Building Minds For Building Wealth

v2.2

A Background Paper for IBD MeetUp Tucson

By John T. Hershey

Adobe Llamingos

20 MAY 2006

CONTENTS
Summary 4

Part I The Macro: Game Plans, Incentives and Confidence A. The Trading Business Plan 1. Position Trading Stocks Initial Analysis Sheet Daily Analysis Sheet Possible Buys Check Sheet 2. SCT Trading Commodities (ES) B. Health Well Being and Maintenance

5 7 9 13 19 23 24 35

Part II The Local: Routine and Discipline A. Trading Plans Position Trading and SCT Capital Application Time Allocation between Position Trading and SCT Key Market Characteristics Predictions Alternative Sharing Responsibilities with the Market B. Mental Growth and Body Language

38 39 40 41 42 43 45 49

Part III The Micro: Coarse, Medium and Fine A. Effectiveness and Efficiency 1. Act to Make Money and Worry if it was Correct Later 2. Not Acting When You Make a Decision 3. Discipline B. Iterative Refinement

52 53 54 56 57 59

Conclusions

62

Appendices

64

A. Achieving an Effective Money Making Program Summary 1. Markets 2. People 3. Just Doing it 4. Iterative Refinement 5. Be, Do, Have Results

64 64 64 65 65 65 66

B. Business Plan Outline 1. Introduction 2. Funding Requested 3. Organization Chart 4.History 5. Assets and Liabilities 6. Pro Forma 7. Trading Paradigms 8. Applications of Wealth 9. Effectiveness and Efficiency through Iterative Refinement 10. Downside Risks Common Mistakes IQ and EQ 11. Summary

67 67 68 68 69 69 70 71 71 72 72 73 76 77

C. The 8 Doublings 1. The PV Relationship PV Relationship Synopsis A Few More Looks At the PV Relationship 2. Channels 3. Market Operating Point A Matrix 4. Sequences 5. Scoring Scoring Variables Trading Cycle 6. The Big 4: Monitoring, Analysis, Decision Making, and Taking Timely Actions Monitoring Analysis Decision Making Taking Timely Actions 7. Physiological and Psychological Conduct 8. Sufficiency

78 78 82 83 87 91 95 96 99 100 101

103 103 104 105 106 107 108

D. SCT Synopsis SWEEPS Chart SCT Chart

110 113 118

Summary
This paper is an abbreviated presentation of what it takes, pragmatically, for a person to make money by position trading stocks and Seamless Continuous Trading (SCT) of the S&P 500 E-mini (ES) futures. It tells how a person can get to the point of making significant inroads on achieving their potential. Markets are there for anyone to use, and any person

has the potential to enable themselves to perform by using obtainable knowledge, skills and experience.

Some good choices are required.

Then, with these choices made, a person must go

through a holistic process of refinement to become an expert. It all boils down to defining and completing a process. The objective is to form a working partnership with the market. To do this, starting from an understood beginning point, it is necessary to become operational in several related areas concurrently. The process allows a person to realize a potential that is already there, by going from level to level towards an operational goal.

Getting there is a process.

It is more than just looking at what is. It is also a process of

acquisition and a process of using learning tools to build structure and new processes. All the while, energy must be supplied to make the construct work, function, and refine its self.

This paper is organized to unwrap and place upon the table the opportunity and, then, to go about the business of systematically getting it to work, by an effort of transference. i.e. to make money as a consequence of taking the opportunity.

The text of this paper is written in the vein of me, the author, talking to you, the recipient of the transference.

Part I The Macro: Game Plans, Incentives and Confidence

If you dont know where you are going you dont need a map.

We all are going, by

transference, to a place where you make as much money as you want. This amount of money is much more than you need.

The Game Plan, your map, is based upon your trading business plan which is THE incentive for going to the place to make money. The trading business plan starts with your present capital and includes 8 levels of doubling, the effectiveness of your performance as compared to your beginning performance level. There are two caveats you will have to include in your plan; how times will change in terms of the worth of money, and the possibility that you may have done some of these doublings already, if you are not a novice currently.

There are two other parts to this Game Plan: the markets and YOU. The markets are there now, offering money, and YOU are reading this in your present state of existence. By connecting you to the markets and enabling you, your business plan (wealth building) will become a matter of record over time.

Confidence will come to you during this endeavor. It comes from your mind as you build your mind, successfully, to take advantage of the opportunity.

The markets operate in ways that are wholly documented. They are known quantities and they give money to those who use them, correctly, for such purposes. We all, as users, take what we are able to as a direct consequence of our knowledge, skills and experience. The markets are there offering; we are here with given expertise. This paper deals with

clarifying the methods, by being effective and efficient, that can be used deliberatively to take the offered money out of the market and put it into your hands as a trader.

Once the game plan is clear, an iterative refinement process ensues to afford you, a trader, the 8 doublings of performance for taking that money out of the market.

The above, scopes and bounds the opportunity and the process necessary to go from the NOW to the place where you, as a trader, are able to realize what the market offers to you at all times.

Acceptable stocks have price rates of change that are seen to be in the range of 5 percent per day. The ES typically moves in a range of 15 points a day. Any person can see this happen, have a plan to make money from these price changes, and carry out an approach to transfer this capital dynamic from the traded markets into a personal trading account. Public records that describe these three elements abound. This paper is a description of how to go about getting engaged in and carrying out that which is required to participate in this process.

A. The Trading Business Plan

The overall game plan merges several factors.

The trading business plan is more a

commentary on how the money part of this plan works. Later in Part II there is an emphasis on trading plans and the trading methods used. In this section we will consider how all of the details relate in the formal package, outlined in appendix B.

The trading business plan is designed and followed to achieve a critical path of building capital as fast as possible, with due consideration to both financial and non-financial aspects. Basically the critical path is determined by using all the knowledge, skills and experience available at the first opportunity to deploy them to making money without undue risk. It is especially important not to trade in those areas where knowledge and skills are lacking.

The trading business plan develops around two learning stages. The first stage is related to position trading stocks, where there is no financial leverage and the pace of the market traded is relatively slow. Having a slow paced market, affords the beginning trader the time to get the job done successfully because the time needed is always available. By not leveraging capital, in stock trading, the impact of temporary failures or mistakes does not eat up prior successes. Position trading stocks builds a foundation for moving into faster paced markets where capital is ordinarily leveraged.

The two markets that will be used are very different in one major respect. Position trading stocks is done in one general market (equities) where many instruments are traded concurrently. In contrast, the commodities futures index market contains instruments for trading and most traders focus on one instrument within that market. While neither market is

continuous, in mathematical terms, position trading stocks is a continuous day after day operation without end. Cycles of entries and exits are made over and over. In commodities trading, the activity of the market focuses primarily on the front contract whose life span is three months (a quarter) meaning that the front month is renewed quarterly with a fixed time horizon, that is initially three months out. Thus, the future contract term continually shortens after initiation until the term of the front contract is used up in a quarter of a year. The purposes of the stock instruments are entirely different than the purpose of the commodities futures index instruments. Stock instruments represent ownership in ongoing corporations, while commodities contracts are financial risk insurance-like protection instruments related to a limited value range in the future.

Making money in position stock trading happens much more slowly (10% every 4 to 8 days) than in trading commodities futures indexes (up to 3 times the daily range, each day). On the other hand, the stock markets are much larger and diverse than the commodities future indexes. When a trader reaches a level of expertise in both markets and trades

concurrently, the normal procedure is to limit the capital in commodities futures index trading. The limitation is set by giving regard to being able to trade in a very timely manner without a fear of not having orders filled promptly. In this way slippage is avoided. As profits accumulate through compounding, and capital surpluses occur, they are transferred periodically from the commodities future index trading accounts to the position stock trading program accounts. At some point financial trading limitations do occur in stock position trading. Because the traded universe is relatively broad, more and more streams of capital are added and are traded in parallel.

1. Position Trading Stocks

Position trading stocks is an approach that involves carrying out the process shown in the chart on page 11. The left QA (Quality Assurance) part of the chart is designed to yield an up to date Universe which then can be traded as an EOD (End of Day) data oriented effort. The right side of the chart deals with the ROI (Return on Investment) performance characteristics of making money by using this Universe of stocks.

QUALITY ASSURANCE
S&P Reuters Blumberg Morningstar

RETURN ON INVESTMENT

EPS Daily download. STAGING

A Media News N

RS

SELL
Print your lists. GAINERS & GAPPERS SELL / HOLD

SELL

Buy

HOLD
Investors Business Daily S B/H Slideshow, reviewing charts. FIRST RISING VOLUME BUY

BUY

BUY

Sector Data

Hold LOW VOLUME A. (30 5) B. (3.6) C. (6.3) DRY UP / FIRST RISING VOLUME

I Daily Graphs

H/S

Scoring monitored stocks.

DU / FRV

M Internet

Sell

CULLING

GATHERING DATA

EASY SCAN

ANALYSIS

MONITORING TRADES

The basic principal is to trade a very high quality Universe as measured by earnings and price performance. Stocks are obtained nowadays from Stocktables.com and the default setup for getting a list of approximately 125 stocks is done by setting limits on the RS (Relative Strength) and EPS (Earnings per Share). The price range is arbitrarily set at 10 to 50. The list is sorted by increasing volume, to assure that the order of appearance of the stocks corresponds to three scoring values going down the list from top to bottom (7s, 0s and 1s). Over time the stocks migrate up the list. The list can be pulled at the frequency of every 3 to 4 days.

All stocks on the list are graded to determine their repeatability and reliability and consequently their Rank which is a measure of the daily money velocity in percent per day. An initial analysis sheet is used to do this, either manually (A good drill for getting to expert) or automatically by Excel. The chart of the stock is also annotated with formations and Initial Analysis Sheet (IAS) designations at this time.

Stocks are then placed in a set of review portfolios according to their contemporary scores (7s, 0s, and 1s), whether they are owned, and if they are being considered for purchase (a HOT list).

Daily evaluations are made using logging sheets. The logging sheets represent monitoring, analysis, decision making and timely action as the 16 columns are traversed. Logging sheets are kept for each portfolio. Clearstation.com is an example of a place to keep

portfolios that can be accessed to do the daily routine in convenient bulk viewing groups.

All of the above is kept in three ring binders and, periodically, new annotated charts are pulled from the displays used on the PC monitoring platform.

11

The Hot list and the owned lists are given special attention on a daily basis. A log sheet is used to assess the HOT list and the daily analysis sheet is used to complete the monitoring, analysis, decision making and planned action for the next day on owned stocks.

The progression of wealth building continually accelerates. There is no point where the effort becomes saturated (as mold would as it grew on a piece of bread). The progression is a consequence of the continuing acquisition of knowledge, skills and experience.

At some point, while also holding a job, EOD trading becomes the principal source of acquired wealth. When this occurs it is time to consider trading full time. Monitoring stocks full time, instead of just in the evening as an EOD effort, changes the effectiveness and efficiency of making money by position trading. You move from EOD data to real time data in a more revealing fractal (usually the 15 or 30 minute fractal). This means two things: you get to see the actual peaks forming, and you can also consider changing the duration of the hold period to only incorporate the period of highest money velocities.

Both considerations greatly increase the return on investment (ROI), and replacing the income of not working usually happens over a short interval. Coupling this with the real time commodities trading opportunity completes the full picture.

Trading stocks only during their optimum price velocities is called cross trading. It involves emphasizing the money velocity of the hold period. As stocks are monitored in real time, it is possible to rough out their time rate of change in value. This applies to owned stocks as well as HOT list stocks. When an owned stock begins to wane in capital appreciation, it can be sold and the capital can then be used to buy and hold a stock whose capital appreciation is growing better than the just sold stock.

12

Initial Analysis Sheet

Symbol Name Reference date Point Shift Peak Price Base Price % gain # of days Target Date Projection Buy Date # of days Target Price Buy Price Target Gross Average

Date :

Return %

RANK

Buy date Actual Sell date Actual days % of year

Cost Sale Net profit % return

RISK MINIMIZATION DECISION STRATEGY A B C Refererence buy price Times two commissions Breakeven price 1.1 * Breakeven EXPECTED SELL PRICE Chart Volume Factors
Scale for volume

Average Point Shift Av. Daily price range $ $ $ $ $ $ Av. Daily change + Daily + Hi-Lo -

K M

Dry Up Volume First Rising Vol

Recent Peak Vols

Decision Max Max Cycle

Totals Av. Daily Change in close

Average

Buy Date Expected days to sell date

50% Sell Indicators One day price shift Over time Twice # of days ADCC
(Av daily close change)

Sell Date

Sell Date ABSOLUTE DOWNSIDE SELL PRICE

2 x ADCC (remaining 50%)

Min expected profit (1.1*BE) less Av. Point Shift Equals ABSOLUTE Sell Price

The Initial Analysis Sheet (IAS)

Each time a new stock enters your world you go through the process of qualifying it for future money making. The Initial Analysis Sheet is used for this purpose, in five different ways: to obtain a ranking for the equity, to set up a buy sell cycle, to write a risk

minimization decision strategy, to have on hand a sell strategy (50% of hold) that focuses on the passage of time and, lastly, to have a determination of the absolute downside sell price (last 50% of hold).

Accordingly the attached Initial Analysis Sheet is divided vertically into 5 parts. Each part will be discussed below.

Initial Analysis To Determine Stock Rank

To determine the rank of the stock you need to use a current daily chart that contains EOD price and volume bars and the duration of this chart should be at least 6 months. With a ruler you quickly sketch in the last 5 cycles by lining out the trend lines (right channel line) of the last 5 cycles. At a minimum, 5 cycles are required for the last 6 months. Also, but not necessary, you can scale in the Intermediate Term (IT) trend(s) that form the envelope of the short term cycles on the chart. Next, number the cycles from left to right or pick and

number 5 cycles that best demonstrate the price action. On the initial analysis sheet write in the beginning date of the cycles you have chosen, or simply write the numbers 1 through 5 since you now have those annotated on the chart.

For each of the five columns note the following 3 items: The point shift of price, the point value from trough to peak, the base price where the cycle began (trough) and the number of

14

days in the cycle. To the right of these three rows calculate and write down the average value for each. In the next box to the right labeled Return write out the results of the calculation which represents the decimal equivalent of the point shift divided by the base price (the percent of the run). The final calculation you do is to determine the rank by dividing the Return decimal (percent) by the number of days, on average, it took to get that return. The rank that results is the average amount of price change as a decimal (percent) that occurs each day of the cycle. This is the potential of the stock to make money.

Thus each time a new stock is added to your universe (list) you know its rank as compared to all the other stocks in your universe. To make more money, priority is given to high ranking stocks when it comes time to choose. What you have actually gained by carrying out this process by hand, is a simple working knowledge of how this stock can be used to make money.

Trading Cycle Workout

The second part of the Initial Analysis Sheet is getting oneself ready to actually carry out a trade. The upper half is used for targeting the time and price of the trading you are going to do. Fill in all six boxes. The target date is your sell date. The buy date, once entered, can be used as the sub-trend, to calculate the number of days of the hold. Be careful not to include weekend days.

The making money part of this workout is on the right side. Pick a target sell price by determining the likely performance for the next cycle. Use the left channel line to find this value. If you do the same for the buy price, the target gross is determined by taking the difference of the two prices. The second half of this section is completed each time you do

15

a trade. Put in the actual information that occurs and then compare the results with the expectations from your initial calculations. Two additional boxes are used. Calculate the

percent of the year that was used on the left and the percent return achieved on the right.

Risk Minimization Decision Strategy

Once a qualified stock is a part of your universe, you will be examining it periodically using charts to estimate how things can go.

