Felton Trading Course Manual

TRADING COURSE MANUAL

© 2012 Felton Trading

Table of Contents 1. Introduction to Felton Trading™

page 3

2. Your Trading Tools

page 4

3. Trading Electronically

page 6

4. Trading Preparation

page 7

5. Candlesticks 101

page 8

6. The Felton Trading™ Chart (DivPro)

page 10

a. Chart Features

page 11

b. Chart Indicators

page 12

c. Chart Types

page 14

7. Understanding the Felton Trading™ Method

page 17

8. The Felton Trading™ Signals

page 19

a. Finding the Correct Correspondence

page 19

b. Counter-trend Signals

page 22

i. Basic Divergence

page 22

ii. Extended Divergence

page 25

iii. Turn Signal

page 27

c. With Trend Signals

page 29

i. Hidden Divergence

page 29

ii. The Lump Trade

page 31

iii. The Break Out Signal

page 34

1. The IB “Island Bar ” Signal

page 35

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iv. The Stub Signal 9.

page 38

Trading The Felton Trading™ Method

page 40

a. The Four Market Conditions

page 40

b.

i. Sideways Cycling

page 41

ii. Trending Cycling

page 42

iii. Trending Congested

page 43

iv. Sideways Congested

page 44

The Signal Filters

page 44

i. Using the FT Bands

page 45

ii. Using the FT Momentum

page 46

iii. Using the FT Cycle

page 47

iv. Using the FT MM Lines

page 48

v. Using the FT Large Channel

page 50

vi. Using the FT Turbo Twisters

page 52

vii. Using the FT TrendMA

page 54

viii. Using “Blue Ice”

page 55

10. The DivPro™ Software

page 57

11. 11. The SignalPro™ Software

page 63

12. The Mental Side of Trading

page 65

a. The Vicious Emotional Cycle

page 67

13. Becoming a Professional Trader

page 71

14. Online Training, Mentorship and other Support

page 72

15. Glossary of Terms

page 75

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1. Introduction to Felton Trading™ Welcome to Felton Trading™ and we hope you find this manual to be a great start on your learning journey toward long term trading success. The Table of Contents as well as much of the terminology we use incorporates “hypertext”. You can click on anything you see highlighted for convenience and clarity. We’ll be working closely with you in many other ways, too, including regular live online training and live market trading every day. No one can learn to trade effectively from studying a book or manual because it’s not interactive. You can’t ask questions of printed text. So this manual is intended to just get you started as you begin to understand what Felton Trading™ is all about. The other training “layers” will be bringing it all together for you in a clear and concise manner. In this manual, we will cover the basic elements of the methodology to give the student a good “foundational” understanding of the Felton Trading™ method. Becoming a professional trader will take time, study and lots of practice. Trading professionals know there really is no end to the learning process. So our goal is to get each student started correctly and then provide ongoing training and individual mentorship to get them to their goal objectives and keep them there. Our step-by-step approach to learning, combined with our state-of –the-art live market training and online mentorship, will give you the greatest opportunity to quickly reach your maximum trading potential. Most successful traders spend years honing their skills and they agree the effort is worth the rewards. The Felton Trading™ Training Course is designed to enable you to greatly shorten the learning curve and avoid many of the pitfalls which cause others to fail. However, you must be willing to put forth the time and effort necessary to achieve your financial goals. You must also make the commitment to follow the rules of your trading plan completely. Think of your trading as a business. It follows the same rules as any other business, though trading also offers certain unique advantages. To succeed in any business, you must not be under-capitalized. Your trading account should be funded with money that would not adversely affect your current lifestyle if you were to lose it. That is not to say you should begin a trading career with the expectation of losing, but you should never attempt to trade with “scared money“ either. Next, make sure you have a good business plan. For the trader, that means that you should have a proven trading strategy that fits your trading “personality”. Finally, you will need expert guidance and training. You would not think of starting any business without knowing a great deal about your product, marketing and competition. Make the commitment to become a professional trader and to continue learning to stay on top of your game. You are about to embark on an exciting journey of knowledge designed to open personal and financial opportunities that may surprise you. Our goal is to help you achieve a high level of success as a professional trader. 3 Confidential


