right. He keeps emailing Ed, who, by the way is always pleasant and courteous as well as helpful. He finds a continuation setup on a momentum stock that trades at $8. The trigger bar is huge and his initial stop is $6.40. That is $1.60 in risk or a whopping 20%. The stock has to rally to almost $13 or 60% to hit his target.

Messrs. Tradegood and Fiasco are each risking $500. Chuck's target is hit the second day in the trade. He quickly exits, compounds his account and looks for the next

opportunity.

ONE MONTH LATER.....

Fiasco is still sitting in his fabulous setup. It's been as high as $11. But now its consolidating and frustrating the **** out of him. His kids avoid him. His wife seems to think he's put on a few pounds....

THE SECRET TO SUCCESSFUL TRADING IS TRADE MANAGEMENT AND POSITION SIZING; THE WORLDS GREATEST TRADING SYSTEM IS NOT REQUIRED. AS LONG AS YOU HAVE A STRATEGY WITH A DEFINED ENTRY AND A PREDETERMINED MAXIMUM RISK STOP, YOU CAN USE THE TWO-STEP GRAIL STRATEGY TO ACHIEVE YOUR GOALS. That's right. Any system. ANY SYSTEM. Even a system with RANDOM ENTRIES. YES! I know this because I've tried it. If your goal is 100xRisk per year, why wait longer than you must? Less risk = easy targets and high turnover. Now you're talking.

Until next time, Ed

Greetings! Ed Burke here.

Welcome to Tutorial #20: DOING IT WELL. I'm quite certain I was supposed to stop this tutorial thing about two tutorials ago. Too late now. There are still a few things to cover. In this segment we'll very briefly cover some tactical methods for making the most money with the least effort.

SOFTWARE / TECHNOLOGY I'm prevented from endorsing one charting program or another in a mass email, but I suggest using a flexible tool that permits you to view multiple systems at once.

Preferably, you should be able to scan your stock lists and watch the following systems simultaneously: 3x6x18 3x5x15 3x7x21 3x13x39 Simply let the setups come to you. Whatever Long-Term trend is being respected in the countertrend, that is the system to trade. This technique will give you maximum flexibility and choice.

FOCUS Don't try to watch too many stocks. When the market is in GREEN / GREEN MODE (daily / weekly), a watchlist of the highest volume high-RS stocks (>97) will suffice. Preferably you want to focus on stocks less than $15. If you watch too many you run the risk of missing the few stocks in each cycle that make the largest moves. Don't do this. No need to trade Procter & Gamble (NYSE: PG) when CROCS (NASDAQ: CROX) is doubling.

Believe it or not, on most instances when you receive a fresh 3x6 up on the DOW, there will be high RS stocks which appreciate 50% or even 100%. Don't miss these because you're watching the entire market.

I get many letters about shorting and how to build short watchlists.

Unfortunately I have not found a good inverse correlation to high RS stocks in the form of downside momentum. To be honest, shorting isn't necessary. You can make ample profit in up markets and sit in cash during red mode. No need to over complicate things.

SCANNING If you are determined to maintain a large watchlist, I'd suggest some type of scanning tool to generate a shortlist of 3x6 crossovers in the proper direction. Remember: the crossover is all you need. Work backwards from there to establish the entry as defined in TUTORIALS #3 and #4.

TIME You should only need about 10-15 minutes each evening to scan for daily entries and a similar period on a quiet Saturday or Sunday to complete the weekly scan. This small time investment will keep your trading business alive and well.

Be easy on yourself. Remember there is a time for all things...a time for long, a time for short and a time for cash. Accept this. Submit and don't resist quickly passing time and missed opportunities. Like fish stories in a bar there will always be the "one that got away". Make the most of each cycle, each setup opportunity, each day - and let the trend do the work. Somewhere in there you'll find balance.

I hope this helps you plan and implement a stress-free trading business.

Have a great day, Ed