Instant Profits Update 3 · 2010-04-09 · Instant Profits 3 I learned the hard way that while it is possible to profit from the markets trading correctly, it is a near certainty

Instant Profits ii

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Disclaimer:

Profits Run Instant Profits is an impersonal educational stock {and}, futures and forex trading course, and therefore, no consideration can or is made toward your financial circumstances. All material presented within is not to be regarded as investment advice, but for general informational purposes only. Trading stocks, futures, forex and options does involve risk, so caution must always be utilized. We cannot guarantee profits or freedom from loss. You assume the entire cost and risk of any trading you choose to undertake. You are solely responsible for making your own investment decisions. Hypothetical or simulated performance results have certain limitations. Past performance is not necessarily indicative of future results. No stock, futures, forex or options system can guarantee profits. The risk of loss exists in stock, futures, forex and options trading. Profits Run, its owners, or its representatives are not registered as securities broker-dealers or investment advisors either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. We recommend consulting with a registered investment advisor, broker-dealer, and/or financial advisor. If you choose to invest with or without seeking advice from such an advisor or entity, then any consequences resulting from your investments are your sole responsibility.

Instant Profits iii

Table of Contents Introduction......................................................................................................................... 1

The Top 11 Trading Myths ................................................................................................. 7

The Bad News and The Good News................................................................................. 12

Keys to Successful Trading .............................................................................................. 15

Winning Methodology.................................................................................................. 15

Risk Management ......................................................................................................... 17

Discipline & Psychology .............................................................................................. 19

Tools to Instant Profits...................................................................................................... 22

Charting Software ......................................................................................................... 22

Computer....................................................................................................................... 22

Data Feed ...................................................................................................................... 23

Internet Connection....................................................................................................... 23

Broker ........................................................................................................................... 24

Advanced Access .......................................................................................................... 24

The Basics......................................................................................................................... 26

The Stock Market.......................................................................................................... 26

Buying Long ................................................................................................................. 27

Selling Short.................................................................................................................. 27

Fundamental Analysis................................................................................................... 28

Technical Analysis........................................................................................................ 28

Plotting a Chart ............................................................................................................. 28

Swing High ............................................................................................................... 31

Swing Low................................................................................................................ 31

Trend Lines ............................................................................................................... 31

Moving Averages...................................................................................................... 34

Channels.................................................................................................................... 34

Fibonacci Retracement Levels.................................................................................. 34

Paper Trading................................................................................................................ 35

Trading Indicators and Methods ....................................................................................... 38

Instant Profits iv

Trading Vehicles and Time Frames.................................................................................. 39

Instant Profits with Channel Trading................................................................................ 40

1. Plot the Chart ............................................................................................................ 40

2. Setup Conditions....................................................................................................... 50

3. Entry Point ................................................................................................................ 59

4. Stop Loss Point ......................................................................................................... 67

5. Profit Target Point..................................................................................................... 70

Trade Analysis .............................................................................................................. 74

Conservative Tactics..................................................................................................... 75

Case Studies: Setup Condition b1..................................................................................... 81

Figure 23: TNB – Daily Chart ...................................................................................... 81

Figure 24: WCC – Daily Chart ..................................................................................... 81

Figure 25: RGF – 60 Minute Chart............................................................................... 85

Figure 26: BGEN – Daily Chart ................................................................................... 85

Figure 27: PAYX – Daily Chart ................................................................................... 85

Figure 28: PSUN – Daily Chart .................................................................................... 89

Figure 29: APC – Weekly Chart................................................................................... 89

Figure 30: HTCH – Weekly Chart................................................................................ 89

Figure 31: ISIL – Weekly Chart ................................................................................... 93

Figure 32: CVH – Weekly Chart .................................................................................. 93

Figure 33: E-mini NASDAQ Futures – 5 Minute Chart............................................... 93

Figure 34: Sugar Futures – Daily Chart........................................................................ 97

A WORD OF CAUTION!............................................................................................ 97

Case Studies: Setup Condition b2................................................................................... 100

Figure 35: EMR – Daily Chart.................................................................................... 100

Figure 36: ETR – Weekly Chart ................................................................................. 100

Suggested Trading Routine............................................................................................. 108

Time to Trade.............................................................................................................. 108

Stocks: Daily & Weekly ............................................................................................. 108

Daily Bars ............................................................................................................... 112

Weekly Bars............................................................................................................ 114

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Tips ............................................................................................................................. 116

Stocks: Day Traders.................................................................................................... 117

Futures......................................................................................................................... 118

How to Supercharge your Stock Trading with Options.................................................. 120

Buy Long Signals on the Weekly Charts.................................................................... 121

Sell Short Signals on the Weekly Charts .................................................................... 121

The Top 11 Secrets to Success with Instant Profits........................................................ 123

Wrap Up.......................................................................................................................... 130

Recommended Reading .................................................................................................. 131

Glossary .......................................................................................................................... 132

Index ............................................................................................................................... 139

About the Authors........................................................................................................... 141

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Table of Figures Figure 1 – Basic stock chart with moving averages ......................................................... 30

Figure 2 – Price Bar .......................................................................................................... 31

Figure 3 – Swing High...................................................................................................... 32

Figure 4 – Swing Low....................................................................................................... 33

Figure 5 – Shorter Term Exponential Moving Average (EMA)....................................... 43

Figure 6 - Shorter Term Moving Average Envelopes ...................................................... 44

Figure 7 - Longer Term Moving Average ........................................................................ 46

Figure 8 - Putting the Indicators All Together.................................................................. 47

Figure 9 - Setup Condition b1........................................................................................... 54

Figure 10 – Setup Condition b1 ........................................................................................ 55

Figure 11 – Setup Condition b2 ........................................................................................ 56

Figure 12 – Setup Condition Special Case ....................................................................... 57

Figure 13 – Bearish Divergence ....................................................................................... 58

Figure 14 – Entry Points ................................................................................................... 60

Figure 15 – Entry Point..................................................................................................... 61

Figure 16 – Entry Point Detail .......................................................................................... 62



Figure 19 – Stop Loss Order............................................................................................. 69

Figure 20 – Profit Target Order ........................................................................................ 71

Figure 21 – Profit Target Order ........................................................................................ 72

Figure 22 – Conservative Tactic #2 .................................................................................. 77

Figure 23 - Case Study for TNB, Daily Chart .................................................................. 83

Figure 24 - Case Study for WCC, Daily Chart ................................................................. 84

Figure 25 - Case Study for RGF, 60 Minute Chart........................................................... 86

Figure 26 - Case Study for BGEN, Daily Chart ............................................................... 87

Figure 27 - Case Study for PAYX, Daily Chart ............................................................... 88

Figure 28 - Case Study for PSUN, Daily Chart ................................................................ 90

Figure 29 - Case Study for APC, Weekly Chart............................................................... 91

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Figure 30 - Case Study for HTCH, Weekly Chart............................................................ 92

Figure 31 - Case Study for ISIL, Weekly Chart ............................................................... 94

Figure 32 - Case Study for CVH, Weekly Chart .............................................................. 95

Figure 33 - Case Study for E-mini NASDAQ Futures, 5 Minute Chart........................... 96

Figure 34 - Case Study for Sugar Futures, Daily Chart.................................................... 98

Figure 35 – Case Study for EMR, Daily Chart............................................................... 101

Figure 36 – Case Study for ETR, Weekly Chart ............................................................ 102

Figure 37 – Example 1.................................................................................................... 104

Figure 38 – Example 1 Answers..................................................................................... 105

Figure 39 – Example 2.................................................................................................... 106

Figure 40 – Example 2 Answers..................................................................................... 107

Instant Profits 1

Introduction

Welcome to Instant Profits! The fact that you

invested in this course and are taking the time to

read it tells me that you want to change your life

by becoming a successful trader. But what does

being a successful trader get you? Besides a

growing portfolio, when you’re a successful

trader your entire life changes. What changes do

you want in your life? Close your eyes for a moment (after you read this paragraph, of

course), and think ahead twelve months. What defines success for you? As a successful

trader, potentially financially free, where will you be living? What does your dream

house look like? What sounds do you hear when you wake up at your leisure, a luxury

you’ve earned now that you may no longer need to work a 40 hour a week job? What

does your favorite dish taste like at the most exclusive restaurants on the exotic vacations

you enjoy? What does it feel like to potentially spend more time, a lot more time, with

your family?

Now come back to your current reality. Are you willing to do whatever it takes to

enjoy the lifestyle you know you deserve? Are you willing to learn and work hard to

apply a disciplined trading method?

Let me ask you a question. Do you think it’s possible to consistently make money

trading the markets? Unequivocally, I can tell you the answer is yes! Do you think it’s as

easy to succeed as most of the supposed gurus and junk mail you receive seem to

indicate? Absolutely not! If trading successfully was easy, everyone would be reaping the

profits. The truth is most people that trade lose money. This is a fact of life for a number

of reasons. But the primary cause of why so many people lose money trading is that they

simply do not know how to trade. If you don’t know how to trade, that doesn’t mean

you’re not smart. On the contrary, there are many highly intelligent people who lose

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millions of dollars in the market. If you don’t know how to trade, it just means that you

don’t have a trading method that you can apply with discipline. Most people never master

trading because it is difficult to win and they seldom have access to a trading

methodology that actually works. They usually go it alone or attend countless seminars

and read even more books, but in the end never really learn how to trade successfully.

How do I know this? Because it’s the story of my life.

I started trading the markets back in 1974 when I was working at General Motors.

I had a great wife and two young sons and I wanted the best for my family. I knew that

working hard at GM could only provide a certain level of income, so I spent every spare

minute learning how to trade. Little did I know at the time that I was beginning a 30 year

odyssey that would take me into the vast depths of my mind and test the very boundaries

of my emotions.

I made every mistake you can make in trading. I tried, tested, and bought every

quack system, seminar, and trading course known to man. I developed my own systems

(hundreds of them) and quickly became bored and impatient when they experienced a

few losing trades. I, like so many other young and inexperienced beginners before me,

was searching for the illusive Holy Grail of trading. I was young and smart (well, OK, I

was young), and thought without a doubt that I could “crack the code” and discover the

system that everyone has been looking for since the dawn of the markets (and this was

before the Internet, when all I had to work with was a pencil, a straightedge, and a

calculator).

I’ll admit it, I was stubborn for many years (and my wife will tell you I’m still

stubborn), but one day I finally got it. I finally “cracked the code”. After spending

thousands and thousands of dollars on systems, and an equal number of hours locked

away in my study, I finally learned the most important lesson: the Holy Grail of trading

just doesn’t exist! This may be obvious to you, but it took me nearly twenty years to turn

off my ego, take a deep breath, and to finally, truly understand this concept at a cellular

level.

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I learned the hard way that while it is possible to profit from the markets trading

correctly, it is a near certainty that you will lose money trading incorrectly.

Then one day, my son asked why I didn’t teach what I had learned to help others.

At first I was very reluctant to give up my secrets. Why? Think about it. If you came

across something that could potentially make you a lot of money, would you share it

openly with the world? Probably not.

After I retired twelve years early from GM, I finally decided to spill my guts. I

was so sick and tired of watching all the shameless hucksters on the Internet and TV hype

their baseless opinions and empty promises. So I started Profits Run and then something

magical happened.

I found the more I shared with others about what I knew about trading, the more I

learned about trading! You’ve heard it said before, and I can attest to the fact that it’s

true: the more you teach others about what you know, the better you understand what you

know. As more and more people used my trading methods, they started to ask me some

great questions which caused me to improve those methods.

So here I am today. In your hands, you hold the culmination of my life’s work at

trading the markets. This is the information that I locked away in my personal safe for

many years. Instant Profits is dramatically different than other courses you’ve tried.

Why? For one, it cuts through the clutter that most courses bog you down with. Instead, it

clearly illustrates the key elements of a specific methodology that could potentially give

you an edge trading the markets. Besides the “meat” of the system (and there’s plenty of

meat here), Instant Profits covers the equally important but often forgotten topics of risk

management and emotions. I believe any trading course that doesn’t cover these items is

absolutely worthless.

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Look, trading successfully is difficult if you don’t know what you’re doing.

Instant Profits will act as your personal trading coach and potentially shortcut your

learning curve dramatically. However, in order to be successful you must have a strong

desire to succeed. It will require you to work a little. After a bit of practice, Instant

Profits will be easy to understand. You must be willing to drop any pre-conceived

notions you have about trading, unlearn bad habits, and develop the discipline required to

trade successfully and consistently. Are you willing to do this?

You may be asking yourself, “What makes this course so special?” Here’s the

secret: Instant Profits will teach you a specific trading method that is so robust that it can

be applied in any market and in any time frame, whether it is day trading, short-term

swing-trading, or intermediate-term trading. This is a big deal, because most trading

systems only apply to certain markets and with certain time frames. One of the key

features of this method is that it “dials in” to the market you are trading and the current

conditions of that market. So as the markets change (and, boy, do they change), Instant

Profits changes with them to stay in sync with current market behavior.

I named this course Instant Profits because when you really learn how to trade,

despite the inevitable losing trades, winning trades will usually occur quickly, within two

to eight bars.

You’re probably chomping at the bit, ready to get started. Before we begin, let me

offer one word of caution. If you are the impatient type, you may want to jump ahead to

the “meat” of the course, skipping the “soft” content that covers money management,

risk, and emotions. If this sounds like you, please resist the urge and read this course

from cover to back. The “soft” stuff is actually more important than the technical stuff, as

you will soon learn. So, lock the door, unplug the telephone, grab your favorite beverage,

and get ready to study every single word of this system, because it’s that important.

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I’d like to thank you for investing your time and money in Instant Profits. I truly

want you to be a successful trader. As I’ve learned, the more you succeed, the more I

succeed. Are you ready to go to work? Let’s begin!

Action Exercises 1. Your trading success begins with your goals, so begin with the end in mind. Write

down your top three goals for each of the following areas of your life. Yeah, yeah,

I know you’ve heard how important it is to set your goals and I know you’ve

heard this before, but it really, truly, is important. If you haven’t done it yet,

now’s the time.

a. Financial:

i. _____________________________________________________

ii. _____________________________________________________

iii. _____________________________________________________

b. Business:

i. _____________________________________________________

ii. _____________________________________________________

iii. _____________________________________________________

c. Personal / Relationships:

i. _____________________________________________________

ii. _____________________________________________________

iii. _____________________________________________________

d. Contributions / Tithing:

i. _____________________________________________________

ii. _____________________________________________________

iii. _____________________________________________________

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2. Because Instant Profits can be applied to any market and with any time frame,

you get to choose where you’re comfortable trading. Just so you can have

something to relate to as you study this course, write down the market and time

frame you think you would enjoy trading the most. You can always change your

mind later, and can even trade several markets and time frames.

Desired Market (i.e. NASDAQ stocks, futures, options, etc.): ________________

Desired Time Frame (i.e. 5-minute bars, daily bars, etc.):____________________

Notes ________________________________________________________________________

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Instant Profits 7

The Top 11 Trading Myths

In order to be a successful trader with Instant

Profits, you need to first have the proper

mindset. With that said, let’s address the Top 11

Trading Myths. Hopeful investors have lost

millions of dollars because they believed in

these myths. I know you don’t believe any of

these, so this will just be a good review for you.

Myth #1 – Buy and Hold is Safe

This is an investment strategy based on the belief that the stock market always goes up

in the long run. The problem with this strategy is that the long run can be a very long

time. For example, the Dow Jones Industrial Average did not return to its 1929 peak

until 1954, a full 25 years later. During that time it dropped precipitously incurring

unacceptable risk which no one would sit through. To make matters worse, few money

managers can duplicate the performance of the general market. The late 90’s dot.com-

inspired boom and bust is another example of why buy and hold is not safe. For every

strategy, whether an investor or trader, you must have an exit strategy that limits risk,

otherwise you are just buying, holding, and hoping (or praying).

Myth #2 – Trading Is Easy

The physical act of trading is easy, but making money consistently is not; otherwise,

everyone would be rich. Trading does not have to be difficult, but it requires diligence

on the part of the trader to follow a good trading method, use good money management

principles, and trade with discipline, none of which are easy but all which are being

done by successful traders.

Instant Profits 8

Myth #3 – The Holy Grail of Trading Exists

It doesn’t! Any good trading method will incur losses. The key is to use proper money

management principles to limit those losses and in so doing be a net winner.

Myth #4 – Selling Short Is Risky

This myth stems from the fact that theoretically there is no limit to how high a stock

can trade while that same stock can only trade down to zero. So, a short position could

suffer unlimited losses while long position losses are limited on the downside. The

truth is, selling short is no more risky than buying long as long as prudent stops are

used. In fact, being long in a bear market is far more risky than being short. And of

course, being short in a bull market is equally risky. So the riskiness of a position is

dependent on the use of good money management methods, not whether you are short

or long.

Myth #5 – Good Trades offer a 1 to 3 Risk / Reward Ratio

Conventional wisdom is that you should only take trades that deliver a reward that is 3

times the risk. The trouble with that approach is that in the real world of trading, such

trades are usually only successful less than 35% of the time. That means 65% of the

time the trade is a loser and that the probability of 5 losing trades in a row is about

11%. Most traders will not tolerate those kinds of losing streaks on a regular basis and

will probably abandon the method. On the other hand, a good trading method that

delivers at least a 1 to 1 risk / reward ratio has the potential to be profitable about 65%

of the time. In this scenario, 35% of the trades will be losers and the probability of 5

losing trades in a row is only about one half percent (0.5%). Most traders would be

happy to win 65% of the time with a 1 to 1 risk reward ratio with little chance of an

extended losing streak.