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But, being a successful trader means more than just the money. As you become proficient and your trading skills increase, prepare to grow individually as you become more disciplined, more patient and more focused in your personal life. Trading offers personal benefits that few other businesses can match. We are anxious to share with you a wealth of trading knowledge and help get you on the road to consistent and last ing trading success. Let’s begin by taking a look at the trading tools you’ll need.

2. Your Trading Tools In order to trade effectively, you will need the right tools. These are all relatively inexpensive when compared to what you’d need to begin a brick a nd mortar business. First, you will need a computer. It is not necessary to have the latest high-end system but a “quad-core” CPU or greater is recommended. Having two or more monitors will really help, too. Plan to invest in plenty of RAM (Random Access Memory), preferably 4GB or more (more is better). Adding RAM is a great investment in computer performance and fairly inexpensive, too. A dependable broadband Internet connection is essential (high speed cable modem or DSL are most common). Next, you need to be able to graphically see the market(s) that you plan to trade. We do this by using a “chart,” which we will discuss in detail a bit later. Charts are constructed from data received from a charting service such as NinjaTrader™. Because of its high performance, low cost and unlimited coding capability, Felton Trading™ uses NinjaTrader™ exclusively. You will also need to set up a brokerage account where you place your trading capital. Your broker will also get you set up with your NinjaTrader™ platform for charting and order execution. You will do this easily and completely electronically with your online order execution platform. You will also need a dependable datafeed. What you’ll need: 

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Good dependable and well-maintained computer – Get the best computer system that you can afford. We recommend that your trading computer be used only for trading. Computers used for email, Internet surfing and other non-trading uses can be subject to a large number of pesky issues (in addition to viruses) that can cause the entire system to slow down or crash. Multiple Monitors – Most traders find that having more than one monitor is pretty much essential for trading. You’re probably going to be looking at a couple of charts at the least and then having your order execution platform all on one monitor gets pretty cramped. 4 Confidential


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Good dependable broadband Internet connection – This is your lifeline, your access to your broker and the markets you will trade. It must be as fast and reliable as possible for your area. UPS – Uninterruptible Power Supply - for protection against storm and other power outage occurrences. Brokerage Account & Execution Platform – Necessary for acting on the profit opportunities you find in the markets. Click here for a complete listing of NinjaTrader Brokerage Partners. Be sure to ask one of our representatives if you need help selecting a broker . Your Execution Platform is provided by NinjaTrader but you can also execute your trades using any other platform of your choosing. Charting service – Your charting service must be fast and accurate and our strong recommendation is NinjaTrader™. All of our tra der assist software is coded in that platform. Datafeed – Just as you need electricity to power your computer, you will need a datafeed service to “power” your charts or you would not have any idea what the markets were doing at any given time. Most brokers who are partnered with NinjaTrader™ will also provide a datafeed service such as Zen-Fire™ at no charge but you might also consider using a faster datafeed service such as Kinetick™ or IQFeed™ once you begin trading your live account and use Zen-Fire ™ as your backup service.

A professional Felton Trading™ student with exceptionally nice trading “tools”.

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3. Trading Electronically – The Order Execution Platform Since electronic trading is the single most revolutionary concept in trading, now is a good time to learn about an important trading tool, the Order Execution Platform. If you had to pick up the phone and call your orders in to your broker (or send them by email), you would be trading under a huge handicap resulting in lots of slippage. Controlling slippage is vital and today’s powerful Order Execution platforms allow us to do just that. Here is an example of what a modern trading platform looks like. Figure 6-1 shows a NinjaTrader order execution platform called the Dynamic SuperDOM. You can see the current price value of the S&P 500 E -Mini index highlighted in yellow and you can also see the other “working orders” traders have placed above and below the market. You will learn the simple mechanics of using electronic order platforms in the online E-Course training as well as in our live market instruction.

