Instant Profits ii
Copyright © Profits Run, Inc. All rights reserved. Rev 17-20100318 No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Requests to the Publisher for permission should be addressed to Profits Run, Inc., 28339 Beck Rd – Unit F1, Wixom, MI 48393.
Disclaimer:
Profits Run Instant Profits is an impersonal educational stock {and}, futures and forex trading course, and therefore, no consideration can or is made toward your financial circumstances. All material presented within is not to be regarded as investment advice, but for general informational purposes only. Trading stocks, futures, forex and options does involve risk, so caution must always be utilized. We cannot guarantee profits or freedom from loss. You assume the entire cost and risk of any trading you choose to undertake. You are solely responsible for making your own investment decisions. Hypothetical or simulated performance results have certain limitations. Past performance is not necessarily indicative of future results. No stock, futures, forex or options system can guarantee profits. The risk of loss exists in stock, futures, forex and options trading. Profits Run, its owners, or its representatives are not registered as securities broker-dealers or investment advisors either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. We recommend consulting with a registered investment advisor, broker-dealer, and/or financial advisor. If you choose to invest with or without seeking advice from such an advisor or entity, then any consequences resulting from your investments are your sole responsibility.
Instant Profits iii
Table of Contents Introduction......................................................................................................................... 1
The Top 11 Trading Myths ................................................................................................. 7
The Bad News and The Good News................................................................................. 12
Keys to Successful Trading .............................................................................................. 15
Winning Methodology.................................................................................................. 15
Risk Management ......................................................................................................... 17
Discipline & Psychology .............................................................................................. 19
Tools to Instant Profits...................................................................................................... 22
Charting Software ......................................................................................................... 22
Computer....................................................................................................................... 22
Data Feed ...................................................................................................................... 23
Internet Connection....................................................................................................... 23
Broker ........................................................................................................................... 24
Advanced Access .......................................................................................................... 24
The Basics......................................................................................................................... 26
The Stock Market.......................................................................................................... 26
Buying Long ................................................................................................................. 27
Selling Short.................................................................................................................. 27
Fundamental Analysis................................................................................................... 28
Technical Analysis........................................................................................................ 28
Plotting a Chart ............................................................................................................. 28
Swing High ............................................................................................................... 31
Swing Low................................................................................................................ 31
Trend Lines ............................................................................................................... 31
Moving Averages...................................................................................................... 34
Channels.................................................................................................................... 34
Fibonacci Retracement Levels.................................................................................. 34
Paper Trading................................................................................................................ 35
Trading Indicators and Methods ....................................................................................... 38
Instant Profits iv
Trading Vehicles and Time Frames.................................................................................. 39
Instant Profits with Channel Trading................................................................................ 40
1. Plot the Chart ............................................................................................................ 40
2. Setup Conditions....................................................................................................... 50
3. Entry Point ................................................................................................................ 59
4. Stop Loss Point ......................................................................................................... 67
5. Profit Target Point..................................................................................................... 70
Trade Analysis .............................................................................................................. 74
Conservative Tactics..................................................................................................... 75
Case Studies: Setup Condition b1..................................................................................... 81
Figure 23: TNB – Daily Chart ...................................................................................... 81
Figure 24: WCC – Daily Chart ..................................................................................... 81
Figure 25: RGF – 60 Minute Chart............................................................................... 85
Figure 26: BGEN – Daily Chart ................................................................................... 85
Figure 27: PAYX – Daily Chart ................................................................................... 85
Figure 28: PSUN – Daily Chart .................................................................................... 89
Figure 29: APC – Weekly Chart................................................................................... 89
Figure 30: HTCH – Weekly Chart................................................................................ 89
Figure 31: ISIL – Weekly Chart ................................................................................... 93
Figure 32: CVH – Weekly Chart .................................................................................. 93
Figure 33: E-mini NASDAQ Futures – 5 Minute Chart............................................... 93
Figure 34: Sugar Futures – Daily Chart........................................................................ 97
A WORD OF CAUTION!............................................................................................ 97
Case Studies: Setup Condition b2................................................................................... 100
Figure 35: EMR – Daily Chart.................................................................................... 100
Figure 36: ETR – Weekly Chart ................................................................................. 100
Suggested Trading Routine............................................................................................. 108
Time to Trade.............................................................................................................. 108
Stocks: Daily & Weekly ............................................................................................. 108
Daily Bars ............................................................................................................... 112
Weekly Bars............................................................................................................ 114
Instant Profits v
Tips ............................................................................................................................. 116
Stocks: Day Traders.................................................................................................... 117
Futures......................................................................................................................... 118
How to Supercharge your Stock Trading with Options.................................................. 120
Buy Long Signals on the Weekly Charts.................................................................... 121
Sell Short Signals on the Weekly Charts .................................................................... 121
The Top 11 Secrets to Success with Instant Profits........................................................ 123
Wrap Up.......................................................................................................................... 130
Recommended Reading .................................................................................................. 131
Glossary .......................................................................................................................... 132
Index ............................................................................................................................... 139
About the Authors........................................................................................................... 141
Instant Profits vi
Table of Figures Figure 1 – Basic stock chart with moving averages ......................................................... 30
Figure 2 – Price Bar .......................................................................................................... 31
Figure 3 – Swing High...................................................................................................... 32
Figure 4 – Swing Low....................................................................................................... 33
Figure 5 – Shorter Term Exponential Moving Average (EMA)....................................... 43
Figure 6 - Shorter Term Moving Average Envelopes ...................................................... 44
Figure 7 - Longer Term Moving Average ........................................................................ 46
Figure 8 - Putting the Indicators All Together.................................................................. 47
Figure 9 - Setup Condition b1........................................................................................... 54
Figure 10 – Setup Condition b1 ........................................................................................ 55
Figure 11 – Setup Condition b2 ........................................................................................ 56
Figure 12 – Setup Condition Special Case ....................................................................... 57
Figure 13 – Bearish Divergence ....................................................................................... 58
Figure 14 – Entry Points ................................................................................................... 60
Figure 15 – Entry Point..................................................................................................... 61
Figure 16 – Entry Point Detail .......................................................................................... 62
Figure 17 – Entry Point..................................................................................................... 63
Figure 18 – Entry Point..................................................................................................... 65
Figure 19 – Stop Loss Order............................................................................................. 69
Figure 20 – Profit Target Order ........................................................................................ 71
Figure 21 – Profit Target Order ........................................................................................ 72
Figure 22 – Conservative Tactic #2 .................................................................................. 77
Figure 23 - Case Study for TNB, Daily Chart .................................................................. 83
Figure 24 - Case Study for WCC, Daily Chart ................................................................. 84
Figure 25 - Case Study for RGF, 60 Minute Chart........................................................... 86
Figure 26 - Case Study for BGEN, Daily Chart ............................................................... 87
Figure 27 - Case Study for PAYX, Daily Chart ............................................................... 88
Figure 28 - Case Study for PSUN, Daily Chart ................................................................ 90
Figure 29 - Case Study for APC, Weekly Chart............................................................... 91
Instant Profits vii
Figure 30 - Case Study for HTCH, Weekly Chart............................................................ 92
Figure 31 - Case Study for ISIL, Weekly Chart ............................................................... 94
Figure 32 - Case Study for CVH, Weekly Chart .............................................................. 95
Figure 33 - Case Study for E-mini NASDAQ Futures, 5 Minute Chart........................... 96
Figure 34 - Case Study for Sugar Futures, Daily Chart.................................................... 98
Figure 35 – Case Study for EMR, Daily Chart............................................................... 101
Figure 36 – Case Study for ETR, Weekly Chart ............................................................ 102
Figure 37 – Example 1.................................................................................................... 104
Figure 38 – Example 1 Answers..................................................................................... 105
Figure 39 – Example 2.................................................................................................... 106
Figure 40 – Example 2 Answers..................................................................................... 107
Instant Profits 1
Introduction
Welcome to Instant Profits! The fact that you
invested in this course and are taking the time to
read it tells me that you want to change your life
by becoming a successful trader. But what does
being a successful trader get you? Besides a
growing portfolio, when you’re a successful
trader your entire life changes. What changes do
you want in your life? Close your eyes for a moment (after you read this paragraph, of
course), and think ahead twelve months. What defines success for you? As a successful
trader, potentially financially free, where will you be living? What does your dream
house look like? What sounds do you hear when you wake up at your leisure, a luxury
you’ve earned now that you may no longer need to work a 40 hour a week job? What
does your favorite dish taste like at the most exclusive restaurants on the exotic vacations
you enjoy? What does it feel like to potentially spend more time, a lot more time, with
your family?
Now come back to your current reality. Are you willing to do whatever it takes to
enjoy the lifestyle you know you deserve? Are you willing to learn and work hard to
apply a disciplined trading method?
Let me ask you a question. Do you think it’s possible to consistently make money
trading the markets? Unequivocally, I can tell you the answer is yes! Do you think it’s as
easy to succeed as most of the supposed gurus and junk mail you receive seem to
indicate? Absolutely not! If trading successfully was easy, everyone would be reaping the
profits. The truth is most people that trade lose money. This is a fact of life for a number
of reasons. But the primary cause of why so many people lose money trading is that they
simply do not know how to trade. If you don’t know how to trade, that doesn’t mean
you’re not smart. On the contrary, there are many highly intelligent people who lose
Instant Profits 2
millions of dollars in the market. If you don’t know how to trade, it just means that you
don’t have a trading method that you can apply with discipline. Most people never master
trading because it is difficult to win and they seldom have access to a trading
methodology that actually works. They usually go it alone or attend countless seminars
and read even more books, but in the end never really learn how to trade successfully.
How do I know this? Because it’s the story of my life.
I started trading the markets back in 1974 when I was working at General Motors.
I had a great wife and two young sons and I wanted the best for my family. I knew that
working hard at GM could only provide a certain level of income, so I spent every spare
minute learning how to trade. Little did I know at the time that I was beginning a 30 year
odyssey that would take me into the vast depths of my mind and test the very boundaries
of my emotions.
I made every mistake you can make in trading. I tried, tested, and bought every
quack system, seminar, and trading course known to man. I developed my own systems
(hundreds of them) and quickly became bored and impatient when they experienced a
few losing trades. I, like so many other young and inexperienced beginners before me,
was searching for the illusive Holy Grail of trading. I was young and smart (well, OK, I
was young), and thought without a doubt that I could “crack the code” and discover the
system that everyone has been looking for since the dawn of the markets (and this was
before the Internet, when all I had to work with was a pencil, a straightedge, and a
calculator).
I’ll admit it, I was stubborn for many years (and my wife will tell you I’m still
stubborn), but one day I finally got it. I finally “cracked the code”. After spending
thousands and thousands of dollars on systems, and an equal number of hours locked
away in my study, I finally learned the most important lesson: the Holy Grail of trading
just doesn’t exist! This may be obvious to you, but it took me nearly twenty years to turn
off my ego, take a deep breath, and to finally, truly understand this concept at a cellular
level.
Instant Profits 3
I learned the hard way that while it is possible to profit from the markets trading
correctly, it is a near certainty that you will lose money trading incorrectly.
Then one day, my son asked why I didn’t teach what I had learned to help others.
At first I was very reluctant to give up my secrets. Why? Think about it. If you came
across something that could potentially make you a lot of money, would you share it
openly with the world? Probably not.
After I retired twelve years early from GM, I finally decided to spill my guts. I
was so sick and tired of watching all the shameless hucksters on the Internet and TV hype
their baseless opinions and empty promises. So I started Profits Run and then something
magical happened.
I found the more I shared with others about what I knew about trading, the more I
learned about trading! You’ve heard it said before, and I can attest to the fact that it’s
true: the more you teach others about what you know, the better you understand what you
know. As more and more people used my trading methods, they started to ask me some
great questions which caused me to improve those methods.
So here I am today. In your hands, you hold the culmination of my life’s work at
trading the markets. This is the information that I locked away in my personal safe for
many years. Instant Profits is dramatically different than other courses you’ve tried.
Why? For one, it cuts through the clutter that most courses bog you down with. Instead, it
clearly illustrates the key elements of a specific methodology that could potentially give
you an edge trading the markets. Besides the “meat” of the system (and there’s plenty of
meat here), Instant Profits covers the equally important but often forgotten topics of risk
management and emotions. I believe any trading course that doesn’t cover these items is
absolutely worthless.
Instant Profits 4
Look, trading successfully is difficult if you don’t know what you’re doing.
Instant Profits will act as your personal trading coach and potentially shortcut your
learning curve dramatically. However, in order to be successful you must have a strong
desire to succeed. It will require you to work a little. After a bit of practice, Instant
Profits will be easy to understand. You must be willing to drop any pre-conceived
notions you have about trading, unlearn bad habits, and develop the discipline required to
trade successfully and consistently. Are you willing to do this?
You may be asking yourself, “What makes this course so special?” Here’s the
secret: Instant Profits will teach you a specific trading method that is so robust that it can
be applied in any market and in any time frame, whether it is day trading, short-term
swing-trading, or intermediate-term trading. This is a big deal, because most trading
systems only apply to certain markets and with certain time frames. One of the key
features of this method is that it “dials in” to the market you are trading and the current
conditions of that market. So as the markets change (and, boy, do they change), Instant
Profits changes with them to stay in sync with current market behavior.
I named this course Instant Profits because when you really learn how to trade,
despite the inevitable losing trades, winning trades will usually occur quickly, within two
to eight bars.
You’re probably chomping at the bit, ready to get started. Before we begin, let me
offer one word of caution. If you are the impatient type, you may want to jump ahead to
the “meat” of the course, skipping the “soft” content that covers money management,
risk, and emotions. If this sounds like you, please resist the urge and read this course
from cover to back. The “soft” stuff is actually more important than the technical stuff, as
you will soon learn. So, lock the door, unplug the telephone, grab your favorite beverage,
and get ready to study every single word of this system, because it’s that important.
Instant Profits 5
I’d like to thank you for investing your time and money in Instant Profits. I truly
want you to be a successful trader. As I’ve learned, the more you succeed, the more I
succeed. Are you ready to go to work? Let’s begin!
Action Exercises 1. Your trading success begins with your goals, so begin with the end in mind. Write
down your top three goals for each of the following areas of your life. Yeah, yeah,
I know you’ve heard how important it is to set your goals and I know you’ve
heard this before, but it really, truly, is important. If you haven’t done it yet,
now’s the time.
a. Financial:
i. _____________________________________________________
ii. _____________________________________________________
iii. _____________________________________________________
b. Business:
i. _____________________________________________________
ii. _____________________________________________________
iii. _____________________________________________________
c. Personal / Relationships:
i. _____________________________________________________
ii. _____________________________________________________
iii. _____________________________________________________
d. Contributions / Tithing:
i. _____________________________________________________
ii. _____________________________________________________
iii. _____________________________________________________
Instant Profits 6
2. Because Instant Profits can be applied to any market and with any time frame,
you get to choose where you’re comfortable trading. Just so you can have
something to relate to as you study this course, write down the market and time
frame you think you would enjoy trading the most. You can always change your
mind later, and can even trade several markets and time frames.
Desired Market (i.e. NASDAQ stocks, futures, options, etc.): ________________
Desired Time Frame (i.e. 5-minute bars, daily bars, etc.):____________________
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 7
The Top 11 Trading Myths
In order to be a successful trader with Instant
Profits, you need to first have the proper
mindset. With that said, let’s address the Top 11
Trading Myths. Hopeful investors have lost
millions of dollars because they believed in
these myths. I know you don’t believe any of
these, so this will just be a good review for you.
Myth #1 – Buy and Hold is Safe
This is an investment strategy based on the belief that the stock market always goes up
in the long run. The problem with this strategy is that the long run can be a very long
time. For example, the Dow Jones Industrial Average did not return to its 1929 peak
until 1954, a full 25 years later. During that time it dropped precipitously incurring
unacceptable risk which no one would sit through. To make matters worse, few money
managers can duplicate the performance of the general market. The late 90’s dot.com-
inspired boom and bust is another example of why buy and hold is not safe. For every
strategy, whether an investor or trader, you must have an exit strategy that limits risk,
otherwise you are just buying, holding, and hoping (or praying).
Myth #2 – Trading Is Easy
The physical act of trading is easy, but making money consistently is not; otherwise,
everyone would be rich. Trading does not have to be difficult, but it requires diligence
on the part of the trader to follow a good trading method, use good money management
principles, and trade with discipline, none of which are easy but all which are being
done by successful traders.
Instant Profits 8
Myth #3 – The Holy Grail of Trading Exists
It doesn’t! Any good trading method will incur losses. The key is to use proper money
management principles to limit those losses and in so doing be a net winner.
Myth #4 – Selling Short Is Risky
This myth stems from the fact that theoretically there is no limit to how high a stock
can trade while that same stock can only trade down to zero. So, a short position could
suffer unlimited losses while long position losses are limited on the downside. The
truth is, selling short is no more risky than buying long as long as prudent stops are
used. In fact, being long in a bear market is far more risky than being short. And of
course, being short in a bull market is equally risky. So the riskiness of a position is
dependent on the use of good money management methods, not whether you are short
or long.
Myth #5 – Good Trades offer a 1 to 3 Risk / Reward Ratio
Conventional wisdom is that you should only take trades that deliver a reward that is 3
times the risk. The trouble with that approach is that in the real world of trading, such
trades are usually only successful less than 35% of the time. That means 65% of the
time the trade is a loser and that the probability of 5 losing trades in a row is about
11%. Most traders will not tolerate those kinds of losing streaks on a regular basis and
will probably abandon the method. On the other hand, a good trading method that
delivers at least a 1 to 1 risk / reward ratio has the potential to be profitable about 65%
of the time. In this scenario, 35% of the trades will be losers and the probability of 5
losing trades in a row is only about one half percent (0.5%). Most traders would be
happy to win 65% of the time with a 1 to 1 risk reward ratio with little chance of an
extended losing streak.
Instant Profits 9
Myth #6 – Dollar Cost Averaging is a Good Strategy
This is a method of adding money to your portfolio on a regular basis; say monthly, so
that you buy into the market incrementally, sometimes at a lower price and sometimes
at a high price, “dollar cost averaging” your purchase price. This method is attractive
to the buy and hold crowd, but is not something you want to practice as a trader. If,
after putting a long trade on, the market goes against you, you never want to add more
money to the trade to “average your cost”. That is simply bad practice and does not pay
off in the long run. It is much better to take your loss at your stop point and go on to
the next trade.
Myth #7 – You Must be an Insider to Make Money in the Markets
Ethical insiders in corporate USA are notoriously poor investors in their own
company’s stock. They do not have an edge on the market. In fact, they are
constrained by the SEC as to when and how much they can buy and sell, and you are
not.
