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Active Trend Trading System

Candle Light Trader: Dennis W. Wilborn

A Trend Should Be Assumed to Continue in Effect Until Such Time as


Its Reversal Has Been Definitely Signaled Edwards & Magee

Disclaimer
U.S. Government Required Disclaimer Commodity Futures Trading Commission Futures
and Options trading has large potential rewards, but also large potential risk. You must be
aware of the risks and be willing to accept them in order to invest in the futures and options
markets.
Dont trade with money you cant afford to lose. This is neither a solicitation nor an offer to
Buy/Sell futures or options. No representation is being made that any account will or is likely to
achieve profits or losses similar to those discussed in this training. The past performance of any
trading system or methodology is not necessarily indicative of future results.
CFTC RULE 4.41 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN
LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT
REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE
RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN
MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN
GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT
OF HINDSIGHT.
NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE
PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
All Materials presented are for training purposes only . Traders should paper trade
any new method prior to risk of personal capital.

Why Active Trend Trading & What is It?


The History
Objective: Clarify, Simplify & Multiply
Clear & Simple Rules for all trends & non-trends
Excellent Potential Returns:
Trend Trading for a Living ~~ Dr. Thomas Carr = 40% +/Year.
Efficient & Effective Use of Trading Capital
What Is It?
Trading System going with the Major Trend for both Cash Flow and
Long Term Wealth Building
Uses elements of both Swing Trading & Trend Following
A Strategy of Patience based on Objective and not Subjective
Observations

Trading Without a System & Rules

Elements of All Trading/Investing Systems

What To Trade

When To Enter: Entry Action Points

When To Exit: Exit Action Points

What Strategy To Use

System to Strategy to Campaign

Stock Strategy

ETF Strategy

Option Strategy

SYSTEM

Active Trend Trading System Rules?


What to Trade:
1. IBD 50 Running List Stocks
2. Stocks/Index ETFs Priced Over $10 with volume GTE to 500K shares/day
3. Stocks/Index ETFs with Weekly Options
4. Stocks on the Move/Leaderboard/Sector Leaders
5. Stocks/Index ETFs from my personal and Go To List

When to Enter: At Objectively defined Action Points


1.

Alternative Entry: Bouncing off of Significant Moving Averages

2.

IBD Pattern Breakouts

3.

Support/Resistance Bounces or Breaks

When to Exit: At Objectively defined Action Points


1.

Stop Losses: 1-2% above or below swing high or swing low or Closing Price violates
moving average that triggered trade

2.

Hard Stop Loss @ 7-8% loss from entry price

3.

Profit Stop: Cash Flow Trade a set percentage 5-10%; or closing price violates selected
moving average; or at Support/Resistance

4.

Profit Stop after candlestick reversal signal & close below/above 8 day EMA

Active Trend Trading System Rules? Cont.


What Strategy to Use: Define Trade as Cashflow, Capital Growth or both
1. Buy Stock or ETF
2. Buy Puts vs selling stock/ETF short
3. Directional Spreads or Directional Options with high Open Interest
4. Short Puts in Uptrending Market

What To Trade
Weekly & Running IBD 50 Watch List
Excellent Yearly Performance
Time Efficiency
Stocks & ETFs with Weekly Options
Other Growth Stocks
Trading Over $10
Ave Volume Greater than or Equal to 500K/Day Ave

Stocks on the Move/Leaderboard/Sector Leaders


Stocks/Index ETFs from my personal Go To List

What To Trade: IBD 50 Running List


Weekly & Running IBD 50 Watch List
Excellent Yearly Performance
Time Efficiency

Over $15/Share
Focus on IBD stocks trading over 500K shares/day
The IBD 50 stocks may be more than enough to
focus on and heres why.

FISH WHERE THE BIG FISH LIVE:

We have tracked this elite IBD list


since 2007 and each year it has
significantly outperformed S&P &
Nasdaq Indexes.

Secondly, during market corrections


this same list also provides
excellent short candidates if ones
rules allow for trading down
markets.

Top 5 IBD 2013 Results


Best Year Low
to Year High.