Additionally, NinjaTrader provides you with downloadable training videos and printable manuals that explain the complete operation of your trading platform. Additionally, they offer a platform simulator mode which allows you to gain complete order execution mastery without risking any of your actual trading capital in the process. We strongly urge you to start your practice trading using a simulator and, if you are consistently profitable and not making mistakes, then proceed to the actual “real money” mode. NinjaTrader’s online order execution platform is very powerful and user friendly. It is essential to master the many powerful functions of your execution platform. No matter how well you master the Felton Figure 6-1 Trading™ method, if you make entry and exit mistakes in your order executions, you cannot be consistently profitable. Make it a goal to master your trading platform as well as your trading method.

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4. Trading Preparation Once you execute a trade and enter the market, you have turned that trade over to the market and you have no control whether it wins or loses. No amount of hoping or praying will change the market’s direction but you do have control over how much it wins or loses. That’s called Trade Management. It’s important to understand that over 90% of your “work” is done before you actually enter each trade. It’s all part of Trade Preparation and good preparation, both mechanically, physically and mentally is essential. Trading preparation begins with checking your trading tools. Make sure your chart datafeed and order execution platform are functioning properly. Since we do not live in a perfect world, things can go wrong. Sometimes the fault lies in your Internet Service Provider (ISP). Dropouts and disconnects can happen even with the best of services, but it will happen much less often if you choose a broadband (high speed) service such as cable modem or DSL. Do not trade if you are experiencing connection difficulties or you notice the data connection is slow. It is a good idea to test your Internet connection speed often using a free service such as http://www.speakeasy.net/ . Your physical condition can affect your trading. If you are ill, tired or needing sleep, do not trade. Successful trading requires a clear mind undistracted by physical issues. Getting good regular exercise is strongly recommended to keep you in good physical shape. Be sure to get sufficient sleep before starting your trading day. The most essential part of trading preparation is your mental state. Never trade when you are upset, distracted, nervous, fearful, anxious, impatient or do not feel well. Trading takes supreme focus, great patience and discipline. Negative emotions work against you and will sabotage your trading success. Of all the emotions that traders experience, fear is the most destructive and the hardest to control. The best way to combat fear is by building confidence in your system and in yourself. It takes time because confidence is only gained through experience. If all is well emotionally and mechanically, your next preparation step is to study the markets you plan to trade. See what they have been doing overnight. What you want to accomplish is to see if you can logically develop a market bias that might complement or discourage a signal you are considering. Be sure to get a good grasp on the market’s overall health. Small, choppy sideways movement for extended periods can suggest that you may want to wait until conditions improve before trading that particular market.

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5. Candlesticks 101 We’ll be discussing several indicators but, before we do that, let’s start with Price. The term “price” refers to the value of a market (i nstrument) which can change quite rapidly. On our chart, we use candlesticks to represent market price. You can squeeze a lot of market information from candlesticks, which is why we use them. Plus, they are very visual. You can tell what is going on in the market from a quick glance several feet away. Let us take a closer look at the anatomy of a bullish and bearish candlestick.

