TRADING with
VANTAGEPOINT
One User’s Perspective
By Brandon Jones
Foreword by Darrell Jobman,
Editor-in-Chief,
TradingEducation.com, LLC
$19.95
Copyright © 2008 by TradingEducation.com, LLC.
All rights reserved. Reproduction or translation of any part of
this work beyond that permitted by Section 107 or 108 of the
1976 United States Copyright Act without the permission of the
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at TradingEducation.com.
VantagePoint Intermarket Analysis Software is a trademark of
Market Technologies, LLC. All other trademarks, service
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respective owners. Other names, designs, titles, words, logos, or
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This publication is designed to provide accurate and
authoritative information and the views and opinions of the
author in regard to the subject matter covered. It is sold with the
understanding that neither the publisher, copyright holder, nor
the author is engaged in (1) providing commodity trading
advice based on, or tailored to, the commodity interests or cash
market positions or other circumstances or characteristics of any
particular client, or (2) rendering investment, legal, accounting,
or other professional services. If trading or investment advice or
other expert assistance is required, the services of a competent
and appropriately licensed person should be sought.
From a Declaration of Principles jointly adopted by a
Committee of the American Bar Association and a Committee of
Publishers.
Table of Contents
Foreword
Preface
Single-Market Analysis
Intermarket Analysis
The Edge
Neural Networks
Predicted Neural Index
Introduction
VantagePoint Overview
Limited Premium Markets
VantagePoint Tools Identify, Confirm, and Time
Portfolios
Markets Tree
Charts and Reports
Predicted Forecasts
Predicted Differences
The Daily Process
VantagePoint Trading Strategy
My Story
The Work
Your Work
Your Strategy
General Trading Rules
VantagePoint Trading Rules
The Balanced Way
VantagePoint Trading Form
One More Thought
VantagePoint Tools
The VantagePoint Tools
Limited-Premium Markets
Portfolios as Watchlists
iv
1
1
2
3
4
1
4
8
9
10
11
11
12
17
18
21
23
24
26
27
28
30
33
35
36
37
40
43
45
48
ii
Potential Trade Selection
Potential Trade Confirmation
Final Trade Selection
Timing
Market Conditions
The End Game
The Spreadsheet Tools
The Spreadsheet Tools
Trade Selector
The Process
The Spreadsheet Information
Entry/Exit Control
Trade Tracker
The Process
The Spreadsheet Information
Trade Evaluator
The Process
The Questions
The Record
The Score
The Comments
The Truth Of it All
Creativity and Intuition
My Evolving Strategy
My Trading Life
Retirement Trading
Long-Term Speculative Trading
Short-Term Swing Trading
My Success
The Full Circle
Final Thoughts
50
53
60
61
63
64
65
66
67
69
71
71
78
78
80
83
84
84
88
88
89
91
91
93
96
97
97
98
99
100
101
iii
Foreword
When most people start to trade actively, they tend to
flounder around for a while. They may wind up losing money
and dropping out of the trading game altogether soon after
they start, or they may tread water, at best, for some time,
wondering why they can’t achieve the profits they had
expected to see as a trader.
Even if they have been highly successful in business or
some other pursuit, they find that trading successfully can be a
real challenge. So they may resort to outside sources to help
them along the learning curve, attending expensive seminars
or subscribing to advisory services that the promoters promise
will make them rich.
That’s the track Brandon Jones was on, as he describes in
this book. But, unlike most wannabe traders who give up or
limp along with mediocre results, he decided to make a real
commitment to becoming a good trader. This book outlines
two of his most important steps:
1. Developing – and sticking with – a trading plan.
2. Finding a trading tool that would help him formulate
and implement a trading plan.
As with many endeavors, the importance of having a plan
when it comes to trading cannot be over-emphasized if you
want to be successful. That plan should tell you why, when
and where you should take a position to get into and out of the
market.
Sometimes, however, you may have a plan with great
intentions, but it is not realistic or practical for your trading
iv
situation. So you need to find some trading tool that can help
you with your decision-making.
In Brandon’s case, that search for a trading tool led him to
VantagePoint Intermarket Analysis Software.
VantagePoint is able to narrow his focus to the premium
markets that offer plenty of trading opportunities and gives
him numerous predictive indicators to help him analyze where
the best of those opportunities are. Using data from
intermarket analysis and neural networks to provide short-term
market forecasts, Brandon is able to develop a trading
program based on indicators that lead rather than lag the
market.
Although VantagePoint has turned out to be Brandon’s
answer to analyze potential trades, he is quick to point out that
the program is no “silver bullet.” No software or any other
product can be that magical silver bullet when it comes to
trading. But using the tools available in VantagePoint,
Brandon worked hard to develop the guidelines for his trading
plan. The process he explains in this book is one that many
traders ought to emulate if they are looking for trading
success.
Then, in addition to showing you how to set up a trading
plan, Brandon makes it even easier for you by presenting
several spreadsheets to facilitate trade selection. You can
copy, or perhaps adapt to your taste, these spreadsheets to
incorporate them into your trading plan.
Aside from its analysis and decision-making aids, Brandon
points out another major value of VantagePoint: The
confidence it can give you to make a trade. As experienced
v
traders know, that can be a most important contribution to
successful trading.
Although Brandon doesn’t have a long track record of
trading yet, this is an interesting story of how one trader
struggled, then searched, then found a trading tool that is
helping him with his plan to be a better trader, and he’s
sharing the results of his quest with you.
Darrell Jobman
Editor-in-Chief
TraderEducation.com
vi
Preface
The essence of the Mendelsohn approach to trading and the
heart of VantagePoint Intermarket Analysis Trading
Software™ (VantagePoint) is, as its name suggests,
“intermarket analysis.” But what exactly does this mean to the
trader using VantagePoint? In the words of Louis
Mendelsohn himself:
Intermarket analysis empowers traders to make more
effective trading decisions based upon the linkages between
related financial markets. By incorporating intermarket
analysis into your trading strategies, rather than limiting
your scope to each individual market, these relationships
and interconnections between markets will work for you
rather than against you.
Single-Market Analysis
Okay, intermarket analysis is touted as a good thing, but
what is it, and why will it work for you in your trading? To see
this clearly, you have to understand two things.
1. The purpose of analyzing markets is to forecast
market direction—more simply, to identify trends.
2. The traditional market approach in forecasting
trends is single-market analysis, which is divided
into two analytic viewpoints—fundamental and
technical. Fundamental analysis forecasts market
direction based on economic factors affecting a
market. Technical analysis bases its forecasts of
market direction on the idea that all of the internal
and external factors affecting a market, at a given
point in time, are factored into that market’s price.
1
The problem with the single-market analytic approach is
that it is archaic. Single-market analysis, the predominant
approach to analyzing U.S. markets for more than 100 years,
works on the assumption that markets trade independently of
one another. Although this was true for financial markets, it is
no longer the case.
The rise of the Internet (instantaneous information
transmission), computerized trading (trading simultaneous
markets immediately), software market analysis (the ability to
analyze multiple markets immediately), and, most important,
the interconnectedness of global markets (the threaded
influence of market upon market in all parts of the world) all
make single-market analysis alone a less effective tool for
forecasting trends. Particularly, single-market technical
analysis is less effective because it relies on lagging indicators
that view a market retrospectively to identify re-occurring
patterns that then form trends. To be clear, single-market
analysis is not wrong, nor is it irrelevant for identifying trends;
alone, it is simply insufficient.
Intermarket Analysis
A more effective approach to forecast trends in today’s
markets is intermarket analysis because it incorporates the
current influence of external factors that affect markets. This
general description, however, does not completely explain the
power of intermarket analysis, nor does it tell the complete
story. Again, using the words of Louis Mendelsohn himself:
I prefer to forecast market direction prospectively in a
manner that captures the character and nature of today’s
interdependent financial markets. This can be accomplished
by using intermarket analysis tools comprised of leading
indicators that forewarn whether an existing trend is likely
to continue or is about to change direction.
2
The key word in that statement is “prospectively.” The
critical idea is that leading indicators can forewarn whether a
trend will continue or abate. This is the essence of intermarket
analysis, and it is the heart of VantagePoint, as Mendelsohn
points out:
Clearly, intermarket analysis tools that can identify reoccurring patterns within financial markets and between
related global markets afford traders a broadened trading
perspective and a competitive edge in today’s trading
environment, which has been transformed by the mounting
globalization and integration of the world’s financial
markets.
The Edge
Identifying trend direction is critical to successful trading;
therefore, identifying and utilizing a trend-forecasting strategy
as opposed to a trend-following strategy is also critical. The
edge is found in intermarket analysis, the approach that relies
on leading indicators, not lagging information.
The leading indicators in VantagePoint derive from
formulas based upon moving averages using intermarket data.
I should clarify here that moving averages, from a strictly
technical perspective, rely on lagging price data and are
unresponsive to current market conditions. What separates
VantagePoint from this traditional approach is its use of
actual moving averages combined with predicted moving
averages to create more complex indicators, such as the
moving average crossover, which is one of the most useful
tools in VantagePoint. Not only does the moving average
crossover identify the anticipated direction of the trend, but it
predicts the strength of the movement, as well. These two
leading indicators in combination allow for more precise trade
selection.
3
Time horizons also play a critical role in the success or
failure of moving averages in trend forecasting. The further
out the time horizon, the less reliable the forecast. This fact
leads us to an important element of the overall edge—
VantagePoint forecasts are limited to no more than a few
days, which is ample lead time to define market direction.
The edge in VantagePoint exists because of the
forecasting approach mentioned, but so much more makes it
the valuable tool it is. If you are interested in understanding
more about the underlying formulations of intermarket
analysis, read Trend Forecasting with Technical Analysis by
Louis Mendelsohn. In the book, he explains the why of his
trend forecasting philosophy and the how of its development.
Certainly, reading that book will illuminate much about all of
this for you. For the purpose of this book, however, we have
other things of import to get into. Before we move on to some
of those things, though, I do want to explore one extremely
important aspect of the underlying construction of
VantagePoint—neural networks.
Neural Networks
The human brain is composed of hundreds of billions of
cells known as neurons, which through their connections to
each other relay information from one neuron to another.
This process allows a person to learn relationships, draw
inferences, recognize patterns, and make predictions,
among other tasks. While substantially less complex than
the human brain, neural networks model how it processes
information and performs pattern recognition and
forecasting.
Louis Mendelsohn
4
In VantagePoint, a series of “neural networks” sift
through enormous amounts of seemingly unrelated market
data to find repetitive patterns that traditional technical
analysis cannot spot. If neural networks are “trained” properly,
they can make highly accurate forecasts based on the
recognized patterns (approximately 80% accuracy in the case
of VantagePoint). These neural networks, the “brain” of
VantagePoint, are designed and trained to make specific
forecasts tailored for each target market based upon the raw
data from the target market and the related markets
(intermarket analysis). These forecasts are based upon
predicting short-term moving averages (as discussed earlier) to
indicate the market direction of each target market.
Predicted Neural Index
VantagePoint is designed for each market, and the
forecasts derive from a system of neutral networks, each
providing one leading indicator for the specific target market.
Each is powerful unto itself, but together the edge they
provide is impressive.
The leading indicators created from the neural networks
are presented in both chart and text format. Three categories
neatly divide the indicators. The categories and their
constituent leading indicators are:
1. Predicted Forecasts
¾ High and Low Price
¾ Short-Term Crossover
¾ Medium-Term Crossover
¾ Long-Term Crossover
¾ Triple Crossover
1
2. Predicted Differences
¾ Short Term
¾ Medium Term
¾ Long Term
¾ High and Low Price
¾ Strength
3. Predicted Technical Indicators
¾ MACD
¾ Stochastic
¾ RSI (Relative Strength Index)
¾ Predicted Neural Index
All of the above leading indicators are valuable and
advantageous, but the most advantageous is the Predicted
Neural Index (PNI). We will look closely at all of these later,
but I want to plant the seed that the PNI may well be the most
important of all the leading indicators. Why might this be so?
Simply put, the PNI derives from all the other neural networks
in VantagePoint. The result is that it predicts the trend
direction of a specific target market two days out. In any trade
that I consider, the first indicator I look at is the PNI. A value
of 1.00 predicts that the three-day moving average of the
market’s typical price will rise in the next two days. A value
of 0.00 predicts that the three-day moving average of the
market’s typical price will fall in the next two days. Long or
short, the PNI is the most important leading indicator because
simply identifying the current trend, while valuable, is not
enough. The real edge comes when you have a tool that
anticipates when a market is poised to either go higher or
lower in the next two days.
2
Ultimately, when the day is done, the one thing to
understand is that the combination of intermarket analysis and
neural networks provides an incredibly powerful advantage for
successful trading. No pun intended, but the long and the short
of it in trading, as in life, is that timing is everything. And, to
that end, VantagePoint provides the needed edge. To be sure,
as you read this book, you will see this with greater clarity,
and, more important, you will learn how to fully utilize the
VantagePoint trading tool to your best advantage.
In all walks of life, timing is everything. In the financial
markets, if you forecast the trend direction correctly but
your timing is off (by just one day or even one hour or less),
you can still end up losing money.
Louis Mendelsohn
The above quote is one to remember as we get deeper into the
essence of this book. As you will soon understand,
VantagePoint is a timing tool and only a timing tool. So much
of what you accomplish with it will depend on your
expectations for the tool, how you use it, and what your
mindset is as a trader.
3
Introduction
There are no “silver bullets” when it comes to trading.
Trading is work, and it takes time and effort to understand a
particular market, establish a strategy to trade within that
market, and apply the necessary discipline to stick to the
strategy. Then, and only then, will VantagePoint provide
the edge needed to trade successfully.
The above quote is mine, and the essence of it formulated
as my trading misconceptions and lack of a coherent trading
strategy were dissolving. Pondering the direction of this book,
the thoughts crystallized and the words formed. The quote
expresses the direction we are going in this book and the
critically important message I want you to understand.
VantagePoint is an excellent tool for creating the edge one
needs to be successful in today’s trading environment. The
issue, though, is not the value of the software; rather, it is the
effort it takes to fully grasp that value and then to understand
how to fully utilize the value in developing a trading strategy
based on the software. In my experience, the two keys that
unlock the value of the software are confirmation and timing.
VantagePoint is not magic. One cannot rely solely on the
crossover visuals in the chart to select a trade, nor can one
simply go with the predicted highs and lows to find profitable
entry and exit points. It took me some time to understand that
the best trades are found when all relative leading indicators
are analyzed, the most profitable entry and exit points are
established, and the predicted highs and lows are utilized in
accordance with the indicators analyzed. Not understanding
the above “realities” prevented me from trading successfully
with VantagePoint.
Frustration crept into my emotional world as I missed
profitable trades completely, entered trades too far into a
4
trend, or got stopped out early. I knew I had problems, but I
did not give up because I could clearly see the potential of
VantagePoint. So, I just kept “practicing,” talking to the
helpful support staff for VantagePoint and searching for clues
as to how I could fix my problems. Then, one day I was
reading a book, TRADING IN THE ZONE, by Mark Douglas, and
the light bulb lit. I had two “technical” problems and one big
“reality” issue. I have enumerated the three below.
1. I was not fully utilizing the software to get accurate
readings, i.e., confirmation of a potential trade. The
VantagePoint folks helped me correct this.
2. I needed something to help me better define entry and
exit points, so I developed a spreadsheet that helped
with both confirmation and timing of entries and exits.
3. My third problem was the most profound and most
difficult to see and solve—successful trading is not
about software, or even the market, for that matter; it is
about the trader’s approach to trading. As much as I do
not want to admit this, I wanted VantagePoint to be a
silver bullet. Because of that, success eluded me.
The above problems are why I decided to write this book. I
know there are many people just like me who are considering
purchasing, or who have purchased, VantagePoint, and I want
to reach out to them – that is, to you. I knew if I could
effectively transfer what I have learned, the value of
VantagePoint as a trading tool would become clear for any
trader, trained and seasoned, as well as those at the
intermediate level, such as myself. This last thought now turns
the focus to me.
So who am I? I am not a professional trader, yet I want
control of my portfolio. This has been tricky, though. When I
took over my portfolio, I lacked the formal training to tackle
5
trading successfully, either through a fundamental or technical
approach. So, I searched for a way to learn what I needed to
know without having to go back to school or lose a ton of
money in the process of learning. I knew I needed an
advantage that would allow me to manage my portfolio
successfully. I also intuitively knew that trading software
would give me that advantage. Therefore, I began looking for
an “informal” but reliable software tool that would give me
the edge I needed. I tried numerous “inexpensive” trading
software programs, but none delivered anything, really. And
then I found VantagePoint. In fact, without intending to
sound like a marketing mouthpiece for VantagePoint, I will
say none of the other software tools I tested even came close
to what VantagePoint delivers. (For clarity, I should state that
currently my trading preference is stocks and I only trade long.