Instant Profits 9

Myth #6 – Dollar Cost Averaging is a Good Strategy

This is a method of adding money to your portfolio on a regular basis; say monthly, so

that you buy into the market incrementally, sometimes at a lower price and sometimes

at a high price, “dollar cost averaging” your purchase price. This method is attractive

to the buy and hold crowd, but is not something you want to practice as a trader. If,

after putting a long trade on, the market goes against you, you never want to add more

money to the trade to “average your cost”. That is simply bad practice and does not pay

off in the long run. It is much better to take your loss at your stop point and go on to

the next trade.

Myth #7 – You Must be an Insider to Make Money in the Markets

Ethical insiders in corporate USA are notoriously poor investors in their own

company’s stock. They do not have an edge on the market. In fact, they are

constrained by the SEC as to when and how much they can buy and sell, and you are

not.

Myth #8 – You Can Double Your Money with Options

Yes, you can do this in one trade and you can also lose your entire position in one

trade. Like any leveraged instrument, you must use sound money management

principles and limit your loss exposure to 2% or less per trade. In so doing you have

the potential to make money with options, but in no way should you attempt or expect

to double the value of your entire account overnight.

Instant Profits 10

Myth #9 – With Technical Analysis, the More Indicators The Better

On the contrary, while technical indicators can be very helpful in developing an

effective trading method, the challenge is how many and what indicators to choose

from the several that are commonly available. Trying to apply too many indicators is

self-defeating as you run the risk of over-complicating your method. Only a few good

indicators used in a complementary way are usually required to develop an effective

trading method.

Myth #10 – The Market is a Random Walk

Popularized by Burton Malkiel in 1973, this theory essentially states that the market is

haphazard, arbitrary, and unbeatable. There have been and continue to be many

successful traders who by their very success have proven this theory to be nonsense.

Myth #11 – Market Analysts are Usually Right

The reverse is true. For various reasons, analysts are usually encouraging you to buy or

hold, seldom do they tell you to sell. That is a problem (see #1 Buy and Hold is Safe).

The prevailing view of the experts is usually wrong. In fact, the majority view for the

coming year stock market performance by the top name analysts in the country (who

you can see on TV every day) is almost never correct. That is because the market is

simply un-forecastable, but with a good trading method it is beatable.

So there you have it! If you previously believed any of those myths to be true,

hopefully I’ve convinced you otherwise. If not, go back and read the above section again.

This is key to being successful with Instant Profits.

Instant Profits 11

Action Exercises 1. Describe two reasons why buy and hold is not a safe way to trade.

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2. The riskiness of an open trading position is dependent on the use of good

_______________________________ and trading with the ________________,

not whether you are short or long.

3. Market analysts that you see on TV every day are almost always correct with their

market forecasts. TRUE or FALSE?

Notes ________________________________________________________________________

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Instant Profits 12

The Bad News and The Good News

The bad news is there is no Holy Grail of

trading (see Myth #3). It simply doesn’t exist.

However, amateurs don’t believe this and are

ever hopeful of finding it. They go from

method to method, chasing after the next sure

thing only to be disappointed over and over

again. Amateurs think that they should be able

to win on every trade, or practically every trade.

Amateurs believe it is possible to achieve a near

straight line positive equity curve with no significant drawdowns. Amateurs usually

abandon their latest trading method after a few losing trades in a row concluding that the

method just doesn’t work. Well, it should be clear by now that the reason most amateurs

remain amateurs or give up trading all together is that they never stop believing and

pursuing the Holy Grail.

So what’s the good news? The good news is that the Holy Grail is not required to

succeed in trading the markets. This is a very important piece of good news. You don’t

have to win on every trade to be successful. It’s OK if you have a few losing trades in a

row. As a matter of fact, every good trading method has losing trades as well as

successive losing trades.

I have experienced the false beliefs of amateurs first hand, long ago, through my

own experience. It was only after many frustrating false starts that I finally realized that

the greatest obstacle to successful trading was my ability to accept losses. Whenever I

would encounter a few losses I would quickly lose interest in the method and begin

thinking about looking at something else. For whatever reason I wasn’t able to accept

Instant Profits 13

that there were losing trades and I was certain that if I looked long and hard enough that

someone would have what I was looking for.

I know that we are all searching for that one elusive methodology or advisory

service that will somehow have little or no losses and we therefore keep chasing after it.

The truth is that it doesn’t exist – believe me, if the Holy Grail existed it would have been

found by now.

The big awakening for me was that this behavior actually kept me from making

money, as I never could muster the discipline to stay with a winning methodology. My

unwillingness to accept that there were losers really held me back as well.

And then it happened! I finally realized that losing is part of the game and is

unavoidable with any good trading method. The only way to avoid losing is to not trade

at all. So please do your financial future a favor and realize that losing trades are just part

of the game.

Action Exercises 1. The Holy Grail of trading is not required to succeed in trading the markets. TRUE

or FALSE?

2. Every good trading method has losing trades as well as _______________ losing

trades.

3. The only way to avoid losing is to ___________________________________.

Instant Profits 14

Notes ________________________________________________________________________

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Instant Profits 15

Keys to Successful Trading

While the Holy Grail is thankfully not required

to succeed in the markets, a winning

methodology, risk management, and discipline

are absolutely required. Without them, you will

lose. Professional traders understand this.

They do not get lost in endless analysis of the

myriad of indicators, patterns, and methods.

They find or develop a winning methodology

and trade it over and over again, adhering to

strict risk management principles.

Winning Methodology

What is a winning methodology? Well, it’s a set of rules that tells you precisely how to

enter the market, exit the market, and how much to allocate to each trade so that you end

up with a Profit Factor greater than 1.00.

Let’s look at the formula of the Profit Factor:

Avg. Winning Trade % Winners Profit Factor =

Avg. Losing Trade X

% Losers

From the above formula, if the average winning trade equaled the average losing

trade and the method wins 50% of the time, the Profit Factor would be 1.00 (see Table 1,

System A). It should be self-evident that no money could be made with this method.

Instant Profits 16

The average winning trade must be greater than the average losing trade, the % winners

must be greater than the % losers, or both must occur to make money. A method that

generates 50% winners and an average winning trade 1.5 times the average losing trade

(including commissions and slippage) would have a profit factor of 1.5 (Table 1, System

B). Or better yet, a method that generates 66% winners and an average winning trade 1.5

times the average losing trade would have a Profit Factor of 3.0 (Table 1, System C).

Any trader that can consistently achieve a Profit Factor of 1.5 or greater should enjoy

great success. A trader that can operate at a Profit Factor of 3.0 could become very

wealthy.

System A B C

Average Winning Trade $1000 $1500 $1500

Average Losing Trade $1000 $1000 $1000

% Winners 50% 50% 66%

% Losers 50% 50% 34%

Profit Factor 1.00 1.50 3.0

Table 1 – A Comparison of Profit Factors

The key message from the preceding discussion is that the Holy Grail is not

required to win. A method or system that is only right 50% of time but generates average

winning trades at least 1.5 times the average losing trades is all you need. This should

cause you to realize that trading the markets from a small portfolio into a large one is

possible.

Instant Profits 17

Risk Management

It has been said that risk management is more important than the methodology one uses

to trade, since an otherwise winning methodology ends up losing without proper risk

management, but a mediocre methodology with strong risk management can end up

winning. You hold in your hands a potentially winning methodology coupled with strong

risk management.

I emphatically agree that risk management is the most important success factor.

For example, if you have a winning method that wins on the average 66% of the time, the

probability of 3 successive losing trades is 4%. That means you will lose 3 trades in a

row 4% of the time for any series of three trades. Further, to illustrate the point, if you

risk 33% of your initial capital on each trade you will eventually be wiped out. This is a

clear example of a winning methodology undermined by extremely poor risk

management.

Much has been written on this subject, its importance, and the means to

scientifically calculate the amount that should be risked per trade, but I have found in

order for a good trader to consistently apply sound risk management principles, that

simpler is better.

The technique I use and strongly recommend to you is to simply risk no more

than 1 to 2 percent of your trading account on each trade. By risk I mean the amount you

are willing to lose, not the amount applied to make the trade. For a $50,000 account, you

would risk no more than $500 to $1,000 per trade. If on the next trade you bought

$10,000 of a stock and lost $1,000, your account balance would be $49,000, limiting your

risk on the next trade to $980 (2% of $49,000). Unlike the example above, where 3

losing trades wiped out the account, by limiting your risk to 2% per trade, your account

would be down only $2,940 to $47,060. On the other hand, as your account grows, you

can risk 1 to 2 percent of the growing account balance which will allow you to grow the

Instant Profits 18

account more quickly. A caveat here is in order. Successful traders with very large

accounts will often risk no more than a half percent (0.05%) per trade to further limit risk.

This is contrary to what amateurs do when they are fortunate enough to make money in

spite of poor practices, only to give it all back by increasing the risk percentage per trade

thinking they can do no wrong.

The importance of this simple rule should be self-evident. In order to become

wealthy trading the markets, you need to stay in the game and the 1 to 2 percent risk rule

will keep you in the game to give your methodology the chance to payoff in the long run.

Remember, if you have a winning trading method individual trade outcomes are not

important, it is the outcome from a series of trades that is important, where you know that

the more trades you make the more likely you will be a net winner. This is, of course,

what the casino models are based upon. They don’t mind losses up to the house limit,

because they know that the odds are in their favor and when the month comes to a close,

the casino will be a net winner, time and time again. You want to be like the casino.

Work your winning method with sound risk management so that you are not taken out of

the game along the way.

Another important aspect of risk management when it comes to trading stocks or

options is to not get caught with several long positions in a bull market reversal or with

several short positions in a bear market reversal. The following is a way to hedge for this

situation, which will occur sometime in the life of every bull and bear market. In a bull

market, it is always a good idea to have one short position on (only those that would meet

the criteria defined in this course) for every three long positions. And likewise, in a bear

market, it is always a good idea to have one long position on (only those that would meet

the criteria defined in this course) for every three short positions. When the market

reverses, often times unexpectedly, you will be able to offset a good portion of the loss

from the losing trades with the usually exceptional profit on the one winning trade.

Instant Profits 19

Discipline & Psychology

The key message about discipline is that without it you will lose. It’s that simple. So you

think, “I understand that and so I will be disciplined in my trading.” But this is where

fear and greed enter into the picture along with an emotional rollercoaster that will truly

test what you’re made of. Remember earlier how I said that trading tested the very

boundaries of my emotions? I wasn’t kidding! You must master your emotions when

trading. If you are trading a winning methodology and using sound money management

practices, you will eventually have the following experiences:

a) You will win several trades in a row or at least win most trades for a time. You

will then start to feel pretty good about yourself and your trading ability.

Caution: You may then become reckless in your trading. Increasing the amount

of risk per trade, ignoring stop loss points, or staying in a profitable trade hoping

for more than your profit target. These actions driven by greed will cause your

trading account to suffer.

b) You will have several losses in a row. You will then feel depressed and think

your trading methodology no longer works, forgetting that even good

methodologies will have successive losing trades on occasion. Caution: You

may then become reckless in your trading by increasing the risk per trade

attempting to win back your recent losses all at once. Or more likely, you will

abandon your trading methodology and jump to something else, only to repeat the

cycle at a later date – this is the Holy Grail syndrome. Or you may give up

trading altogether, concluding that it is not possible to win consistently.

c) You will make several trades, but experience a number of winners and losers that

leave your account at breakeven at best. You will become bored and possibly

complacent. Caution: Again, you may become reckless in your trading; trying to

make something happen that will break you out of your malaise and get back to

Instant Profits 20

winning. This is called forcing the market to do what you want it to, which is

never a good idea.

The emotional reactions to the foregoing set of experiences are precisely why most

traders lose in the markets. They fall victim to one or all of these experiences. Winning

traders, on the other hand, have learned that these experiences will occur, and when they

do they stay disciplined, sticking to their trading methodology and risk management rules

without wavering. This makes all the difference in the world and is the primary reason

that winners are winners. Can you imagine a casino changing its gaming rules after

losing several jackpots in one week or only breaking even for several weeks? Can you

imagine a casino closing down after losing several jackpots in one week? No! Why not?

Because, you know the casino will be a net winner if they simply stick to their

methodology which gives them a winning edge. Winning traders do the same thing as the

casinos – they stay disciplined and win!

Another way to look at this is through personal success coach T. Harv Eker’s concept

of your body’s thermostat. When your home’s thermostat is set to 70 degrees and you

open the windows in the winter, the temperature will drop but eventually the thermostat

kicks in and returns the temperature to 70 degrees. If you open the windows in the

summer, the temperature will go up, but again the thermostat kicks in and brings the

temperature back down to 70. The point is that your body, your mind, and your emotions

work the same way. You’ve grown accustomed to a certain way of thinking and behaving

and reacting – that’s your body’s thermostat. When you try to follow a new path, or

attempt something that might seem a little awkward or unnatural at first, your internal

thermostat brings you back to what makes you comfortable. It causes you to revert back

to your old behaviors. To master your emotions with trading, you need to learn to adjust

your thermostat to a new setting and leave it there.

Instant Profits 21

Action Exercises 1. What is the formula to calculate a system’s Profit Factor?

? ? Profit Factor =

? X

?

2. If a trading system is only right 50% of the time but generates average winning

trades at least 1.5 times the average losing trades, will it make money over time?

YES or NO.

3. What is the maximum amount of money you should risk on each trade?

_________________________________________________________

4. If you are trading with a winning stock method and you encounter three losing

trades in a row, what should you do? ____________________________________

__________________________________________________________________

Notes ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

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Instant Profits 22

Tools to Instant Profits Before you begin trading, you need some basic

tools. If you’ve already been trading, you

probably already have all of these items, so just

read this section as an overview.

Charting Software

There are many different options available when choosing charting software. Your

budget and the amount of time you dedicate to trading may dictate what you end up

purchasing. If you’re serious at all about trading, though, you will make your life much

easier by investing in a powerful charting software package. Make sure it has the

following capabilities:

The ability to plot multiple simple and Exponential Moving Averages on the same

chart.

The ability to plot Fibonacci Retracement Levels.

The ability to use both end-of-day and intraday (real-time) data feeds.

The charting software used for the examples in this course is Advanced GET, which

is excellent. Other good choices include Trade Navigator by Genesis and TeleChart by

Worden Brothers.

Computer

You need to get a computer powerful enough to easily run the trading software you’re

going to be using. So the easiest way to choose a computer is to choose your trading

software first, and then get a computer that matches the software’s recommended

specifications. In general, if you buy a new computer today with basic specifications,

Instant Profits 23

you’ll have enough computing power to handle most charting software. It’s been my

experience that a computer purchased from a direct mail manufacturer like Dell

(www.dell.com) or Gateway (www.gateway.com) is usually more robust and stable than

one purchased from a local computer superstore.

Regarding monitors… bigger is better. It’s important that you are able to clearly

see the charts on the screen. For this reason, I recommend at least a 17” monitor, but go

with a bigger one if your desk and your budget will support it. The standard CRT

monitors are the least expensive, but more bulky. Flat panel displays are more expensive,

but easier on the eyes and require less desk space. Some traders like to use two monitors,

which requires a special video card. This lets you look at a chart on one monitor, for

example, and a detailed list of quotes on the other monitor.

In general, you should be able to get a very powerful computer for $1,500 or less.

Data Feed

You need to have access to a reputable provider of chart data. Some software packages

offer their own data feeds and others work with third party feeds. For example, the latest

version of TradeStation uses its own real-time data feed. A good third party data

provider is eSignal, which is what I use with Advanced GET. If you’re going to be

trading daily bars or longer, you’ll just need end-of-day data. If you plan on day trading,

you’ll need access to intraday data provided by a real-time data feed, which usually costs

more.

Internet Connection

Whatever type of data feed you use, you’ll want to get the updated data via the Internet.

In most cases (if not all), you will be required to get the data via the Internet. If you don’t

already have access to a high speed Internet connection, get one. Many people who use

Instant Profits 24

dial-up connections over a second phone line can often save money by switching to a

high speed connection. Reliable and fast access to data is very important.

Broker

Since you will be making your own trading decisions there is no need to pay for a full

service broker. If you intend to place the orders online yourself (which I highly

recommend), then you want a broker that provides an easy to use real-time trading

platform with competitive commission rates. There are several to choose from whether

trading stocks, futures, or forex. If you intend to call in your orders to your broker, make

sure that you have immediate access to the order taker with no waiting whatsoever.

When you want to place an order, you should always be able to get a live person on the

phone immediately. Again, commissions should be competitive.

Advanced Access

If you’re on the road a lot and don’t want to deal with installing a duplicate software

setup on your laptop, an alternate solution is to use a remote PC access application.

Here’s how it works: Your main trading system (usually a desktop computer attached to a

high speed Internet connection) should remain online 24 hours a day. Your remote

computer (a laptop or a computer at your summer cottage) should contain the remote

access software. This will allow you to virtually control your main trading system from a

remote location.

A good software-based solution is Symantec’s pcAnywhere

(www.symantec.com). A good web-based solution is GotoMyPC (www.gotomypc.com).

This kind of setup should only be used if you’re very comfortable working with

computers, because there are a lot of things that can go wrong which could interrupt your

trading routine (power outages, slow Internet connections, etc). Advanced users only!

Instant Profits 25

Action Exercises 1. In order to clearly see charts, what is the minimum size monitor you should use?

__________________________________________________________________

2. If you plan on day trading, you need access to what kind of data?

a) Real-time data b) End-of-day data c) No data

3. If you intend to place orders online yourself, then you want a broker that provides

an easy to use real-time trading platform with competitive commission rates.

TRUE or FALSE?

Notes ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

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Instant Profits 26

The Basics If you’re new to trading, it’s important to

understand some basic terms and concepts. If

you’re already an experienced trader, you can

read this section as a refresher, or skip ahead to

the next section. There are dozens of excellent

books that cover the basics of stock trading.

While I’m going to cover some information

here, you may want to read a good, detailed

book geared toward beginners if you’re

interested in learning more about the basics of

trading the markets. For the very bare bones basics, Trading for Dummies by Michael

Griffis is a good book.

