Dokumen - Pub The Magic of Moving Averages 0934380430 8642980221

THE MAGIC
OF
MOVING AVERAGES
Scot Lowry
TRADERS. PRESS, INC.(i}

P.o. Box 6206
Greenville, S.c. 29606
Books and Gifts

for Investors and Traders
Copyright © 1998 by Scot Lowry. All rights reserved.
Printed in the United States of America. No part of
this pUblication may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any means,
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publisher.
ISBN: 0-934380-43-0
Reprinted by agreement with the author, Scot Lowry

Published April 1998
TRADERS PRESS, INC.®

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Greenville, S.C. 29606
Books and Gifts

for Investors and Traders
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This book is dedicated to the following:
To Kim, for all your unselfish help.
To Brian, for your assistance and patience.
To Deena, for your creative input.
To Juanita, for doing all the things behind

the scenes that no one gets credit for.
To Jim, see, I told you.

INTRODUCTION
The reason for writing this book is twofold:

first, after years of studying charts, I have been able
to identify an occurrence in market trading that can
almost ensure high returns with minimal risk. This
approach to trading is very clear and easy to
understand. Which leads me to the second reason
for writing this book. For a long time I have felt
this system was too simple to warrant a book, but
over time, I became increasingly convinced that the
system that you are about to learn has been
overlooked by the vast majority of people. I once
asked a friend of mine, who was instrumental in my
decision to write this book, why more people had
not seen this. His response was, "more often than
not, people do not see the forest for the trees". In
other words, the trading plan you are about to see is
so simple that it defies logic. It is not complicated,
it is not time consuming, and it has no difficult
formulas to try and understand. It is an easy,
layman's approach to profitable trading in the
futures markets.
As I mentioned earlier, I believe this devoted to those who have never dipped their hands
approach to trading has been overlooked by many. into the excitement of trading futures. It will
On the other hand, it is so basic that it is hard to explain in simple tenus how and why futures trade
believe that it isn't being used by quite a lot of as they do, and give you an understanding of tenus
investors already. Here's why. As many of you and phrases used in the markets. For those of you
already know, the basis behind any market move in who have been trading in the past you may find this
a particular direction is founded ,upon one simple tiresome and may want to move on to chapter two.
principle - there are either more buyers than sellers
(in which case the market goes up), or there are
more sellers than buyers (in which case the market
goes down). So why do I believe that other
investors are somehow arriving at the same area on
the charts as I am to place buy or sell orders?
Because, as you will learn, this trading strategy
places orders above or below where a particular
market is trading at that time. When the .market
price finally trades at our price, the market has. a
tendency to continue in that direction at a rapId
pace, which tells me there are many other orders
placed to buy or sell at the same price I have
chosen; i.e., more buyers than sellers forcing the
price up, or more sellers than buyers forcing the
price down. It is to be rel~ted that all commodity and futures charts trades systems
patterns etc., discussed in this book are for illustrative purp~ses oni y and ar~
no~ to b.e constJUed as advisory recommendations. There is the chance of
~u tantl;1 loss in futures trading and there exists no trading plan with a
One more note to make before we embark t~? ~ro:. system. Past performance is no indication of futures results with
on a short journey on how both experienced and h~~i ra Ing syste~ or ~ny other. It should be further noted that the ideas and
ng ~Iystems In thiS book are solely those of the author and do not
novice futures traders can learn a very simple and necessan y retlect th OSe 0 f 0 ata Transmission
. . Network the advertl'ser or
anyone e Ise amI' t d . h " ' ,
successful approach to trading. trade d I la e Wit thiS book In any way. Futures trading is risky and
rs 0 ose money . B" . . .In the futures market one should be
e,ore investing
aware 0 f the pote r I Ii .
attempts should ~:adro Its and . Ioss~s Involved. Any trades that an investor
The ' " . scussed With hiS or her broker before implementing
InlormalJon contained h . h b ' .
be reliabl . h . ereln as een obtained from sources believed to
Chapter one is a brief overview of how e, owever, It cannot be guaranteed.
futures and commodities trade. This chapter is
2 3
How is this done? Let's first look at a
commodity with which most people are familiar _
wheat for example. Wheat is used for many
purposes throughout the world, but most people
associate wheat with bread. So let's look at a world
CHAPTER ONE where there was no exchange to keep prices in
check. Suppose that last year there was a drought in
the wheat growing region. This would inhibit the
growth of the wheat crop and would consequently
Before learning a trading strategy it is mean a smaller crop. How would that affect prices
. rtant to have a general understanding of how of bread in the stores? The price would go up.
Impo
and why markets move. You nee to
d kn
0v: w
hy we Here are the reasons why: first, the farmers would
have put just as much time and effort into raising a
have commodities markets and what their purpose
is You need to fully understand how an~ when small crop as they would have into raising a large
o~ders are placed and to know about the dlffer~nt crop. Their costs were the same and they need to
orders that exist. Proper placement of an order With make the same amount of money in either event. So
your broker is of the utmost importance; errors can they will charge more for a bushel of wheat, driving
up the price to the bread maker, which will
become extremely costly.
eventually be passed on to the grocery store ~md
ultimately to the consumer.
In the mid-1800's the first commodity
exchanges opened to the public. They ~ere
devised to keep prices stable; i.e:, to keep pnces Second, if bread producers know there will
be a shortage of wheat, they will be willing to pay a
from having exaggerated swings either up or dow~.
If these trading arenas had not been open to t e higher price to ensure that they receive the quantity
of wheat needed to make as much bread as demand
ublic we would never know from one day to the
~ext what prices would be in the stores. Exchan~es warrants. Again, higher prices are passed on to the
ultimate bread purchaser. This is the basic law of
were implemented to keep prices from skyrocketing
supply and demand. If supply is short and demand
one day and plummeting the next. is stable, price goes up.
4 5
Now let's look at the other side of supply
.. and demand - the scenario where bread prices would Once again the laws of supply and ·demand
go down. Instead of a drought in the wheat fiel~s, take over. Assuming again that demand is the same,
we have perfect weather and the crop yield is qUlte we have an overabundance of supply which forces
large. In this hypothetical situation the farmer could price down. It is easy to see now why the price of
have more wheat than he can sell. The bread bread could be very high one year and very low the
next, or could change daily as the people involved
producer only needs enough to make th~ same
amount of bread he made last year (assummg the speculate how the weekend rains or the
temperatures overnight affected the crop.
demand stays the same). The farmer doesn't want
the costly task of having to store the excess wheat.
He wants to sell it. So he is willing to accept a
These are hypothetical situations used to
smaller amount of money per bushel to sell his cr?p.
show what could happen to the price of bread (and
He also knows there are many other farmers trymg
every commodity in the world) if this were a world
to sell their wheat. Now the bread producers ca?
where no commodity exchanges existed. There
shop around and offer less money per bushel untIl
they get the price they want. As farm~r after farmer would be constant and wild price fluctuations and
lowers the price to sell his crop, pnce may well the public would not know from week to week the
price of a particular product.
have dropped to the point the farmer is ~o ~onger
willing to sell. Sometimes the offered pnce IS less
than the cost to harvest.
The solution to the dilemma was to get the
pUblic involved to help set the price of
commodities. This was done through the
Now let's speculate on what happens next in
development of the first commodities exchange _
the supply and demand chain. W~ know the bread
the Chicago Board of Trade. CBOT was set up to
producer paid less per bushel for hIS wheat, an~ we
control grain prices, which at the time, were the
are fairly certain the grocery store ~no~s thIS as
~taple of American life. By getting the public
well. So, at this point, my assumptIon IS that the
InVOlved .(the people paying for the loaf of bread), it
grocery store and the bread producer will agree on a
was eaSIer to keep the price of wheat from
price per loaf of bread so that the grocery store can
skyrocketing. The public could sell wheat on the
stock it's shelves. Now we can rest assured that the
excha~ge if the price went too high, thus forcing
price for a loaf of bread this year :viii
~e cheaper
~he pnce. down. Theoretically, the more people
than next. We know the savings WIll ultimately be
Involved In trading any particular commodity, the
passed on to the consumer...
6 7
r more price stability there will be, minimizing to would have lost $550 - which, of course, is not our
some degree, wild price swings. objective.
Let us look at how the futures market works.

But wait. How could we have sold wheat in
Futures and commodities trade today at what traders August when we didn't own any? This is what is
expect prices to be in the future. Each commodity referred to as "shorting" the market - you sell first
trades in individual months. For example, wheat and. buy back later. This is sometimes confusing, so
has contract months of March, May, July, I wIll approach explaining it in as simple a fashion
September and December. These contract months as possible. Using the above example let's assume
specify at which time a delivery of that particular the rumor we heard was the wheat crop was to be
commodity is to take place. So let's say that today very large instead of very small. In this case we
is August 23, and the price of December wheat is would surmise that the price would go down from
$3.83 per bushel. Let's also say that there has been the current $3.83 per bushel. In order to profit from
a rumor that the wheat crop will not be very large that we would want to sell wheat rather than buy
this year. We just learned that if the crop is small, w?eat. To do so we must enter into an agreement
the price of wheat should go up between now and With someone who is a buyer of wheat at that price.
December. So today we buy a contract of We tell th~ buyer, in our agreement (or contract),
December wheat at $3.83 per bushel. We have that we wIll sell him one contract of December
between today and sometime in December to sell wheat at $3.83 today. Now we have until December
that wheat contract. Since we bought today we to. buy a contract of wheat from someone at some
hope the price goes up so that we can sell the pnce. Our hope is that the price of wheat will drop
contract higher than our purchase price. In this between .now and December so that we can
example we will assume the price goes up to $3.94 purchase It at a lower price. If the price drops to
per bushel by September and we do not think it is ~3.72 and we buy the wheat at that price we will
going much higher. So we sell our wheat contract a~e fulfilled the terms of our agreement to buy and
at that price. The difference between $3.94 and ~eJlver the one contract of wheat. We also would
$3.83 is eleven cents. Since the value of wheat on $ ave made the difference of $3.83 per bushel and
the futures market is $50 for every one cent, our 3.72 per bushel, again it is eleven cents at $50 a
profit is $550. ($0.11 x $50.00 = $550.00) On the cent, or $550.
other hand, had we sold wheat at $3.83 in August
and bought it back in September for $3.94 we
8 9
If you are still confused, try this example. suppo~e this line we will be looking at is at $3 86
Forget the chronology of time. Regardless of time We wIll place our buy order ~ ~ ... ~ ..- th at I'me, say" at
we bought wheat at $3.83 a bushel and sold wheat $3.91. That means we will not be b uymg . wheat
'1 .
at $3.94 a bushel in the first example. We bought untl the pnce
. . of wheat gets to or ab oye $3 .91 per
wheat at $3.72 a bushel and sold wheat at $3.83 a bus he.I ThiS. IS referred to as "buymg . on a stop"
bushel in the second example. It doesn't matter When th.e pnce of wheat does trade at that level, ou;
whether you buy first and sell second, or sell first order Will be executed and we will h b
and buy second. The bottom line is the difference wheat. ave ought
between the two prices which represents your profit
or loss potential. If you sell first, you want the price
to go down. If you buy first, you want the price to To place this order with your broker yo '11
go up. That is all you really need to know to be an say to him, "Buy one (or more if you are bu ":1
effective, profitable futures trader. more than one) contracts of D b uymg
$3.91 on a sto "Th ec~m er wheat at
th' p. e reason for thiS order is that if
e pnce of wheat goes down from the
As this book progresses you will learn a of $3.83 per bushel instead f current price
0 up, we never got .
certain approach to trading. This trading program th e market, because we will n e . In
requires the use of two types of orders that will be price goes to or above $3 91 ot bb b:yers untIl the
placed with your broker. For our purposes these want to buy wheat if the' . p~r u~ el. We don't
want to bu a prIce IS gomg down. We
will be the only two types we will cover. Other market notYw ukr contracts on price strength in the
fundamentals about trading are not necessary as far , ea ness.
as we are concerned.
If we take the sec d