Chart ID; when you are charting, label the buy points on the chart A, B or C so that you can go back to it for the respective buy price location(s) you have entered on the IAS. Complete the break even price for each of the buy prices you selected by simply adding two commissions to that buy price. Multiply the break even price by 1.1 to determine a 10% profit value and enter this next to the break even price. Also enter the average trade swing points and the average daily price range (bar length) respectively. All of this puts you in the ballpark with respect to three buy prices labeled A, B and C on your chart.

Next, on the left side of the IAS we note all of the chart volume factors. Enter the first rising volume (FRV). Enter the three recent peak volumes. Enter the dry up (DU) volume and enter the scale that you are using on the chart for volume. Enter the decision maximum volume and enter the maximum cycle volume as well. The decision maximum volume and the maximum cycle volume are what you will use as triggers to exit. On the right side of the IAS we deal with average daily price change from close to close, and the daily high low difference of EOD price bars. To complete this calculation simply write down 10 positive changes and 10 negative changes, total and add their absolute values, then divide by 20 to fill in the box labeled average change in close. You may quicken the process by

16

entering 5 of each and carrying out the division by simply moving the decimal position on the absolute sum. To carry out the average high low difference, complete the rightmost two columns. Use either 5 or 10 of each and do a similar calculation as before to get the average daily bar high low difference. Both of these calculations help you become very familiar with what is going on with the stock during the estimated number of days determined in Section II.

What you now have personal knowledge of, is the volume at which you will sell AND the number of days you will hold the stock. This number of days multiplied by the average change in the daily close, gives the expected price. Fill in the expected price box based on this information. It should correspond to the calculation one gets from the 1.1 times the break even price, or better. Having done all of these calculations in advance you will be able to choose when to buy and how long to hold the stock, until it reaches the end of its cycle. The market has told you all of this in lieu of your guessing it. Usually the market is right and it is your responsibility to buy at the referenced buy price when FRV volume occurs and to sell when the peaking volume is reached, on the number of days (later) that you have calculated.

Time Sell Indicators (50% exit) or Price Target Sell Indicators (50% exit)
In this brief section you go through the consideration of when to sell your trade simply based upon time passing. Enter the buy date, the expected days to sell date and the calculated sell date, based upon that number of days. The middle column is a calculation of twice the number of whole days. At that time you will sell 50% of your position regardless of anything else. The right column is a price shift calculation. Enter the average daily change in close multiply it by the number of days you plan to hold and enter that on the line labeled Close

17

Change. On the next line, enter twice the Close Change value. When either of these two prices is reached over time (your decision) you will sell 50% of your held position. So, above, you have a time out sell or a price target sell. Selling 50% of the position may be done then. Following this, you may deploy a trailing stop.

Absolute Downside Sell Price

This calculation is used to determine when to sell your stock when the price is not following your planned hold. Enter 1.1 times break even in the first space and subtract the average number of swing points from section one to determine the absolute sell price. This is usually a negative number and indicates how much capital you are willing to lose on this trade. It is the difference between a 10% profit and the average point swing of a trading cycle. Most high ranking stocks that you trade will move more than 10%. Therefore, this swing value, in points, is greater than the 10% profit you are targeting. In trades that do not work out, you can expect to lose this amount of money as a worst case scenario.

The first 50% sell of part four will usually take you up to less than expected profit and the last 50% that you sell (based on this) will be a loss that cuts into that partial profit previously taken.

All of the calculations are based upon prior price performance where a performance has occurred a minimum of five times.

18

Daily Analysis
Stock P V

List Category: Owned(7-4) ____ DryUp(1-0) ____ Recently owned(3-1) ____

A/D Score Volume DU FRV Peak Formations Trends Buy Date Peak Date

Date_______
Action

Watch For

Daily Analysis Sheet

Daily Analysis Charts are used for each of the portfolios you maintain at ClearStation.com. These include 7s, 0s and 1s, hot list and owned list. The charts are identical and for the owned list the left and right margins can be used also. As a time saver the stock symbol and three volumes (DU, FRV, and peaking) can be typed in advance. volumes from the IAS. You get these

After the market close each evening, print up blank charts and go to clear station.com to do a bulk review for each portfolio. Print and attach the bulk printout. Focus on one stock at a time and complete the row for that stock. All columns are used for owned stocks. Stocks that you are reviewing to move to your hot list will not require the use of the right columns. The following paragraphs deal with the columns in groups.

Scoring

Columns 2 through 5 deal with scoring. Score the stock based on its price (P) volume (V) and Accumulation/Distribution (A/D). Enter 1s and 0s and binary values for each of these and calculate the score as a base 10 number. You now know where you are in the cycle.

Volume

If you are working with a new stock enter the actual DU, FRV and Peaking Volume. Also enter the actual daily volume in the volume column. Circle the appropriate volume that corresponds with the actual volume. Check to see that the score and volume level

correlate. You now know the stock is repeating a past performance.

20

Formations and Trends

In the formations column enter the formation that is denoted by the last four or five days of bars (use EOD or 30 min for owned). Also notate the indicator activity descriptively for MACD and Stochastic. For example note crossovers, divergence, and all signals. In the Trends column annotate with a few words where the price and volume are in the trend cycle. This is not a repeat of the scoring but is more a measure of the day of the cycle. If you have a 6 day cycle for trading the stock you should be able to annotate which of the six days the stock traded in that day. Correspondingly, if the stock is in a portion of the cycle where it is not tradable you should be able to list the number of days until the beginning of the cycle is reached. For example, if the beginning of the trading cycle is three days away you would write down -3 or -2. Use -2 if you count the day of the beginning of the cycle as day zero. This should correlate with both the scoring and the volume result annotated.

In other words, by this time of the analysis, you have filled in eleven columns and you should know exactly where this stock is relative to using it to make money.

Analysis and Decision Making

The remaining 4 columns are used for annotating the consequences of analysis.

By

analysis of a chart you can determine the Buy Date. If you decide to buy, then the Buy Date should be written in for tomorrows date. Whenever you do buy, write that date in and use this date as long as you are holding the stock. Since you know the average number of days of a cycle, from the IAS, you can calculate the peak date from the buy date column. You can also make a notation of how many days from tomorrow the peak date will occur, in the peak date column. A typical entry would be day 2 or day 5, meaning, two or five days hence.

21

The next to the last column (Watch For) is used to make a notation for what it is you are looking for next. It does not have to be what is going to happen tomorrow but it is one of the material times that you have completed on the IAS. instruction to yourself for what to do tomorrow. The last column (Action) is your

The most common entry on the daily

analysis sheet for stocks you own is HOLD. If you are watching for peak volume you would write: sell on peaking volume.

Use of Margins

I use the right margin for tomorrows stops. I enter two numbers: first the offset, in points, from the close and second the actual price of that stock. As part of the daily analysis I advance my stop as time passes. If I find I cannot advance my stop then I place myself on alert for exiting.

The left column may be used for estimating the expected profit position you will have tomorrow. I list it as a percent only (rarely).

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POSSIBLE BUYS CHECK SHEET

(Check for presence and note all exceptions)

Date ___________

STOCK

Vol.

MACD (5,13,6)

Right Line

50 MA line

Bottom of Cycle

trough, rising xover % In DU diverge or on "0" for 4+ or FRV bars and BO up

BO up (On 30 Bounce up Round bottom min chart do 1, or Failure to (saucer form) or 2, 3 trend BO down Dead cat bounce

Double bottom or Inverted head and shoulders

Stochastics Rocket formation Breakout up (entwined on from below 20% 80% line) must line be 2nd tine

2. SCT Trading Commodities (ES)

The sequence one follows to learn how to, and then make money in the commodities futures index intraday trading (e-minis) is very important.

Fundamentally, the path followed starts at a point where there is little or no knowledge and then it leads, successively, to being able to do Seamless Continuous Trading (SCT). This rationale is not immediately understandable. Consider that there is a broad spectrum of possibilities for making money; these possibilities start with the simplest and least complex reasoned approaches, and then lead along a path that goes to a summit. The path has many branch points that lead to other, lesser, heights that are mostly determined by the internal structures of the given methodology and, by the presence of irrational causes. This irrationality comes from a lack of understanding of the markets true nature.

The Initial Consideration

The initial primary issue is risk. The limiting consideration is to participate in the market at a real and defined minimum application of capital.

Secondarily, it is possible to determine just when and only when to be participating by considering the full range of risks that occur in the various periods of market operation.

For beginners or novices, this is not easily done or determined. There is a substitute for skills and experience in this matter, however.

24

Trading and Investing

There is a definite contrast between how markets operate and how financial investments are made.

On the chart below, the red line depicts how capital is invested and how it is done with regard to the risk involved. Generally the higher the risk, the greater the returns are on making capital loans to those who require capital for doing business. In real estate

development and construction, the diligence most closely relates to the potential for success. Long Term Value (LTV) is a common calculation that is done under a very broad variety of circumstances. Measures of risk are compared to measures of rewards.

PROFITS

High

Average

Low

Low

Average

High

RISK

25

For intraday trading in markets, there is another path that is possible. The black curve roughs out this path. For learning to trade, the path moves from upper left to lower right. It is worth taking the time to understand why this is the route, above all, to follow. The market displays a broad variety of operating points that turn out to be arrayed all over the chart. Because these operating points are there, the trader may choose them for use. This is in stark contrast to investing capital to make money with investments where there is a direct relationship between risk and reward. Learning to trade is a serial process for all practical purposes. Therefore, focusing on low risk, high reward opportunities, is the most practical place to choose to start. See the red ellipse area on the chart.

Generally, people decide how they are going to approach trading based upon their personal character, nature, knowledge and environment. reasoning. An alternative is to focus on logic and

The most prevalent approach is to deal with a combination of considerations that center on the statistical analysis of possible market occurrences. The general scope and bounds of this effort is called trading edges. The chart above can be considered a map of these edges with regard to the profits that they may make and the risk involved in making them.

At one website, elite trader (ET), there are about 80 frequently mentioned such locations on the chart above. But where they are on the chart is not often a consideration. What seem to be the prime considerations are their defined advent and definitely not the end of their run. They come and go as the market operates, and their appearance is the most prevalent decision making consideration.

26

So, by being able to characterize most all short-term independent market operating sequences, one may be able to consider how to plan and how to use strategies. The logical and reasonable matter is to trade within your specific skills from the onset, and to continue to advance those skills through experience until all market conditions fit into your trading plan and strategy. Commonly, this approach is not done.

Alternatives include turning off the summit path at some point and just working in the realm that is created on that particular branch path. This is the common approach.

All of the above, scopes and bounds the opportunities that the market represents. But there are other considerations beside the general market opportunities.

The transition from novice to expert

Knowing little and having no experience is a dictator.

Knowing everything and having

excellent experience is the summit goal. It turns out that the goal dictates the path. There are four considerations: knowledge of the market; monitoring the market; emotional development and trading skills. All of these enable a person to conduct, frequently, a

repetitive process which includes: monitoring; analysis; decision making; and taking timely actions.

27

Performing Integrated Operational Processes

4. Gaining Trading Skills

3. Emotional Development

2. Monitoring Skills Development

1. Gaining Knowledge

It is possible to study to learn almost all the knowledge required.

Attaining excellence

through experience is difficult and the key consideration is learning to know when you have a concept, a procedure, or an idea wrong. Learning to know when you know, is not nearly as important. You must be able to determine when you are learning something incorrectly. The transition to learning correctly most often involves changing the context or the focus and approaching the problem from a differing vantage point.

Thus knowledge and skills are scoped and bounded as above. These are mental in nature and they pertain to the markets. There are additional considerations, besides these mental market considerations.

28

Since the markets deal in dynamic flows of money, it is extremely important to deal with the participatory aspects of markets. The additional variable that this introduces is not primarily that of knowledge and skills. It is, strictly speaking, a consideration of bodily functions. The combination of: 1. the senses and 2. how the physical body provides self-protection, is the consideration. The spectrum of possible operating techniques shows how some methods minimize this function while other methods capitalize on this function.

What is at hand is the proposition that all sensing has, as an adjunct, the creation of emotion. Sensing and emotion are a pair. The deep underlying causal factor in this is selfpreservation. Some human responses are almost automatic and permanently engrained as a consequence of heredity.

How does self-preservation as a consideration change as a person goes from novice to expert? If the expertise goal is to trade seamlessly and continually in the market, then the sensing of the market under any conditions is primarily a matter of understanding what has happened, what is going on NOW, and what are the possibilities for the future, near term. In other words there is kind of symmetry about NOW regarding the senses and the associated self-protection involved. As a comprehensive view is attained the requirement for self-

preservation diminishes accordingly. Thus, and strangely, there is a personal and not a market risk consideration in the final analysis.

Most often, most traders make specific efforts to take emotional considerations off the table. This is achieved by participating in the market under specific conditions only. These eligible conditions are largely related to if / then arrangements. Groups of possible market

conditions are selected. Then the market is played using probabilities for these sets of

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market conditions. The result is a degree of success over time as long as the market continues such behavior.

Commonly, risk minimization is achieved by following the method to the letter of the law and by continually re-evaluating the probabilities of the contemporary market behavior. This maintenance keeps the trader oriented and expectant and in control, emotionally.

This precludes becoming an expert, but it does guarantee a self-limiting level of market success.

So most people are not going to head for the summit; they are going to turn from the summit path at some point as a self-preservation strategy to protect themselves from what they have not learned.

This puts us in a place where many market sequences do not have an edge from the viewpoint of edge trading analysts and practitioners. But, on the other hand, for Seamless Continuous Trading, there are few situations that can cause an SCT trader to leave the market and sideline. WHY? The difference is how trading is done.

Trading is done using a very wide range of practices. One of the most definitive lines that may be drawn through the wide range of practices is the one that delineates whether or not a person links trades to one another. Usually if a person uses a collection of edges (each having a set of criteria), that person does not make any connection of one set of criteria to another. In deep contrast, a person who trades seamlessly and continually always uses a strategy that interconnects the sequences of profit taking.

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Working from novice to expert

The principal guide for this transition is to come to be knowledgeable and to understand the market. At the same time, one must trade to gain experience. The convergence of these two efforts, takes a person along a path to SCT under the minimum of influences of selfpreservation emotions that come as a consequence of ones heredity.

Thus, as shown on the first chart, the sequence is to trade in the red ellipse, then trade in the red and blue ellipse combination and finally, add the pink ellipse for trading purposes. The green ellipse is the set it and forget it novice / intermediate limited trading zone. It is a natural fourth area that falls into place somewhere along the way. The remaining part of the chart is the upper right where high risk gives high rewards. As such it is the last area to trade in when climbing to the summit.

Thus the summit is the normal achievement of being able to trade throughout the whole map and it is where the full potential of the market is reached. All alternatives are simply branch points off the main path where a person winds up using just a portion of the markets full potential.

Common pitfalls

1. The most common pitfall is learning laziness. Not following the whole day, day after day, is quite common. People forego learning how a market day works. This failure is the most common source of the occurrence of the overpowering self-preservation emotion.

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2. People often choose to trade market turns that are either common or easy to sense. They, especially, focus on the entry only when it is the less important of the two decisions regarding a turn. And they are really extremely handicapped because they do not know how the market behaves throughout the day. They fail to understand that knowing the timing of the exit far exceeds the skill of perceiving what they believe to be a setup (Which they often describe in terms of entry criteria only). They enter trades and most often encounter unknown territory and fail to sideline.

3. Not being comprehensive in developing a plan or a strategy or both.

4. Not recognizing that it is necessary to sideline when you do not know what is going on.

5. Not recognizing the permanent irreversible physiological effects of repeated failure.

There are many other lesser pitfalls but one or more of these are the sufficiency for repeated failure.