Myth #8 – You Can Double Your Money with Options
Yes, you can do this in one trade and you can also lose your entire position in one
trade. Like any leveraged instrument, you must use sound money management
principles and limit your loss exposure to 2% or less per trade. In so doing you have
the potential to make money with options, but in no way should you attempt or expect
to double the value of your entire account overnight.
Instant Profits 10
Myth #9 – With Technical Analysis, the More Indicators The Better
On the contrary, while technical indicators can be very helpful in developing an
effective trading method, the challenge is how many and what indicators to choose
from the several that are commonly available. Trying to apply too many indicators is
self-defeating as you run the risk of over-complicating your method. Only a few good
indicators used in a complementary way are usually required to develop an effective
trading method.
Myth #10 – The Market is a Random Walk
Popularized by Burton Malkiel in 1973, this theory essentially states that the market is
haphazard, arbitrary, and unbeatable. There have been and continue to be many
successful traders who by their very success have proven this theory to be nonsense.
Myth #11 – Market Analysts are Usually Right
The reverse is true. For various reasons, analysts are usually encouraging you to buy or
hold, seldom do they tell you to sell. That is a problem (see #1 Buy and Hold is Safe).
The prevailing view of the experts is usually wrong. In fact, the majority view for the
coming year stock market performance by the top name analysts in the country (who
you can see on TV every day) is almost never correct. That is because the market is
simply un-forecastable, but with a good trading method it is beatable.
So there you have it! If you previously believed any of those myths to be true,
hopefully I’ve convinced you otherwise. If not, go back and read the above section again.
This is key to being successful with Instant Profits.
Instant Profits 11
Action Exercises 1. Describe two reasons why buy and hold is not a safe way to trade.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
2. The riskiness of an open trading position is dependent on the use of good
_______________________________ and trading with the ________________,
not whether you are short or long.
3. Market analysts that you see on TV every day are almost always correct with their
market forecasts. TRUE or FALSE?
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 12
The Bad News and The Good News
The bad news is there is no Holy Grail of
trading (see Myth #3). It simply doesn’t exist.
However, amateurs don’t believe this and are
ever hopeful of finding it. They go from
method to method, chasing after the next sure
thing only to be disappointed over and over
again. Amateurs think that they should be able
to win on every trade, or practically every trade.
Amateurs believe it is possible to achieve a near
straight line positive equity curve with no significant drawdowns. Amateurs usually
abandon their latest trading method after a few losing trades in a row concluding that the
method just doesn’t work. Well, it should be clear by now that the reason most amateurs
remain amateurs or give up trading all together is that they never stop believing and
pursuing the Holy Grail.
So what’s the good news? The good news is that the Holy Grail is not required to
succeed in trading the markets. This is a very important piece of good news. You don’t
have to win on every trade to be successful. It’s OK if you have a few losing trades in a
row. As a matter of fact, every good trading method has losing trades as well as
successive losing trades.
I have experienced the false beliefs of amateurs first hand, long ago, through my
own experience. It was only after many frustrating false starts that I finally realized that
the greatest obstacle to successful trading was my ability to accept losses. Whenever I
would encounter a few losses I would quickly lose interest in the method and begin
thinking about looking at something else. For whatever reason I wasn’t able to accept
Instant Profits 13
that there were losing trades and I was certain that if I looked long and hard enough that
someone would have what I was looking for.
I know that we are all searching for that one elusive methodology or advisory
service that will somehow have little or no losses and we therefore keep chasing after it.
The truth is that it doesn’t exist – believe me, if the Holy Grail existed it would have been
found by now.
The big awakening for me was that this behavior actually kept me from making
money, as I never could muster the discipline to stay with a winning methodology. My
unwillingness to accept that there were losers really held me back as well.
And then it happened! I finally realized that losing is part of the game and is
unavoidable with any good trading method. The only way to avoid losing is to not trade
at all. So please do your financial future a favor and realize that losing trades are just part
of the game.
Action Exercises 1. The Holy Grail of trading is not required to succeed in trading the markets. TRUE
or FALSE?
2. Every good trading method has losing trades as well as _______________ losing
trades.
3. The only way to avoid losing is to ___________________________________.
Instant Profits 14
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 15
Keys to Successful Trading
While the Holy Grail is thankfully not required
to succeed in the markets, a winning
methodology, risk management, and discipline
are absolutely required. Without them, you will
lose. Professional traders understand this.
They do not get lost in endless analysis of the
myriad of indicators, patterns, and methods.
They find or develop a winning methodology
and trade it over and over again, adhering to
strict risk management principles.
Winning Methodology
What is a winning methodology? Well, it’s a set of rules that tells you precisely how to
enter the market, exit the market, and how much to allocate to each trade so that you end
up with a Profit Factor greater than 1.00.
Let’s look at the formula of the Profit Factor:
Avg. Winning Trade % Winners Profit Factor =
Avg. Losing Trade X
% Losers
From the above formula, if the average winning trade equaled the average losing
trade and the method wins 50% of the time, the Profit Factor would be 1.00 (see Table 1,
System A). It should be self-evident that no money could be made with this method.
Instant Profits 16
The average winning trade must be greater than the average losing trade, the % winners
must be greater than the % losers, or both must occur to make money. A method that
generates 50% winners and an average winning trade 1.5 times the average losing trade
(including commissions and slippage) would have a profit factor of 1.5 (Table 1, System
B). Or better yet, a method that generates 66% winners and an average winning trade 1.5
times the average losing trade would have a Profit Factor of 3.0 (Table 1, System C).
Any trader that can consistently achieve a Profit Factor of 1.5 or greater should enjoy
great success. A trader that can operate at a Profit Factor of 3.0 could become very
wealthy.
System A B C
Average Winning Trade $1000 $1500 $1500
Average Losing Trade $1000 $1000 $1000
% Winners 50% 50% 66%
% Losers 50% 50% 34%
Profit Factor 1.00 1.50 3.0
Table 1 – A Comparison of Profit Factors
The key message from the preceding discussion is that the Holy Grail is not
required to win. A method or system that is only right 50% of time but generates average
winning trades at least 1.5 times the average losing trades is all you need. This should
cause you to realize that trading the markets from a small portfolio into a large one is
possible.
Instant Profits 17
Risk Management
It has been said that risk management is more important than the methodology one uses
to trade, since an otherwise winning methodology ends up losing without proper risk
management, but a mediocre methodology with strong risk management can end up
winning. You hold in your hands a potentially winning methodology coupled with strong
risk management.
I emphatically agree that risk management is the most important success factor.
For example, if you have a winning method that wins on the average 66% of the time, the
probability of 3 successive losing trades is 4%. That means you will lose 3 trades in a
row 4% of the time for any series of three trades. Further, to illustrate the point, if you
risk 33% of your initial capital on each trade you will eventually be wiped out. This is a
clear example of a winning methodology undermined by extremely poor risk
management.
Much has been written on this subject, its importance, and the means to
scientifically calculate the amount that should be risked per trade, but I have found in
order for a good trader to consistently apply sound risk management principles, that
simpler is better.
The technique I use and strongly recommend to you is to simply risk no more
than 1 to 2 percent of your trading account on each trade. By risk I mean the amount you
are willing to lose, not the amount applied to make the trade. For a $50,000 account, you
would risk no more than $500 to $1,000 per trade. If on the next trade you bought
$10,000 of a stock and lost $1,000, your account balance would be $49,000, limiting your
risk on the next trade to $980 (2% of $49,000). Unlike the example above, where 3
losing trades wiped out the account, by limiting your risk to 2% per trade, your account
would be down only $2,940 to $47,060. On the other hand, as your account grows, you
can risk 1 to 2 percent of the growing account balance which will allow you to grow the
Instant Profits 18
account more quickly. A caveat here is in order. Successful traders with very large
accounts will often risk no more than a half percent (0.05%) per trade to further limit risk.
This is contrary to what amateurs do when they are fortunate enough to make money in
spite of poor practices, only to give it all back by increasing the risk percentage per trade
thinking they can do no wrong.
The importance of this simple rule should be self-evident. In order to become
wealthy trading the markets, you need to stay in the game and the 1 to 2 percent risk rule
will keep you in the game to give your methodology the chance to payoff in the long run.
Remember, if you have a winning trading method individual trade outcomes are not
important, it is the outcome from a series of trades that is important, where you know that
the more trades you make the more likely you will be a net winner. This is, of course,
what the casino models are based upon. They don’t mind losses up to the house limit,
because they know that the odds are in their favor and when the month comes to a close,
the casino will be a net winner, time and time again. You want to be like the casino.
Work your winning method with sound risk management so that you are not taken out of
the game along the way.
Another important aspect of risk management when it comes to trading stocks or
options is to not get caught with several long positions in a bull market reversal or with
several short positions in a bear market reversal. The following is a way to hedge for this
situation, which will occur sometime in the life of every bull and bear market. In a bull
market, it is always a good idea to have one short position on (only those that would meet
the criteria defined in this course) for every three long positions. And likewise, in a bear
market, it is always a good idea to have one long position on (only those that would meet
the criteria defined in this course) for every three short positions. When the market
reverses, often times unexpectedly, you will be able to offset a good portion of the loss
from the losing trades with the usually exceptional profit on the one winning trade.
Instant Profits 19
Discipline & Psychology
The key message about discipline is that without it you will lose. It’s that simple. So you
think, “I understand that and so I will be disciplined in my trading.” But this is where
fear and greed enter into the picture along with an emotional rollercoaster that will truly
test what you’re made of. Remember earlier how I said that trading tested the very
boundaries of my emotions? I wasn’t kidding! You must master your emotions when
trading. If you are trading a winning methodology and using sound money management
practices, you will eventually have the following experiences:
a) You will win several trades in a row or at least win most trades for a time. You
will then start to feel pretty good about yourself and your trading ability.
Caution: You may then become reckless in your trading. Increasing the amount
of risk per trade, ignoring stop loss points, or staying in a profitable trade hoping
for more than your profit target. These actions driven by greed will cause your
trading account to suffer.
b) You will have several losses in a row. You will then feel depressed and think
your trading methodology no longer works, forgetting that even good
methodologies will have successive losing trades on occasion. Caution: You
may then become reckless in your trading by increasing the risk per trade
attempting to win back your recent losses all at once. Or more likely, you will
abandon your trading methodology and jump to something else, only to repeat the
cycle at a later date – this is the Holy Grail syndrome. Or you may give up
trading altogether, concluding that it is not possible to win consistently.
c) You will make several trades, but experience a number of winners and losers that
leave your account at breakeven at best. You will become bored and possibly
complacent. Caution: Again, you may become reckless in your trading; trying to
make something happen that will break you out of your malaise and get back to
Instant Profits 20
winning. This is called forcing the market to do what you want it to, which is
never a good idea.
The emotional reactions to the foregoing set of experiences are precisely why most
traders lose in the markets. They fall victim to one or all of these experiences. Winning
traders, on the other hand, have learned that these experiences will occur, and when they
do they stay disciplined, sticking to their trading methodology and risk management rules
without wavering. This makes all the difference in the world and is the primary reason
that winners are winners. Can you imagine a casino changing its gaming rules after
losing several jackpots in one week or only breaking even for several weeks? Can you
imagine a casino closing down after losing several jackpots in one week? No! Why not?
Because, you know the casino will be a net winner if they simply stick to their
methodology which gives them a winning edge. Winning traders do the same thing as the
casinos – they stay disciplined and win!
Another way to look at this is through personal success coach T. Harv Eker’s concept
of your body’s thermostat. When your home’s thermostat is set to 70 degrees and you
open the windows in the winter, the temperature will drop but eventually the thermostat
kicks in and returns the temperature to 70 degrees. If you open the windows in the
summer, the temperature will go up, but again the thermostat kicks in and brings the
temperature back down to 70. The point is that your body, your mind, and your emotions
work the same way. You’ve grown accustomed to a certain way of thinking and behaving
and reacting – that’s your body’s thermostat. When you try to follow a new path, or
attempt something that might seem a little awkward or unnatural at first, your internal
thermostat brings you back to what makes you comfortable. It causes you to revert back
to your old behaviors. To master your emotions with trading, you need to learn to adjust
your thermostat to a new setting and leave it there.
Instant Profits 21
Action Exercises 1. What is the formula to calculate a system’s Profit Factor?
? ? Profit Factor =
? X
?
2. If a trading system is only right 50% of the time but generates average winning
trades at least 1.5 times the average losing trades, will it make money over time?
YES or NO.
3. What is the maximum amount of money you should risk on each trade?
_________________________________________________________
4. If you are trading with a winning stock method and you encounter three losing
trades in a row, what should you do? ____________________________________
__________________________________________________________________
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 22
Tools to Instant Profits Before you begin trading, you need some basic
tools. If you’ve already been trading, you
probably already have all of these items, so just
read this section as an overview.
Charting Software
There are many different options available when choosing charting software. Your
budget and the amount of time you dedicate to trading may dictate what you end up
purchasing. If you’re serious at all about trading, though, you will make your life much
easier by investing in a powerful charting software package. Make sure it has the
following capabilities:
The ability to plot multiple simple and Exponential Moving Averages on the same
chart.
The ability to plot Fibonacci Retracement Levels.
The ability to use both end-of-day and intraday (real-time) data feeds.
The charting software used for the examples in this course is Advanced GET, which
is excellent. Other good choices include Trade Navigator by Genesis and TeleChart by
Worden Brothers.
Computer
You need to get a computer powerful enough to easily run the trading software you’re
going to be using. So the easiest way to choose a computer is to choose your trading
software first, and then get a computer that matches the software’s recommended
specifications. In general, if you buy a new computer today with basic specifications,
Instant Profits 23
you’ll have enough computing power to handle most charting software. It’s been my
experience that a computer purchased from a direct mail manufacturer like Dell
(www.dell.com) or Gateway (www.gateway.com) is usually more robust and stable than
one purchased from a local computer superstore.
Regarding monitors… bigger is better. It’s important that you are able to clearly
see the charts on the screen. For this reason, I recommend at least a 17” monitor, but go
with a bigger one if your desk and your budget will support it. The standard CRT
monitors are the least expensive, but more bulky. Flat panel displays are more expensive,
but easier on the eyes and require less desk space. Some traders like to use two monitors,
which requires a special video card. This lets you look at a chart on one monitor, for
example, and a detailed list of quotes on the other monitor.
In general, you should be able to get a very powerful computer for $1,500 or less.
Data Feed
You need to have access to a reputable provider of chart data. Some software packages
offer their own data feeds and others work with third party feeds. For example, the latest
version of TradeStation uses its own real-time data feed. A good third party data
provider is eSignal, which is what I use with Advanced GET. If you’re going to be
trading daily bars or longer, you’ll just need end-of-day data. If you plan on day trading,
you’ll need access to intraday data provided by a real-time data feed, which usually costs
more.
Internet Connection
Whatever type of data feed you use, you’ll want to get the updated data via the Internet.
In most cases (if not all), you will be required to get the data via the Internet. If you don’t
already have access to a high speed Internet connection, get one. Many people who use
Instant Profits 24
dial-up connections over a second phone line can often save money by switching to a
high speed connection. Reliable and fast access to data is very important.
Broker
Since you will be making your own trading decisions there is no need to pay for a full
service broker. If you intend to place the orders online yourself (which I highly
recommend), then you want a broker that provides an easy to use real-time trading
platform with competitive commission rates. There are several to choose from whether
trading stocks, futures, or forex. If you intend to call in your orders to your broker, make
sure that you have immediate access to the order taker with no waiting whatsoever.
When you want to place an order, you should always be able to get a live person on the
phone immediately. Again, commissions should be competitive.
Advanced Access
If you’re on the road a lot and don’t want to deal with installing a duplicate software
setup on your laptop, an alternate solution is to use a remote PC access application.
Here’s how it works: Your main trading system (usually a desktop computer attached to a
high speed Internet connection) should remain online 24 hours a day. Your remote
computer (a laptop or a computer at your summer cottage) should contain the remote
access software. This will allow you to virtually control your main trading system from a
remote location.
A good software-based solution is Symantec’s pcAnywhere
(www.symantec.com). A good web-based solution is GotoMyPC (www.gotomypc.com).
This kind of setup should only be used if you’re very comfortable working with
computers, because there are a lot of things that can go wrong which could interrupt your
trading routine (power outages, slow Internet connections, etc). Advanced users only!
Instant Profits 25
Action Exercises 1. In order to clearly see charts, what is the minimum size monitor you should use?
__________________________________________________________________
2. If you plan on day trading, you need access to what kind of data?
a) Real-time data b) End-of-day data c) No data
3. If you intend to place orders online yourself, then you want a broker that provides
an easy to use real-time trading platform with competitive commission rates.
TRUE or FALSE?
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 26
The Basics If you’re new to trading, it’s important to
understand some basic terms and concepts. If
you’re already an experienced trader, you can
read this section as a refresher, or skip ahead to
the next section. There are dozens of excellent
books that cover the basics of stock trading.
While I’m going to cover some information
here, you may want to read a good, detailed
book geared toward beginners if you’re
interested in learning more about the basics of
trading the markets. For the very bare bones basics, Trading for Dummies by Michael
Griffis is a good book.
The Stock Market
A stock is a certificate of ownership in a company that can be bought and sold on two
major exchanges and several minor exchanges as well as the OTC (Over The Counter)
Market in the United States and several other stock exchanges worldwide. In the United
States, over 10,000 stocks are traded on the NYSE (New York Stock Exchange), the
AMEX (American Stock Exchange), and the OTC that we all refer to as the NASDAQ
(National Association of Securities Dealers Automated Quote System).
An exchange is a place where buyers and sellers physically get together on a
central trading floor to buy and sell through a middleman, called the specialist. The
NASDAQ, on the other hand, is an electronic market that automatically matches the buy
and sell orders on a best-price basis.
Instant Profits 27
The price movements for both exchange and NASDAQ-traded stocks can be
charted using any time frame – hourly, daily, weekly. It is these charts that we are
interested in when searching for stock trades that meet the parameters of Instant Profits.
Also, we are only interested in high volume stocks (over 1 Million per day average
volume) to assure liquidity which enhances our ability to buy and sell at the prices we
specify.
Buying Long
Buying long is when a trader buys a stock for the purpose of owning the stock in hopes
that it will rise in price. Buying long involves buying a stock from someone else that is
selling the same stock at an agreed to price. When that happens, the ownership of the
stock is transferred from one person to another.
Selling Short
Selling short is when a trader sells a stock that he doesn’t own for the purpose of buying
it back at a later date hopefully at a lower price. Selling short involves borrowing the
stock from the broker in order to sell it to someone else who wants to buy the stock.