are looking for th . on example of wheat, we
To understand the first type of order let's current. e pnce of wheat to go A~ .. . _ The
once again use the first wheat example. In that prIce of h ' uunn..
$3.83 per bushel : . ea~ 10 the s~cond example is
example, wheat is trading today at $3.83 per bushel. chart that : gam there Will be a line on the
Since we think the price of wheat is going up we bdmv Let~e WIllhlOOk for to place our sdl order
will want to place a buy order. As you will learn in . s say t at r . $
place our order t me IS at 3.80. We will then
a later chapter, we never buy anything at the current
referred to as " 0 1~~11 at $3.78 per bushel. This is
market price. You will also learn that there is a
would place yo~; ~~ on .a stop". The way you
certain line on the chart that we will look for and we er with your broker is "Sell
will place our ~ order ahDve. that line. So let's
10 II
one (or more) contracts of December wh~t at $3.78 think the price of wheat will go above $4.15 per
on a stop." This time we will not be selhng wheat bushel. This is when we will place an order with
until the price of wheat drops to or below $3.78 p~r our broker to se)) wheat at $4.05 or better, with a
bushel. This time we are looking for weakness 10 protective buy stop at $4.21, which is a price above
the market, not strength. To reiterate, if the price which we do not think wheat wi)) go. That means
goes up from $3.83 per bushel we never got that when wheat gets to $4.05 per bushel we are
involved in the trade. We only sell wheat when the selling. This is dangerous because if the price of
price drops to our offered price of$3.78 per bushel. wheat continues upward we can incur heavy losses.
Our losses would be the difference between $4.05
and $4.21 - the price of our protective buy stop.
This is the order you will use most often ($4.21 - $4.05 =$0.16, $0. I 6 x $50.00 = $800).
when trading this system; buying or selling on a $800 is a round figure because the losses could
stop. The next order you will learn is to be used exceed that with slippage. Slippage is a term used
only after you are very proficient at .trading, or you when the actual price filled on your stop is worse
may never use it. I say that because tt ~an be a ve~ than the price you have entered. This can occur in
risky trade. It is not used when tradmg the bastc fast moving or thinly traded markets.
system you will learn, but it is used on other trades
that will be shown at the end of this book. These
will be trades that go against the grain of the By the same token, if we think the price of
market, which is why they can be quite dangerous, wheat has reached a bottom and wheat is trading at
but when they work they are extremely profitable. $3.45 per bushel, we wi)) again find the line on the
They are not for the inexperienced trader. cha~ that .w~ are watching, at a price below $3.45.
Let s say It IS at $3.38. At this point we will place
an order with our broker to buy wheat at $3.38 per
The way this trade works is as follows. bushel or better. That means the price of wheat
Let's say wheat looks as though it is close ~o mu~t drop from $3.45 to $3.38, and we wi)) be
making a high in price (referred to as atop) and wtll bUYIng h ' .
w eat In a falhng market. A protective sell
stop, tum around, and start going d.own - based ?n :;~p would need to be entered below the $3.38
what you will learn later. We wtll at that pomt bel, .around .$3.30 per bushel. This is what I mean
place an order to sell wheat at a speci~ed pr~ce or Y gOIng agaInst the grain of the market - you can
better. For example, let's say wheat tS tradmg at see why th '.
ere IS Inherent risk involved.
$3.95 per bushel. The line on the chart we are
following is at $4.05. In this example we do not
12 13
Let me re-emphasize the fact that this
second style of placing orders is not used in the
basic trading system in this book, but is used for
more risky trades that only an experienced trader
should attempt.
I hope this general overview will give you CHAPTER TWO

enough understanding of how markets operate to get
you started. This is by no means all there is to
know about trading futures and commodities, but it
should be enough to get you on your way using a There are so many trading techniques around
basic trading plan that does not incorporate a lot of now that it. is hard to choose one that seems to work
formulas, fundamentals, seasonals, etc. There are consistently. When I first started trading in the
many topics written about such things and if your futures markets I began using a system that worked
interest goes beyond basics then you will find a so~etimes but more often than not it turned up
multitude of books from which to choose. losmg trades. I continued trading and found that
whatever system I used worked one time but then
failed the next. I spent years pouring over 'the charts
and. reading market news each night as to why a
partIcular market moved that day. Then, all of a
sudd~n, it came together! A clear picture began
forml~g and I was able to see a concise pattern
occ~rnng over and over. The same formations
contInued to happen before major market moves _
?n every futures chart! I was astounded how could
It be this simple and blatant? How couid this have
~een before my eyes every day and I had missed it?
seemed there had to be more to it than this but
ahfter years of watching and back testing I found out
t ere Was
. not more. It really was this simple. Do
not mlsund t d h
ers an me, I ave by no means figured
out the d· .
commo Ity markets In general, I don't think
14 15
anyone ever will. What I have figured out is one around the world. Moving averages are already one
series of events that occurs prior to a market move. of the most popular ways of trading, but by the time
And this one series of events allows you to place you finish reading this you will have a whole new
your buy or sell orders above or below where a outlook on them and how to employ them for
market is trading at that particular time. It also tells maximum advantage. You will learn a new way to
you where to place your initial prote~tive sto~s. look at markets, and one thirty-second glance at any
You will know roughly what your potential loss WIll chart will tell you whether a market is worth trading
be prior to your entry into the market. . The or not. You won't get in at the bottom, nor will you
advantage to this trading system is that you ':111 not get out at the top. But that is not necessary to be in
need to wait long to find out if you are nght or on extremely profitable trades. This system will
wrong in the direction the market will be moving. also eliminate guesswork on market direction.
In most cases you will know within a few days. At
that point you will either be able to move .your
protective stop to lock in more profits or you WIll no For those of you who are not familiar with
longer be in the market because you were. stopped moving. averages, following is a brief explanation.
out with a loss. The latter is what we WIll try to A movmg average is the average of a specified
avoid. Exercising patience in your entry order is amo~nt of prices divided by the total number
extremely critical. At all costs, never try prior specIfied. They change on a daily basis as the price
anticipation of the direction of the market after of each m~rket changes. Here is a formula to use
learning this trading system. I have already done when figunng a moving average:
that. Not only does it not work, it is quite costly.
It's like trying to teach a pig to sing, it does not MA=(P I + P2 + ... Pn)!n
work. You must wait for the proper signals to act
on before placing your trades. MA - represents moving average.
PI - represents the price on the first day.

My system of trading involves something
that has been around since the first hour of the first P2 - represents the price on the second day.
day the first market started trading. I. have ?one
nothing spectacular. All I have done IS deVIse a Pn - represents the last day in the series.
different approach of using what already exists.
What already exists are moving averages. These n-represents the number of days in the
series.
lines are used quite frequently by many traders
16 17
A moving average is just what it says it i~, it
moves from day to day. To calculate a movmg As these averages move on a daily basis you
average, you must drop the first number of the will see patterns emerge on the charts that will help
sequence (P I) and add a new one to the ~nd. ~he you identify trends and show you opportunities to
new one added to the end would be the closmg ~nce buy or sell. When looked at properly they seem to
for that particular day. So if you were calculatmg ,a tell us in advance what will happen next. In a lot of
four day moving average you would, at today s cases they act as arrows pointing to the direction the
close, add today's price to the series and take away market intends to go. You will also find that for
the closing price from four days ago. Then y~u whatever uncanny reason, the markets will quite
would recalculate. Below is an example of how thIS often wind up in the "Danger Zone" in the days
prior to a major news event - (The Danger Zone will
is done.
be delved into later). In some instances the markets
will emerge from this "Danger Zone" a day or two
December Cocoa before the news is announced, giving us an
indication of possible future market direction. I
Four day MA think this happens when somebody knows
Day Close
something he or she is not supposed to know. In
any case, it can be quite helpful - unless they were
August 12 1515 (PI)
wrong. It is always best to stay out of the markets
August 13 1527 (P2)
until after the news breaks. Let's move on to what
August 14 1516 (P3) these moving averages mean.
August 15 1512 (P4) 1517.5
August 18 1563 1529.5
August 19 1553 1536
August 20 1569 1549.25
August 21 1618 1575.75
August 22 1601 1585.25
August 25 1615 1600.75
August 26 1653 1621.75
For example:
4dayMA 1515+ 1527+ 1516+ 1512=1517.5
4
18 19
Before we start into the trading aspects, I
want to explain which moving averages I use and
why. This system employs the use of three moving
averages, the four day, the eighteen day, and the
forty day. These work out the best and have the
most consistency. Certain markets have different
moving averages that are used by the traders of
CHAPTER THREE those markets, but the vast majority use these three
and it is with these that I have found the most
success.
Throughout history, man has .searched for
the ability to see into the future. ~Ise men who
seemed to possess certain gifts of clairvoyance were The first example we will use is the 1997
called seers or prophets. In ancient Greece, at ~he July Soybean chart (page 23). I have chosen this
temple at Delphi, priests attained almost god-hke chart because it contains virtually all aspects of
status by teaching seekers to look ,:ithin to see what criteria needed when capturing the beginning
lay beyond. Centuries later, the pnests at the Oracle movement of the Delphic Phenomenon. Refer back
of Delphi are remembered as ~ome of the most to this chart as you continue reading. There will be
reliable seers and prophets of all hme. other charts shown later which reveal the same
patterns, but some will not be as "textbook" as this
one.
The basic trading system described in this
book focuses on a series of events that o~cur to
create a rare formation. No system that. predlc~s the The way I use these averages is quite simple.
future is 100 percent accurate, but this .part~cular The first step is to wait for the eighteen day moving
formation not only indicates which dlrectt~n a a.vera?e to cross over the forty day moving average
market is headed, it gives the investor a. margm of (I.n either direction). For clarity, let's say the
safety as he or she enters the market. It IS a system eighteen day moving average crosses from below
of superb reliability. It is for that reason we borro:" the ~orty day moving average to above the forty day
from the past and name this occurrence the Delphic mhovm g average. At this point, the only thought you
Phenomenon. s ould hav . .
Wh e IS to start lookmg for a buy signal.
enever the eighteen day moving average is
above the fort d .
y ay movmg average we are looking
20 21
for a buying opportunity. Once the eighteen day
moving average is above the forty day moving
average we will wait for the actual price of the
market to go above the eighteen day moving
average, and then drop below it, for the first time.
This is our buy signal! This is what we are looking
for. This is the stage in the Delphic Phenomenon
that tells you what lies beyond. It is at this point that
we call our broker and place a ~ order just ahID'.e
the eighteen day moving average. If you get filled
on your buy order, you will have your broker place a
protective sell stop just below the forty day moving
average. The difference in price between your entry
point in the trade and the forty day moving average
will be your initial risk in the trade. As the market
moves up you will be able to move your protective
stop up accordingly. You will continue to do this
until such time that the market reverses direction,
trades ,at your sell stop price and exits you from the
trade.
The reverse of the above example would be

for a selling opportunity. In which case you will
watch for the eighteen day moving average to cross
from above the forty day moving average to hclo.w
the forty day moving average. As soon as this
happens you will be looking for your scll signal.
That sell signal will come when the actual market
price moves from below the eighteen day moving
average to above the eighteen day moving average,
for the first time. At this point you again call your
broker, but this time you will be placing a.scll order
22 23
just hcl.uw the eighteen day moving average. If the your profits may not have been very high, if you
market drops and fills your order, you will then call realized any profits at all.
your broker and place a protective buy stop ju~t
above the forty day moving average. Once agam
your initial risk for the trade will be the difference
in price between your entry point and the forty day When I say that your protective stop was of
moving average. As the market price drops you will ample distance to give the market room to move,
move your protective buy stop down to lock in more almost everyone wants to know what "ample
profits until the price changes direction and trades at distance" is. Welcome to the hardest and most
your stop price. difficult question that ever existed in the
commodities markets. I sometimes wonder if there
~s .an ~ccurate. measure of ample distance. Certainly
These last paragraphs are the essence of the It IS dIfferent m every market and it is different from
Delphic Phenomenon trading system. Remember, day to day. I typically will place a protective stop
you only place your trade the first time the market half-.way between the eighteen day and forty day
price goes inside the eighteen day moving average ~ovmg averages. This is what I use as "ample
_ the eighteen day moving average crosses the dIstance". Had that been done on the July Soybean
\ forty day moving average. There will be other ~h~rt (page 23), the second time the market dipped
times the market price dips inside the eighteen day InSIde .the eighteen day moving average and rose
moving average, but I will rarely place a buy or sell above It, as described in the previous example the
~I order on the other side of the eighteen day moving