The Stock Market

A stock is a certificate of ownership in a company that can be bought and sold on two

major exchanges and several minor exchanges as well as the OTC (Over The Counter)

Market in the United States and several other stock exchanges worldwide. In the United

States, over 10,000 stocks are traded on the NYSE (New York Stock Exchange), the

AMEX (American Stock Exchange), and the OTC that we all refer to as the NASDAQ

(National Association of Securities Dealers Automated Quote System).

An exchange is a place where buyers and sellers physically get together on a

central trading floor to buy and sell through a middleman, called the specialist. The

NASDAQ, on the other hand, is an electronic market that automatically matches the buy

and sell orders on a best-price basis.

Instant Profits 27

The price movements for both exchange and NASDAQ-traded stocks can be

charted using any time frame – hourly, daily, weekly. It is these charts that we are

interested in when searching for stock trades that meet the parameters of Instant Profits.

Also, we are only interested in high volume stocks (over 1 Million per day average

volume) to assure liquidity which enhances our ability to buy and sell at the prices we

specify.

Buying Long

Buying long is when a trader buys a stock for the purpose of owning the stock in hopes

that it will rise in price. Buying long involves buying a stock from someone else that is

selling the same stock at an agreed to price. When that happens, the ownership of the

stock is transferred from one person to another.

Selling Short

Selling short is when a trader sells a stock that he doesn’t own for the purpose of buying

it back at a later date hopefully at a lower price. Selling short involves borrowing the

stock from the broker in order to sell it to someone else who wants to buy the stock.

When the sale takes place, your account is credited with the cash from the sale and

debited for the number of shares borrowed to complete the sale. At some future date, the

stock is purchased for the purpose of returning the borrowed stock to the broker. When

the purchase transaction occurs, the short seller’s account is debited for the cash required

to make the purchase and credited with the stock shares purchased offsetting the original

debit at the time the stock was sold short. If the stock price went down, the trader made

money; if not, the trader lost money on the short sale. Selling short is generally viewed

as being more risky than buying long, but this may not true with the appropriate use of

Stop Loss orders.*

*No representation is being made that the use of stops will prevent or guarantee against losses exceeding the intended amount.

Instant Profits 28

Fundamental Analysis

Fundamental analysis involves the use of economic and company financial performance

data (if trading stocks) to forecast prices. Fundamental analysis implies that a

relationship between this data and the market prices of the security analyzed can be

determined with some accuracy in order to give the trader an edge in trading the market.

Technical Analysis

Technical analysis is based primarily on the study of price patterns and indicators that are

derived from past prices to forecast future prices. Technical analysis implies that patterns

and indicators used in such analysis can give the trader an edge in trading the market.

Instant Profits is based on technical analysis.

Plotting a Chart

A chart is simply a graph indicating a market’s historical price changes. The x-axis

indicates time, which will vary based on the time frame you are trading. The y-axis

shows the market price. See Figure 1 for an example of a chart. For our purposes, we’ll

be using charts made up of price bars. A price bar describes the opening price, high price,

low price, and last price (the close) for the time frame you are trading. The vertical length

shows the total price movement for your time frame. See Figure 2 for an example of a

Price Bar. The little dash or line on the left side of the bar indicates the opening price.

The top of the bar indicates the highest price. Conversely, the bottom of the bar shows the

lowest price. The little dash on the right side of the bar indicates the closing price (the last

price traded for the time frame you are using). You will hear the term “bar” used often

and we’ll use it throughout the remainder of this course. It’s a term to indicate a specific

price bar for the time frame you are trading. When beginners see a chart, they sometimes

tend to think of each bar as a “day”. This is only true if the chart indicates “daily bars”. If

a chart shows “weekly bars”, then each price bar on the chart represents the total price

Instant Profits 29

movement for one entire week. On the shorter end, if a chart shows “5 minute bars”, then

each price bar indicates the total price movement for a 5 minute segment during the day

(this is what day traders might look at). For this reason, when you’re examining a chart,

it’s important to first check to see what time frame the chart represents. This is especially

important for Instant Profits because it can be applied to any time frame, not just daily

bars.

Instant Profits 30

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Instant Profits 31

High

Close

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Figure 2 – Price Bar

Swing High

A Swing High is a short term high bar with at least two lower highs and lower lows on

both the left and right of the high bar. See Figure 3 for an example of a Swing High.

Swing Low

A Swing Low is a short term low bar with at least two higher lows and higher highs on

both the left and right of the low bar. See Figure 4 for an example of a Swing Low.

Trend Lines

Trend lines are used to help determine the trend of a series of data over time and are

usually drawn by connecting the higher Swing Lows in an up trend and lower Swing

Highs in a down trend. When the trend line is penetrated on a closing basis, it signals a

possible change in the trend.

Instant Profits 32

Figure 3 – Swing High

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Instant Profits 33

Figure 4 – Swing Low

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Instant Profits 34

Moving Averages

There are two commonly used moving averages. One is a simple moving average which

is calculated by adding a series of prices over a specific time period (for example, 10

days) and dividing that sum by the number of time increments (for example, 10). The

other is an Exponential Moving Average (EMA) which is calculated in a similar manner

as the simple moving average except it gives greater weight to the most recent prices in

the time period measured. The EMA is a more sensitive average that is more heavily

influenced by the most recent prices than is the case for the simple moving average. Like

trend lines, moving averages are used to help determine the trend of a series of data over

time.

Channels

Channels are envelopes that capture most of the price data displayed on a bar chart. They

are usually based on percentage bandwidth around a moving average or trend line. When

prices are in an up trend and approach the lower channel band, it may be a good time to

buy; and when prices approach the upper channel band, it may be a good time to sell to

cover the long position.

Fibonacci Retracement Levels

Fibonacci Retracement Levels are based on the ratios of a number series first observed by

Leonardo Fibonacci in the thirteenth century and are regarded as describing the natural

proportions of things in the universe, including price data. These retracement levels are

determined by applying the Fibonacci Retracement Level indicator (found in most good

trading software packages) to a Swing High and Swing Low made by the recent price

action on a bar chart. Fibonacci Retracement Levels are used in trading as possible

support and resistance levels.

Instant Profits 35

Paper Trading

Paper trading is the act of placing trades with pretend money. In essence, you follow your

trading routine up until you would place an actual order. Instead, you track your order on

paper, noting which price you “bought” at and which price you “sold” at. This gives you

practical and valuable experience trading a system and allows you to make mistakes

without having your actual trading account suffer.

I highly recommend that you paper trade Instant Profits until you are comfortable

enough to begin placing real trades with your broker. Depending on your skill and

experience, the number of paper trades should be anywhere from 5 to 10. After that, you

will be ready to begin trading Instant Profits for real.

Even though the term “paper trading” is still used, there are websites that will

allow you to paper trade an imaginary account online. These services will actually track

your pretend account with live data. Some brokers offer paper trading services just so you

can get comfortable with the mechanics of their websites before making live trades. If

you are researching a new broker, ask if they provide paper trading or “trading

simulation” as it is sometimes called.

Action Exercises

1. Which of the following is not an exchange?

a. NYSE b. AMEX c. NASDAQ d. CBOE

2. Selling short involves ________________ the stock from the broker in order to

_____________ it to someone else who wants to _____________ the stock.

3. Fundamental Analysis is based primarily on the study of price patterns and

indicators that are derived from prices to forecast prices. TRUE or FALSE?

Instant Profits 36

4. Label each part of a Price Bar:

5. A Swing High is a short term high bar with at least two higher lows and higher

highs on both the left and right of the high bar. TRUE or FALSE?

6. The Exponential Moving Average (EMA) is calculated in a similar manner as the

simple moving average except it gives greater weight to the most recent

_______________ in the time period measured.

7. Which statement best describes Paper Trading?

a. Paper Trading is the act of placing trades on the floor of an exchange.

b. Paper Trading is the act of trading paper currencies.

c. Paper Trading is the act of placing trades with pretend money.

d. Paper Trading is the act of analyzing your printed brokerage statements.

Instant Profits 37

Notes ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

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________________________________________________________________________

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Instant Profits 38

Trading Indicators and Methods

There are several indicators used by traders such as moving averages, MACD, RSI,

stochastics, Bollinger bands, %R, Elliott Wave, Fibonacci levels, etc. There are also

several chart patterns used by traders such as head and shoulders, support/resistance,

flags, pennants, trend lines, triangles, wedges, swing highs and swing lows, candlesticks,

etc. Using some or all of these indicators and chart patterns, several trading methods are

used by traders such as swing trading, day trading, buy and hold trading, channel trading,

volatility breakout trading, trend following, convergence/divergence trading, etc. You

have probably seen most of these indicators and methods heavily advertised as your road

to riches. While the indicators are all good, it is important to realize that they are only

indicators, and in and of themselves do not constitute a trading system or methodology.

As for the trading methods that are advertised, I believe many are not good, but a few are.

And the few that are good have managed to combine a few indicators (not many) with the

natural ebb and flow of the markets to have the potential to consistently take money out

of the markets.

Besides the information covered above, I will not be reviewing the details of all of

the standard indicators and chart patterns found in so many trading courses and books,

because it is not necessary to become expert in all of these in order to make big money

with the method taught in this course. Chances are, you are already well familiar with

this material, but if not and you are interested in learning more about these indicators and

patterns there are countless books available on the subject. Visit the Instant Profits

website at www.instantprofitstoday.com/members for a list of recommended books. But

a word of caution – none of these indicators constitute a good trading method on a

standalone basis. It is only in combining certain indicators and patterns with market

action are you able to develop a winning methodology.

Instant Profits 39

Trading Vehicles and Time Frames

There is seemingly no end to the number of different market opportunities available for

us to trade. Most opportunities fall into one of these market types: stocks, options,

futures, forex, indexes, and mutual funds. There are also several time frames that traders

can choose from such as long term (years), intermediate term (months), short term

(weeks), very short term (days), and day trading (intraday).

Successful traders have emerged in all markets and all time frames. Some focus

on stocks for the long term only and others on day trading futures and all combinations in

between these two extremes. The point is you have the potential to become a successful

trader in any of these markets and in any time frame. The key is to select the markets and

time frame that are best suited to your personality and situation. Of course, you will need

a good trading methodology that applies to your market and time frame. Many good

methodologies only apply in certain markets and in one time frame. That is OK, but a

good methodology that applies to all markets and all time frames is better. You will learn

such a methodology in this course. It is scaleable to your personality and situation – from

a long term to day trading time frame, and in any market or markets you choose. You

will be learning about what I believe is a truly robust trading method.

Instant Profits 40

Instant Profits with Channel Trading

Instant Profits is a proprietary system that uses

a robust version of channel trading. It identifies

high probability trades over and over again

under any market conditions - bull, bear, or

sideways. It is easy to trade and easy to apply.

It has a simple set of objective rules that can be

applied to any market in any time frame. The

average trade duration is from 2 to 8 bars. If

you trade the weekly charts, that translates to 2

to 8 weeks; if you are trading the daily charts, it’s 2 to 8 days. It can be learned in a few

weeks, and perfected in a few months. You have the potential to become a successful

trader with Instant Profits if you practice risk management and are disciplined as

discussed earlier.

Are you ready? Here is the general approach, which is summarized in Table 2 and

Table 3, shown at the end of this chapter.

1. Plot the Chart

First we will plot a bar chart of the market we wish to trade and the time frame we wish

to trade. The bar setting will be equal to the time frame or interval we wish to trade. For

example, if we are trading on an end of day basis we would use daily bar charts. If, on

the other hand, we are day trading, we could use 5 minute bar charts. In the following

example, we will be using a daily chart for NXTL, but the approach is the same

regardless of time frame and regardless of market.

Instant Profits 41

Next we will create a short term Exponential Moving Average (EMA) that best

tracks with the market on a bar by bar basis for the most recent 60 bars (see Figure 5).

This is easily done with your trading software by selecting “exponential moving average”

and setting the inputs as follows:

Input Setting

Price: Close

Length: 14

Displace: 0

The length of this moving average should be in the 7 to 14 bar range. In this case,

we selected a 14 bar exponential moving average because it tracks closely with the

predominant trend of the market for the period displayed on the chart, it does not change

direction too often, and it is close to the price action. It also tends to support the market

when trending up and acts as resistance when trending down.

An additional guideline that is useful when selecting the EMA length is to use the

length that when combined with the moving average envelopes (see next page) gives the

most profitable trades for the past 60 bars. This is because the optimal setting for the past

60 bars is likely to be a good setting for the next trade. Adjusting the length of the EMA

in this manner will give you an additional edge, but it is not necessary to get it just right

as Instant Profits is very robust and can be applied with almost any setting from 7 to 14

bars.

Instant Profits 42

Next, we will create short term moving average envelopes that capture 95% of the

price action of the most recent 60 bars of the market that you are trading. Again, this is

easily done with any good trading software by selecting “moving average envelopes” and

setting the inputs as follows:

Input Setting

Price High Close

Price Low Close

Length 14 bars

Percent Above This will vary depending on your market

Percent Below This will vary depending on your market

Displace 0

This will create an overlay of the moving average envelopes on your bar chart

(see Figure 6). We chose a 14 bar moving average for the envelopes because it should be

the same as the length of our exponential moving average.

Instant Profits 43


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R T

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EXP

ON

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AVE

RAG

E (E

MA)

29.0

0

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Figure 5 – Shorter Term Exponential Moving Average (EMA)

Instant Profits 44


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SHO

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MO

VIN

G A

VER

AG

EEN

VELO

PES

29.0

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Figure 6 - Shorter Term Moving Average Envelopes

Instant Profits 45

The percent above should be equal to the percent below and is determined by trial

and error. The absolute percents are not important; rather the overlay on your bar chart is

important. Try different settings until the envelopes comprise 95% of the price action

(not 95% of the bars), where the highs in an uptrend slightly exceed the upper band of the

envelope and the lows in a downtrend slightly exceed the lower band of the envelope (see

Figure 6). This is done by visual inspection, examining the envelopes over the past 60

bars.

The next indicator is the Long Term Moving Average (Figure 7). This moving

average should be 5 times the length of the short term Exponential Moving Average and

should be a simple moving average. Again, this is easily done with any good trading

software by selecting “moving average” and setting the inputs as follows:

Input Setting

Price Close

Length 70

Displace 0

In our example, we selected a 70 bar moving average (14 bar short term

Exponential Moving Average X 5).

Now, putting it altogether (Figure 8), we are in a position to talk about our general

approach to trading. First, we only want to trade in the direction of the longer term trend

as defined by the Long Term Moving Average. Next we want to enter the market on

reactions back to and below the Exponential Moving Average (EMA, which is the shorter

term average); the premise being that within an uptrend, value and support should be

found when prices fall back to the EMA. Once we have entered the market on the long

side, we will place our stop loss just beyond the entry bar lower moving average envelope

and our profit target at the entry bar upper moving average envelope. One of two

outcomes in this example will occur in a matter of a few bars. We will either exit at our

profit target or we will be stopped out.

Instant Profits 46


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LON

GER

TER

M M

OVI

NG

AVE

RA

GE

29.0

0

28.0

0

27.0

0

26.0

0

25.0

0

24.0

0

23.0

0

22.0

0

21.0

0

20.0

0

19.0

0

18.0

0

17.0

0

29.5

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Figure 7 - Longer Term Moving Average

Instant Profits 47


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LON

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OVI

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AVE

RAG

E

SHO

RTE

R T

ERM

MO

VIN

G A

VER

AGE

ENVE

LOPE

S

SHO

RTE

R T

ERM

EXP

ON

ENTI

AL M

OVI

NG

AVE

RAG

E (E

MA)

29.0

0

28.0

0

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0

26.0

0

25.0

0

24.0

0

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0

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0

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Figure 8 - Putting the Indicators All Together

Instant Profits 48

We’ll cover this strategy in detail, and later we will be discussing additional

strategies that include a trailing stop to reduce the risk in the trade once it moves in our

favor.

It is very important to adjust your settings based on the most recent 60 bars on

your chart. Market behavior changes over time and market memory insofar as Instant

Profits is concerned is limited to about the last 60 bars. The ability to adjust your settings

as the market gradually changes makes Instant Profits very robust and aligned with

current market conditions. Other methods often fail on this point; they may work for a

while but then stop working as market conditions change.

You should now have a general overview of the method behind Instant Profits. In

the next section, we’re going to dive deep and explore the specific trading rules.

Action Exercises 1. The length of the short term Exponential Moving Average should be between

_____ and _____ bars.

2. The short term moving average envelopes should capture _____ % of the price

action of the most recent _____ bars of the market that you are trading.

3. The Long Term Moving Average should be _____ times the length of the short

term Exponential Moving Average.

Instant Profits 49

4. Why is it very important to adjust your settings based on the most recent 60 bars

on your chart?

a. Because 60 is a round number.

b. Because market behavior changes over time and market memory insofar

as Instant Profits is concerned is limited to about the last 60 bars.

c. Because market behavior remains unchanged over time and market

memory insofar as Instant Profits is concerned is the same across all time

frames.

d. Because the short term Exponential Moving Average is optimized to work

best using 60 bars.

Notes ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

Instant Profits 50

2. Setup Conditions

Every good trading method includes specific Setup Conditions that must occur to even

consider making a trade. The following setup conditions are for entering into long

positions, but the exact same conditions in reverse apply for entering into short positions

(as shown in the Short Trades Blueprint, Table 3). In each condition, we need to refer to

the “Highest High of the Last 5 Bars”. For ease of reading, this is notated simply as

“HH5”.

a. The Longer Term Moving Average must be moving higher, but stay away from

choppy trendless markets. If it is moving sideways, stand aside and look for

another market.