Figure 8- 1

Figure 8- 2

These two candle examples represent the majority of bar types you will be seeing on your charts. The green one ( Figure 8-1) is a “bullish” candle, meaning the market traded upward overall during the candle’s time period and closed above the price that it opened. Whenever the market trades or closes above the open, the wide part (or body) of the candle will automatically be colored green, blue or any other color of the traders choosing to represent bullish “up” candles. We look for bullish colored candles when we are ready to place a buy order to go long in the market. The other candle ( Figure 8-2) shows a red “down market” candle. It means the market was “bearish” because the market traded and closed below the market open and the body will automatically be colored the default red color. We look for bearish colored candles when we are ready to place a sell order to go short in the market. Another thing you will be paying close attention to are the candles “wicks” and “tails” which ar e the thinner lines that protrude from the tops and bottoms of the candle body. These tell us if the market actually traded outside of the range of

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the candle body. For signal purposes, we always want to consider the total trading range of the candle instead of just the open and close. At a glance we can see exactly how high the market traded and precisely how low. Whenever a red or green candle forms a long wick, it means sellers are entering the market and may cause the market to come down. A long tail on red or green candles can mean buyers are coming in and the market may go up. There is one other candlestick variation called a “doji.” Doji is Japanese for “same thing” or “same price.” That is a perfect name for them because they form when the market opens and closes at the same price for any given candle. If there is no difference between the open and the close, there is no candle body and, thus, no color. Doji formations can be a dash (-) or a tee (T) that can be right side up or upside down. Dojis may also be in the form of a cross. The tees and crosses indicate that the market actually did move up, down or both, but ended up closing at the same price it opened. Doji clusters in the market often indicate low volume and lack of supply or demand. Note that some chart types such as the Line Break and the Renko (Figure 9-1) cannot close in a doji formation due to the way the price bars are structured.

Figure 9-1: Example of a Renko chart: These Price Bars can have wicks and tails but cannot form doji type bars at the close of any bar .

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6. The Felton Trading™ Chart (DivPro) Features We begin our Felton Trading™ training by studying our trading chart. Actually, in trading, you will probably be looking at several charts, but this example will allow us to look at some of the common features and indicators of a trading chart.

Figure 10-1

Figure 10-1 is a chart example of the Crude Oil futures market shown by the symbol CL at the “A” orange arrow . It is a chart type called the Line Break. There are lots of ways to look at markets depending on the chart type you use. We’ll discuss those in this section . If you look closely at the small “wicks” at the top and bottom of the red and blue price bars, you will quickly see why they call these “candlestick” charts. The bars resemble candles. Candlestick charting was actually invented over 500 years ago in Japan where it was used to chart the trading of commodities, such as rice. This particular chart (produced by NinjaTrader) shows the many common chart features you will have on your trading charts plus many of the indicators that you will probably use. 10 Confidential


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Let’s study each feature and indicator indi vidually noted by the large white letters A through U with the corresponding orange arrows: Chart Features (A) The “A” arrow shows the instrument (market) that you are trading. There are numerous markets to trade including stocks, commodities, etc. At Felton Trading™, we choose to trade the futures markets which generally offer the highest profit potential with less risk in a shorter period of time. The instruments we trade include the E-mini markets such as the ES (S&P 500), the YM (DOW) and the NQ (NASDAQ). We also like trading the currency futures such as the 6E (Euro), 6J (Yen), 6B (British Pound) and the 6A (Australian dollar). Other excellent commodities include the CL (Light Sweet Crude Oil) and GC (Gold futures). (B) At the top of this chart example, the “ B” arrow shows the type of chart we are using. Although this chart is looking at a Line Break chart, we could also choose to study the market with a time-based chart such as the 1-minute, 5minute, 30-minute, etc. or we might want to use a Tick chart which measures the number of transactions that have occurred in a bar’s formation. There is also the Range chart, the Volume chart and the Renko chart just to name a few. We recommend that the trader become familiar with the various chart types to see which ones they personally prefer using. The Felton Trading™ method works on any chart type or timeframe. (C) At arrow “ C” we have the many various trading tools offered by the NinjaTrader charting platform including line drawing tools, crosshair selection, Zoom in/out, bar type selection, etc. If you aren’t already familiar with NinjaTrader’s tools, you will need to take advantage of their extensive training aids and learn what each is for and their usage. (D) This arrow indicates when a trade potential exists for entering the market. It is a “warning only” indication and is not intended to show whether any particular signal is better than another. That’s covered thoroughly in your Live Training sessions. (E) This arrow shows the Order Execution platform that NinjaTrader provides users to trade “right on the chart”. Here you can enter Buy and Sell orders in the form of Market or Limit orders as well as “program” the platform to automatically enter your profit targets and your protective stops at the instant you enter a trade. (F) Arrow “ F” shows the Price Scale. This scale shows the current market price (green highlighted 98.98) as well as other measured values such as Cycle and Large Channel values.