average in those cases. The reason is that too many
times the market run from that point is short lived.
~a.de would have produced small profits. The ~oint
hemg, I don't think there is a perfectly safe place to
ave y.our protective stops. No market proceeds
A good case in point is the area on the July 1997 along lIke clockwork.
Soybean chart ( page 23) at the upper left center.
Around April 1st the market came out of the
eighteen day moving average to the upside. It was
the second time the market price had dipped inside protecti~~e s~:st ~Iace I've discovered to place my
the eighteen day moving average since the eighteen f.
average on .. /s below the forty day moving
day moving average first crossed the forty day back situatio I~ I~ entry into the market in a buying
in December. As you can see, the brief spurt was averag n~ an . Just above the forty day moving
em sellIng·t .
short-lived. Had your protective stop been of ample market b Sl uatlOns. I then like to give the
a out one w k t ..
distance to give the market opportunity to move, ee 0 make up It'S mmd on it's
24 25
future direction. As the market moves in my favor average is on top of the forty day moving average,
after that approximate one week, I move my and it is not a seJli~g situation until the eighteen day
protective stop to about half the distance between moving average IS below the forty day moving
the eighteen day and forty day moving averages. I average. So the reason for waiting for the market
continue to move it, on a daily basis, until I am price to go above the eighteen day moving average
eventually stopped out of the trade. In some cases and dropping below it before we place a buy order
that turned out to be a good time to get out of the is this: if the market continues down - we never got
market, and in others, staying in longer would have in the market at all. You will find that, in most
been better. This method of trailing a stop has had cases, the first time the market crosses the eighteen
the greatest amount of success for me so far. Y.ou day moving average after the eighteen day moving
may want to play with that and see if you can arnve average. crosses over the forty day moving average,
at a better means of gaining more ground. If you there will be enough buying pressure to send the
do , I would love to hear about it. market for a nice run. Your protective stop will be
place~ on the ~ide of the forty day moving average
OpposIte the eIghteen day moving average. If the
You may wonder why I have chosen to wait market fails in its attempt to continue upward after
for the market to go inside the eighteen day moving crossing the eighteen day moving average, you will
average before I place my buy order on the outside ~now what your losses will be and your stop order
of it. You might say "Why not buy into the market IS set below another crucial line of support. It is, in
as soon as the eighteen day moving average crosses other words, where it should be - below the line of
the forty day moving average, or why not just bu~ as sU/J.port of a market. Market support is a term used
soon as the market crosses the forty day movmg to Identify where supposed buy orders are already in
average?" The answer is that quite often the mar~et place, giving enough buying pressure to keep the
price will jump across the forty day ~ovmg market price from going lower. Market resistance is
average, run up high enough to cause the elght~en a term giv~n to an area where supposed sell orders
already ex t ..
day moving average to cross the forty d~y m.ovmg th t . IS , gIvmg the market price a cap (or top)
average, and then just go right down agam wlth~ut a pnce should not breach.
ever coming back up. Sometimes the market pnce
will jump up above the forty day moving average
and go right back down without ever having enough trad· Therefore·,lIS ·t· the very essence of this
109 system th t . .
strength to stay long enough to pull the eighteen day going· a you wIll be 10 on a market move
In Your fa
moving average across it. Remember, it is no~ a all Th vor or you never got in the market at
buying situation until the eighteen day movmg . e only other scenario is that you got in the
26 27
market and were stopped out with a loss. A loss
The second occasion in which I use an
you were willing to risk before you started.
option is if the futures market I plan to trade
requires a lar?e risk, based on how far away the
forty day mOVIng average (where my protective stop
Another point I'd like to make is that you
w~1I be) ~s to my entry into the market. In that case I
must keep up with reports that will come out on
Will deCide at what price I would have placed my
different markets. For instance, there are crop
buy (or sell) order on the futures chart. I will then
reports, cattle on feed reports, unemployment
call my broker and tell him that when the futures
reports, etc. I make it a point to be out of any
ma~ket trades at that p.rice, to buy a call (or put)
markets the day before a report is issued regarding opt~on at. the market pnce. The strike price of the
that market. The only exception to this rule is if I optIOn Will have been predetennined between my
already have high profits on the trade and my broker
. and me. I won't waste time expl aInmg ." how
protective stop order is well above my original entry
optIOns w.ork, if you choose to use them your broker
level, I may then consider maintaining my position. can explaIn them to you.
The reason for this is that no matter how good
things may look, a report can totally alter the course
of any market if there is unexpected news. I try to avoid the use of options because you
have two enemie . th
The onl SIn. at game - price and time.
futures t:ad~eal enemies in the commodities and
I will mention options only once in this
are price a~~g isyste~ you have been reading about
book. I do not trade them except on two
occasions. The first is the day before a market news enemies is im ~'patJence - the greater of the two
report. At that time I will place a trade only if the and sell basel~~e~ce. The~e opportunities to buy
futures chart shows me I should be placing a buy or happen every d e DelphiC Phenomenon do not
ay. You must . J;
sell order based on the Delphic Phenomenon. If, for develop. The old Watt lor them to
virtue has adage about patience being a
example, the com chart shows me that I should be tremendous I"
placing a buy order above the eighteen day moving Overzealousness '11 d app lcatlOn here.
rapid fashion. WI estroy an account in a very
average tomorrow, and tomorrow is the day of the
crop report, I will buy a com call option today.
This, too, involves risk but the risk in options is
usually much less than the risk in futures. Now that you ha b'
When you should I ve a aslC understanding of
What to lOok DO ? ace your buy and sell orders and
r In a chart we need to move on to
28 29
more specifics. Not every single time that the It seems easy, and it is, when a chart shows
eighteen day moving average crosses the forty day, such a clear pattern. Sometimes the charts will not
and the market drops inside of it do you place your be as specific.J
buy or sell order. There are certain times. to d~ this
and certain things to look for. The followmg WIll be
critical infonnation needed to trade this system The next chart shown is the 1997 October
successfully. There will also be more charts to Live Cattle (page 32). In this chart you will see near
emphasize these criteria. Before you go to the next the end of December the eighteen day moving
charts I want you to return to the 1997 July average crosses above the forty day moving
Soybean chart (page 23). Near June 1st, you would average. On this occasion the market did not make
have been filled on a sell order had you followed a quick drop inside· the eighteen day moving
this trading system. Your protective stop would average. The market price did not drop inside the
have been placed above the forty day moving eighteen day moving average until the first week of
average. Note the proximity of the forty ~ay February, twenty-five trading days later. That is
moving average to the eighteen day movmg usually too much elapsed time for me to place an
average. They are not very far apart (compared to order on the other side of the eighteen day moving
other charts you will see). Also, notice how quickly average. Granted, you could have made profits on
(eight days) the market price took to come back the trade in this case, but too often the following
above the eighteen day moving average after the br~ako~t fr?m the eighteen day moving average at
eighteen day moving average crossed below the thIS pomt IS short lived. This is a situation that
forty day moving average. Critical!! These are the r~quires close attention. As stated before the best
hm t
relationships you want to find. These are the ones . e 0. get 'm on. a Sizable move is when' there is
with the best opportunities for successful sell trades: fairly lIttle time between the eighteen day moving
the eighteen day and forty day moving averages are ~v~rag~ crossing the forty and ' the market going
close to each other, and a quick move of the market ~nsl~~ It. The opportunity stjJl exists, but this is a
price down and then back up again, a?ove the Fe~:slO? I would give serious thought to first.
eighteen day moving average. The OpposIte would d 0 OWIll~ this upward move the market again
apply for a buying situation. On the same chart, go a~ops, t~IS time pulling the eighteen day moving
back to the first week of February. Had you been th erage elow the forty day moving average. When
e market p'
trading this system at that time you would have mov' nce went above the eighteen day
placed your buy order above the eighteen day IIlg average ld
below th . ' we wou have placed sell orders
moving average. Your protective stop would have
been placed below the forty day moving average.
0;
middle ~ghteen da~ moving average (around the
arch). ThIS trade resulted in a small
30
loss. The Protective stop just above the forty day
mOVIng . average was elected and that took us out of
the trade in late March. The large move upward
a ft er this pulled the eighteen day moving
0 average .
above the forty day moving average. nce agam
our opportunity an'ives to place a buy order above
the eighteen day moving average after the market
price drops below the eigh~een day m?ving average.
About the middle of Apnl we are 1/1 the market
again, after our buy order is filled. This resulted in
a very profitable trade.
Going along the same chart we have a sell

off in Live Cattle starting about the first of May, and
the eighteen day moving average is pulled below the
forty. The waiting begins. We are waiting for the
market price to go above the eighteen day moving
average before placing a sell order. This does not
arrive for a long period of time, over twenty days
since the market price first crossed below the forty
day moving average. Too long in this case. This
presents an opportunity to place a buy order at or
below the eighteen day moving average. This will
be explained in a later chapter. This is one of the
~a~gerous trades for experienced traders. The point
IS, If there is too much space between the eighteen
day mOVing average crossing the forty day moving
av~rag~, and the market price dropping and then
gOl/1g 1/1 hbetween
placin . . the two ' it is not the time to be
g t e tradItional order that you have learned
t~us ~ar. What We are looking for is a rapid drop (or
nse) In the m k t . .
ar e pnce nght after the eighteen day
32 33
moving average crosses the forty. Whe? there is a
long gap between the eighteen day movmg average between. Our goal, however, is not to be in on
crossing the forty day moving average, and the every market move, only to be in on the more
market price going inside the eighteen, you. could be certain and conservative trades in order to minimize
flirting with disaster if trying to emplo~ thiS system risk while employing the Delphic Phenomenon
at that time. The number of days reqUlred between system. We do not subject ourselves to potential
large losses by simply jumping into a market that
the market price dropping (or rising) abo~e (or
appears to be heading in a certain direction. The
below) the eighteen day moving average IS not
Delphic Phenomenon uses a very easy means of
etched in stone. It is based more on how the charts
look at the time. If you take the time to study the finding an entry point and a position to place our
protective stop order. By so doing you are well
harts in this book and pay close attention to the
~ifference between the charts listed under "De!phic
aware of the potential losses existing in that
particular trade. These locations are based on
Phenomenon" versus "System Failure" the ~lanty of
tangible spots in the charts and are based on points
the entire trading system will eventually Jump off
of inherent meaning. There will be shown , later,
the page at you. When you understand t~e
other ways to enter the market without using the
relationship of time to the occurrence of the Delp~l c
Delphic Phenomenon. These are means of picking
Phenomenon you will have all you need to pick
these formations out with a quick glance at any
ke~ turnaround spots, and gaining exceptional entry
pomts. Before we get to that let's look at a 1997
chart. September com chart (page 36).
You will find as you follow current charts ~r

Here lies the same pattern as the Soybean
look into historical charts that the Delphic chart. First focus on the time around the end of
Phenomenon occurs quite frequently. It is a :~ry January. Just prior to that, the eighteen day moving
simple approach to trading futures and commodltl.es average crossed above the forty day moving
utilizing a system that will bring about substantial
aver~ge. The market drops inside the eighteen day
rewards while at the same time limiting risk. Th~re mOVing av h
.
Just above erage
th s. ortly
h thereafter. Our buy point is
are times when this system causes us to miss entue
market moves because the market pnce . 0f a OUr prot t' e elg teen day moving average', and
. . 'd e the mOVlng. ec Ive stop is placed below the forty day
particular commodity does not go mSI avera ' " I
We t'l
ral OUr Pgettnltta
· Iy. As the market moves up ,
eighteen day moving average in a rapid fashion after
the elg
. hteen dro ecttve. stop order half-way between
the eighteen day moving average crosses the forty
movin ay movtng average and the forty day
day moving average, but these are few and far
g average. Around the middle of March, we
34 35
would have been stopped out of the trade with a
ry handsome profit. When the market turns
~~wnward in the middle of April the eighteen day
moving average goes below the forty day moving
average. This time we wait for the market price to
go above the eighteen day ~oving average before
placing a sell orde~ below It. That day d?es not
come until the mIddle of June. By usmg the
Delphic Phenomenon to trade, we would have
missed out on the entire move down. Employing
other tactics at our disposal we would not have
missed out at all. In a later chapter you will find out
how we could have sold short in this market long
before the eighteen day moving average ever
crossed the forty day moving average.
I want to discuss one more chart before

moving on to some of the more exciting things to
look for while trading futures and commodities.
That next chart will be the 1997 September cocoa
(page 38). ' It will be fOllowed by other charts so that
you will be able to find the formations for yourself
As you can see, trading by the basic system alone
can be very exciting because it is so simple and
pr~fitable. It is incredibly easy, and one
thIrty-second glance at a chart will tell you if the
market is worth trading or not. The more exciting
part of trading fu tures is yet to come.
. the
agam . hthe Cocoa chart to emphasize once
I chose
POInt t at When a market makes an
36
37
tended run (causing a long gap) after the eighteen
~xy moving average crosses the forty, it is not time
t: place an order above (or below) the eighteen day
moving average. Near the first of March the
eighteen day moving average crosses ab?ve the
forty day moving average and the market pnce does
not drop inside the eighteen day moving average
until the first of April. This is usually too long, and
the point is made clear by the brief burst over the
eighteen day moving average around the end of
April. Do not get sucked into these moves! Have
patience. After that burst up, the market drops and
the eighteen day moving average crosses below the
forty. When the market price goes above the
eighteen day moving average we place a sell order
below. The situation around the middle of May is a
hard call to make. If our sell orders were too close
~ to the eighteen day moving average, we would have
~ gotten into the market and · taken a loss when the
..
'.8
~.
market crossed the forty day moving average and hit
:f 0
:8 our protective stop. Had our sell orders been farther
.8
8
..!!
Q,
~ away from the eighteen day moving average, below
the low set on that one particular day, we would
have never been involved in the trade .
That brings up an important question. How