Keep this in mind as you read specific references to my
trading.).
After months of “practicing” with VantagePoint, I
discovered the value of the software becomes quite obvious, if
it is utilized fully. “Fully” is the key word here, as the
software contains so much more than just the easy-to-grasp
actual and potential trend lines found in the charts.
This, then, is the point of this book—to demonstrate how
VantagePoint can be a valuable trading (timing) tool and can
give you the edge you need to be a successful trader. To that
end, some of the important the topics I will address are:
9 the scope and limitations of the software;
9 the value of concentrating on limited markets rather than
having to search the market universe every day;
9 the value of trading premium markets;
9 the function and utility of VantagePoint tools and their
use for developing a trading strategy;
6
9 the simple, daily process of using VantagePoint;
9 the importance of confirmation when selecting trades;
9 timing for profitably entering and exiting trades;
9 VantagePoint is not without work—one has to have a
strategy, a set of trading rules that work with
VantagePoint, and the discipline to follow the rules;
9 all traders experience losses—the goal is to win more
than you lose, and to do this, one has to find an edge;
9 VantagePoint is that edge if fully utilized, and;
9 trusting that VantagePoint gives that edge.
Before we move into the substance of this book, I want to
give you another Mendelsohn gem that speaks to the reality of
personal responsibility. After all, when the trade is over, you
can only give praise or assign blame to one person – you.
To succeed in the financial markets, you cannot treat your
trading lightly, as if it’s a hobby. You must treat it like a
business, and that means you will need to spend time and
money to succeed. Do your homework and get the best
analysis tools from the get-go or don’t bother trading and
take a trip to Las Vegas instead. You will have a lot more
fun and a lot less aggravation.
Louis Mendelsohn
I hope the information in this book helps you as much as it
has helped me become successful in the often volatile and
psychologically driven financial markets. I would say “good
luck”, but it takes so much more than luck to put the money in
the bank.
7
VantagePoint Overview
It is not my intent in this chapter to explain the setup or
configuration of VantagePoint. A complete User’s Guide is
included as part of your VantagePoint package. In addition,
an excellent support staff is available to give you whatever
help you need, when you need it.
I did not write the preceding sentence lightly. Personally, I
am extremely disillusioned about the current state of customer
service here in America. Anyone who has picked up a phone
or walked into a store to seek help on a purchase undoubtedly
would agree with me. Be that as it may, the point I want to
make is this: The customer service provided with
VantagePoint has restored my hope that American business
may yet see the light and “get it” – customer service is
important. Be assured you may call or email whenever you
have a question of any sort related to VantagePoint and you
will get prompt, competent, and genuinely friendly service.
No one asked me to say this. I volunteer my thought for
your benefit and to compliment and encourage the customer
service folks supporting VantagePoint. The Help section in
VantagePoint is also excellent. Clearly written, it thoroughly
explains all that I touch upon in this chapter. Now, let’s get to
it …
VantagePoint is a powerful timing tool with 15 leading
indicators and a variety of confirmation tools. In fact, the
leading indicators not only provide a “heads up” on market
direction, but they also act as trade confirmation tools. We
look more closely at these in Chapter Three, but first, I want to
reiterate that no matter how good VantagePoint is, the work
for selecting a trade—deciding when to enter, when to exit,
and where to set stops—rests with you. Good work makes
good trades happen.
8
Limited Premium Markets
When I first jumped into the world of trading, my new
mentor told me three things to keep at the forefront of my
trading brain: “Cash is king, volume plus quality equals
movement, and watch and learn a market before you trade it.”
It took me entirely too long to truly understand and actualize
that sage advice. It took working with VantagePoint for me to
finally get it. Because VantagePoint provides information
only for limited, premium markets, I had no choice but to
learn what my mentor taught me.
1. Premium markets, as a general rule, are actively traded,
providing more liquidity.
2. Premium markets, as a general rule, are high volume,
providing more trading opportunity.
3. Limited-premium markets are, in effect, watchlists that
allow for learning markets, rather than hopefully
searching the market universe for potential trades.
When I first purchased VantagePoint, I still had not
incorporated my mentor’s teaching into my trading brain. My
unsophisticated approach to finding a trade consisted of hours
spent filtering through the very large universe of possible
trades. I believed that the best trades were out there
somewhere. All I had to do was find one. Many times, I came
up with what I thought were good trades, but the perceived
fundamental strength or misunderstood technical analysis
fooled me. Too many times, my trade moved in the wrong
direction, moved sideways in a tight range, or inched its way
up or down, and I stayed with it. For some key reasons we will
look at later, getting out of a trade became more difficult than
getting in. The relatively small universe of VantagePoint
markets and the lighting of a bulb in my brain changed all this.
9
Concentrating on a limited number of markets has done
much for my trading, not the least of which is that as I
reviewed the same markets repeatedly, in a variety of larger
market conditions, I began to learn the individual market
itself. It may sound a bit naïve, but the markets in my
VantagePoint trading world are becoming known entities
with identifiable characteristics and behaviors that
VantagePoint tools can track.
To be clear, “limited” does not mean “few”. VantagePoint
provides intermarket analysis for more than 600 markets,
including commodities, forex, currency futures, ETFs, interest
rates, and stocks. Relative to the total number of markets in
the trading universe, this number is limited, but it is still quite
a few markets to search as you establish your extremely tight
watchlists to concentrate on as many or as few markets as you
wish.
VantagePoint Tools Identify, Confirm, and Time
The relatively small universe of VantagePoint markets
helped focus my trading, which improved my trading success
rate. Two important lessons remained, though: Trade
confirmation is as important as identifying potential trades, and
timing (finding good entry and exit points) is the key to
maximizing profit and minimizing loss.
VantagePoint identifies market trends, true, but there are
ancillary benefits equally as powerful—confirmation of
potential trades and information for timing entry and exit
points. Flash back to this earlier quote, “… if you forecast the
trend direction correctly, but your timing is off (by just one day
or even one hour or less), you can still end up losing money.”
As well, not confirming a potential trade might end up losing
you money.
10
Here are the VantagePoint tools that identify trends,
confirm potential trades, and inform as to the timing of entry
and exits, thus leading us to the application of those tools in a
successful VantagePoint trading strategy.
Portfolios
As always, the best place to start is at the beginning, and
for me the beginning is the Portfolios section.
The important function of the Portfolios section is to
organize your markets into tight watch lists defined by your
trading strategy. This is advantageous for two reasons.
1. Finding potential trades is much quicker.
2. Successful trades are more likely.
How you organize the Portfolios section depends on your
strategy. Later on, I will tell you what I do and why, but for
now, suffice it to say that organizing the Portfolios section
according to your overall trading strategy is important.
Markets Tree
Just below the Portfolios section is the Markets Tree. This
is the destination for all the raw market data downloaded daily
from your chosen data provider. All the information that you
will see in the Charts, the Daily Report and the History Report
resides here, and it becomes available whenever you open a
market into a Portfolio. You can also find other information of
interest and potential value in this section.
Highlight a particular market, right click on that market,
and then left click on “Properties”. Aside from the trading
symbol and some other general information about the market,
you will find the top 25 interrelated markets that
VantagePoint utilizes to create the leading indicators for that
particular market (Intermarkets tab). It is quite helpful in
11
understanding intermarket analysis to look through these and
see the connections. Another potential benefit is that this
information might assist you in developing your trading
strategy and confirming your trades. Depending on how many
and which markets you have acquired in the initial purchase of
VantagePoint, you can do some simple “cross checking” of
markets within the various categories. For example, if you are
considering a potential trade and most indicators confirm the
trade but you still have doubts, then you can check the related
markets (Intermarkets tab) for potentially helpful information.
For example, Cardinal Health is listed under Services, but
in the intermarket section, you will see Wyeth from the
Healthcare group and United Technologies from the
Conglomerates group. A quick comparison of the leading
indicators from those three markets in different industry
groups just might provide some helpful information as to
market direction. The important point is that the information is
there, and if you can find a way to utilize the information to
help you make successful trades, then you probably should.
Charts and Reports
Charts and Reports provides information in easy-tounderstand graphics and in clear, tabular formats; it lays out
information you need to identify, confirm, and time potential
trades. At first, the information overwhelmed me, but after I
began to grasp VantagePoint, that problem disappeared.
Truly, once I understood and was able to correlate the
information found here, I moved from random wins and losses
to consistently more wins than losses. Better news, yet—my
trading skills with VantagePoint are still improving as I
continue to learn information connections. The key is to stick
with it, work hard, and pay attention to what you are doing.
12
The Charts and Reports tool displays (overlays) both
actual and predicted data.
You can customize the data in a variety of ways to assist in
identifying, confirming, and timing potential trades. You can
call up charts and reports from the Markets Tree or from the
Portfolios section, but you can only view a market when a
portfolio is open. This is another reason to define and build
your portfolios according to your strategy.
Customizing charts is easy, and there are many tools at
your disposal. After you have devised your strategy, the tools
to use will be more apparent, but, in the beginning, there is so
much that it might seem overwhelming. Really, it is not. It is
all good, and you will find the tools truly advantageous in
identifying, confirming, and timing trades. Clicking on the
Properties tab takes you to Chart Properties where you have
three tabs: General, Indicators, and Line Style.
13
General Tab
Appearance
This tool is simple and may seem to be only for cosmetic
purposes, but I find that setting the background color and
assigning different colors helps me see the graphic
information more clearly, and it expedites my initial scan.
Data Range
Although you can adjust the data range in the toolbar, you
can also set it here and know that you have a default range
whenever you call up a chart.
Settings
The simple fact is that there is a lot of information in the
charts. This tool helps in corralling it. Because I tend to utilize
many of the tools in my efforts, I find the legend most helpful.
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Crosshairs
Going back (or forward) in time can be beneficial when
identifying, confirming, and timing trades. Crosshairs make
this easy to do. Note: if you want to see the predicted high and
low for the next day, grab the crosshair on the current day and
move it right to the next vertical line. The predicted high and
low then appear in the lower left-hand corner of the status bar.
Indicators Tab
Actual Market Data
The value in VantagePoint is its predictive qualities, but
to make good trades, the actual market data is critical. It is not
enough just to anticipate where the market might go; you also
need to understand where it has been and where it is at the end
of the day. I often gather information about potential trades by
looking back at the patterns over the last two weeks, month,
three months, and so on. The actual market data provides an
advantageous viewpoint you can utilize in a variety of ways
for identifying, confirming, and timing your potential trades.
15
Candlesticks
Candlesticks as technical indicators have a long and
glorious history, going all the way back to ancient Japan.
Many technical analysts are religious practitioners of the “art”,
and they swear by candlesticks as predictive tools. I am not a
professional technical analyst, but I do find the candlesticks
display solid information at a glance, and they do provide
excellent market information. In fact, I discuss how I rely on
candlesticks as confirming indicators later in Chapter Three.
Bars
Bars are the default mode for graphic representation of the
high/low and open/close price ranges for each market.
Line on Close
This indicator displays the up and down of a market. I use
it specifically for that, especially when markets are extremely
volatile. If I am thinking of making a quick, in-and-out trade
in a volatile market, this is one indicator I review.
Volume
Volume is a key to successful trading. As I stated earlier,
volume plus quality equals movement. This indicator is
indispensable, and you should consider utilizing it to identify
and confirm every potential trade.
Open Interest
Here you will find open interest on all contracts.
Line on High
This is a line drawn through each day’s high price.
Line on Low
This is a line drawn through each day’s low price.
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Predicted Forecasts
The focus of VantagePoint is the forecasts. This section
gives you these tools in an easy-to-use chart format, as well as
text format in the Daily Report and the History Report. Both
formats contain the same basic information, but the chart
format gives additional information and more options.
High and Low Price
This is my starting point for gauging entry and exit points
for any potential trade. I also review these to get a sense of the
next day’s market volatility.
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Short-Term Crossover
This tool is valuable for identifying intraday and position
trades. It is the predicted short-term trend displayed with the
actual short-term trend. The crossover is the trigger.
Medium-Term Crossover
This tool is valuable for analyzing intraday and position
trades, as well, although I rely on it more for position trading.
It is the predicted medium-term trend displayed with the actual
medium-term trend. The crossover is the trigger.
Long-Term Crossover
This tool is valuable for analyzing position and investment
trades, although it is more helpful for investment trading. It is
the predicted long-term trend displayed with the actual longterm trend. The crossover is the trigger for trading.
Triple Crossover
The only difference in this crossover series is that the
double crossover charts show an actual trend with a predicted
trend (short, medium, and long) whereas the Triple Crossover
series displays only short-, medium-, and long-term predicted
trend lines, and the number of periods in the predicted moving
averages are different from the length of moving averages
used in the double crossover charts.
Predicted Differences
I have found the predicted differences in the categories
below are extremely valuable for identifying potential trades,
confirming potential trades, and helping to determine the
strength and volatility of the trend movement.
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Predicted and Actual Trends
The predicted trend difference is the difference between
the actual trend and the predicted trend for the specific time
frame (short, medium, or long). The predicted differences
anticipate the developing strength and volatility of a trend.
Predicted and Actual High and Low Price
VantagePoint calculates the differences between the
predicted high and the actual high and the predicted low and
the actual low.
Predicted Strength and Actual Strength
This indicator identifies strength or weakness in a market.
A value close to zero means there will be little difference
between the predicted and current moving averages. A value
above zero means that the predicted moving average is
expected to be higher than the current moving average. A
value below zero means that the predicted moving average is
expected to be lower than the current moving average.
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Predicted Technical Indicators
Along with the volume indicator, these technical tools are
invaluable for confirming a potential trade. I can tell you that
one or more of them have either moved me into a successful
trade or kept out of a loser.
MACD
VantagePoint predicts the MACD (Moving Average
Convergence/Divergence) one day ahead. This indicator can
be utilized in three ways.
Crossover Reversal – When the Predicted MACD line
crosses above or below the Trigger line, this could
indicate a reversal in the current trend.
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Overbought/Oversold – If the Predicted MACD pulls away
from the Trigger line, this may indicate a possible
overbought/oversold condition in that market.
Divergence – If the Predicted MACD and the current
market price diverge (move away from one another),
this could indicate a change in market sentiment.
Stochastic
This indicator is a momentum indicator. It tells you the
strength or weakness of a trend by predicting overbought or
oversold conditions. Readings above 80 predict overbought
conditions, and readings below 20 predict oversold conditions.
When the Predicted Stochastic crosses over the Stochastic
Trigger in overbought (>80) or oversold (<20) territory, this
could indicate an imminent change in market direction.
RSI (Relative Strength Index)
Predicted RSI, a momentum indicator plotted on a scale of
0 – 100, compares recent gains to recent losses. Values above
70 may indicate overbought conditions while values below 30
may indicate oversold conditions.
Predicted Neural Index
PNI has a value of either 1.0 or 0.0. It predicts whether a
simple moving average of a market will be higher or lower
two days out. Again, to emphasize, it is the first tool I look at
when reviewing any potential trade.
The Daily Process
The daily process of using VantagePoint could not be any
simpler, compared to many other trading software packages.
Truly, it is as simple as one, two, three.
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1. Download data from provider at your specified time.
2. Open a portfolio and begin scanning for potential
trades.
3. Select, confirm, and establish parameters for your trade.
Now that all the VantagePoint tools have been identified
and lightly explained, it is time to look at the work that goes
into developing a successful VantagePoint trading strategy.
We will return to the tools for a more in depth look in Chapter
Three.
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VantagePoint Trading Strategy
The first question I ask whenever anyone tells me I should
do something is, “Why?” I don’t ask “why” because I want to
be confrontational or argumentative; I ask because I truly want
to know. I will assume you are of the same mindset; therefore,
when I say having a trading strategy designed for
VantagePoint is a must to be successful, I am certain you want
to know, “Why?”
This chapter is devoted to the why and the how of
developing a VantagePoint trading strategy. I devote a certain
amount of space to discussing my trading strategy so you
might see what is working for me, but, equally so, I devote
much space to offering thoughtful questions and information
for you to consider regarding your current trading
“philosophy” and how you might develop your own
VantagePoint trading strategy. At this point, though, I would
like to note two important things.
The first is that, if you’re a seasoned trader who already
“gets” all of this and your trading strategy is solidly in place,
then please read this with the idea that some piece of
information might pop out that could help you refine your
strategy to fit within VantagePoint, which will help you be
successful with VantagePoint.
The second is that I am no expert when it comes to trading.
In fact, I would suggest that my earlier track record with
trading would clearly point to another label. What I can say
with certainty and relaxed confidence, though, is that my track
record began to improve dramatically and has continued on
that path when I finally came to understand how to fully
utilize VantagePoint and developed a philosophy and strategy
to follow. So, please keep this in mind as you read the
information in this chapter and the following chapters. I write
23
about that which I know—the positive change in my trading
and trading results since I began using VantagePoint as my
primary trading tool.