Key understandings that lead to excellence

1. All excellent knowledge, skills, and strategies work on all fractals. The contra-positive, used as a test of efficacy, is just as significant. (novice)

2. Each of the seven fractals operates within the next slower fractal. Use a constant ratio to define the relative fractal durations. (novice)

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3. The market migrates from operating point to operating point; it does not jump around. Use matrix theory for this. (expert)

4. The path of the market is primarily determined by the least resistance. That is, the market goes to places that are not closed off to it. The last open pathway is usually where the market goes after all alternatives have been closed off. The most likely paths closed off involve two dimensional changes as opposed to one a dimensional change. (expert)

5. Trend trading turns are not done on trend line (TL) breakouts (BO); all trends overlap and, therefore, entries occur in the prior trend and exits occur before the TL BO. The channel line opposite the trend line is the better timing indicator of the two channel lines. All channel lines are established and extended at the point where the minimum data (three points) occurs. All trading turns in trends should be accomplished using the extreme

diagonal rather than the minimal diagonal. (novice)

6. There is no possibility that the market can go to extremes on trading fractals; there is no edge that the market will ever fall off of. The market, in fact, strives to return to neutrality from extremes on all concurrent fractal levels (intermediate).

7. The P, V relation provides the answer to the three most important questions a trader deals with:

Where have I come from? Where am I now? What is coming next (anticipation)? (novice)

8. Prediction is not necessary. (novice) This is the fallacy of edge trading.

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9. The dynamic nature of the market, following the P, V relation, is asymmetric and not symmetric. Half of the relationship describes trends and half of the relationship describes changes of trends. The descriptions are orthogonal and not opposites. (expert)

10. Neither support (S) nor resistance (R), when achieved, will be penetrated on lower volume when retested. Lateral trends on S/R are a mode rather than anything else. (expert)

11. All reversals are preceded by retraces. (intermediate)

12. The volatility of trends is dictated by the Gaussian sequences of volume. The end of trends occurs when the Gaussian reverses at the END of the prior Gaussian. (intermediate)

How to go about improving (or beginning) your performance

It is very necessary to always go through the process of evaluating any input you avail yourself to. Use your standard for determining whether or not you are learning something correctly. There are three possibilities for this:

1. The subject that you are learning, in itself, is incorrect, 2. you are learning incorrectly, or 3. you are learning correctly. Always make this determination.

For cases 1 and 2, you also get to learn; but it is not about the subject. You are learning about learning instead. You use logic and reasoning to carry out the above. You have to begin somewhere and this is the key. For making money you use the market itself.

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B. Health Well Being and Maintenance

Health, physiology and psychology, are important for making money. This paper presents the basics, the reasons, for giving consideration to various aspects of your physiological and psychological makeup.

A persons psychological makeup affects their trading.

As a person grows, the mind The brain is

(located in the physical brain and other remote locations) also grows.

basically a huge compartmentalized storage site and it is complimented by a bio chemical manufacturing factory. The outer part, grey matter, is where the mind and memory are located. Underneath this outer surface resides the bulk of the mass of the brain that

generates in excess of one hundred different bio chemicals. These bio chemicals come into existence on a demand basis, are delivered for use, and then last for varying amounts of time. Think of them as being similar to radioactive materials that have half lives. Which ones, when and how they are summoned up, and where they are used is our major consideration in terms of successful trading. All of this may seem more physiological than psychological if it werent for the fact that the system is driven psychologically.

Since the system works automatically it is better to approach making it effective from a behavioral viewpoint rather than by giving the system instructions based on a thinking process. This is the difference between using emotions and trying to control emotions. Getting this concept straight from the beginning is very important. This paper will develop the behavioral approach that will be used for trading and as this behavioral approach improves, the main thrust of making money will become more effective and efficient.

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The physiological aspects of trading focus primarily on remediation of constraining conditions and circumstances. These arrive as a consequence of unwanted bio chemical production which is a consequence of unwanted behaviors. These unwanted behaviors are those which have been engendered through earlier life experiences.

To establish the context of successful trading it is important to understand how past experiences and memories influence what is going on. The most extreme case can serve as the key example. In literature it is often referred to as lizard memory. This is a

reference to the fight or flight survival mechanism all humans have as a consequence of their long and successful effort to survive on the planet. It is a basic consideration for any human to know when to fight or when to flee; survival depends upon it.

In trading, repeated failure, summons up the fight or flight syndrome. This is a very logical and rational response to the deeply unsettling phenomenon of continually screwing up. In life, humans continually learn. When a person is subjecting themselves to repeated failure they are acquiring knowledge, skills and experience in that repeated failure. All the while the mind is building an orderly reservoir of all the aspects of repeated failure. This

assemblage is established in the mind permanently and is continually available as a resource largely founded upon experience which is translated into the corresponding skills and knowledge. It is very important to forgo this process of building repeated failure. The best alternative to repeated failure is to have a strategic plan and approach that assures repeated success at every level of the process.

Fight or flight is the cardinal survival mechanism of most flora and fauna in existence. Anything with a brain, or a brainiac living style, exhibits this survival characteristic. This insurance seems to be a required necessity. Therefore, it is very logical to conclude that

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every animal and plant has in its brain a substantial collection of memories or equivalents that contribute to survival under a broad spectrum of situations, conditions and circumstances. Not having to tap this reservoir is an important consideration. The iterative refinement section in The Micro part of this paper delves into the strategy for avoiding this reservoir.

When, upon occasion, trading gets to a place where uncertainty predominates there will be a production of unwanted long half life bio chemicals. These bio chemicals tend to constrain the effectiveness and efficiency of the mind. They are there to assure survival and the principal mechanism of their operation is to interrupt or disable the normal pathways that are used. The general approach and strategy that will be used in this paper is to stop trading (at the very least, because of the high level of uncertainty) and to remediate the situation by providing for the consumption of these long lived bio chemicals. The best alternative for this is to get some high energy consuming activity. Exercise works very effectively. Simply close down your trading operation and go out and jog for 15 to 30 minutes. Thus, time passes and your body consumes the bio chemicals. The bio chemicals are replaced by a new set and this will allow you to return to your trading activity. Obviously, as stated above, the best thing to do is to not get into the causal situation in the first place.

Regarding health, well being and maintenance, this paper advocates maintaining the healthiest lifestyle possible. A holistic approach is required. By carrying out an optimum lifestyle a person puts themselves in a position to be able to focus on making money at the most effective and efficient levels possible.

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Part II The Local: Routine and Discipline

The Macro viewpoint gives us the overall picture. Trading is done on a daily basis and this part of the paper explains the daily routine and the discipline required to carry out that routine.

Three elements come together to form the routine. These include: Trading Plans, our physiology (Body Language) and our minds (Mental Growth). The objective is to carry out trading using a stock trading plan that centers on the natural cycle and to also day trade using the commodities futures indexes market. The natural cycle (4 to 8 days) is a position trading strategy based on technical analysis. SCT is the basis of day trading. Each day, for approximately 6 hours, the markets are open and the trading routine is conducted.

During this period of time there are physiological and psychological conditions to be maintained. The overall game plan was explained in the Macro part of the paper. This part explains how the routine is maintained on a daily level. Body language focuses on how maintaining an excellent physical condition supports the trading routine. In parallel with this the dynamics of daily mental activity considerations are handled as well.

The objective is to carry out, repeatedly, four activities in sequence. These activities are: monitoring, analysis, decision making and acting in a timely manner. Each of these

activities are independent with respect to the mental processes involved. Only one of them, monitoring, involves emotional content which is a direct consequence of sensory perception.

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How all of these things fit together is the key to becoming expert. Drills will be used to continually upgrade the daily routine. The drills will not be done during market hours but they will be conducted to enhance the routine activity carried out each day.

A. Trading Plans

This paper covers the full compliment of trading and investing. It turns out that there are limitations in the scope and bounds of any trading system. To make any trading system effective there is a requirement that the scope and bounds of the system not be exceeded, as this causes a serious deterioration in the effectiveness and the efficiency of the approach.

What emerges is a requirement for more than one trading approach, simply based on the limitations of application of capital. One universal constraint prevails. Trading cannot be conducted in any market where the amount of capital applied to the market affects the operation of that market. What it boils down to is using capital in the best market available, with the best approach and then laying off surplus profits into other lesser effective and efficient applications of capital..

The viewpoint of this paper is that the best application of capital is to trade commodities future indexes with contract blocks that always allow fills to be completed as single units; that is, no partial fills trading is entertained. This means that at a certain point the transition of application of capital from the beginning, no risk trading with one contract, can only increase to a certain point. Then at that time, periodically, capital will be removed from the SCT trading account and placed in the secondary application of capital. The secondary application of capital presented in this paper is in the stock market whereby several threads

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of capital are used in a balanced way. Initially two threads will be used. As time passes and more profits are made the number of threads will be doubled twice and at that time the stock trading will assume its final form as a consequence of achieving the normal distribution of threads of capital.

Position Trading and SCT Capital Application

Position trading will be the specific approach used in the stock market.

The major

characteristics of position trading include the time of the trading cycle and the amount of profits obtained per cycle. Position trading cycle timing ranges from 4 to 8 days ordinarily. In recent years the preponderance of cycle time has shifted from 8 days towards 4 days. This compression is an advent primarily caused by technical data support considerations. The number of threads trades is directly related to the duration, in days, of the position trading cycle. The long portion of the natural cycle is the basis of the 4 to 8 day hold. Optimally, the trader has the same number of threads as the average duration of a trading hold, and this condition enables the trader to focus on trading actions. What occurs is that most stocks are being held on a given day and only one or two are actionable. This

provides for a balanced routine whereby most stocks are assessed as holds and there is a focus on taking profits and reapplying capital for stocks on a given day.

As time passes each thread of capital grows. Because of the selection process of universal stocks that are eligible for trading, a point is reached where the capital in a given thread can no longer be increased. By this time the trader is operating at an expert level, and in effect, is able to run parallel threads of capital. The best way to begin this parallel operation is to divide the initial thread capital in half and to trade two separate stocks with that capital from that point on. The nominal capital limitation for a given thread relates primarily to the upper

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constraint of holding more than 100,000 shares of a given stock. There in an ancillary consideration of price per share and by the time this limitation occurs the price limitation can be handled readily.

Time Allocation Between Position Trading and SCT

So the trading plan is a two part effort and during trading hours proportional amounts of time are spent with each effort. The commodities trading is more demanding because of the market pace and the leveraging of capital. On the other hand position trading of stocks can be done using a daily routine. What this means is that the routine for stocks can be done in off hours and the commodities trading can be handled primarily during trading hours. There are, however, some considerations that lead to overlap. The overlap becomes more and more significant as the knowledge, skills and experience of the trader are acquired. Initially there is no overlap.

To understand these factors, in general, it is only necessary to look at the respective data sets of the two trading approaches. Trading commodities is done using the five minute and two minute charts and DOM. On the other hand, position trading stocks utilizes the EOD and 30 minute charts.

For each, other charts are also under consideration. These ancillary charts provide the context for the trading charts. Seven levels of charts are involved; they include quarterly, monthly, weekly, and the four previously mentioned (daily, 30 min, 5 min, 2 min). With regard to the 30 minute chart sometimes the 15 minute chart is used as an alternative. The separation of periodicity of the charts is roughly a multiple that ranges between three and five. By going across the spectrum, and using a common multiple it is possible to use this

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facet as a fundamental testing factor for the efficacy of any application of monitoring, analysis, decision making and taking timely action.

The behavior of markets can be characterized using fundamental concepts that have broad application. This set of fundamental concepts needs to be complete and holistic. The premise of this paper is that the potential of the market can be extracted through the iterative refinement of methods that provide the most effective and efficient performance. Therefore, the best approach is to use pragmatic universal fundamental concepts of the market as a foundation. Therefore, it is incumbent on the practitioner to have an

understanding of how these concepts may be tested to determine their universality. The test of universality is that the concept applies with the same effectiveness and efficiency to each and every fractal, where the fractals are spaced in the spectrum in a common manner.

Key Market Characteristics

At this point, two additional characteristics of the market deserve consideration. Dealing with these characteristics amplifies the context of how the trading approaches work. These include: the migration of the market operating point and prediction as a strategy in making money. Consideration of the operating point of the market is extremely important. The risk map is in actuality a derivative of the market operating point map. Because all markets are large, at all times the operating point must be considered a synthesis of all active trader viewpoints. The viewpoints are weighted according to the size of the player and the level of activity. The caveat in this is that the control of the market lies with the minority viewpoint. This is not a paradox, but it leads to the precept that on any map of the market operating point, the operating point moves from one cellular location to only another adjacent possible cell. The market does not jump from one cell to another. There is a lot to soak up with

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regard to this consideration. Maps can be drawn in two dimensions to create a plane or surface or they can be drawn with additional dimensions to create three or more dimensional surfaces. Sets of two dimensional surfaces are also possible. For practical purposes it is common to use a single two dimensional matrix.

With consideration to any operating point there are 8 possible adjacent cells. Visualize a tictac-toe game layout. Assume that the market operating point is the center cell. The eight cells surrounding the center cell may be divided into two groups to illustrate the extent of difficulty a change in the operating point when involved. A single degree of difficulty is required to move up, down or sideways. On the other hand to move diagonally two degrees of difficulty are encountered. Most of the time operating point movement occurs in the simpler vein. Often a diagonal move is accomplished in two serial steps each involving a single degree of difficulty. Understanding this mode of movement is very important. One of the drills that can be used to best understand this is to annotate pathways on the matrix over and over to get a picture of the common ways in which the market operates. By putting a collection of lines on the matrix it becomes easier and easier to anticipate possible future pathways. They need not be predicted. But, once it is known where the cellular operating point is, it becomes much easier to anticipate the next likely operating point.

Predictions Alternative

The other consideration is how prediction may or may not be used as a market strategy. It turns out that prediction is not necessary, so it is not used even for the purposes of collateral reinforcement. Most investing or trading can be divided into two basic categories. One involves prediction, the other does not. Each category can be considered as a separate paradigm. The paradigm involving prediction is often compared to betting paradigms.

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Various games are often used as collateral examples of prediction. The basic prediction paradigm consists of analysis, making a prediction, acting, adding protection and acting on the targeted results if and when they are achieved. This sequence of events will either work, fail, or remains in limbo. The trivial case, limbo, is usually resolved by using a set time out duration. Success is achieved when the target is reached and the trade is completed. Failure occurs when the protection is exercised to prevent further losses. Whether an

approach is successful or not is determined by the mathematical probabilities associated with comparing the successes against the failures. In general a successful approach is deemed to be an edge in market parlance. It turns out that prediction is not necessary and this is best determined by considering the non-prediction paradigm.

The general alternative to prediction comes about from the consideration of effectiveness and efficiency with respect to the potential of the market. Because money making is wholly dependent upon price change, the optimum approach involves being in the market at all times and continuing at all times to be on the right side of the market. The two strategies of this paradigm are to hold a position on the right side of the market throughout the entire run of that price change. The second strategy is to change from one side of the market to the other at the same time the market direction changes. In market parlance, the two strategies are referred to hold and reverse. The designation of the commodities index futures

trading, Seamless Continuous Trading (SCT) is a designation designed to convey the alternative processes of holding and reversing as a way of staying on the right side of the market and taking profits at the end of each profit cycle. Thus it may be seen that it is possible to carryout a four part routine (monitoring, analysis, decision making and timely action) and prediction is not included in this process. Therefore, it is not necessary to use prediction as part of the money making process.

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Predicting or not predicting is an issue. Where does this issue originate? It is probably the result of reasoning processes used by beginning traders to achieve a money making basis upon casual observations of the market as they become more engrossed in the potential of making money by trading in markets. At the other end of the spectrum, presently, there are significant activities going on in the scientific and technical parts of the financial industry which advance the notion that edges are the focal point and that the nature of the market is continually changing. The combination of the existence of a dynamic market character and that it is possible to obtain edges through testing, analysis and strategic trading methods precipitates an orientation that advocates for continual modification of professional market trading. All of this has, as a component, prediction. Prediction is embedded in all edge trading approaches across the spectrum of the traders knowledge, skills and experience.