AND

b1. The HH5 equals or exceeds the Upper Band of the Moving Average Envelope and

the Upper Band is moving higher at that point (Figure 9). At this point, the market

has temporarily moved away from value (the short term EMA), is said to be

“overbought”, and will eventually return to the EMA before resuming its move

higher. This is a very powerful setup condition as it filters out all of those markets

that are not likely to move up anytime soon. In other words, when the HH5 occurs

according to this condition, there is a high probability of a move higher and soon.

It is important that the HH5 does not exceed the Upper Band by more than 75% of

the difference between the Upper Band and the short term EMA (Figure 10). If it

does, the market could be in “blow-off” exhaustion phase signaling at least a

temporary end of the up trend. When this occurs, stand aside until the market

retraces to the lower band and then wait for a new setup or a change in trend.

OR

b2. The HH5 falls short of the Upper Band of the Moving Average Envelope, and the

low of at least 1 previous bar is greater than the EMA. In this situation, the market

is moving up more slowly, but because we have a previous bar low greater than

Instant Profits 51

the EMA, there is a high probability of the market continuing to move up. (See

Figure 11).

AND

c. SPECIAL CASE: If after the last time the market traded below the EMA, it

subsequently trades above the Upper Band (Condition b1) and then in subsequent

bars trades even higher but below the rising Upper Band (Condition b2) then the

Setup Condition has been weakened and you should stand aside (Figure 12). This

case does not occur often; but when it does, you should stand aside.

Important Qualifier: In order for the b1 or b2 Setup Condition to be valid, there must

NOT be bearish or bullish divergence occurring at the same time that a b1 or b2 Setup

Condition occurs. See Figure 13 for an example of bearish divergence. Bearish

divergence occurs when the trend of price highs goes one way and the trend of oscillator

highs goes the opposite way. We use an 8,3,3 Slow Stochastics as the oscillator. A

bearish divergence occurs in an up trend when the HH5 is greater than the last Swing

High, but the Slow Stochastics %K at the HH5 is less than the Slow Stochastics %K at

the last Swing High. While this pattern occurs only occasionally, when it does it signals a

potential end to the up trend and therefore we would not want to enter a long position on

a retrace below the EMA. Bullish divergence is the same in reverse. A bullish divergence

occurs in a down trend when the Lowest Low of the last 5 days (LL5) is less than the last

Swing Low, but the Slow Stochastics %K at the LL5 is greater than the Slow Stochastics

%K at the last Swing Low.

When the longer term trend is up with new highs for the move and we get a b1 or b2

Setup Condition, but at the same time a bearish divergence occurs, we stand aside.

Likewise, when the longer term trend is down with new lows for the move and we get a

b1 or b2 Setup Condition, but at the same time a bullish divergence occurs, we stand

aside.

Instant Profits 52

Action Exercises 1. The first long setup condition states that the Longer Term Moving Average must

be moving: HIGHER or LOWER?

2. The HH5 equals or exceeds the Upper Band of the Moving Average Envelope and

the Upper Band is moving higher at that point. At this point, the market has

temporarily moved away from value (the short term EMA), is said to be

“____________________”, and will eventually return to the EMA before

resuming its move __________________.

3. The HH5 falls short of the Upper Band of the Moving Average Envelope, and the

low of at least 1 previous bar is greater than the EMA. In this situation, the market

is ____________________________, but because we have a previous bar low

greater than the EMA, there is a high probability of the market continuing to

____________________.

4. If after the last time the market traded below the EMA, it subsequently trades

above the ______________ (Condition b1) and then in subsequent bars trades

even higher but below the rising ________________ (Condition b2) then the

Setup Condition has been weakened and you should ___________________.

Instant Profits 53

Notes ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

Instant Profits 54

Figure 9 - Setup Condition b1


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MA

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ET H

H5'

s TO

UC

HM

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AVE

RA

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ENVE

LOPE

U

PPER

BA

ND

29.0

0

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Instant Profits 55

HTCH - Hutchinson Technology, Weekly - Advanced GET ©2004 eSignal

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Hig

h 75

% h

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de

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er T

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ing

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32.9

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0

38.4

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X 7

5% =

2.2

3

2.50

2.50

> 2

.23

Stan

d As

ide

40.0

0

35.0

0

30.0

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25.0

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20.0

0

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Figure 10 – Setup Condition b1

Instant Profits 56

Figure 11 – Setup Condition b2

EMR - Emerson, Daily - Advanced GET ©2004 eSignal

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Bar

low

> E

MA

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r mar

ket t

ouch

es E

MA

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e H

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< U

pper

Ban

d

AN

D

Long

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erm

Mov

ing

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rage

70.0

0

69.0

0

68.0

0

67.0

0

66.0

0

65.0

0

64.0

0

63.0

0

62.0

0

61.0

0

65.5

6

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Instant Profits 57

Figure 12 – Setup Condition Special Case

WCC - WESCO International Inc., Daily - Advanced GET ©2004 eSignal

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Hig

h >

Prev

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d <

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22.0

0

21.5

0

21.0

0

20.5

0

20.0

0

19.5

0

19.0

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18.5

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18.0

0

17.5

0

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16.5

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22.5

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Instant Profits 58

Figure 13 – Bearish Divergence

MWD - Morgan Stanley, Daily - Advanced GET ©2004 eSignal

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Hig

her h

ighs

DO

NO

T B

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AN

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0

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7

Low

er h

ighs

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h 8,

3, 3

100.

00

50.0

0

0.00

0.00

May

Apr

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Feb

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Dec

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6/04

Instant Profits 59

3. Entry Point

Once the Setup Conditions have been met, we look for the market to retrace to the short

term EMA. This may occur on the very next bar or it may be several bars following a

Setup Condition before the market retraces back to the EMA. Also, it is not unusual for

successive b1 or b2 setup conditions to occur at higher levels before the market retraces

to the EMA. This will become clear as we go through the case study trades.

We will also make use of Fibonacci Retracement Levels that are easily determined with

any good trading software by selecting “fib retracement lines” and dragging the cursor

from the latest Swing Low to the HH5 (Highest High of the past 5 bars).

Our target entry point is to buy below the EMA (Figure 14) as follows:

BUY AT the previous closed bar EMA minus 1/5 of the difference between the EMA

and the Lower Band of the previous bar (Figure 15 and Figure 16):

EMA Buy Point (All Values Reference Previous Closed Bar)

EMA – 1/5 X (EMA – Lower Band)

Our Example: 21.81 – 1/5 X (21.81 – 20.50) = 21.55

Instant Profits 60


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MA

RK

ET S

WIN

G H

IGH

S TO

UC

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SB

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"B

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TS"

29.0

0

28.0

0

27.0

0

26.0

0

25.0

0

24.0

0

23.0

0

22.0

0

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Figure 14 – Entry Points

Instant Profits 61


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EMA

= 2

1.81

Low

er B

and

= 20

.50

Nex

t Bar

Entr

y Po

int =

21.

81 -

1/5

X (2

1.81

- 20

.50)

= 21

.55

29.0

0

28.0

0

27.0

0

26.0

0

25.0

0

24.0

0

23.0

0

22.0

0

21.0

0

20.0

0

19.0

0

29.8

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Figure 15 – Entry Point

Instant Profits 62

Figure 16 – Entry Point Detail


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21.8

1

20.5

0

21.8

1 - 2

0.50

= 1

.31

x 1/

5 =

0.26

21.8

1 - 0

.26

= 21

.55

21.5

5Pl

ace

Buy

Ord

er H

ere

Prev

ious

Bar

Entr

y B

ar

24.5

0

24.0

0

23.5

0

23.0

0

22.5

0

22.0

0

21.5

0

21.0

0

20.5

0

20.0

0

24.2

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Instant Profits 63



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Fibo

nacc

i 23.

6% re

trac

emen

tle

vel f

rom

last

sw

ing

high

and

sw

ing

low

=

22.

08

Swin

g H

igh

Swin

g Lo

w

0.00

0 (2

3.10

)

1.00

0 (1

8.76

)

0.23

6 (2

2.08

)

0.38

2 (2

1.44

)

0.50

0 (2

0.93

)

0.61

8 (2

0.42

)

0.76

4 (1

9.78

)

27.0

0

26.0

0

25.0

0

24.0

0

23.0

0

22.0

0

21.0

0

20.0

0

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23.0

4

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Instant Profits 64

AS LONG AS the 23.6% Fibonacci Retracement Level from the last Swing High (Figure

17) is greater than the EMA Buy Point. (Whenever the Fibonacci 23.6% Retracement

Level is less than the EMA Buy Point, you simply pass on the trade because the

probability of our stop being hit is much higher when this is the case.)

Fibonacci 23.6% Retracement Level

Must be > EMA Buy Point

Our Example: 22.08 > 21.55

Since the Fibonacci 23.6% Retracement Point of 22.08 is greater than the EMA Buy

Point of 21.55, we have a valid EMA Buy Point of 21.55

We do this by placing a Buy Limit order good for the next bar which means that we only

want to buy if the market trades at or below the limit price during the next bar of price

activity (Figure 18).

The Entry Order

BUY at EMA Buy Point LIMIT

Our Example: BUY at 21.55 LIMIT

In our example, the market opens at 21.47 just below our limit price of 21.55, so we get

filled at 21.47 on the open. We are now long the market!

Instant Profits 65



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b

EMA

= 2

1.81

Low

er B

and

= 20

.50

Nex

t Bar

Entr

y Po

int =

21.

81 -

1/5

X (2

1.81

- 20

.50)

= 21

.55

Plac

e a

buy

orde

r to:

Buy

at t

he E

MA

Buy

Poi

nt

of 2

1.55

good

for t

he b

ar o

nly

The

mar

ket o

pens

at 2

1.47

and

we

are

fille

d on

the

open

at 2

1.47

0.00

0 (2

3.09

)

1.00

0 (1

8.79

)

0.23

6 (2

2.08

)

0.38

2 (2

1.45

)0.

500

(20.

94)

0.61

8 (2

0.43

)

0.76

4 (1

9.80

)

29.0

0

28.0

0

27.0

0

26.0

0

25.0

0

24.0

0

23.0

0

22.0

0

21.0

0

20.0

0

19.0

0

18.0

0

17.0

0

16.0

0

28.2

2

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Instant Profits 66

Action Exercises 1. For a long trade, complete the following formula to calculate the EMA Buy Point:

__________ - 1/5 X ( __________ - __________ )

2. When considering a long trade, the Fibonacci 23.6% Retracement Level must be

a. Less than the EMA Buy Point

b. Greater than the EMA Buy Point

c. At least 75% greater than the last Swing High

d. At least 23.6% less than the last Swing Low

3. Which of the following is the correct Entry Order for a long trade?

a. BUY at 23.6% Fibonacci Retracement Level LIMIT

b. BUY at EMA Buy Point STOP

c. BUY at last Swing High – 1/5 EMA LIMIT

d. BUY at EMA Buy Point LIMIT

Notes ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

Instant Profits 67

4. Stop Point To Limit Losses

Now that we are long, we need to immediately place a Stop Order to limit losses and

protect our capital. The placement of stops is by far the most difficult aspect of trading.

Entering a trade is easy, but managing a trade properly once entered is the difference

between the pros and amateurs - the winners and losers. With Instant Profits, we simply

set the Stop Order at just below the lower band of the entry bar (Figure 19). How far

below can vary depending on the market you are trading from a few cents to 0.5% of the

closing price. I have found that when trading stocks, a 0.5% stop below the lower band is

recommended.

The Stop Order To Limit Losses

SELL to Cover Long at Just Below the Lower Band of the Entry Bar STOP

Our Example: Sell to Cover Long at 20.52 Stop

Action Exercises

What is the correct Stop Order to limit losses for a long position?

a. SELL to Cover Long at Just Below the Lower Band of the Entry Bar

LIMIT

b. SELL to Cover Long at Just Below the Lower Band of the Entry Bar

STOP

c. SELL to Cover Long at the EMA Buy Point STOP

d. SELL to Cover Long at the 23.6% Fibonacci Retracement Level

Instant Profits 68

Notes ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

Instant Profits 69


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Entr

y B

ar

Stop

Los

s ju

st b

elow

the

low

er b

and

Sell

to c

over

long

at 2

0.52

sto

p;

29.0

0

28.0

0

27.0

0

26.0

0

25.0

0

24.0

0

23.0

0

22.0

0

21.0

0

20.0

0

19.0

0

18.0

0

17.0

0

29.1

5

Feb

2004

Dec

Nov

Oct

Sep

08/1

4/03

Figure 19 – Stop Order To Limit Losses

Instant Profits 70

5. Profit Target Point We are now long, and have entered a protective stop order to limit losses so that no

matter what happens from here we limit our risk in the trade. We can now enter an order

to take profits at our Profit Target Point.

With Instant Profits, we want to sell on strength at the upper band of the entry bar

(Figure 20).

The Profit Target Order

SELL at the Upper Band of the Entry Bar LIMIT

Our Example: SELL at 23.16 LIMIT

We are now long with both a stop order to protect our capital and a limit order to

take profits at a pre-determined profit target point. The basic method then is to hold these

two exit points as open orders until one of them is filled and at that time cancel the other.

(Later, we will cover alternate exit strategies that include trailing stops.) In our example,

the profit target limit order was filled two bars after entry bar at our limit price of 23.16

(Figure 21).

Instant Profits 71


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Entr

y B

ar

Prof

it Ta

rget

Poi

nt a

t upp

er b

and

Sell

to c

over

long

at 2

3.16

Lim

it;

29.0

0

28.0

0

27.0

0

26.0

0

25.0

0

24.0

0

23.0

0

22.0

0

21.0

0

20.0

0

19.0

0

18.0

0

17.0

0

29.5

6

Feb

2004

Dec

Nov

Oct

Sep

09/1

5/03

Figure 20 – Profit Target Order

Instant Profits 72


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Entr

y B

ar

Take

Pro

fits

at u

pper

ban

d

Sold

at 2

3.16

Lim

it;

Exit

Bar

29.0

0

28.0

0

27.0

0

26.0

0

25.0

0

24.0

0

23.0

0

22.0

0

21.0

0

20.0

0

19.0

0

18.0

0

28.9

4

Feb

2004

Dec

Nov

Oct

Sep

10/0

1/03

Figure 21 – Profit Target Order

Instant Profits 73

Action Exercises 1. What is the correct Profit Target Order for a long position?

a. SELL at the Lower Band of the Entry Bar STOP

b. SELL at the Lower Band of the Entry Bar LIMIT

c. SELL at the Upper Band of the Entry Bar STOP

d. SELL at the Upper Band of the Entry Bar LIMIT

Notes ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

Instant Profits 74

Trade Analysis

In our example, we risked 1.03 points (21.55 entry - 20.52 stop loss) to gain a profit of

1.61 (23.16 profit target - 21.55 entry) and we were successful in closing out the trade

two bars later at the profit target. This gives us a very favorable profit target about 60%

higher than the risk in the trade. The typical risk / reward scenario for Instant Profits

yields a gain that is about 60% higher than the average risk in the trade.

With Instant Profits our goal is to win up to 60% of the time with the average

winning trade about 60% higher than the average losing trade (or 1.6, for use with our

Profit Factor formula). If this goal were achieved for a series of trades the Profit Factor

would be:

60% WinnersProfit Factor = 1.6 X

40% Losers = 2.40

Instant Profits 75

Conservative Tactics

1. Once the Longer Term Moving Average turns higher, there are usually at least

two trades that develop before the trend reverses and turns lower and it is not

uncommon for both of those trades to be winners. A third and fourth and

sometimes fifth winning trade in a row is possible, but the odds of a loser

occurring after two winners in a row increases. So, a conservative approach

would be to stand aside after two winners in a row, until the next longer term

trend reversal. As you zero in on the market(s) you want to trade, with experience

you will be able to tell with which markets you may want to use this conservative

approach.

2. Another conservative approach is as follows: Once a trade has been entered, an

alternate strategy to reduce the risk in the trade as it moves in your favor would be

to move the Stop Loss up after the third bar after the Entry Bar to just below the

Lowest Low since and including the Entry Bar (Figure 22). This strategy will

reduce the risk in the trade, but will on occasion stop you out prematurely in what

would have otherwise been a profitable trade. Again, as you zero in on the

market(s) you want to trade, with experience you will be able to tell with which

markets you may want to use this conservative approach.

3. Another conservative approach is as follows: Once the trade has been entered, if

the open profit is equal to or greater than the initial risk in the trade then change

the Stop Loss to breakeven. You now have a free trade; you will either be

stopped-out at no loss or hit the profit target for a nice profit. Again, this strategy

will reduce the risk in the trade, but will on occasion stop you out prematurely in

what would have otherwise been a profitable trade. As you zero in on the

market(s) you want to trade, with experience you will be able to tell with which

markets you may want to use this conservative approach.

Instant Profits 76

4. This tactic concerns an additional screen that can be done to further increase our

probability of success on the next trade. Because every stock or futures chart will

display its unique volatility and pattern of prices, by observation we can

determine if the particular market under consideration for a trade is “behaving”

according to our expectations. An objective way to do this is to simply look back

60 bars and identify the trades that would have been made. If there were more

winners than losers, that suggests that this stock is indeed “behaving” as expected

and it is one that merits further consideration. If, on the other hand, there were

more losers than winners, then we simply pass on this market and go on to the

next. This screen will keep us out of markets that are trading in an erratic or

haphazard fashion where we are more likely to be whipsawed out of a trade with a

loss.

5. With Instant Profits you want to be fairly impatient with your trades. If you put a

trade on and don’t get stopped-out or show a good profit after 8 bars following

entry bar, then simply close out the trade at the Market. The chances are if the

trade has not moved in your favor after 8 bars then it isn’t going to, and so you

might as well limit your risk. If this happens, close the trade out and go on to the

next opportunity.

Applying these conservative tactics is a good way of further reducing risk and

possibly even achieving even better results.