More than once, I have stated emphatically that
confirmation and timing are critical to successful trading with
VantagePoint. This is undeniably true, but to do either well,
you have to have a strategy that, for the most part, you follow
unquestionably. This sounds rigid, and the words seem to
leave little room for creativity or intuition, but notice that I put
the words, “for the most part,” in the sentence. These four
words do not open the door to the type of trading that I used to
do (random is the word that best describes my former
approach). They do, however, open the door to creativity and
intuition, which I am learning can play a role in achieving
success. Let me clarify the point I am making by telling you
my short but enlightening introduction to the VantagePoint
story.
My Story
When I first started trading, creativity and intuition were
pretty much the only tools in my toolbox. Flying by the seat
of my pants was fun, as long as I made trades that came up on
the positive end of things. It may or may not be true, but I
have read that many beginning traders end up losers because
they start out winners. They end up losers because creativity
and intuition paid off in the beginning, so they “learned” that
this approach works. As it was in my case, and probably with
many others, I started out a winner utilizing this freewheeling
strategy, and I saw no reason to change – that is, until I
became a loser. At that point, after having my trading stash
cut in half, I realized I needed to either figure it out or give it
up. Thus, I made a commitment: I would either learn how to
24
do it successfully, or I would give it up. I made that decision
in the late winter of 2006.
For the remainder of the winter and into the early spring of
2007, I researched and read excellent material on trading. In
that span, I realized I needed two things to succeed—an edge
and a strategy. I understood that to get my desired edge, I
needed trading software, as I clearly lacked the training to
trade successfully as a fundamental or technical trader.
So, I began to “try out” some of the more highly-touted
trading software packages. What I learned, simply stated, is
they did not work for me. I became disillusioned—I stopped
trading. Then, as life always offers, opportunity came to me.
In early May of 2007, I received a call from a delightful
person who informed me that she was following up on a
request I made about trading software. I did not remember the
software, or even when I inquired about it, and I told her so.
Not at all bothered by my admission, she politely asked if I
had a few moments. My mind screamed, “Please, no, not
another useless pitch,” but my mouth uttered, “Sure, why
not?” And so, she did, and when she was done, what she told
me seemed to make sense (intermarket analysis and neural
networks).
I almost gave up after the first week. I could see the
VantagePoint potential, but I could not make a good trade.
Then, for the second time in a little more than a week,
opportunity knocked.
One day, as I filtered my way through the threads at
TraderChat.com, I came across a book suggestion that would
first shatter and then rebuild my trading approach. The person
stated that the book changed his approach and his trading
status from unsuccessful to successful. Somehow, in my
tortured, mental trading state, I convinced myself to buy and
read the book, Trading in the Zone.
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From the moment I opened the book until I closed it two
days later, I realized the book contained the key to opening up
my trading world. I understood my mental, emotional, and
philosophical approach to trading had to change, and I needed
a strategy. With renewed energy, I turned back to
VantagePoint, and, over the next two months, I developed
and implemented a philosophical mindset and a VantagePoint
oriented strategy that turned my trading around. I transitioned
from a random, tentative trader with little positive to show to a
trader consistently posting more wins than losses. Not only did
I have a new, successful approach, but creativity and intuition,
the sole basis of my previous approach, transformed from a
negative to a positive. In fact, as we will see in Chapters Three
and Four, these two important aspects have found a place in
my trading world. However, before we visit that place, I want
to walk you through the development of a personal trading
philosophy and a VantagePoint trading strategy. I hope this
small trek helps you see how to combine a mindset and trading
strategy with VantagePoint to increase your probability of
success.
The Work
Each trader should have an established process that quickly
highlights opportunities, and the actual management of a
position should hardly take any time. The bulk of a trader’s
time should go into defining the processes used to identify
trades and manage positions.
John Forman, SFO Magazine, May 2007
Forman succinctly captures two ideas: Traders need a
trading strategy (established process), and it takes time to
develop and implement it (time should go into defining the
processes). He also states that an integral part of the
established process “quickly highlights opportunities.” For our
26
purpose, VantagePoint quickly highlights opportunities, and
it is you and your strategy that identify trades and manage
positions.
Success with VantagePoint comes with good effort on
your part. The bulk of your work, as Forman describes it,
should be, “defining processes used to identify and manage
positions.” Translate this to mean developing a VantagePoint
trading strategy. That is the work and this will be your work.
Your Work
Learning to fully utilize the VantagePoint tools takes
some effort, but the effort is relatively minimal compared to
developing and implementing your trading strategy. Ironically,
it does not take time because developing a trading strategy is
complicated; it takes time because it is so simple you think
you can just implement and go. The details of the strategy are
straight forward and, on paper, simple. The tough reality, as I
found out, is implementing the strategy because so much of it
is mental and emotional.
You begin building a trading strategy when you honestly
define your goals, assess your trading skill set, select your
timeframe, quantify your available resources, choose your
philosophical approach, and appraise your ability to stick to
whatever plan you devise. The following questions give you
that honest look. Once you understand your overall status, you
begin developing and then implementing a trading strategy.
Your work begins with the questions posed here. Your
answers create the basis for your VantagePoint strategy.
¾ What are your goals?
¾ What is your skill set to achieve them?
¾ What is your time horizon to achieve your goals?
¾ How much money do you want to invest?
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¾ How much money do you want to make?
¾ How much money can you afford to lose?
¾ How aggressive will you be in pursuing your goals?
¾ Do you want to trade short, medium, or long term?
¾ Are you disciplined enough to implement your strategy
once it is developed?
The questions above require no elaboration, except for the
last. If your answer is “no”, then save yourself time and
money. Without discipline, you are at the mercy of the
markets; you will have no edge, no matter how useful
VantagePoint is. If your answer is “yes”, then you have the
prospect of success in your future. The question then becomes,
what exactly is your strategy?
Your Strategy
As stated, developing your VantagePoint strategy depends
on your goals, abilities, timeframe, resources, philosophy, and
discipline. As well, the act of day-to-day trading requires a
steady hand, a still heart, objective strength, and selfconfidence. Every time you “pull the trigger” for a trade, you
cannot doubt or second-guess your trade. You must jump in
with both feet and stick to your plan. If you lack confidence in
the trade, do not do it. If you enter a trade with doubt, you
open yourself up to straying from your strategy, thus removing
your edge.
… a trader must remain awake to the present moment,
executing a pre-determined trading plan, repeatedly,
without veering from that path.
Amy Farnstrom, SFO Magazine, July 2007
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I can tell you that straying from your strategy can be
financially painful. I read the above quote and diligently
incorporated it into my trading strategy after my first, and
hopefully last, disastrous trade with VantagePoint.
On July 27, 2007, I dubiously entered a trade. The overall
markets had been volatile for a couple of weeks (we will look
at volatility and your strategy later), but I jumped in anyway
because I had twice traded this particular market successfully
that month, seven of my previous ten trades were winners, and
in that stretch, I nailed six in a row (all VantagePoint
selections by the way).
Sure enough, the market rolled up a bit and my trade went
with it, but I did not take my target profit. I got greedy. I
thought I could get more (my first stray). Well, predictably,
the market turned back on itself, and my trade began to move
rapidly in the opposite direction. When it got close to my stop,
I pulled it (my second stray) because I thought the market
would turn back the other way and I could still get out with a
profit.
As Amy Farnstrom says in her article, “When you are
outside your trading plan, you are wandering in the
wilderness of emotions.” I was wandering, so much so that I
watched my trade plummet for two days and then doubled my
position when I thought it had hit bottom (my final stray). It
hadn’t and my trade flew past the triple point of my original
target loss. This proved to be my emotional limit. I pulled
myself together and got out. The overarching lesson in this for
me and for you is, as Ms Farnstrom puts it,
Constantly seeking to reduce risk and protect your capital
must always come before making money; you must always
keep this first in your mind when trading.
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General Trading Rules
Trading rules are the essence of your VantagePoint
strategy. Before we explore this, though, let’s quickly re-visit
the weakness behind my big loss and what underlies all
trading disasters. David Silverman lays it out quite accurately
in the same July 2007 issue of SFO Magazine when he says,
Over the years, I have thought about this quite a bit, trying
to understand the reason it is so difficult to control the
emotional ups and downs that influence the decision-making
process, and I have come to the almost too simple
conclusion that people hate to lose, and losing is part of
trading.
I hate to lose, and I’ll bet you do, too, but we must accept
loss, now and then. The goal is to win more than lose. With
this in mind, let’s look at some general rules that are helping
me win more than lose. The order of these rules is important.
You will see why as we explore each of them more closely.
RULE 1: TRUST VANTAGEPOINT
If this rule is not first, success in your VantagePoint
trading will elude you. Sometimes a VantagePoint forecast
will be off, and you will get stopped out. Accept this reality
as absolute. Whether you rely on VantagePoint, other
trading software, a trading guru, or the “inside” tip, the
market will always do what it does, no matter how much
you think you have it where you want it. The goal of
VantagePoint is to give you a “heads up” on a developing
trend, not that it will always be right. If VantagePoint, or
any other forecasting method, were always right, we would
all be endlessly rich. The important thing to remember,
always, is that the edge is what you seek. The edge is what
makes the difference. VantagePoint gives you the edge.
30
RULE 2: STICK TO YOUR STRATEGY
Once you trust VantagePoint, and you have a strategy to
go with VantagePoint, then the next big hurdle is sticking
to your strategy. Discipline is paramount. You have to be
objectively strong. If you trust VantagePoint and stick to
your strategy, you will dramatically increase the probability
of trading success.
RULE 3: PROTECT AND PRESERVE YOUR CAPITAL
Even when you follow the above two “rules” religiously,
sometimes you will lose. When you lose, know exactly
how much that will be ahead of time (see the next rule),
and simply let it go.
RULE 4: ALWAYS PLACE YOUR STOPS
To honor RULE 3, you must practice this rule religiously.
In fact, always place your stops as soon as you make your
entry trade. Get in the habit of doing this, so you don’t ever
walk away without having placed your stops. The trick is to
place your stop appropriately. If it is too close, you will
find yourself stopped out more than you like. The best way
to do it is figure out how much you are willing to lose on
any trade (be realistic) and set your stop accordingly (1%,
2%, etc.—See Chapter Four for more detail on this).
RULE 5: NEVER PULL YOUR STOPS
Once placed, your stop stays in. If you think you can
outguess the market, you will generally be disappointed
and probably lose money. Placing your stops appropriately
reduces the temptation to pull or change them.
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RULE 6: HAVE CLEAR ENTRY AND EXIT POINTS
Of all the rules so far, this one not only helps protect you
and your capital, it also helps you maximize profits. This,
also, is a rule where creativity and intuition can play a
powerful, non-emotional role and where the risk of altering
your strategy remains within acceptable parameters (see
Chapter Four for more detail on this).
RULE 7: BE PATIENT
Not every trade shows immediate promise. As we well
know, markets go up and they go down. Be patient and
stick to your strategy. As you become more proficient in
your VantagePoint trading skills and you learn your
chosen markets, you will learn to wait, watch, and then act.
RULE 8: DO NOT CHASE, BE ANXIOUS, OR PANIC
This is a three-part corollary to RULE 7.
• If you miss your designated entry, do not chase the
market, especially if you are short-term trading.
• Once you are in a trade, monitor it lightly if you cannot
watch it without some level of anxiety. Anxiety serves
no purpose, other than to cause stress.
• Sometimes, the market makes swift and sudden moves
in the opposite direction of your trade. If you have your
stop set, then there is absolutely no reason to panic.
RULE 9: NEVER ADD TO YOUR POSITION WHEN
YOUR MARKET IS HEADED IN THE WRONG
DIRECTION.
I have done this so many times to my regret that I can only
say to you that rarely does it pay off.
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RULE 10: NEVER FEEL YOU HAVE TO TRADE
Before VantagePoint, I had the mindset I needed to trade
everyday. This created a negative sense about trading and,
even worse, it sometimes put me in bad trades. I learned,
and you should also, that some days simply are not right for
making a trade. Sometimes, you simply must bypass the
markets and go have some genuinely, good fun.
VantagePoint Trading Rules
The General Trading Rules are at work for me every time I
trade. It has taken me some time to incorporate them into my
trading psyche, and it will take time for you, but I can tell you
that every trading day that passes, I get mentally and
emotionally stronger and more adapted to the rules I have put
in place. They really do work.
Along with my General Rules, I also have some specific
VantagePoint Trading Rules that protect and preserve my
capital, maximize my profits, minimize my losses, and teach
me how to improve my trading.
RULE 11: REVIEW OVERALL MARKET NEWS FOR
THE NEXT DAY
Even though I trust VantagePoint, I realize other factors
can impact the markets. As a broad confirming factor, I
follow the broad news on all markets, as well as specific
news on potential trades. This helps me decide whether I
want to enter a trade in any market, on any day.
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RULE 12: SELECT THREE POSSIBLE TRADES
VantagePoint often produces quite a few potential trades. I
select the three best possibilities, and then I run them
through my Trade Selector spreadsheet (see Chapter Four
for detail).
RULE 13: CONFIRM ONE POTENTIAL TRADE
Of the three trades, I only pick one, based on the analysis of
Trade Selector. I have found that tracking one trade
reduces my work, keeps me focused, and it allows me to
closely watch and learn. I may go back to multiple trades,
but for now, this is my right way to go.
RULE 14: ANALYZE ENTRY AND ADJUST
POTENTIAL PROFIT/LOSS
My Trade Selector spreadsheet analyzes data to give a
suggested entry, and it allows for adjusting potential profit
or loss based on a percentage scenario input. I adjust this
scenario based on any concerns (or some intuition) I might
have about my specific trade.
RULE 15: PLACE NO TRADE WITHIN THIRTY (30)
MINUTES OF OPENING
This rule helps prevent bad entries. It forces patience, and
that often produces entries better than the suggested Trade
Selector entry. Admittedly, “missed opportunities” happen,
but these are less problematic than bad entries.
RULE 16: PLACE STOPS IMMEDIATELY
This is a rule that I never break (anymore), period. It is the
best insurance to protect and preserve my capital.
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RULE 17: MONITOR THE TRADE
Sometimes this means watching the trade every minute,
and sometimes it means checking in. The important point is
that if a trade starts to go your way quickly and with great
movement, you should be ready to adjust your stop (see
RULE 18) or take your profit (see RULE 19).
RULE 18: REVIEW AND CHANGE STOPS AS
WARRANTED
I switch to a tight, trailing stop if the trade begins to move
my way strongly. Sometimes this move allows me to take
profit beyond my original profit target.
RULE 19: BE FLEXIBLE, BUT ALWAYS TAKE PROFIT
There is room for creativity and intuition here. Depending
on market conditions, I either close out profitable trades
early, or I run with strength past my target profit; otherwise
when my target profit is reached, the trade is over.
RULE 20: ANALYZE EVERY TRADE
If anything propelled me to better trading, it is this. I
analyze every trade, and my VantagePoint trading
improved and is improving. Go figure!
The Balanced Way
For three years, I have been studying trading markets, and
I have read repeatedly that two forces drive markets—fear and
greed. This appears to be the commonly accepted belief. How
sad and destructive. It implies we only have two ways to
trade—from a position of greed or from a position of fear.
I believe we have another way, and I know that I am not
alone. I argue, as do a growing chorus of reasonable voices,
35
that we should trade in a more balanced way, in our own best
interest. Trading either from a position of greed or fear is not
in our own best interest, nor does it serve the greater whole.
Greed fosters and feeds a desire to have more than you
need. It is never in your best interest to attempt to acquire
more than you need. Fear fosters and feeds poor decisionmaking skills. Sticking to your trading strategy is the one thing
that keeps fear at bay, and keeps you making good decisions.
The Balanced Way is to trade outside your emotions, to
trade, if you will, from a position of objective strength, not
greed or fear. Trading from this place:
¾ makes for less mental and emotional volatility;
¾ embraces a certain calmness and acceptance with the
outcome of any trade;
¾ creates space to see every trade clearly, in sharp focus;
¾ places all trading in a strong, ethical context, and;
¾ opens the door to greater probability of success.
Most important, The Balanced Way returns to me more
profit in the long run. Trading in this mode helps eliminate
those needless, emotional errors. I have less greed-based and
fear-based losses. I take profit based on my modest, pre-set
targets, and I emotionally let go of a trade that hits my
calculated, pre-set stop. I make my rules and stick to them.
VantagePoint Trading Form
I am increasingly becoming more balanced in my trading. I
am finding that trading is actually becoming fun again, as I
continually strive to assimilate my philosophy and strategic
rules into this developing, trading head of mine.
I now treat trading as a business. In my entrepreneurial
career, one thing I have learned well is business is business
36
and personal is personal. Mixing the two often makes for poor
decision-making. Trading is no different. When emotion
comes into play, it often leads to bad decisions. This basic
philosophy defines who I am as a trader and informs how I go
about trading.