Path to Expertise by Sharing Responsibilities with the Market

This paper focuses on following a path to expertise that excludes prediction as a basis or a compliment for making money. The approach recommended is based upon achieving

greater effectiveness and efficiency as a consequence of iterative refinement where the goal is to extract the potential of the market that continuing price change offers. This goal is achieved by continuing to be on the right side of the market and to change sides of the market coincidentally with the markets change of direction. This requires a partnership with the market where there is an understanding of the mutual responsibilities.

It is difficult to deal with the concept that the market has responsibilities. The point that is being made, however, is that it is inappropriate for the trader to take on efforts and activities that can be provided to the trader by the market. Basically it is a division of responsibility for determining where information comes from that is used to make money. This paper

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presents the idea that the market provides sufficient information at all times for the trader to be able to monitor, analyze, and make decision in a timely manner. There are several inherent considerations with respect to this viewpoint.

The basic fundamental consideration is that markets have definable character.

As a

consequence, there is a set of truths about the market that can be formalized as a body of knowledge that may be used for operational purposes. Obtaining this body of knowledge in a manner that gives it utility, is a key consideration. The pathway to achieving this turns out to be a process that involves building the mind, primarily. To be able to build the mind effectively and efficiently it is necessary to understand how the brain works and to have the methods and mechanisms available to convey this body of knowledge from the market where it resides to the brain where it can be stored then used, with utility, by the mind. There are many collateral support systems that can be engaged in this process. What is at hand here is developing a paradigm that can be used seamlessly and continuously to monitor, analyze, make decisions and take timely action. The body of knowledge is used to determine what to monitor, to provide a basis of comparison when analysis is done, to provide the correct answer for decision making questions, and to provide the appropriate support for making timely decisions. For the most part these four sets of information are independent but highly correlated. Each of the four processes involve separate and unique reasoning strategies and processes.

By looking at the sequence of learning, to gain knowledge and skills, the strategy for gaining experience becomes evident. In effect, by gaining experience effectively and efficiently a time compression can be achieved in following the pathway to expertise. By mapping

knowledge, skills and experience against the map of risk (which is derived from the matrix of

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the operating points) it is possible to create this compressed routing pathway to becoming expert.

The trading business plan includes a sequence for developing knowledge, skills and experience. Along the way, the daily trading plan continues to make more and more money as measured by the money velocity of the capitalization equity curve. If any characterization of the business trading plan were made, the best one would be on the job training. The primary strategic effort that is to be made is based upon preservation of capital. Two sets of risks actually exist. Market risks are known and may be characterized completely. The other risks are the risk set embodied in the traders lack of knowledge, skills and experience. The trader may only operate when they know what they are doing; at all other times, they may not trade. As time passes it is possible to measure the percent of total market time, daily, that the trader participates in the market. Going from novice to expert involves many stages or plateaus. The main guide for the extent of participation is the risk map. On the other hand, the equity curve performance can be measured as a series of eight doublings of money velocity. These do not occur as discrete steps but, rather they accumulate as they are assimilated part by part.

The business trading plan builds an initial framework in the mind of the trader. By stages this framework is reinforced and made more and more comprehensive. This risk based approach for gaining knowledge, skills and experience achieves another very unusual concurrent goal: it minimizes failure continually. A horizontal line segment may be drawn and one point may be used along the line to divide it into two parts: Progress and problem solving are the two parts. Failure fits into the problem solving part of the line as a major cause for having to solve problems. Failures that enter the framework of the mind are residual and do not go away. They must be surrounded by solutions for those failures.

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No matter what part of the line is under consideration, it takes time to carry out the process of establishing good results. The primary goal is to continually achieve successes and cover more and more area of the risk map. This is either done by direct progress or by, as a consequence of failure, problem solving.

Anyone who takes on a self learning process without a business trading plan will encounter problems. The most devastating problem of all is the category of repeated failure. With the advent of repeated failure the dividing point on the line almost eliminates the portion of the segment devoted to progress. Past life experience is part of this picture and when such a devastating condition and circumstance exists, the mind survival mechanisms come into play. This is the phenomenon called the lizard brain function as has been mentioned above. It is where the fight or flight syndrome prevails. It is well known that traders,

especially in the commodities markets, have a failure rate that far exceeds those who are successful. It can come from the baggage of past life experience. The mean time to failure for those who fail by exhausting their capital is a rather short duration, most often less than a year. It is possible for such failing traders to assemble new capital and to begin again. Often they do not understand that they have built for themselves, in their mind, a set of knowledge, skills and experience, all of which have trained them for repeated failure. To try again is much more difficult than to take on the initial mind building experience. The trading plan is what is required to integrate all of the facets of going from novice to expert. This paper presents how to go about getting the job done.

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B. Mental Growth and Body Language

Mental growth occurs as a consequence of utilizing a routine and assuring that the utilization is disciplined by carrying out pre and post exercises relative to the main routine. It is a case of considering, what am I going to do, doing it, and debriefing on what has been done. This is an aspect of iterative refinement as mentioned in the micro part of this paper.

Growing the mind is the primary objective in the acquisition of knowledge, skills and experience. The memory is where the results of the strategic acquisitions are kept. This paper presents the concept that the partnership between the market and the trader is made operational by the truths that are acquired from the market. The truths with respect to knowledge and skills are maintained and added to in the mind, as parallels of related truths. The organization of all of this is left to the subconscious because that is the job of the subconscious while the mind is at rest during sleeping. The well known phenomenon of waking up and recognizing a solution to a pressing problem at hand, demonstrates that this subconscious effort has been at work.

All of this is an ongoing process. There are many alternatives for obtaining knowledge and skills. This paper presents the view that the critical path for obtaining this knowledge and these skills is through experiencing the real market in a defined partnership involving mutual responsibilities. To fast track this process, it is possible to use transference from an expert trader to a beginning trader. The singular most important set of truths that can be

transferred is what is used as the basis of the trading business plan. By repeating the basic trading routine to double the initial capital in a no risk context provides the initial web and framework of basic truths in the mind. The essential step accomplished by this process is to

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go from little knowledge, skills or experience to an initial comprehensive but basic knowledge and skill set. This is the seed that is required to initiate all growth.

At this point, what the mind looks like is many compartments each containing segments of the whole. The parts of the mind operate automatically in an integrated manner so that the interrelationship of the parts continues to work consistently and effectively. The objective is to add to the initial framework of the web to make it more comprehensive stage by stage. The plan is to work into successively more and more riskier areas in an orderly manner.

There is an additional dimension to this as well.

In this paper it is called reinforcing.

Reinforcing means putting more of the same into the local areas of the brain where the initial web is located. In this way single or slender pathways can be reinforced with additional very similar, but not identical, pathways. There are many choices on how to do this. All involve processes. In the appendix entitled Drill List (This will be added later) the paper presents a way to fast track this process. Generally, and as listed, there are many specific drills that can be done. They are designed to appeal to one or more of the three essential mechanisms for processing: aural, visual and or kinesthetic. People have preferences for which of these or the combination of these they prefer. The recommendation is to use as many ways as possible and to not take the easy way out. Thoroughness is the watchword for fast tracking. The incentive for fast tracking is in the business plan. The sooner you get to be rich the better.

To drive any precept home, the trader does drills under market conditions that support and demonstrate the utility of the concepts. The process of doing drills builds the pathways of the mind in an exponential manner. Doing 5 drills yields more than 5 times the result. The result is exponential, where the number of times the drill is done is the exponent of the

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learning base greater than one. Perhaps the Napierian base, or natural base as it is called, would be a reliable base for this application. That is to say it is reasonable to apply John Napiers work to trading as it was applied to other natural occurring phenomenon. Thus,

the benefit of doing drills varies greatly from person to person. It is primarily a function of concentration and commitment.

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Part III The Micro: Coarse, Medium and Fine

Within each activity of trading there are several levels of detail to be considered. The details are classified like sandpaper as coarse, medium and fine. It may be seen in trading, and using a minimalist approach (sufficiency) is the optimum. This suggests that when

circumstances, conditions, and situations are satisfied, no further effort is made to go into more detail. Formalizing this concept in the mind takes some doing.

The specific partnership you will have with the market and the corresponding shared responsibilities, are designed to help you realize the potential of this system. This potential is measured in terms of mutual effectiveness and efficiency. The market offers a potential to make money at all times through the singular mechanism of price change. Your job is to realize this potential by being most effective and efficient. To achieve this goal is difficult, and only comes as a consequence of expertise in knowledge, skills and experience.

This part of the paper lays out the process for acquiring knowledge, skills and experience in detail. The general strategy is to go from the general (macro) to a routine (local) but, in fact, changes in performance all occur on the micro level. This change in performance is

accomplished through a process known as iterative refinement. Think of the performance elements as wedges of a pie chart. Look down upon the pie and think of circling around the pie lap by lap. During each lap an effort is made to improve some aspect of each wedge. By making corresponding improvements in each wedge as you circle, it is possible to affect general improvement in effectiveness and efficiency. Thus, when this process is viewed with perspective, it may be seen that the path of iterative refinement is like a helix rising above the pie. The wedges form columns and the goal is to become expert in all the integrated aspects of making money.

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A. Effectiveness and Efficiency

Two efficiencies control making money. The efficiency of the market to provide money making opportunities and your personal efficiency in taking profits from the opportunity presented. Your approach and its effectiveness comes from the efforts made to perfect your methodology by refining it. To the extent that you devise a proper approach, you have more or less opportunity as well. This paper used SCT as the example; the same applies to position trading stocks but the circumstance has much less time related pressure.

The key factor for making money with a given approach is how well you use the approach. Always trade by giving your best effort. Below are two considerations for making a best effort. These are presented as the focus for maximizing profits and minimizing losses.

All trading comes down to acting as a consequence of completing a repeated four part cycle: gathering data, doing analysis on the data set, making a decision based upon your beliefs, and taking action based upon the decision.

Your approach contains all the ingredients to accomplish these four steps under all conditions. All decisions come down to a choice of acting to trade or not acting to trade. Your trading station is always set up for taking action any possible action. Usually, for most trading platforms action is simply hitting the T on the appropriate row of the Order Management display. The transaction is an automatic electronic sequence from which you find out the results as they appear on the Execution chronological list.

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1. Act To Make Money And Worry If It Was Right Later

You have a system within which you work. It is connected to the market in two ways. You receive data continually regarding the market. As a human, you process it internally and act when required. Also, you are connected to the market to be able to participate. Up to the moment of acting, you control making money. When you have completed your portion of the approach you use, always act accordingly and without regard for anything that could follow.

As preparation to act you have processes that you do as a consequence of getting data sets. After you have data, you do intellectual activity only. There is a hitch in the system that is unwelcome when a person is focused on intellectual activity only. Feelings.

Unfortunately, your sensory system comes with more than just a sensing capability. It also has a human protection automatic component (feelings) that goes back in time to a place of long ago when humans had to protect themselves. Thus, feelings come to everyone as they sense any and every thing. As you sense, you summon feelings and they also appear of their own accord.

In this context, you complete gathering data and make use of it. You analyze it using your intellectual knowledge and skills with respect to your approach. SCT uses sequences of coarse (C), medium (M) and fine (F) measures. Within each level there are two subordinate levels identified as level 1 and level 2.

At any point in any sequence or subordinate level, two things are under consideration. Whether or not the money making is continuing or whether or not a flaw in the sequences

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has occurred. Continuation of making money requires no action. Flawed situations require appropriate remediation.

The key question on the table at all times during the gathering of the data you need is: What do we need to know right now? As you go from coarse to medium to fine, you observe the status of your data feed. This examination tells you what you need to look for to get the answer to What do we need to know right now? You get the answers and now have a data set for analysis.

Humans are processors all the while. You have what you need to know, and you then express the status as a standard response that could be from an established set of responses collectively listed and labeled Say this when you see it. The answers in your data set drive you to pick the appropriate responses from the quaintly defined response set. A status report is made that is composed of the responses you picked.

You have all you need to deal with NOW. These chosen responses, collectively, are what you use to analyze the moment. You draw conclusions about two things: whether the

moneymaking is continuing and whether there is a flaw in the process NOW unfolding. Four rough possibilities exist.

You make a comparison with your beliefs. Your beliefs are comprehensive, deep and scope and bound all possibilities. They have been built over time by learning, experience and memorizing, and reasoning things out. You make all decisions by using your beliefs (what you know) and comparing them to the four possibilities. You decide to hit T or you decide to not hit T. The loop above repeats no matter which choice you make.

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2. Not acting when you make the decision turns out not to make money a lot of the time
This is a repeated decision making loop that yields consequences. Re-doing what you already decided and at the same time postponing taking action is not in the cards, not ever. A corrosive combination, if there ever was one.

Above in 1 you see a four part integrated process. There is never a time to throw the process out the window by going part way through it, not completing it and doing an alternative to the four step process.

Along side this aberration there is another phenomenon of trading that often is reported in the trading world. It centers on monitoring an isolated element. Often a person will see one thing and act immediately. Make a list of things you have seen and acted upon like this. This is doing step one without any facts. i.e. gathering only one item of the data set and skipping all else, then, with that single item, taking an action like hitting the T.

Now on the table here, we have two very diverse possibilities, one of which leads to and includes the response list (say this if you see it list) and one that just says Hit T. In fact, you can review and see the first list includes everything and the second includes only the wrong response.

The one that includes everything does not achieve overt action like hitting T usually. The one that has Hit T, unfortunately, includes taking action. The trader is going to be less effective and less efficient as long as both are possible. This means making less money over the life of the experience of trading. A trader must eliminate impulsive behavior as soon as they have attained the skills and ability to operate using the four part routine.

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3. Discipline

As with any approach it is a good idea to have everything down pat and under control. Often this is called having discipline.

Things can get really ugly if you take care of business in everyway possible. Piles of stuff need to be considered and eliminated.

The SCT Trading Synopsis (see Appendix D) gives a very tight and brief context it is a holistic all inclusive approach. You can see how repeated sweepings of coarse, medium, and fine allow you to monitor channels and all possible sequences. The Market Log provides a data record that allows the medium control data elements to have a context; here is where you get the stretch, neutral and squeeze values for the day. The DOM shows translation price and the end effect of 2 pairs for fine control.

Learning is a process and through working to gain experience you arrive at having sequences on all nine levels. Nodes and links make up the flow of sequences. The links travel down the chains on each row. You come to understand that levels 1 and 2 contain the details of some of the primary chains of coarse, medium and fine. To show the

connectedness, you can associate the details with their primary elements by linking and feedback loops. Butcher paper or marking the chart is a way to take notes at the beginning. When you get to owning it, you find that there are some well defined nodes that have names and then you make the connections.

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By seeing the sequences you get to believe what you learn. You develop reasoning and then memory regarding what you believe. As you grow to trust the scene, you are able to work on trading to make money.

Mentoring is a mechanism that shortcuts the process of learning to deal with What do we need to know right now? What are we looking for is a bigger and closely related question, of course, and that is not on the table exactly. It never is, it turns out. You can readily see that at any time it can be frustrating for anyone to try to figure out what to look for. Making money does not require doing a game like chess when you just need a box of checkers. Actually because of how things work it is more like playing tic-tac toe.

The list of responses quaintly referred to as Say this when you see it is something to really focus upon and get straight. A three-column cut would be something to savor if you were using it. I would entitle the sheet as: Answer Sheet. The left column would be: What are we looking for? the center column would be: Say this when you see it and the right column would be a shaded thing entitled Hit T (where shading would be used for all action results).

The construct for making the Answer Sheet is to know that you are looking for all the possibilities of all the outputs of all the nodes on all the sequences on all nine levels. This could be imposing.

Let's be pragmatic. You can decide to only make so much money. Be less efficient. In work settings that are more or less striving to be effective, a person can divide up the effort and pool resources. If the Answer Sheet were to be comprehensive it could get to be lengthy. The alternative is to think it through.

