Introductions

1. Introductions • Who you are • Where you’re from • What you trade • Why you are here • What you want • One fun thing

2. Agenda

4. Finding Your Sweetspot Self Market System Self Market Stay aligned System Get aligned

5. Craft Proficiency Science Art Hattip: Dr Henry Mintzberg “Simply Managing”

7. Alignment in Action Self Market System Results Passion Purpose Beliefs Values Actions behavior thoughts feelings identity

8. Trading body of knowledge Long term investing • Blended Monthly Rebalancing • Monthly rebalancing • Quarterly rebalancing • Annual rebalancing Swing trading • Channeling • Overreaction • 5DD • 551w • Washout • Triple screen • MaxPainRange Compression • Autoframing Intraday trading • Frog (3) • RFA • RLCO • SQC • RLFF Core & turbo Core & turbo Techniques & concepts • Technical analysis • Statistics • Market classification • Position sizing • Trade framing • Core & Turbo • Green, Yellow, Red zones • Stalking and re-entry • Rangestat, slope stat, volstat • SQN and TQN Systems Strategies Techniques Tips

9. Material framework Techniques & Tips Market Core Swing Day Self (Psychology, learning style, objectives, skills, risk)

10. Overreaction Channeling Triple screen Washout 5DD Max Pain Growing the trade System A Monthly RB % 2-10 days System B System B Can be a screen or set-up for System A ! %

12. Systems

13. Systems and timeframes

14. Index Channeling

15. 3 Buy at the close (or tomorrow's opening) Close is preferred 4 Buy another unit if setup conditions repeat while you are in the trade 5 Exit at today's close when today's close is > -30 Williams%R Catches the overreaction snapback Channeling: Buys # Rule Comment 1 Today's close >200d SMA Trade with dominant LT trend 2 Today's Close < -80 Williams%R (10) Pullback from main trend Williams%R (10) = a measure of short term overbought/oversold

16. Overreaction/Channelling Stops Considerations: • 3% trailing stop for broad US indices • 5% trailing stop for IGW + international broad indices

18. Index Overreaction

19. Index Overreaction • Strategy: • Main indexes only • Trade only with the long term trend • Significant short term move away from the trend. • Short term trade to capture the snap back • Key Concepts: • ATR % defines significant move • 200d MA = long term trend • 10d MA = short term trend • Volatile move away from the short term trend • Snap back to short term trend usually "over-corrects"

20. Index overreaction • Profitable every year from 1994 to 2004 • SPY, QQQQ, MDY, IWM, SMH • Made money in both bull and bear markets • Simple to trade and easy to learn • mechanical system • Consistent money maker on long & short side • Outperformed buy and hold • A few simple rules, 5 minutes a day or less to implement • Statistics based entry, based on volatility (dynamic) • Concept: the market corrects after a significant overreaction away from the trend

21. Overreaction: Buys # Rule Comment 1 Today's close >200d SMA Trade with dominant LT trend 2 Today's High < 10d SMA Pullback from main trend 3 Today's Close 1x ATR%< 10d SMA Strong move beyond normal volatility levels 4 Buy at the close (or tomorrow's opening) Close is preferred 5 Buy another unit if setup conditions repeat while you are in the trade 6 Exit at today's close when yesterday's close is > 10d SMA Catches the overreaction snapback ATR%(14) = a measure of short term volatility

22. Overreaction System Rules: Sells # Rule Comment 1 Today's close <200d SMA Trade with dominant LT trend 2 Today's High >10d SMA Pullback from main trend 3 Today's Close is at least 1x ATR% >10d SMA Strong move beyond normal volatility levels 4 Sell at the close (or tomorrow's opening) Close is preferred 5 Sell another unit if setup conditions repeat while you are in the trade 6 Exit at today's close when yesterday's close is < 10d SMA Catches the overreaction snapback