Based on the above, my VantagePoint Trading Form is
this: I am a short- and medium-term trader, which means that I
can hold a position for as little as an hour and, generally, no
longer than a couple of weeks. My preference is to keep a
trade under three days, but this is subject to both specific and
general market conditions. I set my profit and loss targets
modestly, according to my strategy, not desiring to make more
than my profit target nor fearing to lose more than my target
loss. I deviate from the plan only when I am confident in my
move, and I set it up so I cannot lose more than my initial
target loss.
My suggestion to you is that you define your
VantagePoint trading form in the same simple terms I did. I
believe this is important because it gives you a framed
perspective within which you can generally work. Your
overall trading strategy, and the rules you define, are the
specific framework that will guide your specific trade choices.
One More Thought
I’ve heard the maxim many times, “There is nothing worse
than a reformed drunk.” I know numerous people who have
quit drinking, and they are terrific, solid human beings. The
point of the maxim is not the quality of person who has quit
drinking, rather it is the problem of righteousness. “I have
seen the light … believe what I tell you.”
To a minor degree, I see myself in this role in this book. I
once was a random trader, “wandering in the wilderness of
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emotions,” but I found VantagePoint, and here I am saying to
you, “Believe what I tell you.”
The big difference between the “reformed drunk” and
myself as the writer of this book is that what I am telling you
can be verified by objective analysis in the form of results, and
I am passing on the wisdom, if you will, of seasoned,
successful traders who all, in one form or another, say the
same things. It would seem that in the trading universe, basic
truths exist, just as in any universe.
As for VantagePoint, the important role it plays is actually
subordinate to the role you play. If you identify your
philosophy, adopt a trading strategy based upon your goals,
abilities, resources, and clearly defined rules, and you learn to
fully utilize the VantagePoint tools, you will become a very
successful trader.
This chapter is devoted to challenging you to succeed with
VantagePoint. The aim is to instill in you a sense of
confidence as a trader, as well as a sense of confidence in
VantagePoint. As you read deeper into the book, I believe
that sense of confidence will grow, and you will come to
better understand how to utilize VantagePoint to your
advantage.
As a reminder of the key points discussed in this chapter,
though, I give you just one more piece of wisdom for your
consideration. This insightful passage frames this chapter
nicely, and if you replace the words, “signals appear” with
“VantagePoint trade appears,” the complete picture focuses
sharply.
… when you start trading, you need a sound trading plan
that fits your level of capitalization, matches your goals and
includes exit strategies to allow you to stay in the game. And
you must accept that you will be wrong. Fear of failure is
the No.1 enemy of confidence; it destroys the ability to learn
from mistakes … The successful trader knows this and has a
38
set of trading rules, cultivating a habit of obedience, and
commits to building skills to the point that trades are
executed following a predetermined discipline, effortlessly,
again and again. If making a trade becomes a reflexive
action that occurs when the right signals appear, then you
are, in effect, removing your mental state from the equation
and simply doing what is right at the moment. Over time, the
benefits will follow … You must take whatever steps are
necessary to overcome mental or emotional states that
interfere with your trading method and weaken your
discipline. Once you can do this, you will be able to
consistently follow your own trading rules, radically
improving the odds that you will survive and become
successful.
Amy Farnstrom, SFO Magazine, July 2007
I believe the twenty rules in this chapter and the general
philosophical explorations will serve you well in the
development and implementation of both a trading philosophy
and a VantagePoint trading strategy. You may find other
rules that will define how you wish to go about your trading,
and it is not unlikely that you may not use some of the rules
presented here. That is your choice. You might also travel
different philosophical paths to achieve your goals. The point
is that you need a philosophy, rules, and the discipline to
follow your strategy. Keeping this in mind, let’s move on to
the next chapter, which focuses on the actual use of the
VantagePoint tools.
39
VantagePoint Tools
At about the same time my “random” trading began to
wear me down in the late winter of 2006, I, coincidentally, had
been experiencing a bad run of cards. Yes, I play poker, nolimit-hold ’em. I generally play in the $100-$200 cash games.
Anyway, for about two months, the cards were not turning in
my favor, but I kept playing, becoming more frustrated, and,
of greater importance, losing more money. I kept playing
because I “knew” it was the cards, not me, and, eventually,
they would come my way, if I just kept playing.
My introduction to VantagePoint in May of 2007 and my
reading Trading in the Zone changed that losing way of
thinking. As I went through my metamorphosis in trading, I
simultaneously began to focus on the idea that playing poker
was no different than trading in the stock market—risking
money to make money defined both realities. So, I began to
view my card playing in the same context as my trading, and I
had this wild thought: Could I also develop a strategy for
poker that worked? I thought, maybe I could.
So, I put myself to the test, and asked myself the questions
that need honest answers.
¾ What is my goal?
ƒ To win consistently.
¾ What is my skill set to achieve them?
ƒ Certainly not professional but good enough.
¾ What is my time horizon to achieve my goal?
ƒ No more than four hours for any game.
¾ How much money do I want to gamble per game?
ƒ No more than the initial buy-in.
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¾ How much money do I want to make?
ƒ At least double my money.
¾ How much money can I afford to lose?
ƒ Designate a set amount as my total gambling pool,
and if I lose it, I am done.
¾ How aggressive will I be in pursuing my goals?
ƒ I will be aggressive but careful.
¾ Am I disciplined enough to implement this strategy
once it is developed?
ƒ Yes.
After I answered these questions, I began to apply some
absolute (well, almost absolute) rules to my playing.
RULE 1: TRUST MYSELF
RULE 2: STICK TO MY STRATEGY
RULE 3: PROTECT AND PRESERVE MY CAPITAL
RULE 4: CASH OUT WHEN I DOUBLE MY MONEY
RULE 5: KNOW WHEN TO GET IN AND GET OUT
RULE 6: BE PATIENT—CARDS WILL COME
RULE 7: NEVER BET BIG ON “ONE MORE CARD”
RULE 8: DO NOT BE ANXIOUS OR FEARFUL
RULE 9: ONLY BLUFF WITH MULTIPLE OUTS
RULE 10: NEVER FEEL YOU HAVE TO PLAY A HAND
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The point of this poker story is my “luck” changed when I
actually focused on the act of playing cards, when I treated
“my game” more seriously. My focus became winning more
than losing, and to this day, my “pool” of gambling money is
still growing. I am, no pun intended, still in the game.
So how does my poker-playing story relate to
VantagePoint and your success? Plenty, I might say. First,
notice the similarities in the rules. Second, and most
important, the point in making the comparison is for you to
understand that trading, like poker, is only gambling, and
nothing more, unless you understand your philosophical
approach, develop and implement a strategy, and have the
discipline to stick with it. If you do this, you increase your win
probability because you have given yourself an edge.
Turning around both my poker playing and my trading
were not accidental. Both positive results came to me because
of the actions I took to change a negative into a positive. True,
one might argue that the actuality of implementing a strategy
is the primary reason things changed, and it would be hard to
disagree, but I believe there is another factor that contributed
to the turnaround in my card playing and my trading—my
mindset. I will say, from my point of view, if your head is not
in the right place, you will have a “run of bad cards,” so to
speak; the markets will seem to conspire against you.
If I were to pinpoint another thing that changed the
direction of my trading more than anything else, it would be
that I worked hard (and still am) on eliminating emotion from
“the game,” which is, of course, part of the mindset.
As soon as I was able to “leave the table” when I reached
my target profit, I began walking out a winner. Every time I
walked out a winner, I placed another brick in the formidable
idea that I could win. Every time I lost, I accepted that reality,
and I understood that from time to time, it would happen. On
these terms, the game became enjoyable again. Each time I sit
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down to play now, I believe I will win. Each time I enter a
trade, I believe I will win, and, as Robert Frost once said, “…
and that has made all the difference …”
Success breeds success. I am convinced this is so, and just
as it is for my poker playing, it is for my trading. I believe I
will win. This attitude is consistent with winners in every
competitive realm, and I tell you this now so you keep it in
mind as we discuss the VantagePoint tools. I want you to
understand that tools are just tools, and they only have value
when we know how to use them with confidence. I would like
you to believe that when you use the VantagePoint tools in
conjunction with a solid trading strategy, you will win.
The VantagePoint Tools
One of the important differences between poker and
trading is the set of variables particular to each. Poker relies
on combinations of 52 cards to produce probable results. This
is clearly a small universe. If you are trading in the market
universe at large, the variables far surpass the 52 cards in a
deck. In fact, the trade possibilities in the U.S. market universe
are upwards of 12,000. Hoping to catch “aces in the hole” is
quite a daunting and unforgiving possibility. Yes, it can
happen, but if you have stated goals to achieve in a certain
time frame, I suggest time is better spent, and the long-term
gains are larger, if you reduce the variables considerably.
In my “old” trading style, I thought I was reducing
variables when I used a stock screen, researched the
fundamentals, or tried to read a chart. To a small degree, I
was, and in my limited experience I saw this as enough. I now
understand my former approach could never reduce the
variables enough to turn the probabilities more in my favor. I
could never gain an edge, simply because I relied on
“feelings” and random chance more than educated selection.
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VantagePoint works because its balanced combination of
tools give me the opportunity to make educated selections, and
that is all they do. It is up to me to collate and interpret the
information the tools provide. Before I understood this,
though, I saw VantagePoint as a “silver bullet.” When I first
purchased it, I believed it could do more than it could; I
wanted it to do more than it could. Now, I know better
because I understand that every good thing received requires
work, and learning how to use the VantagePoint tools is work
that has paid off in making my trading strategy work. If you
learn how to fully utilize the VantagePoint tools, that work
will pay off for you also.
Martha Stokes, in an article titled, “The Tools Of The
Trade” (Stocks and Commodities, October, 2006), strongly
reinforces the idea that learning the tools in your toolkit is
essential to success. She points to another downfall of traders
as well, and that is the toolkit they rely on is not balanced.
Whenever a trader comes to me with less-than-satisfactory
results, I first check his or her toolkit of indicators. Many
factors can cause this trader to have disappointing results;
often the primary culprit is not understanding how to use
indicators. The most common problem is … The toolkit of
indicators is out of balance …
After turning back to VantagePoint with renewed focus
toward learning the tools, I came to understand that the real
strength of VantagePoint is not just one or two of its tools; it
is its balanced combination of indicators all working together
that make it so powerful. I experienced this “enlightenment”
because I learned each of the tools independently and then
incorporated each tool into my overall strategy. And as I
refined and implemented that strategy, it became clear that no
one tool brought me to a successful trade—all of them in
combination did.
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Limited-Premium Markets
The first tool I came to value is the VantagePoint limitedpremium markets. This feature is a useful tool because it does
the work of reducing the variables, an important factor I
referred to earlier.
Limited-premium markets have another plus. Because the
market universe is reduced, I am “getting to know” the
markets to which I am subscribed. This might sound odd, but
it is true. As I watch and learn my markets, I find, for
example, that some markets consistently react to overall
market news and specific news about that market. Other
markets simply absorb the news and move on. This is helpful
to understand, as part of my strategy is to check overall and
specific market news before I trade.
Watching limited-premium markets also allows me to
correlate overall market-sector movement with specific
markets. Once I became able to identify quickly the sector to
which a market in my watchlists belonged, I could then
mentally correlate the movement of a market to my current
knowledge of that sector and its movement. I began to
compare certain markets in that market sector as well to see
how they moved related to the sector and to each other.
For example, in July and August of 2007 I traded AMD
and INTC because I was following the technical sector of the
overall market, and I could see at that time that each of those
markets behaved differently as the technical market sector
showed either strength or weakness. INTC tended toward
stability, no matter what the market sector did, and AMD
tended to be more volatile, moving more in synch with the
market sector. Now I saw this, but I did not put the pieces
together, in terms of what this might mean for my trading.
Simply, I lacked the experience.
45
In any case, as I watched these two markets, VantagePoint
pointed to both as potential trades, and I selected AMD. I
entered and exited two AMD trades in three days making a
profit on each trade. As I see now, to some degree I was lucky
on the second trade because the overall markets were
becoming volatile. I barely got out with my profit. Now, here
is where I made my first mistake. I did not apply what I had
been learning about the “behaviors” of those two markets in
the overall conditions at that time. Almost two weeks later, I
entered a marginal AMD trade again, except this time the
overall markets went from slightly volatile to extremely
volatile. I should have never entered the trade knowing what I
knew about how AMD followed the flow of the technical
market sector, but I was riding on my previous success, and
that was another mistake.
This is the trade that turned out to be my one disaster with
VantagePoint (up to this point), as I broke rule after rule,
thinking I could win again with this particular market.
On the other hand, during that July/August period when
the overall markets (technical market sector included) were on
a roller coaster, I entered a solid and profitable trade with
INTC. As I said earlier, INTC seemed to go against the overall
market downtrends. In the face of strong selling during this
period, INTC would incrementally go up, incrementally go
down, or hold steady. It never dropped like a stone or rose like
a balloon. After watching this a few times, I decided to make a
trade when the VantagePoint indicators pointed to movement
in the direction I wanted. This time I trusted in both
VantagePoint and my understanding of how INTC had been
behaving in those unsteady, overall market conditions.
Anyway, the opportunity came, I entered, held the trade longer
than I like, and then exited when it hit my profit target. I made
money on the only trade I made in those volatile weeks.
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I held the trade for three long weeks. I stayed with the
trade that long for several reasons, not the least of which is
that the trade never stopped out nor did it reach my target
profit. The trade went up a little and down a little. Plus I was
not truly desirous of finding another trade in that extreme
volatility. Everything seemed upside down, except the trade I
was working. All throughout, though, I remained calm, and an
important part of that sense of calm stemmed from my having
watched and learned how INTC behaved during those volatile
times. Ironically, part of my calm demeanor derived from my
old, pre-VantagePoint thinking. I had a “feeling” that if the
overall markets showed some steadiness, I would hit my profit
target.
In my eye, the unsteadiness of the overall market gave me
license to go with my intuition. Sometimes, when it seems like
crisis is all around you, you just have to go with what you
believe you know; you just have to be creative. This trade
became creative because I “sensed” the market would
eventually get to my target profit, and that well-founded
“sense” added to my confidence, once I passed my three-day
limit. At that point, my choice became clear. Do I stay in for
as long as it takes to hit my target profit, or do I get out
wherever I am and get into another trade? I decided to stay
with the trade for all the reasons stated, but the two that held
the most sway were: I believed I “knew” how INTC would
behave in those conditions, and my intuition just felt right. I
was correct on both counts.
When it finally did hit my target profit, I thought about
staying in, as INTC was still showing trend strength. That
thought lasted about two minutes. I realized I had had enough.
I was right where I wanted to be, where I had planned to be. I
decided to get out with my profit and let it go. I moved on, and
so did INTC. Over the next two days, it continued to climb,
but, as I have learned, that trade ended when I got out. What
47
bolstered my confidence even further then, and still does now,
is that I let the trade go emotionally – no regrets. On to
another market in my watchlists was, and is, my attitude.
Portfolios as Watchlists
In another part of my life, I ride horses. Several years ago,
I had a “green” horse that required some professional training.
Part of that training was for me to ride the horse under the
tutelage of the trainer. I will never forget a lesson he taught me
about starting something off right.
My Arabian, Amigo, was bouncing around, trying to wrest
control of our ride. The trainer told me to stop the horse and
then start again. I did, and we ended up doing the same thing.
The trainer told me to do it again, except this time, he said,
“Make the first step a calm step.” He went on to say, “If he
doesn’t take a calm step, stop him and keep doing that until his
first step is a calm step.” He explained that if you start a horse
out right, from the very first step, the horse will simply stay
with that, and the behavior you want will follow. Well, after a
million starts and stops (or so it seemed), it worked, and today
we never start a ride without the first step being a calm step.
The point here is that if you think about and set up your
watchlists to be efficient, then your first step is an efficient
step, and the next steps will follow accordingly. I have found
this is the case in my VantagePoint trading. Every trade I
make starts by scanning the Portfolios section, so I have
organized my watchlists for efficiency and speed.
How you do it is up to you, but for me I’ve organized my
watchlists according to price, which provides for me the
efficiency and speed I want in the initial search for potential
trades. I did not start this way, but this is the setup I have
found to be most useful.
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I based my first attempt at organizing my watchlists on the
idea that I would “watch” a few promising markets over a
period of days to ascertain which had the strongest
possibilities. When a market showed strength, I moved it into
the next watchlist called “Potential Buy”. If it continued to
show strength, I moved it into a watchlist called “Buy”. This
approach was a painstakingly slow way to find good, short- to
medium-term trades. Well, I quickly figured this out as I
entered trades only to find the trend coming to a close. This
was one of many trial-and-error mistakes I made in the early
days of learning how to use VantagePoint.