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B. Iterative Refinement

The general picture of the space for making money can be seen by overlaying four maps. The maps are; knowledge, skills, experience, and risk. Each of these two dimensional maps are carpets of cells. The two axes are determined to be sure the cellular structure stands up to the test of providing total inclusiveness. It is not necessary to have complete definitions of the maps before one begins the process of occupation. In this paper, occupation means having ease and harmony operating in given regions or spaces.

Iterative refinement begins from day one where the person steps onto the overlaid maps at the safest place. The continuing goal is to be successful at all times. Therefore, the

beginning is limited to the no risk region of the overlays. All people begin with their past history and no more. Past history is a mix of success and failure and the baggage of failure is best used as gained experience where the knowledge of failure is used to develop and maintain avoidance skills. This is the classic picture of the farmer who steps in manure. Stepping in manure once is ok, because you learn not to stop in it the second time. At all times this paper will approach avoidance from a prevention viewpoint primarily.

Iterative refinement can be best accomplished from the viewpoint of BE, DO, HAVE. The approach will be to operate as if we are expert money makers, that is, we BE expert money makers. The process of DO ing will then be done in the context of correct knowledge and skills as experience is obtained over time. The culmination of BE ing and DO ing, is to, finally HAVE expertise.

The combination of using the four level map and a BE, DO, HAVE orientation allows a person to always operate in a known environment. By being extremely concise and clear on

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the scope and bounds of this environment at all times, a person can operate in a process where achieving success is optimized. At the beginning of the effort to become

knowledgeable and skilled at making money, a person starts from scratch plus their past life experience. Initially, it cannot be expected that there is any probability of success. During this initial period relative change is the greatest and, as time passes, relative changes continue to diminish. Starting out is the high impact period.

Building more successes upon past successes is the key for an effective and efficient growth process. It is essential to step onto the map where there is no risk. Once trading is completed (successfully and repeatedly) in the no risk arena, a corner stone has been laid. The definition of this corner stone is dimensioned by doubling the initial capital while position trading. In commodities, by limiting trading to one contract and only trading high velocity trends by entering late and leaving early. A high velocity trend is defined as a trend of uniform velocity bars that are maintaining a relative high money velocity during a natural cycle periodicity.

This, coincidently, is the definition of least risk which is termed no risk in this paper. For stocks this can require as much as forty days to accomplish (8 trades at 10%). In trading the ES, this would be equivalent to making one point per day for forty days. To invest forty days under these restrictive requirements provides a corner stone that insures success.

Thus, the first mile stone in acquiring knowledge, skills and experience is to double the initial capital that is in play. It is not unlike spending 40 days on the desert, a hostile environment to be sure. Being in a boat during a flood could be construed as having the same value. At this time the initial capital must be removed and spent on any existing need or want. The effect of doing this is to achieve two factors. Whatever the initial capital was, at the time it

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was put in the market it specifically denied or prevented the learning trader from exercising the utility of that capital in any other way. By removing it and spending it, the utility has been totally restored. Secondly, the capital in the trading account from this point on will be

construed as 100% profit. Viewing the total capitalization of an account as comprised totally of profits defines success. Everything in the account is present as a consequence of

success. All that remains from this mile stone onward is to become more effective and more efficient. This will be done by improving what was used to achieve the first successful mile stone. Thus, there are parallel both ways (stock and commodity trading) in acquisition of wealth, knowledge, skills, and experience. This concurrent effort and strategy allows for the building of the interconnection among the parts. A routine has been established to get to the first milestone. This routine will be repeated with enhancements until the routine is capable of extracting the real potential that the market offers. Eight levels (see Appendix C, The 8 doublings) illustrate the strategic application of specific enhancers. The initial capital and the money velocity obtained in the first doubling represent the base line for the doubling. It may be easily seen that this beginning majorly denies any trader from

participating in the market to any extent. Ordinarily, the market does not operate on a no risk level. To accomplish the eight doublings, the learning trader goes through the process of using more and more of the regions of the map. The regions can be envisioned as the isobar atmospheric regions of a weather map. Everyone begins at the lowest pressure (no risk) region. The corresponding elements for a given risk zone all fit together as a comprehensive collection. As additional zones of risk are added, corresponding enhancements of knowledge, skills and experience are gained. Therefore, it can be seen that the driving force of iterative refinement is risk. As more and more risk is entertained, and handled, greater and greater effectiveness and efficiency of the trading market occurs.

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Conclusions

There are lots of ways to make money. The spectrum is broad and the results have an equally broad range of effectiveness and efficiency. The strategy depicted in this paper lies at the end of the distributions of these two considerations. One thing that can be said, however, is that any progression of trading improvements that one might have, would be to move in the direction of this approach.

The underlying concepts and constraints of Building Minds for Building Wealth, a Paper, involve a holistic approach that integrates all physiological and psychological personal human aspects with the dominant market theories Efficient Market Hypothesis (EMH) and Adaptive Market Hypothesis (AMH). The fundamental concept of making money based on price change is backed up by the rational precept that the most effective and efficient way to do this is to be in the market at all times and to be on the right side of the market at all times. This is best achieved by continually knowing what is going on and acting accordingly. This leads to the conclusion that trades are taken and held throughout price change trends. As trends change trader positions are changed accordingly.

This is the opposite of the view of AMH which predicates the only way to maintain an edge is to continually innovate, as spoken by Andrew W. Lo, Finance Professor at MIT Sloan School of Management.

The division of responsibility between the trader and the market is defined based upon the demonstrated truths of the market that are understood, used, and responded to by the trader. This requires that the trader obtain information (market data sets) repeatedly. Such data sets are then compared with the market truths by the trader (analysis). Analysis results

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are used for appropriate decision making based upon market operating characteristics (market truths). Finally, decisions are acted upon in a timely manner in harmony with the markets activity.

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Appendices

Appendix A. Overall Path for Achieving an Effective Money Making Program

Summary

Below, in five Parts, are a series of questions that can be considered by anyone. I feel that they will lead to success, in a fairly efficient manner. Completing partial answers is a fine way to begin. You get a status report by just taking an inventory of where you are. This set of questions provides an overall path and I am posting it to get a scope and bounds for what I will contribute as my views on each and every question. I am also going to try to do some learning about linking references and going back many many years in different computers where I have stored materials that are full of write ups that are in differing software.

1. Markets
1. What is the basic principle for making money? 2. How do markets work?

3. What are the variables?

4. How do the variables relate?

5. What are the mathematics of making money?

6. Specifically, where can money be made?

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2. People
1. What is the particular scope of involvement for making money? a. Gathering Data. b. Doing analysis c. Making decisions d. Taking actions

2. How does a person begin to get involved?

3. Just Doing It (Getting Going)

1. How does a person choose the place to make money? 2. How does a person set up a money making plan of action? 3. How does a person build a track record using the plan? 4. Learning to gather data. 5. Learning to analyze. 6. Learning to decide. 7. Learning to act.

4. Iterative Refinement (Knowing How to Know)

1. Knowing how to improve gathering data. 2. Interrelating facts to know what is going on. 3. Knowing what you believe and making it complete. 4. how to know all about profits and losses.

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5. Be, Do, Have Results.

1. how to debrief yourself. 2. The prime value of passing it forward. 3. Enlarging your works.

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Appendix B. Business Plan Outline

This section contains the standard components of a commercial business plan.

Your

business plan for trading is a business in the real sense of the use of your time and money. It is however, not conducted in competition with anyone else but it has to be considered an alternative use of your time which precludes doing other business. A lot of people who get involved in investing and trading do not construe themselves to be business people because they largely work at salaried jobs based upon their professional training. These people consider themselves participants in a business but they often rarely come in contact with the actual decision makers who deal with running the business. They, on the other hand perform services that just contribute to making the business work.

Each of the sections outlined in this appendix will be described in detail from the viewpoint of all the considerations necessary to get into trading and investing to make money. By using a convention business plan it is possible to bring up all the issues and concepts that need to be on the table. Completing the business plan will make it clear to the planner how and why each of the parts play their role.

1. Introduction

The introduction scopes and bounds the whole picture.

This paper recommends two

essential and concurrent trading programs: position trading stocks and inter day trading of commodity index futures using SCT. A general description of each is provided in the

introduction and a reference to section VII (Products and Services) in which the detailed description is found. Another reference is section IV (history) can be named. In this section a total historical narrative of the past investing is a requirement.

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2. Funding Requested

This section presents a breakout on the source and application of capital to be used for trading and a detailed description of how it is going to be applied. It is very important that a trader know exactly how they are going to use the capital that they have designated for trading. This capital, in a sense, is in competition for use in other venues they have

available. The trader must know why they have chosen to use their capital to build wealth through trading. This business plan does not apply to the traders whole existence in their family and life setting. This plan is focused on using capital to make money and knowing that money will be disposed of for other lifestyle purposes.

3. Organization Chart

The organization chart shows exactly how the trader relates to every facet of their trading regime. It includes their set up, the trading platform support organization, their connection to the data supply system and the financial organization where unused capital resides.

The set up section includes their equipment configuration, space requirements and all cost incurring items

The trading platform is accomplished through contracts with their stock broker and with their introducing broker (commodities trading).

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The trader connects to the internet through their data provider. This is also done on a contractual basis and represents an ongoing expense. internet consultant services for specific trading projects. Attendant to this they may use

Besides the active capital accounts in the trading platform the trader will keep a separate banking account for utilization when they are transferring capital to other uses. intermediate account serves as a record keeping support. This

4. History

Most people doing investing and trading informally when they first place capital into various markets a trading business plan usually comes about when the trader has learned to treat this part of their life as a business. Everything that has been done up to the point of creating the business plan must be annotated in the History section. Often appendices are used for details of annual operations and a summary chart is presented within the History section.

5. Assets and Liabilities

The assets and liabilities contain the key chart of the beginning status of the trading business plan. Assets include capital and equipment and resource materials, such as

libraries and subscriptions. Liabilities are made up of the standard contractual obligations and the cost of equipment resources and contracts. The net worth is simply a statement which primarily contains the retained earnings developed as stated in the history section.

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6. Pro Forma

The pro forma is a detailed statement of incoming expenses that is pre-entered in two parts: The initial 5 years and thereafter. The initial 5 years is detailed monthly for the first 2 years (24 months) and quarterly for the next 3 years (12 quarters). All years thereafter are

included on an annualized basis us to the time when the plan is completed (retirement, at which time the plan is taken over by contracted management).

Trading and investing will be done for several accounts all of which are broken out individually. Generally Accepted Accounting Practices (GAAP) will be used throughout the pro forma. All expenses will be included as line items for each of the items shown in the organization chart. expenses. The net will be derived from the consequences of the income and

To complete the pro forma for trading and investing it is necessary to have an additional set of information prior to the normal annotations. In this first section there is a breakout of the use of the compound interest formula to articulate the projected profit. Each application of the compound interest formula is kept separate and the variables of the compound interest formula are adjusted for each of the 8 stages (see 8 doublings appendix) of improvement of knowledge, skills and experience.

By using these improvements in the context of when the come into play an incentive is established to reach those skill levels at those times. The result of having those skills is the bottom line. This section also has breakouts on how the future will be unfolding in

economic terms. While real dollars are used in the pro forma these continually changing coefficients will be used to adjust the net income to the real purchasing power anticipated at

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that time...In effect, the fact that no wealth is built until the increase in cost of living, etc. are taken into account. Line items will be included in this section for coefficients of estimated tax consequences. These consequences will be shown financially as an additional

compliment at the bottom of the pro forma.

7. Trading Paradigms

Products and services is a misnomer for the trading business plan. This section is used to detail out both of the trading paradigms. Think of it as a way of servicing the investment capital. Much of the detailed content (services done by the trader) of this paper may be placed in this section of the business plan.

8. Applications of Wealth

Again this section is not named properly for the trading business plan. This is the section where the trader articulates how they are going to use the bottom line over the course of the plan. The primary of the trading business plan is to use the rewards to conduct the lifestyle desired by the trader. All of the major milestones of a lifetime for the family must be blocked out here. How the profits will be used to partially or fulfill these lifestyle needs may be articulated here. Tables can be made for this to show the disposition of the bottom line.

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9. Effectiveness and Efficiency Through Iterative Refinement

Trading and investing is not a competitive endeavor. At no time is there a competition among all traders and investors for the potential of the markets. The substitute for

competition is extracting the potential of the markets effectively and efficiently. It may seem that the timing aspect of trading is an endeavor to beat other players. The fact that other traders are called players seems to denote competition.

In this section the planner articulates how operating more and more effectively and efficiently, through iterative refinement, is accomplished. The orientation to this write up is meeting the competition. That is, the write up depicts how the trader excels compared to other traders.

This takes out of the picture all of the components that have been inbred through other competitive life experiences. Money made by trading is not made by competing but it is made by excelling.

10. Downside Risks

Downside risks are a tabulation of all the considerations and concerns that have to be dealt with to excel. It is a listing of how and why to avoid common mistakes that are made in the market place. Use chapter 20 of How to Make Money in Stocks by William J. ONeal, as a topical guide for the stock market. Parallel this with the common mistakes made by traders in commodity futures indexes. Be particularly cognizant of stating how and why to avoid these downside risks.

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COMMON MISTAKES
1. Most investors do not have a good stock selection criteria.

Where I started from:

Just out of college, 1957, I knew what a Prof had said. But he never said anything about choosing a stock.

Where I was five years later:

I was using TA and choosing stocks that cycled over ten percent and cycled often. I had about 30 I was tracking at any time. I was waiting for the stocks to reach bottom and have a volume burst to start them up again al la Joseph Granville

Where I Am Now:
I am on PC. I have Equations in Ver3 of TC2000 that select stocks. Have the best criteria I know of. I also trade the commodities market. This is not an issue. But I do day trade commodities short.

2. Investors buy a stock on the way down because they think it is a relatively good bargain.

I learned from a coworker at IBM that stocks were cyclic and to buy at the low of the cycle. The low was determined by graphing. I didnt keep stocks long, ever, so I didnt do dollar averaging.

3. Having a habit of averaging down to reduce the cost basis.

I didnt hold declining stocks so I didnt do this. I just sold a stock that was at the top of a channel. I wouldnt buy stocks under 10 dollars. I focused on 20 dollar stocks in round lots. There was a fractional penalty for odd lot transactions.

Still a poor idea for me. I am risk adverse so dont own falling stocks. I purchase only the highest quality stocks with the greatest up side potential. I try to max cycles and max profits per cycle. Further I optimize the two. I trade to optimize the compound interest formula

4. Making it a habit of buying stocks at cheap (low) prices as a way of getting a bargain.

I did buy stocks that were at their cycle low as often as possible, but they were in channels that they traversed frequently.

5. Looking to make a killing on the market without having any skills methods or study and preparation.

I had not read anything when I started. I just made graphs and learned from the guy at IBM. He gave me a book to read. Magee on Technical Analysis, 4th Ed. I read the WSJ and graphed on a sheet of graph paper I inked and made blueprints of, at work. I saved back WSJ issues last pages so I could back plot.

I read a lot of books and my friend and I traded info all the time. At YMCA camp work weekends I was showing people how to do what I did.

6. Buying on tips, rumors, stories or advisory service recommendations.

My graphing was really progressing. I knew all the formations and how they worked. And I had the P, V relation down cold. I had a universe of stocks.

I trade on anticipation. I post on BBs and about 10,000 persons keep three ring binders on me, I am told.

7. Investors buy second rate stocks because of high dividends and low P/E ratios.

I was into graphing so I didnt look at these things. I picked stocks in the news to graph.

I traded the same stocks over and over again. New stocks were one that were going up and down a lot. I began to choose a 2:1 ratio for hi : low because it was listed info. I read the columns all the time, looking.