As mentioned previously, you can refer to Table 2 and Table 3, The Long and Short

Trades Blueprints, for an easy-to-follow complete overview of trading with Instant

Profits. I recommend you use these blueprints for every trade, even after you become

experienced.

Instant Profits 77

WAG - Walgreen Company, Daily - Advanced GET ©2004 eSignal

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Buy

Lon

g

Buy

Lon

g

Hit

Prof

it Ta

rget

1 23

1 23

Mov

e st

op u

p to

her

eaf

ter 3

rd b

arM

ove

stop

up

to h

ere

afte

r 3rd

bar

Stop

ped-

out w

ithsm

alle

r los

e w

ithco

nser

vativ

e ap

proa

chSt

op h

eld

- red

uced

risk

with

cons

erva

tive

appr

oach

Long

er T

erm

Tre

nd

38.0

0

37.5

0

37.0

0

36.5

0

36.0

0

35.5

0

35.0

0

34.5

0

34.0

0

33.5

0

33.0

0

32.7

5

Aug

Jul

Jun

May

09/0

1/04

Figure 22 – Conservative Tactic #2

Instant Profits 78

Table 2 – Long Trades Blueprint

Cop

yrig

ht ©

Pro

fits

Run

, In

c.

Re

v 08

-200

5040

3

INST

AN

T PRO

FITS

: LO

NG

TRA

DES

BLUE

PRIN

T 1.

PLO

T THE

CHA

RT

Sym

bol:

___

____

___

Date

: __

___

____

_ T

ime F

ram

e:

W

eekl

y

Dai

ly

H

ourl

y

5

-Min

ute

a.

Inse

rt S

hort

Ter

m E

xpon

ential

M

ovin

g Ave

rage

(EM

A)

In

pu

t S

etti

ng

Pric

e C

lose

Le

ngth

7-

14

Dis

plac

e 0

b.

Inse

rt S

hort

Ter

m M

ovin

g Ave

rage

Env

elop

es

In

pu

t S

etti

ng

Pric

e H

igh

Pr

ice

Low

C

lose

Leng

th

[sam

e as

EM

A]

% A

bove

%

Bel

ow

[Var

iabl

e –

Cap

ture

95%

pri

ce

acti

on o

f th

e la

st 6

0 b

ars]

c.

Inse

rt L

ong

Term

Mov

ing

Ave

rage

(M

A)

In

pu

t S

etti

ng

Pric

e C

lose

Le

ngth

[5

X EM

A]

Dis

plac

e 0

EM

A L

eng

th:

%

Abo

ve /

% B

elow

:

Len

gth

:

2. S

ETUP

CO

NDI

TIO

NS

3.

EN

TRY

POIN

T a.

Cal

cula

te E

MA B

uy L

ong

Poin

t:

- 1/

5 X

(

-

) =

Last

Bar

EM

A

- 1/

5 X

( La

st B

ar

EMA

- Lo

wer

Ban

d )

=

EM

A B

uy

Poin

t b

. App

ly F

ibon

acci

Ret

race

men

t Le

vel i

ndic

ator

23.6

% F

ibon

acci

Ret

race

men

t Le

vel >

EM

A B

uy P

oint

? Y

N

If y

es,

BU

Y A

T [

EM

A B

UY

PO

INT]

LIM

IT.

Oth

erw

ise,

sta

nd a

side

.

4. S

TOP

POIN

T TO

LIM

IT L

OSS

ES

a.

Cal

cula

te S

top

Poin

t &

pla

ce o

rder

: Lo

wer

ban

d of

MA

env

elop

e of

ent

ry b

ar:

____

____

- u

p to

0.5

% o

f clo

sing

pri

ce =

SELL

AT [

STO

P P

OIN

T]

STO

P

b.

Plac

e op

tion

al fol

low

-up

stop

s (C

onse

rvat

ive

Tact

ics)

:

If a

t le

ast

3 b

ars

have

pas

sed,

mov

e st

op u

p to

0.5

%

belo

w lo

wes

t lo

w s

ince

& in

cludi

ng e

ntry

bar

:

SE

LL A

T [

NE

W S

TO

P P

OIN

T]

STO

P

If o

pen

prof

it >

= in

itial

ris

k, m

ove

stop

to

brea

keve

n:

SE

LL A

T [

BR

EA

KEV

EN

PO

INT

] ST

OP

5. P

ROFI

T TA

RGET

PO

INT

a.

Long

ter

m M

A m

ovin

g hi

gher

? Y

N

b1

. H

H5

>=

Upp

er B

and

and

<

75%

abo

ve U

pper

Ban

d?

O

R

b2

. H

H5

< U

pper

Ban

d an

d Lo

w

of a

t le

ast

1 ba

r >

EM

A?

Y N

c.

SPE

CIA

L C

ASE

avoi

ded?

Y

N

If

all

cond

itio

ns =

YES

, pr

ocee

d.

Oth

erw

ise,

sta

nd a

side

.

(HH

5 =

Hig

hest

Hig

h of

Las

t 5

Bar

s)

Q

UA

LIFIE

R:

No

Bea

rish

Div

erge

nce

Pres

ent

a.

Cal

cula

te P

rofit

Tar

get

Poin

t &

pla

ce o

rder

:

Upp

er b

and

of M

A e

nvel

ope

of e

ntry

bar

=

SELL

AT [

PR

OFIT

TA

RG

ET P

OIN

T]

LIM

IT

Instant Profits 79

Table 3 – Short Trades Blueprint

Cop

yrig

ht ©

Pro

fits

Run

, In

c.

Re

v 08

-200

5040

3

INST

AN

T PRO

FITS

: SHO

RT TR

ADE

S BL

UEPR

INT

1. P

LOT T

HE C

HART

S

ym

bol:

___

____

___

Date

: __

___

____

_ T

ime F

ram

e:

W

eekl

y

Dai

ly

H

ourl

y

5

-Min

ute

a.

Inse

rt S

hort

Ter

m E

xpon

ential

M

ovin

g Ave

rage

(EM

A)

In

pu

t S

etti

ng

Pric

e C

lose

Le

ngth

7-

14

Dis

plac

e 0

b.

Inse

rt S

hort

Ter

m M

ovin

g Ave

rage

Env

elop

es

In

pu

t S

etti

ng

Pric

e H

igh

Pr

ice

Low

C

lose

Leng

th

[sam

e as

EM

A]

% A

bove

%

Bel

ow

[Var

iabl

e –

Cap

ture

95%

pri

ce

acti

on o

f th

e la

st 6

0 ba

rs]

c.

Inse

rt L

ong

Term

Mov

ing

Ave

rage

(M

A)

In

pu

t S

etti

ng

Pric

e C

lose

Le

ngth

[5

X EM

A]

Dis

plac

e 0

EM

A L

eng

th:

%

Abo

ve /

% B

elow

:

Len

gth

:

2. S

ETUP

CO

NDI

TIO

NS

3.

EN

TRY

POIN

T a.

Cal

cula

te E

MA S

ell S

hort

Poi

nt:

+

1/5

X

(

-

) =

Last

Bar

EM

A

+

1/5

X

( U

pper

Ban

d -

Last

Bar

EM

A

) =

EM

A S

ell

Sh

ort

Poin

t b

. App

ly F

ibon

acci

Ret

race

men

t Le

vel i

ndic

ator

23.6

% F

ibon

acci

Ret

race

men

t Le

vel <

EM

A S

ell S

hort

Poi

nt?

Y

N

If y

es,

SELL

AT [

EM

A S

ELL

SH

OR

T P

OIN

T]

LIM

IT.

Oth

erw

ise,

sta

nd a

side

.

4. S

TOP

POIN

T TO

LIM

IT L

OSS

ES

a.

Cal

cula

te S

top

Poin

t &

pla

ce o

rder

: U

pper

ban

d of

MA

env

elop

e of

ent

ry b

ar:

____

___

+ u

p to

0.5

% o

f cl

osin

g pr

ice

=

B

UY

AT [

STO

P P

OIN

T]

STO

P

b.

Plac

e op

tion

al fol

low

-up

stop

s (C

onse

rvat

ive

Tact

ics)

:

If a

t le

ast

3 b

ars

have

pas

sed,

mov

e st

op d

own

to 0

.5%

ab

ove

high

est

high

sin

ce &

incl

udin

g en

try

bar:

BU

Y A

T [N

EW

ST

OP

PO

INT

] S

TO

P

If o

pen

prof

it >

= in

itial

ris

k, m

ove

stop

to

brea

keve

n:

BU

Y A

T [B

RE

AK

EVE

N P

OIN

T]

STO

P

5. P

ROFI

T TA

RGET

PO

INT

a.

Long

ter

m M

A m

ovin

g lo

wer

? Y

N

b1

. LL

5 <

= L

ower

Ban

d an

d >

75

% b

elow

Low

er B

and?

OR

b2

. LL

5 >

Low

er B

and

and

Hig

h of

at

leas

t 1

bar

< E

MA?

Y N

c.

SPE

CIA

L C

ASE

avoi

ded?

Y

N

If

all

cond

itio

ns =

YES

, pr

ocee

d.

Oth

erw

ise,

sta

nd a

side

.

(LL5

= L

owes

t Lo

w o

f La

st 5

Bar

s)

Q

UA

LIFIE

R:

No

Bul

lish

Div

erge

nce

Pres

ent

a.

Cal

cula

te P

rofit

Tar

get

Poin

t &

pla

ce o

rder

:

Low

er b

and

of M

A e

nvel

ope

of e

ntry

bar

=

BU

Y A

T [

PR

OFIT

TA

RG

ET P

OIN

T]

LIM

IT

Instant Profits 80

Action Exercises

1. With Instant Profits our goal is to win about _____ % of the time with the average

winning trade about _____ % higher than the average losing trade.

2. A conservative approach would be to stand aside after how many winning trades

in a row in the same market (same stock, futures contract, etc.)?

a) One b) Two c) Three d) Four

3. Once a trade has been entered, an alternate strategy to reduce the risk in the trade

as it moves in your favor would be to move the Stop Loss up after the ________

bar after the Entry Bar to just below the ____________ since and including the

Entry Bar.

4. Another conservative approach is as follows: Once the trade has been entered, if

the open profit is equal to or greater than the initial risk in the trade then change

the Stop Loss to ____________.

Notes ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

Instant Profits 81

Case Studies: Setup Condition b1

Now let’s look at some examples of trades using Instant Profits in several different

markets and in different time frames. These examples highlight trades supported by Setup

Condition b1.*

*The examples used in the course are exceptional results used for educational purposes. No representation or implication is being made that Instant Profits students can or will produce profits or guarantee freedom from loss. Only risk capital should be used to trade. Losses can and will occur. Futures, forex, stock, and options trading is not appropriate for everyone.

Figure 23: TNB – Daily Chart

This is a daily chart of TNB. As you can see, the Longer Term Moving Average is up

since late March with four long trades; three of which hit their respective Profit Targets

and one that was stopped out. An additional potential buy signal was negated since the

preceding Swing High exceeded the Upper Band by more than 75% of the difference

between the Upper Band and the short term EMA. Also, you can see that we applied the

Fibonacci Retracement Levels to the first trade to verify that the 23.6% level from the last

Swing High is above the EMA Buy Point; and indeed it is, so the Entry Point is valid.

Also, the first trade was initially supported by a b1 setup and then followed by a b2 setup.

(Note: For the other trades on this chart and the other charts in the Case Studies,

we will not show the Fibonacci Retracement Levels so that the chart details are easier to

read; but in each of these trades the Fibonacci test was applied and met.)

Figure 24: WCC – Daily Chart

This is a daily chart of WCC. The Longer Term Moving Average is up. Two long trades

are shown, both hitting their respective Profit Targets. Also shown is a potential buy

Instant Profits 82

signal that was negated since the Setup Condition 2c (the Special Case) occurred when

the preceding high was greater than the Swing High (that exceeded the Upper Band), but

less than the Upper Band.

Instant Profits 83

Figure 23 - Case Study for TNB, Daily Chart

TNB - Thomas & Betts Corporatio, Daily - Advanced GET ©2004 eSignal

#183

-0.3

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74

Buy

Lon

g

Buy

long

Buy

Lon

gB

uy lo

ngH

it Pr

ofit

Targ

et

Hit

Prof

it Ta

rgetHit

Prof

it Ta

rget

Stop

ped

Out

Hig

h 75

% h

ighe

r tha

n U

pper

Ban

d - S

tand

asi

de

Long

er T

erm

Mov

ing

Ave

rage

0.00

0 (2

3.15

)

1.00

0 (2

0.72

)

0.23

6 (2

2.58

)0.

382

(22.

22)

0.50

0 (2

1.93

)0.

618

(21.

65)

0.76

4 (2

1.29

)

29.0

0

28.0

0

27.0

0

26.0

0

25.0

0

24.0

0

23.0

0

22.0

0

21.0

0

20.0

0

29.5

0

Aug

Jul

Jun

May

Apr

Mar

03/2

5/04

Instant Profits 84

WCC - WESCO International Inc., Daily - Advanced GET ©2004 eSignal

#181

+0.0

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Long

er T

erm

Mov

ing

Ave

rage

Buy

Lon

g

Buy

Lon

g

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Hig

h >

Swin

g H

igh

and

< U

pper

Ban

d,st

and

asid

e

21.0

0

20.0

0

19.0

0

18.0

0

17.0

0

16.0

0

15.0

0

14.0

0

13.0

0

20.9

7

Aug

Jul

Jun

May

Apr

Mar

03/0

2/04

Figure 24 - Case Study for WCC, Daily Chart

Instant Profits 85

Figure 25: RGF – 60 Minute Chart

This is a 60 minute chart of RGF. The Longer Term Moving Average is up with three

long trades highlighted. Two trades hit their respective Profit Targets and one was

stopped out. An important lesson can be learned from the trade that was stopped out. As

you can see, after the trade was stopped out, the market turned on a dime and went

straight up to what would have otherwise been a profitable trade – this experience can

lead you to question the use of stops. Don’t fall into that trap! Just because this particular

trade was prematurely stopped out, with our method of placing stops the odds are that

most of the time when our stop is hit we want to be out of the trade because the market

usually continues to trade against our position. Amateurs will look at this trade as a

reason to change their stop placement or ignore stops altogether; professional traders do

not! ANY TIME FRAME – 60 MINUTE BAR CHART!

Figure 26: BGEN – Daily Chart

This is a daily chart of BGEN. The Longer Term Moving Average was initially down,

producing two short trades both of which hit their respective Profit Targets. Also shown

is a potential short signal that was negated by Setup Condition 2c (the Special Case) since

the preceding low was less than the potential Swing Low (that exceeded the Lower Band)

but greater than the Lower Band. The Longer Term Moving Average then turned up and

produced two long trades; one of which hit its Profit Target and the other which was

stopped out. The Longer Term Moving Average then turned back down producing a

short trade that hit its Profit Target.

Figure 27: PAYX – Daily Chart

This a daily chart of PAYX. The Longer Term Moving Average is down with three short

trades highlighted. Two of the trades hit their respective profit targets and the other was

stopped out.

Instant Profits 86

RGF - R&G Financial Corporation, 60 - Advanced GET ©2004 eSignal

#110

-0.0

208

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:34.

38H

:34.

45L:

34.2

5C

:34.

33

Long

er T

erm

Mov

ing

Ave

rage

Buy

Lon

gB

uy L

ong

Buy

Lon

g

Stop

ped

Out

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

34.5

0

34.0

0

33.5

0

33.0

0

32.5

0

32.0

0

31.5

0

31.0

0

34.8

1

08/0

09:3

009

:30

09:3

009

:30

07/2

6/04

09:3

009

:30

09:3

009

:30

07/1

9/04

09:3

009

:30

09:3

009

:30

07/1

2/04

07/1

4/04

- 14

:30

Figure 25 - Case Study for RGF, 60 Minute Chart

Instant Profits 87

Figure 26 - Case Study for BGEN, Daily Chart

BGEN - Biogen Inc., Daily - Advanced GET ©2004 eSignal

#192

+0.0

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:38.

55H

:39.

15L:

38.0

2C

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Long

er T

erm

Mov

ing

Aver

age

Long

er T

erm

Mov

ing

Aver

age

Long

er T

erm

Mov

ing

Ave

rage

Sell

Shor

t Sell

Shor

tSe

ll Sh

ort

Buy

Lon

gB

uy L

ongSt

oppe

d O

ut

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Low

< p

revi

ous

Low

er B

and

LL5

and

> Lo

wer

Ban

d - s

tand

asi

de

47.0

0

46.0

0

45.0

0

44.0

0

43.0

0

42.0

0

41.0

0

40.0

0

39.0

0

38.0

0

37.0

0

36.0

0

35.0

0

47.1

3

Nov

Oct

Sep

Aug

Jul

06/1

1/03

Instant Profits 88

PAYX - Paychex Inc., Daily - Advanced GET ©2004 eSignal

#216

-0.2

508

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:30.

06H

:30.

15L:

29.6

4C

:29.

80

Sell

Shor

t

Sell

Shor

t

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Hit

Sell

Shor

t Stop

ped

Out

Long

er T

erm

Mov

ing

Aver

age

41.0

0

40.0

0

39.0

0

38.0

0

37.0

0

36.0

0

35.0

0

34.0

0

33.0

0

32.0

0

31

May

Apr

Mar

Feb

2004

Dec

04/2

3/04

Figure 27 - Case Study for PAYX, Daily Chart

Instant Profits 89

Figure 28: PSUN – Daily Chart

This is a daily chart of PSUN. The Longer Term Moving Average is down. Three short

trades are shown; of which all three hit their respective Profit Targets. Two additional

potential short signals were negated since the preceding Swing Low exceeded the Lower

Band by more than 75% of the difference between the Lower Band and the short term

EMA. Are you excited yet?