My second attempt at organizing my watchlists fared no
better. In this approach, I created watchlists based on the
sectors in the Markets Tree. I simply moved all the markets
under a certain section to a watchlist named the same thing
(Consumer Goods, Utilities, etc.). I kept the “Buy” watchlist
and dumped the “Potential Buy” watchlist. My thought was
that this would save me time, and it did, but moving a market
from the individual watchlist to the “Buy” watchlist still
seemed inefficient, and it was.
Determined to get efficient, I tried a third approach. This
time, I organized according to sector and price, and I dumped
the “Buy” watchlist. This improved efficiency dramatically,
but soon enough, I would simplify again to where I am today,
and that is, I organize all my markets according to price.
$10 - $30
$51 - $75
$31 - $50
> $75
This categorization of my markets works best for me
because it allows me to search my market universe in smaller
segments based on price. Since I look to price as a factor in
determining my trade, this is both efficient and quick.
An additional reason to organize all your markets into
Portfolios watchlists is the initial chart view that comes up
49
when you call up a market. If you call up a market from the
Markets Tree, the chart comes up in the VantagePoint default
format. This may or may not be the default format you have
set up, and if it is not, then you have two options. You can go
through the steps of selecting the elements of your default
format for the new market or, more simply, after you call up
the new market, go to an existing market in that watchlist, go
into Properties, and click on Apply To All. Assuming you have
your default format set up with the other markets in that
particular watchlist, clicking on Apply To All will immediately
switch the new market to your default format. You can avoid
both these steps if you always call up a market from a
watchlist in the Portfolios section.
Potential Trade Selection
Selecting a potential trade is a process that is now
extremely quick for me. When I first started with
VantagePoint, it was a bit cumbersome. Aside from not
having my watchlists organized in a way that assisted me, I
also did not really know what defined a potential trade. My
initial approach was simply to find a market with a predicted
trend that was approaching a crossover or had recently crossed
over an actual short- or medium-term trend line. I would then
look at the PNI to see if it was at 1.00 or 0.00. Given my lack
of VantagePoint knowledge in the beginning, this simple
approach had me looking at lots of potential trades.
As I learned more, I realized that the first, and most
important, indicator for me to look at for any potential trade is
the PNI. As I will discuss in just a bit, the crossovers are
important, but they are, for me, less important than the PNI.
In my opinion, the PNI is the most accurate leading
indicator of all the VantagePoint tools. It is the one that
produces the 80% accuracy statistic for VantagePoint. It
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predicts whether a three-day simple moving average of a
market will be higher or lower in the next two days. This is the
reason it is the first and most important indicator for me to see
when I am scanning for potential trades.
To scan quickly for potential trades, I open a particular
watchlist, and then use the forward button (in the upper righthand corner of the Market Bar). This takes me through the
markets in that watchlist one at a time, and the graphic charts
quickly show me what I need to know.
1. Which markets have the PNI pointed in the right
direction.
2. Which markets have a Predicted Strength headed in the
right direction.
3. Which markets have three Predicted Differences (short,
medium, and long) pointed in the right direction—up
or down and above or below the zero line.
If all three indicators are “correct” in a particular market, I
write down the symbol of that market and then move onto the
next in that watchlist. When I am through all of my watchlists,
I then weed my list down to the three strongest candidates. I
do this by looking to the Predicted Crossover indicators.
The Predicted Crossover most helpful to you will depend
on your strategy. For me, as a short- and medium-term trader,
the most important crossovers, naturally, are the short- and
medium-term crossovers.
51
What you look for specifically with the Predicted
Crossover also depends on your strategy. I tend to be more
aggressive in my trading strategy, so the crossover I look for is
a predicted trend moving toward a crossover or a predicted
trend that has just touched for a crossover. Both cases will
send a potential trade to the next round.
If a crossover has already happened and it is moving in a
divergent direction from the actual trend, either above or
below the actual trend line, I eliminate that market as a
potential trade. I do not eliminate it because it is potentially a
bad trade, necessarily. In fact, I have entered these trades and
they have worked out. I eliminate these potential trades
because my best success and quickest profits are with those
trades just beginning to move into a trend. True, some trends
go on for some time, and there is profit in those trades, but my
perspective is short- to medium-term, so I am not interested in
a trend in progress. I want to trade a market that is just about
to move into a trend. You might find the opposite is true for
you, and that is why it is so important to define who you are as
a trader and what your strategy is to be successful. Only you
can find your way down a successful trading path.
In the case where more than three potential trades have met
all of my criteria, I simply choose the best three of the group. I
define the best three as those with all the indicators pointing
and moving in the correct direction. For example, (assuming a
long position), let me compare two almost identical potential
trades. The first has
• a PNI of 1.00.
• the three Predicted Differences are pointing up and the
Predicted Short-term Difference is below the zero line.
• the short- and medium-term predicted trends are pointing
to an imminent crossover.
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The second potential trade has the same characteristics
except that the Predicted Short-Term Difference pointing up is
above the zero line. In this hypothetical case, the second trade
is the one I would select because in a long trade, I want to see
the predicted difference headed above the zero line.
Once I get to the final three, I then confirm all three, and
the best of the three becomes my trade. This last phase is a
more complicated process, but I have found that going through
it raises the probability for a successful trade.
Potential Trade Confirmation
VantagePoint provides numerous tools to confirm
potential trades. When I first started using the software, I did
not quite understand how many different tools there were and
how I could use them in combination to confirm potential
trades. In all candor, I didn’t even think I needed confirmation
for any trade. As it turns out, an important element of my
developing VantagePoint success is that I confirm all
potential trades.
Your trade selection process will develop as you work with
VantagePoint and begin to understand what tools you need to
confirm potential trades based on your strategy. In my case, I
utilize all of the confirmation tools, although some carry more
weight than others.
By the way, as a reminder, using VantagePoint does not
mean fundamental and technical analyses are obsolete. If you
rely on either of those approaches, you may find them helpful
in your own confirmation process. Keeping this in mind, let’s
look at the VantagePoint confirmation tools.
53
Data Range
Sometimes, what a market will do in the future relates to
what it has done in the past. Although I do not use past
patterns and information as confirming tools, I do consider the
information when I am interested in learning about a market. I
should add here that my default Data Range is two weeks.
Since we are talking about detecting future patterns with
VantagePoint, it makes sense to look at past patterns,
especially as they relate to volume. If I have a potential trade,
I look at volume rise or fall in relation to price for the past
month and three months. In my strategy, anything more than
this timeframe is not particularly helpful, even though it might
be interesting. In any case, if price is either rising or falling on
downward trending volume, this is a red flag for me.
Predicted Next Day High and Low
If I like a potential trade, these numbers can make or break
that trade. In my short- to medium-term trading strategy, the
difference between the predicted high and predicted low tells
me what the potential range is for the trade. The wider the
range between the two, the better I like it. It gives me more
room to get in and get out that next day, and if I could have
my trading world just exactly the way I want it all the time, I
would have me in one, wide-range trade per day.
I also consider the range between the predicted high and
predicted low for the current day and the actual close of the
previous day. If the range between these price numbers is
small, I am less likely to enter the trade. Again, small ranges
give me less room to maneuver toward my goal of hitting my
target profit. The predicted high and low also help me finalize
my decisions about where to enter, exit, and place stops in a
trade. I discuss this more in the next chapter.
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Predicted Differences
Differences between predicted numbers and actual
numbers are helpful in confirming potential trades and
selecting entries, exits, and stops. VantagePoint provides
these numbers for Predicted High and Predicted Low and
Predicted Short-, Medium-, and Long-term trends. In both
cases, if these numbers are not all above or below zero and
pointing in the correct direction, then I consider the trade only
if other VantagePoint tools indicate the market is moving
toward a trend. Even then, I more than likely will not enter the
trade until I am certain all the differences are strongly trending
in the correct direction.
Short-, medium-, and long-term differences all tell you the
same thing within the time frame of the trend (the difference
between predicted and actual); however, you should take into
consideration your trading strategy when evaluating the
differences for any time frame. For example, a negative
difference between a predicted and actual short-term trend
might mean less if you are looking at a long-term trading
strategy (investment) and a positive difference between a
predicted and actual long-term trend might mean less if you
are trading short term (intraday). Both, however, might have
some bearing if you are trading medium term (position).
Actual Trends
When I consider a potential trade, one of the primary
things I review is the actual short-, medium-, and long-term
trends. The best thing to see is the three trends all showing
continuous movement over time in one direction or another.
These are clear favorites for me. I like these trades.
If the long-term trend is either flat or moving slightly in the
opposite direction of my desired direction, I will still consider
the trade, but I will only take it if all my other confirming
55
indicators point to it as a solid trade. Although this movement
is a sign of a potential trend shift, I will consider this trade
because, if all else is solid with the trade, I might very well be
in and out before the shift occurs.
If the short- and medium-term trends are diverging, I will
not take the trade for obvious reasons. I want both trends to be
moving in the correct direction.
Volume
Volume speaks volumes about price movement in a
market. If VantagePoint predicts the price will go up (or
down), and the volume movement is strong and developing in
the desired direction, this is one of the best confirmations for
me. If the volume is relatively weak (compared to past volume
for that market) or is weakening, I won’t trust the price
movement because I believe it is unstable, and unstable does
not work for me. It is simple: If the volume is trending up
strongly, a whole bunch of people are buying or selling and
that creates both liquidity and opportunity in a market. If the
volume is trending down, interest is waning, and this creates
potential volatility in price movement.
Predicted Technical (Momentum) Indicators
The words in the VantagePoint Users’ Guide give an
excellent overview of what one looks for in these indicators.
Value and position of the indicator line –the indicator
reading on a scale between 0 and 100 typically reflects
when a price trend may be weakening or strengthening by
comparing the current value with previous values.
Overbought/oversold – if the predicted momentum
indicator exceeds a prescribed boundary, this indicates the
market may be becoming overbought or oversold. The
56
market may be due for a correction that will bring the
indicator reading back within the specified boundaries.
Divergence – divergence between the predicted momentum
indicator and market prices may indicate upcoming changes
in market sentiment.
Although the VantagePoint Users’ Guide also states that
“Momentum indicators work best when markets are trading
within a range or choppy market conditions,” I find them
useful for confirming aggressive short- or medium-term
trades, those approaching a crossover or those beginning a
crossover.
The indicators below predict both direction and strength of
a market, and I strongly rely on all of them as a group to
confirm a potential trade. I find that overbought and oversold
conditions in a market often correctly point to trend direction,
and, as confirming indicators, they are indispensable.
MACD (Moving Average Convergence/Divergence)
This indicator tells me the probable direction of a potential
trend (trigger crossover) and the strength of movement in that
direction (convergence/divergence). If the potential trade
looks good but the MACD trigger is pointing to a change in
trend direction, I may very well pass on the trade. I make my
decision after I look at the other momentum indicators and
assess as a group what they are telling me in reference to
whether I should enter a trade or not.
RSI (Relative Strength Index)
This predicts strength or weakness in a trend based on the
comparison of recent price gains to recent price losses, or
rather, overbought or oversold conditions in a market. I place
a lot of emphasis on this indicator to confirm a potential trade.
57
Stochastic
This indicator formulates from the position of the close,
relative to the high or low of the day. It is another way to view
overbought and oversold conditions. I like to use this indicator
in conjunction with the RSI and the MACD. If all three are
confirming, then I will move the trade on to the final selection.
Predicted Strength
Predicted Strength is powerful in my confirmation process.
In the words of the VantagePoint Users’ Guide again,
... a value close to zero means that there will be little
difference between the predicted and current moving
averages. A relatively high Predicted Strength value
indicates the predicted moving average will be much higher
than the current moving average. A relatively low Predicted
Strength value indicates that the predicted moving average
will be much lower than the current moving average.
The further the value from zero (in the correct direction),
the better I like it because I like wide ranges in my trading.
Conversely, if the Predicted Strength is moving in the
opposite direction of the predicted and actual trends, it is a red
flag, but it does not necessarily doom the trade. The trade
potential depends on the strength of the move. If the change in
direction is huge, then I let the trade go. If it is minimal and
the other indicators point to a good trade, I move the trade on.
Candles
I love my candles. Even though I truly know so little about
the “art” of predicting markets through candlestick analysis, I
nevertheless find candles extremely useful in confirming
potential trades. The simple guide I use is this: If
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VantagePoint tells me a market is moving into a trend, I
generally look to have at least two, strong green or red candles
in a row. By strong, I mean high volume with a wide range
between high/low and open/close prices. The only exception
to this rule is if all the indicators are saying that the trade is
strong and I am working on the aggressive side of my strategy.
The information represented by the candles is available in
other forms with VantagePoint; however, I find the candles
useful because they tell me what I want to know at a glance. If
I see the candles are not right, I will go back and review my
potential trade with all the other indicators. On the other hand,
if the candles are the way I like to see them, and all the other
indicators are correct, that potential trade moves onto the final
round, which is my Trade Selector spreadsheet.
Volatility
Even though volatility is technically not a VantagePoint
indicator, I still consider it a confirming tool, and here is why.
In the first half of July 2007, I was having fun trading, and
then, seemingly without warning, the overall markets began to
bounce radically up and down, and they would continue to do
so for several weeks. In this period, VantagePoint served me
well. Every evening, I performed my VantagePoint ritual, and
every evening I would get mixed signals on virtually every
potential trade I considered. I interpreted that as instability in
the markets. So, for the rest of July and through most of
August, VantagePoint pretty much kept me on the sideline. I
took only three trades in August (one loss, two wins). Two of
the trades I entered were marginal at best (one win, one loss). I
took them because I was impatient. The other successful trade
I entered because all the VantagePoint indicators suggested I
should (see the INTC trade discussed earlier in this chapter).
59
When the indicators pointed to a solid trade, I trusted them,
and it paid off.
Although I only traded three times during August, I
nevertheless continued my daily VantagePoint work. This
was time well spent. Day in and day out, I watched the
indicators compared to the markets. I watched as the Dow,
NASDAQ, and S&P 500 jumped this way and that. I began to
understand more about how the VantagePoint indicators and
markets behaved in such volatility.
In that timeframe, the functionality of the VantagePoint
tools sharpened and clarified in my mind. I clearly could see
their value, not just in stable markets but in any market. With
this new understanding, I realized that VantagePoint clearly
reflects instability in the overall markets, and that reflection
acts as a confirmation tool unto itself.
Clearly, the variety of VantagePoint indicators have
specific roles to play in the trade confirmation process. And,
clearly, each is effective in the particular information it offers.
The point is that you have choices, and you will choose those
tools that best fit your particular strategy and the ones you
favor in your quest to succeed. Just remember, in any market
on any given day, you will get mixed indicators. The real skill
resides in one’s ability to discern the strong indications from
the weak and the relative value of all the information in total.
Final Trade Selection
This is the final phase of my VantagePoint trade selection
process. In this phase, I introduce a new tool outside the realm
of the software but completely in the realm of my
VantagePoint trading strategy. This specific tool and two
others are spreadsheets, and we will look closely at all of them
in the next chapter. For now, though, I will refer primarily to
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one of those spreadsheets, as it plays a crucial role in helping
me select my one trade to enter.
Once I have my three strongest trade candidates, I input
relevant actual and predicted data into Trade Selector, a
spreadsheet I developed to help me evaluate entry and exit
points. The spreadsheet also has customizable features that
project number of shares to buy based on the dollar amount
invested in a trade and target prices for exit and stop, and it
rates the volatility and relative risk of a trade based on actual
and predicted data of the market. These features help me
decide which trade to enter or not enter. If I decide to enter a
trade, Trade Selector allows me to adjust my entry, stop, and
exit based on different percentage scenarios. It is, if you will,
the final confirmation tool in my trading toolbox. The trade I
finally select is picked because the information in Trade
Selector has confirmed the best possible trade. I use this tool
to establish timing for every trade I enter as well.
Timing
Early on with VantagePoint, I experienced problems with
my timing. I found myself getting into trades too late or
stopping out too early. As has been stated by many voices in
many areas of life (in particular with trading), timing is
everything. Thus, the potential trade I select will provide the
best timing of the three potential trades. It will have the best
entry point.
Entry
Once I select my trade, the first element of timing is the
entry, which is the most critical aspect of timing a trade. Based
on my trading style and strategy, which is to gain the
maximum profit in the shortest timeframe, entry becomes
critically important; therefore, I have to get close to the
61
“bottom” of that day’s price. Where that bottom will be,
though, is the rub.
Sometimes, a confirmed trade is already on the move, and
getting to the bottom price sometimes means getting in as
quickly as I can, so no matter what my spreadsheet tells me, I
have to make a creative decision—where do I enter? This
decision is intuitive at this point, and I have to make it
quickly. Not liking pressure when making a trade, more times
than not, my decision is to let it go, and wait for the next trade.