When the sale takes place, your account is credited with the cash from the sale and
debited for the number of shares borrowed to complete the sale. At some future date, the
stock is purchased for the purpose of returning the borrowed stock to the broker. When
the purchase transaction occurs, the short seller’s account is debited for the cash required
to make the purchase and credited with the stock shares purchased offsetting the original
debit at the time the stock was sold short. If the stock price went down, the trader made
money; if not, the trader lost money on the short sale. Selling short is generally viewed
as being more risky than buying long, but this may not true with the appropriate use of
Stop Loss orders.*
*No representation is being made that the use of stops will prevent or guarantee against losses exceeding the intended amount.
Instant Profits 28
Fundamental Analysis
Fundamental analysis involves the use of economic and company financial performance
data (if trading stocks) to forecast prices. Fundamental analysis implies that a
relationship between this data and the market prices of the security analyzed can be
determined with some accuracy in order to give the trader an edge in trading the market.
Technical Analysis
Technical analysis is based primarily on the study of price patterns and indicators that are
derived from past prices to forecast future prices. Technical analysis implies that patterns
and indicators used in such analysis can give the trader an edge in trading the market.
Instant Profits is based on technical analysis.
Plotting a Chart
A chart is simply a graph indicating a market’s historical price changes. The x-axis
indicates time, which will vary based on the time frame you are trading. The y-axis
shows the market price. See Figure 1 for an example of a chart. For our purposes, we’ll
be using charts made up of price bars. A price bar describes the opening price, high price,
low price, and last price (the close) for the time frame you are trading. The vertical length
shows the total price movement for your time frame. See Figure 2 for an example of a
Price Bar. The little dash or line on the left side of the bar indicates the opening price.
The top of the bar indicates the highest price. Conversely, the bottom of the bar shows the
lowest price. The little dash on the right side of the bar indicates the closing price (the last
price traded for the time frame you are using). You will hear the term “bar” used often
and we’ll use it throughout the remainder of this course. It’s a term to indicate a specific
price bar for the time frame you are trading. When beginners see a chart, they sometimes
tend to think of each bar as a “day”. This is only true if the chart indicates “daily bars”. If
a chart shows “weekly bars”, then each price bar on the chart represents the total price
Instant Profits 29
movement for one entire week. On the shorter end, if a chart shows “5 minute bars”, then
each price bar indicates the total price movement for a 5 minute segment during the day
(this is what day traders might look at). For this reason, when you’re examining a chart,
it’s important to first check to see what time frame the chart represents. This is especially
important for Instant Profits because it can be applied to any time frame, not just daily
bars.
Instant Profits 30
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#67
+0.1
908
/24/
04O
:22.
64H
:22.
71L:
22.3
9C
:22.
65
LON
GER
TER
M M
OVI
NG
AVE
RAG
E
SHO
RTE
R T
ERM
MO
VIN
G A
VER
AGE
ENVE
LOPE
S
SHO
RTE
R T
ERM
EXP
ON
ENTI
AL M
OVI
NG
AVE
RAG
E (E
MA)
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
29.2
3
Fe20
04D
ecN
ovO
ctSe
p09
/19/
03
Figure 1 – Basic stock chart with moving averages
Instant Profits 31
High
Close
Open
Low
Figure 2 – Price Bar
Swing High
A Swing High is a short term high bar with at least two lower highs and lower lows on
both the left and right of the high bar. See Figure 3 for an example of a Swing High.
Swing Low
A Swing Low is a short term low bar with at least two higher lows and higher highs on
both the left and right of the low bar. See Figure 4 for an example of a Swing Low.
Trend Lines
Trend lines are used to help determine the trend of a series of data over time and are
usually drawn by connecting the higher Swing Lows in an up trend and lower Swing
Highs in a down trend. When the trend line is penetrated on a closing basis, it signals a
possible change in the trend.
Instant Profits 32
Figure 3 – Swing High
BBY - Best Buy Co. Inc., Weekly - Advanced GET ©2004 eSignal
#238
+0.5
709
/03/
04O
:48.
43H
:49.
40L:
45.8
6C
:49.
00
Swin
g H
igh
-
A sh
ort t
erm
hig
h ba
r with
low
erhi
ghs
(at l
east
two)
on
both
the
left
and
right
of t
he h
igh
bar
11
2
2
60.0
0
55.0
0
50.0
0
45.0
0
40.0
0
59.9
9
06/2
7/03
Instant Profits 33
Figure 4 – Swing Low
BBY - Best Buy Co. Inc., Weekly - Advanced GET ©2004 eSignal
#238
+0.5
709
/03/
04O
:48.
43H
:49.
40L:
45.8
6C
:49.
00
Swin
g Lo
w -
A s
hort
term
low
bar
with
hig
her
low
s (a
t lea
st tw
o) o
n bo
th th
e le
ftan
d rig
ht o
f the
low
bar
1
1
2
2
60.0
0
55.0
0
50.0
0
45.0
0
40.0
0
62.9
4
2004
06/2
7/03
Instant Profits 34
Moving Averages
There are two commonly used moving averages. One is a simple moving average which
is calculated by adding a series of prices over a specific time period (for example, 10
days) and dividing that sum by the number of time increments (for example, 10). The
other is an Exponential Moving Average (EMA) which is calculated in a similar manner
as the simple moving average except it gives greater weight to the most recent prices in
the time period measured. The EMA is a more sensitive average that is more heavily
influenced by the most recent prices than is the case for the simple moving average. Like
trend lines, moving averages are used to help determine the trend of a series of data over
time.
Channels
Channels are envelopes that capture most of the price data displayed on a bar chart. They
are usually based on percentage bandwidth around a moving average or trend line. When
prices are in an up trend and approach the lower channel band, it may be a good time to
buy; and when prices approach the upper channel band, it may be a good time to sell to
cover the long position.
Fibonacci Retracement Levels
Fibonacci Retracement Levels are based on the ratios of a number series first observed by
Leonardo Fibonacci in the thirteenth century and are regarded as describing the natural
proportions of things in the universe, including price data. These retracement levels are
determined by applying the Fibonacci Retracement Level indicator (found in most good
trading software packages) to a Swing High and Swing Low made by the recent price
action on a bar chart. Fibonacci Retracement Levels are used in trading as possible
support and resistance levels.
Instant Profits 35
Paper Trading
Paper trading is the act of placing trades with pretend money. In essence, you follow your
trading routine up until you would place an actual order. Instead, you track your order on
paper, noting which price you “bought” at and which price you “sold” at. This gives you
practical and valuable experience trading a system and allows you to make mistakes
without having your actual trading account suffer.
I highly recommend that you paper trade Instant Profits until you are comfortable
enough to begin placing real trades with your broker. Depending on your skill and
experience, the number of paper trades should be anywhere from 5 to 10. After that, you
will be ready to begin trading Instant Profits for real.
Even though the term “paper trading” is still used, there are websites that will
allow you to paper trade an imaginary account online. These services will actually track
your pretend account with live data. Some brokers offer paper trading services just so you
can get comfortable with the mechanics of their websites before making live trades. If
you are researching a new broker, ask if they provide paper trading or “trading
simulation” as it is sometimes called.
Action Exercises
1. Which of the following is not an exchange?
a. NYSE b. AMEX c. NASDAQ d. CBOE
2. Selling short involves ________________ the stock from the broker in order to
_____________ it to someone else who wants to _____________ the stock.
3. Fundamental Analysis is based primarily on the study of price patterns and
indicators that are derived from prices to forecast prices. TRUE or FALSE?
Instant Profits 36
4. Label each part of a Price Bar:
5. A Swing High is a short term high bar with at least two higher lows and higher
highs on both the left and right of the high bar. TRUE or FALSE?
6. The Exponential Moving Average (EMA) is calculated in a similar manner as the
simple moving average except it gives greater weight to the most recent
_______________ in the time period measured.
7. Which statement best describes Paper Trading?
a. Paper Trading is the act of placing trades on the floor of an exchange.
b. Paper Trading is the act of trading paper currencies.
c. Paper Trading is the act of placing trades with pretend money.
d. Paper Trading is the act of analyzing your printed brokerage statements.
Instant Profits 37
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 38
Trading Indicators and Methods
There are several indicators used by traders such as moving averages, MACD, RSI,
stochastics, Bollinger bands, %R, Elliott Wave, Fibonacci levels, etc. There are also
several chart patterns used by traders such as head and shoulders, support/resistance,
flags, pennants, trend lines, triangles, wedges, swing highs and swing lows, candlesticks,
etc. Using some or all of these indicators and chart patterns, several trading methods are
used by traders such as swing trading, day trading, buy and hold trading, channel trading,
volatility breakout trading, trend following, convergence/divergence trading, etc. You
have probably seen most of these indicators and methods heavily advertised as your road
to riches. While the indicators are all good, it is important to realize that they are only
indicators, and in and of themselves do not constitute a trading system or methodology.
As for the trading methods that are advertised, I believe many are not good, but a few are.
And the few that are good have managed to combine a few indicators (not many) with the
natural ebb and flow of the markets to have the potential to consistently take money out
of the markets.
Besides the information covered above, I will not be reviewing the details of all of
the standard indicators and chart patterns found in so many trading courses and books,
because it is not necessary to become expert in all of these in order to make big money
with the method taught in this course. Chances are, you are already well familiar with
this material, but if not and you are interested in learning more about these indicators and
patterns there are countless books available on the subject. Visit the Instant Profits
website at www.instantprofitstoday.com/members for a list of recommended books. But
a word of caution – none of these indicators constitute a good trading method on a
standalone basis. It is only in combining certain indicators and patterns with market
action are you able to develop a winning methodology.
Instant Profits 39
Trading Vehicles and Time Frames
There is seemingly no end to the number of different market opportunities available for
us to trade. Most opportunities fall into one of these market types: stocks, options,
futures, forex, indexes, and mutual funds. There are also several time frames that traders
can choose from such as long term (years), intermediate term (months), short term
(weeks), very short term (days), and day trading (intraday).
Successful traders have emerged in all markets and all time frames. Some focus
on stocks for the long term only and others on day trading futures and all combinations in
between these two extremes. The point is you have the potential to become a successful
trader in any of these markets and in any time frame. The key is to select the markets and
time frame that are best suited to your personality and situation. Of course, you will need
a good trading methodology that applies to your market and time frame. Many good
methodologies only apply in certain markets and in one time frame. That is OK, but a
good methodology that applies to all markets and all time frames is better. You will learn
such a methodology in this course. It is scaleable to your personality and situation – from
a long term to day trading time frame, and in any market or markets you choose. You
will be learning about what I believe is a truly robust trading method.
Instant Profits 40
Instant Profits with Channel Trading
Instant Profits is a proprietary system that uses
a robust version of channel trading. It identifies
high probability trades over and over again
under any market conditions - bull, bear, or
sideways. It is easy to trade and easy to apply.
It has a simple set of objective rules that can be
applied to any market in any time frame. The
average trade duration is from 2 to 8 bars. If
you trade the weekly charts, that translates to 2
to 8 weeks; if you are trading the daily charts, it’s 2 to 8 days. It can be learned in a few
weeks, and perfected in a few months. You have the potential to become a successful
trader with Instant Profits if you practice risk management and are disciplined as
discussed earlier.
Are you ready? Here is the general approach, which is summarized in Table 2 and
Table 3, shown at the end of this chapter.
1. Plot the Chart
First we will plot a bar chart of the market we wish to trade and the time frame we wish
to trade. The bar setting will be equal to the time frame or interval we wish to trade. For
example, if we are trading on an end of day basis we would use daily bar charts. If, on
the other hand, we are day trading, we could use 5 minute bar charts. In the following
example, we will be using a daily chart for NXTL, but the approach is the same
regardless of time frame and regardless of market.
Instant Profits 41
Next we will create a short term Exponential Moving Average (EMA) that best
tracks with the market on a bar by bar basis for the most recent 60 bars (see Figure 5).
This is easily done with your trading software by selecting “exponential moving average”
and setting the inputs as follows:
Input Setting
Price: Close
Length: 14
Displace: 0
The length of this moving average should be in the 7 to 14 bar range. In this case,
we selected a 14 bar exponential moving average because it tracks closely with the
predominant trend of the market for the period displayed on the chart, it does not change
direction too often, and it is close to the price action. It also tends to support the market
when trending up and acts as resistance when trending down.
An additional guideline that is useful when selecting the EMA length is to use the
length that when combined with the moving average envelopes (see next page) gives the
most profitable trades for the past 60 bars. This is because the optimal setting for the past
60 bars is likely to be a good setting for the next trade. Adjusting the length of the EMA
in this manner will give you an additional edge, but it is not necessary to get it just right
as Instant Profits is very robust and can be applied with almost any setting from 7 to 14
bars.
Instant Profits 42
Next, we will create short term moving average envelopes that capture 95% of the
price action of the most recent 60 bars of the market that you are trading. Again, this is
easily done with any good trading software by selecting “moving average envelopes” and
setting the inputs as follows:
Input Setting
Price High Close
Price Low Close
Length 14 bars
Percent Above This will vary depending on your market
Percent Below This will vary depending on your market
Displace 0
This will create an overlay of the moving average envelopes on your bar chart
(see Figure 6). We chose a 14 bar moving average for the envelopes because it should be
the same as the length of our exponential moving average.
Instant Profits 43
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#59
+0.1
908
/24/
04O
:22.
64H
:22.
71L:
22.3
9C
:22.
65
SHO
RTE
R T
ERM
EXP
ON
ENTI
AL M
OVI
NG
AVE
RAG
E (E
MA)
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
29.2
3
2004
Dec
Nov
Oct
Sep09/0
9/03
Figure 5 – Shorter Term Exponential Moving Average (EMA)
Instant Profits 44
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#38
+0.4
408
/20/
04O
:21.
89H
:22.
43L:
21.8
3C
:22.
31
SHO
RTE
R T
ERM
MO
VIN
G A
VER
AG
EEN
VELO
PES
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
28.5
8
2004
Dec
Nov
Oct
Sep
Aug
08/0
6/03
Figure 6 - Shorter Term Moving Average Envelopes
Instant Profits 45
The percent above should be equal to the percent below and is determined by trial
and error. The absolute percents are not important; rather the overlay on your bar chart is
important. Try different settings until the envelopes comprise 95% of the price action
(not 95% of the bars), where the highs in an uptrend slightly exceed the upper band of the
envelope and the lows in a downtrend slightly exceed the lower band of the envelope (see
Figure 6). This is done by visual inspection, examining the envelopes over the past 60
bars.
The next indicator is the Long Term Moving Average (Figure 7). This moving
average should be 5 times the length of the short term Exponential Moving Average and
should be a simple moving average. Again, this is easily done with any good trading
software by selecting “moving average” and setting the inputs as follows:
Input Setting
Price Close
Length 70
Displace 0
In our example, we selected a 70 bar moving average (14 bar short term
Exponential Moving Average X 5).
Now, putting it altogether (Figure 8), we are in a position to talk about our general
approach to trading. First, we only want to trade in the direction of the longer term trend
as defined by the Long Term Moving Average. Next we want to enter the market on
reactions back to and below the Exponential Moving Average (EMA, which is the shorter
term average); the premise being that within an uptrend, value and support should be
found when prices fall back to the EMA. Once we have entered the market on the long
side, we will place our stop loss just beyond the entry bar lower moving average envelope
and our profit target at the entry bar upper moving average envelope. One of two
outcomes in this example will occur in a matter of a few bars. We will either exit at our
profit target or we will be stopped out.
Instant Profits 46
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#57
+0.4
408
/20/
04O
:21.
89H
:22.
43L:
21.8
3C
:22.
31
LON
GER
TER
M M
OVI
NG
AVE
RA
GE
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
29.5
6
Fe20
04D
ecN
ovO
ctSe
p09
/03/
03
Figure 7 - Longer Term Moving Average
Instant Profits 47
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#67
+0.1
908
/24/
04O
:22.
64H
:22.
71L:
22.3
9C
:22.
65
LON
GER
TER
M M
OVI
NG
AVE
RAG
E
SHO
RTE
R T
ERM
MO
VIN
G A
VER
AGE
ENVE
LOPE
S
SHO
RTE
R T
ERM
EXP
ON
ENTI
AL M
OVI
NG
AVE
RAG
E (E
MA)
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
29.2
3
Fe20
04D
ecN
ovO
ctSe
p09
/19/
03
Figure 8 - Putting the Indicators All Together
Instant Profits 48
We’ll cover this strategy in detail, and later we will be discussing additional
strategies that include a trailing stop to reduce the risk in the trade once it moves in our
favor.
It is very important to adjust your settings based on the most recent 60 bars on
your chart. Market behavior changes over time and market memory insofar as Instant
Profits is concerned is limited to about the last 60 bars. The ability to adjust your settings
as the market gradually changes makes Instant Profits very robust and aligned with
current market conditions. Other methods often fail on this point; they may work for a
while but then stop working as market conditions change.
You should now have a general overview of the method behind Instant Profits. In
the next section, we’re going to dive deep and explore the specific trading rules.
Action Exercises 1. The length of the short term Exponential Moving Average should be between
_____ and _____ bars.
2. The short term moving average envelopes should capture _____ % of the price
action of the most recent _____ bars of the market that you are trading.
3. The Long Term Moving Average should be _____ times the length of the short
term Exponential Moving Average.
Instant Profits 49
4. Why is it very important to adjust your settings based on the most recent 60 bars
on your chart?
a. Because 60 is a round number.
b. Because market behavior changes over time and market memory insofar
as Instant Profits is concerned is limited to about the last 60 bars.
c. Because market behavior remains unchanged over time and market
memory insofar as Instant Profits is concerned is the same across all time
frames.
d. Because the short term Exponential Moving Average is optimized to work
best using 60 bars.
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 50
2. Setup Conditions
Every good trading method includes specific Setup Conditions that must occur to even
consider making a trade. The following setup conditions are for entering into long
positions, but the exact same conditions in reverse apply for entering into short positions
(as shown in the Short Trades Blueprint, Table 3). In each condition, we need to refer to
the “Highest High of the Last 5 Bars”. For ease of reading, this is notated simply as
“HH5”.
a. The Longer Term Moving Average must be moving higher, but stay away from
choppy trendless markets. If it is moving sideways, stand aside and look for
another market.
AND
b1. The HH5 equals or exceeds the Upper Band of the Moving Average Envelope and
the Upper Band is moving higher at that point (Figure 9). At this point, the market
has temporarily moved away from value (the short term EMA), is said to be
“overbought”, and will eventually return to the EMA before resuming its move
higher. This is a very powerful setup condition as it filters out all of those markets
that are not likely to move up anytime soon. In other words, when the HH5 occurs
according to this condition, there is a high probability of a move higher and soon.