far from the eighteen day moving average should an
order be? A .h
. s WIt all stop orders, that's the
toughest question in trading. There is no definitive
a~f~wer.
dI 1erent Each
I' market
. is different, and each day is
. ve tned a number of ways to find a
38
39
precise distance from the eighteen day moving
average, including previous lows, retracements, come down. The higher and faster they go up, the
harder and faster they will usually fall. Therefore,
different mathematical formulas, etc. After all the
in situations like this r will trail my protective stop
effort seeking a magical spot, I have found that i~ is
order half-way between the eighteen day moving
best to simply place your stop order a few pnce
average and the four day moving average. (See, we
ticks below the eighteen day moving average. You
do use the four day moving average sometimes). By
will see, as you study the charts in this book, that
doing so, we would have been able to sell out of the
when the market price begins its run from the
market near the highs around the end of June, with
eighteen day moving average it has a tendency to
tremendous profits. Study the following charts to
really move. By placing your order. close ~o the
test your understanding of this trading system. The
eighteen day moving average you wIll be In for
more you stU?y them the clearer the Delphic
better fills as the market moves in your favor and,
Phenomenon ~III become. You will be given a quiz
likewise, will reduce your losses if the market at the end of this book. If you fail the quiz, you will
should reverse course on you. have to read this chapter over. Do your best.
The next move on this chart is to the upside

and with it comes the eighteen day moving average,
crossing the forty day moving average near the end
of May. Around the first of June the market drops
below the eighteen day moving average and we
have the perfect scenario; a quick drop of the
market price into the eighteen day moving average,
as soon as the eighteen day rises above the forty day
moving average. We place our buy order just above
the eighteen day moving average and off we g?
When a market moves at breakneck speed as thIS
one did I use a different strategy for placing my
protective stop. In almost all cases, any ",1ark~t th~t
makes an extremely big move in one dIrectIon IS
followed by the same on the reversal. Don't be
fooled into thinking something will go up forever -
it doesn't! All markets that go up, will eventually
40 41
CHART KEY FOR THE DELPHIC PHENOMENON
1. Eighteen day moving average crosses above

the forty day moving average. (You are now 6. Eighteen day moving average crosses below
looking for a buying opportunity.) the forty day moving average. (You are now
looking for a selling opportunity.)
2. Allow market price to drop below the eighteen
day moving average,for thefirst time. 7. Allow market price to rise above the eighteen
day moving average,for the first time.
3. Place a BUY order above the eighteen day
~
N II moving average. 8. Place a SELL order below the eighteen day
moving average.
4. After confirmation of a fill from your broker,
place a protective stop just below the forty day 9. Place a protective stop just above the forty day
moving average. moving average.
5. Once the market begins moving in your

direction, trail your stop halfway between the
eighteen day and forty day moving averages.
~
w

day moving average,jor the first time. 7. Allow market price to rise above the eighteen
~
~ II moving average. 8. Place a SELL order below the eighteen day
moving average.
movmg average. movmg average.

~
V'/

day moving average,for the first time. 7. Allow market price to rise above the eighteen
~
0\ II moving average. 8. Place a SELL order below the eighteen day
moving average.

direction, trail your stop halfuray between the
~
-..J
l. Eighteen day moving average crosses above

~
00 II moving average. 8. Place a SELL order below the eighteen day
moving average.
movmg average. moving average.

~
\0

day moving average,jor the first time.
\Jl
moving average.

Vl

VI
N II mOVing average. 8. Place a SELL order below the eighteen day
moving average.
mOVing average. moving average.

VI
W

VI
moving average.
s. Once the market begins moving in your

VI
VI
CHART KEY FOR THE DELPHIC PHENOMENON \

VI
0'1 II moving average. 8. Place a SELL order below the eighteen day
moving average.

VI
"

day moving average,jor thefirst time. 7. Allow market price to rise above the eighteen
day moving average,jor thefirst time.
VI
moving average.

VI
\0

0\
moving average.

eighteen day and forty day moving averages ,
0\

0\
moving average.

0\
Vol

8. Place a SELL order below the eighteen day
0\
~ II moving average.
moving average.

0\
VI

0"1
0"1 II moving average. 8. Place a SELL order below the eighteen day
moving average.

eighteen day and forty day moving averages .
. . . .
3-BUY
0"1
-...l
0\
movmg average.

0'1
\0
....
3-SUY ___

Place a SELL order below the eighteen day
-.l
0 II moving average. 8.
moving average.

8-SELl
-..J
TKEYFORTHE PHIC PHENOMENON

-...l
tv II movmg average. 8. Place a SELL order below the eighteen day
moving average.

-...l
W
-.l
moving average.

-.l
y~~
VI
CHART

-....l
0"1 II moving average. 8. Place a SELL order below the eighteen day
moving average.

e~gbteen day and forty day moving averages.
-....l
-....l
-...l
moving average.

-...l
\0
00
o moving average. 8. Place a SELL order below the eighteen day
moving average.
Once the market begins moving in your

ei'i!,nteen da')' and fort')' day moving averages.
00
8 - SELL
moving average. 8. Place a SELL order below the eighteen day
00
tv II moving average.

00
w ....
3-BUY - - -
HART

day moving average,jor thefirst time. 7. Allow market price to rise above the eighteen
00
moving average.

00
VI
TKEY

00
moving average.

el.ghteen day and forty day moving averages.
00
-....I
TKEY

00
moving average.
S. Once the market begins moving in your

00
\0
1.0
moving average.

1.0
the forty day moving average. (You are now . 6. Eighteen day moving average crosses below
day moving average,jor thejirst time. 7. Allow market price to rise above the eighteen
\0
moving average.

e~'i!."teen day and forty day tnoving averages.
10
w
c
\0
.+::- II moving average. 8. Place a SELL order below the eighteen day
moving average.

eighteen day and forty day Ynoving averages.
1.0
VI
\0
0'1 II moving average. 8. Place a SELL order below the eighteen day
moving average.
moving average. movmg average.

\0
-....J
the forty day moving average. (You are now
looking for a buying opportunity.)
2. Allow market price to drop below the eighteen Allow market price to rise above the eighteen
day moving average,jor the first time. 7.
movmg average. 8. Place a SELL order below the eighteen day
\0
00 II movmg average.

el.gbteen da)' and forty da)' moving averages.
\0
\0
N

0
0 II movmg average. 8. Place a SELL order below the eighteen day
moving average.

o
YFORT

day moving average,jor thefirst time.
0
N II movmg average. 8. Place a SELL order below the eighteen day
moving average.

. . ".'
.,"~
8
~~.
o
w
1.
Eighteen day moving average crosses above Eighteen day moving average crosses below
the forty day moving average. (You are noW
6.
looking for a buying opportunity.) looking for a selling opportunity.)
2. Allow market price to drop below the eighteen Allow market price to rise above the eighteen
7.
day moving average,for the first time. day moving average,for the first time.
3. Place a BUY order above the eighteen day Place a SELL order below the eighteen day
- moving average.
8.
movmg average.
"
0
~
After confirmation of a fill from your broker,
4. 9. Place a protective stop just above the forty day
place a protective stop just below the forty day moving average.
moving average.

e\gnteen day and fort)' day moving averages .
. . . .
3-8UY--
o
VI
ON

0
moving average.

ei.ghteen day and forty day moving averages.
o
-.J
-
0
00 II
moving average. 8. Place a SELL order below the eighteen day
moving average.

dit:ecti on, trail y out: stop h alfway between the
e"~n\een day and forty day tnoving averages.
o
1.0
6. Eighteen day moving average crosses below
looking for a buying opportunity.)
7. Allow market price to rise above the eighteen
8. Place a SELL order below the eighteen day
moving average.
0 II moving average.
moving average.
moving average.
5. Once the m arket b egins moving in your

dlt:ectlon, tral\ yout: stop halfway between the
e'l;!,b.,-een day and forty day moving averages.
iOlplementing this program. I explained that there
was an order you would place that would be at a
certain price or better. Here is where you will learn
boW to use ,that. T~is, is what makes futures trading
the fascinatIOn that It IS,
CHAPTER FOUR
While studyin~ the basic trading system you
learned that the most Important thing to look for is
We now embark on the fourth chapter, the when the eighteen day moving average crosses the
one that is the most explosive and exciting, forty day moving average. That gave us the
Chapters four and five will be the ones that show direction ?f the market, we knew at that point to
you the most fascinating things I've been able to start, lookmg for a buy signal if the eighteen day
discover in the futures markets. These chapters movmg average crossed above the forty day moving
should intrigue all people who have traded futures a~erage. Likewise, we also knew to look for a sell
in the past, and likewise, should awe those of you sIgnal whenever the eighteen day moving average
who have never traded before, In these chapters we cros~ed ,below t,he forty day moving average, That
will delve into the aspects of trading that will show :rt IS SImple, nght? How about this scenario? All
you how to know when a market is going to make a (th ee movmg averages converge on the same spot
major move, not just a small jump, but a long e .four day, the eighteen day and the forty da;
sustained move, one with speed and velocity, They m~llvllng averages). What happe~s then? Now you
will show you how to capture big reversal moves,
WI earn why th n d '
speci I ' I' , e our ay movmg average has
a Imp lCahons,
even when the trend appears to be going the
opposite way. They will also show you how to
place orders when a market is trending one W~y -
When this h
only your orders will be to the opposite directIOn, ecstatic" Th" P enomenon occurs, I am
In the previous chapters you learned how to tr~de system 'b' IS IS the essence of my entire trading
s by the £
, ecause' wh en th'IS h appens and is followed
conservatively to make profits with limited n \
Now you will learn how to catch major points °d SOrnethingo~a\lon
g
o~ the Delphi~ ~henomenon,
turnaround, and how to know when a very larg~ an I eVent that can h S com~ng next. ThIS IS the biggest
extended market move will occur. Earher , four, eighte appen In futures markets, When the
explained the types of trades you will use In COnverge en, and . forty d ay movmg ' averages
, We are In fior an exploslve
' move in that
112 113
commodity market. I don ' t know why t~e resulting Now is when you need to refer back to the
ferocious move occurs. All I can equate It to is this' 1997 July Soybean chart (page 23). If you had paid
if you took a ten inch diameter water pipe that wa~ I se attention to what I have stated thus far you
under pressure, and attached a two inch diameter ~h~uld have been a little bit confused about one
adapter to the end of it, the water pressure Coming art. That is when I told you that what we want as a
out of the end of the two inch adapter is extremely :ood buy (or sell) signal is when we have a very
powerful. Any time you take something that is small gap between when the eighteen day moving
under pressure and condense it you create an average crosses the forty day moving average, and
explosive situation. When the three moving the market goes in between the two. So why did we
averages converge on a futures chart, the volatile place a buy order on the July Soybean chart in early
market has been condensed and is ready to explode. February? The gap, between the eighteen day
All commodities are under pressure with extreme moving average crossing the forty day moving
buying and selling going on constantly. The only average, and the market price dropping inside is
time a commodity is not under much pressure is large. According to the basic system we would
when that particular commodity is in a "channeling have had to give this trade a lot of thought before
market condition" (or range-bound). When the getting into it. Except for one thing! Look where
three moving averages converge in a channel!ng the three moving averages were on January 1st.
situation this rule of an explosive move followmg They had converged! We knew a huge move was
the convergence will not apply. In all other going to follow. That was the reason for placing the
situations, when the four, eighteen, and forty d~y buy order above the eighteen day moving average in
. mov e IS
moving averages converge, the resu1tmg early ~ebruary. Once the convergence occurred, the
dynamic. This indicat~s the market is. uI~1.er DelphiC Phenomenon formation followed right
immense pressure and gettmg ready to blow Its behind.
. . the
Since this trading system mvolves uSlllg Using the same chart, look what happens
. ges as a arOund th t
eighteen day and forty day movmg avera . the
averages e wenty-fifth
. of May. The three moving
guide to indicate direction, we are left out m We 10 k' agam converge. So once more we are
cold when all three moving averages converge: k is Ing
evOol . for the Delphic Phenomenon formation to
know a big market move IS . commg,. but the trIe Ve Imm d' I
is now elate y thereafter. The only difference
to figure out in which direction it will move. As stat ~e kn?w a very large move is in the works.
occurs e earlier, When a very fast and strong move
, Your protective stop goes between the four
114 115
day and eighteen day moving averages, In this case
we would have been stopped out of the trade near I g e move in the same direction the market was
a III h' , 'f h
the bottom of the chart, in the last week of June, already going. T IS IS true even I t e market
This particular trade produced about 400% profit in already looks overbought (or oversold), Go to the
four weeks, 1997 September Coffee chart (page 120), From the
first of December this market was in a very strong
upward trend, By the end of Fe~ruary it looked like
On the July Soybean chart the three moving it had run its course and was qUite overbought. As
averages converged at key turnarou~d points, t,his you follow the market through the end of March you
makes things easy if we were followmg the trading see it drop, then go up, and eventually drop again,
system of the Delphic Phenomenon, What hap~ens This drop finally brought the three moving averages
when the three moving averages converge In a together. It also pulled the eighteen day moving
situation that doesn't fit this trading pattern? This is average below the forty day moving average,
an interesting point to note! You have alrea~y causing us to start looking for a sell signal. Once
learned the basic trading system of the Delphic the market dropped below the eighteen day moving
Phenomenon - always keep this. in mind while average and then went above it we would have had
trading. To try to simplify what to do wh,en t~e our sell orders below the eighteen day moving
convergence occurs I have included charts m thiS average, The market price never went below the
chapter. eighteen day moving average again! This is
~ritical! When the three moving averages converge
In a strong bull market and the basic trading system
The three moving averages do not alwa~s ha,s no follow through, (meaning that the market
' ,
converge when markets reverse d IrectlOn, They wIll pnc~ never again went below the eighteen day
occur in strong upward or downward trend~, When mOVIng average after the eighteen day moving
they do converge in these situations it can distort the average crossed below the forty day moving
, Is, Do,
chart patterns and give false revers a I signa average), what is left? What is left is the biggest
,
not fall for these false Signals, go b ack to the fbaSIC
the t e th move of this bull market! In other words , if
UhPward
e
trading system and look for the pattern 0 d D I h,re mOving averages converge, and the
eighteen day movi~g a~er~ge crossing the ~ort\:~k mear~ IC Phenomenon formation Occurs but the
the market price gomg mSlde, and then commg , a av et price never crosses the eighteen day moving
out. If that does not occur, and we are aIrea dy IIIthe it ~radgbe, then the market will continue on the Course
a een on '
"
very strong bull (or bear) market condItIon,. then
' tes mov' pnor to the convergence of the three
lUg averages,
h
convergence of the tree .
movzng averag es mdlca
116
117
CHART KEY FOR THE CONVERGENCE OF THE 3
MOVING AVERAGES
1. 3 Moving Averages converge signaling a very large move