Figure 29: APC – Weekly Chart

This is a weekly chart of APC. Once the Longer Term Moving Average turned up, four

long trades were made, each hitting their respective Profit Targets. ANY TIME FRAME

– WEEKLY BAR CHART!

Figure 30: HTCH – Weekly Chart

This is a weekly chart of HTCH. Initially, the Longer Term Moving Average was up

producing three long trades; two of which hit their respective Profit Targets with the

other stopped out. Two additional potential Buy Signals were negated since the

preceding Swing High exceeded the Upper Band by more than 75% of the difference

between the Upper Band and the short term EMA. Then the Longer Term Moving

Average turned down producing two short trades both of which hit their respective Profit

Targets.

Instant Profits 90

PSUN - Pacific Sunwear of CA, Daily - Advanced GET ©2004 eSignal

#187

+0.1

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42H

:19.

83L:

19.0

0C

:19.

65

Sell

Shor

t

Sell

Shor

t

Sell

Shor

t

Low

75%

low

er th

anLo

wer

Ban

d - S

tand

Asi

de

Low

75%

low

er th

anLo

wer

Ban

d - S

tand

Asi

de

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Long

er T

erm

Mov

ing

Ave

rage

25.0

0

24.0

0

23.0

0

22.0

0

21.0

0

20.0

0

19.0

0

18.0

0

17.0

0

25.9

0

Aug

Jul

Jun

May

Apr

Mar

03/1

0/04

Figure 28 - Case Study for PSUN, Daily Chart

Instant Profits 91

APC - Anadarko Petroleum Corpor, Weekly - Advanced GET ©2004 eSignal

#236

+1.3

608

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:57.

00H

:59.

45L:

55.5

2C

:58.

39

Long

er T

erm

Mov

ing

Ave

rage

Buy

Lon

g

Buy

Lon

gBuy

Lon

g

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rgetHit

Prof

it Ta

rget

60.0

0

55.0

0

50.0

0

45.0

0

61.6

8

2004

05/3

0/03

Figure 29 - Case Study for APC, Weekly Chart

Instant Profits 92

Figure 30 - Case Study for HTCH, Weekly Chart

HTCH - Hutchinson Technology, Weekly - Advanced GET ©2004 eSignal

#201

+1.0

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:25.

48H

:26.

84L:

25.3

5C

:26.

09

Long

er T

erm

Mov

ing

Ave

rage

Buy

Lon

g

Buy

Lon

g Buy

Lon

g

Stop

ped

Out

Hig

h 75

% h

ighe

r tha

nU

pper

Ban

d - S

tand

Asi

deH

igh

75%

hig

her t

han

Upp

er B

and

- Sta

nd A

side

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Sell

Shor

t Sell

Shor

t

Long

er T

erm

Mov

ing

Ave

rage

40.0

0

35.0

0

30.0

0

25.0

0

20.0

0

41.1

4

2004

2003

10/1

8/02

Instant Profits 93

Figure 31: ISIL – Weekly Chart

This is a weekly chart of ISIL. Initially, the Longer Term Moving Average was up

generating two long trades, one of which hit the Profit Target and the other stopped-out.

Then the Longer Term trend turned down and generated two short trades that were both

winners. Keep in mind, that even when we are stopped-out of a trade, the average loss is

only 60% of the average winner which should reinforce your discipline to adhere to the

stop loss point, with no second guessing.

Figure 32: CVH – Weekly Chart

This is a weekly chart of CVH. The Longer Term Moving Average is up generating 5

winning long trades and no losing trades. An additional potential buy signal was negated

since the preceding Swing High exceeded the Upper Band by more than 75% of the

difference between the Upper Band and the short term EMA.

Figure 33: E-mini NASDAQ Futures – 5

Minute Chart

This is a 5 minute chart of the E-mini NASDAQ futures market. The Longer Term

Moving Average is up. Three winning trades were made during this run, all occurring

the same day. ANY TIME FRAME – EVEN THE 5 MINUTE BAR CHART!**

**Futures trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using the Instant Profits methodology or system will generate profits or ensure freedom from losses.

Instant Profits 94

Figure 31 - Case Study for ISIL, Weekly Chart

ISIL - Intersil Corporation, Weekly - Advanced GET ©2004 eSignal

#138

-0.1

909

/03/

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50H

:17.

74L:

16.9

0C

:17.

43

Long

er T

erm

Mov

ing

Ave

rage

Sell

Shor

t Sell

Shor

t

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Buy

Lon

g

Hit

Prof

it Ta

rget

Long

er T

erm

Mov

ing

Aver

age

30.0

0

25.0

0

20.0

0

15.0

0

33.0

0

2004

2003

10/1

1/02

Instant Profits 95

Figure 32 - Case Study for CVH, Weekly Chart

CVH - Coventry Health Care Inc, Weekly - Advanced GET ©2004 eSignal

#225

-0.0

309

/03/

04O

:50.

60H

:50.

83L:

49.7

5C

:50.

78

Buy

Lon

g

Buy

Lon

g

Buy

Lon

g

Buy

Lon

gB

uy L

ong

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Hig

h 75

% h

ighe

r tha

nU

pper

Ban

d - S

tand

Asi

de

Long

er T

erm

Mov

ing

Ave

rage

60.0

0

55.0

0

50.0

0

45.0

0

40.0

0

35.0

0

30.0

0

25.0

0

20.0

0

15.0

0

64.5

0

2004

2003

03/2

8/03

Instant Profits 96

Figure 33 - Case Study for E-mini NASDAQ Futures, 5 Minute Chart**

Instant Profits 97

Figure 34: Sugar Futures – Daily

Chart

This is a daily chart of the Sugar futures market. The Longer Term Moving Average is

up. Five long trades were made of which four hit their respective Profit Targets, the other

being stopped out. An additional potential Buy Signal was negated since the preceding

Swing High exceeded the Upper Band by more than 75% of the difference between the

Upper Band and the short term EMA.*

*Futures trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using the Instant Profits methodology or system will generate profits or ensure freedom from losses.

As you can see from analyzing these charts, Instant Profits is indeed applicable to

any market and in any time frame; from the weekly chart examples to the 5 min chart

example. The time frame you choose is a matter of what fits best with your trading style.

A WORD OF CAUTION!

When you begin to experience the power of applying Instant Profits to the market, any

market, any time frame, and you begin to win, you will be tempted to become reckless in

your trading, thinking you can do no wrong. Or the reverse will happen; you may have

three losing trades in a row. You will be tempted to increase the amount of risk per trade,

ignore stop loss points, or overstay a profitable trade hoping for more than your profit

target. You may even be tempted to just jump into the market abandoning your trading

method altogether. These tendencies driven by greed will cause your trading account to

suffer. When this happens to you, recognize it for what it is and don’t do it! Catch your

breath and read this entire course again until you can handle the power. I can’t stress

enough how important this is!

Instant Profits 98

Figure 34 - Case Study for Sugar Futures, Daily Chart**

Instant Profits 99

Instant Profits 100

Case Studies: Setup Condition b2

Now let’s look at a few more examples of trades using Instant Profits. These examples

highlight trades supported by Setup Condition b2.*

*The examples used in the course are exceptional results used for educational purposes. No representation or implication is being made that Instant Profits students can or will produce profits or guarantee freedom from loss. Only risk capital should be used to trade. Losses can and will occur. Futures, forex, stock, and options trading is not appropriate for everyone.

Figure 35: EMR – Daily Chart

This is a daily chart of EMR. As you can see the longer term moving average is up with

three profitable long trades all with the b2 Setup Condition.

Figure 36: ETR – Weekly Chart

This is a weekly chart of ETR. A b2 Setup Condition occurred after three consecutive b1

Setup Conditions and entries. Can you identify the b1 setups? ANY TIME FRAME –

WEEKLY BAR CHART WITH B2 SETUP CONDITION!

Instant Profits 101

Figure 35 – Case Study for EMR, Daily Chart

EMR - Emerson, Daily - Advanced GET ©2004 eSignal

#74

-0.1

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90H

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93L:

62.1

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58

*

*

*

Buy

Lon

gB

uy L

ong

Long

er T

erm

Tre

nd

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

rget

HH

5 <

Upp

er B

and

Con

ditio

n b2

*

Buy

Lon

g

70.0

0

65.0

0

60.0

0

55.0

0

74.5

1

Ma

Feb

2004

Dec

Nov

Oct

10/1

5/03

Instant Profits 102

Figure 36 – Case Study for ETR, Weekly Chart

ETR - Entergy Corporation, Weekly - Advanced GET ©2004 eSignal

#197

+0.4

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:60.

58H

:61.

05L:

60.4

9C

:61.

05

*H

H5

< U

pper

Ban

dC

ondi

tion

b2*

Buy

Lon

g

Hit

Prof

it Ta

rget

Long

er T

erm

Mov

ing

Ave

rage

60.0

0

55.0

0

50.0

0

45.0

0

40.0

0

64.7

0

2004

2003

09/2

0/02

Instant Profits 103

Action Exercises Now it’s time to try out Instant Profits from scratch and by yourself! Refer to the Long

and Short Trades Blueprints to assist in your understanding. Take your time. In each

exercise, you will be given a blank chart and you will be asked to identify all the trading

opportunities. The answers are provided, but try not to look ahead until you think you’ve

identified all the trading opportunities.

1. Apply Instant Profits to the chart in Figure 37 and identify all of the long and

short trading opportunities. The answers are displayed in Figure 38. Hint: There

are 3 Buy Long opportunities and 3 Sell Short opportunities.

2. Apply Instant Profits to the chart in Figure 39 and identify all of the long and

short trading opportunities. The answers are displayed in Figure 40. Hint: There

are 5 Buy Long opportunities and no Sell Short opportunities.

Instant Profits 104

Figure 37 – Example 1

BRCM - Broadcom Corporation, Daily - Advanced GET ©2004 eSignal

#227

-1.4

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/03/

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:26.

93H

:26.

98L:

26.0

1C

:26.

15

50.0

0

45.0

0

40.0

0

35.0

0

30.0

0

25.0

0

49.6

6

Sep

Aug

Jul

Jun

05/2

0/04

Instant Profits 105

Figure 38 – Example 1 Answers

BRCM - Broadcom Corporation, Daily - Advanced GET ©2004 eSignal

#218

-1.4

509

/03/

04O

:26.

93H

:26.

98L:

26.0

1C

:26.

14

Buy

Lon

g

Buy

Lon

g

Sell

Shor

t Sell

Shor

t

Sell

Shor

t

Prof

it Ta

rget

Prof

it Ta

rget

Prof

it Ta

rget

Prof

it Ta

rget

Anot

her c

hanc

e to

Buy

Lon

g

Long

er T

erm

Ave

rage

Up

Long

er T

erm

Ave

rage

Dow

n

Stop

ped-

Out

50.0

0

45.0

0

40.0

0

35.0

0

30.0

0

25.0

0

20.0

0

48.8

5

Sep

Aug

Jul

Jun

05/0

7/04

Instant Profits 106

Figure 39 – Example 2

CSCO - Cisco Systems Inc., Weekly - Advanced GET ©2004 eSignal

#228

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:19.

33H

:19.

46L:

18.4

3C

:19.

30

30.0

0

25.0

0

20.0

0

15.0

0

10.0

0

31.2

5

2004

2003

04/1

8/03

Instant Profits 107

Figure 40 – Example 2 Answers

CSCO - Cisco Systems Inc., Weekly - Advanced GET ©2004 eSignal

#212

-0.1

709

/03/

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:19.

33H

:19.

46L:

18.4

3C

:19.

30

Buy

Lon

gB

uy L

ong

Buy

Lon

g

Buy

Lon

g

Hit

Prof

it Ta

rget

Hit

Prof

it Ta

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Prof

it Ta

rget

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nd F

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30.0

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0

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0

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0

10.0

0

31.7

8

2004

2003

12/2

7/02

Instant Profits 108

Suggested Trading Routine

Now that you are in a position to become a

winning trader, you need one more important

thing to be a consistent winner and that is a

trading routine. You must develop a routine

that you follow day in and day out so that your

trading discipline becomes second nature.

Time to Trade

Whatever routine you follow, it is critical that

you establish a Time to Trade. This is your

private time, away from your family and other commitments, where you will absolutely

not be interrupted. This will allow you to focus, with laser accuracy, on your trading

routine. You don’t need a lot of time, especially if you’re trading weekly charts. Find out

what time works best for you and try to find a time that you can consistently commit to.

Maybe it’s before your kids wake up, or maybe it’s right after you put them to bed. You

know best. Whatever time you choose, get out your calendar and write it down. If you use

an electronic calendar, schedule a recurring event with no expiration date. Without a

Time to Trade, your judgement can be muddled or influenced by distractions. Although

they may call it by other names, all true trading professionals have a Time to Trade.

Stocks: Daily & Weekly

The following is a suggested routine for trading stocks that I follow. It simplifies the

whole process of finding the best trades and is based on the Triple Screen Blueprints

(Table 4 and Table 5).

Instant Profits 109

On the first of each month I do a search using Advanced GET (any good trading

software will suffice) of all exchange traded stocks for High Volume Stocks, using

Screen A from the Triple Screen Blueprint.

SCREEN A: FIND THE HIGH VOLUME STOCKS Frequency: Monthly

Time Requirement: 20 Minutes

Price Range $10 - $200

Avg. Volume Past 50 Days >= 1 Million Shares

Of the 12,000+ stocks traded in the U.S., this screen will select about 500 high

volume candidates. It is important to select only high volume stocks for short term

trading for two reasons:

1. To insure liquidity so that we can easily enter and exit the market at favorable

prices.

2. To increase the likelihood of a selected stock to be an option-able stock for those

who trade options.

Instant Profits 110

Table 4 - Long Stock Trades Triple Screen Blueprint

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< L

ow o

f 2

Bar

s Bef

ore

Last

Bar

App

roxim

ate

ly

50

Sto

cks

Sele

cted

B N

ote

s: U

sing

the

Hig

h Vol

ume

Sto

cks

List

(fr

om S

cree

n A),

we

then

scr

een

for

the

Long

Sto

ck C

andi

date

s. W

e do

thi

s ea

ch t

ime

we

are

look

ing

for

a tr

ade

set-

up for

the

nex

t ba

r. Th

is s

cree

n ta

kes

only

a fra

ctio

n of

the

tim

e of

Scr

een

A b

ecau

se w

e ar

e sc

reen

ing

from

a m

uch

smal

ler

port

folio

to

begi

n w

ith.

Watc

h L

ist

Long

Sto

ck C

andi

date

s (F

rom

Scr

een

B)

Sto

cks

That

Mee

t All

Long

Tra

de

Set

up C

ondi

tions

(F

rom

Lon

g Tr

ades

Blu

eprint

Ste

p #

2)

App

roxim

ate

ly

20

Pote

nti

al

Tra

des

C N

ote

s: T

his

scre

en is

don

e by

vis

ual i

nspe

ctio

n by

fol

low

ing

Ste

ps 1

& 2

on

the

Inst

ant

Prof

its

Long

Tra

des

Blu

epri

nt.

Mos

t go

od

soft

war

e pa

ckag

es w

ill a

llow

you

to

set

up t

he b

asic

cha

rt s

etting

s ou

tlin

ed in

Ste

ps 1

& 2

and

then

ent

er e

ach

issu

e fr

om S

cree

n B,

whi

ch w

ill u

pdat

e th

e ch

art

data

for

tha

t is

sue.

Yo

u ca

n th

en a

djus

t th

e se

ttin

gs,

acco

rdin

g to

Ste

ps 1

& 2

. I

f th

e st

ock

char

t m

eets

th

e se

tup

cond

itio

ns in

Ste

p 2,

you

the

n ad

d th

at s

tock

to

your

wat

ch li

st,

proc

eed

to S

tep

3, c

alcu

late

the

ent

ry p

oint

, an

d en

ter

the

orde

r. If

not

, m

ove

on t

o th

e ne

xt s

tock

.

Instant Profits 111

Table 5 - Short Stock Trades Triple Screen Blueprint

Cop

yrig

ht ©

Pro

fits

Run

, In

c.

Re

v 04

-200

5040

3

INST

AN

T PRO

FITS

: SHO

RT S

TOC

K TR

ADE

S TR

IPLE

SC

REEN

BLU

EPRI

NT

SC

REEN

PO

RTFO

LIO

SC

REEN

ED

SCRE

ENIN

G P

ARA

MET

ERS

RESU

LTS

Pri

ce R

an

ge

$10

- $2

00

Hig

h V

olu

me

Sto

cks

All

trad

ed s

tock

s A

vg.

Volu

me P

ast

50

Days

>

= 1

Mill

ion

Sha

res

App

roxim

ate

ly

50

0 S

tock

s S

ele

cted

A No

tes:

It

is im

port

ant

to s

elec

t on

ly h

igh

volu

me

stoc

ks for

sho

rt t

erm

tra

ding

for

tw

o re

ason

s: 1

. To

insu

re li

quid

ity

so t

hat

we

can

easi

ly e

nter

and

exi

t th

e m

arke

t at

fav

orab

le p

rice

s. 2.

To

incr

ease

the

like

lihoo

d of

a s

elec

ted

stoc

k to

be

an o

ptio

n-ab

le s

tock

for

th

ose

who

tra

de o

ptio

ns.

Bec

ause

thi

s sc

reen

ing

proc

edur

e ca

n ta

ke a

s lo

ng a

s 20

min

utes

dep

endi

ng o

n th

e sp

eed

of y

our

com

pute

r, w

e w

ant

to s

ave

the

Hig

h Vol

ume

Sto

cks

list

sele

cted

fro

m t

his

scre

en t

o be

use

d ov

er a

nd o

ver

agai

n ea

ch t

ime

we

scre

en

for

a sh

ort

trad

e ca

ndid

ate.