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(G) This is the Bar Counter that shows how many “ticks” are left in the c urrent count. Bar Counters can also be used on non-tick based charts to measure time seconds, for instance. (H) This is the Counter Bar which is related to the Bar Counter. It shows how much time or ticks are left. It can also show the information as a percentage. (I) This is a confirmed trade signal. That means that the signal completed its formation and closed with the Bar Counter changing from gray to yellow and counted down to zero with the counter numbers remaining yellow. (J) This is an unconfirmed trade signal. That means that the trader should wait until confirmation occurs with the bar completing its formation and closing. With this chart type, the bar cannot close until the Bar Counter changes from gray to yellow and counts down to zero. (K) Arrow “K” is the Indicator scale which shows the measurement of an indicator (such as an oscillator) relative to the mid (zero) line. (L) This arrow shows the Time Line indicating the precise time of the current market activity as well as the exact closing time of each historical Price Bar to the second when the crosshair tool is placed on any bar. Using the Time Line, Price Scale and Price Bars (candles) you have an exact record of everything taking place in any given market for as far back as you have data. Chart Indicators (M) Arrows “M” point to our FT Large Channel. Notice the top line is red and the bottom line is green. This indicates that we are okay to enter both long or short positions if they meet our additional filtering requirements. These colors can change to green/green, for instance, which would tell us to avoid taking any short positions until the lines return to red/green or, better yet, to red/red. Yellow/yellow lines indicate a market too choppy to trade. (N) “N” arrow is the top “supply” line of the indicator we call the FT Small Trend Channel constructed by plotting a pair of trendlines. Its purpose is not to try to define the overall longer term Price direction. Instead, it tries to give an early indication of a market change of direction from downward to upward, for instance. It can also help provide small profit targets for scalping trades. (O) “O” arrow is the bottom “support” line of the indicator we call the FT Small Trend Channel. It is the counterpart to the “N” line. It can help provide small profit targets for scalping trades. (P) This arrow shows the FT Bands indicator used to detect changes in price direction as the color changes from Red (bearish) to Blue (bullish).

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(Q) The “Q” arrow points to the wavy red, blue, pink, white and yellow line we call the FT Cycle . It’s actually an indicator called a Stochastic. Stochastics are part of a large family of indicators used in Technical Analysis. We use the FT C y c l e indicator to tell us when price direction is strong or weakening as well as to confirm when a retracement has confirmed. (R) Arrow “R” shows another indicator that we use shown with the gold and white wavy line at the bottom of the chart called the FT Trigger . It is built using an oscillator called the MACD. The MACD is an acronym for Moving Average Convergence Divergence. Many good trading methods utilize a MACD in one way or another. The Felton Trading™ method incorporates a powerful set of parameters that, when applied to our FT Cycle and Price, often produces a very consistent and accurate signal result using Divergence. (S) This indicator is called the F T Mo m e n t u m - often referred to as momentum change. We use this indicator to help indicate market directional strength/weakness, market directional change and to help filter certain signal types. (T) The “T” arrow points to the FT TrendMA indicator. This is a very versatile indicator that can show several types of Moving Averages with unlimited parameter settings. We use the FT TrendMA to help filter signals by helping to define early stages of a market trend. (U) The three “ U” arrows point to some thin horizontal lines we call the FT MM . They are actually lines taken from a trading system called Murrey Lines Math. Note that there are several of these multi-colored lines on this chart. Although we find the Murrey lines to be useful as potential Support and Resistance (S&R) levels (discussed later in this manual), we find the rest of the Murrey Math system to be complicated and quite ineffective. There are other types of S&R levels that can be determined using indicators called Pivot Points and another called Fibonacci Retracement but these are just three examples of the many ways S&R levels can be found.