will follow.
00
2. 3 Moving Averages converge in an onward trending market

signaling the biggest move is yet to come .
.·IfI.·bl,r~
\0
You will also learn later how to use the
all this tell us? ~t tells. us the market is going up _
~eekly charts to find out if the market is still in a ·t's time to buy mto thIS market. Where do we get
bull (or bear) phase. This information will be
~n? With all this information at hand it looks
critical in determining the overall direction of the
market and which direction the market will be going
~o~fusing, but it really is not. You simply return to
old faithful - the Delphic Phenomenon. Place your
after the convergence of the three moving averages.
buy order above the eighteen day moving average
since it has just crossed above the forty day moving
average, and place your protective stop below the
Another example of the convergence forty day moving average.
occurring in a strong bull market is on the
December 1997 U.S. Dollar Index chart (page 121).
From the beginning of this chart we are in a bull
The method I use to find overall direction in
market, heading gradually upward. Then the market a market is the weekly chart of each market. These
drops near the end of April. The eighteen day
give a much clearer indication of the market's trend,
moving average crosses below the forty day moving up, down, or stuck in a channel. By pulling up a
average. After the market price goes above the weekly chart you can see in a glance which
eighteen day moving average we should have sell direction the market is heading, do not trade against
orders below the eighteen day moving average this trend! That can present a problem though,
(around the first of June), these orders would have because it is the daily charts that create the weekly
never been filled. Shortly after these market charts. The daily charts materialize first and thus
conditions abate, the three moving averages cr~ate the weekly's, so which comes first, the
converge (around the middle of June). We n?w chicken or the egg? This is where you will employ
know a huge move is coming, but in whIch some of the tricks you will soon discover in chapter
direction? First, we have already experience.d five. They will help you determine when weekly
"system failure", by that we know the market ~s charts could be ready for reversals. If you are in
going up - as you will read about further in thIS d~Ubt about the direction of a market on a weekly
chapter. Second, we are in .a strong bul? mark~t. ~ ~rt, but see a formation you'd like to trade on the
Third, the eighteen day movmg average IS alrea Y y
aimed like a directional arrow to cross above the I ,all chart, my advice to you is to leave it alone.
Ve fou d' .
forty day moving average. (We are 100 ktn · g for a move th n ' It . IS much more fun to miss a market
\\fa a.n It IS to be in the market going the wrong
buying opportunity two days aft er the conv ergence
. average d0 es cross \\fiILn~elll? in a market that is moving against you,
when the eighteen day movmg re lIkely than not, ruin your day!
above the forty day moving average). So what does
134 135
CHART KEY FOR REVERSAL MOVE FOLLOWING
"SYSTEM FAILURE"
1. The Delphic Phenomenon occurs, but no new lows are set.
2. Place a BUY order ABOVE the 40 day moving average.

Vol
0\
3. Your protective stop will be placed BELOW previous lows.
4. The Delphic Phenomenon occurs, but no new highs are set, place a
SELL order BELOW the 40 day moving average.
s. Your protective stop will be placed ABOVE previous highs.

After learning about the convergence of the
moving averages you must once again exercise
three
. ce before gettmg. mto
. the mark et. T'Ime WI'11
. you the direction t e mark et IS
patten h " gomg to tak e.
gIve I ' .
Y also will know a very arge move IS gettIng
O~y to take place, so don't feel like you are going
~miss the boat by not being in the market soon
e~ough. There will always be time to get in once
this phenomenon appears. (For traders with
experience, this is a great time to buy puts and calls
simultaneously, because we know one will have
great rewards. Don't forget - this does not work in a
channeling market).
Before we move on to the more exciting and

dangerous trades I think it is appropriate to explain
now what is meant by "system failure". As with
any trading system - nothing works 100 percent of
the time. Nothing ever will! The best anyone can
ever hope for is a trading system that has more
winning trades than losing trades. This should
result in overall net profits. So, as with all other
trading systems, this one has its moments of failure
also. The neat thing about a system failure with the
Delphic Phenomenon is this - the opposite move
OCCurs with a vengeance. Yes, you read that
COrrectly.
III . Using this situation, the eighteen day
OVtng average crosses below the forty day moving
average
ab ,an d the market pnce . drops, then goes
th OVe the eighteen day moving average. This would
n
th: s~t the stage for a sell order to be placed below
eIghteen day moving average. The whole
144 145
scenario is looking like a sell according to the
area. If the market, when it drops out of the
Delphic Phenomenon. I refer to "system failure"
eighteen day moving average, does not go blasting
when the market does one of several things, but all
past this point, it probably isn't going much further
have the same results:
down and you need to be extremely careful. The
likelihood of the market reversing in that zone can
I) The market never goes below th~ eighteen
be pretty high if the market did not go zipping right
day moving average again, but. keeps gomg up and
through this previous low. Quite often the market
again crosses the forty day movmg average.
price will stall out somewhere around the eighteen
day moving average in cases like this; that alone
2) The market drops to the eighteen day moving
should tell you the eighteen day moving average is a
average, stops, reverses and goes up, crossing the
crucial pivotal point. This is the area where the
forty day moving average
market (or traders) decide the next course the
market price will be going. This is the time, if you
3) The market drops below the eighteen day
are in the market, you must be on your toes. This is
moving average, goes a short distance, st~ps and
when the market price usually takes off like a rocket
again reverses. This time it will keep gomg up, - one way or the other. Be alert!
crossing back over the eighteen day and forty day
moving averages.
Be sure you fully understand the trading
. WI'11 be system and "system failure" before you move on to
In all of these scenarios one thmg
the next chapter. This may be a good time to go
certain the resulting move up will be enonnous. (1ldn
, situatton,
. back and review the materials already presented
a reverse the resu Itmg
. move down wouder
before continuing.
be enormous). In each instance your buy or, g
vtn
should be placed just above the C10rty day mo the
average. (A sell order would be place? be~ow) In
. a reverse, sltuatwnh .t a d In the next chapter you will be shown the
forty day moving average m angerous ad '.
d t rmme w a how to us th n eXCIting trades. You will also learn
example 3 above, the way to e e fi st droP
rev e e weekly charts for direction and that
"short distance" means, is to look at the Ir d the ersals c ld b .
. crosse does' ou e 10 the works - even when it
the market made after the mark et pnce back n t seem logical.
forty day moving average and b elore e it rose The
above the eighteen day movmg . average.
' the criti caJ
market set a low price there and that IS
146 147
outcome. That does not ~ean it never happened the
other way, it means that In the hundreds of charts I
have perused, I have nev~r seen th~ outco~e to be
different than the ones pnor. Here IS how It works;
we will use the Weekly Deutschemark chart (page
170). Look what begins happening around June of
CHAPTER FIVE 1995, the four day moving average drops and makes
an upward tum just before it touches the eighteen
day moving average. From that point the two lines
(four and eighteen day moving averages) parallel
Chapter five will be devoted to the more each other in an upward movement, this is what you
dangerous and risky trades. These are formations are looking for; the four day and eighteen day
that I have found to occur with a high degree of moving averages paralleling each other in either an
reliability and they are quite profitable when. they upward or downward fashion. Whenever this
work. When they fail, the losses are much higher pattern emerges on a chart, you will be looking to
than a conservative approach like the Delphic place an order going in the opposite direction oj the
Phenomenon. These are trades I do not recommend movement. Using the Weekly Deutschemark chart
employing unless you have the sto~ach for them. as a guide in this example, you will see that the
You must also identify the potential losses and lines are paralleling upward, which means you will
decide if you are willing to risk the trades. be looking for a selling point. You will want to
know where to place your sell order and where to
place your protective stop. Placing the protective
Parallel Lines stop is the easy part, it will always go above the
previous highs (or lows). In this case that would be
This is something I have found that works ~n above the highs set in April 1995. As for where
. . 1'£ or III y~ur sell order is to go, you can DO one of two
most all cases. Remember, nothIng In Ie.
trading commodities works all the . tI::~ thmgs. First, you could place it somewhere below
Unfortunately the world was not created w~th d the four day moving average, trying to catch the
type of simplicity. On occasion we ~11l. fin market When it breaks out of this pattern and drops.
something that has uncanny reliability. This IS °h~e The problem is you never know when the break out
Ii d t IS will Occur. You could very easily be filled on your
of those instances. Personally I have not oun
· on any order at a low price and have to, in this case, wait
event (parallel lines) to occur at any t Ime. t the
chart without having been able to predl c mOnths for the break out. Second, you could place a
149
148
solI order at one of the higher levels, above the four lead the market price to a reversal that will force the
and eighteen day moving averages, and get a better market to go down. Declining parallel moving
entry point with your order. I like this method averages (four and eighteen), will lead the market to
better for four reasons. First, it gives you a much a reversal and the market price will go up.
better fill; i.e., a higher price when selling the
market short. Second, it forces you to wait until
such time you are convinced the two moving In order for two moving averages to parallel
averages are paralleling. Third, by getting in the each other it is necessary for the market price to
market at a higher price level you are reducing the fluctuate above and below the two moving averages
risk on the trade substantially since your protective constantly. There is no other way for this
stop is above the previous highs. Fourth, sin~e yo~ phenomenon to occur. Since this is the case, it
have given the market time to form parallel lmes, It leaves you with many opportunities to get involved
should not be much longer before the big drop in the trade. It also makes it very possible, if you
occurs. Reasons one, three and four would be choose to place your order below the moving
reversed for declining parallel lines in a buying averages (in an inclining situation), that you could
situation. very easily be filled on your order and taken for a
long ride in the direction you don't want to go.
Caution must be exercised here. The market should
This pattern of moving averages paralleling eventually tum your way, but again, nothing in this
is extremely accurate. It also works whether the world is certain. My personal recommendation is
market is in an upward trend or downward trend: !t that you either find a selling point well above the
doesn't matter which moving average is on .to?, It IS moving averages (in an inclining situation), or place
only important that they are either inclImng ?r a sel.l order at least halfway between the paralleling
declining together in a parallel fashion. You WIll ~ovmg averages and the forty day moving average.
note that this always happens after a market .has n the latter, you won't make as large a profit.
. or a new Iow. 0 nce the hnes
either set a new hIgh
beg in to parallel , the market should noth'set neW
d your
highs or new lows, that is the reason be 10 . h th Unfortunately, this rare occurrence is just
. hig s
protective stop being above or below prevIOUS d Dat ~ rare. For instance, in the Weekly
and lows. The market price will then reve~se ~n elutschemark chart (page 170), this event occurred
. h .t dIrectIOn on Y t · .
make a striking movement 10 t e OppOSI e .' g Wice In three years. The second time on that
. Inchntn ch art Wa .
of the paralleling movmg averages . 'Jl th s around December 1995. You WIll note
parallel moving averages (four and eighteen), WI at on the October 1995 Live Cattle chart (page
150 151
171) .this event occurred only once for a very brief
market price dropped inside the eighteen day
time. That was near the end of April. On the
moving average. We will consider the beginning of
weekly Pork Belly chart (page 172) it occurred
the bull run on the breakout of the eighteen day
twice in three years. Once toward the end of 1995,
moving average - the Delphic Phenomenon
and again about July of 1997 - only twice in three
incidentally.) What we are looking for in this
years. On the 1997 October Lean Hogs chart. (page
trading plan is, after the strong bull (or bear) run is
173) - two times, one around the end of Apnl, and
fully under way, for the market price to make a
the second around the end of June. You can see that
sudden drop (or rise) to the forty day moving
this doesn't happen often, but when it does, the
average, and then bounce up (or down) and touch
resulting move is sizable. You will certainly want
the eighteen day moving average. When this
to watch for this event.
situation occurs in an upward trending market, a
very strong downward move will likely result, and
when this occurs in a downward trending market, a
The Forty To Eighteen Bounce very strong upward move is likely. The way you
will implement this trading plan is simple. For
The next exciting trade is one that is ~ot clarity a bull market situation will be used as an
only risky, but is scary as well. You will be placmg example. After the strong bull run occurs, and the
a trade against what appears to be the tre.nd of ~he market price makes a sudden drop to the forty day
market. It usually occurs in a market that IS movmg moving average area, you will place an order to sell
fast and furiously· hence the risk and the danger. at the eighteen day moving average or better. Your
. ' that elt
This trade reqUires . her an ext en d ed bull or
protective stop will be placed above the previous
bear run precede the event that you will see next. ;t highs. The reverse would apply for a strong bear
does not work if that extended run did not prece .e
. .IS Wh at makes thIs ~n. You would be placing a buy order at the
it. Do not lose sight of that, It eighteen day moving average.
trade work.
. be the 1997 18 Using the 1997 September Com chart (page

