Trading Lecture Notes

Overview

• Focus on achieving an 80% accuracy in directional trading
• Importance of directional probability for successful trading
• Discussion on trading patterns: Bull/Bear 180 and color change

Key Concepts

Bull 180 Pattern

• Involves a solid red bar followed by a more powerful green bar
• Key: Green bar supersedes the high of the red bar
• Bars should be "hefty," meaning more body than wicks
• Most powerful trading event, top of the action event hierarchy

Bear 180 Pattern

• Opposite of Bull 180
• Involves a solid green bar followed by a more powerful red bar

Color Change Event

• Smaller red and green bars that are still significant
• The quality is determined by the first bar (red for Bull 180, green for Bear 180)

Moving Averages and Trading Events

Moving Averages as Location Items

• 20-period and 200-period moving averages are location items, not event items
• Traders should not buy based solely on proximity to these averages

Event-Location Concept

• Combine trading events (e.g., Bull 180) with moving averages to increase odds
• Example: A color change at a 200 MA halt with a 20 MA retest increases probability

Trading Strategies and Probabilities

Importance of Scenarios

• Multiple scenarios should be planned based on probabilities
• Prepare strategies for each scenario

Whale Strategy

• Mature Whale: Achieved through combining moving averages and big bar concepts
• Use an 8, 13, or 20-period moving average depending on pullback behavior
• Adjust stop losses based on big bars and moving averages

Moving Average Big Bar Combo

• Use for maximizing mature whales
• Switch between moving average stops and big bar stops as conditions change

Practical Trading Examples

Double Dip Scenario

• Common trader trap, involves a secondary dip before a big move
• Larger moves often follow double dips

Gap Analysis

• Distinguish between igniting and exhaustion gaps
• Igniting gaps can start new trends, exhaustion gaps often reverse

Real-Time Adjustments

• Fill in gaps and combine bars to get a clearer picture of trades
• Monitor potential trend changes closely

Additional Tips

Trading Against the Moving Average

• Trade in the direction of the 20-period moving average
• Avoid trading against nature's laws

The Color Game

• Best played at or near the 20-period moving average
• Involves identifying when one color takes out another (e.g., red taking out green)

Managing Stops

• Use pivots for stop placements rather than individual bars
• Understand the "zone" concept around moving averages to avoid false stop-outs

Visual Tools for Clarity

• Use filled gaps and combined bars to maintain a broader view of the market
• Helps in avoiding focusing too narrowly on individual bars

Conclusion

• Mastery in trading comes from understanding and applying these concepts
• Focus on probabilities, scenarios, and disciplined strategy application
• Constantly review and integrate these concepts for successful trading.