By using daily pattern analysis to determine our short- term trades, we accomplish several worthwhile goals. First of all, we insure that our performance as traders reflects the quality of our statistical research and not just the trend of the market. Second of all, we create a diversified portfolio of trading methods, which when united, create a lower risk profile than any one method can yield. To trade one method alone is to base our results on certain random factors and certain elements beyond our control. Finally, by entering and exiting our positions rapidly, we create an environment that will tolerate our missing a move.
As a trend follower, I cannot make an error or take time off from trading. If a signal occurs and I am not watching, I may not be able to get back into the market at the system entry price. Short term pattern trading helps solve this problem. Many of the greatest money managers trade exclusively in this fashion but will never reveal to you the basis of their success. Every statistical trader has a bunch of pet patterns that are used each time certain conditions take place. I am giving you a sample library of pet patterns, but you must have experience in other areas to make money trading this way.
One great secret of many professional traders will really shock you. They almost never use stop orders to exit losing positions. Contrary to the advice of most trading manuals, the dozen or so large fund traders that I have worked with do not use intraday protective protective stops end up degrading their systems. The stops tend to get triggered at the extreme price levels of the day, thus giving up positions at the very worst possible moments. A large trader with a protective stop in the market becomes extremely vulnerable to manipulative strategies. We will hang onto our trades until time runs out on our patterns. We will not use leverage that will force us out of the market upon adverse price movements. If we do use leverage, then we will buy out of the money hedging options to trade against repeatedly without requiring our using protective stops.
Without further comment, let me present you with a collection of S&P daily trading patterns that I found through extensive computerized searches of historical price behavior. So that this chapter did not turn into a mindless exercise in data mining, I have only included patterns that contain common sense reasons for their effectiveness.
The patterns are presented in a way that a professional computer based trader might use them. They need to be entered into a real time system monitoring machine such as Tradestation™ by Omega Research. When Tradestation signals that one of these patterns has fired, the code will tell you what signal has occurred and what orders you must place. Response time must be fast and furious. In cases in which entries or exits are based upon the closing price, you must know your systems' rules and not depend upon the computer alerts. A bell ringing at the close and telling you to enter your position tells you too late what you should have done. I have provided the Tradestation™ code for each pattern so that there will be no ambiguity caused by my written descriptions.>/span>
As a trend follower, I cannot make an error or take time off from trading. If a signal occurs and I am not watching, I may not be able to get back into the market at the system entry price. Short term pattern trading helps solve this problem. Many of the greatest money managers trade exclusively in this fashion but will never reveal to you the basis of their success. Every statistical trader has a bunch of pet patterns that are used each time certain conditions take place. I am giving you a sample library of pet patterns, but you must have experience in other areas to make money trading this way.
One great secret of many professional traders will really shock you. They almost never use stop orders to exit losing positions. Contrary to the advice of most trading manuals, the dozen or so large fund traders that I have worked with do not use intraday protective protective stops end up degrading their systems. The stops tend to get triggered at the extreme price levels of the day, thus giving up positions at the very worst possible moments. A large trader with a protective stop in the market becomes extremely vulnerable to manipulative strategies. We will hang onto our trades until time runs out on our patterns. We will not use leverage that will force us out of the market upon adverse price movements. If we do use leverage, then we will buy out of the money hedging options to trade against repeatedly without requiring our using protective stops.
Without further comment, let me present you with a collection of S&P daily trading patterns that I found through extensive computerized searches of historical price behavior. So that this chapter did not turn into a mindless exercise in data mining, I have only included patterns that contain common sense reasons for their effectiveness.
The patterns are presented in a way that a professional computer based trader might use them. They need to be entered into a real time system monitoring machine such as Tradestation™ by Omega Research. When Tradestation signals that one of these patterns has fired, the code will tell you what signal has occurred and what orders you must place. Response time must be fast and furious. In cases in which entries or exits are based upon the closing price, you must know your systems' rules and not depend upon the computer alerts. A bell ringing at the close and telling you to enter your position tells you too late what you should have done. I have provided the Tradestation™ code for each pattern so that there will be no ambiguity caused by my written descriptions.>/span>
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