The first example used WIll 4), Com was already in a strong bull run when the
September Com chart (page 184). Th e fiIrst strongd of ~ar~et took a sharp drop and touched the forty day
bull run seen on the chart began near the en age '1I0 VlOg a
. d ay mOV}·ng aver as the verage ~round the end of March.. As soon
January (right after the eighteen d the average~arket
t· . pnce touches the forty day moving
went above the forty day moving average, an
da ~ IS tIme to figure out where the eighteen
}' mOVing average is and call your broker. On the
152
153
1997 "September Com chart the eighteen day head on the eig~teen day moving average only to
moving average was at $2.93 on the day that the reverse with a nIce run up. As you can see, the
market price touched the forty day moving average. market will not always cross completely over the
Until that time the previous high was $3.01 1/2, eighteen day moving average before reversing. In
therefore, your order to your broker would read as this case it actually reversed at the exact same price
follows, "Sell one (or more) contracts of September as the eighteen day moving average on July 21, at a
Com at $2.93 or better, if filled, place a protective price of $2.40 112. Had you used the exact price of
stop at $3.04". Then you sit back and panic. You the eighteen day moving average you may not have
know what your risk is, you know the danger been fil~ed on this. or~er. For that reason I typically
involved, so you wait until the market fills your use a pnce on the InSide of the eighteen day moving
order and drops like a ton of bricks. Then the panic average, just a few ticks closer to the forty day
goes away. In this case your order would have been moving average. This is not an exact science, so
filled on April 10, when the market hit a high of you must use your own judgment as to where to
$2.94 112. Your protective stops should remain place your order. In this example, had you used a
intact until the market clearly breaks below the forty price of $2.41 112 as your buy point, you would
day moving average. Once the market price goes have been filled on your order. The order to your
through the forty day moving average your broker should read as follows (and this would have
protective stop should be moved to that area. On been placed right after the market price hit the forty
April II, the market had a high of $2.99, that was day moving average on July 15): "Buy one (or
the highest price seen for the remainder of that more) contracts of September Com at $2.4 I 112 or
contract month. The rest is up to you, trailing your better, if filled, place a protective stop at $2 25"
protective stop until you would finally be stopped ~not?er point to make at this time is the fact· tha~
out. If you followed the basic trading system for t ehelghteen day moving average is changing price
eae day . S0 In · actua I·Ity, the eIghteen
. day moving
trailing stops, you would not have exited the market
average Wa t $2 3
until sometime in July - with enormous profits. hI·t the fortys da . 9 .3/4 on the day the market price
When I . ay movIng average. Keep this in mind
p
few t· aCIng your order with your broker. Allow a
Using the same chart you see that the huge aVe Icks to th e SI·d e 0 f t h e eIghteen
. day moving
e rage clos t h
bear market that followed this trade resulted in th Out 0 h er 0 t e forty to be sure you don't miss
. . h b fthe cha rt n t e move.
same formation occurnng at t e ottom ~ It
in July. The market took a big upturn In July .. g
.c d y mo vtn
bounced up and crossed th e 10rty a d its
average. It then went back down and burnpe
154 155
The next example uses the 1997 Decemb The second time this event occurs on this
"Coffee chart (page 185). The obvious bull run ~~ chart is near the end of May. The market, after
coffee began at the lower left hand side of the chart exhausting itself in a huge bull run, drops rapidly
This ploy of selling the eighteen day movin~ frorn its highs, and comes within a few ticks of the
forty day moving average (remember, this is not an
average after the mar.k~t p~ice touc~es .the forty day
exact science, and this is close enough for me to call
moving average exhibits Itself tWice m this chart.
it touching the forty day moving average). The
The first time this occurs is around the middle of
March when the market price dropped quickly following day the market starts back up. This is
below the forty day moving average and then when to call your broker and place an order to sell
rebounded to cross the eighteen day moving average the eighteen day moving average or better. On June
again. Attempting this trade at this time would have 9, the eighteen day moving average was at $197.40.
netted small gains as the market price stalled out This is the day after the market hit the forty day
once it got below the forty day moving average after moving average. On this day, call your broker and
having filled your order at the eighteen day moving place an order to sell one (or more) December
average. In a situation such as this your protective Coffee contracts at $197.20 or better. The
stop would now be placed at the forty day moving following day, June 10, the market hit a high of
average. In all cases using this trading technique, $198.50 and closed out at $175.25. This is a very
your protective stop should be moved to just on or larg.e ~ove in the coffee market. Yet it is only the
above the forty day moving average after the market begmUl.ng Of.a sizable downward run. Employing
price drops below the forty day moving avera~e. the baSIC tradmg system for trailing stops you would
have rem ame · d m · th·IS market with magnificent
With this particular trade, if you had been paymg
close attention to what was happening on the chart ~rolfits (over $19,000 per contra~t), until the end of
·· raBel u y.
at the time, you would have seen a dec Immg pa
line formation developing - meaning the market ~as I'll give
. one more example of this trade
. h
preparing for a large move 10 t e OppOSI
.te directIOn.
fit
us.
It was time to get out of the market Wit
. h th pro I S
e . 1~~ the S&P futures. The chart used will be the
· c t· n cornmg, aho ~eptember S&P (page 186). What is not
at hand. Had you not seen th IS lorma 10 ·th Wn IS
h · t de WI
you would have been stopped out of t IS ra ~ rtY of the h the s trong b.ull market that IS
. off to the left
small profits when the market re-crossed the 0 been .c art. At the hme of this writing the S&P has
day moving average to the upside.
assu. . . In
a
h strong bull run for years. It is safe to
Prior,"et t at the market was m . a strong bull mode
Febru 0 the onset of this chart. Near the end of
ary , th e market made a drop and touched the
157
156
forty day moving average. So what do We do? We
"call the broker and place an order to sell at the over $20,000 in profits in less than one week _ per
eighteen day moving average or better. In this caSe contract!
the market touched the forty day moving average on
March 3. The following day, when the market
reversed and went up, the eighteen day moving When this trade works there are very large
average was at $817.30, and the previous high Was profits to be made. By the same token, if it fails
at $835.70. The order to our broker would have there wiIJ be substantial losses. You will, of course,
been as follows: "Sell one (or more) September know from the outset what risks are involved by the
S&P's at $817.00 or better, if filled, place a placement of your protective stop above or below
protective stop at $838.00". The highest price the the previous highs or lows. In some cases the
S&P hit before making a large drop was $831.30 on previous highs or lows are quite near the eighteen
March 11. After that the market took a big slide, all day moving average and make the trade worth
the way down to $745.25 on April II. risking. In other instances the previous highs and
lows are so far away from the eighteen day moving
average that the risk of loss outweighs the potential
Using the same market, but a different profits of the trade. The December Coffee chart
contract month, we look at the December S&P chart (page 185~ is indicative of that. As usual though,
(page 198). When the market started its run .after the more fisk, the more reward. This is something
crossing the forty day moving average on Apnl 29, that you must rationalize in your own mind. The
it didn't stop again until it made a quick drop to the charts exist and the risk is evident before you enter
the trade.
forty day moving average on August 8. . T~e
following day brought another upward move III ~ e
S&P At this pomt . . h teen d ay movtng
the eig
. . hi h was Selling The Second Hump
average was at $954.95, and the prevlO~s ;nother
$979.60. On this day the broker receIves I ce
phone call, you should, b y now, k now how to p a
"Sell th t lOne more of the signals to watch for is one
the order. Your order would read as follO W;'75 or '"
l
~eferocto as ."selling the second hump".
fo:"" atIon This
one (or more) December S~P's at ~~985.00'" requ'1res curs In very strong bull market runs. It
better, if filled, place a protectIv~ stop a 57 50 and eight that the market price break out of either the
On August 12 the market had a hIgh of $9 O· Well \fer., eetn Or forty day moving average and make a
-'J s rong d h
over the next few days dropped to $905.5 . Pauses an eated run up. The market then
, and Usually drops, sometimes it is a
158
159
,:i11
sub..stantial drop - but never the market drop all
the way to the forty day moving average - if it doe Around the first of April the market dropped and
then you have to abandon this plan. Once th~ touched the eighteen day moving average before
market has dropped it will reverse and make another again resuming its upward climb. This rise set new
upward run, this time it will set new highs. After highs and the four day moving average clearly
the market has set new highs, place a sell order showed a second hump forming. This is the time to
halfway between the four day moving average and phone your br~ker with a sell stop order, halfway
the eighteen day moving average. Your protective between the eIghteen day and four day. moving
stop will be above the previous highs. The four day averages. In this case, on April 3, the four day
moving average, along with the market price, will moving average was at $1561, and the eighteen day
be your guide for identifying the "humps". They moving average was at $1527. Halfway between
will point these out clearly to you. These humps are the two is $1544, and the previous high was $1592,
very reliable indicators on weekly charts. They let thus the order to your broker would have been to
you know when a market that appears to be heading "Sell one (or more) December Cocoa contracts at
up with no end in sight, is ready for a reversal. This $1544 on a stop, if filled, place a protective stop at
$1600".
is of great help when seeing other formations occur
on daily charts, such as those that look like sells in
very strong bull markets.
This phenomenon happened again on this
chart near the end of June. When this bull run
This trade has two essential ingredients; started in the first part of June (after the eighteen
first, the market, after crossing the forty or eighteen day .moving average crossed above the forty day
day moving averages, makes a huge bull run ~ovmg average, the market dropped inside the
upward, and second, the market does not touch the eIghteen day moving average, and came blasting out
forty day movmg . average agam. b elore
C the market - thehiDelphic
new h Phenomenon
. - again) , the market set
sets a second new high. (This works very well for rnOVmg . g as, consohdated
. enough to give the four day
day trading the S&P using one-minute bar charts). U verage Its first hump, and then streaked
PWard ag · 0 h
drops am. nce t e market sets new highs and
be~m~t· enough to show us the second hump , it
The 1997 December Cocoa chart (page 200)the Pri lrue to place the sell order. First, find the
Ce of the fi d · h .
will be used for the first example. Near day in this OUr an elg teen day movmg averages;
beginning of March the market crossed the fo~Y run. ... ~ase theyThWere on June 30, $1736 and $1642 '
.......,peChvel
moving average and entered a strong bu l'he preVIOUs . y. h · at
h makes Our sell price at $1689.
Ig was $1 775. So the protecti ve
160
161
stop would be above that at $1 785. The chart tells
while. This huge drop was preceded by two clear
you the rest.
sell indicators, back to back.
Incidentally, this was also a good way to