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Chart Types For many years, time-based charts were pretty much what all technical analysis chartists used. Like their name suggests, the bars open and close according to some measure of time such as a minute, 3-minutes, 5-minutes, etc. but they can also be measured in days, weeks or even years. The Time-Based Charts -

Figure 14-1 is an example of a 1-minute chart of the S&P 500 E-mini. Each red and blue bar begins its formation in sync with your precise computer clock. As each new minute begins, so does a new bar. It might be a blue up bar or it could be a red down bar. The bar will rise and fall according to the market activity. When the minute ends, so does the price bar as it instantly closes at whatever price it was at and a new bar is born. On and on it goes throughout the trading day. Figure 14-1

The Tick Chart -

Figure 14-2 is a great example of another popular type of chart called the Tick Chart. Tick charts have no relationship to time. One bar might take only seconds to form while another could take much longer. It does not measure the number of contracts traded. Instead, tick charts measure the pre-determined number of transactions that have taken place at the Exchange on that particular bar. For instance, if Trader A placed an order to Buy or Sell 5 contracts, Trader B placed an order to Buy or Sell 2 contracts and Trader C placed an order to Buy or Sell 10 Figure 14-2 contracts, that would register on a Tick Chart as 3 transactions (or ticks). The Tick Chart trader has an infinite 14 Confidential


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number of timeframe choices. If a 100 Tick Chart is chosen, for instance, then exactly 100 individual transactions will take place before a new bar is started…and so on. Tick charts can provide a wealth of information about the details of the trading activity, but it can also create a lot of noise. The Lin e Break Chart –

Traders are always looking for ways to recognize market direction and market trends. Figure 15-1 is an example of a chart type called the Line Break. It’s a little bit more sophisticated than the two previous examples but it’s also very useful in pointing out market trends. This chart example shows a 3 Line Break chart of the Euro dollar (6E symbol) with candlestick type price bars. Most Line Break charts don’t show the wicks and tails but ours does because they help the trader Figure 15-1 and are essential for backtesting. The 3 Line Break is probably the most popular, but we could choose any other number such as a 2, 4 or 5 Line Break. You might also notice that this is a 150 tick chart of a 3 Line Break. What do all those numbers mean? The explanation is actually fairly simple.

In one respect, this chart type is similar to a Tick Chart in that it is counting the number of transactions taking place and when the pre-determined number (150 in this case) is reached, a new bar would normally start. That would be the case on a 3 Line Break chart but only if the current bar had exceeded the “range” (either the highest point or lowest point) of the preceding 3 price bars excluding the wicks and tails. Only the colored “bodies” of the bars are considered. If the 3-bar range low is exceeded, even by one tick, a red candlestick can close and a new bar can start. Conversely, if the 3-bar range high is exceeded by any amount, a blue bar is then closed and a new bar begins…but only if the tick count has been reached! In other words, before a red or blue candle can close and a new bar begin, two important conditions must be met: (1) the transaction tick amount must have been met (150 in this example) and, (2) the top or bottom range of the preceding 3-bar bodies must be exceeded. These two conditions must be met at the same

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time or the bar cannot close. In addition to counting ticks, Line Break charts can be set to count minutes, seconds, volume, etc. T h e R e n k o C h a r t –

Here in Figure 16-1 we have a chart type called the Renko in Crude Oil (CL). More specifically, this is a 5 Renko chart. Let’s examine this useful type of chart and find out more about it.