It is important that the HH5 does not exceed the Upper Band by more than 75% of
the difference between the Upper Band and the short term EMA (Figure 10). If it
does, the market could be in “blow-off” exhaustion phase signaling at least a
temporary end of the up trend. When this occurs, stand aside until the market
retraces to the lower band and then wait for a new setup or a change in trend.
OR
b2. The HH5 falls short of the Upper Band of the Moving Average Envelope, and the
low of at least 1 previous bar is greater than the EMA. In this situation, the market
is moving up more slowly, but because we have a previous bar low greater than
Instant Profits 51
the EMA, there is a high probability of the market continuing to move up. (See
Figure 11).
AND
c. SPECIAL CASE: If after the last time the market traded below the EMA, it
subsequently trades above the Upper Band (Condition b1) and then in subsequent
bars trades even higher but below the rising Upper Band (Condition b2) then the
Setup Condition has been weakened and you should stand aside (Figure 12). This
case does not occur often; but when it does, you should stand aside.
Important Qualifier: In order for the b1 or b2 Setup Condition to be valid, there must
NOT be bearish or bullish divergence occurring at the same time that a b1 or b2 Setup
Condition occurs. See Figure 13 for an example of bearish divergence. Bearish
divergence occurs when the trend of price highs goes one way and the trend of oscillator
highs goes the opposite way. We use an 8,3,3 Slow Stochastics as the oscillator. A
bearish divergence occurs in an up trend when the HH5 is greater than the last Swing
High, but the Slow Stochastics %K at the HH5 is less than the Slow Stochastics %K at
the last Swing High. While this pattern occurs only occasionally, when it does it signals a
potential end to the up trend and therefore we would not want to enter a long position on
a retrace below the EMA. Bullish divergence is the same in reverse. A bullish divergence
occurs in a down trend when the Lowest Low of the last 5 days (LL5) is less than the last
Swing Low, but the Slow Stochastics %K at the LL5 is greater than the Slow Stochastics
%K at the last Swing Low.
When the longer term trend is up with new highs for the move and we get a b1 or b2
Setup Condition, but at the same time a bearish divergence occurs, we stand aside.
Likewise, when the longer term trend is down with new lows for the move and we get a
b1 or b2 Setup Condition, but at the same time a bullish divergence occurs, we stand
aside.
Instant Profits 52
Action Exercises 1. The first long setup condition states that the Longer Term Moving Average must
be moving: HIGHER or LOWER?
2. The HH5 equals or exceeds the Upper Band of the Moving Average Envelope and
the Upper Band is moving higher at that point. At this point, the market has
temporarily moved away from value (the short term EMA), is said to be
“____________________”, and will eventually return to the EMA before
resuming its move __________________.
3. The HH5 falls short of the Upper Band of the Moving Average Envelope, and the
low of at least 1 previous bar is greater than the EMA. In this situation, the market
is ____________________________, but because we have a previous bar low
greater than the EMA, there is a high probability of the market continuing to
____________________.
4. If after the last time the market traded below the EMA, it subsequently trades
above the ______________ (Condition b1) and then in subsequent bars trades
even higher but below the rising ________________ (Condition b2) then the
Setup Condition has been weakened and you should ___________________.
Instant Profits 53
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 54
Figure 9 - Setup Condition b1
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#10
+0.2
309
/13/
04O
:24.
07H
:24.
71L:
23.9
9C
:24.
32
MA
RK
ET H
H5'
s TO
UC
HM
OVI
NG
AVE
RA
GE
ENVE
LOPE
U
PPER
BA
ND
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
28.8
3
2D
ecN
ovO
ctSe
pA
ug07
/18/
03
Instant Profits 55
HTCH - Hutchinson Technology, Weekly - Advanced GET ©2004 eSignal
#288
+0.2
908
/27/
04O
:24.
40H
:24.
96L:
24.2
6C
:24.
84
Hig
h 75
% h
ighe
r tha
nU
pper
Ban
d - S
tand
Asi
de
Long
er T
erm
Mov
ing
Aver
age
32.9
3
35.9
0
38.4
0
2.97
X 7
5% =
2.2
3
2.50
2.50
> 2
.23
Stan
d As
ide
40.0
0
35.0
0
30.0
0
25.0
0
20.0
0
41.9
8
2004
06/0
4/04
Figure 10 – Setup Condition b1
Instant Profits 56
Figure 11 – Setup Condition b2
EMR - Emerson, Daily - Advanced GET ©2004 eSignal
#91
+0.1
609
/13/
04O
:63.
60H
:64.
23L:
63.1
3C
:63.
84
Bar
low
> E
MA
Afte
r mar
ket t
ouch
es E
MA
,th
e H
H5
< U
pper
Ban
d
AN
D
Long
er T
erm
Mov
ing
Ave
rage
70.0
0
69.0
0
68.0
0
67.0
0
66.0
0
65.0
0
64.0
0
63.0
0
62.0
0
61.0
0
65.5
6
Feb
2004
Dec
11/1
1/03
Instant Profits 57
Figure 12 – Setup Condition Special Case
WCC - WESCO International Inc., Daily - Advanced GET ©2004 eSignal
#229
+0.2
509
/13/
04O
:20.
61H
:20.
94L:
20.6
1C
:20.
89
Hig
h >
Prev
ious
Upp
er B
and
HH
5 an
d <
Upp
er B
and,
st
and
asid
e
Prev
ious
Upp
er
Ban
d H
H5
EMA
last
touc
hed
here
22.0
0
21.5
0
21.0
0
20.5
0
20.0
0
19.5
0
19.0
0
18.5
0
18.0
0
17.5
0
17.0
0
16.5
0
22.5
0
Aug
Jul
Jun
06/0
1/04
Instant Profits 58
Figure 13 – Bearish Divergence
MWD - Morgan Stanley, Daily - Advanced GET ©2004 eSignal
#137
-0.8
009
/17/
04O
:52.
30H
:52.
44L:
51.2
6C
:51.
45
Hig
her h
ighs
DO
NO
T B
UY
HER
EST
AN
D A
SID
E
BEA
RIS
H D
IVER
GEN
CE
65.0
0
60.0
0
55.0
0
65.4
7
Low
er h
ighs
Stoc
h 8,
3, 3
100.
00
50.0
0
0.00
0.00
May
Apr
Mar
Feb
2004
Dec
01/2
6/04
Instant Profits 59
3. Entry Point
Once the Setup Conditions have been met, we look for the market to retrace to the short
term EMA. This may occur on the very next bar or it may be several bars following a
Setup Condition before the market retraces back to the EMA. Also, it is not unusual for
successive b1 or b2 setup conditions to occur at higher levels before the market retraces
to the EMA. This will become clear as we go through the case study trades.
We will also make use of Fibonacci Retracement Levels that are easily determined with
any good trading software by selecting “fib retracement lines” and dragging the cursor
from the latest Swing Low to the HH5 (Highest High of the past 5 bars).
Our target entry point is to buy below the EMA (Figure 14) as follows:
BUY AT the previous closed bar EMA minus 1/5 of the difference between the EMA
and the Lower Band of the previous bar (Figure 15 and Figure 16):
EMA Buy Point (All Values Reference Previous Closed Bar)
EMA – 1/5 X (EMA – Lower Band)
Our Example: 21.81 – 1/5 X (21.81 – 20.50) = 21.55
Instant Profits 60
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#52
+0.4
408
/20/
04O
:21.
89H
:22.
43L:
21.8
3C
:22.
31
MA
RK
ET S
WIN
G H
IGH
S TO
UC
HM
OVI
NG
AVE
RA
GE
ENVE
LOPE
U
PPER
BA
ND
MA
RK
ET M
OVE
SB
ELO
W S
HO
RT
TER
MM
OVI
NG
AVE
RA
GE
"B
UY
POIN
TS"
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
29.3
0
2004
Dec
Nov
Oct
Sep
Aug
08/2
6/03
Figure 14 – Entry Points
Instant Profits 61
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#50
+0.4
408
/20/
04O
:21.
89H
:22.
43L:
21.8
3C
:22.
31
EMA
= 2
1.81
Low
er B
and
= 20
.50
Nex
t Bar
Entr
y Po
int =
21.
81 -
1/5
X (2
1.81
- 20
.50)
= 21
.55
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
29.8
3
Feb
2004
Dec
Nov
Oct
Sep
08/2
2/03
Figure 15 – Entry Point
Instant Profits 62
Figure 16 – Entry Point Detail
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#68
+0.0
909
/01/
04O
:22.
99H
:23.
41L:
22.9
7C
:23.
28
21.8
1
20.5
0
21.8
1 - 2
0.50
= 1
.31
x 1/
5 =
0.26
21.8
1 - 0
.26
= 21
.55
21.5
5Pl
ace
Buy
Ord
er H
ere
Prev
ious
Bar
Entr
y B
ar
24.5
0
24.0
0
23.5
0
23.0
0
22.5
0
22.0
0
21.5
0
21.0
0
20.5
0
20.0
0
24.2
8
Nov
Oct
09/3
0/03
Instant Profits 63
Figure 17 – Entry Point
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#28
+0.2
509
/13/
04O
:24.
07H
:24.
71L:
23.9
9C
:24.
34
Fibo
nacc
i 23.
6% re
trac
emen
tle
vel f
rom
last
sw
ing
high
and
sw
ing
low
=
22.
08
Swin
g H
igh
Swin
g Lo
w
0.00
0 (2
3.10
)
1.00
0 (1
8.76
)
0.23
6 (2
2.08
)
0.38
2 (2
1.44
)
0.50
0 (2
0.93
)
0.61
8 (2
0.42
)
0.76
4 (1
9.78
)
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
23.0
4
2004
Dec
Nov
Oct
Sep
08/1
3/03
Instant Profits 64
AS LONG AS the 23.6% Fibonacci Retracement Level from the last Swing High (Figure
17) is greater than the EMA Buy Point. (Whenever the Fibonacci 23.6% Retracement
Level is less than the EMA Buy Point, you simply pass on the trade because the
probability of our stop being hit is much higher when this is the case.)
Fibonacci 23.6% Retracement Level
Must be > EMA Buy Point
Our Example: 22.08 > 21.55
Since the Fibonacci 23.6% Retracement Point of 22.08 is greater than the EMA Buy
Point of 21.55, we have a valid EMA Buy Point of 21.55
We do this by placing a Buy Limit order good for the next bar which means that we only
want to buy if the market trades at or below the limit price during the next bar of price
activity (Figure 18).
The Entry Order
BUY at EMA Buy Point LIMIT
Our Example: BUY at 21.55 LIMIT
In our example, the market opens at 21.47 just below our limit price of 21.55, so we get
filled at 21.47 on the open. We are now long the market!
Instant Profits 65
Figure 18 – Entry Point
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#53
+0.2
609
/13/
04O
:24.
07H
:24.
57L:
23.9
9C
:24.
35
b
EMA
= 2
1.81
Low
er B
and
= 20
.50
Nex
t Bar
Entr
y Po
int =
21.
81 -
1/5
X (2
1.81
- 20
.50)
= 21
.55
Plac
e a
buy
orde
r to:
Buy
at t
he E
MA
Buy
Poi
nt
of 2
1.55
good
for t
he b
ar o
nly
The
mar
ket o
pens
at 2
1.47
and
we
are
fille
d on
the
open
at 2
1.47
0.00
0 (2
3.09
)
1.00
0 (1
8.79
)
0.23
6 (2
2.08
)
0.38
2 (2
1.45
)0.
500
(20.
94)
0.61
8 (2
0.43
)
0.76
4 (1
9.80
)
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
16.0
0
28.2
2
Feb
2004
Dec
Nov
Oct
Sep
09/1
8/03
Instant Profits 66
Action Exercises 1. For a long trade, complete the following formula to calculate the EMA Buy Point:
__________ - 1/5 X ( __________ - __________ )
2. When considering a long trade, the Fibonacci 23.6% Retracement Level must be
a. Less than the EMA Buy Point
b. Greater than the EMA Buy Point
c. At least 75% greater than the last Swing High
d. At least 23.6% less than the last Swing Low
3. Which of the following is the correct Entry Order for a long trade?
a. BUY at 23.6% Fibonacci Retracement Level LIMIT
b. BUY at EMA Buy Point STOP
c. BUY at last Swing High – 1/5 EMA LIMIT
d. BUY at EMA Buy Point LIMIT
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 67
4. Stop Point To Limit Losses
Now that we are long, we need to immediately place a Stop Order to limit losses and
protect our capital. The placement of stops is by far the most difficult aspect of trading.
Entering a trade is easy, but managing a trade properly once entered is the difference
between the pros and amateurs - the winners and losers. With Instant Profits, we simply
set the Stop Order at just below the lower band of the entry bar (Figure 19). How far
below can vary depending on the market you are trading from a few cents to 0.5% of the
closing price. I have found that when trading stocks, a 0.5% stop below the lower band is
recommended.
The Stop Order To Limit Losses
SELL to Cover Long at Just Below the Lower Band of the Entry Bar STOP
Our Example: Sell to Cover Long at 20.52 Stop
Action Exercises
What is the correct Stop Order to limit losses for a long position?
a. SELL to Cover Long at Just Below the Lower Band of the Entry Bar
LIMIT
b. SELL to Cover Long at Just Below the Lower Band of the Entry Bar
STOP
c. SELL to Cover Long at the EMA Buy Point STOP
d. SELL to Cover Long at the 23.6% Fibonacci Retracement Level
Instant Profits 68
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 69
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#44
+0.4
408
/20/
04O
:21.
89H
:22.
43L:
21.8
3C
:22.
31
Entr
y B
ar
Stop
Los
s ju
st b
elow
the
low
er b
and
Sell
to c
over
long
at 2
0.52
sto
p;
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
29.1
5
Feb
2004
Dec
Nov
Oct
Sep
08/1
4/03
Figure 19 – Stop Order To Limit Losses
Instant Profits 70
5. Profit Target Point We are now long, and have entered a protective stop order to limit losses so that no
matter what happens from here we limit our risk in the trade. We can now enter an order
to take profits at our Profit Target Point.
With Instant Profits, we want to sell on strength at the upper band of the entry bar
(Figure 20).
The Profit Target Order
SELL at the Upper Band of the Entry Bar LIMIT
Our Example: SELL at 23.16 LIMIT
We are now long with both a stop order to protect our capital and a limit order to
take profits at a pre-determined profit target point. The basic method then is to hold these
two exit points as open orders until one of them is filled and at that time cancel the other.
(Later, we will cover alternate exit strategies that include trailing stops.) In our example,
the profit target limit order was filled two bars after entry bar at our limit price of 23.16
(Figure 21).
Instant Profits 71
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#65
+0.4
408
/20/
04O
:21.
89H
:22.
43L:
21.8
3C
:22.
31
Entr
y B
ar
Prof
it Ta
rget
Poi
nt a
t upp
er b
and
Sell
to c
over
long
at 2
3.16
Lim
it;
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
29.5
6
Feb
2004
Dec
Nov
Oct
Sep
09/1
5/03
Figure 20 – Profit Target Order
Instant Profits 72
NXTL - Nextel Communications, Daily - Advanced GET ©2004 eSignal
#77
+0.4
408
/20/
04O
:21.
89H
:22.
43L:
21.8
3C
:22.
31
Entr
y B
ar
Take
Pro
fits
at u
pper
ban
d
Sold
at 2
3.16
Lim
it;
Exit
Bar
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
28.9
4
Feb
2004
Dec
Nov
Oct
Sep
10/0
1/03
Figure 21 – Profit Target Order
Instant Profits 73
Action Exercises 1. What is the correct Profit Target Order for a long position?
a. SELL at the Lower Band of the Entry Bar STOP
b. SELL at the Lower Band of the Entry Bar LIMIT
c. SELL at the Upper Band of the Entry Bar STOP
d. SELL at the Upper Band of the Entry Bar LIMIT
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 74
Trade Analysis
In our example, we risked 1.03 points (21.55 entry - 20.52 stop loss) to gain a profit of
1.61 (23.16 profit target - 21.55 entry) and we were successful in closing out the trade
two bars later at the profit target. This gives us a very favorable profit target about 60%
higher than the risk in the trade. The typical risk / reward scenario for Instant Profits
yields a gain that is about 60% higher than the average risk in the trade.
With Instant Profits our goal is to win up to 60% of the time with the average
winning trade about 60% higher than the average losing trade (or 1.6, for use with our
Profit Factor formula). If this goal were achieved for a series of trades the Profit Factor
would be:
60% WinnersProfit Factor = 1.6 X
40% Losers = 2.40
Instant Profits 75
Conservative Tactics
1. Once the Longer Term Moving Average turns higher, there are usually at least
two trades that develop before the trend reverses and turns lower and it is not
uncommon for both of those trades to be winners. A third and fourth and
sometimes fifth winning trade in a row is possible, but the odds of a loser
occurring after two winners in a row increases. So, a conservative approach
would be to stand aside after two winners in a row, until the next longer term
trend reversal. As you zero in on the market(s) you want to trade, with experience
you will be able to tell with which markets you may want to use this conservative
approach.
2. Another conservative approach is as follows: Once a trade has been entered, an
alternate strategy to reduce the risk in the trade as it moves in your favor would be
to move the Stop Loss up after the third bar after the Entry Bar to just below the
Lowest Low since and including the Entry Bar (Figure 22). This strategy will
reduce the risk in the trade, but will on occasion stop you out prematurely in what
would have otherwise been a profitable trade. Again, as you zero in on the
market(s) you want to trade, with experience you will be able to tell with which
markets you may want to use this conservative approach.
3. Another conservative approach is as follows: Once the trade has been entered, if
the open profit is equal to or greater than the initial risk in the trade then change
the Stop Loss to breakeven. You now have a free trade; you will either be
stopped-out at no loss or hit the profit target for a nice profit. Again, this strategy
will reduce the risk in the trade, but will on occasion stop you out prematurely in
what would have otherwise been a profitable trade. As you zero in on the
market(s) you want to trade, with experience you will be able to tell with which
markets you may want to use this conservative approach.
Instant Profits 76
4. This tactic concerns an additional screen that can be done to further increase our
probability of success on the next trade. Because every stock or futures chart will
display its unique volatility and pattern of prices, by observation we can
determine if the particular market under consideration for a trade is “behaving”
according to our expectations. An objective way to do this is to simply look back
60 bars and identify the trades that would have been made. If there were more
winners than losers, that suggests that this stock is indeed “behaving” as expected
and it is one that merits further consideration. If, on the other hand, there were
more losers than winners, then we simply pass on this market and go on to the
next. This screen will keep us out of markets that are trading in an erratic or
haphazard fashion where we are more likely to be whipsawed out of a trade with a
loss.