Best from the


Close of 2012
thru 2013

When To Enter or Exit: At Objective Action Points

I absolutely believe that price movement patterns are repeated. They are
recurring patterns that appear over and over, with slight variations. This
is because the markets are driven by humansand human nature never
changes.
~ Jesse Livermore

What is an Objective Action Point?


- A definable price level on a chart where we can expect
something to happen with high probability

When To Enter: At Objective Action Points


Identify Current Trends, Patterns & Action Points

1.

Define The Major Market Trends

2.

When trading from an established list, the trend of many


stocks on the list will already be definable

3.

Trade with the Major TrendThis is the Edge

4.

Define Key Trend Reversals and Entry Action Points

When To Trade:
Identify Current Trends

Uptrend:
1.
2.
3.

Higher Highs & Higher Lows


Up Sloping 20-50-200 day SMAs
20 day SMA above 50 day SMA (Exceptions: Reversals Patterns
or Higher Lows)

Downtrend:
1.
2.
3.

Lower Lows and Lower Highs


Down Sloping 20-50-200 day SMAs
20 day SMA below 50 day SMA (Exceptions: Reversals Patterns
or Lower Highs

Sideways: Chaos
1. Box like pattern or Consolidation Pattern

Identify Current Trends


At What Points Does the Trend
Reverse?
Multiple Correct Answers

Chaos

Identify Current Trends: Moving Averages


The Moving Averages are key!
Understanding what to expect around the moving averages provides the trader with an
edge!

The basic thesis behind moving averages is to identify key resistance and support levels
of the underlying security so that one can detect the continuation of a price trend or the
emergence of a new price trend.
Moving averages watched by institutions:
20 or 21 Daily
50 Daily
200 Daily
Traders also use shorter timeframe moving averages to better trigger entries and exits.
8 or 10 period EMA works well for these triggers.

Weekly Period Moving Averages which approximate the Daily Moving Averages can also
be helpful during analysis.
50 Day Moving Average approximately equals the 8-10 Week Moving Average
200 Day Moving Average approximately equals the 40 Week Moving Average

Identify Current Trends: Moving Averages


Most Important: Decide type to use and then stick with the
choice:
The solution isnt so much which type of moving average is
best but how well the trader masters using the moving average
chosen.

**Observe how price action responds around the moving


averages:
Which moving average does the trend respect?

Know the probabilities:


If Price Action violates a moving average at the close, then
there is a higher probability the next most significant moving
average will be tested

Identify Current Trends: Moving Average


Slope, Stack and Spread of moving
averages help define the Trend &
Strength & Trade Posture

50 SMA
20 SMA
200 SMA
8 EMA

Bullish Stack with


Increasing Spread
between Moving
Averages

Identify Current Trends: Moving Average

Slope, Stack and Spread of moving


averages help define the Trend &
Strength & Trade Posture

Identify Current Trends, Patterns & Action Points


Rally Failure: Lower High

Uptrend to Downtrend
8 EMA
20 SMA
50 SMA

Lower Low

200 SMA

Identify Current Trends: Moving Average

No Trend : Chaos Mode!

Patterns: Define Action Points


1.

IBD Patterns

2.

Candle Stick Patterns (Separate Presentation)

3.

Moving Average Bounces

4.

Trend Line Breaks

Supporting Clues: Keltner Channels, Stochastics & Momentum

Entry Action Points


1.

IBD Proper Buy Points

2.

Active Trend Trading Buy Points

Critical Requirement: Objective Buy Points for Both

Identify Proper Strategic Entries & Position Sizing


-

William ONeil: Fewer is better. Hold no more than 5-8


stocks. For accounts less than $100K should be no
more than 4-5 stocks.

Options: size to meet 7-8% loss in stock or less

Learn how Margin works

Objective not Subjective

Identify Proper Strategic Entry Action Points

4
2

Cup Break
Out

Trend Line
Break

1
Action Point: Moving
Average Bounce

Identify Proper Strategic Bearish Entry Action Points

1
5
Cup Break
Out

Trend Line Break

Action Point: Moving


Average Bounce

Thoughts on Strategic Exit Action Points


Executing a proper exit can be challenging unless the trader acts automatically at
well-defined strategic exits Action Points. Again with an aim at keeping this initial
strategy simple and objective the following exits are suggested.
Stop Loss:
1. Hard Stop Loss at 7-8% of entry price if entering off an IBD Breakout
2. Breaking Swing Low or High on Alternative entries by 1-2% or tighter
3. Close below Moving average that triggered trade

Profit Stops: Define Cashflow or Capital Growth


1. Profit Target at 20-25% of entry price (Move on underlying for Options)
2. Areas of Resistance/Support like moving averages
3. Close below Moving average that triggered trade
3. Stay in trade until a close below the 8 day EMA
4. Cash Flow Trades: Once paper profit is up over 10% adjust trailing stop to
entry price plus 5% and then increase trailing stop by 2.5% for every 5%
increase in stock price. Or close below 8 day EMA.

