Okay, you've studied context, you know whether you want to be long or short. You've studied D-Levels so you know how and where to enter (sort of), and you have a pretty fair idea of how to go about taking an LPO (logical profit objective). Finally, it's time to get a trade on.

Daily-based players could have sold at the market, on close, the day of the Double RePo. An alternative strategy would have been to attempt to sell a retracement back in the direction ofthe 3X3 the following day. If intraday charting equipment were available, it would be preferable to sell a retracement back on a shorter Time Frame chart. You could, for example, fade a Stochastic buy against a precalculated D-Level on an hourly or a half- hourly chart. A daily-based protective buy stop should be above the '*'.618 Fibnode on close, since that's where the sell signal would fail. To calculate this retracement level, your Focus Number would be on the low ofthe Double RePo day. Your first (and only) reaction would be the high at Point C. If that type of stop placement is too much for you, a lower stop, behind a daily or hourly D-level would be okay. Just remember if your stop gets hit intraday and the '*'.618 has not been exceeded on close, then the Double RePo is still in play. You should resell at the first opportunity.

Once positioned on the short side, you would look for an LPO, consistent with the Time Frame you are trading. Such a calculation on a daily chart is possible using the A, B, C, as

shown in Chart 12-2. Note that this (daily) ABC expansion would give OP support just below the low at B. Most traders, unaware of this calculation, would have their sell stops below B, at exactly the wrong place! Also, note that the COP Objective (not shown) has already been fulfilled! It would be prudent to check the Detrended Oscillator to see how oversold we were at that point, before getting too excited about staying with the trade, to the daily based OP.

While the daily is interesting, the shorter term situation is more telling, so that's where we'll focus. Before we get to those details, however, let's first recognize the fear most traders have of losing their position. It's not just the neophytes who think this way. Professionals commonly talk about how hard it is for them to regain a position once they have lost it, or in our terms, once they have taken a logical profit. What they are really saying is that they don't know how to get into a running market. What I am saying is, even ifyou lose that "one in 20" or "one in 30" big market move, you're better off taking an LPO, rather than letting the market take you out on a trailing stop. You will see that most of the time, you can get back into a running market, or for that matter, initially enter a running market "safely," ifyou know how and ifyou do your homework. To illustrate this point, we're going to see how Diligent Dan would have handled a couple of different situations where common knowledge would have reasoned it was too late, or the market had gone too far to enter. We'll also see how Hyper Hank manages to short circuit his considerable knowledge levels by his lack of psychological control.

SCENARIO 1:

Dan was fat with profits after five weeks of hectic short term trading. Some R&R was in order, so he closed all his positions and took a little trip to Cancun. Upon returning home, the night before the big thrust down day, he found 40 faxes from Hyper Hank describing the Double RePo that had occurred two days previously, and 65 trades he had entered on a one minute chart. Although Hank's faxes accurately indicated that he had 90% winners, he failed to mention that they were for approximately two ticks each. By the time he straightened out that error and paid his broker, Hank had barely broken even.

Diligent Dan seeing the Double RePo and subsequent containment of the Trend by the 3X3, prepared for an entry at the opening the next morning. He attempted to send a fax to Hank three times, but the line was perpetually busy.

Above is the first portion of the five minute chart, of the big thrust down day (6/29), shown previously on the daily Chart 12-2.

At the opening, the market gapped down from the night session close. Being unsure of where he'd be filled, Dan waited for a retracement to occur before he entered his orders. We're looking at a down wave so the Focus Number is the low of the move, 11411. The first Reaction Point is the high at 11508. Although we could put a gap 'G' Reaction Number at the high of the day (6/29), let's keep this example simple. We'll consider more advanced comments later. The Fibonacci retracements are shown in the FibNodes program printout below.

Dan placed his sell order just below 11422 and his protective buy stop above the .618 Node at 11430. Dan was filled, since there was an almost perfect .382 retracement at 11421. Dan expected a deep move down, since there was a Double RePo in play and the day started with a gap down. Dan therefore quickly calculated the expansions during the consolidation and chose an XOP rather than an OP, or COP to close his trade.

He placed a closing buy order a few ticks above the XOP level. Dan's protective stop was never approached and the market broke hard. On the drop, the price didn't quite reach the XOP. See Chart 12-4. Whether we assume Dan was filled on his closing buy on this drop, or that he had to wait a bit, makes little difference, since the market made the XOP after another throw back rally up to 11326. For the sake of simplicity, let's assume a fill.

Dan called Hank on Hank's private line but couldn't get through. Hank was bitterly arguing with his broker over the fill he'd received on his "at the market" (entry) order. Hank was so worried about missing the big move, he didn't wait for a retracement. The fill was so bad, Hyper Hank was in a rage. He closed "at the market" on the throw back rally where Dan went short. After all, Hank was in a 4 tick loss, and it was so incredibly frustrating! Hank was FLAT for the big drop.

What about Conservative Carl?

He saw the Double RePo but wanted to be sure it worked before he entered. When he saw it work by gapping down it scarred him. Carl had purchased some unripend bananas the day before. That was enough risk for him so he sat this one out.

ADVANCED COMMENTS:

Let's go over the second entry, Scenario 2, in a more detailed and more advanced level.

The down wave after the initial XOP Profit Objective of 11310 was met, would look something like this on a line chart.