If I decide to take the trade, the guidance I use comes from the
Predicted High and Predicted Low for that day. VantagePoint
predicts the high and low prices close enough and often
enough that I can rely on them as parameters for making my
decision whether to enter a fast-moving trade.
Assuming, though, that the trade is just starting to build
momentum, I rely on what Trade Selector gives me as my
entry point. In the next chapter, we will look more closely at
how Trade Selector works in this regard.
Exit
The exit point (where I take profit) is the second element
of timing a trade, and no matter where I enter a trade, this
number is always pre-determined at a certain percentage.
Candidly, I am still refining this aspect of my trading strategy,
but I am fairly close to having the rule set. I am becoming
comfortable with taking a 1%-2% profit per trade. I am
finding this provides numerous benefits, but the one that
stands above any other is that with a 1%-2% profit-per-trade
rule, I am giving myself the opportunity to take profit on
virtually every trade. Although taking profit every time
doesn’t happen, this strategy does set me up to close more
trades as winners than losers, and that, my friends, is the
ultimate point of trading.
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Stop
The third element of timing is the stop. Early on with
VantagePoint, I often stopped out too early. Part of that was
fear, an unwillingness to risk a reasonable amount of dollars
per trade. To avoid this embarrassing problem of premature
ejection from a trade, you must accept that sometimes you will
lose, and you have to be prepared mentally to let go of a
certain percentage of your investment money in any trade.
What that percentage is depends on your strategy. The only
caveat I can give you is that you have to be reasonable. My
pre-determined loss ranges from 2%-5% per trade, depending
on the total dollars invested, the per-share value, and my
understanding of how that trade will move. Generally, if I
make a trade within a volatile market, I will give the trade
more leeway. If I believe a trade will move up in a steady
direction with minimal volatility, I will tighten the stop to the
lower end of my range. I do this because I know that if that
trade begins to move rapidly in the wrong direction, then I
misjudged it, and I will be okay getting out with a minimal
loss.
Market Conditions
One last point to consider in the context of this chapter is
the effect of market conditions on your whole approach to
trading.
Market conditions, not strategies, define which indicators
are best for that particular market. Do not make the mistake
of trying to use a strategy and its indicators in the wrong
market conditions … You need to know what kind of market
you are trading before you can choose the right tools to use
as indicators …
Martha Stokes, SFO Magazine, October, 2006
63
Understanding market conditions, and how to trade in
them, is essential. Market conditions include volatility (which
we have discussed and will discuss again), trend movement
(up or down), sideways trading, consolidation in tight,
horizontal price action, flat markets, and momentum markets.
VantagePoint helps with some of this, but not all of it. You
have to learn these conditions and develop your strategy to
trade within them.
The End Game
The end game for me is to get in and get out. This trading
style is referred to as “guerrilla” trading, and I understand
why. Just a like a guerilla fighter in some jungle, to survive
against a powerful adversary (and the market is your
opponent), you have to seek opportunity, strike quickly, and
then retreat with whatever gains you have made. This is the
essence of my trading style and strategy. Although I have
never been a guerilla fighter, logic dictates that, to be
successful as one, you have to have an edge. For the guerilla
fighter it is perhaps the cover of darkness, the element of
surprise, or the fact that a small, light force can move quickly
and quietly.
As I have expressed, I have found my edge in
VantagePoint, and that edge has nothing do with darkness,
surprise, or physical movement. It does, however, have
everything to do with hard work, focused attention, and having
a plan. Sometimes, though, even when the edge is sharp, there
is always the possibility to get it a bit sharper. That is exactly
what I have done with the spreadsheet tools I developed to
work alongside VantagePoint.
64
The Spreadsheet Tools
In yet another life, I cooked professionally. I trained in
some wonderful restaurants that emphasized quality, and the
point that every chef or lead cook always emphasized is: Take
care of your knives; these are the tools of your trade.
In the kitchen, taking care of one’s knives means keeping
the edges sharp and then protecting those sharp edges. There is
a clear, five-step process to doing that. First, you pull the
blade over the roughest stone, just at the correct angle.
Second, you pull the blade over another, less rough stone just
at that correct angle. Third, you do the same on the smoothest
stone. Fourth, just when you feel the knife is so sharp, you rub
the blade against a steel, at just the right angle, to remove any
burrs on the sharpened metal. When the process is complete,
the knife will be as sharp as it can be. The fifth and final step
is, after you use your knife, clean it well and then store it to
protect its edge.
This is a simple metaphor to introduce this chapter, but it
so clearly illuminates that which I want to emphasize: There is
a step-by-step, refining process to follow to maximize the use
of the VantagePoint tools. We have discussed that process at
some length, but a quick overview might be helpful. The
following list assumes you have developed your strategy and it
is in place. The process is as follows.
•
Set up your watchlist for efficiency and speed.
•
Scan for potential trades.
•
Thin your potential trades.
•
Confirm, select, enter, and exit your trades.
•
Track and analyze your trades.
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This chapter focuses on the last two items in the above
checklist, and, if I might continue the opening metaphor, these
two steps are equivalent to putting the steel to your blade and
cleaning and storing your knife to protect the edge.
The Spreadsheet Tools
The three spreadsheet tools I have previously mentioned
are the focus of this chapter. I designed all of them to “remove
the burrs and protect the edge.” They have served me well as
the refining tools of the complete VantagePoint process.
As I explained in earlier chapters, the introduction of
VantagePoint into my trading life set in motion a number of
important philosophical, mental, and emotional changes for
me. In that flurry of learning, it quickly became clear that the
“rush” of new ideas and plans had to be contained in some
easy-to-use format. I needed to formalize everything I was
learning. To me, formalizing means ordering the information
in writing, and so I wrote down my strategy and began to
implement it. This notion carried over to the spreadsheet tools.
As you know, a host of issues plagued my early
VantagePoint trading. As I implemented my strategy and
focused my mind on the task at hand, which was to become a
better trader, many of those issues faded. One issue that
remained, however, was my timing—when to enter and when
to exit a trade. I found that simply placing my entry at or near
the predicted low seemed too loose. It left too much wiggle
room. I found myself entering trades too late on the uptrend,
missing some of the profit run, chasing the trend, or missing
opportunities altogether. At the other end, when I did get into
a trade, I was more or less arbitrarily deciding where to take
my profit or place my stop. I needed to formalize this part of
my strategy, so I spent some time thinking about how to find
the best entry and exit, and I came up with a plan. I based that
66
plan on the fact that I both wanted and needed a consistent
approach to selecting entries and exits. This realization gave
birth to the idea that a spreadsheet would do exactly that—
give me consistency. So I developed the first of three
spreadsheets—Trade Selector.
Trade Selector
Getting in and out with the best entry and exit is the
ultimate goal of this whole process, and my original, limited
intent with Trade Selector was to do just that, and only that.
But, as I began the development process, it became apparent
that I had grossly underestimated the power of spreadsheets as
trading tools. This thoughtful illumination brightly lit the
possibilities, so I began thinking about what else I might add
to Trade Selector that could help me improve my
VantagePoint trading. Thus, I designed a tool that calculates:
• number of shares to purchase based on dollars
invested per trade;
• target entry based on an average of actual and
predicted data;
• adjusted entry based on the average between the
predicted low and the target entry;
• adjusted entry based on a percentage increase or
decrease in the Target Entry;
• target stop based on a set percentage;
• profit (target exit) based on a set percentage;
• volatility and predicted low entry risk of a potential
trade derived from actual and predicted data;
• potential profit or loss per share and in total, based on
a set percentage.
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Trade Selector is a helpful tool because it performs all of
the above functions. An equally important function, though, is
one that does not show up in the spreadsheet—building
trading confidence. Entering the data, analyzing the results,
and then entering the trade all build confidence in the whole
process. As referenced earlier, confidence is a key ingredient
to making this all work. You have to be able to enter a trade
believing that you will win. Trade Selector is the final stage in
“making the edge as sharp as it can be.”
As I am writing this chapter about specific spreadsheet
tools, it occurs to me that perhaps you are not used to using
spreadsheets, or you have little familiarity with them. Perhaps
mathematically manipulating numbers in a spreadsheet is not
where you thought you would go with VantagePoint. All of
these concerns are reasonable and understandable, but if you
will indulge me in this section, I will establish why you just
might want to get past whatever concerns or issues you might
have with spreadsheets. I will demonstrate that Trade Selector
is substantive, helpful, and a contributing factor to the overall
utility and strength of VantagePoint. Trade Selector is a
powerful tool in my VantagePoint trading, true, but the best
part of all, Trade Selector is easy to use.
Believe me when I tell you that I am no mathematical
wizard, and I am not looking to complicate my trading life. In
fact, if you recall earlier in this book, I wrote that my search
for trading software included the all-important proviso that it
must be easy to use. Ease of use, or lack thereof, was a
common problem in many of the other software packages I
tried. Right out of the box, VantagePoint appealed to me
because of its simplicity and ease of use. My underlying
interest in the design of Trade Selector was to keep it simple
but helpful, to make it functional and easy to use.
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The Process
The process is simple. First, enter the date and the market
symbol (see excerpts below). Trade Selector automatically
computes the number of shares to buy based on the Target
Entry and $Trade, which we look at in the next step.
Basic Data
Market
Symbol
NT
Date
9/27/07
Shares
606
Second, set your variables in the Entry/Exit/Stop Control
box. These variables are Stop, Profit, Adjust Entry %, and
$Trade. Note: Enter the “%” variable for Adjust Entry % at
the end of this process, if you decide to adjust your entry.
Variables
Entry/Exit/Stop Control
Stop
Profit
2.0%
1.5%
Adjust Entry %
$Trade
$10,000
Results from the input above are reflected in the Exit/Stop
Evaluation section, which is to the far right of the spreadsheet
(see next page) and the Entry Evaluation section (see next
page). The Target Stop, Target Exit, Target Profit per Share
(total profit as well), and Stop-Loss per Share numbers are all
calculated automatically from the same data input in step three
(see Exit/Stop Evaluation on next page).
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Exit/Stop Evaluation
Target
Stop
Target
Exit
Target
Profit
per Share
Target
Profit
Total
StopLoss
per Share
Stop-Loss
Total
$16.18
$16.76
$0.25
$176.25
(0.33)
($235.00)
Third, enter actual and predicted data from the History
Report (see below). Note: You can set the output from the
History Report to match the input format for these variables
(go to History Report, Properties, and click on the Indicators
tab).
Current
Day
Open
Current
Day
High
Current
Day
Low
Current
Day
Close
PHigh
PLow
Actual
Short
Trend
Actual
Medium
Trend
Actual
Long
Trend
$16.33
$16.71
$16.25
$16.68
$17.06
$16.20
$16.23
$16.50
$16.61
Inputting the above data in conjunction with the
Entry/Exit Control variables results in automatic calculations
for Open/Close Range, Actual Hi/Low Range, Pred. Hi /Low
Range, Volatility, Target Entry, and P-Low-Entry Risk. The PLow number here is taken from the input above, and it simply
serves as an immediate, visual comparison for Target Entry,
Adjusted Entry, and P-Low-Entry Risk.
Entry Evaluation
Open /
Close
Range
Actual
Hi/Low
Range
Pred.
Hi/Low
Range
Volatility
Target
Entry
PLow
P-Low-Entry
Risk
0.35
0.46
0.86
Safe
$16.51
$16.20
Risky
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If you do adjust your entry, the calculations are reflected in
the Adjusted Entry/Exit/Stop/Evaluation section. Be sure to
go back to the Entry/Exit/Stop control box to input the %
variable for your adjusted entry, or just choose “avg”, which
will give you an average between the P-Low and the Target
Entry. Adjust Entry? is a drop-down menu that gives choices
(“avg”, “no”, “up”, or “down”).
Adjusted Entry / Exit / Stop Evaluation
Adjust
Entry?
Adjusted
Entry
Adjusted
Target
Stop
Adjusted
Target
Exit
Adjusted
Target
Profit per
Share
Target
Profit
Total
Adjuste
d StopLoss per
Share
StopLoss
Total
16.00
15.87
16.32
.32
$165.00
(0.48)
$173.00
All of these excerpts give you visual information about the
individual sections that make up Trade Selector. I broke the
spreadsheet down this way so you could see the various
elements of Trade Selector and have some context when I talk
more specifically about the information that the tool provides.
The Spreadsheet Information
Entry/Exit Control
Stop – the percentage I use to set this price depends on the
dollar amount invested, the per-share value, and my
understanding of how that trade will move (high-low price
ranges). Generally, I set this at 2%-5 %.
¾ Tip: The “per-share value” is important. For
example, if I enter a trade with a $20 per-share value, a
3% stop-loss equals $300 on a $10,000 trade. The
downside margin would be 60 cents ($19.40 stop),
which is reasonable. Now, take the same $10,000 and
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the same 3% stop-loss but apply that to a $50 pershare trade. The dollar loss is the same ($300), but the
downside margin is $1.50 ($48.50), which is wider
than it needs to be for my style of trading, so I would
use a 2% stop-loss, reducing the downside margin to
$1.00 ($49.00), which is reasonable. The potential
dollar loss is now $200, but the profit potential
remains the same. Remember, in my strategy,
protecting and preserving capital is paramount. Of
course, the stop-loss for both trades ultimately depends
on all three criteria, including the third, and very
important, “my understanding of how that trade will
move (high-low price margins).”
• Target Profit (Target Exit) – Currently, my profit target
percentage is stable. My strategy calls for a minimum of
1.5% target profit for all trades. The profit might actually
be higher or lower than the 1.5%, depending on market
conditions. If a trade is moving on a strong, upward trend
as I approach my target, I will risk a trailing stop to
maximize profit. If a trade is weakening before it hits my
target profit, I will place a tight stop or a market order to
exit immediately to protect the profit.
• Adjusted Entry% – this adjusts the entry up or down
based on a percentage and the results are displayed in the
Adjusted Entry/Exit/Stop Evaluation section. In the
column, Adjust Entry?, choose “avg”, “no”, “up”, or
“down” from the drop-down menu. Choosing “avg”
automatically calculates an average between the Target
Entry and the P-Low. Selecting any other choice gives
you a new Target Entry, Target Stop, Target Exit, Target
Profit per Share (total profit as well), and Stop-Loss per
Share based on your pre-set percentage in the Entry/Exit
Control box. At this point, you have four choices.
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⇒ Accept the original target entry.
⇒ Accept the adjusted entry.
⇒ Creatively decide on a new entry point.
⇒ Forget this trade and move onto the next.
• $Trade – simply input how much you wish to invest in a
trade and the number of shares to buy will
calculate automatically.
As already stated, once you have set your variables
according to your strategy, you then move your potential trade
data from the History Report into the Predicted and Actual
Data section to arrive at the information in the next section.
¾ Tip: To help avoid transposition errors when
transferring data:
• set the output from the History Report to match the
input format (click “Properties”, click the
Indicators tab);
• minimize VantagePoint to show only the top line
of your potential trade in the History Report;
• compare your input against your source.
Target Entry
The Target Entry derives from an average of actual and
predicted data. The actual data is:
¾ current day open and close;
¾ current day high and low;
¾ short-, medium-, and long-term trends.
The predicted data is the next day’s high and low. I
selected these nine variables because I wanted a balanced
blend of immediate data, simple trend data, and predicted data.
73
I excluded Predicted Short, Medium, and Long Trends and
Predicted EMA Short, Medium, and Long Trends (found in the
History Report) because adding them to the blend would tilt
the result more in favor of prediction rather than reality.
The result of these mathematical machinations is a
consistently formulated “target” entry that shows up in the
Entry Evaluation section along with Volatility and P-LowEntry Risk. Calculating the Target Entry in Trade Selector
removes the arbitrary aspect of selecting an entry point. It
takes away the most difficult aspect of selecting an entry
point: Where do I begin? Just remember, this number is not an
absolute; it is a starting point. Your entry point (and final
confirmation) depends on your assessment of the Volatility
and P-Low-Entry Risk, as well as those two tricky but useful
elements of creativity and intuition.
Volatility
The first three columns in the Entry Evaluation section
are a series of numerical ranges that represent the “spread”
between the current day’s open and close prices, the current
day’s high and low, and next day’s (predicted) high and low.
The average of these numbers equals the Volatility rating in
the next column (“Low”, “Safe”, or “High”), which is another
variable in the confirmation process and the decision as to
where I place my entry and stop. These three numbers tell me
how much price movement to expect, which is critical.
P-Low-Entry Risk
The Target Entry is the starting point for selecting an
entry, but the Predicted Low (P-Low) is the basis for that
starting point. Everything begins with the P-Low.