5. With Instant Profits you want to be fairly impatient with your trades. If you put a
trade on and don’t get stopped-out or show a good profit after 8 bars following
entry bar, then simply close out the trade at the Market. The chances are if the
trade has not moved in your favor after 8 bars then it isn’t going to, and so you
might as well limit your risk. If this happens, close the trade out and go on to the
next opportunity.
Applying these conservative tactics is a good way of further reducing risk and
possibly even achieving even better results.
As mentioned previously, you can refer to Table 2 and Table 3, The Long and Short
Trades Blueprints, for an easy-to-follow complete overview of trading with Instant
Profits. I recommend you use these blueprints for every trade, even after you become
experienced.
Instant Profits 77
WAG - Walgreen Company, Daily - Advanced GET ©2004 eSignal
#306
+0.1
808
/24/
04O
:36.
93H
:37.
00L:
36.6
6C
:36.
74
Buy
Lon
g
Buy
Lon
g
Hit
Prof
it Ta
rget
1 23
1 23
Mov
e st
op u
p to
her
eaf
ter 3
rd b
arM
ove
stop
up
to h
ere
afte
r 3rd
bar
Stop
ped-
out w
ithsm
alle
r los
e w
ithco
nser
vativ
e ap
proa
chSt
op h
eld
- red
uced
risk
with
cons
erva
tive
appr
oach
Long
er T
erm
Tre
nd
38.0
0
37.5
0
37.0
0
36.5
0
36.0
0
35.5
0
35.0
0
34.5
0
34.0
0
33.5
0
33.0
0
32.7
5
Aug
Jul
Jun
May
09/0
1/04
Figure 22 – Conservative Tactic #2
Instant Profits 78
Table 2 – Long Trades Blueprint
Cop
yrig
ht ©
Pro
fits
Run
, In
c.
Re
v 08
-200
5040
3
INST
AN
T PRO
FITS
: LO
NG
TRA
DES
BLUE
PRIN
T 1.
PLO
T THE
CHA
RT
Sym
bol:
___
____
___
Date
: __
___
____
_ T
ime F
ram
e:
W
eekl
y
Dai
ly
H
ourl
y
5
-Min
ute
a.
Inse
rt S
hort
Ter
m E
xpon
ential
M
ovin
g Ave
rage
(EM
A)
In
pu
t S
etti
ng
Pric
e C
lose
Le
ngth
7-
14
Dis
plac
e 0
b.
Inse
rt S
hort
Ter
m M
ovin
g Ave
rage
Env
elop
es
In
pu
t S
etti
ng
Pric
e H
igh
Pr
ice
Low
C
lose
Leng
th
[sam
e as
EM
A]
% A
bove
%
Bel
ow
[Var
iabl
e –
Cap
ture
95%
pri
ce
acti
on o
f th
e la
st 6
0 b
ars]
c.
Inse
rt L
ong
Term
Mov
ing
Ave
rage
(M
A)
In
pu
t S
etti
ng
Pric
e C
lose
Le
ngth
[5
X EM
A]
Dis
plac
e 0
EM
A L
eng
th:
%
Abo
ve /
% B
elow
:
Len
gth
:
2. S
ETUP
CO
NDI
TIO
NS
3.
EN
TRY
POIN
T a.
Cal
cula
te E
MA B
uy L
ong
Poin
t:
- 1/
5 X
(
-
) =
Last
Bar
EM
A
- 1/
5 X
( La
st B
ar
EMA
- Lo
wer
Ban
d )
=
EM
A B
uy
Poin
t b
. App
ly F
ibon
acci
Ret
race
men
t Le
vel i
ndic
ator
23.6
% F
ibon
acci
Ret
race
men
t Le
vel >
EM
A B
uy P
oint
? Y
N
If y
es,
BU
Y A
T [
EM
A B
UY
PO
INT]
LIM
IT.
Oth
erw
ise,
sta
nd a
side
.
4. S
TOP
POIN
T TO
LIM
IT L
OSS
ES
a.
Cal
cula
te S
top
Poin
t &
pla
ce o
rder
: Lo
wer
ban
d of
MA
env
elop
e of
ent
ry b
ar:
____
____
- u
p to
0.5
% o
f clo
sing
pri
ce =
SELL
AT [
STO
P P
OIN
T]
STO
P
b.
Plac
e op
tion
al fol
low
-up
stop
s (C
onse
rvat
ive
Tact
ics)
:
If a
t le
ast
3 b
ars
have
pas
sed,
mov
e st
op u
p to
0.5
%
belo
w lo
wes
t lo
w s
ince
& in
cludi
ng e
ntry
bar
:
SE
LL A
T [
NE
W S
TO
P P
OIN
T]
STO
P
If o
pen
prof
it >
= in
itial
ris
k, m
ove
stop
to
brea
keve
n:
SE
LL A
T [
BR
EA
KEV
EN
PO
INT
] ST
OP
5. P
ROFI
T TA
RGET
PO
INT
a.
Long
ter
m M
A m
ovin
g hi
gher
? Y
N
b1
. H
H5
>=
Upp
er B
and
and
<
75%
abo
ve U
pper
Ban
d?
O
R
b2
. H
H5
< U
pper
Ban
d an
d Lo
w
of a
t le
ast
1 ba
r >
EM
A?
Y N
c.
SPE
CIA
L C
ASE
avoi
ded?
Y
N
If
all
cond
itio
ns =
YES
, pr
ocee
d.
Oth
erw
ise,
sta
nd a
side
.
(HH
5 =
Hig
hest
Hig
h of
Las
t 5
Bar
s)
Q
UA
LIFIE
R:
No
Bea
rish
Div
erge
nce
Pres
ent
a.
Cal
cula
te P
rofit
Tar
get
Poin
t &
pla
ce o
rder
:
Upp
er b
and
of M
A e
nvel
ope
of e
ntry
bar
=
SELL
AT [
PR
OFIT
TA
RG
ET P
OIN
T]
LIM
IT
Instant Profits 79
Table 3 – Short Trades Blueprint
Cop
yrig
ht ©
Pro
fits
Run
, In
c.
Re
v 08
-200
5040
3
INST
AN
T PRO
FITS
: SHO
RT TR
ADE
S BL
UEPR
INT
1. P
LOT T
HE C
HART
S
ym
bol:
___
____
___
Date
: __
___
____
_ T
ime F
ram
e:
W
eekl
y
Dai
ly
H
ourl
y
5
-Min
ute
a.
Inse
rt S
hort
Ter
m E
xpon
ential
M
ovin
g Ave
rage
(EM
A)
In
pu
t S
etti
ng
Pric
e C
lose
Le
ngth
7-
14
Dis
plac
e 0
b.
Inse
rt S
hort
Ter
m M
ovin
g Ave
rage
Env
elop
es
In
pu
t S
etti
ng
Pric
e H
igh
Pr
ice
Low
C
lose
Leng
th
[sam
e as
EM
A]
% A
bove
%
Bel
ow
[Var
iabl
e –
Cap
ture
95%
pri
ce
acti
on o
f th
e la
st 6
0 ba
rs]
c.
Inse
rt L
ong
Term
Mov
ing
Ave
rage
(M
A)
In
pu
t S
etti
ng
Pric
e C
lose
Le
ngth
[5
X EM
A]
Dis
plac
e 0
EM
A L
eng
th:
%
Abo
ve /
% B
elow
:
Len
gth
:
2. S
ETUP
CO
NDI
TIO
NS
3.
EN
TRY
POIN
T a.
Cal
cula
te E
MA S
ell S
hort
Poi
nt:
+
1/5
X
(
-
) =
Last
Bar
EM
A
+
1/5
X
( U
pper
Ban
d -
Last
Bar
EM
A
) =
EM
A S
ell
Sh
ort
Poin
t b
. App
ly F
ibon
acci
Ret
race
men
t Le
vel i
ndic
ator
23.6
% F
ibon
acci
Ret
race
men
t Le
vel <
EM
A S
ell S
hort
Poi
nt?
Y
N
If y
es,
SELL
AT [
EM
A S
ELL
SH
OR
T P
OIN
T]
LIM
IT.
Oth
erw
ise,
sta
nd a
side
.
4. S
TOP
POIN
T TO
LIM
IT L
OSS
ES
a.
Cal
cula
te S
top
Poin
t &
pla
ce o
rder
: U
pper
ban
d of
MA
env
elop
e of
ent
ry b
ar:
____
___
+ u
p to
0.5
% o
f cl
osin
g pr
ice
=
B
UY
AT [
STO
P P
OIN
T]
STO
P
b.
Plac
e op
tion
al fol
low
-up
stop
s (C
onse
rvat
ive
Tact
ics)
:
If a
t le
ast
3 b
ars
have
pas
sed,
mov
e st
op d
own
to 0
.5%
ab
ove
high
est
high
sin
ce &
incl
udin
g en
try
bar:
BU
Y A
T [N
EW
ST
OP
PO
INT
] S
TO
P
If o
pen
prof
it >
= in
itial
ris
k, m
ove
stop
to
brea
keve
n:
BU
Y A
T [B
RE
AK
EVE
N P
OIN
T]
STO
P
5. P
ROFI
T TA
RGET
PO
INT
a.
Long
ter
m M
A m
ovin
g lo
wer
? Y
N
b1
. LL
5 <
= L
ower
Ban
d an
d >
75
% b
elow
Low
er B
and?
OR
b2
. LL
5 >
Low
er B
and
and
Hig
h of
at
leas
t 1
bar
< E
MA?
Y N
c.
SPE
CIA
L C
ASE
avoi
ded?
Y
N
If
all
cond
itio
ns =
YES
, pr
ocee
d.
Oth
erw
ise,
sta
nd a
side
.
(LL5
= L
owes
t Lo
w o
f La
st 5
Bar
s)
Q
UA
LIFIE
R:
No
Bul
lish
Div
erge
nce
Pres
ent
a.
Cal
cula
te P
rofit
Tar
get
Poin
t &
pla
ce o
rder
:
Low
er b
and
of M
A e
nvel
ope
of e
ntry
bar
=
BU
Y A
T [
PR
OFIT
TA
RG
ET P
OIN
T]
LIM
IT
Instant Profits 80
Action Exercises
1. With Instant Profits our goal is to win about _____ % of the time with the average
winning trade about _____ % higher than the average losing trade.
2. A conservative approach would be to stand aside after how many winning trades
in a row in the same market (same stock, futures contract, etc.)?
a) One b) Two c) Three d) Four
3. Once a trade has been entered, an alternate strategy to reduce the risk in the trade
as it moves in your favor would be to move the Stop Loss up after the ________
bar after the Entry Bar to just below the ____________ since and including the
Entry Bar.
4. Another conservative approach is as follows: Once the trade has been entered, if
the open profit is equal to or greater than the initial risk in the trade then change
the Stop Loss to ____________.
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 81
Case Studies: Setup Condition b1
Now let’s look at some examples of trades using Instant Profits in several different
markets and in different time frames. These examples highlight trades supported by Setup
Condition b1.*
*The examples used in the course are exceptional results used for educational purposes. No representation or implication is being made that Instant Profits students can or will produce profits or guarantee freedom from loss. Only risk capital should be used to trade. Losses can and will occur. Futures, forex, stock, and options trading is not appropriate for everyone.
Figure 23: TNB – Daily Chart
This is a daily chart of TNB. As you can see, the Longer Term Moving Average is up
since late March with four long trades; three of which hit their respective Profit Targets
and one that was stopped out. An additional potential buy signal was negated since the
preceding Swing High exceeded the Upper Band by more than 75% of the difference
between the Upper Band and the short term EMA. Also, you can see that we applied the
Fibonacci Retracement Levels to the first trade to verify that the 23.6% level from the last
Swing High is above the EMA Buy Point; and indeed it is, so the Entry Point is valid.
Also, the first trade was initially supported by a b1 setup and then followed by a b2 setup.
(Note: For the other trades on this chart and the other charts in the Case Studies,
we will not show the Fibonacci Retracement Levels so that the chart details are easier to
read; but in each of these trades the Fibonacci test was applied and met.)
Figure 24: WCC – Daily Chart
This is a daily chart of WCC. The Longer Term Moving Average is up. Two long trades
are shown, both hitting their respective Profit Targets. Also shown is a potential buy
Instant Profits 82
signal that was negated since the Setup Condition 2c (the Special Case) occurred when
the preceding high was greater than the Swing High (that exceeded the Upper Band), but
less than the Upper Band.
Instant Profits 83
Figure 23 - Case Study for TNB, Daily Chart
TNB - Thomas & Betts Corporatio, Daily - Advanced GET ©2004 eSignal
#183
-0.3
209
/13/
04O
:26.
00H
:26.
17L:
25.7
0C
:25.
74
Buy
Lon
g
Buy
long
Buy
Lon
gB
uy lo
ngH
it Pr
ofit
Targ
et
Hit
Prof
it Ta
rgetHit
Prof
it Ta
rget
Stop
ped
Out
Hig
h 75
% h
ighe
r tha
n U
pper
Ban
d - S
tand
asi
de
Long
er T
erm
Mov
ing
Ave
rage
0.00
0 (2
3.15
)
1.00
0 (2
0.72
)
0.23
6 (2
2.58
)0.
382
(22.
22)
0.50
0 (2
1.93
)0.
618
(21.
65)
0.76
4 (2
1.29
)
29.0
0
28.0
0
27.0
0
26.0
0
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
29.5
0
Aug
Jul
Jun
May
Apr
Mar
03/2
5/04
Instant Profits 84
WCC - WESCO International Inc., Daily - Advanced GET ©2004 eSignal
#181
+0.0
308
/20/
04O
:20.
02H
:20.
15L:
19.9
7C
:20.
00
Long
er T
erm
Mov
ing
Ave
rage
Buy
Lon
g
Buy
Lon
g
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Hig
h >
Swin
g H
igh
and
< U
pper
Ban
d,st
and
asid
e
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
16.0
0
15.0
0
14.0
0
13.0
0
20.9
7
Aug
Jul
Jun
May
Apr
Mar
03/0
2/04
Figure 24 - Case Study for WCC, Daily Chart
Instant Profits 85
Figure 25: RGF – 60 Minute Chart
This is a 60 minute chart of RGF. The Longer Term Moving Average is up with three
long trades highlighted. Two trades hit their respective Profit Targets and one was
stopped out. An important lesson can be learned from the trade that was stopped out. As
you can see, after the trade was stopped out, the market turned on a dime and went
straight up to what would have otherwise been a profitable trade – this experience can
lead you to question the use of stops. Don’t fall into that trap! Just because this particular
trade was prematurely stopped out, with our method of placing stops the odds are that
most of the time when our stop is hit we want to be out of the trade because the market
usually continues to trade against our position. Amateurs will look at this trade as a
reason to change their stop placement or ignore stops altogether; professional traders do
not! ANY TIME FRAME – 60 MINUTE BAR CHART!
Figure 26: BGEN – Daily Chart
This is a daily chart of BGEN. The Longer Term Moving Average was initially down,
producing two short trades both of which hit their respective Profit Targets. Also shown
is a potential short signal that was negated by Setup Condition 2c (the Special Case) since
the preceding low was less than the potential Swing Low (that exceeded the Lower Band)
but greater than the Lower Band. The Longer Term Moving Average then turned up and
produced two long trades; one of which hit its Profit Target and the other which was
stopped out. The Longer Term Moving Average then turned back down producing a
short trade that hit its Profit Target.
Figure 27: PAYX – Daily Chart
This a daily chart of PAYX. The Longer Term Moving Average is down with three short
trades highlighted. Two of the trades hit their respective profit targets and the other was
stopped out.
Instant Profits 86
RGF - R&G Financial Corporation, 60 - Advanced GET ©2004 eSignal
#110
-0.0
208
/20/
04O
:34.
38H
:34.
45L:
34.2
5C
:34.
33
Long
er T
erm
Mov
ing
Ave
rage
Buy
Lon
gB
uy L
ong
Buy
Lon
g
Stop
ped
Out
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
34.5
0
34.0
0
33.5
0
33.0
0
32.5
0
32.0
0
31.5
0
31.0
0
34.8
1
08/0
09:3
009
:30
09:3
009
:30
07/2
6/04
09:3
009
:30
09:3
009
:30
07/1
9/04
09:3
009
:30
09:3
009
:30
07/1
2/04
07/1
4/04
- 14
:30
Figure 25 - Case Study for RGF, 60 Minute Chart
Instant Profits 87
Figure 26 - Case Study for BGEN, Daily Chart
BGEN - Biogen Inc., Daily - Advanced GET ©2004 eSignal
#192
+0.0
311
/12/
03O
:38.
55H
:39.
15L:
38.0
2C
:38.
57
Long
er T
erm
Mov
ing
Aver
age
Long
er T
erm
Mov
ing
Aver
age
Long
er T
erm
Mov
ing
Ave
rage
Sell
Shor
t Sell
Shor
tSe
ll Sh
ort
Buy
Lon
gB
uy L
ongSt
oppe
d O
ut
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Low
< p
revi
ous
Low
er B
and
LL5
and
> Lo
wer
Ban
d - s
tand
asi
de
47.0
0
46.0
0
45.0
0
44.0
0
43.0
0
42.0
0
41.0
0
40.0
0
39.0
0
38.0
0
37.0
0
36.0
0
35.0
0
47.1
3
Nov
Oct
Sep
Aug
Jul
06/1
1/03
Instant Profits 88
PAYX - Paychex Inc., Daily - Advanced GET ©2004 eSignal
#216
-0.2
508
/24/
04O
:30.
06H
:30.
15L:
29.6
4C
:29.
80
Sell
Shor
t
Sell
Shor
t
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Hit
Sell
Shor
t Stop
ped
Out
Long
er T
erm
Mov
ing
Aver
age
41.0
0
40.0
0
39.0
0
38.0
0
37.0
0
36.0
0
35.0
0
34.0
0
33.0
0
32.0
0
31
May
Apr
Mar
Feb
2004
Dec
04/2
3/04
Figure 27 - Case Study for PAYX, Daily Chart
Instant Profits 89
Figure 28: PSUN – Daily Chart
This is a daily chart of PSUN. The Longer Term Moving Average is down. Three short
trades are shown; of which all three hit their respective Profit Targets. Two additional
potential short signals were negated since the preceding Swing Low exceeded the Lower
Band by more than 75% of the difference between the Lower Band and the short term
EMA. Are you excited yet?
Figure 29: APC – Weekly Chart
This is a weekly chart of APC. Once the Longer Term Moving Average turned up, four
long trades were made, each hitting their respective Profit Targets. ANY TIME FRAME
– WEEKLY BAR CHART!
