Day Traders USA April 23, 2005 Dr' John F' Clayburg www'clayburg'com

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Day Traders USAApril 23, 2005Dr. John F.
Clayburgwww.clayburg.com
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Today's Presentation

• 1. Four Step Method and use of the Directional
  Day Filter
• 2. Self Adaptive Parallel User Function
  Programming
• Indicator Examples
• System Examples

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Today's Presentation

• Indicators
• Lines, dots, color changes or drawing objects on
  a chart that define changes in market character.

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Today's Presentation
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Today's Presentation

• Systems
• Automated, mathematical formulas that give
  precise buy or sell signals on a chart.
• Performance data is created describing the
  results of generated system trades.

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Systems
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Systems
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Todays Presentation

• Frequently Asked Questions
• Why not just systems?
• How did you get into this anyway?
• Where is Coon Rapids, Iowa?

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The Four Step Trading Method

• Determine the Major Trend for the Day
• Define the Minor Trend within the Major Trend
• Identify a High Probability Entry Point
• Define Logical Stop Loss and Profit Taking
  Strategy

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Step One

• Define the major trend for the day.
• Cannot overemphasize the importance of trading
  with the major trend.

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Directional Day Filter

• Used to Determine Major Trend of each Day
• Trend is Defined within 45 - 90 Minutes after the
  Open
• UpTrend Days - Only Take Buy Signals
• DownTrend Days - Only Take Sell Signals
• 75 Accuracy Rate

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Directional Day Filter

• Five Minutes after the Open, Calculate average of
  the Intraday Range
• Draw a Horizontal Line at this Point
• Will Use This Line as a Reference Point for the
  Rest of the Day

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Directional Day Filter
Directional Day Filter Line

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Directional Day Filter

• Sixty Minutes after the Open
• Draw a Vertical Line at this Point which defines
  the Intraday Range
• Time of this Determination will Vary with each
  Issue or Contract Traded

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Directional Day Filter
Directional Day Filter Line
Time Line
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Directional Day Filter

• Determine Amount of Market Activity Above and
  Below the Directional Day Filter Line prior to
  the Time Line
• Subjective Observation

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Directional Day Filter
Directional Day Filter Line
Time Line
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Directional Day Filter

• If the Majority of Market Activity prior to the
  Time Line is above the Filter Line the Trend Bias
  for the Day is Higher
• If the Majority of Market Activity prior to the
  Time Line is Below the Filter Line the Trend Bias
  for the Day is Lower
• If Activity is Equal then the Bias is for a Non -
  Trending Day

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Directional Day Filter

• Additional observation
• Take Note of the Position of the Close of the
  Time Line Bar
• This is not a portion of the basic directional
  day filter but simply another observation that
  you may find useful

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Directional Day Filter
Close
Directional Day Filter Line
Time Line
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Directional Day Filter

• If the Close of the Time Line is above the Filter
  Line and in the Upper 1/3 of the intraday range
  the Trend Bias for the Day is Higher
• If the Close of the Time Line is Below the Filter
  Line and in the Lower 1/3 of the intraday range
  the Trend Bias for the Day is Lower

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Directional Day Filter UpTrend
UpTrend
Buy Pull Backs
Close
Time Line
Directional Day Filter Line
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Directional Day Filter Downtrend
Time Line
Directional Day Filter Line
Close
Downtrend
Sell Rallies
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Directional Day Filter Sideways
Close
Directional Day Filter Line
Time Line
Sideways Day - Sell Rallies, Buy Dips
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Directional Day Filter Research Results

• 75 accurate
• REPEAT 75
• REMEMBER
• 75 100

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Directional Day Filter Research Results

• Premise is that the daily high or low is in place
  during the first 60 - 90 minutes of the day
• If no new highs are made and new lows are made
  then the trend is down
• If no new lows are made and new highs are made
  then the trend is higher

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Directional Day FilterEvaluation Process

• Theory tested against data base of 80 stock
  issues for a two year period
• Test period January 1999 through January 2001
• Tested for the specific time at which the high or
  low of the day was established
• Tested time frames from 15 to 300 minutes after
  open

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Directional Day FilterTesting Results
CSCO 65.87
HGSI 81.01
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Directional Day FilterComposite Graph
75 Minutes 75.28
100 Minutes 74.90
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Directional Day FilterComposite Graph
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Directional Day FilterRecent Testing