Thoughts on Strategic Exit Action Points


Determine if the trade is a Cash Flow Trade, a Capital Growth Trade or both.
Consider:
1. Is the trade in an IRA or 401K? Might want to just do Capital Growth Trades
2. Do you need Cash Flow?
3. Do you need both?

How one answers these questions can help with pre-trade strategies on where
and how to take profit.
See Alternative Exits at the BAMM Site under files.

Profit Targets

Exit Trade 2: Cash Flow


12.7% in 6 days

Exit Trade 5:
26.5% in 24 days
5
Entry 5: Cup
Break Out

2
Entry 2: Bounce off 200 day SMA

Cash Flow Trade: Take


profit at the Moving
Average Resistance

Objective or Subjective?

Cash Flow and Capital Growth Trades can


be concurrent taking position profit at a
defined level of resistance or % Gain.
Then the Capital Growth portion can be
held until a longer term profit objective is
hit or a trailing stop based on a close
below a significant moving average take
place.

Profit Targets
Max Profit Target on Downside
Trades = 20-25%

Entry 3 Moving Average Bounce/Break

Exit Trade 3:
8% in 27 days

What Strategy to Use


1. Buy Stock or ETFs: IMHO this is the best
strategy to use, fewer variables, thus the
simplest to manage!!! Learn to be successful
here first.
2. Buy Puts vs selling stock/ETF short
3. Directional Spreads
4. Short Puts in Uptrending Market

A Few Recent Trades


It doesnt happen every time, but it does
happen all the time!
Yogi-ism from Mike Trager

Enter 9-11 @ 21.95


Exit 9-23 @ 25.86
17.8% in 13 days

Order place on 9/11 didnt fill.


Good No Trade after Shooting
Star Pattern

Enter 9-4 @ 54.50


As of 9-25 8 day EMA @ 61.84
13.46% in 21 days

Active Trend Trading System Rules?


What to Trade:
1. IBD 50 Running List Stocks
2. Stocks/Index ETFs Priced Over $10 with volume GTE to 500K shares/day
3. Stocks/Index ETFs with Weekly Options
4. Stocks on the Move/Leaderboard/Sector Leaders
5. Stocks/Index ETFs from my personal and Go To List

When to Enter: At Objectively defined Action Points


1.

Alternative Entry: Bouncing off of Significant Moving Averages

2.

IBD Pattern Breakouts

3.

Support/Resistance Bounces or Breaks

When to Exit: At Objectively defined Action Points


1.

Stop Losses: 1-2% above or below swing high or swing low or Closing Price violates
moving average that triggered trade

2.

Hard Stop Loss @ 7-8% loss from entry price

3.

Profit Stop: Cash Flow Trade a set percentage 5-10%; or closing price violates selected
moving average; or at Support/Resistance

4.

Profit Stop after candlestick reversal signal & close below/above 8 day EMA

Active Trend Trading System Rules? Cont.


What Strategy to Use: Define Trade as Cashflow, Capital Growth or both
1. Buy Stock or ETF
2. Buy Puts vs selling stock/ETF short
3. Directional Spreads or Directional Options with high Open Interest
4. Short Puts in Uptrending Market

It doesnt happen every time, but it


does happen all the time!
Yogi-ism from Mike Trager

I absolutely believe that price movement


patterns are repeated. They are recurring
patterns that appear over and over, with
slight variations. This is because the markets
are driven by humansand human nature
never changes.
~ Jesse Livermore

Art & Science of Active Trend TradingBi-Weekly Free Newsletter


Dennis W. Wilborn
Email: DWW@activetrendtrading.com

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