Figure 30: HTCH – Weekly Chart
This is a weekly chart of HTCH. Initially, the Longer Term Moving Average was up
producing three long trades; two of which hit their respective Profit Targets with the
other stopped out. Two additional potential Buy Signals were negated since the
preceding Swing High exceeded the Upper Band by more than 75% of the difference
between the Upper Band and the short term EMA. Then the Longer Term Moving
Average turned down producing two short trades both of which hit their respective Profit
Targets.
Instant Profits 90
PSUN - Pacific Sunwear of CA, Daily - Advanced GET ©2004 eSignal
#187
+0.1
808
/20/
04O
:19.
42H
:19.
83L:
19.0
0C
:19.
65
Sell
Shor
t
Sell
Shor
t
Sell
Shor
t
Low
75%
low
er th
anLo
wer
Ban
d - S
tand
Asi
de
Low
75%
low
er th
anLo
wer
Ban
d - S
tand
Asi
de
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Long
er T
erm
Mov
ing
Ave
rage
25.0
0
24.0
0
23.0
0
22.0
0
21.0
0
20.0
0
19.0
0
18.0
0
17.0
0
25.9
0
Aug
Jul
Jun
May
Apr
Mar
03/1
0/04
Figure 28 - Case Study for PSUN, Daily Chart
Instant Profits 91
APC - Anadarko Petroleum Corpor, Weekly - Advanced GET ©2004 eSignal
#236
+1.3
608
/20/
04O
:57.
00H
:59.
45L:
55.5
2C
:58.
39
Long
er T
erm
Mov
ing
Ave
rage
Buy
Lon
g
Buy
Lon
gBuy
Lon
g
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rgetHit
Prof
it Ta
rget
60.0
0
55.0
0
50.0
0
45.0
0
61.6
8
2004
05/3
0/03
Figure 29 - Case Study for APC, Weekly Chart
Instant Profits 92
Figure 30 - Case Study for HTCH, Weekly Chart
HTCH - Hutchinson Technology, Weekly - Advanced GET ©2004 eSignal
#201
+1.0
709
/10/
04O
:25.
48H
:26.
84L:
25.3
5C
:26.
09
Long
er T
erm
Mov
ing
Ave
rage
Buy
Lon
g
Buy
Lon
g Buy
Lon
g
Stop
ped
Out
Hig
h 75
% h
ighe
r tha
nU
pper
Ban
d - S
tand
Asi
deH
igh
75%
hig
her t
han
Upp
er B
and
- Sta
nd A
side
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Sell
Shor
t Sell
Shor
t
Long
er T
erm
Mov
ing
Ave
rage
40.0
0
35.0
0
30.0
0
25.0
0
20.0
0
41.1
4
2004
2003
10/1
8/02
Instant Profits 93
Figure 31: ISIL – Weekly Chart
This is a weekly chart of ISIL. Initially, the Longer Term Moving Average was up
generating two long trades, one of which hit the Profit Target and the other stopped-out.
Then the Longer Term trend turned down and generated two short trades that were both
winners. Keep in mind, that even when we are stopped-out of a trade, the average loss is
only 60% of the average winner which should reinforce your discipline to adhere to the
stop loss point, with no second guessing.
Figure 32: CVH – Weekly Chart
This is a weekly chart of CVH. The Longer Term Moving Average is up generating 5
winning long trades and no losing trades. An additional potential buy signal was negated
since the preceding Swing High exceeded the Upper Band by more than 75% of the
difference between the Upper Band and the short term EMA.
Figure 33: E-mini NASDAQ Futures – 5
Minute Chart
This is a 5 minute chart of the E-mini NASDAQ futures market. The Longer Term
Moving Average is up. Three winning trades were made during this run, all occurring
the same day. ANY TIME FRAME – EVEN THE 5 MINUTE BAR CHART!**
**Futures trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using the Instant Profits methodology or system will generate profits or ensure freedom from losses.
Instant Profits 94
Figure 31 - Case Study for ISIL, Weekly Chart
ISIL - Intersil Corporation, Weekly - Advanced GET ©2004 eSignal
#138
-0.1
909
/03/
04O
:17.
50H
:17.
74L:
16.9
0C
:17.
43
Long
er T
erm
Mov
ing
Ave
rage
Sell
Shor
t Sell
Shor
t
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Buy
Lon
g
Hit
Prof
it Ta
rget
Long
er T
erm
Mov
ing
Aver
age
30.0
0
25.0
0
20.0
0
15.0
0
33.0
0
2004
2003
10/1
1/02
Instant Profits 95
Figure 32 - Case Study for CVH, Weekly Chart
CVH - Coventry Health Care Inc, Weekly - Advanced GET ©2004 eSignal
#225
-0.0
309
/03/
04O
:50.
60H
:50.
83L:
49.7
5C
:50.
78
Buy
Lon
g
Buy
Lon
g
Buy
Lon
g
Buy
Lon
gB
uy L
ong
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Hig
h 75
% h
ighe
r tha
nU
pper
Ban
d - S
tand
Asi
de
Long
er T
erm
Mov
ing
Ave
rage
60.0
0
55.0
0
50.0
0
45.0
0
40.0
0
35.0
0
30.0
0
25.0
0
20.0
0
15.0
0
64.5
0
2004
2003
03/2
8/03
Instant Profits 96
Figure 33 - Case Study for E-mini NASDAQ Futures, 5 Minute Chart**
Instant Profits 97
Figure 34: Sugar Futures – Daily
Chart
This is a daily chart of the Sugar futures market. The Longer Term Moving Average is
up. Five long trades were made of which four hit their respective Profit Targets, the other
being stopped out. An additional potential Buy Signal was negated since the preceding
Swing High exceeded the Upper Band by more than 75% of the difference between the
Upper Band and the short term EMA.*
*Futures trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using the Instant Profits methodology or system will generate profits or ensure freedom from losses.
As you can see from analyzing these charts, Instant Profits is indeed applicable to
any market and in any time frame; from the weekly chart examples to the 5 min chart
example. The time frame you choose is a matter of what fits best with your trading style.
A WORD OF CAUTION!
When you begin to experience the power of applying Instant Profits to the market, any
market, any time frame, and you begin to win, you will be tempted to become reckless in
your trading, thinking you can do no wrong. Or the reverse will happen; you may have
three losing trades in a row. You will be tempted to increase the amount of risk per trade,
ignore stop loss points, or overstay a profitable trade hoping for more than your profit
target. You may even be tempted to just jump into the market abandoning your trading
method altogether. These tendencies driven by greed will cause your trading account to
suffer. When this happens to you, recognize it for what it is and don’t do it! Catch your
breath and read this entire course again until you can handle the power. I can’t stress
enough how important this is!
Instant Profits 98
Figure 34 - Case Study for Sugar Futures, Daily Chart**
Instant Profits 99
Instant Profits 100
Case Studies: Setup Condition b2
Now let’s look at a few more examples of trades using Instant Profits. These examples
highlight trades supported by Setup Condition b2.*
*The examples used in the course are exceptional results used for educational purposes. No representation or implication is being made that Instant Profits students can or will produce profits or guarantee freedom from loss. Only risk capital should be used to trade. Losses can and will occur. Futures, forex, stock, and options trading is not appropriate for everyone.
Figure 35: EMR – Daily Chart
This is a daily chart of EMR. As you can see the longer term moving average is up with
three profitable long trades all with the b2 Setup Condition.
Figure 36: ETR – Weekly Chart
This is a weekly chart of ETR. A b2 Setup Condition occurred after three consecutive b1
Setup Conditions and entries. Can you identify the b1 setups? ANY TIME FRAME –
WEEKLY BAR CHART WITH B2 SETUP CONDITION!
Instant Profits 101
Figure 35 – Case Study for EMR, Daily Chart
EMR - Emerson, Daily - Advanced GET ©2004 eSignal
#74
-0.1
709
/09/
04O
:62.
90H
:62.
93L:
62.1
7C
:62.
58
*
*
*
Buy
Lon
gB
uy L
ong
Long
er T
erm
Tre
nd
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
HH
5 <
Upp
er B
and
Con
ditio
n b2
*
Buy
Lon
g
70.0
0
65.0
0
60.0
0
55.0
0
74.5
1
Ma
Feb
2004
Dec
Nov
Oct
10/1
5/03
Instant Profits 102
Figure 36 – Case Study for ETR, Weekly Chart
ETR - Entergy Corporation, Weekly - Advanced GET ©2004 eSignal
#197
+0.4
709
/10/
04O
:60.
58H
:61.
05L:
60.4
9C
:61.
05
*H
H5
< U
pper
Ban
dC
ondi
tion
b2*
Buy
Lon
g
Hit
Prof
it Ta
rget
Long
er T
erm
Mov
ing
Ave
rage
60.0
0
55.0
0
50.0
0
45.0
0
40.0
0
64.7
0
2004
2003
09/2
0/02
Instant Profits 103
Action Exercises Now it’s time to try out Instant Profits from scratch and by yourself! Refer to the Long
and Short Trades Blueprints to assist in your understanding. Take your time. In each
exercise, you will be given a blank chart and you will be asked to identify all the trading
opportunities. The answers are provided, but try not to look ahead until you think you’ve
identified all the trading opportunities.
1. Apply Instant Profits to the chart in Figure 37 and identify all of the long and
short trading opportunities. The answers are displayed in Figure 38. Hint: There
are 3 Buy Long opportunities and 3 Sell Short opportunities.
2. Apply Instant Profits to the chart in Figure 39 and identify all of the long and
short trading opportunities. The answers are displayed in Figure 40. Hint: There
are 5 Buy Long opportunities and no Sell Short opportunities.
Instant Profits 104
Figure 37 – Example 1
BRCM - Broadcom Corporation, Daily - Advanced GET ©2004 eSignal
#227
-1.4
409
/03/
04O
:26.
93H
:26.
98L:
26.0
1C
:26.
15
50.0
0
45.0
0
40.0
0
35.0
0
30.0
0
25.0
0
49.6
6
Sep
Aug
Jul
Jun
05/2
0/04
Instant Profits 105
Figure 38 – Example 1 Answers
BRCM - Broadcom Corporation, Daily - Advanced GET ©2004 eSignal
#218
-1.4
509
/03/
04O
:26.
93H
:26.
98L:
26.0
1C
:26.
14
Buy
Lon
g
Buy
Lon
g
Sell
Shor
t Sell
Shor
t
Sell
Shor
t
Prof
it Ta
rget
Prof
it Ta
rget
Prof
it Ta
rget
Prof
it Ta
rget
Anot
her c
hanc
e to
Buy
Lon
g
Long
er T
erm
Ave
rage
Up
Long
er T
erm
Ave
rage
Dow
n
Stop
ped-
Out
50.0
0
45.0
0
40.0
0
35.0
0
30.0
0
25.0
0
20.0
0
48.8
5
Sep
Aug
Jul
Jun
05/0
7/04
Instant Profits 106
Figure 39 – Example 2
CSCO - Cisco Systems Inc., Weekly - Advanced GET ©2004 eSignal
#228
-0.1
709
/03/
04O
:19.
33H
:19.
46L:
18.4
3C
:19.
30
30.0
0
25.0
0
20.0
0
15.0
0
10.0
0
31.2
5
2004
2003
04/1
8/03
Instant Profits 107
Figure 40 – Example 2 Answers
CSCO - Cisco Systems Inc., Weekly - Advanced GET ©2004 eSignal
#212
-0.1
709
/03/
04O
:19.
33H
:19.
46L:
18.4
3C
:19.
30
Buy
Lon
gB
uy L
ong
Buy
Lon
g
Buy
Lon
g
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Hit
Prof
it Ta
rget
Long
er T
erm
Tre
nd F
lat
Stan
d A
side
Ano
ther
Cha
nce
to B
uy L
ong
Long
er T
erm
Tre
nd U
p
Stop
ped-
Out
Hig
h >
75%
Bey
ond
Upp
er B
and
Stan
d A
side
30.0
0
25.0
0
20.0
0
15.0
0
10.0
0
31.7
8
2004
2003
12/2
7/02
Instant Profits 108
Suggested Trading Routine
Now that you are in a position to become a
winning trader, you need one more important
thing to be a consistent winner and that is a
trading routine. You must develop a routine
that you follow day in and day out so that your
trading discipline becomes second nature.
Time to Trade
Whatever routine you follow, it is critical that
you establish a Time to Trade. This is your
private time, away from your family and other commitments, where you will absolutely
not be interrupted. This will allow you to focus, with laser accuracy, on your trading
routine. You don’t need a lot of time, especially if you’re trading weekly charts. Find out
what time works best for you and try to find a time that you can consistently commit to.
Maybe it’s before your kids wake up, or maybe it’s right after you put them to bed. You
know best. Whatever time you choose, get out your calendar and write it down. If you use
an electronic calendar, schedule a recurring event with no expiration date. Without a
Time to Trade, your judgement can be muddled or influenced by distractions. Although
they may call it by other names, all true trading professionals have a Time to Trade.
Stocks: Daily & Weekly
The following is a suggested routine for trading stocks that I follow. It simplifies the
whole process of finding the best trades and is based on the Triple Screen Blueprints
(Table 4 and Table 5).
Instant Profits 109
On the first of each month I do a search using Advanced GET (any good trading
software will suffice) of all exchange traded stocks for High Volume Stocks, using
Screen A from the Triple Screen Blueprint.
SCREEN A: FIND THE HIGH VOLUME STOCKS Frequency: Monthly
Time Requirement: 20 Minutes
Price Range $10 - $200
Avg. Volume Past 50 Days >= 1 Million Shares
Of the 12,000+ stocks traded in the U.S., this screen will select about 500 high
volume candidates. It is important to select only high volume stocks for short term
trading for two reasons:
1. To insure liquidity so that we can easily enter and exit the market at favorable
prices.
2. To increase the likelihood of a selected stock to be an option-able stock for those
who trade options.
Instant Profits 110
Table 4 - Long Stock Trades Triple Screen Blueprint
Cop
yrig
ht ©
Pro
fits
Run
, In
c.
Re
v 04
-200
5040
3
INST
AN
T PRO
FITS
: LO
NG
STO
CK
TRA
DES
TRIP
LE S
CRE
EN B
LUEP
RIN
T
SCRE
EN
PORT
FOLI
O S
CRE
ENED
SC
REEN
ING
PA
RAM
ETER
S RE
SULT
S P
rice
Ran
ge
$10
- $2
00
Hig
h V
olu
me
Sto
cks
All
trad
ed s
tock
s A
vg.
Volu
me P
ast
50
Days
>
= 1
Mill
ion
Sha
res
App
roxim
ate
ly
50
0 S
tock
s S
ele
cted
A No
tes:
It
is im
port
ant
to s
elec
t on
ly h
igh
volu
me
stoc
ks for
sho
rt t
erm
tra
ding
for
tw
o re
ason
s: 1
. To
insu
re li
quid
ity
so t
hat
we
can
easi
ly e
nter
and
exi
t th
e m
arke
t at
fav
orab
le p
rice
s. 2.
To
incr
ease
the
like
lihoo
d of
a s
elec
ted
stoc
k to
be
an o
ptio
n-ab
le s
tock
for
th
ose
who
tra
de o
ptio
ns.
Bec
ause
thi
s sc
reen
ing
proc
edur
e ca
n ta
ke a
s lo
ng a
s 20
min
utes
dep
endi
ng o
n th
e sp
eed
of y
our
com
pute
r, w
e w
ant
to s
ave
the
Hig
h Vol
ume
Sto
cks
list
sele
cted
fro
m t
his
scre
en t
o be
use
d ov
er a
nd o
ver
agai
n ea
ch t
ime
we
scre
en
for
a lo
ng t
rade
can
dida
te.
Thi
s lis
t sh
ould
be
upda
ted
abou
t on
ce a
mon
th.
Lon
ger
Term
Movi
ng A
vg.
35 B
ars
and
Up
Expon
en
tial M
ovi
ng A
vg.
(EM
A)
7 Bar
s an
d La
st
Bar
> 3
Bar
s Bef
ore
Last
Bar
Lo
ng S
tock
C
an
did
ate
s H
igh
Vol
ume
Sto
cks
(Fro
m S
cree
n A)
Low
of
Last
Bar
< L
ow o
f 2
Bar
s Bef
ore
Last
Bar
App
roxim
ate
ly
50
Sto
cks
Sele
cted
B N
ote
s: U
sing
the
Hig
h Vol
ume
Sto
cks
List
(fr
om S
cree
n A),
we
then
scr
een
for
the
Long
Sto
ck C
andi
date
s. W
e do
thi
s ea
ch t
ime
we
are
look
ing
for
a tr
ade
set-
up for
the
nex
t ba
r. Th
is s
cree
n ta
kes
only
a fra
ctio
n of
the
tim
e of
Scr
een
A b
ecau
se w
e ar
e sc
reen
ing
from
a m
uch
smal
ler
port
folio
to
begi
n w
ith.
Watc
h L
ist
Long
Sto
ck C
andi
date
s (F
rom
Scr
een
B)
Sto
cks
That
Mee
t All
Long
Tra
de
Set
up C
ondi
tions
(F
rom
Lon
g Tr
ades
Blu
eprint
Ste
p #
2)
App
roxim
ate
ly
20
Pote
nti
al
Tra
des
C N
ote
s: T
his
scre
en is
don
e by
vis
ual i
nspe
ctio
n by
fol
low
ing
Ste
ps 1
& 2
on
the
Inst
ant
Prof
its
Long
Tra
des
Blu
epri
nt.
Mos
t go
od
soft
war
e pa
ckag
es w
ill a
llow
you
to
set
up t
he b
asic
cha
rt s
etting
s ou
tlin
ed in
Ste
ps 1
& 2
and
then
ent
er e
ach
issu
e fr
om S
cree
n B,
whi
ch w
ill u
pdat
e th
e ch
art
data
for
tha
t is
sue.
Yo
u ca
n th
en a
djus
t th
e se
ttin
gs,
acco
rdin
g to
Ste
ps 1
& 2
. I
f th
e st
ock
char
t m
eets
th
e se
tup
cond
itio
ns in
Ste
p 2,
you
the
n ad
d th
at s
tock
to
your
wat
ch li
st,
proc
eed
to S
tep
3, c
alcu
late
the
ent
ry p
oint
, an
d en
ter
the
orde
r. If
not
, m
ove
on t
o th
e ne
xt s
tock
.
Instant Profits 111
Table 5 - Short Stock Trades Triple Screen Blueprint
Cop
yrig
ht ©
Pro
fits
Run
, In
c.