• SP E Mini Continuous Contract
• Tested for probability of a given point target in
  the direction of the major trend.
• Test Dates 9-2001 through 6-4-2004

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Directional Day FilterRecent Testing
Test Period Sept 2001 through June 4, 2004 60
Minute Time Frame
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Directional Day FilterSupport and Resistance

• Directional Day Filter line will often provide
  significant support or resistance
• Market will frequently retest this line before
  resuming the major trend
• Most often seen in Treasury Bond Futures

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Directional Day FilterSupport and Resistance
Note Resistance at DDF Line
Down Day
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Directional Day FilterSupport and Resistance
Uptrend Resumes
Uptrend
Support at DDF Line
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Directional Day FilterAutomated Version

• Directional Day Filter has been automated for use
  in trading systems
• The automated version of the indicator signals
  the dominant trend with color changes

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Directional Day FilterAutomated Sell Signal
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Directional Day FilterAutomated Sell Signal
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Directional Day FilterAutomated Buy Signal
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Directional Day FilterAutomated Buy Signal
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Support and Resistance

• Support and resistance is one of the two most
  important concepts for the serious trader to
  master.

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Support and Resistance

• Defined by market action
• Significant buying or selling at these points
• When violated, is often the final confirmation of
  an important trend change
• Market will often accelerate upon breaking these
  levels

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Category 3 Support
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Category 3 Support
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Category 3 Resistance
Former Support now Resistance
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Support and Resistance

• Used to place entry stops
• Used to place exit stops

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Step 2

• Determine the minor trend
• Can use any oscillator indicator for this purpose
• Dual Stochastic is reliable

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Dual Stochastic

• Use two diverse sensitivity settings
• Filtering process
• Examine slow setting first
• The exhaustion phase is considered complete when
  the fast setting gives a signal after the slow
  setting has qualified the trade

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Dual Stochastic

• Buy signal
• 45 Bar Stochastic below 30
• 7 Bar Stochastic below 90 turn higher
• Sell Signal
• 45 Bar Stochastic above 70
• 7 Bar Stochastic above 90 turns lower

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Dual Stochastic
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Trading With Combinations

• Directional Day Filter
• Dual Stochastic
• Support Resistance

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Trade Sequence
Step One
Determine Major Trend
Downtrend
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Trade Sequence
Step Two - Determine Minor Trend Exhaustion
Dual Stochastic
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Trade Sequence
Step Three - Determine Accurate Entry Point
Dual Stochastic
Sell Stop
Short Position
Category Three Support
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Trade Sequence
Step Four - Logical Exit Point
Dual Stochastic
Sell Stop
Category Three Resistance
Protective Buy Stop
Category Three Support
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Trade Sequence
Step Four - Logical Exit Point
Dual Stochastic
Sell Stop
Category Three Resistance
Protective Buy Stop
Category Three Support
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Trade Sequence
Step Four - Logical Exit Point
Dual Stochastic
Sell Stop
Category Three Resistance
Protective Buy Stop
Category Three Support
Trade Exit
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Trade Sequence
Step One - Major Trend is Higher
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Trade Sequence
Category 3 Resistance
Buy Stop
Dual Stochastic
Step Two Identify Exhausted Correction
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Trade Sequence
Category 3 Resistance
Buy Stop
Dual Stochastic
Step Three - Define Entry Point
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Trade Sequence
Category 3 Resistance
Buy Stop
Long Entry
Dual Stochastic
Step Three - Define Entry Point
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Trade Sequence
Category 3 Resistance
Protective Sell Stop
Category 3 Support
Dual Stochastic
Step Four - Exit Strategy
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Trade Sequence
Category 3 Resistance
Protective Sell Stop
Category 3 Support
Dual Stochastic
Step Four - Exit Strategy
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Trade Sequence
Exit Trade
Category 3 Resistance
Protective Sell Stop
Category 3 Support
Dual Stochastic
Step Four - Exit Strategy
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Trade Sequence
Category 3 Resistance
Category 3 Resistance
Long
Buy Stop
Dual Stochastic
Category 3 Support
Dual Stochastic
Next Trade Setup
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Trade Sequence
Category 3 Resistance
Category 3 Resistance
Protective Sell Stop
Dual St.
Category 3 Support
Dual Stochastic
Next Trade Setup
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Trade Sequence
Exit Trade
Category 3 Resistance
Category 3 Resistance
Protective Sell Stop
Dual St.
Category 3 Support
Dual RSI
Next Trade Setup
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Trade Sequence
Step One - Trend is Sideways to Lower
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Trade Sequence
Enter Short
Dual Stochastic
Category 3 Resistance
Category 3 Support
Exit Trade
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Trade Sequence
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Trade Sequence
Dual Stochastic
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Trade Sequence
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Trade Sequence
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Parallel User Functions

• Brief History
• Simply a programming technique to enable your
  trading strategies to more closely keep up with
  changing market conditions.
• Not a canned function
• Must be applied individually to each system on
  which it is to be used.