Th

is li

st s

houl

d be

upd

ated

abo

ut o

nce

a m

onth

.

Lon

ger

Term

Movi

ng A

vg.

35 B

ars

and

Dow

n

Expon

en

tial M

ovi

ng A

vg.

(EM

A)

7 Bar

s an

d La

st

Bar

< 3

Bar

s Bef

ore

Last

Bar

S

hort

Sto

ck

Can

did

ate

s H

igh

Vol

ume

Sto

cks

(Fro

m S

cree

n A)

Hig

h o

f La

st B

ar

> H

igh

of 2

Bar

s Bef

ore

Last

Bar

App

roxim

ate

ly

50

Sto

cks

Sele

cted

B N

ote

s: U

sing

the

Hig

h Vol

ume

Sto

cks

List

(fr

om S

cree

n A),

we

then

scr

een

for

the

Sho

rt S

tock

Can

dida

tes.

W

e do

thi

s ea

ch t

ime

we

are

look

ing

for

a tr

ade

set-

up for

the

nex

t ba

r. Th

is s

cree

n ta

kes

only

a fra

ctio

n of

the

tim

e of

Scr

een

A b

ecau

se w

e ar

e sc

reen

ing

from

a m

uch

smal

ler

port

folio

to

begi

n w

ith.

Watc

h L

ist

Sho

rt S

tock

Can

dida

tes

(Fro

m S

cree

n B)

Sto

cks

That

Mee

t All

Sho

rt T

rade

Set

up C

ondi

tions

(F

rom

Sho

rt T

rade

s Blu

eprint

Ste

p #

2)

App

roxim

ate

ly

20

Pote

nti

al

Tra

des

C N

ote

s: T

his

scre

en is

don

e by

vis

ual i

nspe

ctio

n by

fol

low

ing

Ste

ps 1

& 2

on

the

Inst

ant

Prof

its

Sho

rt T

rade

s Blu

eprint

. M

ost

good

so

ftw

are

pack

ages

will

allo

w y

ou t

o se

t up

the

bas

ic c

hart

set

ting

s ou

tlin

ed in

Ste

ps 1

& 2

and

then

ent

er e

ach

issu

e fr

om S

cree

n B,

whi

ch w

ill u

pdat

e th

e ch

art

data

for

tha

t is

sue.

Yo

u ca

n th

en a

djus

t th

e se

ttin

gs,

acco

rdin

g to

Ste

ps 1

& 2

. I

f th

e st

ock

char

t m

eets

th

e se

tup

cond

itio

ns in

Ste

p 2,

you

the

n ad

d th

at s

tock

to

your

wat

ch li

st,

proc

eed

to S

tep

3, c

alcu

late

the

ent

ry p

oint

, an

d en

ter

the

orde

r. If

not

, m

ove

on t

o th

e ne

xt s

tock

.

Instant Profits 112

Because this screening procedure can take as long as 20 minutes depending on the

speed of your computer and the software you use, you should save the High Volume

Stocks list selected from this screen so you can use it over and over again throughout the

month each time you apply Screen B.

Daily Bars

If I am trading the daily stock charts, I next apply Screen B to the High Volume Stocks I

found using Screen A.

SCREEN B: LONG STOCK CANDIDATES Frequency: Daily

Time Requirement: 1 Minute

Longer Term Moving Avg. 35 Bars and Pointing Up

Exponential Moving Avg. (EMA) 7 Bars and Last Bar > 3 Bars Before Last Bar

Low of Last Bar < Low of 2 Bars Before Last Bar

SCREEN B: SHORT STOCK CANDIDATES Frequency: Daily


Longer Term Moving Avg. 35 Bars and Pointing Down

Exponential Moving Avg. (EMA) 7 Bars and Last Bar < 3 Bars Before Last Bar

High of Last Bar > High of 2 Bars Before Last Bar

Of the 500 High Volume Stocks found with Screen A, this screen will select

about 50 Long Stock Candidates and about 50 Short Stock Candidates, depending on

market conditions. In a bull market, there will be more Long Candidates than Short

Instant Profits 113

Candidates, and in a bear market the reverse would occur. This screen takes only about a

minute because we are screening from a much smaller list to begin with.

I now have about 100 of the best Long and Short Stock Candidates. Next, I apply

Screen C to this list to find my Watch List.

SCREEN C: WATCH LIST (LONG) Frequency: Daily

Time Requirement: 5 to 30 Minutes

Stocks that meet all Long Trade Setup Conditions (From Long Trades Blueprint Step #2)

SCREEN C: WATCH LIST (SHORT) Frequency: Daily


Stocks that meet all Short Trade Setup Conditions (From Short Trades Blueprint Step #2)

This screen will identify up to 20 Long and 20 Short Stock Candidates for your

Watch List, depending on market conditions. To apply this screen, I use a chart template

with Advanced GET that already has the indicators from Step #1 of the Long or Short

Trades Blueprint (Short Term EMA, Short Term MA Envelopes, and Long Term MA).

Then, I just plug in each stock from Screen B (the Long and Short Stock Candidates) and

adjust the indicator settings as needed. Using visual inspection, I follow Step #2 from the

Long or Short Trades Blueprint. If the stock meets the Step #2 Setup Conditions, I add

that stock to my Watch List; if it doesn’t, I plug in the next stock and follow Step #2

again. As soon as I have a sufficient number of stocks on my Watch List, I select those I

wish to trade for that day and place the entry and stop orders according to Steps #3 and

#4 from the Long or Short Trades Blueprint.

Instant Profits 114

Whew! That might sound like a lot of work, but it really isn’t. It’s kind of like

riding a bicycle – you just need to do it a few times and then it will become second

nature.

Weekly Bars

If trading daily is too rigorous for you, or you just don’t have the time, simply focus on

the weekly charts.

If I am trading the weekly stock charts, I follow the same procedure for daily

trading, except I only do it once a week. The procedure is repeated here for those only

interested in weekly trading.

I start each week (Sunday night or Monday morning before the new trading week

begins) by applying Screen A from the Triple Screen Blueprint, as described earlier. I

next apply Screen B to the High Volume Stocks I found using Screen A.

SCREEN B: LONG STOCK CANDIDATES Frequency: Weekly


Longer Term Moving Avg. 35 Bars and Pointing Up

Exponential Moving Avg. (EMA) 7 Bars and Last Bar > 3 Bars Before Last Bar

Low of Last Bar < Low of 2 Bars Before Last Bar

Instant Profits 115

SCREEN B: SHORT STOCK CANDIDATES Frequency: Weekly


Longer Term Moving Avg. 35 Bars and Pointing Down

Exponential Moving Avg. (EMA) 7 Bars and Last Bar < 3 Bars Before last Bar

High of Last Bar > High of 2 Bars Before Last Bar

Of the 500 High Volume Stocks found with Screen A, this screen will select

about 50 Long Stock Candidates and about 50 Short Stock Candidates, depending on

market conditions. This screen takes only about a minute because we are screening from

a much smaller list to begin with.

I now have about 100 of the best Long and Short Stock Candidates. Next, I apply

Screen C to this list to find my Watch List.

SCREEN C: WATCH LIST (LONG) Frequency: Weekly


Stocks that meet all Long Trade Setup Conditions (From Long Trades Blueprint Step #2)

Instant Profits 116

SCREEN C: WATCH LIST (SHORT) Frequency: Weekly


Stocks that meet all Short Trade Setup Conditions (From Short Trades Blueprint Step #2)

This screen will identify up to 20 Long and 20 Short Stock Candidates for your

Watch List, depending on market conditions. To apply this screen, I use a chart template

with Advanced GET that already has the indicators from Step #1 of the Long or Short

Trades Blueprint (Short Term EMA, Short Term MA Envelopes, and Long Term MA).

Then, I just plug in each stock from Screen B (the Long and Short Stock Candidates) and

adjust the indicator settings as needed. Using visual inspection, I follow Step #2 from the

Long or Short Trades Blueprint. If the stock meets the Step #2 Setup Conditions, I add

that stock to my Watch List; if it doesn’t, I plug in the next stock and follow Step #2

again. As soon as I have a sufficient number of stocks on my Watch List, I select those I

wish to trade for that day and place the entry and stop orders according to Steps #3 and

#4 from the Long or Short Trades Blueprint.

Tips

Here are a few tips to ease your mind while following this trading routine.

Remember, you only need to apply Screen A once a month. Screen B takes a

minute or less, and Screen C takes anywhere from 5 to 30 minutes, including

order entry. That’s as little as 40 minutes to 2 hours per month if you’re trading

the weekly charts. You probably spend more time checking e-mail!

Instant Profits 117

When developing your watch list from Screen C, it is not necessary to visually

inspect every stock from the Screen B list because you are only looking for a few

good trades for that day or week. As soon as you find them, you can stop. Search

no further and proceed to Step #3 & #4 from the Long or Short Trades Blueprint

to calculate the entry and stop loss points and enter the orders.

By using a template chart that already has moving averages and envelopes

created, you can quickly adjust the settings for each stock on your Long or Short

Stock Candidates list to meet the Step #1 criteria discussed earlier in this course.

Then, a simple review of each chart will quickly tell you if the Step #2 conditions

have been met and if so what the entry, stop loss, and profit target points are. You

can then proceed to Step #3 and #4 and place your orders online before the market

opens. Repeat your analysis after the market closes, noting which positions have

been filled requiring follow-up stop loss orders and profit target limit orders for

the following day.

To help keep things organized, each night I like to print out the chart of each

stock on my Watch List and each open trade I’m in. This makes it easy for me to

know which stocks I need to keep an eye on the next day. My son thinks that’s a

bit excessive and he prefers to organize his Watch List and open trades in two

separate folders within his charting software. You should do whatever helps keep

you organized.

Stocks: Day Traders

It is best to focus on 2 to 4 stocks that you become expert at in terms of the characteristics

of those markets and channel settings as we discussed earlier. You then trade those

markets using Instant Profits over and over again.

Instant Profits 118

Futures

For futures traders, the routine is even easier than for stocks, because you will be

focusing on no more than 20 markets and the same 20 markets.* There’s no need for

screening 12,000+ stocks. You just trade those 20 futures markets using Instant Profits

over and over again; intraday, daily, or weekly according to your personal trading style.

Whatever your time frame preference is for trading, you must develop a routine

that becomes second nature to you and you will then see your account equity consistently

grow. If you follow Instant Profits to the letter, you can potentially do equally well

trading any time frame as long as you stay consistent with your routine.

*Futures trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using the Instant Profits methodology or system will generate profits or ensure freedom from losses.

Instant Profits 119

Action Exercises 1. Decide when your Time to Trade will be and write it down here.

__________________________________________________________________

2. From the Triple Screen Blueprint, Screen A selects:

a. High volume stocks with prices between $10-$200 and with average

volume of the past 50 days >= 1 million shares.

b. High volume stocks with average volume of the past 100 days >= 1

million shares.

c. Low volume stocks with average volume of the past 50 days <= 1 million

shares.

d. Low volume stocks with the prices between $10-$200.

3. Screen B requires that the Longer Term Moving Average is

_________________________________________________________________.

4. Screen C requires that your Screen B stocks meet all the Setup Conditions from

Step #_____ of the Long and Short Trades Blueprint.

5. If trading daily bars is too rigorous for you or you don’t have the time, you should

consider instead trading:

a. 5-minute bars b. 20-minute bars c. 1-hour bars d. Weekly bars

Notes ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

Instant Profits 120

How to Supercharge Your Stock Trading

with Options

By applying Instant Profits to weekly stock

charts, we have the potential to catch stock price

moves of $3 to $5 within 1 to 3 weeks, which

can translate into a greater percent return

trading options as opposed to the underlying

stock.*

We use the weekly charts because the

average profit per trade is greater than is the

case when using daily charts. And to

successfully trade options, we would like at

least a $3 to $5 price move on the underlying

stock.

If you are new to options, at a minimum you must first read the following booklet:

Characteristics and Risks of Standardized Options. Written and published by The

Options Clearing Corporation, this booklet must be read by an investor prior to buying or

selling options contracts as it explains the purposes and risks of options transactions. This

booklet can be found online at:

www.cboe.com/LearnCenter/pdf/characteristicsandrisks.pdf

*Options trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using the Instant Profits methodology or system will generate profits or ensure freedom from losses.

Instant Profits 121

Also, required reading should include a good book on the basics of options before

applying this strategy. One that I recommend is Options Made Easy by Guy Cohen. But

considering the risk of trading options, you would be well advised to acquire a more in-

depth education before trading options. An excellent course and home study guide is

offered by Options-University available online at:

www.profitsrun.com/options

Assuming you have a basic understanding of the workings of the option market,

you can then consider applying the following strategy to your trading.

Buy Long Signals on the Weekly Charts When Instant Profits generates a long entry signal for the XYZ Company, instead of

buying the stock we would buy an At-The-Money (ATM) Call with an expiration date of

a minimum 60 days from today. For example, if it was July 1 and XYZ was trading at

$40, we would buy a September (or later) $40 Call for $2.00. Our stop loss would be if

the Call option loses 50% of its value ($1.00 in our example), then immediately sell the

Call. If on the other hand, XYZ shares gain $4.00 to hit our Profit Target, we would then

sell the Call at $4.00 (an ATM option moves at about 50% of the underlying stock

movement) for a 100% profit.

Sell Short Signals on the Weekly Charts

When Instant Profits generates a short entry signal for the XYZ Company, instead of

selling short the stock we would buy an At-The-Money (ATM) Put with an expiration

date of a minimum 60 days from today. For example, if it was July 1 and XYZ was

trading at $40, we would buy a September (or later) $40 Put for $2.00. Our stop loss

Instant Profits 122

would be if the Put option loses 50% of its value ($1.00 in our example), then

immediately sell the Put. If on the other hand, XYZ shares drop $4.00 to hit our Profit

Target, we would then sell the Put at $4.00 (an ATM option moves at about 50% of the

underlying stock movement) for a 100% profit.

A few things to keep in mind: Never risk more than 2% of your account (1% is

even better) on any one trade and only trade options with an open interest greater than

500. Also, and this is very important – if we are in a bull market, for every 2 long Call

positions you have on at any one time, you should have 1 long Put position on to hedge

your portfolio in the event the market abruptly reverses direction. Again, if you are new

to options, do not trade them until you have acquired the necessary education and

have the necessary risk capital to trade them.

Notes ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

Instant Profits 123

The Top 11 Secrets to Success with Instant

Profits

The trading system is just one component you

will use to become a successful trader. As

discussed earlier, there are other factors which

can dramatically affect your ultimate success.

Here are the Top 11 secrets to insure your

success trading with Instant Profits.

Secret #1 - Treat Trading Like a Business

As a serious trader, you have a new job – managing your portfolio. If you take a casual,

laid-back approach to trading, you won’t be successful. You need to treat trading like a

business. Every successful business has goals, a plan of action, and the specific

activities required to make it successful. Think about what you want to accomplish

with trading. Write it down. Your plan of action should include learning how to trade

Instant Profits. Learn it cold. Learn it until it becomes second nature, like tying your

shoes or checking your e-mail. And then take action by following the method without

fail.

Instant Profits 124

Secret #2 – Always Use Risk Management

Remember what I said earlier: Risk management is more important than the

methodology one uses to trade, since an otherwise winning methodology ends up

losing without proper risk management, but a mediocre methodology with strong risk

management can end up winning. Never risk more than 1 to 2 percent of your account

on each trade.

Secret #3 – Maintain Discipline

In order to maintain discipline, you need to have a checklist, or a routine, that you

follow faithfully. There will be times that you don’t feel like following your routine,

but you must look within yourself and find a way to stick with it. The key to

maintaining discipline is to build momentum. When you stick to your routine, you will

develop a natural momentum that is self-perpetuating. Be careful, though, because

momentum will work against if you slack off and begin to veer away from your

routine. Find a time to trade that works best for you where you won’t be interrupted

and you won’t feel rushed.

Instant Profits 125

Secret #4 – Master Your Emotions

Your great nemesis Fear and its evil cousin Greed. They can single-handedly destroy

your trading portfolio. This is the true test of a professional, serious trader, and this is

what causes the amateurs to run home crying. If you haven’t experienced Fear and

Greed with regard to your portfolio, don’t worry – you will. If one of your big trades is

down, you’ll be afraid of losing. If it’s up, you’ll be afraid of losing what you’ve won,

but Greed will string you along until you’ve worn out your welcome and should have

closed out the trade with a profit when you had the chance. This is a loser’s game. This

is an amateur’s game. The professional doesn’t “play the market”. If you’re looking for

a game, take up golf or tennis. The professional trader follows a method to win.

Secret #5 – Trade With What You Can Afford to Lose

This is a huge secret. Why? Because if you only trade with what you can afford to lose,

a huge weight is removed from your shoulders. Yes, your emotions will still play tricks

with you, but they will have much less power because you know you can afford to lose

a trade or two. Amateurs looking to make a quick buck trading the markets will never

understand this. Professionals have this secret tattooed to their brain.

Instant Profits 126

Secret #6 – Stick With The System

Do your research. Do your due diligence. Do your paper trading. Find a method that

matches your personality. And then stick with it. Don’t self-sabotage yourself when

you’ve already found a good trading method. Like I said before, do you think the

casinos are worried when someone hits the million dollar jackpot? Do you they sweat,

even a little? You know they don’t because they have a system that will always work

over time. Be like the casino and your vault could be filled with profits.

Secret #7 – Don’t Second-Guess The Method

This is a follow-up to #6. Once you have proven a method over time, and especially in

any market and in any time frame, why would you want to second-guess it? You

should only be second-guessing yourself and if you are applying the method correctly.

But by spending time upfront to understand the mechanics and syntax of a method, you

will know exactly how to execute it over and over again. Remember, it has to become

second nature so it’s just like tying your shoe or chewing gum.