I will use another example of the "double
place your protective sell stop, had you been a buyer
hump sell", so you will have an idea how to use it in
of this market in the first part of June as the Delphic
relation to a sell signal on a daily chart. The
Phenomenon indicated.
Weekly Soybean chart (page 202) shows the
beginning stages of the double hump in early May
1997. (It should be noted that during this time
The 1997 September British Pound chart
period there were numerous advertisements to the
(page 201) has another clear picture of this event.
general public to buy soybeans because they were
When the market broke out of the mess it was in
going to $ lOa bushel). The price actually peaked
around the middle of June it set a new high,
out at $903 112 in the second week of May. It was
dropped, then touched the eighteen day moving
not until the third week of May that the weekly
average, and again shot up to new highs. Onc~ the
chart showed signs of the four day moving average
four day moving average started to curl, formmg a
making its second curl - the beginning of the second
second hump, it would have been time to figure ~he
hump. Just as this was occurring on the Weekly
price of the four day and eighteen day movl~g
chart, the three moving averages converged on the
averages. In this example, on July 11, they can:e In
at $1.6852 and $1.6657, respectively. The prevIOuS
?ai~y July Soybean chart. As the weekly chart
mdlcated a possible sell signal with the formation of
high was $1.6960. Half t~e distance b~tween th5e
the double hump, the daily chart performed the
four and eighteen day mOVIng averages IS $1.675 .
precise formation for a sell. Not only that but with
The order to your broker goes in as follows: "Sell th '
e convergence of the three moving averages, we
one (or more) September British Pounds at $1.6755
knew there was to be a very large move. The
on a stop, if filled, place a protective sto~le~t second hump on the weekly chart already told us the
$1.7000). On July 15 you would have been fi l '
~ove was to be down, so it left no doubt of
Please note on thIS . ' Y
. chart wh at came ne xt , short dlrectio h .
. f incitnmg n w en the three movIng averages
after your order was filled, a paIr 0 . h no Converged on the daily chart.
parallel lines which should have left you WIt it
doubt as to ~hat w~s to foll~,:. The ch~rt s~~: a
all, the biggest drop In the BrItIsh Pound 10 q
Although trading by the weekly charts
should not be done because the prices are
162 163
aggregates of all daily charts, they ~re extremely (Once again, note the convergence of the three
important in giving us overall market direction. The moving averages in January 1996, followed by the
weekly charts are used to give us trends, but the Delphic Phenomenon, just prior to the enormous
actual entry points for orders must be found on the bull run). This would appear to be the first hump.
daily charts to ensure more precise trading. What comes next, after the market price falls inside
the eighteen day moving average, causes this to be
negated as the first hump. Not only does the market
The Weekly Pork Belly chart (page 203) is drop down and touch the forty day moving average,
next. This is to show that the second hump of the but it comes out ~f t~e eighteen day moving average
four day moving average does not necessarily have and falls back mSlde the eighteen without ever
to occur without going inside the eighteen day setting new highs. When this happens, the large
moving average. For clarity, all moving averages in upwa~d move, or hump, can no longer be
this book are referred to as "daily moving establIshed as the "first" hump in the trading plan.
averages", and it should be surmised that on weekly Eventually though, the market makes another run at
charts the moving averages are actually weekly the highs, setting new ones in October 1996. After
moving averages. As the chart indicates, the four the four day moving average curls over and the
day moving average goes in a virtual straight line marke~ drop~, we once again have a starting point
from the time it breaks out of the eighteen day ~or thiS partIcular trade, i.e.. , a first hump. This
moving average in February 1996 until it forms the time. the market drops only to the eighteen day
first hump in May 1996. The market then dr~ps movmg average and turns upward again and sets
rapidly, going inside the eighteen day. movmg another new high. As soon as the four day moving
average before reversing again and settmg n~w ave~age cUrls we have the second hump - time to
highs. When the four day moving average forms Its gm
bhe searching for sell signals in the daily crude oil
next curl in August 1996, we know it's time to start Carts.
looking for sell signals on the daily charts.
it· . In seeking out the second hump sell signals

The Weekly Crude Oil chart (page 204)1 is IS Import t t h . .
.
one more clear picture of the second h ump. It a so
c.
lOUr day an . 0 watc for a. contInUOUS lIne of the
· Iat movmg
art ICU . . average. Picture it like this , a very
shows that If. the market rna k es a 'smg Ie hump
the sWee . e renditIon of the letter "m", one with a
without setting a new high, it's time to aban~O\art S p~ng hump on the second half of the "m"
watch, or start over. The Weekly Crude Oil ~996. omehme th .
tha h s e second hump IS much much higher
.
has a large upward run beginning in February ntefitO h · · · '
rs . t er times It IS only slightly higher;
164 165
the height makes no difference. The only crucial 'ghteen day moving average and the forty day
point is that the second hump is higher than the moving average. IconSI
el ' der this the danger zone
first. The four day moving average is not erratic, it
because this is the area on the charts where the
is formed in a nice flowing motion. When the four
market has no direction. It cannot make up its mind
day moving average begins to show too many
which way to go. If you scan through the charts in
erratic signs in between the beginning and end of this book you will find that the market never makes
this "m", then something is wrong. You should be a strong move in either direction until one of these
very careful and watch for other sell signals.
lines is breached. That is obvious, of course,
because the eighteen day and forty day moving
average lock the market in a range until one of those
By utilizing these techniques on weekly
lines is breached. A strong bull run requires that the
charts as directional guides you will have much market price be above the eighteen day moving
more success in trading with the daily charts. It is
average - not below it. If the market price is below
of the utmost importance that I stress the use of the the eighteen day moving average on a bull run, it
weekly charts for direction at all ti~es . . T~ad~ng stands to reason that one of the following is
against the trend of the weekly chart IS. an InVItatIon happening: either the market price is between the
for disaster. If, for example, a sell sIgnal were to
eighteen day and forty day moving average - in the
occur on the daily chart but the weekly chart is still
danger zone, or the market price is below the forty
clearly showing signs of upward momentum, t~e
day moving average but the eighteen day moving
drop will most likely be short lived and ~esul,~ In average is above the forty day moving average. In
what I have described earlier as "system fmlure . I
any of these cases, we do not want to be in the
have found it wise to watch and wait on occasions
market. By the same token, if the market is in a
such as this. If "system failure" does occur, you
strong bear run, the market price will be below the
will be in a perfect position to place a buy (or s~ll)
eighteen day moving average. If it is not, then again
order on a breakout of the forty day movl~g the market price has to be between the eighteen day
average which as you have seen, usually result~ In mOVing average and the forty day moving average,
" and strong move. Do not tra dea.
a very fast galnst,
· IS
. Imp
' eratIve. or the market price is above the forty day moving
the trend of the weekly charts! T hIS average and the eighteen day moving average is
Never forget it. ~elow the forty day moving average. Neither case
~ts the description of the basic trading system.
. lhere do exist trades, as mentioned earlier, that are
Earlier in the book I mentIoned th e "Danger
he P aced even When the criteria for the basic trading
Zone". This is the area in the charts between t
166 167
system does not exist; however, these trades are
clearly labeled (for a reason) as dangerous trades.
The "Danger Zone" has this label because
~
you should never place a trade in this forbidden area ~
while trading the basic system. After a quick ~
glimpse of charts in this book you can easily ~ ~
r/1 01)
confirm why the zone between the eighteen day 01) Q
• .....c
moving average and the forty day moving average is Q
• .....c ...c::
off limits for placing trades. Only one of three ...c:: u
ro
things will happen: the market will break out to the u
ro 0
~
upside, the market will break out to the downside, 8 ~
or the market will remain in a channel. We neither ~
~
want to be in a channeling market, nor do we know ~
from which direction the market is going to break.
§ §
Thus, no trades should be placed in the "Danger ......
...... ro
ro
Zone" while employing the basic trading system.
Q
01)
~
• .....c
• .....c rJ.J
rJ.J rJ.J
rJ.J 0
0 Q
• .....c
Q ......
......
• .....c
......
...... 0
......
......
0 ......
...... ro
~
~ .
ro ro
~~
~O Coo •-+-I
.....c
~'E
'- €0
.~
'- t
·S
~
...... 0
Q
~
~ \.) ~
\.) ~ ~ ~
~~ Q 0
......... N
.
168 169
· ..J .
. ..J
w'
· t/) .
· I ·
. 't- . ~~~
170
171
99/14JfTl B8 :46 CDT CHARTS - Tecm - PORK BELLIES Weekly
-.l
N
-.l
VJ
\·,,·
Z
• -- - ---4., ..
175
174
176 177
_,,'.,.r . ~f"=--"":"
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U)
: /:/<~-. ' .
. . . . . P=-
~ .~. . . ~.
'<t-~.
178 179
CEC Pg ALARM
00
N
1. Strong Bull Market.
2. Market price drops to the 40 day moving average.
3. Place an order to sell at the 18 day moving average or better.

00
w II 4. Place a protective stop above previous highs.
5. Strong Bear Market.
6. Market price rises to the 40 day moving average.
7. Place an order to buy at the 18 day moving average or better.
8. Place a protective stop below previous lows.

09/29/97 14:34 CDt OIARts - teem - CORN Sep 97 CBOt Pg ALARM
00
~
00
Vl
186 187
...>-
I ~
·1
I
188
189
190 191
19/95/97 13:44 CDT CHARTS - Techn - COFFEE, C Weekly CEC Pg ALARH
.40 .
.1.s:r,,· 3-5:;
\0
N
\0
W
COME)( Pg ALARI1
18/05/97 12:54 CDt CHARtS - teem - SILVER (SOOO OZ) Dee 97
\0
~
. 7-B
(did not work)
\0
V'I
\0
0\
\0
-....)
1. Market makes a strong Bull breakout.
2. After the second hump appears, place your sell order halfway
\0
between the 4 and 18 day moving averages.
\0
200 201
NYHEX Pg ALARH
09/21/91 1B:14 CDT CHARTS - Techn - OIL, CRUDE Weekly
l'~2-SELL
N
o.;:.
tv
oVI
19/14197 21:14 eDT CHARTS - Tecbn - BRITISH POUND Weekly
N
o
0\
N
o
'-l
208 209
212
214
215
CHAPTER SIX
No book written on trading futures markets

IS complete without a chapter concerning money
management. This is a chapter I suspect most
readers will, at best, skim over or disregard
altogether. I suggest you continue reading because
this chapter is perhaps the most important of all.
You see, I have been in your shoes; whether you are
a seasoned trader or a novice, I have been where
you are now. I say that because you have read this
book to this point, and that alone tells me you are
looking for something new that works.
Furthermore, it tells me either you are frustrated
because you have traded before and can't get where
you want to be or you have never traded before and
are looking for a way to increase your net worth. In
the first case, have you ever asked yourself if you
had used proper money management, would you be
where you are now? Don't lie to yourself, how
many traders have been right on the direction of the
market but been stopped out due to a stop placed
too close to the market? J know J should not make
this assumption, but I would bet that it is close to
100 percent. Now you are asking what this has to
216 217
do with money management. Everything! You see,
in-my opinion, if you cannot place your protective Some traders place protective stops based on
stop where it belongs on the charts, you have how much money they are willing to risk. I tried
absolutely no business being in the trade. How does that a couple of times and decided it would be easier
that fit into money management? Let's go back to to just send in a check for the rest of my money. In
the first chart used in this book, the July 1997 other words, it did not work for me! Futures
Soybean chart (page 23). The first trade markets do not move in straight lines, they fluctuate.
recommended on that chart was to buy July You must give the markets room to move if you
soybeans near the beginning of February when the expect success in this business. It is the only way.
market price crossed above the eighteen day moving You must place your protective stop where it
average. On this occasion we would have a buy belongs. on the chart, and you must have enough
order placed around $7.46. When we were filled on money In your account to back up that trade and live
this order, our initial protective sell stop would have to trade another day if that particular trade goes the
been placed below the forty day moving average - wrong way. Never lose sight of the fact that there is
somewhere in the $7.15 area. This is a difference of not a trading system in the world that has a 100
$0.31, or thirty-one cents per bushel. Each one cent percent success rate. It simply does not exist and
move in soybean futures is equal to $50. That never ~ill. The best you can look for in a trading
equates to $1550 per contract, ($0.31 x $50 = sys.tem IS to end up with more winning trades than
$1550). If this trade had been a losing trade, you lOSIng ones, and if you practice proper money
would have incurred a $1550 loss. If you were management your winners will make up for the
trading with a $3,000 account (which I do not losers in a big way. It has been said that a
recommend doing), your losses would have successful trader has a 40% success rate, which
exceeded 50% of your account. That is poor money means that 60% of his trades lose money. I
management. By the same token, if your account personally think we can do much better than that.
was worth $24,000 and you decided to trade eight
contracts of July soybeans, the results are the same -
over 50% loss if the trade turned out to move Where does that leave us with the money
against you. Trading in this fashion is a losing management question? This will always be a
battle. This is where proper money management personal choice, and as with all things in trading
comes in. The first rule is to have enough capital in futures, there are no clear answers, and how can
your account to risk the trade to the protective stop - there be - after all, it is the future. With that in
and have enough left over to trade again if a losing mind, my suggestion is to never open a futures
trade were to happen. account with less than $10,000; $20,000 would be a
better starting point. I recommend that you trade
218
219
one or two contracts of any market per $10,000 in
come back to haunt you. You must remember that
you~ account. Of course this would be based on
you are trading the future, and no one knows the
where the market is at any given time and where
future with certainty. You must not get impatient
your protective stop should be in relationship to that
and want to get into a market because you are
market. It would also be based on the margin (the
"certain" it is going in a specific direction. The
good faith deposit required to trade any given
more sure you are of what direction a particular
commodity) required per contract. If you are
market is going to take (when trying to anticipate a
looking for a percentage figure, I would use a risk
market move prior to confinnation through your
factor of between 15% and 20% per trade. As you
trading system), the more likely it is you will be
slowly increase your account you will be able to
wrong. The more you listen to news reports on
increase your contracts traded. Do not attempt to
radio or television, or from recommendations from
make a million dollars your first time around, it is
other people, the more likely it is you will be wrong.
possible - but highly unlikely. The money is there
It has been said that 80% of the general public who
to be made, but do not rush it, it will come with
trade futures lose money. It should follow, that if
patience. Never look at this as a get rich quick
that were true, you should do just the opposite of
scheme, ' avarice will not win in the end. This can be
what the general public does! The general public
a get rich slow scheme if you use four tools:
has a tendency to believe what they read in
patience, discipline, money management and a good
newspapers and magazines, or to believe what they
trading system. These will reward you greatly in the
hear on television and radio. That is one of the
long run.
reasons they are usually wrong. Block out what you
hear or read, the charts will tell you what is
happening. I suggest you only pay attention to
As you trade there will be times when you
factual reports, such as crop reports, government
have a number of winning trades in a row. About
reports, etc. A problem still persists with these
this time you start to feel like supennan. You begin
reports as well. Professional traders will always
to feel that you have become so good that all of your
know more than you do, and they will also be able
trades will be winners. This is when bad things can
to read between the lines of a report to find things
happen. You may have a tendency to stray from
that you cannot. The best thing to do is to stay out
trading the system, whether you get in the market
of the market when a report is to be issued. Watch
too soon or trade five contracts instead of one.
how the market reacts, if a bearish report comes out
Something will go wrong and you will be in for an
and the market goes up, then obviously there is
unfortunate situation. This is where lack of
more somewhere that tells a bigger tale. You will
patience, discipline, and money management wiJl
find that the charts tell a truer story of what is
220 221
.
happening. For some strange reason the answer to try to ma~e up for the loss by jumping back into the
the future direction of a market lies deep within the market WIthout a c1ea~ plan, that is only asking for
confines of the charts alone. It is your job to learn trouble. . The basIc formations will occur
to read these charts and to decipher which direction somewhere In some market again. Wait for them to
that will be. If you take the time and effort to do happen!
this you will reap the rewards you are seeking.
Many people get caught up in the euphoria