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Parallel User Functions

• Not a quick fix for a bad system
• Must start with a stable, robust trading strategy
• Best utilized by systems showing a reasonable
  equity curve across various system input settings.

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Parallel User Functions

• Program a system as a function
• Send a series of inputs to the parallel function
  from the main system
• Use the for next loop to test the system
  against the range of inputs
• Set up a sort routine to select the input value
  resulting in the best system return
• Use the NumericArrayRef function input to extract
  multiple output values from a single function

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Parallel User Functions

• Plot parallel function as an indicator
• Use as a de-bugging tool for the function
• Can also be used to monitor the performance of
  various system settings
• Simple Example

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Parallel User Functions

• Simple system to demonstrate the theory
• Early morning breakout system
• Inputs
• 1. Time of breakout
• 2. Profit target
• 3. Stop loss
• Will self test time input only

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Parallel User Functions
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Parallel User Functions
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Parallel User Functions
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Parallel User Functions
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Parallel User Functions
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Parallel User Functions
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Parallel User Functions

• Indicator Examples
• Market Direction
• Real Time Target

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Free Indicator

• Please complete the handout provided.
• You will receive, free of charge, the Directional
  Day Filter Indicator
• TradeStation Compatible
• Reduced Cost Trial of TradeStation

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Free Indicator Trial

• Market Direction
• Real Time Target
• 30 day Free Trial
• TradeStation Compatible
• Reduced Cost Trial of TradeStation

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Market Direction Indicator

• Use with Directional Day Filter to predict the
  major trend
• Directional Day Filter gives one trend
  determination per day.
• Market Direction gives insight into possible
  trend changes through the day.

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Market Direction Indicator

• Four observable plots
• Blue Histogram - Uptrend
• Red Histogram Downtrend
• Balance Line watch for possible indications of
  trend change
• Zero Line Support Resistance

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Real Time Target
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Real Time Target

• Generates a self adaptive target price on the
  open each day
• Research shows this target is hit gt 70 of days
• Used for profit target exits and protective stops
• Used in conjunction with Market Direction
  Indicator

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Real Time Target
Green Line is Upper Target
Red Line is Lower Target
Note that the lines adjust through the market day
Useful as a trailing stop for long position
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Real Time Target
Three Classic Trades
Down Day
Resistance
Breakout
Profit Target
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Real Time Target
Profit Target
Breakout
Up Day
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Real Time Target
Down Day
Resistance
Breakout
Profit Target
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Real Time Target
Automated Trades
Ddf buy sell strategy
RTT exit strategy
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Real Time Target
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Real Time Target
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Real Time Target
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System Example
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Cyclone System

• Used to Day Trade Stock Indices
• SP 500 SP e mini
• Russell 2000 SP e mini MidCap 400 SPY
• DOW Jones Pit e mini
• European Stock Indices

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Cyclone System

• Written in 1990
• Only one revision in 1997
• Increased volatility of sp market required
  slight change in self adaptive reversal number
  calculation

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Cyclone System

• Rated in Top 10 by Futures Truth
• No changes in any inputs for any markets traded
• Self Adaptive System

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Cyclone System
Cyclone System
CounterTrend Line
Breakout Line
Resistance Line
Trailing Stops
Last 45 minutes only
Support Line
Breakout Line
CounterTrend Line
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Cyclone System
Cyclone System
No Trades First 45 Minutes
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Cyclone System
Cyclone System
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Cyclone System
Cyclone System
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Cyclone System
Cyclone System
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Cyclone System
Cyclone System
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Cyclone System
Cyclone System
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Cyclone SystemPerformance Details

• www.clayburg.com

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In Depth Seminar

• Two Days
• Day One Detailed explanation of systems and
  indicators
• Day Two continued explanations on live markets
• Money Back Guarantee
• Double Credit for Cost of Seminar

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Thank You

• Thank You for your kind attention.
• More information at
• www.clayburg.com
• 712.684.5239