Re
v 04
-200
5040
3
INST
AN
T PRO
FITS
: SHO
RT S
TOC
K TR
ADE
S TR
IPLE
SC
REEN
BLU
EPRI
NT
SC
REEN
PO
RTFO
LIO
SC
REEN
ED
SCRE
ENIN
G P
ARA
MET
ERS
RESU
LTS
Pri
ce R
an
ge
$10
- $2
00
Hig
h V
olu
me
Sto
cks
All
trad
ed s
tock
s A
vg.
Volu
me P
ast
50
Days
>
= 1
Mill
ion
Sha
res
App
roxim
ate
ly
50
0 S
tock
s S
ele
cted
A No
tes:
It
is im
port
ant
to s
elec
t on
ly h
igh
volu
me
stoc
ks for
sho
rt t
erm
tra
ding
for
tw
o re
ason
s: 1
. To
insu
re li
quid
ity
so t
hat
we
can
easi
ly e
nter
and
exi
t th
e m
arke
t at
fav
orab
le p
rice
s. 2.
To
incr
ease
the
like
lihoo
d of
a s
elec
ted
stoc
k to
be
an o
ptio
n-ab
le s
tock
for
th
ose
who
tra
de o
ptio
ns.
Bec
ause
thi
s sc
reen
ing
proc
edur
e ca
n ta
ke a
s lo
ng a
s 20
min
utes
dep
endi
ng o
n th
e sp
eed
of y
our
com
pute
r, w
e w
ant
to s
ave
the
Hig
h Vol
ume
Sto
cks
list
sele
cted
fro
m t
his
scre
en t
o be
use
d ov
er a
nd o
ver
agai
n ea
ch t
ime
we
scre
en
for
a sh
ort
trad
e ca
ndid
ate.
Th
is li
st s
houl
d be
upd
ated
abo
ut o
nce
a m
onth
.
Lon
ger
Term
Movi
ng A
vg.
35 B
ars
and
Dow
n
Expon
en
tial M
ovi
ng A
vg.
(EM
A)
7 Bar
s an
d La
st
Bar
< 3
Bar
s Bef
ore
Last
Bar
S
hort
Sto
ck
Can
did
ate
s H
igh
Vol
ume
Sto
cks
(Fro
m S
cree
n A)
Hig
h o
f La
st B
ar
> H
igh
of 2
Bar
s Bef
ore
Last
Bar
App
roxim
ate
ly
50
Sto
cks
Sele
cted
B N
ote
s: U
sing
the
Hig
h Vol
ume
Sto
cks
List
(fr
om S
cree
n A),
we
then
scr
een
for
the
Sho
rt S
tock
Can
dida
tes.
W
e do
thi
s ea
ch t
ime
we
are
look
ing
for
a tr
ade
set-
up for
the
nex
t ba
r. Th
is s
cree
n ta
kes
only
a fra
ctio
n of
the
tim
e of
Scr
een
A b
ecau
se w
e ar
e sc
reen
ing
from
a m
uch
smal
ler
port
folio
to
begi
n w
ith.
Watc
h L
ist
Sho
rt S
tock
Can
dida
tes
(Fro
m S
cree
n B)
Sto
cks
That
Mee
t All
Sho
rt T
rade
Set
up C
ondi
tions
(F
rom
Sho
rt T
rade
s Blu
eprint
Ste
p #
2)
App
roxim
ate
ly
20
Pote
nti
al
Tra
des
C N
ote
s: T
his
scre
en is
don
e by
vis
ual i
nspe
ctio
n by
fol
low
ing
Ste
ps 1
& 2
on
the
Inst
ant
Prof
its
Sho
rt T
rade
s Blu
eprint
. M
ost
good
so
ftw
are
pack
ages
will
allo
w y
ou t
o se
t up
the
bas
ic c
hart
set
ting
s ou
tlin
ed in
Ste
ps 1
& 2
and
then
ent
er e
ach
issu
e fr
om S
cree
n B,
whi
ch w
ill u
pdat
e th
e ch
art
data
for
tha
t is
sue.
Yo
u ca
n th
en a
djus
t th
e se
ttin
gs,
acco
rdin
g to
Ste
ps 1
& 2
. I
f th
e st
ock
char
t m
eets
th
e se
tup
cond
itio
ns in
Ste
p 2,
you
the
n ad
d th
at s
tock
to
your
wat
ch li
st,
proc
eed
to S
tep
3, c
alcu
late
the
ent
ry p
oint
, an
d en
ter
the
orde
r. If
not
, m
ove
on t
o th
e ne
xt s
tock
.
Instant Profits 112
Because this screening procedure can take as long as 20 minutes depending on the
speed of your computer and the software you use, you should save the High Volume
Stocks list selected from this screen so you can use it over and over again throughout the
month each time you apply Screen B.
Daily Bars
If I am trading the daily stock charts, I next apply Screen B to the High Volume Stocks I
found using Screen A.
SCREEN B: LONG STOCK CANDIDATES Frequency: Daily
Time Requirement: 1 Minute
Longer Term Moving Avg. 35 Bars and Pointing Up
Exponential Moving Avg. (EMA) 7 Bars and Last Bar > 3 Bars Before Last Bar
Low of Last Bar < Low of 2 Bars Before Last Bar
SCREEN B: SHORT STOCK CANDIDATES Frequency: Daily
Time Requirement: 1 Minute
Longer Term Moving Avg. 35 Bars and Pointing Down
Exponential Moving Avg. (EMA) 7 Bars and Last Bar < 3 Bars Before Last Bar
High of Last Bar > High of 2 Bars Before Last Bar
Of the 500 High Volume Stocks found with Screen A, this screen will select
about 50 Long Stock Candidates and about 50 Short Stock Candidates, depending on
market conditions. In a bull market, there will be more Long Candidates than Short
Instant Profits 113
Candidates, and in a bear market the reverse would occur. This screen takes only about a
minute because we are screening from a much smaller list to begin with.
I now have about 100 of the best Long and Short Stock Candidates. Next, I apply
Screen C to this list to find my Watch List.
SCREEN C: WATCH LIST (LONG) Frequency: Daily
Time Requirement: 5 to 30 Minutes
Stocks that meet all Long Trade Setup Conditions (From Long Trades Blueprint Step #2)
SCREEN C: WATCH LIST (SHORT) Frequency: Daily
Time Requirement: 5 to 30 Minutes
Stocks that meet all Short Trade Setup Conditions (From Short Trades Blueprint Step #2)
This screen will identify up to 20 Long and 20 Short Stock Candidates for your
Watch List, depending on market conditions. To apply this screen, I use a chart template
with Advanced GET that already has the indicators from Step #1 of the Long or Short
Trades Blueprint (Short Term EMA, Short Term MA Envelopes, and Long Term MA).
Then, I just plug in each stock from Screen B (the Long and Short Stock Candidates) and
adjust the indicator settings as needed. Using visual inspection, I follow Step #2 from the
Long or Short Trades Blueprint. If the stock meets the Step #2 Setup Conditions, I add
that stock to my Watch List; if it doesn’t, I plug in the next stock and follow Step #2
again. As soon as I have a sufficient number of stocks on my Watch List, I select those I
wish to trade for that day and place the entry and stop orders according to Steps #3 and
#4 from the Long or Short Trades Blueprint.
Instant Profits 114
Whew! That might sound like a lot of work, but it really isn’t. It’s kind of like
riding a bicycle – you just need to do it a few times and then it will become second
nature.
Weekly Bars
If trading daily is too rigorous for you, or you just don’t have the time, simply focus on
the weekly charts.
If I am trading the weekly stock charts, I follow the same procedure for daily
trading, except I only do it once a week. The procedure is repeated here for those only
interested in weekly trading.
I start each week (Sunday night or Monday morning before the new trading week
begins) by applying Screen A from the Triple Screen Blueprint, as described earlier. I
next apply Screen B to the High Volume Stocks I found using Screen A.
SCREEN B: LONG STOCK CANDIDATES Frequency: Weekly
Time Requirement: 1 Minute
Longer Term Moving Avg. 35 Bars and Pointing Up
Exponential Moving Avg. (EMA) 7 Bars and Last Bar > 3 Bars Before Last Bar
Low of Last Bar < Low of 2 Bars Before Last Bar
Instant Profits 115
SCREEN B: SHORT STOCK CANDIDATES Frequency: Weekly
Time Requirement: 1 Minute
Longer Term Moving Avg. 35 Bars and Pointing Down
Exponential Moving Avg. (EMA) 7 Bars and Last Bar < 3 Bars Before last Bar
High of Last Bar > High of 2 Bars Before Last Bar
Of the 500 High Volume Stocks found with Screen A, this screen will select
about 50 Long Stock Candidates and about 50 Short Stock Candidates, depending on
market conditions. This screen takes only about a minute because we are screening from
a much smaller list to begin with.
I now have about 100 of the best Long and Short Stock Candidates. Next, I apply
Screen C to this list to find my Watch List.
SCREEN C: WATCH LIST (LONG) Frequency: Weekly
Time Requirement: 5 to 30 Minutes
Stocks that meet all Long Trade Setup Conditions (From Long Trades Blueprint Step #2)
Instant Profits 116
SCREEN C: WATCH LIST (SHORT) Frequency: Weekly
Time Requirement: 5 to 30 Minutes
Stocks that meet all Short Trade Setup Conditions (From Short Trades Blueprint Step #2)
This screen will identify up to 20 Long and 20 Short Stock Candidates for your
Watch List, depending on market conditions. To apply this screen, I use a chart template
with Advanced GET that already has the indicators from Step #1 of the Long or Short
Trades Blueprint (Short Term EMA, Short Term MA Envelopes, and Long Term MA).
Then, I just plug in each stock from Screen B (the Long and Short Stock Candidates) and
adjust the indicator settings as needed. Using visual inspection, I follow Step #2 from the
Long or Short Trades Blueprint. If the stock meets the Step #2 Setup Conditions, I add
that stock to my Watch List; if it doesn’t, I plug in the next stock and follow Step #2
again. As soon as I have a sufficient number of stocks on my Watch List, I select those I
wish to trade for that day and place the entry and stop orders according to Steps #3 and
#4 from the Long or Short Trades Blueprint.
Tips
Here are a few tips to ease your mind while following this trading routine.
Remember, you only need to apply Screen A once a month. Screen B takes a
minute or less, and Screen C takes anywhere from 5 to 30 minutes, including
order entry. That’s as little as 40 minutes to 2 hours per month if you’re trading
the weekly charts. You probably spend more time checking e-mail!
Instant Profits 117
When developing your watch list from Screen C, it is not necessary to visually
inspect every stock from the Screen B list because you are only looking for a few
good trades for that day or week. As soon as you find them, you can stop. Search
no further and proceed to Step #3 & #4 from the Long or Short Trades Blueprint
to calculate the entry and stop loss points and enter the orders.
By using a template chart that already has moving averages and envelopes
created, you can quickly adjust the settings for each stock on your Long or Short
Stock Candidates list to meet the Step #1 criteria discussed earlier in this course.
Then, a simple review of each chart will quickly tell you if the Step #2 conditions
have been met and if so what the entry, stop loss, and profit target points are. You
can then proceed to Step #3 and #4 and place your orders online before the market
opens. Repeat your analysis after the market closes, noting which positions have
been filled requiring follow-up stop loss orders and profit target limit orders for
the following day.
To help keep things organized, each night I like to print out the chart of each
stock on my Watch List and each open trade I’m in. This makes it easy for me to
know which stocks I need to keep an eye on the next day. My son thinks that’s a
bit excessive and he prefers to organize his Watch List and open trades in two
separate folders within his charting software. You should do whatever helps keep
you organized.
Stocks: Day Traders
It is best to focus on 2 to 4 stocks that you become expert at in terms of the characteristics
of those markets and channel settings as we discussed earlier. You then trade those
markets using Instant Profits over and over again.
Instant Profits 118
Futures
For futures traders, the routine is even easier than for stocks, because you will be
focusing on no more than 20 markets and the same 20 markets.* There’s no need for
screening 12,000+ stocks. You just trade those 20 futures markets using Instant Profits
over and over again; intraday, daily, or weekly according to your personal trading style.
Whatever your time frame preference is for trading, you must develop a routine
that becomes second nature to you and you will then see your account equity consistently
grow. If you follow Instant Profits to the letter, you can potentially do equally well
trading any time frame as long as you stay consistent with your routine.
*Futures trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using the Instant Profits methodology or system will generate profits or ensure freedom from losses.
Instant Profits 119
Action Exercises 1. Decide when your Time to Trade will be and write it down here.
__________________________________________________________________
2. From the Triple Screen Blueprint, Screen A selects:
a. High volume stocks with prices between $10-$200 and with average
volume of the past 50 days >= 1 million shares.
b. High volume stocks with average volume of the past 100 days >= 1
million shares.
c. Low volume stocks with average volume of the past 50 days <= 1 million
shares.
d. Low volume stocks with the prices between $10-$200.
3. Screen B requires that the Longer Term Moving Average is
_________________________________________________________________.
4. Screen C requires that your Screen B stocks meet all the Setup Conditions from
Step #_____ of the Long and Short Trades Blueprint.
5. If trading daily bars is too rigorous for you or you don’t have the time, you should
consider instead trading:
a. 5-minute bars b. 20-minute bars c. 1-hour bars d. Weekly bars
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 120
How to Supercharge Your Stock Trading
with Options
By applying Instant Profits to weekly stock
charts, we have the potential to catch stock price
moves of $3 to $5 within 1 to 3 weeks, which
can translate into a greater percent return
trading options as opposed to the underlying
stock.*
We use the weekly charts because the
average profit per trade is greater than is the
case when using daily charts. And to
successfully trade options, we would like at
least a $3 to $5 price move on the underlying
stock.
If you are new to options, at a minimum you must first read the following booklet:
Characteristics and Risks of Standardized Options. Written and published by The
Options Clearing Corporation, this booklet must be read by an investor prior to buying or
selling options contracts as it explains the purposes and risks of options transactions. This
booklet can be found online at:
www.cboe.com/LearnCenter/pdf/characteristicsandrisks.pdf
*Options trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using the Instant Profits methodology or system will generate profits or ensure freedom from losses.
Instant Profits 121
Also, required reading should include a good book on the basics of options before
applying this strategy. One that I recommend is Options Made Easy by Guy Cohen. But
considering the risk of trading options, you would be well advised to acquire a more in-
depth education before trading options. An excellent course and home study guide is
offered by Options-University available online at:
www.profitsrun.com/options
Assuming you have a basic understanding of the workings of the option market,
you can then consider applying the following strategy to your trading.
Buy Long Signals on the Weekly Charts When Instant Profits generates a long entry signal for the XYZ Company, instead of
buying the stock we would buy an At-The-Money (ATM) Call with an expiration date of
a minimum 60 days from today. For example, if it was July 1 and XYZ was trading at
$40, we would buy a September (or later) $40 Call for $2.00. Our stop loss would be if
the Call option loses 50% of its value ($1.00 in our example), then immediately sell the
Call. If on the other hand, XYZ shares gain $4.00 to hit our Profit Target, we would then
sell the Call at $4.00 (an ATM option moves at about 50% of the underlying stock
movement) for a 100% profit.
Sell Short Signals on the Weekly Charts
When Instant Profits generates a short entry signal for the XYZ Company, instead of
selling short the stock we would buy an At-The-Money (ATM) Put with an expiration
date of a minimum 60 days from today. For example, if it was July 1 and XYZ was
trading at $40, we would buy a September (or later) $40 Put for $2.00. Our stop loss
Instant Profits 122
would be if the Put option loses 50% of its value ($1.00 in our example), then
immediately sell the Put. If on the other hand, XYZ shares drop $4.00 to hit our Profit
Target, we would then sell the Put at $4.00 (an ATM option moves at about 50% of the
underlying stock movement) for a 100% profit.
A few things to keep in mind: Never risk more than 2% of your account (1% is
even better) on any one trade and only trade options with an open interest greater than
500. Also, and this is very important – if we are in a bull market, for every 2 long Call
positions you have on at any one time, you should have 1 long Put position on to hedge
your portfolio in the event the market abruptly reverses direction. Again, if you are new
to options, do not trade them until you have acquired the necessary education and
have the necessary risk capital to trade them.
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 123
The Top 11 Secrets to Success with Instant
Profits
The trading system is just one component you
will use to become a successful trader. As
discussed earlier, there are other factors which
can dramatically affect your ultimate success.
Here are the Top 11 secrets to insure your
success trading with Instant Profits.
Secret #1 - Treat Trading Like a Business
As a serious trader, you have a new job – managing your portfolio. If you take a casual,
laid-back approach to trading, you won’t be successful. You need to treat trading like a
business. Every successful business has goals, a plan of action, and the specific
activities required to make it successful. Think about what you want to accomplish
with trading. Write it down. Your plan of action should include learning how to trade
Instant Profits. Learn it cold. Learn it until it becomes second nature, like tying your
shoes or checking your e-mail. And then take action by following the method without
fail.
Instant Profits 124
Secret #2 – Always Use Risk Management
Remember what I said earlier: Risk management is more important than the
methodology one uses to trade, since an otherwise winning methodology ends up
losing without proper risk management, but a mediocre methodology with strong risk
management can end up winning. Never risk more than 1 to 2 percent of your account
on each trade.
Secret #3 – Maintain Discipline
In order to maintain discipline, you need to have a checklist, or a routine, that you
follow faithfully. There will be times that you don’t feel like following your routine,
but you must look within yourself and find a way to stick with it. The key to
maintaining discipline is to build momentum. When you stick to your routine, you will
develop a natural momentum that is self-perpetuating. Be careful, though, because
momentum will work against if you slack off and begin to veer away from your
routine. Find a time to trade that works best for you where you won’t be interrupted
and you won’t feel rushed.
Instant Profits 125
Secret #4 – Master Your Emotions
Your great nemesis Fear and its evil cousin Greed. They can single-handedly destroy
your trading portfolio. This is the true test of a professional, serious trader, and this is
what causes the amateurs to run home crying. If you haven’t experienced Fear and
Greed with regard to your portfolio, don’t worry – you will. If one of your big trades is
down, you’ll be afraid of losing. If it’s up, you’ll be afraid of losing what you’ve won,
but Greed will string you along until you’ve worn out your welcome and should have
closed out the trade with a profit when you had the chance. This is a loser’s game. This
is an amateur’s game. The professional doesn’t “play the market”. If you’re looking for
a game, take up golf or tennis. The professional trader follows a method to win.
Secret #5 – Trade With What You Can Afford to Lose
This is a huge secret. Why? Because if you only trade with what you can afford to lose,
a huge weight is removed from your shoulders. Yes, your emotions will still play tricks
with you, but they will have much less power because you know you can afford to lose
a trade or two. Amateurs looking to make a quick buck trading the markets will never
understand this. Professionals have this secret tattooed to their brain.