I use a CANSLIM approach. 90 EPS and RS, 20% volatility in the 3 to 30 million float. 5 moves in six months no flaws.

8. People buy company name stocks like General Motors, the name is the game.

I did pick stocks in the WSJ news.

I sort off Daily graphs primarily and it is actually computerized to excel and exported after add and delete to TC2000 v3.0. I am fixing this up new too with complete software based on raw data. I have followed by own advice. I try to learn most when I am making a mistake.

9. Most people cant find good information and advice. Good advisors are hard to find just like in all professions.

I operated with my friend. We figured stuff out ourselves. The graphing was the focus for me. I shunned my brokers advice. He told others about my trades. I did not buy on new highs. I bought on the bottom of channels and on FTP Bos up (could be close to new high).

I was depending on my charts. All charts were hand made in the first five years. I listened all the time for news about companies. I stuck with my TA charting all the way. Others were charting too, using my paper. I had 500 sheets printed at a time by now.

10. Over 98% of the masses are afraid to buy a stock going into new highs.

I dont, as a rule, buy into new highs. I am doing the volume. Dry Up is the criteria. Volume, not price, is the indicator.

11. Most investors hold onto their losses and dont get out with small losses. Their losses are usually big.

I was into graphing so I knew the top of the channel was an exit point. If I was losing on a stock I sold it because I had other charts.

I continued with the formations. Break Outs were a part of my stuff by then. The volume was done with order of magnitude changes. One more and it was a buy. I went for the peaking of volume and price. And, holding in trends that went longer than the natural cycle.

I stop my stocks daily. My problem is stopping too loose or too tight. Either way I do not have major losses buy I do miss some profits.

12. Investors cash in on small easy to make profits. Sell on profits more often than light losses.

I sold when the stock was not going up anymore and the volume was low.

Optimizing is the name of the game. Least time in cycle vs. Most profits. Time saved is more important than squeezing profits.

13. Investors let taxes and commissions run the show to some extent.

I wasnt aware of commission tax stuff. Profits came first.

I was convinced these were negligible by then.

I dont even consider this stuff as a factor. I want service and I will triple the commission if I am rolling.

14. People do options on stocks for some reason.

I didnt know about options in 1957.

I couldnt tell a put from a call. It was a mystery to me. Like guessing the weather.

I have gone into commodities and options are for the birds for sure. Futures indexes earn an ROI that runs about 50 times the stock stuff. Market rules and there is also the Stop for various exits and entries.

15. Orders are placed as price orders instead of market orders.

I always did the market type trade to be sure to execute.

Always did the market thing.

16 Investors cant make up their minds to buy or sell: procrastinate and vacillate.

I got in easily and I did procrastinate on exits. Usually got out later than I should have.

I still procrastinated on exits. Wonder why.

My exits are dictated by the market. Its the markets job to take me out unless I can see a special little extra coming to me: then I exit at market speedily.

17 .Investors have favorites and arent objective. They are married to their stuff. Hope is part of their methods.

I did have a short list (30) at the beginning. The hand graphing was a drag but it glued me to the details and made me so much money.

My friends were plotting. There was a long list by now. We focused on steep stocks. Lots of profit on short cycles.

There is NO HOPE in my picture. Just a calm steely approach. If money is to be lost, it is lost in the smallest amount possible.

18. Investors use un-crucial criteria to invest. Splits and dividends are crucial to some.

I did play the split game with IBM because it was so easy to make 15% in a week or so.

IBM was behind me by now. I was using a system that worked.

I have modified every indicator there is to take them from lagging to leading. I never predict I always anticipate.

IQ and EQ
Possibilities for Trading Over Time (General result in cell)

Psychological Possibilities Emotions in Balance I n t e l l e c t u a l S t a t u s Mixed Setting Inflamed Emotions

Optimum Profitable Planned Effective Comprehensive Approach

Break Even / Losses A-2

E I N B B-1 A-2 Stopping B - 1

Failure A-1 Mixed Intellectual Situation B-2 Profitable / BE B-1 B-1 Failure

Poor Intellectual Processes

Failure C-1

Failure C-1

Irreversible Failure

Change Factors: A-1 Experience. Allows for improving beliefs, skills and knowledge base. (Learning in as many ways as possible) A-2 Experience. Bringing emotions into balance. (Journaling, primarily) B-1 Deterioration in trading skills. (Being in reaction to the market and skipping any of the four parts of the monitoring and decision-making process) B-2 Deterioration as more emotions become inflamed. (Repeated failure, primarily) C-1 Stress. Causes deterioration in broad range of emotions. (B-2 with irrational trading difficulties superimposed upon the situation). Mistakes: Everyone makes mistakes. They contribute to success (learning) for some and failure (deterioration) for others.

11. Summary

Now that you have produced trading business plan you are able to state cogently how all of the pieces fit together. In the summary take careful steps to show the synergistic effects of the parts as thy produce the whole. This is a good place to emphasize how specific skills of section VII go to produce the 8 doublings characterized in section VI of pro forms.

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Appendix C. The 8 Doublings

Doublings refers to doubling your money velocity on your equity curve. As you acquire knowledge, skills and experience your performance improves. It improves as an iterative refinement process that is focused on you effectiveness and efficiency. The market is there and offering you its potential as a consequence of continual price change. Your job is to latch on to every means of being able to collect that offering and bank it.

Your money velocity doesnt improve as a postage stamp curve does by specific steps. It moves to a steeper and steeper curve as a consequence of improved performance that is related to the 8 factors below. Each contributes strongly and the impact of each

approximates a doubling of your performance. Most of the contributions are found in how your mind works to perform the job of extracting what is being offered.

1. The PV Relationship

Historically, the PV relationship came into being after DOW invented his measures of the conditions, circumstances and situations of the market. DOW dealt with the big picture and characterized it to benefit all market participants. The second fork in the road came about with respect to the variables of the market and their relationship. (PV relationship). Price

and volume depict the market action at all times. It is natural that, among the market participants, someone would emerge who had determined the relationship between price and volume. Granville characterized the price volume relationship that can be shown as two Boolean statements that covered the dynamic portion of the market. If a corollary is added, the static condition of the market may be articulated quite easily.

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Knowing the PV relationship is one thing and using it is quite another. The bridge that connects the statement to its having utility and practice is the manner in which price and volume are characterized and measured individually and how they are connected using these characterizations. In Section 5, Scoring, below, the periodic relationship of these variables and the Accumulation/Distribution variable are inter-related.

Price and volume can be ranked in importance. Price is most important and has the lowest periodicity. Volume on the other hand, has twice the periodicity and may be used as a leading indicator of price. Here volume is characterized first using the characteristics of its size, primarily. The magnitude of volume measures the point of agreement buyers and sellers have as they disagree on everything else but price. In keeping with Section 8, sufficiency (below), a minimalistic approach is used for volume. Three measures, DU (Dry Up), FRV (First Rising Volume), and Peaking (Maximum Volume) are sufficient.

Where do these come from? They appear as a consequence of one pragmatic concept: to make money it is necessary to have the timing of the market in hand and understood. A common beginning for money making is when price breaks out from its former pattern and begins a price change period. Money is made when price changes. It is not difficult to quickly realize and understand that it is necessary to know what is going on just before price begins to offer trading profits through price change. What is the characteristic of volume before this event? What is the characteristic of volume as price begins to change? Finally, to take profit, it is a good idea to know the characteristics of volume when it is time to take profit. The three volume characteristics mentioned above provide answers to all of these questions.

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With regard to the above paragraph it may be possible that these characterizations of volume are new to you. If they are it is because you did not think them up before now nor did you become aware of them as a consequence of your efforts to make money. In the following paragraph there is a story that is worth reading from the viewpoint of how a person can come to the mental orientation for delving into how volume works. Read the story and see how it parallels the volume characteristics.

Almost everyone learns to drive a car. In doing so the person usually on any trip has to deal with traffic intersections. Busy intersections have traffic lights. The objective when driving is to navigate the intersection with the correct timing. The single major consideration is to know when to go. Everyone knows the time to go is when the light turns green. By considering what comes before the light turns green and

knowing precisely and exactly what that condition is any person can anticipate when the light is going to turn green. The condition preceding a green light is a red light. For everyone who drives a car who pulls into an intersection when light is red and sits and waits till the light turns green and then the person proceeds through the intersection on the green light.

For making money the condition before the green light in terms of volume is Dry Up. What follows Dry Up is the First Rising Volume. FRV is the buy signal that corresponds to the green light to drive through the intersection. DU on the other hand corresponds to the red light that tells you to not drive through the intersection but to wait. How is it that most people who trade, dont know how to do the equivalent of drive a car? The reason is this; they do not have to cooperate in any way with the public to be able to choose to go from here to there. Not many people who trade ever take the trouble to figure out the equivalencies in

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trading or driving a car at busy intersections. The market is a busy place and it is a very good idea to know when to stop and go.

From this analogy it can be seen that volume can be used equally well as a means of timing the exit when there are no more profits to be made at the end of a price change. Peaking volume is used for this and of course it follows First Rising Volume. Thus two pairs of volume conditions are used for entering and exiting, respectively.

Price is characterized by formations.

Formations are used to discern where in the price

cycle price is operating at any given time. Conveniently, approximately 5 formations may be used to cover the waterfront. They are double tops and bottoms and head and shoulders and three types of pennants: flat top pennant, flat bottom pennant and symmetric pennant. In all cases the PV relationship applies to the progress of these formations. In effect, the formations and the PV relationship verify each other. This interlocking connection between price and volume allows any trader to become very confident of their performance. Skills in using all of this lead to greater and greater effectiveness and efficiency. Using drills is the practical way to fast track skill and expertise in the utilization of the PV relationship.

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The PV Relation Synopsis

In technical analysis, the investor deals with a variety of information where the emphasis is placed on data. Clarity for decision making is paramount. And time is

important, both when the market is open and when data is being processed.

Price (P) and Volume (V) represent two of the three of the most important variables. Their relationship is examined in the context of time. There is one basic principle, therefore, technical analysis is not complex. For the most part, however, the emphasis of technical analysis has been misplaced.

Consider a time context that fits with your lifestyle. This document is written with a viewpoint that emphasizes one trading cycle. This is the best vantage point from which to thoroughly understand the P, V relation.

Thus one trading cycle may be considered in your time context. You may trade in

any format or strategy you desire (This takes into consideration your time context), and coupled with the principle embodied in the P, V relation, you will be able to make the appropriate decisions quickly, accurately and simply.

The Principle:

If the Volume trend is UP, then the Price trend will CONTINUE
or

If the Volume trend is DOWN, then the Price trend will CHANGE

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Trends are the focus: time to time. You choose the time: minutes, hours, days, weeks, months, quarters, years, decades, centuries, and/or millenniums. My three favorites in order of importance are: daily, hourly and meal.

Understanding this principle is very easy once you have practiced using it to make money. Until this occurs however, the principle will be somewhat vague and useless.

The best way to gain practice which will lead to understanding is to pair up with someone who can check your progress by learning with you or working with a successful user.* Write down your analysis near your data. Use letters and trend arrows. *From my experience watching others co-learn, one will learn faster so it is important to always stress that both must become competent and that there not be dependencies which stymie subsequent building on fundamentals.

A Few More Looks at the P, V Relation

To make the transition to using the P, V relation as part of the investment process, several messages are presented below to help you capture the idea through a variety of mechanisms. Hopefully, one or more will appeal to you and in some manner reinforce your understanding. In any event, as you work on data, take the time to: Write down your

P, V analysis near your data. Use letters and trend arrows.

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Here is a verbal rendition:

If: V is UP Then: P will CONTINUE

Its trend over time

( )

If:

V is DOWN Then:

( )

P will CHANGE
Its trend over time

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Here is a symbolic rendition:

If: V is UP Then: if P if P

( )

( ) , then ( ) , then

P P

( ) ( )

If: V is DOWN Then: if P if P

( )

( ) , then ( ) , then

P P

( ) ( )

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In the style of the Jokari Window which, in the psychological realm, deals with two persons and their respective awareness. P and V conditions depicted outside the four cell window establish the conditions extant. The future P trend is depicted within each of the four cells. P continues as before in the left cells where V is increasing. In contrast, in the right cells where V is decreasing, P changes from its former condition.

When

is

then: For a P P then: that is P

then: P

then: P

Of the three renditions I have no preference, but I use again the Jokari window approach to illustrate how the P, V relation is the determinant in each of the three key investment decisions to: Buy, Hold and Sell.

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2. Channels

Channels, is the name given to the boundary of price movement. As explained in the PV relationship price moves in conjunction with its leading indicator volume. All of this happens within the boundary of a channel. For details see the paper entitled channels (Folder name Channels).

In the process of learning to trade, a person goes through two levels of understanding: AH HA and the religious experience. Ah has come in two sizes: Ah ha and AH HA. The uppercase AH HA is the standard level of revelation. It is an occurrence where the learner goes from not knowing to knowing that what is on the table is true. Several aspects of channels are AH HAs and when the pieces of the channel puzzle fit together it is a defining religious experience.

The bottom line for channels is this: Channels work. To get it, you have to understand that as the future moves into the present, price bars move about within channels creating short term formations that are bounded by one or the other of the channel lines (left and right) which contain price movement. No one gets to have AH HAs until they start using channels for anticipation. To do even this is a challenge for most. In fact, most people do not have the software to make use of channels in an anticipatory manner. Currently it is possible that a person reading this paper could have known about channels for 5 months and still be using software that does not allow the person to project the channel into the future which is to the right of the present, on the chart. To learn to make use of channels, to make money, it is necessary that channels be drawn into the space where price is going to be going in the future.

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By reading the above paragraph you have the picture of the chart on your screen and a portion of the chart on the right is blank. Letting the right portion of the screen that is blank be about 1/3 of the screen is a good idea. Obviously, achieving this is difficult. Ordinarily the forming bar is displayed at the very right of the screen. An effort must be made to move that forming bar to the left until the unused part of the screen on the right gets as large as 1/3 of the screen. Once this is achieved the future may be seen. It is there on the right and the space on the right may be used for annotations. How this is done takes a little effort and it is the basis of one of the 8 doublings, so it is very worthwhile to do. Channels may be drawn to show the markets Long Term (LT), Intermediate Term (IT), and Short Term (ST) activity. The STs are contained in ITs and ITs are contained in the LT. This is a

representation of a series of envelopes each having differing durations and scopes. Seven fractals may be used to characterize various durations of the market. These seven include: Quarterly, monthly, weekly, daily, sixty minute, thirty or fifteen minute, and five minute. These seven fractals are set off from one another by multiples of time that range from three to five. Thus they are like the crystals that form a snowflake. The whole snowflakes form appears in more and more miniature form as a person looks within the whole snowflake. The pattern, (fractal) is repeated using different scales. So it is with the market. By looking at the market from the slowest (quarterly), to the fastest (five minute), you get to see the long term, intermediate term and short term channels that are present and nested one level within the other level. It is always possible to draw these boundaries as pairs of parallel lines. A channel is simply a pair of parallel lines. When you do this you are doing this after the fact, primarily (for the LT and IT). But it is also possible to extend the lines you have drawn when you are looking at your trading screen (fractal). Simply extend all channels into the space that is visible to the right of the forming bar on your trading fractal. There is one other step after you have extended these lines. That is, draw in the forming channel. Three points are needed to do this. Number the available peaks and troughs going back from the

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rightmost with the numbers 3, 2, and 1. One and three form the trend line and drawing a parallel line through point two completes the chain. If you are trading traverses of the short term trend then this channel is the trading channel that moves within the boundaries of the short term channel. Often people trade just the short term. The whole conceptual set up of IBD (Investors Business Daily) is based upon the intermediate term trend and its associated channel.