and excitement of trading futures, and when that
happens it is easy to stray from the fundamentals of
money management. There are things that are
critical to conservation of money in the daily trading
regimen of commodities. Although it may appear,
at this time, that trading will be easy and there will
be multiple dollars to make, do not assume it will be
as easy at it seems in the previous pages. Yes, the
charts exist, as do the formations. The hard part is
realizing these formations as they occur. In
hindsight they are simple, but in real life they
sometimes are not as clear. If you maintain a
discipline and trade by the recommendations in this
book you should do fine, but you must understand
that there will be losing trades along the way. Do
not be discouraged by these, and foremost, do not
try to make up the difference in the next trade.
Trading in desperation is the single biggest mistake
you can make in this business. Accept the loss -
because, as stated earlier, your account should be
sufficient enough to handle a loss and live to trade
another day if you use proper money management.
Wait with patience for the proper entry point in the
next trade that fits the basic trading system. Do not
222 223
Chapter Seven
Now that you have learned the Delphic

Phenomenon, along with some other key formations
to search for, it is time to test your skills as a trader.
The time has arrived for your quiz. In this quiz you
will be tested only on the Delphic Phenomenon. If
you do not have a full grasp of this trading system
you should go back and study' the first chapters once
more before taking your quiz.
The first part of your quiz involves the chart

on page 225. It makes no difference what chart you
are using since all futures carry the same
formations. In other words, every market acts the
same. Using this chart and employing the Delphic
Phenomenon, you are to look at the chart and
determine where your order should be placed, what
your order would be, or if no order should be placed
at all. You are to assume that the weekly chart in
this case verifies whatever your order is. If you are
ready and full of confidence, tum the page and
move on. The first one should not be too difficult
for you.
224 225
.. See how easy it was? If your order was the market continues up, we never got involved in this
same as mine, it should read as follows: trade. ~f the market drops, we will be filled on our
order - Just below the eighteen day moving average.
"Sell one (or more, of whatever this market

is) at $342.00 on a stop." For those of you with the correct answer you
may go to the chart on page 228. Therein lies the
final result of this trade. All others should go back
The actual price you chose for your order and re~ake the test until they understand the
can vary from the $342.00 I chose as long as your appropnate order.
sell stop order was placed below the eighteen day
mOVIng average, which in this case, comes In
around $346.00.
If you did not place your order as stated

above do not move forward in the book just yet.
You should go back and review the Delphic
Phenomenon trading system. For the benefit of
anyone who did not place an order as outlined
above, I want to identify traits of the Delphic
Phenomenon that appear on this chart (after they
have reviewed chapter three).
Please note on this chart at the top right; the

eighteen day moving average crossed below the
forty day moving average. This alerts us to look for
a selling opportunity. The next event that occurs is
that the market price rose above the eighteen day
moving average for the first time. This is our loud
siren that tells us it is time to place a sell order
below the eighteen day moving average. If the
226 227
Congratulations! Had you known this
trading system and been alive and trading the
markets in October of 1929, you would have called
."
your broker on October 14, 1929 with your sell stop
N
...
."
' ~I~I~iI
order of $342.00 on the Dow Jones Industrials .
Your order would have been filled on October 16,
..:
~
w 1929, and you would have been short the stock
ID
~ market. Therefore, you would have sold short the
W
U stock market thirteen days prior to Black Tuesday,
W
Q October 29, 1929.
:t:
(!) ...J
::J ...J
0 w
~
' ::E tn
:t: . ~ .~ Before moving on to the next question of
I- .tn . ."
." >- ..... your quiz I would like to point out a few more
N · tn . cD .
...
."
· (!) ...... . interesting formations appearing on this chart, use
...
...J
·~ .~ . the chart on page 231. Note the parallel moving
i:2 · ~ .~ . averages (four and eighteen) denoting a buy on the
a.. ·1-'0
< · ~. left hand side of the chart. After the market drops,
ui
(!) · tn
<. it pulls the eighteen day moving average below the
~
ID
forty day moving average. The market price then
w
> rises above the eighteen day moving average, a
<
...J parallel of the four day and eighteen day moving
<
i:2 averages is now forming. This time it is a declining
I-
tn parallel, signaling a buy. It is also confirmation of a
::J
Q
Z "system failure" when the market price does not
tn
W
continue downward, below the eighteen day moving
Z average. Remember, "system failure" signals a
..,0 huge reversal move, upward in this case. So even if
~
0
Q
you missed the declining parallel lines, you should
not have missed the fact that a "system failure"
occurred and you would have had a buy order above
the forty day moving average.
228 229
., The next fonnation would be a bounce from
the forty day to the eighteen day moving average in
the center of the chart. This would have turned out
to be a losing trade. This is a good example to show
~ 0>
that this can be a dangerous trade; when it works, it m
,... ~
is marvelous, when it does not work, you take your ,... ~
~ ~
loss and move on. One more fonnation occurring w .. ~.
. . ".;.,.;~ . . . .
.....
on this chart prior to the Delphic Phenomenon, is
III
:i
W
...
co
W
. ./<' . 0>
~
0 '"
another bounce from the forty day to the eighteen 0
W
:I:
I-
'f" 00
~
Q "-
day moving average. This event happens at the top :x:
I- 0
.....
C!)
· ct
of the chart. If you were not still sweltering from ::J
..J
'..J
..J
..J 0>
w >-
the loss when you tried trading this bounce earlier, 0
~
:x:
·m ':e m
.~ · m
ct
0
~
00
.....
you would try it again here for a fantastic fill in this I- W .m · Nm >- tn
w
-..
0)
market, shorting the stock market on or about m 0 >- · .-~ ' ::J ::J
<'II
m Z ·m .m I- 0>
September 17, 1929 - over a month before the crash .... ::l
0 . (!) . ~ ..J ~ ~
.... ·ct
of October 29! And only about 12 points off the all ..J
m
co
.-
.~ ..8 .t5
. c;; :3
0 (")
~
D2 .~.£ m
time high thus far set in the Dow Jones Industrials.
~
D. u · tn 0>
c( · I- ' 0
w
u.i · 0
"'It
· D. . .Q .
tn
·z ~
,...
C!) · :e
::l
. · ct . . :::i
j::::
The last note to make on this chart is the
~
W
· :I: . m ..J
· W
. 0. ..J 0>
> Z ' ..J
~
existence of the second hump just prior to the last c( ·0 . . ~ 0
bounce discussed. That clearly shows itself after
..J
~ · hl . · D.
ct ~
<0
·m .
the market went on a strong bull run after breaking f!: ..J
· ..J .
. (!)
·z
0>
tn
w. ~
out of the eighteen day moving average in the center .~
::)
a ·m 10
.....
..J -..
of the chart. Remember, when trading the second ~ ' 0 10
C/) W
0>
hump fonnation, if the market price touches the W ' 0
~
forty day moving average after fonning the first
2:
..,
0 ~0 00
..,.
~
hump, that first hump is negated and you must start ~
0 0)
over. Note the first hump negating itself after a ~
,...
-.
touching the forty day moving average in the center "'It
of this chart!
230 231
Are you prepared for your final test
question? If so, refer to the chart on page 233 and
use the same rules as described on the first test
question. Look at the chart, decide what your order
would be - if any, and determine the price and
direction of the order.
. Ico Ic:1
'7 - '<t
~ .\ .
':"\.\
. .\ \'
~ .
232 233
Your order on this chart selection should
read as follows, "Sell one (or more, of whatever this
market is) at $2530.00 on a stop)". If you had
placed your order too close to the eighteen day
moving average in this situation you may have been ....
co
filled earlier and been stopped out for a loss when ....
01
trl~l~il
....
the market bumped over the forty day moving ~
W
average for a brief time. Use patience when placing to
::!E
these orders! Suppose you had placed your order w
0
too close to the eighteen day moving average and w
C
had gotten into this market prematurely, but were J:
(!)
willing to place your protective stop high enough ::l
0
above the forty day moving average to give the ~
J:
market room to move, you would still be in a good I-
....
co
position for what the following market move was to ....
01
be. I emphasize the fact that, in either case, whether ....

.J
you are placing an order to be filled below the ii
eighteen day moving average or placing a protective 0-
« · >- .
stop above the forty day moving average, you must W «
·0 .
neither be too close with your entry position nor be
(!)
....
~
w
•
·
CIO •
....01 . · ~ .
too close with your protective stop, give the market · ::!E .
>
« · ", . · !!I:: .
room to move. If you exercise caution with both of .... o
· ~ .
these orders you will have much better success. $
~ · to·
l-
t/)
::l
C
~
Had you placed the proper order for this t/)
market, your outstanding order to sell at $2530.00 w

z
0
on a stop would have been phoned in to your broker -,
on September 30, 1987. It would have been filled ==
0
on October 6,1987. This would have made you c
short the stock market thirteen days prior to Black
Monday, October 19, 1987.
234 235
Remember, in both of these test questions,
your protective stop is not to be given to your
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happy hunting.
236
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THE MAGIC

TRADERS. PRESS, INC.(i}

Books and Gifts

Reprinted by agreement with the author, Scot Lowry

TRADERS PRESS, INC.®

Books and Gifts

To Kim, for all your unselfish help.

To Brian, for your assistance and patience.

To Deena, for your creative input.

To Juanita, for doing all the things behind

To Jim, see, I told you.

The reason for writing this book is twofold:

Let us look at how the futures market works.

If we take the sec d

I hope this general overview will give you CHAPTER TWO

PI - represents the price on the first day.

The reverse of the above example would be

~I order on the other side of the eighteen day moving

Going along the same chart we have a sell

You will find as you follow current charts ~r

I want to discuss one more chart before

That brings up an important question. How

The next move on this chart is to the upside

1. Eighteen day moving average crosses above

5. Once the market begins moving in your

1. Eighteen day moving average crosses above

5. Once the market begins moving in your

1. Eighteen day moving average crosses above

5. Once the market begins moving in your

l. Eighteen day moving average crosses above

5. Once the market begins moving in your

l. Eighteen day moving average crosses above

5. Once the market begins moving in your

1. Eighteen day moving average crosses above

5. Once the market begins moving in your

1. Eighteen day moving average crosses above

s. Once the market begins moving in your

l. Eighteen day moving average crosses above

5. Once the market begins moving in your

1. Eighteen day moving average crosses above

5. Once the market begins moving in your

l. Eighteen day moving average crosses above

5. Once the market begins moving in your

l. Eighteen day moving average crosses above

5. Once the market begins moving in your

1. Eighteen day moving average crosses above

s. Once the market begins moving in your

l. Eighteen day moving average crosses above

5. Once the market begins moving in your

5. Once the market begins moving in your

l. Eighteen day moving average crosses above

5. Once the market begins moving in your

1. Eighteen day moving average crosses above

5. Once the market begins moving in your

s. Once the market begins moving in your

1. Eighteen day moving average crosses above

5. Once the market begins moving in your

5. Once the market begins moving in your

Once the market begins moving in your