Instant Profits 126
Secret #6 – Stick With The System
Do your research. Do your due diligence. Do your paper trading. Find a method that
matches your personality. And then stick with it. Don’t self-sabotage yourself when
you’ve already found a good trading method. Like I said before, do you think the
casinos are worried when someone hits the million dollar jackpot? Do you they sweat,
even a little? You know they don’t because they have a system that will always work
over time. Be like the casino and your vault could be filled with profits.
Secret #7 – Don’t Second-Guess The Method
This is a follow-up to #6. Once you have proven a method over time, and especially in
any market and in any time frame, why would you want to second-guess it? You
should only be second-guessing yourself and if you are applying the method correctly.
But by spending time upfront to understand the mechanics and syntax of a method, you
will know exactly how to execute it over and over again. Remember, it has to become
second nature so it’s just like tying your shoe or chewing gum.
Secret #8 – Don’t Get Personal with a Trade
As a trader, a trade serves one purpose and one purpose only – to give you the
opportunity to make a profit. Don’t get personally involved with a trade. Don’t fall in
love with the company, and don’t hold a grudge against it, either. To you, it’s just a
ticker symbol. You can love your favorite tennis shoes, but if you’re in a short trade
with the company that makes them, you’re going to love it when the price drops. Don’t
worry, the price will go back up and you can pull out profits on the upside, too!
Instant Profits 127
Secret #9 – Don’t Tell Others About Your Trades
Your personal finances are your business only and should be kept private. Trading is
also your business only. When you make your first string of big winners, you may be
tempted to tell your friends. There’s nothing good that can come from this. You are
trading a method based on your finances, your beliefs, your research, and your
experiences. When you tell your friends about your winning trades, they will react
based on their finances, their beliefs, their research (or lack thereof), and their
experiences. These are two totally different worlds. Keep them apart or they will
collide. If you truly want to help a friend out, you may want to suggest they look into
your method themselves, but I would leave it at that.
Secret #10 – Don’t Listen to Advice From Others
Unless your friends have their own good trading methods, ignore everything they tell
you about trading. See Secret #9. If you’re short in a stock and your friend doesn’t
understand selling short they just won’t get it. Or if you just went long and your friend
has a hot tip that the company you just bought is about to go bankrupt … you get the
picture. Two different worlds.
Instant Profits 128
Secret #11 – Don’t Force a Trade
This is one of the most important Secrets you can learn in order to become a successful
trader – don’t force a trade. Suppose you filter through thousands of stocks, using your
system’s setup rules, and find 10 candidates. Then you examine those 10 in more detail
by plotting the charts and applying more setup rules. Finally you realize that none of
those charts meet your setup conditions, so there are no good trades. Now suppose you
currently have no open positions in your portfolio and you haven’t had any positions in
a few weeks… and you’re just dying to place a trade. What do you do? Absolutely
nothing. You don’t trade because there isn’t a good trade. You wait. You follow the
method. You maintain discipline. You keep your emotions in check. If you force a
trade, you might as well throw away your method. Many amateurs can’t handle this. If
you’re looking for constant action, spend a weekend at the blackjack table – the casinos
would love to show you their system. Famed trader Jesse Livermore said it best: “It
was never my thinking that made the big money for me. It was my sitting. Got that?
My sitting tight. Men who can both be right and sit tight are uncommon. I found this
one of the hardest things to learn. It is literally true that millions come easier to a trader
after he knows how to trade than hundreds did in the days of his ignorance.”
Instant Profits 129
Action Exercises 1. To become a successful trader, you should treat trading like a:
a. Hobby b. Business c. Game d. Challenge
2. When you stick to your routine, you will develop a natural _______________ that
is self-perpetuating.
3. You should only trade with what you can afford to lose. TRUE or FALSE?
4. You should only trade stocks of companies that you feel good about. TRUE or
FALSE?
5. All professional traders solicit their business associates for advice on when to exit
a losing position. TRUE or FALSE?
6. If your trading method has not created any trading opportunities for a long time,
and you are anxious to trade, you should control your emotions and keep
following the system. TRUE or FALSE?
Notes ________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Instant Profits 130
Wrap Up
You did it! If you got this far, I commend you,
because it shows me that you know how to
follow through and finish what you start. Instant
Profits will do you no good sitting on your
bookshelf collecting dust. You need to practice
applying what you’ve learned to actual stocks
and real data.
You might feel a little overwhelmed,
especially if you read this manual straight through. Don’t worry. It’s really quite easy to
apply once you do it a few times. Find what time frames and what markets work best for
you. Take out your calendar and schedule your Time to Trade. You owe it to yourself, to
your family, to dedicate this small amount of time on a regular basis to help you achieve
your goals. Your Time to Trade coupled with the power of Instant Profits has the
potential to help you become a successful trader more quickly than you might expect.
Thank you again for investing in Instant Profits. Your success means a lot to me,
and I truly hope that this course will lead you into a bright future of successful trading. If
I can be of any assistance, just contact me at Profits Run and I would be more than happy
to help.
Good Trading,
Instant Profits 131
Recommended Reading I’ve read hundreds of books on trading. Here are some of the best that I recommend you
read if you’re interested in learning more about trading the markets. For information on
ordering these books and others, please visit the Instant Profits website at
www.instantprofitstoday.com/members.
Trading for a Living, by Alexander Elder. An excellent primer on becoming a successful trader.
Come Into My Trading Room, by Alexander Elder. A great follow-up to Trading for a Living. Teaches you how to manage your money and time, as well as strategy, so that you can enter the markets with confidence and exit with profits.
Reminiscences of a Stock Operator, by Edwin Lefevre. An 'investment classic' about legendary stock trader Jesse Livermore first published over 70 years ago, but full of wisdom that is equally applicable to today's markets.
The Mind of a Trader, by Alpesh B. Patel. Lessons in trading strategy from the world's leading traders.
Market Wizards, by Jack Schwager. Allows the reader to delve into the minds of professional traders. It explains the very elements of their success, different approaches used in different markets, trading rules that each of them adhere to and personal advice for other traders.
The New Market Wizards, by Jack Schwager. A good follow-up to Market Wizards. Additional interviews with the pros.
Schwager on Futures – Technical Analysis, by Jack Schwager. This is simply one of the best guides to technical analysis written from a trader's perspective. Explores what works and what doesn't work in the real world of trading.
Market Evaluation & Analysis for Swing Trading, by David Nassar & William Lupien. Demystifies the swing trading techniques of the professional traders and market makers, closely examining them to determine how and why they work, what to use in different market environments, and which strategies will ramp up effectiveness in today's hyper speed electronic markets.
Trading in the Zone, by Mark Douglas. Offers specific solutions to the 'people factor' of commodity price movement. It uncovers the true culprit for lack of consistency when it comes to stock picking: lack of focus and self-confidence.
Instant Profits 132
Glossary BEAR MARKET – A market in which prices are declining over a prolonged period of
time. Someone who believes prices will move lower is called a bear, or is considered
bearish.
BULL MARKET – A market in which prices are rising over a prolonged period of time.
Someone who believes prices will move higher is called a bull, or is considered bullish.
BUY AND HOLD – An investment strategy that promotes investing based on long-term
growth potential. The stability of the invested vehicle is important, rather than the
shorter-term market volatility. For numerous reasons, traders recognize that Buy and
Hold is a losing strategy.
BUYING LONG – The act of buying a security in hopes that it goes up in value in order
to make a profit.
CHANNEL TRADING – A method of trading that takes of advantage of the natural
ebb and flow of markets from undervalued to overvalued by using moving average-based
envelopes to define tradable channels
CHANNELS – Channels are envelopes that capture most of the price data displayed on a
bar chart. They are usually based on percentage bandwidth around a moving average or
trend line. When prices are in an up trend and approach the lower channel band, it may
be a good time to buy; and when prices approach the upper channel band, it may be a
good time to sell to cover the long position.
CHART – A price chart for a security showing historical values over a period of time.
Instant Profits uses charts made up of Price Bars. The x-axis shows the time frame and
the y-axis shows the price.
Instant Profits 133
CHARTING SOFTWARE – Interactive software that allows you to plot charts and
overlay them with various indicators, among other things. Charting Software requires a
data feed.
DATA FEED – A source of security price and volume data to be used with Charting
Software. Intraday trading requires a real-time data feed. If you are trading daily bars or
longer, only end-of-day data is required.
DAY TRADING – The act of trading a time frame less than daily bars. Day traders often
trade the 5-minute, 15-minute, and 1-hour bars.
ENTRY POINT – The price at which you enter a trade. All good trading systems
calculate a specific entry point.
EXPONENTIAL MOVING AVERAGE (EMA) – See Moving Averages.
FIBONACCI RETRACEMENT LEVELS – Fibonacci Retracement Levels are based
on the ratios of a number series first observed by Leonardo Fibonacci in the thirteenth
century and are regarded as describing the natural proportions of things in the universe,
including price data. These retracement levels are determined by applying the Fibonacci
Retracement Level indicator (found in most good trading software packages) to a Swing
High and Swing Low made by the recent price action on a bar chart. Fibonacci
Retracement Levels are used in trading as possible support and resistance levels.
FUNDAMENTAL ANALYSIS – Fundamental analysis involves the use of economic
and company financial performance data (if trading stocks) to forecast prices.
Fundamental analysis implies that a relationship between this data and the market prices
of the security analyzed can be determined with some accuracy in order to give the trader
an edge in trading the market.
Instant Profits 134
FUTURES – A term used to designate an agreement to buy or sell a set amount of a
commodity or security in a designated future month at a price agreed on today by a buyer
and a seller.
HOLY GRAIL – A mythical trading system that works every time and produces no
losing trades. The Holy Grail of Trading does not exist.
INDICATORS – Mathematical formulas derived from the price data of a trading vehicle
(for example, a stock, futures contract, etc). There are numerous indicators that are used
to do technical analysis on markets in order to forecast future market prices.
INTERMEDIATE TERM – A period of time measured in days and weeks.
LIMIT ORDER – An order to buy a security at or below a specified price or an order to
sell a security at or above a specified price.
LONG TERM – A period of time measured in months and years.
MOVING AVERAGES – There are two commonly used moving averages. One is a
simple moving average which is calculated by adding a series of prices over a specific
time period (for example, 10 days) and dividing that sum by the number time increments
(for example, 10). The other is an Exponential Moving Average (EMA) which is
calculated in a similar manner as the simple moving average except it gives greater
weight to the most recent prices in the time period measured. The EMA is a more
sensitive average that is more heavily influenced by the most recent prices than is the
case for the simple moving average. Like trend lines, moving averages are used to help
determine the trend of a series of data over time.
OSCILLATOR – Any one of a number of indicators that measures the ebb and flow of a
market from oversold (too low and ready to rise) to overbought (too high and ready to
fall).
Instant Profits 135
OPTIONS – The right to buy or sell an underlying security at a specific price called the
strike price until they expire in the expiration month. A call option is the right to buy an
underlying security and a put is the right to sell an underlying security.
PAPER TRADING – The act of trading a system “on paper” so that you don’t actually
risk any real money. The purpose of paper trading is to become familiar with the
mechanics of a system before actually placing real trades with real money.
PRICE BAR – An element on a chart that describes the opening price, high price, low
price, and last price (the close) for the time frame plotted. The vertical length shows the
total price movement for the time frame. The little dash or line on the left side of the bar
indicates the opening price. The top of the bar indicates the highest price. Conversely, the
bottom of the bar shows the lowest price. The little dash on the right side of the bar
indicates the closing price (the last price traded for the time frame you are using).
PROFIT FACTOR – A number that represents the profitability of a trading system
based on its winning and losing trades. A system with a Profit Factor of less than 1 loses
money, equal to one breaks even, and greater than one makes money. The formula is:
Avg. Winning Trade % Winners Profit Factor =
Avg. Losing Trade X
% Losers
PROFIT TARGET POINT – The price at which a stop order is placed to take a profit
in an open position.
RESISTANCE – Resistance is a level where prices will find selling pressure sufficient
to stop them from going up further at least temporarily. Resistance levels are defined by
old price highs, old price lows, down trend lines, down trending moving averages,
Fibonacci levels, etc.
Instant Profits 136
RISK MANAGEMENT – A strategy to limit the risk to a trading portfolio through the
use of sound money management and stop loss rules.
SELLING SHORT – The act of selling a security short in hopes that it goes down in
value in order to make a profit. You sell short by borrowing the security from a broker
and then selling it. Eventually, you must buy the security back.
SETUP CONDITIONS – According to a trading system, the specific market conditions
that must be met prior to buying or selling a security.
SHORT TERM – A period of time measured in days and weeks.
SIDEWAYS MARKET – A market in which prices are neither predominantly rising nor
declining over a period of time. Also called a choppy market. See Bull Market and Bear
Market.
STOCHASTIC – An oscillator that identifies overbought and oversold conditions in a
market on a scale of 0 to 100. It measures the position of the most recent close relative
to the recent trading range. It consists of two lines; one is the fast line (%K) and the other
is the slow line (%D). When these lines are at or below 20, the market is said to be
oversold. When these lines are at or above 80, the market is said to be overbought. The
most powerful signals are given when divergence occurs between the stochastics readings
and market prices. Divergence occurs when the trend of price highs and lows goes one
way and the trend of tops and bottoms of the stochastics readings goes the opposite way.
STOCK MARKET – A tradable stock is a certificate of ownership in a company that
can be bought and sold on two major exchanges and several minor exchanges as well as
the OTC (Over The Counter) Market in the United States and several other stock
exchanges worldwide. In the U.S., over 10,000 stocks are traded on the NYSE (New
York Stock Exchange), the AMEX (American Stock Exchange), and the OTC that we all
Instant Profits 137
refer to as the NASDAQ (National Association of Securities Dealers Automated Quote
System). An exchange is a place where buyers and sellers physically get together on a
central trading floor to buy and sell through a middleman, called the specialist. The
NASDAQ, on the other hand, is an electronic market that automatically matches the buy
and sell orders on a best-price basis.
STOP POINT – The price at which a stop is placed to limit a loss in an open position.
STOP ORDER – An order to buy or sell a security when a specific price is reached. Stop
orders are used to protect a profit or to limit a loss.
SUPPORT – Support is a level where prices will find buying pressure sufficient to stop
them from going down further at least temporarily. Support levels are defined by old
price highs, old price lows, up trend lines, up trending moving averages, Fibonacci levels,
etc.
SWING HIGH – A short term high bar with at least two lower highs and lower lows on
both the left and right of the high bar.
SWING LOW – A short term low bar with at least two higher lows and higher highs on
both the left and right of the low bar.
TECHNICAL ANALYSIS – Technical analysis is based primarily on the study of price
patterns and indicators that are derived from past prices to forecast future prices.
Technical analysis implies that patterns and indicators used in such analysis can give the
trader an edge in trading the market.
TIME TO TRADE – A specific time of the day that you set aside to focus solely on
trading. All professional traders use a Time to Trade as part of their trading routine.
Instant Profits 138
TRADING – The activity of buying and selling securities, futures contracts, etc. on a
shorter term basis with the intent of capturing short term profits.
TRADING ROUTINE – A specific set of steps to follow when trading a system. All
professional traders follow a trading routine.
TRADING SOFTWARE – Software used to actually place buy and sell orders with a
broker. Some Trading Software is integrated with Charting Software. Most brokers offer
trading software as part of their website.
TRAILING STOP – A trailing stop for a long trade is a Stop Loss point that is moved
up from a lower Stop Loss point and is placed below the market as the market moves up
and becomes profitable. This strategy locks in a portion of the profits as the market
moves up and lets the profits run. The reverse is true for a short trade.
TREND LINE – Trend lines are used to help determine the trend of a series of data over
time and are usually drawn by connecting the higher swing lows in an up trend and lower
swing highs in a down trend. When the trend line is penetrated on a closing basis, that
signals a possible change in the trend.
WINNING METHODOLOGY – A trading system or method that produces a Profit
Factor greater than 1 over time. In other words, a trading system or method that
consistently makes money over time.
Instant Profits 139
Index
bearish divergence, 51 broker, 24 buy limit order, 64 buying long, 27 case studies, 99 casino, 18 changes, 1 channel trading, 40 channels, 34 chart, 28 charting software, 22 computer, 22 conservative tactics, 75 crack the code, 2 data feed, 23 day traders, 116 day trading, 4 discipline, 4, 7, 13, 15, 19, 93, 107, 123,
127 dollar cost averaging, 9 Dow Jones Industrial Average, 7 EMA Buy Point, 64 emotions, 19 entry point, 59 envelopes, 42 exchange, 26 Exponential Moving Average, 41 fear, 124 Fibonacci Retracement Levels, 34, 59,
64, 81 fundamental analysis, 28 futures, 97, 117 General Motors, 2 greed, 19, 124 Holy Grail, 2, 8, 12, 15, 19 hucksters, 3 indicators, 38 insider, 9 intermediate-term trading, 4 Internet, 3, 23 Livermore, Jesse, 127 long term moving average, 45
longer term moving average, 75 losing trades, 2 market, 4 market analysts, 10 markets, 39 mistake, 2 monitor, 23 moving averages, 34 myths, 7 options, 9, 119 paper trading, 35 permission, ii personal trading coach, 4 price bar, 28 Profit Factor, 15, 16 profit target order, 70 Profits Run, 3 Random Walk Theory, 10 remote PC access, 24 risk / reward ratio, 8 risk management, 15, 17, 123 secret, 4 secrets, 3 secrets to success, 122 selling short, 8, 27 setup conditions, 50 short-term trading, 4 stochastics, 51 stock, 26 stop loss order, 67, 75 successful trader, 1 swing high, 64 system, 2 technical analysis, 28 thermostat, 20 Time to Trade, 107 timeframe, 4, 39 trading methodology, 2 trading routine, 107 trend lines, 31 TV, 3, 10 volatility, 76
Instant Profits 140
weekly chart, 89 winning methodology, 15
Instant Profits 141
About the Authors
Bill Poulos
Bill Poulos has been trading the markets since
1974 and he’s seen it all. Learning from
experience, Bill has developed stock trading
systems as well as several trading methods. He
holds a Bachelor's degree in Industrial
Engineering, and a Master's degree in Business
Administration, with a major in Finance.
Greg Poulos
Greg Poulos has been at the forefront of
Internet technology since 1994, working for
several dot com startups, including an IPO. In
2001, Greg started a successful Internet
development and marketing company, and was
instrumental in using technology to test and
evaluate Bill’s trading systems and methods
which eventually led to the development of
Instant Profits. Greg holds a Bachelor’s degree
in Marketing.