Where the Ah has and religious experiences come from is the realization that the price formations within the channels commonly occur at one side or the other of the channel you have projected into the future. At some point you get the payoff of knowing that channels work as a direct consequence of seeing price change direction (trend) within the boundary that you have annotated on the right side of your screen. When you get it you have garnered a major truth of how markets operate. At this time you have achieved the basis for being able to see this by meeting the criteria of having some blank space on the right side of your screen, fully annotated. Until you fully annotate the future so that the future can move into the present, you cannot attain this perception. Once you are able to perceive you are able to build into your mind the set of truths associated with the operation of channels. It is a myth of the market place that channels can only be drawn after the fact and therefore they have little or no value.

Let us deal with effectiveness and efficiency as depicted by channels. To trade a channel which is in the form of a parallelogram you trade from the first bar to the last bar which represents a diagonal line within the parallelogram that is the longest diagonal of the two diagonals. This means that you enter on the first bar which touches the right line of the channel and you exit on the last bar which touches the left line of the channel. Being able to perceive this description is an ah ha. A lower case ah ha is not a big deal but in terms of

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effectiveness and efficiency trading the long diagonal means that you have dropped another myth of the market, that of exiting on the trend line on the price breakout of the trend line. Exiting on break outs of trend lines is one of the most common ineffective and inefficient trading rules used by the vast majority of investors. It is an example of a too late and too little rule. To make money you trade the long diagonal and not the short diagonal of the channel parallelogram.

This brings up a major key with respect to how channels follow one another. It is an AH HA as well. This time you can grant it a level of importance even bigger than trading the long diagonal. The AH HA is: Channels overlap. Effective and efficient trading revolves around always being in the market. Because channels overlap to be efficient and effective you always have to enter at the beginning of the channel which occurs before the final breakout, on the trend line, of the former channel. It begins on the existing left channel line. By operating in this manner you always preclude using the myth of the market of ending a trade when the price breaks out on the trend line. As a footnote you will probably notice by now that this text is presented with a neutral bias meaning that the information can be applied to either long or short trades.

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3. Market Operating Point

The Market Operating Point changes over time. At all times it is important to know the characteristics of the current market operating point. These characteristics enable you to anticipate the potential for what will happen next. Sections 4 and 5 Sequences and Scoring, respectively, deal with discerning future activities.

There is also the consideration of how the market operating point changes. Once you get used to the Market Operating Point characteristics you begin to consider their variations and how the characteristics affect different operating points. By laying out the characteristics as continuums of their variations you can compare Market Operating Points. This is best done using a matrix and the one I use most often compares time periods (vertically) against other characteristics (horizontally). This provides for a seven by nine matrix which has over sixty market operating points. With this number available it is possible to see how the market moves from one market operating point to another.

The two major choices for the modus of this movement are: jumping around and migration. It turns out that the market does not jump around. occurrences possible. This is one of the most fortunate

The alternative to jumping around is actually the most logical

possibility. The market migrates from one market operating point to another. By looking at a collection of operating points in a matrix where the cells are named by the character of the market, it may be seen that there are common pathways from cell to cell. The question comes up as to how to anticipate this repeated phenomenon. The pragmatic way to do this is to keep records of the market operation and discover these pathways and what causes them to work.

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After a lot of consideration it appears that it is easier for the market to do one thing than another. In terms of the layout of the matrix, simple changes are more prevalent than compound changes. A simple change would be moving east or west or north or south, (laterally or vertically) where only one variable of the matrix changes. A compound move, on the other hand, occurs when the market operating point moves in any one of the four diagonal possibilities. To move diagonally there is a requirement that a change occur

simultaneously on both axis. The compound move is much more complex than the simple move either vertically or horizontally. Two simple moves are the equivalent of one

compound move diagonally. This occurs more frequently than a single compound move. The reason is that the events are not simultaneous. It is less likely that two changes will occur simultaneously, than it is that two changes will occur in sequence.

After lengthy consideration, it becomes apparent that the way the market moves is more a consequence of possible avenues being denied rather than a build up of potential energy for moving the market in a given direction. Thus, we can consider the market operating point as the center cell of a tic-tac-toe board. Then we can place the tic-tac-toe board on the matrix and focus on the eight cells that surround the middle cell of the tic-tac-toe board. By understanding that the operating point will move to an adjacent cell, we can consider the possibilities of how the eight adjacent cells could be blocked individually or in groups by what is going on during market operating hours. This is done by checking the news and market indicators as well as the annotations you continually make on the price volume charts. A simple example would be the confluence of the left channel lines for short term, intermediate and long term. When price approaches three concurrent limiting boundaries it is not going to be possible for the market operating point to move into places on the matrix that are to the left of these concurrent boundaries, figuratively speaking. The market

operating point moves, ultimately, when all possible pathways are blocked except one.

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Usually the blockage that occurs involves groups of cells. So, it only a matter of a few groups being blocked, thus leaving only one way forward. The regression aspect of market cycling can be seen on any market operating point matrix (matrixes can be built in many different ways). This regression phenomenon is manifested by the fact that several cells in the matrix function as magnets seemingly. That is a lot of paths lead to these cells. They are most commonly labeled break out (BO) cells. When the market operating point becomes the break out cell it is most common that your price volume annotations are at the end of the five most common formations.

Having a consciousness of the market operating point and the fact that it migrates about in a collection of operating points (that can be characterized) is a pragmatic result of the acquisition of knowledge, skills and experience. It is a before and after characteristic of expertise. Before you have this consciousness you are operating in a realm of many

concurrent unknowns. After you have attained this consciousness and know that the market operating point migrates youre in a place where little mystery remains with regard to anticipating what is coming up next, for making money.

On the next page you will find a simplified matrix chart that is a good way to break into using matrices for analytical purposes. Decisions levels are displayed as roman numerals on the left side. They are there to classify how a person thinks on four levels: immediate (5 to 30 seconds) focusing (5 to 15 minutes) trade making (30 seconds to 1 minute) and the underlying background (30 to 60 minutes). The horizontal display of columns is specifically related to two types of charts (continuous real time line charts bar charts 5 to 30 minutes real time) and the five types of chart monitoring considerations (trend, formations, slopes, breakouts and volume). The bold boxes on the trade making row show dramatically where decisions are made to take timely actions. All in all, this type of matrix is a good first effort

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for anyone to conquer as they move into a level of expertise that deserves the support of matrix analysis.

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Monitoring Display Hierarchy and Matrix

Display Type:

Line Chart (continuous, real time)

Bar Chart (5 to 30 minute, real time)

Daily Character:

Formation
Short Term Intermediate Term Long Term

Trend
Tight

Slope
Drift Trend

Breakout

Non-Breakout

Volume

I
Decision Levels:
I. Immediate
(5-30 seconds)

Hitch

tight

Forming ends of bars

I
II. Focusing
(5-15 minutes)

Stall

Pennants

Up / Down

drift

Inside, Expanding, Decreasing / Retracing Increasing rate

Dip

III. Trade Making

(30-60 Seconds)

REVERSAL
I

B/O

B/O

B/O

REVERSAL

IV. Underlying
(30-60 Minutes)

Bottom / Top
I

Congestion Convergence

Up / Down

Up / Down
(Previous Bar)

DU Peaking

Saucer Channel Support / Resistance Centering

4. Sequences

Having a consciousness for the market operating point is like having a consciousness for the general condition of the market. Knowing the sequences of market operations in terms of indicators, their signals, components of formations, flaws, omissions and their time rate of change gives a person all the details needed to carry out the four functions mentioned in section 6: The Big 4: Monitoring; Analysis; Decision Making and taking Timely Action. In effect there are two levels of consciousness for operations that support the routine. There are many sequences to consider. Attaining a detailed level of consciousness of sequences is founded upon one concept: COMPARISON. All of these detailed facets are continuously available and over time they change. We are looking at what each facet was, most recently, and what they are now, in order to see the difference. Then we strive to be able to articulate what is anticipated next. In effect we have a small model of the past the present and the future where there is a symmetry about the present. This enables us to orient totally to NOW. By orienting to NOW, and monitoring, we are able to repeatedly and routinely make comparisons as the future moves into the present and the present moves into the past. This is why and from where the vector data sets come. We find that we can consciously

aggregate observations into repeated patterns (sequences) that enable us to do analysis, decision making and take timely action from these known sequences, as we monitor. By looking at the market and taking a snapshot we can then compare this snapshot with the prior taken snapshot and determine the dynamics of the moment. The data set of the dynamic is what we use for comparison with what we know to be true for that dynamic, which exists in our mind and which has a result that can be anticipated. Through

experience we build collections of snapshots that are stacked in given orders (sequences) because of the way the market operates. This gives us a repeatability and reliability for

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drawing conclusions in the process of analysis. The composite conclusions of analysis then form a solid basis for decision making.

We monitor to learn and have facility using sequences.

The data set from these

observations is a statement of steps occurring in an order that can be compared with sequences known to be repeatable and reliable to us as a consequence of our experience in developing our reservoir of knowledge. We are in effect doing as the musician would do as they read musical notes on a score and, as a consequence, are then able to take the timely action to prepare for and play the next note in the sequence of the melody. In effect, we are learning to read the music on the score that the market presents so that we have the capability to play the market.

Just as for music, the musician has to know and understand the conventions. Music is written (scored) using conventions. Any piece that a composer wants to create can be done once the composer knows the conventions that the musician understands for playing the composition. The composer writes; the musician rends. Turning on your screen on your PC corresponds to opening the score on your music stand. Here in this paper, I am building a bridge for you to see the market by getting you to set up your screen so you can see the market in terms of: knowing the sequences of market operations in terms of; indicators, their signals, components of formations, flaws, omissions, and their time rate of change. This gives a person all the details needed to carry out the four functions mentioned in Section 6: The Big 4: Monitoring; Analysis; Decision Making and taking Timely Action. This paper is about acquiring knowledge, skills and experience. If anything its the equivalent of the description of the courses and materials that a student at Julliard would need to acquire to become a concert musician, composer or prodigy. There is a point being made by

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comparing the papers limited substance with the curriculum of Julliard. Both, I believe, represent the necessary high quality required to get the job done.

To see sequences, the PC display has to have the charts and indicators showing with annotations made on the full range of fractals previously mentioned (7 fractals). The right third of the screen is devoted to the extrapolation of annotations so, as the future moves to the present, it may be seen that price operates within these boundaries. Informally, the daily drills provide repeated experiences in noting how sequences work. A series of tables and charts creates the framework for this repeated experience. Keeping the charts and tables and screen printouts in three ring binders builds a reservoir of knowledge. For SCT, sweeps charts provide a more formal record of sequences when colored ball point pens are used to scribe the paths of the market operation sequences sweep after sweep. The mind builds a myriad of facts related to each of the screen display elements. Indicators have signals. Sequences that move toward the signals become known then as collections of facts relative to each indicator. One of the most important monitoring functions is to take into account and build sequences of facts related to the time rate of change of each and everything displayed on the screen. When a consciousness is built for all of the elements and their sequences, everything correlates with everything else. This strengthens the ability of the trader to be able to share responsibilities with the market. One of the best examples of this correlation is how formations follow the PV relationship in every detail. Scoring came about as a

consequence of merging the sequences of price, volume and accumulation / distribution.

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5. Scoring

Scoring is a tool that is used with respect to trading cycles. The trading cycle is treated as a periodic function (sinusoid) as a first order of approximation. There is a relationship of market variables with respect to periodicity. fundamental. Price moves at the frequency of the The third variable This relationship of

Volume moves at twice the fundamental rate.

(Accumulation/Distribution) moves at twice the rate of volume.

periodicities is used in conjunction with the relative importance of these direct variables. The order of importance is: price, volume and A/D. Each is double, in frequency, the next most important variable. By evaluating these variables according to the PV relationship using a binary scoring in order of importance a total score results. The score for price is one for increasing and zero for decreasing. The score for volume is one for increasing and zero for decreasing. Accumulation scores one and Distribution scores zero. By arranging the scores in a row, from most important to least important it is found that the eight possibilities occur in a counting sequence. The sequence order of counting is a count down sequence. For the sinusoid of price the counting begins at the trough with score 7. Scores four and three are at the peak of the sinusoid, before and after. The end of the count, zero, is the beginning of the trough and seven, is the end of the trough as the cycle repeats.

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Variables

P V A/D
Base 2 (Binary) Numerals: 1 0 x 22 + x 21 + x 20 x4 + x2 + x1

Score:
(Decimal)

7 6 5 4 3 2 1 0

1 1 1 1 0 0 0 0

1 1 0 0 1 1 0 0

1 0 1 0 1 0 1 0

Trading Cycle

Profit

4 5

3 2 1 0 7 6 5

Dry Up

Trends for Greater: Price Volume Accumulation Anticipation

First Rising Volume

Cycle Duration

All aspects of the scoring are symmetric. That is, all three variables change at the peak in trough; two of the three variables change upon crossing the axis of the sinusoid (where acceleration becomes deceleration); and the least change occurs at inflection points of the sinusoid. Conventionally the binary scores are converted to the decimal base numbers for convenience in communication and annotation.

The meat of scoring is in the questions that it answers. Scoring came about as part of the search for the efficacy of the PV relationship and for knowledge of the general relationship of the three independent variables of the market. Price, Volume and A/D change can be directly discerned by observing the market charts. As expected it is a comparison of the last two bars and the comparison can be done on a pro rata basis during the formation of the present bar. The pro rata determination is an example of monitoring the time rate of change of the formation of the market activity in the present. This is like the musicians note that is being played. It can be a note of any denomination and on a pro rata basis that note is completed as the musician plays. The comparison is what yields the character of the

dynamic of the market. Thus, three key questions connect to this dynamic of timing. The three questions that are answered are:

1. Where is price in the cycle? 2. What is next in the cycle? and 3. How fast are things changing?

This is how sequences are monitored and measured. Scoring gives us those answers as construed by the three independent variables of the market in their relative order of importance.

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6. The Big 4: Monitoring, Analysis, Decision Making and Taking Timely Action.

The big 4 refers to the repeated routine sequence: monitoring, analysis, decision making and taking timely action. Up to now (sections 1 through 5) this paper has presented aspects of the market that provide a way of seeing the potential (for doublings) of the market. Sections 6, 7 and 8 will deal with sharing responsibilities with the market by developing operating effectiveness and efficiency. The first order of business is to take a look at and

understand how the trader uses their mind during the process of making money. There is a defined comprehensive routine for doing this. Each of the four parts of the routine are independent and the four part sequence should be carried out over and over and in order to achieve the greatest effectiveness and efficiency in extracting the given potential of the market that is being offered at the moment.

a. Monitoring

Monitoring is where the score of the market is read. It is read as a comparison of the present and near past in order to determine the dynamic of the moment. The data set acquired is a statement of the dynamic rather than a collection of the present data points. In a sense what is monitored is monitored as vector information rather than single data points (just magnitudes). There is no question that the direction as conveyed by the vector is as important as the magnitude of that vector (the amount of change). Monitoring is a process of thinking more than just a process of observation of a picture. We have placed the

observation point one third of the way from the right side of the screen. We have set up the duration of the various components of the display to be able to reflect the period appropriate for the duration of the vector. In cases where the EOD trading is the modus often the

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monitoring is done after market hours, but Note Well (NB), a comparison of the day and yesterday is what is being done. The sweeps example for ES trading is set up for the person to complete the observation of the path down the sweep sheet as far as is required to have the data set to go to the analysis part of the routine. Once a monitoring path is made and completed a data set is obtained and the monitoring is stopped and the analysis begins.