Figure 16-1

As of this printing, NinjaTrader provides users with a Renko chart although it does not provide the “wicks and tails” that we see in this example at arrow B. Most traders prefer to see the entire trading range of each bar so we created a Renko Bar version we call the FTSupremeOHLC. Using this unique, proprietary Renko, you see all of the Price movement data (OHLC) which is essential for backtesting, but you can also create any Renko bar type you choose. On this chart example, arrow A shows us that we have selected a 5 Renko. What does that mean? Well, it means that once a price direction is established, each bar “body” (the colored area between the open and close) will be 5 ticks in size and we can see some examples of this at arrows C. 16 Confidential


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On a FTSupremeOHLC chart, in order for Price the change direction (bar color) the market must travel twice the tick number setting measured from the close of the previous bar. With our tick number setting at 5 in this example, a turning bar ’s target distance must then be 10 ticks every time Price changes from a down to up bar or vice versa. Renko charts give us a way to detect Price trends that is superior to time-based or regular tick charts. They also allow us to know ahead of time the exact price that any current active bar will close. When trading, this is a big advantage. There are several other types of charts that you can research to find out what they offer the trader. These include the Range, Kagi, Point and Figure, and the Volume Chart just to name a few.

7. Understanding the Felton Trading™ Method If you are an experienced trader, the first thing you should do is try to rid your mind of any excess trading “baggage” you may have accumulated. Unfortunately, much of the trading information given out in books, magazines, forums and chat rooms is practically worthless. If the information was really valuable, you can bet they would not be giving it away for free. And, unfortunately, most trading courses being offered are either too complicated, too rough in drawdowns or they just never worked to begin with. If what you learned and tried in the past did not work for you, then toss it aside. For some, that is difficult because they remember the time a “hot tip” worked and they forget the 50 times it didn’t. Clear your mind of “trading trash” so you can foc us on what really works and works consistently. Find a method that you know works, that fits the kind of trader you are, then make it work for you. Most students say letting go of bad habits from old, worthless trading knowledge is the single hardest part of becoming successful. Felton Trading™ utilizes some simple and accurate tools and techniques and combines them in a very powerful way. The method is based on years of study of what the markets will do most of the time in a given set of conditions. This includes some specific Technical Analysis training in the use of Volume, Support & Resistance, Momentum, Trend Channels and Price Patterns. By using Technical Analysis and Price, we have produced several sets of conditions that generate a potential entry signal. We say “potential” because it must always be the trained and skilled traders job to make the final decision to enter or not enter a trade. That’s because humans think and computers don’t. 17 Confidential


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Humans can see things easily that even the most elaborate and sophisticated code will miss. To trade successfully, it is your choice of “weapons” and how you use those weapons that matter. You may have seen the popular cartoon with a Roman General about to lead his army into a great battle against a large enemy army with swords and arrows. The General is very irritated by a pesky salesman trying to sell his wares. The Roman General curtly says he does not have time to talk to the salesman, that he has a war to fight and quickly dismisses him. Too bad, the salesman was selling machine guns! The point is, to win consistently as a trader, you must have an edge. That means that you must stop doing what everybody else does and find a unique weapon (method) that allows you to see signal entries that most others do not. Be aware that there is a big difference between a trading method and a trading system. A Trading System generally refers to a codes software that greatly assists the trader by taking over much of the tedious “dog work” of measuring, calculating, identifying market entries and crunching data. That’s best left to the computer. Skilled humans, on the other hand, are best at Trade Management. So we believe in utilizing the best of both worlds by letting computers and humans do what they each do best. No trading system or method in the world will make anyone a dime without a trained, experienced and skilled trader behind it pushing the buttons. Once you understand that statement and accept it as logical and true , you’ll stop looking for the “holy grail system” and that “ultimate indicator” and start to get on the right track to finding the trading success you are looking for. We have found that, for training purposes, a manual alone is not sufficient to make someone a successful trader. Misunderstandings can easily occur, and they can be difficult to correct in the students mind. You will learn more by watching and doing than you ever will by reading. Therefore, we will not attempt to go into great method detail in this manual, but will familiarize you with the basic method concepts. The actual method details will be covered in extreme detail in the online training, live market trading, as well as other learning aids we provide that will make your understanding of the Felton Trading™ method crystal clear over time.