VantagePoint is rarely exact on this prediction, but it is close
often enough to rely on it as the basis of my entry point. Thus,
I developed this spreadsheet feature to quickly compare the
74
Target Entry and the P-Low. Looking at these two variables
and the P-Low-Entry Risk rating adds to the confirmation
process, and it gives me a better idea where to set my entry
point. If the distance between the P-Low and Target Entry is
too wide, the spreadsheet gives me a “Risky” rating (otherwise
it is “Good” or “Safe”). I designed this to help protect against
entering a trade too far from the next day’s predicted low,
which had been an earlier problem with VantagePoint. Now,
having just said the above, I will also tell you that sometimes
markets move quickly, and when you get around to entering a
trade, the P-Low is long in the past. If you truly understand
your potential trade, you will know where and when to enter,
if at all.
¾ Tip: I will discuss After-Hours trading in the next
chapter, but I will tell you this now: It might well
provide a leg up on the issue of fast-moving markets. I
have entered and exited a few trades in the pre (a.m.)
and post (p.m.) markets and have done well.
Target Stop
Setting stops and honoring them might well be the toughest
thing to do in trading. I know I’ve had my problems with this.
Remember the David Silverman quote, “… people hate to
lose…” If that emotion exists in your mindset, well …
The interesting thing about seeing the Target Stop in Trade
Selector is I no longer have an emotional connection to the
idea. I suspect this sounds a bit, well, silly, but the fact
remains that after I started consistently seeing a price in my
“Target Stop” in Trade Selector, I lost any anxiety about
placing stops in my trades. It simply became a number.
Perhaps my earlier lack of ability to stick to my stops and my
willingness to discipline myself to do it diminished my
anxiety, or maybe my retreating stop-related losses fostered
75
this lack of anxiety. I can’t be sure, but what I am sure about is
this: Now it is an emotionless act to place my stops.
It ultimately comes down to realistically establishing your
threshold of financial pain. The key word is “realistically”.
Your trading strategy should clearly define what your
threshold is for every trade you enter. Maybe you will need to
experience different stop-loss points to find your place, but
you do have to find it because you need to be able to place
your stop and forget about it until you need to move it for
profit-taking purposes. Trade Selector gives you the
opportunity to look at different stop-loss points by simply
changing a percent variable in the Entry/Exit Control box.
Target Exit
Honoring a target exit can be as difficult as honoring a
stop. Obviously, taking a profit is much easier to do than
taking a loss, but, nevertheless, greed has hurt me, and that is
exactly the emotion that comes into play when we don’t honor
our Target Exit. It is important to make a distinction here
between greed and rational thought because sometimes you
will pass your exit to take more profit. The difference is your
mindset.
If you have set your target profit appropriately, meaning
that your pre-established target meets your trading strategy
goals and you are content with those goals, then all is well.
You can exit the trade without any remorse, such as, “If I had
stayed in, I could have gotten another 1%.” You can also not
exit the trade without violating your trading strategy, if you
have made a provision in your trading strategy that rationally
deals with this contingency. I have explained my trading
strategy regarding this, but here it is again for a reminder.
76
The profit might actually be higher or lower than the 1.5%,
depending on market conditions. If a trade is still moving on
a strong, upward trend, I will risk a tight, trailing stop to
maximize profit. If a trade is weakening before it hits my
target profit, I will place a very tight market stop to protect
the profit.
Sometimes trades move up quickly. Just as quickly they
reverse. Not taking your profit because you get excited in a
fast-moving market could be a greedy mistake. Your emotion
tells you “let it ride,” as opposed to having rational indicators
(educated selection) that tell you when a stock is moving fast
on volatility or it is moving fast on strength. The trading tools
most brokers provide (Level II quotes, etc.) assist in this, but
much of it comes from your knowledge. Adjust your Target
Exit to meet your goals, and then make balanced choices.
The Target Stop, like the Target Exit and the Target Profit
and Stop-Loss per Share, is based on variables in the
Entry/Exit Control box. All these numbers correlate with the
Target Entry. If you adjust the Target Entry, Trade Selector
provides an Adjusted Entry/Exit/Stop section so you can see
your Adjusted Target Exit, Adjusted Target Stop, Adjusted
Target Profit per Share and Adjusted Stop-Loss per Share
based on your “Adjusted Entry”.
Target Profit / Stop-Loss
These values display as per-share and total numbers. This
feature lets you see the potential in any trade and make
adjustments. For example, if your target profit is 36 cents per
share at 1.5%, you can look at your volatility rating and see
how that fits. If the range between the predicted high and low
is 55 cents, you are on target, and if the market approaches
your target exit in a strong, upward trend, adjust your target
profit.
77
At first, when you set your percentage of profit and stoploss, these numbers might seem “wrong” – at least they did to
me. The profit seemed too small and the loss seemed too big. I
experimented with different scenarios to find the spot where I
felt okay. Adjust the numbers until they become easy to digest
and realistic. You can adjust these numbers to meet your
strategic goals with entries in the Entry/Exit Control box.
Trade Tracker
If Trade Selector is the “blade to the steel” to remove the
burrs, then Trade Tracker is the storing of your knives to
protect the edge. This spreadsheet has clearly demonstrated
the confidence-building power of tracking various aspects of a
trade. It puts everything into a business-like and emotionless
frame. Tracking trades and parsing them into components that
evaluate your progress on numerous fronts is beneficial in so
many ways. Utilizing Trade Tracker provides an easy way to:
•
keep you up on your trading business “books”;
•
see an accurate and timely picture of your trading life;
•
evaluate and analyze your trading strategy;
•
build confidence and a positive mental attitude;
•
add focus and direction to your trading;
•
review annual trading data for your taxes.
The Process
The process for this spreadsheet is equally as simple as
Trade Selector. First, enter the amount of cash you have. The
location is at the bottom of the Purchase Date column. Note:
You can add or subtract from cash in any month. The running
total will reflect in both the Beg. Balance (monthly) and the
Cont. Bal. (annually).
78
Trade
Count
Market
Symbol
Purchase
Date
1
NT
1/07/07
1
INTC
1/10/07
CASH
$10,000
Next, after you enter and exit a trade, input the Market
Symbol, the Purchase Date, and Sale Date (see below). The
Trade Count is automatically input when you enter the data.
Trade
Count
Market
Symbol
Purchase
Date
Sale
Date
1
AMD
7/01/07
7/03/07
Next, enter the number of Shares, Entry Price, and Exit
Price. The Days Held and Entry Value are calculated for you
automatically.
Days
Held
4
Shares
100
Entry
Price
$50.00
Entry Value
Exit Price
$5,000.00
$55.00
Next, enter the Sales Fee and Commission and you are
done. Exit Value, Trade Profit, and %Gain/Loss and
Win/Loss? are all calculated automatically. Wins appear as a
“1” and losses appear as “Loss”.
CommissionRound Trip
Sales
Fee
Exit Value
Trade
Profit
% Gain
/ Loss
Win /
Loss?
19.98
$0.16
$5,479.84
$479.84
9.96%
1
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¾ Tip: If you partially exit a trade and then sell the
remaining shares later, treat each sale as a separate
trade. Adjust commission and sales fees accordingly.
¾ Tip: Days Held counts the day you enter, no matter
when you enter, as one trading day. If you enter and
exit a trade on the same day, that counts as one day.
One thing I always do is tell myself the truth, and Trade
Tracker is as truthful as I need it to be. I mathematically
defined the formulas in the spreadsheet so I could continually
review my trading progress to stay on top of my “game”. At
any time, I want to see at a glance where I stand.
The simplicity of the process for Trade Tracker
contradicts the actuality of the results. I cannot emphasize
enough the value of this spreadsheet.
The Spreadsheet Information
Monthly Stats
Tracking my trading progress monthly is invaluable. Not
only does it let me know where I’m at, but it also gives me
valuable information when evaluating my trading strategy. If
something is not “right”, then it shows up here (see below).
Monthly Stats
Beg. Balance
$10,000
Avg $ / trd
Profit
$1,760
Avg shrs / trd
ROI
7.6%
Profit / trade
$880
Profit / week
$1,419
Commissions
$40
600
Fees
$.16
Avg $ / shr
$40
Winners
1
# of trades
2
Losers
1
Avg days/ trd
$7,500
1.0
Winning %
50.0%
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Beg. Balance
This is the running total pulled from the annual stats. You
can change this number by simply adding cash into your
balance (see p.78).
Profit
This number reflects your dollar profit for the month.
ROI
This reflects your rate of return.
Profit / trade
This reflects the amount of profit (or loss) per trade.
Profit / week
This reflects the amount of profit (or loss) per week.
Avg $ / trade
This reflects the average amount of dollar invested trade.
Avg shrs / trd
This reflects the average number of shares per trade.
Avg $ shr
This reflects the average amount of dollars invested per
trade during the current month.
# of trades
This reflects the total number of trades entered.
Avg days / trd
This reflects the average amount of days per trade during
the current month.
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Commissions
This reflects the total amount of dollars spent on
commissions during the current month.
Fees
This reflects the total amount of dollars spent on fees.
Annual Stats
Tracking my trading progress on an annual basis is equally
as valuable as tracking it on a monthly basis. The key
difference is the “big picture” view. The annual numbers let
me know where I am at any point during the year.
Annual Stats
Cont. Bal
$11,760
Avg $ / trd
$27,500
Profit
$2,760
Avg shrs / trd
ROI
15.0%
Avg $ / trd
$40.00
Profit / trade
$880
# of trades
Profit / week
$556
Avg days/ trd
600
Commissions
$500
Fees
Winners
2
25
Losers
1
2.0
Winning %
67.0%
The annual numbers track the same information as the
Monthly Stats, except the Annual Stats track the information
on an ongoing basis.
Note: If you wish to know your Gain / Loss percentage for
any month, the number is calculated at the bottom of the
% Gain /Loss column.
% Gain /
Loss
1.52%
3.00%
1.48%
2.0%
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Trade Evaluator
When you get down to it, there is only one question that
truly matters after a trade is over: “Could the trade have been
better?” The funny thing about this question is virtually every
trade could be improved, or so it would seem. Even after I
have made a successful trade, perfectly fitting into my
strategy, I have these twinges of greed that might say, “Man, if
you had just replaced your trailing stop with a market sell, you
could have made another 1%.” These feelings appear to be
natural, at least to me. After all, even though the goal is to
eliminate the emotions of greed and fear completely, I am not
sure I will accomplish this goal in my lifetime. What I can do,
though, is continue to reduce the influence of these emotions
in my trading, and one way to do this is to look at every trade
honestly.
Here, then, is the important point: Trade Evaluator is a
tool designed to reinforce my use of the VantagePoint tools
and my adherence to my strategy. It is a simple tool, similar to
the Flash Cards we used as children. This is purposeful. I
wanted a quick and easy evaluative tool that could still help
me improve my trading.
Analyzing trades is not difficult; it is the easiest and least
stressful part of the three-step trading process, which is:
9 Find a trade;
9 Make a trade;
9 Analyze the trade.
In fact, now that I am thinking about it, the analysis
process for me is so light that I will change the word
“analyze” to “evaluate.” Here is how I evaluate my trades and
the spreadsheet tool I use to help with this.
83
The Process
The process for evaluating trades is so simple that it is a
stretch to label it a process. Essentially, all I do is answer a
series of questions (“y” or “n”), and the answers to those
questions produce points. The points are then tabulated, and an
overall rating is produced. I built into the spreadsheet some
thoughtful reminders about my trading rules as well,. The
particular reminder that displays depends on whether you
answer a question “y” or “n”.
I find this helpful in that it encourages me to think about
every trade, and in that thoughtful state, I can clearly and
calmly focus on the basic truth of all that I have discussed thus
far in this book—changing my mindset about how I trade.
This is my way to assimilate the fundamental changes that are
occurring in my trading head.
The Questions
When I designed the questions for evaluation, I focused
less on the monetary results and more on the use (or non-use)
of the VantagePoint trading tools and the adherence (or nonadherence) to my trading strategy. In my mind, these two
elements are more important than the actual monetary results.
Remember, if you do not fully utilize the power of the
VantagePoint tools and you do not follow your strategy, the
monetary results will not be what you are looking for in this
program.
To facilitate my evaluation, I organized the questions to
match my VantagePoint trading process. I am sure that more,
or at least different, questions could be asked, but I used these
because they are the most important to me.
The first stage of the evaluative process deals with trade
selection. It is critical to utilize the VantagePoint tools to find
trades that qualify, or rather, trades that will make you a profit.
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Trade Selection
Did you use the PNI as your initial selection tool?
Did you use Predicted Strength as a selection tool?
Did you use Predicted Differences as a selection tool?
Did you use any other tools in your potential trade selection?
Previously, I stated the PNI is the first indicator I look for
when scanning for potential trades. Consequently, this is the
first question I ask myself. The next three are important in
their own right also, so if you answer each of them “y”, you
add incremental points to your overall score.
The second stage looks at confirmation of the potential
trades selected. Again, Trade Evaluator looks at how fully
you utilized the VantagePoint tools.
Trade Confirmation
Did you confirm your trade?
Did you use more than one confirmation tool?
Did you use more than two confirmation tools?
Did you use more than three confirmation tools?
If you answer “y” to the first question, the second question
appears. If you answer “y” to that question, the third question
appears, and so on to the fourth. An “n” answer to any
question ends the questioning in this section.
The third stage is trade execution. How well did you get in
and get out of the trade and did you place your stop correctly?
85
Trade Execution
Entry
Did you use Trade Selector’s target entry?
Did you go with the adjusted entry?
Did you use reasonable criteria to select your own entry?
Did whichever entry you chose work (make a profit)?
Exit
Did you use Trade Selector’s target exit?
Did you go with the adjusted exit?
Did you use reasonable criteria to select your own exit?
Did whichever exit you chose work (make a profit)?
Stop
Did you use Trade Selector’s target stop?
Did you go with the adjusted stop?
Did you use reasonable criteria to select your own stop?
Did you stop out because of a misplaced stop?
Trade Strategy
Did you place a stop immediately or soon after entering?
Did you amend your strategy for this trade?
Did you base your amended strategy on reasonable criteria?
Did your amended strategy work out?
Executing a trade is analogous to the “sharpening your
knife” metaphor. Correctly going through each step points to
solid trade execution, even with the possibility that you might
decide to amend your strategy.
The key parts to the execution are, of course, entry, exit,
and stop. Each of the questions in this section is designed to
evaluate how you handled each aspect of the execution. Note:
The answer to the fourth question under both Entry and Exit is
86
calculated automatically based on the answer to the question
in the Trade Profit or Loss section, “Did you make a profit?”
The fourth stage evaluates how you kept (or didn’t keep) to
your strategy. This part of the evaluation takes into
consideration the reality that you might have amended your
trade based on reasonable criteria.
Trade Strategy
Did you place a stop immediately or soon after entering?
Did you amend your strategy for this trade?
Did you base your amended strategy on reasonable criteria?
Did your amended strategy work out?
The last phase evaluates monetary results. Although I have
stated this is the least important of the things to review when
evaluating a trade, it is, nevertheless, important, as it is the
reason we trade at all. We trade to make a profit. However, the
end results are what they are because of what you did, the
choices you made to get to that result, whatever it may be.
This is why I say that in the overall picture, evaluating the
steps is more important than evaluating the results.
Trade Profit or Loss
Did you stop out with a correctly placed stop?
Did you earn a profit?
Did you move your stop to protect your profit?
Did you use a trailing stop to surpass your profit target?
Did you surpass your profit target?
As I look at the questions in this section, it occurs to me to
offer one quick thought. I have stressed in this book the notion
that you might appropriately amend your strategy when you
“feel” something that is not showing up in the numbers. There
87
are many points in the process where you might do this, but
one of the safest is attempting to take profit past your Target
Exit. Attempting to take profit past your profit target is safe if
you “lock in” some or all of your existing profit.
The Record
I have also included a section for recording the results of
your evaluations. This section keeps a record of the Overall
Trade Rating. Input the date and the market symbol, and then
choose from a drop-down menu (which does not appear here,
but it is in the spreadsheet) the Overall Trade Rating found in
the box of the same name at the bottom of your evaluation.
Date
Symbol
Rating
10/7/07
10/9/07
11/5/07
12/18/07
1/15/08
NT
AMD
AT
S
BBY
Perfect
Good
Lucky
Very Lucky
Work Harder
The Score
Keeping score is a way to measure success in all the areas
of importance. My choices to allot high or low numbers for
particular categories might well not be yours. So be it. In any
case, either 0, 1, 2, or 3 points are given for every “y” answer.
Either 0, -1, -2, or -3 points are tabulated for every “n”
answer. All the points, plus or minus, are tabulated to give you
a total score and an Overall Trade Rating.
88
n
Did you stop out with a correctly placed stop?
y
Did you earn a profit?
n
Did you move your stop to protect your profit?
Did you use a trailing stop to surpass your profit target? y
y
Did you surpass your profit target?
Total Score
34
Overall Trade Rating
Good
0
3
(1)
1
2
The Comments
The point of Trade Evaluator is to keep my trading head
in the right space. Reviewing basic thoughts, rules, and
strategic issues does exactly that. The comments seen below,
as well as the rest found in Trade Evaluator, are helpful.