23. Index Overreaction System summary Comments • Don’t need to monitor all day • Takes advantage of long and short sides • Cash is not tied up • Can calmly enter the market in the currect direction in emotionally challenging markets • Mechanical signals don't require discretionary judgement • High percentage of winning trades Application • Trade a basket of ETFs • Keep it simple and emotion free: apply the rules • Paper trade until you are comfortable • Trade small position sizes

24. 5 days down(5DD)

25. 5DD concept

26. 551w

27. “551w”…where do ideas come from? Mastermind effect Day 2, morning break…Ken & Leo Willert (in between talking about drumming) Component analysis: • 5 weeks up is favorable… • 5 days down is favorable… • 1 day up is favorable … • Universal Entry (consistency, risk mgt) • Williams %R <-50 (profitable swing)

28. “551w” Draw a concept diagram Use the “framing” structure

29. “551w” concept diagram

30. “551w” concept diagram: a way

31. Washout

32. Washout Pattern What if everything you knew was wrong? “It’s not what you don’t know, it’s what you know that ain’t so” -Harry Truman

33. You trade your beliefs Conventional Wisdom Ride the trend Strongest sectors Strongest stocks You can’t pick bottoms Buy them when they hate them Have the courage of your convictions Small caps outperform What If? Avoid the trend Weakest sectors Weakest stocks Pick bottoms Buy them when no one cares Be afraid of your convictions Focus on large caps What would this look like?

34. Assertions • Buy large cap, weak stocks when nobody cares • When everyone who was going to sell has sold • When there is price evidence of short term improvement • Buy them when the market is going up • Buy them when they are going up and the market is going down • Plan for the recent swing high • Maintain 2:1 reward:risk ratio • Cut at the first sign of hesitation • Watch for signs of institutional interest

35. Operationalize the beliefs • 0 • -20 • -50 • -80 • -100 • OEX stocks (S&P 100) • (institutional $, risk mgt) • Oversold on an annual basis (W%R(260) <-80) • Long term sellers have sold • Oversold on a short term basis (W%R(10) <-80) • Short term sellers have sold

36. Price patterns Setup day 1 (S1) Higher low Close > open Close > yesterday’s high Entry day On Price > S1 (High) The Big Sell Entry EntryDay Exit Setup Day The swing low

37. Reward: Risk • W%R(260) > -80 • Institutional confidence • Swing High • Trailing stop • Entry • ATR • Exit

38. Slightly lower reliability • Lower average R win, SQN • More opportunities per week • Still tight risk controlled

39. Triple Screen System Triple Screen System variation on Dr Alexander Elder's system

40. Triple Screen Concept Screen 2: Intermediate Movement Screen 1: Major Movement Screen 3: Timing • Find strong trends • Apply an oscillator to daily chart • Use daily declines suring weekly uptrends to find buying opportunities • Use daily rallies during weekly downtrends to find shorting opportunities

41. Triple Screen Strategy Summary Weekly trend Daily Trend Action Order Up Up Wait None Up Down Go long Trailing buy stop Down Down Wait None Down Up Go short Trailing sell stop Screen 2: Intermediate Movement Screen 1: Major Movement Screen 3: Timing

42. Triple Screen Concept 100% 50% 0% Thought experiment: if the pullback to the 20dMA = 10%, and Buffet suggests 5% per year in equities is good, then a 50% retracement = a 5% move in a few days, Is that enough? for a short term system?

43. Triple Screen Concept Pullback to 20d MA or <-80 on Wlliams%R ADX > 25, +DI > -DI or MACD-Hist uptick Breakout higher high on hourly candlestick • Min 2:1 risk/reward • Stop: low of entry day or previous day's low, whichever is lower • Ratchet the trailing stop to breakeven as soon as possible • Preserve 70% of profits of a 3R winner • or, manage exits with candlesticks

44. QQQQ

47. Daily ETF “Triple Screen” screen

48. ETF 2

49. “I got 3% return, is that any good?”

50. Indexing • comparing a range of performance • comparing apples and oranges • "normalizes" data, helps trendspotting (x-min) 100 * (max-min) 3- (-5) 100* = 40 15- (-5) 3- (-12) 100* = 75 8- (-12)