Secret #8 – Don’t Get Personal with a Trade

As a trader, a trade serves one purpose and one purpose only – to give you the

opportunity to make a profit. Don’t get personally involved with a trade. Don’t fall in

love with the company, and don’t hold a grudge against it, either. To you, it’s just a

ticker symbol. You can love your favorite tennis shoes, but if you’re in a short trade

with the company that makes them, you’re going to love it when the price drops. Don’t

worry, the price will go back up and you can pull out profits on the upside, too!

Instant Profits 127

Secret #9 – Don’t Tell Others About Your Trades

Your personal finances are your business only and should be kept private. Trading is

also your business only. When you make your first string of big winners, you may be

tempted to tell your friends. There’s nothing good that can come from this. You are

trading a method based on your finances, your beliefs, your research, and your

experiences. When you tell your friends about your winning trades, they will react

based on their finances, their beliefs, their research (or lack thereof), and their

experiences. These are two totally different worlds. Keep them apart or they will

collide. If you truly want to help a friend out, you may want to suggest they look into

your method themselves, but I would leave it at that.

Secret #10 – Don’t Listen to Advice From Others

Unless your friends have their own good trading methods, ignore everything they tell

you about trading. See Secret #9. If you’re short in a stock and your friend doesn’t

understand selling short they just won’t get it. Or if you just went long and your friend

has a hot tip that the company you just bought is about to go bankrupt … you get the

picture. Two different worlds.

Instant Profits 128

Secret #11 – Don’t Force a Trade

This is one of the most important Secrets you can learn in order to become a successful

trader – don’t force a trade. Suppose you filter through thousands of stocks, using your

system’s setup rules, and find 10 candidates. Then you examine those 10 in more detail

by plotting the charts and applying more setup rules. Finally you realize that none of

those charts meet your setup conditions, so there are no good trades. Now suppose you

currently have no open positions in your portfolio and you haven’t had any positions in

a few weeks… and you’re just dying to place a trade. What do you do? Absolutely

nothing. You don’t trade because there isn’t a good trade. You wait. You follow the

method. You maintain discipline. You keep your emotions in check. If you force a

trade, you might as well throw away your method. Many amateurs can’t handle this. If

you’re looking for constant action, spend a weekend at the blackjack table – the casinos

would love to show you their system. Famed trader Jesse Livermore said it best: “It

was never my thinking that made the big money for me. It was my sitting. Got that?

My sitting tight. Men who can both be right and sit tight are uncommon. I found this

one of the hardest things to learn. It is literally true that millions come easier to a trader

after he knows how to trade than hundreds did in the days of his ignorance.”

Instant Profits 129

Action Exercises 1. To become a successful trader, you should treat trading like a:

a. Hobby b. Business c. Game d. Challenge

2. When you stick to your routine, you will develop a natural _______________ that

is self-perpetuating.

3. You should only trade with what you can afford to lose. TRUE or FALSE?

4. You should only trade stocks of companies that you feel good about. TRUE or

FALSE?

5. All professional traders solicit their business associates for advice on when to exit

a losing position. TRUE or FALSE?

6. If your trading method has not created any trading opportunities for a long time,

and you are anxious to trade, you should control your emotions and keep

following the system. TRUE or FALSE?

Notes ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

Instant Profits 130

Wrap Up

You did it! If you got this far, I commend you,

because it shows me that you know how to

follow through and finish what you start. Instant

Profits will do you no good sitting on your

bookshelf collecting dust. You need to practice

applying what you’ve learned to actual stocks

and real data.

You might feel a little overwhelmed,

especially if you read this manual straight through. Don’t worry. It’s really quite easy to

apply once you do it a few times. Find what time frames and what markets work best for

you. Take out your calendar and schedule your Time to Trade. You owe it to yourself, to

your family, to dedicate this small amount of time on a regular basis to help you achieve

your goals. Your Time to Trade coupled with the power of Instant Profits has the

potential to help you become a successful trader more quickly than you might expect.

Thank you again for investing in Instant Profits. Your success means a lot to me,

and I truly hope that this course will lead you into a bright future of successful trading. If

I can be of any assistance, just contact me at Profits Run and I would be more than happy

to help.

Good Trading,

Instant Profits 131

Recommended Reading I’ve read hundreds of books on trading. Here are some of the best that I recommend you

read if you’re interested in learning more about trading the markets. For information on

ordering these books and others, please visit the Instant Profits website at

www.instantprofitstoday.com/members.

Trading for a Living, by Alexander Elder. An excellent primer on becoming a successful trader.

Come Into My Trading Room, by Alexander Elder. A great follow-up to Trading for a Living. Teaches you how to manage your money and time, as well as strategy, so that you can enter the markets with confidence and exit with profits.

Reminiscences of a Stock Operator, by Edwin Lefevre. An 'investment classic' about legendary stock trader Jesse Livermore first published over 70 years ago, but full of wisdom that is equally applicable to today's markets.

The Mind of a Trader, by Alpesh B. Patel. Lessons in trading strategy from the world's leading traders.

Market Wizards, by Jack Schwager. Allows the reader to delve into the minds of professional traders. It explains the very elements of their success, different approaches used in different markets, trading rules that each of them adhere to and personal advice for other traders.

The New Market Wizards, by Jack Schwager. A good follow-up to Market Wizards. Additional interviews with the pros.

Schwager on Futures – Technical Analysis, by Jack Schwager. This is simply one of the best guides to technical analysis written from a trader's perspective. Explores what works and what doesn't work in the real world of trading.

Market Evaluation & Analysis for Swing Trading, by David Nassar & William Lupien. Demystifies the swing trading techniques of the professional traders and market makers, closely examining them to determine how and why they work, what to use in different market environments, and which strategies will ramp up effectiveness in today's hyper speed electronic markets.

Trading in the Zone, by Mark Douglas. Offers specific solutions to the 'people factor' of commodity price movement. It uncovers the true culprit for lack of consistency when it comes to stock picking: lack of focus and self-confidence.

Instant Profits 132

Glossary BEAR MARKET – A market in which prices are declining over a prolonged period of

time. Someone who believes prices will move lower is called a bear, or is considered

bearish.

BULL MARKET – A market in which prices are rising over a prolonged period of time.

Someone who believes prices will move higher is called a bull, or is considered bullish.

BUY AND HOLD – An investment strategy that promotes investing based on long-term

growth potential. The stability of the invested vehicle is important, rather than the

shorter-term market volatility. For numerous reasons, traders recognize that Buy and

Hold is a losing strategy.

BUYING LONG – The act of buying a security in hopes that it goes up in value in order

to make a profit.

CHANNEL TRADING – A method of trading that takes of advantage of the natural

ebb and flow of markets from undervalued to overvalued by using moving average-based

envelopes to define tradable channels

CHANNELS – Channels are envelopes that capture most of the price data displayed on a

bar chart. They are usually based on percentage bandwidth around a moving average or

trend line. When prices are in an up trend and approach the lower channel band, it may

be a good time to buy; and when prices approach the upper channel band, it may be a

good time to sell to cover the long position.

CHART – A price chart for a security showing historical values over a period of time.

Instant Profits uses charts made up of Price Bars. The x-axis shows the time frame and

the y-axis shows the price.

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CHARTING SOFTWARE – Interactive software that allows you to plot charts and

overlay them with various indicators, among other things. Charting Software requires a

data feed.

DATA FEED – A source of security price and volume data to be used with Charting

Software. Intraday trading requires a real-time data feed. If you are trading daily bars or

longer, only end-of-day data is required.

DAY TRADING – The act of trading a time frame less than daily bars. Day traders often

trade the 5-minute, 15-minute, and 1-hour bars.

ENTRY POINT – The price at which you enter a trade. All good trading systems

calculate a specific entry point.

EXPONENTIAL MOVING AVERAGE (EMA) – See Moving Averages.

FIBONACCI RETRACEMENT LEVELS – Fibonacci Retracement Levels are based

on the ratios of a number series first observed by Leonardo Fibonacci in the thirteenth

century and are regarded as describing the natural proportions of things in the universe,

including price data. These retracement levels are determined by applying the Fibonacci

Retracement Level indicator (found in most good trading software packages) to a Swing

High and Swing Low made by the recent price action on a bar chart. Fibonacci

Retracement Levels are used in trading as possible support and resistance levels.

FUNDAMENTAL ANALYSIS – Fundamental analysis involves the use of economic

and company financial performance data (if trading stocks) to forecast prices.

Fundamental analysis implies that a relationship between this data and the market prices

of the security analyzed can be determined with some accuracy in order to give the trader

an edge in trading the market.

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FUTURES – A term used to designate an agreement to buy or sell a set amount of a

commodity or security in a designated future month at a price agreed on today by a buyer

and a seller.

HOLY GRAIL – A mythical trading system that works every time and produces no

losing trades. The Holy Grail of Trading does not exist.

INDICATORS – Mathematical formulas derived from the price data of a trading vehicle

(for example, a stock, futures contract, etc). There are numerous indicators that are used

to do technical analysis on markets in order to forecast future market prices.

INTERMEDIATE TERM – A period of time measured in days and weeks.

LIMIT ORDER – An order to buy a security at or below a specified price or an order to

sell a security at or above a specified price.

LONG TERM – A period of time measured in months and years.

MOVING AVERAGES – There are two commonly used moving averages. One is a

simple moving average which is calculated by adding a series of prices over a specific

time period (for example, 10 days) and dividing that sum by the number time increments

(for example, 10). The other is an Exponential Moving Average (EMA) which is

calculated in a similar manner as the simple moving average except it gives greater

weight to the most recent prices in the time period measured. The EMA is a more

sensitive average that is more heavily influenced by the most recent prices than is the

case for the simple moving average. Like trend lines, moving averages are used to help

determine the trend of a series of data over time.

OSCILLATOR – Any one of a number of indicators that measures the ebb and flow of a

market from oversold (too low and ready to rise) to overbought (too high and ready to

fall).

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OPTIONS – The right to buy or sell an underlying security at a specific price called the

strike price until they expire in the expiration month. A call option is the right to buy an

underlying security and a put is the right to sell an underlying security.

PAPER TRADING – The act of trading a system “on paper” so that you don’t actually

risk any real money. The purpose of paper trading is to become familiar with the

mechanics of a system before actually placing real trades with real money.

PRICE BAR – An element on a chart that describes the opening price, high price, low

price, and last price (the close) for the time frame plotted. The vertical length shows the

total price movement for the time frame. The little dash or line on the left side of the bar

indicates the opening price. The top of the bar indicates the highest price. Conversely, the

bottom of the bar shows the lowest price. The little dash on the right side of the bar

indicates the closing price (the last price traded for the time frame you are using).

PROFIT FACTOR – A number that represents the profitability of a trading system

based on its winning and losing trades. A system with a Profit Factor of less than 1 loses

money, equal to one breaks even, and greater than one makes money. The formula is:

Avg. Winning Trade % Winners Profit Factor =

Avg. Losing Trade X

% Losers

PROFIT TARGET POINT – The price at which a stop order is placed to take a profit

in an open position.

RESISTANCE – Resistance is a level where prices will find selling pressure sufficient

to stop them from going up further at least temporarily. Resistance levels are defined by

old price highs, old price lows, down trend lines, down trending moving averages,

Fibonacci levels, etc.

Instant Profits 136

RISK MANAGEMENT – A strategy to limit the risk to a trading portfolio through the

use of sound money management and stop loss rules.

SELLING SHORT – The act of selling a security short in hopes that it goes down in

value in order to make a profit. You sell short by borrowing the security from a broker

and then selling it. Eventually, you must buy the security back.

SETUP CONDITIONS – According to a trading system, the specific market conditions

that must be met prior to buying or selling a security.

SHORT TERM – A period of time measured in days and weeks.

SIDEWAYS MARKET – A market in which prices are neither predominantly rising nor

declining over a period of time. Also called a choppy market. See Bull Market and Bear

Market.

STOCHASTIC – An oscillator that identifies overbought and oversold conditions in a

market on a scale of 0 to 100. It measures the position of the most recent close relative

to the recent trading range. It consists of two lines; one is the fast line (%K) and the other

is the slow line (%D). When these lines are at or below 20, the market is said to be

oversold. When these lines are at or above 80, the market is said to be overbought. The

most powerful signals are given when divergence occurs between the stochastics readings

and market prices. Divergence occurs when the trend of price highs and lows goes one

way and the trend of tops and bottoms of the stochastics readings goes the opposite way.

STOCK MARKET – A tradable stock is a certificate of ownership in a company that

can be bought and sold on two major exchanges and several minor exchanges as well as

the OTC (Over The Counter) Market in the United States and several other stock

exchanges worldwide. In the U.S., over 10,000 stocks are traded on the NYSE (New

York Stock Exchange), the AMEX (American Stock Exchange), and the OTC that we all

Instant Profits 137

refer to as the NASDAQ (National Association of Securities Dealers Automated Quote

System). An exchange is a place where buyers and sellers physically get together on a

central trading floor to buy and sell through a middleman, called the specialist. The

NASDAQ, on the other hand, is an electronic market that automatically matches the buy

and sell orders on a best-price basis.

STOP POINT – The price at which a stop is placed to limit a loss in an open position.

STOP ORDER – An order to buy or sell a security when a specific price is reached. Stop

orders are used to protect a profit or to limit a loss.

SUPPORT – Support is a level where prices will find buying pressure sufficient to stop

them from going down further at least temporarily. Support levels are defined by old

price highs, old price lows, up trend lines, up trending moving averages, Fibonacci levels,

etc.

SWING HIGH – A short term high bar with at least two lower highs and lower lows on

both the left and right of the high bar.

SWING LOW – A short term low bar with at least two higher lows and higher highs on

both the left and right of the low bar.

TECHNICAL ANALYSIS – Technical analysis is based primarily on the study of price

patterns and indicators that are derived from past prices to forecast future prices.

Technical analysis implies that patterns and indicators used in such analysis can give the

trader an edge in trading the market.

TIME TO TRADE – A specific time of the day that you set aside to focus solely on

trading. All professional traders use a Time to Trade as part of their trading routine.

Instant Profits 138

TRADING – The activity of buying and selling securities, futures contracts, etc. on a

shorter term basis with the intent of capturing short term profits.

TRADING ROUTINE – A specific set of steps to follow when trading a system. All

professional traders follow a trading routine.

TRADING SOFTWARE – Software used to actually place buy and sell orders with a

broker. Some Trading Software is integrated with Charting Software. Most brokers offer

trading software as part of their website.

TRAILING STOP – A trailing stop for a long trade is a Stop Loss point that is moved

up from a lower Stop Loss point and is placed below the market as the market moves up

and becomes profitable. This strategy locks in a portion of the profits as the market

moves up and lets the profits run. The reverse is true for a short trade.

TREND LINE – Trend lines are used to help determine the trend of a series of data over

time and are usually drawn by connecting the higher swing lows in an up trend and lower

swing highs in a down trend. When the trend line is penetrated on a closing basis, that

signals a possible change in the trend.

WINNING METHODOLOGY – A trading system or method that produces a Profit

Factor greater than 1 over time. In other words, a trading system or method that

consistently makes money over time.

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Index

bearish divergence, 51 broker, 24 buy limit order, 64 buying long, 27 case studies, 99 casino, 18 changes, 1 channel trading, 40 channels, 34 chart, 28 charting software, 22 computer, 22 conservative tactics, 75 crack the code, 2 data feed, 23 day traders, 116 day trading, 4 discipline, 4, 7, 13, 15, 19, 93, 107, 123,

127 dollar cost averaging, 9 Dow Jones Industrial Average, 7 EMA Buy Point, 64 emotions, 19 entry point, 59 envelopes, 42 exchange, 26 Exponential Moving Average, 41 fear, 124 Fibonacci Retracement Levels, 34, 59,

64, 81 fundamental analysis, 28 futures, 97, 117 General Motors, 2 greed, 19, 124 Holy Grail, 2, 8, 12, 15, 19 hucksters, 3 indicators, 38 insider, 9 intermediate-term trading, 4 Internet, 3, 23 Livermore, Jesse, 127 long term moving average, 45

longer term moving average, 75 losing trades, 2 market, 4 market analysts, 10 markets, 39 mistake, 2 monitor, 23 moving averages, 34 myths, 7 options, 9, 119 paper trading, 35 permission, ii personal trading coach, 4 price bar, 28 Profit Factor, 15, 16 profit target order, 70 Profits Run, 3 Random Walk Theory, 10 remote PC access, 24 risk / reward ratio, 8 risk management, 15, 17, 123 secret, 4 secrets, 3 secrets to success, 122 selling short, 8, 27 setup conditions, 50 short-term trading, 4 stochastics, 51 stock, 26 stop loss order, 67, 75 successful trader, 1 swing high, 64 system, 2 technical analysis, 28 thermostat, 20 Time to Trade, 107 timeframe, 4, 39 trading methodology, 2 trading routine, 107 trend lines, 31 TV, 3, 10 volatility, 76

Instant Profits 140

weekly chart, 89 winning methodology, 15

Instant Profits 141

About the Authors

Bill Poulos

Bill Poulos has been trading the markets since

1974 and he’s seen it all. Learning from

experience, Bill has developed stock trading

systems as well as several trading methods. He

holds a Bachelor's degree in Industrial

Engineering, and a Master's degree in Business

Administration, with a major in Finance.

Greg Poulos

Greg Poulos has been at the forefront of

Internet technology since 1994, working for

several dot com startups, including an IPO. In

2001, Greg started a successful Internet

development and marketing company, and was

instrumental in using technology to test and

evaluate Bill’s trading systems and methods

which eventually led to the development of

Instant Profits. Greg holds a Bachelor’s degree

in Marketing.

Documents

Instant Profits Update 3 · 2010-04-09 · Instant Profits 3 I learned the hard way that while it is possible to profit from the markets trading correctly, it is a near certainty