Did you have wide ranges?
If less than your target, why did you exit?
Be careful here. Always protect your profit.
This is an excellent tactic to surpass your target profit.
Accept this equally as you would accept a loss.
Go back to your strategy. Lucky will not produce consistency.
As stated, I designed this spreadsheet tool to help keep my
trading head in the right space. My guess is that you will stop
using it after a while; that is the goal. When you “know”
without thinking the answer to “Am I trading the way I want
to trade?” and you are profitable, then you will close this tool.
I developed these tools because of my early VantagePoint
troubles with entry and exit and a desire to stick to my
strategic plan, to bring into sharp focus my trading behavior,
and to track and analyze my profit or loss. Remember, though,
89
I designed all of these spreadsheets to assist me in my trading,
so you must assess whether they have value to you in your
trading. I believe they will. In any case, they are yours to
explore, so please do so. You might even find a way to
improve the tools, and if you do, I encourage you to contact
your VantagePoint representative and tell him or her what
you think might be an improvement.
90
The Truth Of it All
I have told my story and made my case. Now we come to
the close. In this chapter, I want to talk more loosely about
some things I have discussed thus far. I want to express more
candidly where I am in this whole process of learning to
utilize VantagePoint to my advantage, as well as defining and
refining my trading philosophy and strategy.
Creativity and Intuition
Despite the fact I have hammered the idea that establishing
rules, defining a strategy, and sticking to it are fundamental
and essential elements to successful trading, robotic behavior
is not what I do, nor is it prudent to do when trading in
markets that are dynamic and fluid. A small anecdote from my
childhood illustrates this point.
As an eight-year-old boy in southern California, I played
baseball, and I loved it, so naturally Little League baseball
was a big part of my summers. Although I was excited about
joining Little League, it soon became clear that playing
organized baseball was completely different from the pickup
games at the park. Suddenly, clearly defined rules existed, and
a coach hung around to enforce them. Practices occurred three
or four days a week, and in those practices we performed
repetitive batting drills, ran laps, shagged flies, and fielded
grounders. None of this was as much fun as playing in the
park, but I wanted to be a good baseball player, so I did it.
All of this training taught me robotic type behavior on the
field—here’s how you stand, here’s how you hold the bat,
here’s how you wear your glove, here’s how you catch the
ball—and that behavior served me well as a young “pup”
learning how to play baseball competitively. I became quite
good. I excelled to the point of all-star status.
91
Through the years, though, a funny thing happened on the
way to the park. I began to grow up physically, emotionally,
and mentally, and I began to learn and understand the game. I
started making my own decisions. Catching the ball was easier
if I wore my glove differently. Lowering my hands on the bat
gave me more power at the plate. I broke the rule about
always catching the ball with both hands. I positioned myself
less rigidly so I could move and react in a more fluid way, in a
way that more closely matched my sense and feel for the
action moment. I evolved into a more creative and intuitive
player, which, as one climbed the age levels in organized
baseball, was the only way to remain competitive.
“Growing up” in the game did not translate into
abandoning the fundamentals—quite the opposite, in fact.
Becoming more mature and understanding the game brought
the fundamentals into sharper focus, even though they had
come to exist in the part of my head that worked on autopilot.
For example, when I was eight, my coach taught me when the
count is 3-0, never swing. This is a good rule, as a fourth ball
gets you a free trip to first base, and the odds are in your favor
at that point. As an older, more experienced player, my
coaches soon learned to let me decide whether to swing or
take on that 3-0 count. The reason? Through experience, I had
learned the pitches I could hit, and if one came into my zone, I
felt comfortable swinging away. If an inside curve didn’t
break, or a fastball wasn’t so fast, I could intuitively decide to
swing or not, depending on the conditions in that moment.
No, I never abandoned the baseball fundamentals; I simply
molded them to fit my need in the millions of moments
actualized in those baseball summers from long ago.
When the bat cracks and the ball is flying at you, the
ingrained fundamentals create the frame for that instant, but it
is your sense of the game that determines what you actually
do, and what you do will never be far from the fundamentals
92
you learned as an eight-year-old boy or girl. The fundamentals
are always in play; it is how you alter them in the moment that
makes you a good player.
This is no different from when you trade a market. Rules
and strategy define how we learn to operate successfully in the
trading environment. Creativity and intuition define the
choices we make in a trading moment. Our philosophy bends,
shapes, and gently molds these two opposing elements into
one rather fluid and free-flowing process of thought. For me,
understanding this distinction has made a profound difference
in my approach to trading.
My Evolving Strategy
Yes, I have pushed hard on the notion of sticking to your
strategy, once you have it in place (I honestly believe this is
the foundation of all your potential success). Now, I need to
tell you – and I have alluded to this both directly and
indirectly in various parts of this book—stick to your strategy .
. . until you don’t. Don’t be afraid of creative and intuitive
thought.
The truth is, any strategy in any endeavor either works or it
does not, but we cannot know which way it will go until we
implement it. History is replete with countless military
campaigns that relied on a strategy that did not work at first,
was changed, and ended up delivering victory. This is the first
point I want to make.
You cannot know if your strategy is working until you try
it. Fortunately, we are only talking about money, not lives in
war, so we have the luxury of going at a pace we can endure.
That is exactly what I have done. I began slowly with
VantagePoint, risking little, and then I gradually invested
more with my developing success. I encourage you to follow
93
the same path, at least to this degree—risk little, learn a lot,
risk more.
In still another life of mine, I earned my living teaching
college students how to write, and in this is the second point
about strategy. Many students I encountered had problems
with the first word of a writing project. They could not get
started. Others could get plenty of words on paper but could
not shape them into coherence. Still others could write
coherently, but they did poorly in the end because they did not
know how to fix those things in their writing that brought it
down. Within this problematic writing concept, there is a
process and a strategy to teach, and I did so.
The first stage of any writing project is simply to write. Do
it sparsely or flood the paper with words. Just write. Once you
feel comfortable putting pen to paper (fingers to keyboard),
then, and only then, start thinking about revision, which is the
next stage of the process.
In this stage, keep what is working, discard what is not,
and then work toward making coherent what you have. Once
you do this, move to clean it all up, which is the editing stage.
Editing is refining. Look for and correct those things that keep
you from clearly expressing yourself and keep your reader
from clearly understanding your expression.
The free writing, revising, and editing stages of the writing
process are no different from what I am recommending to you
with VantagePoint. First, jump in and “just do it.” Play with
it, risk little, and figure it out. Begin to establish the
parameters of your strategy.
Second, bring some coherence to your developing strategy.
Work with more tools. Try them in different market
conditions. Expand your thinking, risk more, but be careful.
Third, start cleaning it all up. Put the final pieces in place
and settle in confidently. See what your VantagePoint
strategy can do, and then trust it to do what it does. Go for it!
94
Another important thing I taught my writing students is
that a good writer knows when a writing piece is complete, but
a good writer never stops trying to improve his or her writing.
Refinement is the essence of good writing, ultimately.
As a writing teacher, a writer, and a VantagePoint trader, I
practice this philosophy with clarity and purpose. Just as I am
doing in this book, so am I doing in my trading—refining all
the time. Keeping the core strength and fiddling with the little
things that improve my trading.
One clear example is my profit percentage. I wrote earlier
“Currently, my target profit percentage is stable.” The last
trade I made, I set my exit at 1.5%. However, in that trade, I
had an opportunity to exit at 3.4%, and I did not because I
utilized my existing strategy of using a trailing stop to protect
my existing profit if I attempt to surpass my target profit. I
ended up with a 1.74% profit, which beat my target, but I also
ended up with two refinement ideas – one for the next time I
find myself in a trade that is moving quickly in the correct
direction and one for the next time I am in a trade, period.
First, the next time I find myself having more than doubled
my potential profit, I will simply exit at that point instead of
using a trailing stop. Take my 3% or so and move on.
Second, the next time I am in a trade, I will consider the
market conditions and, if favorable, set my target profit at 2%.
It is time for me to take more risk. It is time for me to “revise”
my basic trading strategy regarding profit taking.
Another example of my strategic refinement is the question
of after-hours trading. At the start of both my short-term
trading career and the use of VantagePoint, I knew about
after-hours trading, but I had no inclination toward trying it.
Simply, I didn’t know enough about it, and I had enough on
my plate to learn. Well, time has passed, and I am more
comfortable and confident in my trading. In three recent
trades, I either entered in the after hours or exited in the after
95
hours. In all three trades, I met or exceeded my target profit.
Although not completely confirmed in my mind, I am
seriously considering utilizing after-hours trading more in my
trading strategy.
The truth of it all is that I am confident in VantagePoint
and my strategy, and from this point on, I see myself tightly
refining my strategy to both take advantage of market
conditions and to improve my profit goals.
My Trading Life
Because I am writing about my investing process in some
detail, it appears as if it is cumbersome and complex. Really, it
is not. One thing I have sought in my trading is efficiency, as I
really do not want to spend an inordinate amount of time
doing it. At this point in my life, I have come to see so many
things as simply a means to an end, not the end itself.
VantagePoint trading is one of those things, and using the
software has helped me keep my trading life more simple and
successful.
So how simple is my trading life? When I tell you, perhaps
you might not think it so simple. I don’t know. What I do
know is I can honestly state that I am comfortable in the
“skin” of a trader. Six months ago, I would not have made
such a statement. Now, when asked, I call myself a trader.
VantagePoint is but one part of my three-part trading
program listed below.
1. Retirement trading;
2. Long-term speculative trading;
3. Short-term swing (guerilla) trading.
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Retirement Trading
This aspect of my trading life actually involves little
trading. Currently, I have the largest percentage of my wealth
invested in a family of mutual funds. This is my retirement
fund, so I am somewhat conservative with it; however,
conservative does not translate into doing nothing. The trading
I do is within this family, and that amounts to moving dollars
from one fund to another based on what is happening in both
the global markets and the U.S. markets. Perhaps I make six
trades per year in this aspect of my trading life.
Long-Term Speculative Trading
In the beginning of this part of my trading life, I made a
whole lot more trades than I do now, but even now I still make
more trades than I do in my retirement trading.
To date, I must admit I have not done as well as I thought I
would when I decided to attempt this type of trading. Here is
the bad news: I am still waiting for some of my speculation to
come to fruition. Maybe it will or maybe it won’t, but in this is
the good news. Because I invested, waited, watched, and did
not see any tangible results, I began to think I could be more
successful as a short-term trader. I did not know how I would
do that, but clearly I could see that waiting years for a
speculative trade to ripen offered no satisfaction nor did it
appear to be a reasonably quick way to increasing my wealth.
This minor epiphany jump-started my thought process
regarding the need to change in the late winter and early
spring of 2006. For two years, I had traded and waited,
dumped, cashed out, and otherwise flailed away at trading.
During the latter part of that timeframe, though, I did have
some success. I speculated on some short-term plays that paid
off nicely. For example, I traded one stock four times in less
than a year, and I ended up strongly on the plus side.
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The early success I referred to in the beginning of this
book involved trading that stock and a few others successfully
time after time and making some money. As I write this, the
notion that many traders become losers because they start out
winners jumps into my head. This describes me to a “T”.
Looking back, I see my early successes rested on a weak
foundation. I possessed no real skill in trading, other than I am
an intelligent and thoughtful human, which, by the way, is one
important aspect to any success in life. Anyway, I succeeded
enough to “set me free,” so to speak. I decided that I could
invest more time and money into my short-term trading, and
so I did, but I did this on a wing and prayer. I had no real
knowledge base and no strategic plan, nor did I even know I
needed one. The loss of bunches of money relatively quickly
brought me forcefully to the awareness that I needed a
software tool to compensate for my lack of knowledge. This
hard-earned understanding was the genesis of my search for
the “perfect” software. In that search, I soon came to realize I
also needed a plan.
Today, Vantage Point and a plan permit me to freely state
that I am a short-term, swing trader. I still look for the long
shot, and I will play it if it feels right, but for my money, day
in and day out, VantagePoint trading is what I do.
Short-Term Swing Trading
When I first began with VantagePoint, the notion that I
could “make it” by trading on the roll of dice still rested firmly
within the thin skin of my trading head. The good news is that
I understood this. So, when VantagePoint entered into my
trading life, I did not go about wildly. I actually approached
the whole concept conservatively and with great care. I really
wanted VantagePoint to work for me.
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Of course, I made mistakes in the first few weeks of
working with VantagePoint, but those mistakes did not cost
me because I started out with a small investment profile. My
original goal for my first half dozen trades or so was simply to
break even on every trade. I managed to do this more than not,
so I stepped up the ante. I raised my investment profile and
started reaching out for a profit. Remember, as I was learning
VantagePoint, I was also retraining my trading brain. This
fact, I am sure, contributed to what happened next: I started
losing money. Not much money, but enough to push me even
harder toward finishing what I had started, which was nothing
short of completely transforming my trading mindset—
defining my trading philosophy, developing and implementing
a trading strategy, and gaining the confidence to be successful.
As you know, I accomplished my mission, which has kept
me in the trading game. I now trade beneath the umbrella of
my philosophy. I trade with a strategy, and I am confident that
I will win every trade. As to my success ….
My Success
I have been candid about my trading failures within and
without VantagePoint. I have given examples, and there are
plenty more than what is found on these pages. Now, I want to
talk more candidly about my success.
Not for one minute do I want you to think that because of
VantagePoint, I have become rich or that I am on my way to
that in the near term. True, I am achieving more success
overall in my trading life. True, my investment profile is
heading in the correct direction, which is up. And true, I have
now been moving in this positive direction for quite some
time. These three things tell me that I am on the right track. If
I continue retraining my trading brain and continue trusting
VantagePoint, I can now see a much wealthier future for me.
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Mark my words, though, I have no illusions that this will
happen regardless of what I do or that simply using
VantagePoint ensures my success.
No, I clearly understand that if pride or arrogance causes a
change in course to any degree, I am risking all I have
accomplished. The pieces I’ve put in place are paying off. I
am willing to keep the program going because it is working,
and every month that passes with this program working
encourages me to increase my VantagePoint investment
dollars. This is exactly what I am doing, and what I will keep
doing.
The Full Circle
Irony is everywhere all the time, and this moment is no
different. Ironically, writing the last pages of this book, it
appears I have circled all the way back to the beginning.
When I started with VantagePoint, I knew I was at the
beginning. I had to both learn VantagePoint and its value as a
trading tool, and I had to develop and implement a trading
strategy. And so I began that process, which is, and will be,
ongoing, certainly. Writing the last few paragraphs of this
book, I realize that the book itself has been a major part of
doing exactly what I have recommended to you in the last
several paragraphs and throughout this book—learn to fully
utilize the VantagePoint tools and develop, implement, and
refine your strategy.
Interestingly, what I presumed would be the end of the
discussion for me—ending the book—is really just another
beginning. The proverbial light now shines on the very real
thought that I can do more with VantagePoint than I
imagined before I wrote even one word of this project. If no
other person benefits from my work here, then all is not lost
because I have benefited. At a minimum, an even more
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serious internal discussion about VantagePoint, my
philosophy, and my strategy has begun and will go on
vigorously, and that cannot help but make me a better
VantagePoint trader.
Final Thoughts
When I decided to add this chapter, my motivation was to
be crystal clear with you about my truth as it related to
VantagePoint and trading in general. I want you to know
what I have told you in this book is true. Perhaps, even, I want
you to trust me.
In my mind and in my life, trust is a big deal. I do not give
it lightly, and I certainly do not want others to give it to me
without careful thought. In this case, with you, the only thing I
want you to trust is the truth of what I am telling you about my
experiences. In no way do I want you to trust VantagePoint,
until, that is, you have given it your best shot. Certainly, I
have recommended trusting VantagePoint with those exact
words, “Trust VantagePoint.” Don’t misunderstand my
intention, though. You only come to trust something based
upon the actions, reactions, and results of your interaction with
that thing. VantagePoint is no different. My desire is that you
will come to trust it, and when you do, that trust will become
an important part of your strategy, just as it has become an
important part of mine.
As my final thought regarding all of this, I would like to go
back to the poker analogy I used earlier. In poker there are
“tells,” signals that opposing players give that sometimes tip
their intentions in a hand. One of the most often cited as one to
watch for is weak is strong / strong is weak. Watch out when a
player is acting just a bit too weak or a tad too strong because
the opposite might actually be the truth.
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Without desiring to stretch this analogy too far, I believe
there are “tells” in markets. The poker tell I referenced above
points to one such market tell. Watch out when a market is
looking like it is heading for the stars or, conversely, the
bottom is falling out. In both cases, it might be true; then
again, the opposite might be the truth. This, my friends, is the
reason VantagePoint exists. Again, I would say “Good
Luck,” but as we know now, luck has so little to do with
trading success.
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