The first sell level would be at 11326, and since we are attempting to enter a running market with considerable thrust after a Double RePo, it would be very reasonable to get aggressive and hit (sell) the first DiNapoli Level calculated. As mentioned earlier, if a sell were attempted at 11326, given the flat tops, it would be prudent to call the floor and tell them to "give it a tick." In any case, selling a tick or two before the Node is reasonable,

otherwise you are apt to be filled, only when you are wrong, i.e. when the trade goes against you!

Sometimes it takes more than good analysis to be a winner and in this case a knowledge of market mechanics is essential. What about selling at 11326 MIT? "Market If Touched" (MIT) orders are typically not accepted at the Board of Trade where bonds are traded. You can always make other arrangements if you trade enough, but ifyou're a "two lotter" without access, and you don't give it a tick or two, you may not be able to gain access to the floor in time to change your order.

A good stop for this trade could be behind the 'K' Confluence area, i.e. 11402-11405. This Confluence area is made up of a 'T' (Thrust) .618 Reaction and a '*' (Primary) Reaction .382 Node. It doesn't get any better than that. As strong as this area of Confluence is, however I would place my initial stop behind the major (11416) '*' .618 instead. Here's why. If the market pushed through 'K' briefly (a few seconds), a stop placed at 'K' would be hit, but a stop placed behind the '*' wouldn't be. A brief push through Confluence does not mean the area is broken, so you would want to stay with the trade.

If, however, the market stayed above 'K,' I would suspect my positioning in the trade was , wrong, and take the first opportunity to get out on a pull back toward the Confluence area. Then I'd cancel the initial stop.

After that, I'd take a fresh look at the trade by examining the expansions up (seeing if they were fulfilled) and the current Trends on the intraday charts to see where I was, i.e. whether or not the context for the trade supported further action.

Now let's consider in more detail the possibility of the market moving against me as shown in the left portion of Chart 12-7. We have the market breaking back down after being held at Confluence, then supporting on aFibnode, and making a move up against me to an OP. In this case, I have a couple of options. The re-test ofthe Confluence area may result in a double top and a subsequent break to new lows. However, it would be prudent to lower my buy stop from its initial position, to the high from 'F' to 'K.' Stops now exist above this most recent high. Therefore, there is a higher probability that the Confluence area will be penetrated on a second push up, than when it was initially approached. If I were trading size or if I were in a thin market and I were very concerned with fills resulting from stop orders, I could wait for a retracement ofthe full up move and get out on an "Or Better" (OB) order against a support Fibnode. This possibility is pictured on the right side of Chart 12-7.

If this level of detail in the "Advanced Comments" section has you reaching for the Advil®, just ignore it. If you can't figure out why anyone would bother with just a few ticks, the answer is threefold. First, a few ticks on a 100 lot is significant in the bonds. Second, these advanced comments can be applied to any Time Frame, not just to this example, so they are worth considering as an intellectual exercise. Third, ifyou trade size, you're often in a much better situation closing your position with an OB (or better), rather than stop orders.

NOW LET'S GET BACK TO REALITY:

We can reasonably assume Dan achieved a fill, selling at 11325, when he told the floor to "give it a tick." We can see why he took the COP out on all or a part of the position he sold, when we consider the comments below. Here's what the expansion series looked like.

24Jul96 12:22:12 Updated: 07/24/1996 0.618 1.1618

Point Value Objective Points File BDU054 /in 32nds/

A= 11421 COP= 11231

B= 11310 OP= 11215

C= 11326 XOP= 11120

Copyright (c) 1996 CIS, Inc.

The reason I say "all or part," is that on the one hand, it's a Double RePo and is likely to go lower over time. How soon, may depend upon how oversold the market is at the COP level. As I suggested at the beginning of the chapter, look at the detrend to determine this, or use the Oscillator Predictor to determine it ahead of time. On the other hand, I always like to book logical profits, and it's been a big day. Also, ifwe are strictly intraday players, it's getting late, and we would probably be expecting a lot to be looking for an OP before the close. As it turned out, the COP expansion 11231 was met and exceeded slightly, so we would have had no problem achieving a closing fill.

I've contrasted the actions of a level-headed trader and an emotional trader to show you how personality traits can impact performance. It's obvious that there are alternative trading strategies, outlined earlier in the book, that meet the challenges illustrated in this example. The implementation of these alternative strategies depend upon the individual trader's experience, access, Time Frame, and personal objectives.

FREQUENTLY ASKED QUESTIONS:

Did Hyper ever get a decent trade off?

No, Hank never got his fill, selling at 11326. He made arrangements to change brokers and spent the rest of the day at the local bar drowning his frustrations and talking to anyone who would listen. He never had a chance. He was exhausted before the day began and impotent when he most needed focus. Now he'll be out of the market for

weeks, while he waits for his new broker to mail him the correct forms and for his funds to be transferred. Chances are he'll need a new bite plate before he gets over this one.

Joe, you say you can reenter a running market, but we both knew you'II never get a fill

on a big drop, so how do you enter in that case?

The problem is one of semantics. You enter a running market against a D-Level retracement with an appropriate stop. If it's a disaster situation, however, like October '87 in the S&P, you don't play 1 . Risk tolerance is good for trading. Foolhardiness is suicidal. When I see a market in panic, I am not interested and I look for a way out as an upcoming S&P example will illustrate.

/ understand the example in its entirety but, according to the criteriafor a Double RePo in Chapter 6, it seems the length of the first and secondpenetration are a little too wide. Is this a look-alike or a Double RePo?

Strictly speaking, it's a look-alike. Given the extent ofthe preceding thrust however, I have no problem with treating this look-alike as the real thing.