There is no need to return to monitoring until the remaining parts of the routine have been completed. Thus, at this point it can be understood that the thinking activity in each of the four parts of the routine is independent of the thinking activity and type of thinking in the other parts of the routine.

b. Analysis

The analysis thought process is a comparison of a data set recently obtained with a large set of data that is held as knowledge in the mind. The data set resides in the short term memory and the knowledge in the mind is found as segments in several other parts of the brain all of which are coordinated by routine mental operations. Traders analyze the vector data set by comparing it to what they know from experience and practice to be valid. Thus the new information is compared with the truth of the market and a conclusion by analysis, is drawn. Basically, the analysis tells the person definitively what is going on and where it fits into the sequences of market operation. This is like an immediate micro assessment of the first question that results from scoring. We know where we are in the cycle (sequence) and because we know the sequences, from our mental reservoir, we then get the answers to questions 2 and 3 of scoring in a similar manner.

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Knowing these three answers as a composite conclusion we go to the third part of the routine.

c. Decision making

With a composite conclusion in hand, we now give consideration to how to use what we know to continue to make money. We are presented with two primary alternatives. The composite conclusion either fits into one or the other of the alternatives. What we are deciding for stocks, is to continue to hold or to exit a long trade, and for commodities, is to continue the trade or to reverse the trade.

It is possible that because of our knowledge, skills, and experience we find ourselves in a situation where the composite conclusion is not comprehensive and we have made the notation that our composite conclusion is incomplete and fraught with unknowns, to some extent. When this doubtful composite conclusion cannot be handled using our decision making skills we can decide we dont know what were doing. This very high quality decision leads us directly to the action we are going to take. It is a case of taking a

subjunctive (doubtful) conclusion and turning it into a bold and strident decision that is unequivocal and clear.

When a trader is in this situation they can quickly move to a place where their behavior follows their obvious decision making. This is a time when the trader understands that the four parts of the routine are definitely independent and are never to be intermixed in any way. The monitoring provided a data set, the analysis compared the data set with known truths and a doubtful composite conclusion emerged. In the process of decision making the doubtful conclusion is never used to either continue to hold or to complete the profit taking

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by exiting or reversing. The doubtful composite conclusion is not compatible with the money making process so the decision construct that is used with a doubtful composite conclusion is to act to deal with the personal situation of the trader instead of the job of making money. Thus, the trader decides to act to protect them self when they have a doubtful composite conclusion from analysis. They sidelines.

d. Taking timely action.

Every time the routine of the four parts is performed it results in an action being taken. There is never a time when taking an action is skipped. The most frequent and definite action that can be taken is to hold or continue to trade. Commonly a person decides over and over again to continue or hold. One of the most discernable differences in trader character is whether a trader is working all the time or not. There are three matters at hand. One is that the trader just stays in a monitoring dominated mode. Another is the trader who does not act. Usually this person is coasting along making repeated decisions and not stepping over into the box labeled timely action. The trader is forgoing the thought process of formally taking the action of holding or continuing. They are completely

omitting the 4 part routine, to have closure. Lack of closure prevents a trader from the obligation to, once again, begin the routine by making a new monitoring effort. The third type trader is recognizable because they complete the routine, completely and repeatedly. By making an overt decision and taking the corresponding action to hold, a person brings closure to that cycle of the routine. At this time they lay the foundation for performing the next routine.

Occasionally, a decision is made to take an action to leave the trade before the next repetition of the four part routine. This action is dictated by the decision that there was no

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basis for staying in the market. The only basis for staying in the market would have been the satisfaction of either the hold continue criteria or the exit/reverse criteria. Neither could be attained. When this case occurs, closure of a different sort is attained by sidelining.

Closure occurs once the action is taken. This sets up the need to repeat the four part routine. By viewing the routine as a cohesive set of four independent thought processes and by always carrying out the four parts of the routine without taking short cuts back to other preceding steps and doing internal loops the trader gains a mental discipline that is the basis for the iterative refinement that leads to maximum effectiveness and efficiency.

7. Psychological and Physiological conduct

As a doubling this facet is almost independent of the market and totally dependent upon the trader. Conduct is the term used to describe how you do it. The primary modus for conduct is to do the best thing at all times and thus avoid the downside risks of poor conduct. The psychological thrust is to build on success or immediately eliminate any transgression and exhausting its consequences. That is why we try to continually make proper use of a bio chemical factory that services the minds function. When we get in trouble, and generate long half life bio chemicals, we stop trading and exhaust their presence with exercise.

Our physiological conduct is 24 hours a day, 7 day a week. Traders stay in shape and good health as a primary enabling mechanism for making money.

There a lots of life activities outside of trading. Keeping all of these in harmony goes a long way in obtaining the best psychological and physiological conduct.

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8. Sufficiency

The sufficiency doubling comes about by making the best use of time, at all times. The trader is in partnership with the market and one of the things the market dictates is the passage of time. The market is a smooth and steady operation whose pace never exceeds the pace that the trader uses to be able to apply all of their skills and knowledge appropriately. experience. As time passes the trader acquires more knowledge and skills through Sufficiency applies more to experience than knowledge and skills. By

operating effectively and efficiently in the use of time the trader is able to get a lot done with the time that the market makes available to them as it operates. Carrying out the four part routine connects the trader to the market flow periodically (only while monitoring). The rest of the time the trader is using their mind to make money by assuring that they are extracting the potential of the market. For stock traders, using position trading, the EOD data

sufficiency comes down more to doing an excellent job meeting the requirements to make money rather than spending endless amounts of time doing low quality housekeeping. Sometimes, it is a case of doing what you need to do rather that what you want to do.

To highlight some of the opportunities for using time wisely it is best to set up your screen for monitoring in a manner that allows you to sweep to get the vector data set conveniently and comprehensively. Observing no change is just as important as observing change. You dont skip observations, if you do, then you are guessing that no change has occurred when you skip over something that looks unchanged. Instead you find out everything you need to know in a way that gets you the answers effectively and efficiently. When analyzing to generate a composite conclusion you must always find out that you dont know something. This is where you apply your knowledge of knowing how to know to the extent necessary

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to get the answer. You take the direct path to the answer instead of meandering around focused on orthogonal issues (things that dont relate).

Knowing when youre done with a part of a routine is a clear signal to move on and complete the next part. Do not spend more time in that part of the routine. The amount of time required to draw the same conclusion may vary greatly. The challenge is to do sufficient work to get a most reliable answer and to move on.

It is always necessary to continue the process of doing the four parts. For position trading it turns out to be a daily routine that involves all of the possibilities in (in terms of the number of stocks) on the table. It is not sufficient to do some possibilities on some days and other possibilities on other days. Staying current on all aspects of the four parts of the routine is necessary to attain sufficiency. During trading hours when the routine is being performed, in commodities trading, one of the major objectives is to repeat the routine continually. This is accomplished by your orientation and having the attitude of achieving sufficiency as a conscious concern at all times.

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Appendix D. SCT Synopsis

This is a long vertical chart. It functions three ways for you. It is a general key for the use of the monitoring of your screens. It is a monitoring aid for your emotional state while

monitoring. It is a practice sheet for sweeping.

At the beginning of this I made several assumptions.

I assume people are using a display that what is recommended.

I assume that all the parts of the display are understood and useful. This Sweeps sheet will serve to point out that within each part of the display it is good to know how to use it. Cut and paste all the bold insertions to have a sweeps sheet. It will be about 25 inches long and you can mount it on a piece of rigid material.

To get to KISS, we each have to learn to do what is required and just when it may be done.

The key part of this puts you in the ballpark. It scopes and bounds things.

The emotional aspect of trading comes to the forefront when change is coming up. Protective emotions (See fight or flight type stuff) come up when losing money is deemed a possibility for you. These times arrive mostly when you do not know what you are doing and when you do not understand a particular aspect of how the market operates. In edge trading; this aspect is the absolute rock bottom reason for not edge trading, not ever. Entering on a set up that turns right into an unfamiliar setting is the standard operating procedure (SOP) of edge trading as we all know. It is the bet that is made, that is never

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ever linked to taking profits, which is called the trading plan.

Betting and then being

immersed in market action that is only solved by a trading plan is a high-risk deal at best.

Beginner Rockets and Washing only is a setup and trading plan orientation that has severe risk minimization entry requirements and exits.

SWEEPS is the remedy for edge entries (instead, we use all market conditions coupled with being on the right side of the market as our rationale) and trading plans (we use a strategy of keeping on the right side of the market which predicates taking profits to get to the right side at trend ending points in time).

A holistic approach guards against unsettling emotional upwelling due to the unknown and perceived high risk situations. This long chart is a comfort mechanism to allow you to draw the conclusion that trading is going through loops of sequences that fold back on one another. By knowing and understanding that loops are preeminent, you get to have comfort that you know where you are, where you have just come from and what you can anticipate is going to arrive soon at your doorstep. This trilogy is what makes this stuff the antithesis of: betting by seeing a set up, entering the set up and then taking a ride using a trading plan. Trading plan has to be a name for knowing how markets operate at all times.

Using the long sheet to draw loops of daily activity allows you to see the regularity of the market and how the market proceeds. This is a major departure from reading books, etc.

By beginning with this chart, you get to see how the days go. You get to see the power of sweeping and feeling the market begin to talk to you. As your partner, the market is your guide. You sweep to monitor. Sweep data sets allow you to analyze. Analysis results are

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paired with your beliefs. This allows you to decide things. Decisions in a timely manner lead to more and more effective harvests of capital as you continue to stay on the right side of the market.

All of this is very different from Gaming. Gaming comes with risk based upon providing intentional sets of unknowns in a bounded constricted set of games, toys and rules. Markets are transparent to the degree of fineness that is used / needed to monitor their smooth migratory movement from one operating point to another. People are more adroit and resilient than huge heavy-handed markets which create limited non-violating background noise. All we must do is sufficiently couple to the abundant bounds of the market and as efficiently as possible take profits from the dynamic the market is offering during any sequence of time.

For any given sweep, use a set of concurrent lines to define your data sets. This takes you far a field from any single action signal orientation. The multi-nodal levels define sufficiency and the links to other level nodes is defined as well. Continuation mostly occurs from staying on one level. A departure to a more detailed level does arise. It is a consequence of change in the market. The market talks to you to tell you to look more closely. You do.

Attach this to a support surface and regard it. Draw on it. Get comfortable. Find out that there are few places where your emotions can take over the situation. Get steely and skillful. Handle everything that comes up.

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SWEEPS

Coarse
P oriented

(5min ES P, V chart)
V oriented Increasing Unchanging Decreasing Indicator oriented MACD (5, 13, 6) STOC (14, 1, 3) STOC (5, 2, 3) Other Score

Channel Score Signals Formations

Sweep results are either WWT, NOC (no change) from last sweep, or NEW

WWT: means what wasnt that. This is a commentary on the pending next step in the sequence for that item. Making money ends, most often, by making money, not continuing.

NOC: No change from last sweep requires memory.

If there is receptor damage the

symptom is not remembering. The goal at all times it to have the least number of items to remember and a sufficiency test determines this.

NEW: A new signal appears. This is usually a next expected signal from the sequence. All other NEW signals are classed as flaws. No one has to know all the flaws. Common ones will be known and VERY noticeable.

For each of the nine coarse sweep categories found under the three coarse topics, there are three possibilities.

Nine tables follow, one for each of the coarse elements:

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Channel
WWT Wait NOC Continue NEW Go to medium

Signals

Traverse Continue

BO Enter

FTT Go to Medium

Left line Go to medium

Right line Go to medium

Tape Continue

Formations

Hitch for ALL go to medium

Dip

Stall

HVS

Pennant

Volume orientation
Increasing Continue

Do PRV to determine: Unchanging Continue Decreasing Go to medium

Indicators

For all indicators use sequencing signals.

Go to medium on all sequence elements that indicate change. For all others continue.

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The next level is the medium monitoring set up on the YM/INDU 2 min chart.

Medium
P oriented Channel Signals Formations

(YM/INDU 2 min P, V chart)

V oriented Increasing Unchanging Decreasing STR/SQU oriented Squeeze Neutral Stretch

Channel
WWT Go to DOM NOC Continue NEW Go to DOM

Signals

Traverse Continue

BO Enter

FTT Go to DOM

Left line Go to DOM

Right line Go to DOM

Tape Continue

Formations

Hitch

Dip

Stall

HVS

Pennant

for All, hold or continue. When end is reached you have a resume.

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Volume bar orientation

Increasing Continue

Do PRV to determine:

Unchanging Continue

Decreasing Go to DOM

Indicators

For all indicators use sequencing signals.

Go to medium on all sequence elements that indicate change. For all others continue.

The next level is the fine monitoring set up on the 2 min YM Gaussian volume chart.

Fine

(2 min YM Gaussian V chart)

(Gaussian Principle)

Volume formation orientation

NB: the Gaussian principle is a combined signal that contains the whole P, V relation. A 360 period or whole cycle. This asymmetric relationship is what separates the average person from the superior reasoning person. A Gaussian shape demonstrates increasing volume on the traverse which is in the direction of the money trend; after the peak a retrace (a traverse back to the trend line is in effect.) because color is involved, you can sweep quickly in a sensory manner and reinforce your associated feelings while holding through the retrace which is a hitch, dip, stall for brief traverses and a normal traverse channel for longer and slow paced market actions. You get here by seeing coarse considerations to bring you here.

Normal Gaussians Long =Black/Red Gaussian

Trend Endings Long=Red falling to Red rising

Lateral trends Constant volume for that pace volume. Cycling Color changes for slaloming.

Short=Red/Black Gaussian

Short=Black falling to Black rising

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SQU/STR Orientation
Squeeze Hold

(fine control)
Neutral Go to DOM Stretch Hold

Squeeze to Neutral For All go to DOM

Stretch to Neutral

Neutral to squeeze Enter Long Or if long hold

Neutral to Stretch Enter Short Or if short hold

This is the fine level we begin with.

DOM
Translation> Hold (continue)

(fine control) Residence> Look for 2 pair 2 Pair> Look for dominance on extreme pair and hold 2 pair spike Look for oscillation between 2 pairs when 1 pair back dominates, reverse into spike that occurs

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SCT Trading Synopsis

(Mechanical Trading System) Gather Data (Coarse, medium, fine), Do analysis, Use beliefs to decide. Take Action. Repeat up to 12 times per snapshot on IB.

Coordination

Channel Considerations A. Left: Active end of bar

Sequence Considerations End of trend effects: Trend reversal (before, during and after spike) or New Trend on BO after centering

Action Hold or Reverse or Wait on sidelines or enter

Coarse (5 min ES, etc.) + indicators

B. Right: right trend line (end of trend BO)

A. Traverse of channel (Resume) Medium (INDU/YM 2 min chart)

Peaking: (A) Squ, Neut, Squ or (B) Squ, Neut, Str

Hold or Reverse or

Trough: (A) Str, Neut, Str or (B) Str, Neut, Squ B. Sides of channel (Reverse)

Wait on sidelines or Enter

A. Trends: Translation*** (during trend and resume) Fine (DOM) B. End of trend

A. Resume: Trans, 2 pair, trans, 2 pair**, trans

B. Reverse: Trans, 2 pair, Trans

Only action is hitting T (Trade) as B bid/B ask goes to zero*

* See steps 3 and 4 below. ** 2 pair. This is just a term for DOM activity. You will notice that occasionally the B bid / B ask jumps from one pair of B bid / B ask to another and then it jumps back to the original pair. This small repeated excursion is called a 2 pair. Four steps occur to establish a 2 pair, continue it, and end it. 1. The extreme pair appears and is favored. Extreme means going further into and extending the trend. For longs this is the HI pair; for shorts this is the LO pair. 2. The DOM retreats one pair. This is the second pair. And fails to stick and the extreme pair reappears. Each pair then occupies the top of the DOM for roughly equal periods. 3. The second pair begins to be favored and then sticks ending the jumping. 4. The second pair translates into the new trend by having the appropriate of either the B bid or B ask go to zero. ***Translation is the continuous appearance, then succession in DOM of B bid / B ask in the direction of the trend. 1. first appears. 2. sticks, then small value increases to Even/Steven. 3. Trending value goes to zero. 4. Repeat 1 through 4.

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