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8. The Felton Trading™ Signals F i n d i n g t h e C o r r e c t S i g n a l Co r r e s p o n d e n c e Before we begin our actual discussion of the various signal types that make up the Felton Trading™ “arsenal” we need to explain a technique that the system uses to correctly identify the Basic and Extended Divergence signals and, to a degree, the Stub Signal. In order for us to say with certainty that we actually have a Double Top, for instance, we must know exactly which two bars we are referring to that form the first and second price highs. You can’t just guess. The same goes for the FT Cycle and the FT Trigger. We need to define exactly what points (or locations) correspond to each other. This is the technique we use: Here in Figure 19-1, we have a simple chart showing only the FT Cycle (arrow A), FT Trigger (arrow B) and Price. No other indicators are necessary. For Basic and Extended Divergence signals, we are always on the lookout for double bottoms and double tops in Price. But to find the precise price bars involved we start by finding the highest and lowest peaks (or points) in the FT Cycle turns. Notice at arrow C that the FT Cycle has “bottomed out” and a cyan dot is indicating the lowest point reached by the FT Cycle before turning up. This is our starting point to find our other two corresponding points to this Figure 19-1 C location. C is the first and there will be another one in Price ( D) and a third in the FT Trigger ( E). From the FT Cycle point C, we look to the Price bar directly in line with it (shown with the blue arrow). This is what we call the “Zero Candle”. Now, we consider the Zero Candle and the four (4) price bars preceding (shown in dark red 19 Confidential


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highlight) it and we want to find which price candle reached the lowest price including the price bar “tails” in this 5 bar group. In this example, the “corresponding candle” to the FT Cycle low ( C) is the Zero Candle because it’s tail reached a lower price than any of the preceding 4 bars did. Now that we have identified the corresponding price bar, we simply follow it straight down to the FT Trigger to see where it intersects. It may intersect the FT Trigger as it slopes down, slopes up or reaches a low or even possibly a high. It will intersect it somewhere. From this intersecting point, we can look forward up to 3 bars and we can look backward up to 3 bars only. This gives us a 7 bar range and our job is to find the location of the lowest point that the FT Trigger reached. Here, we see that the FT Trigger’s lowest point was at the interse cting point shown with the red arrow and the cyan dot marked E. It is often the case where all three corresponding points C, D and E line up exactly. Now let’s look at another set of corresponding points where they do not line up.

Figure 20-1, shows the same chart as the preceding example but now we’re looking at our high peaks.

Notice at arrow C that the FT Cycle has “topped out” and a bright red dot is indicating the highest point reached by the FT Cycle before turning downward. This is our starting point to find our other two corresponding points. C is the first we identify using the FT Cycle and there will be another one in Price ( D) and a third in the FT Trigger ( E). From the FT Cycle point C, we look to the Price bar directly in line with it (shown with the blue arrow). This is our “Zero Candle” to the FT Cycle peak C. Now, we consider the Zero Candle and the four (4) price bars

Figure 20-1

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preceding it and we want to find which price candle reached the highest price including the price bar “ wicks” in this 5 bar group. Notice that an untrained trader would probably mistake the Price high at F to be the corresponding high and this would be incorrect. We cannot consider any price bars that occur after the FT Cycle reaches its peak. These price bars are considered to be “noise” and are ignored except for the purposed of measuring volatility. In this example, once again the “corresponding candle” to the FT Cycle high (C) is the Zero Candle because it’s tail reached a higher price than any of the preceding 4 bars did. Now that we have identified the corresponding price bar, we simply follow it straight down to the FT Trigger to see where it intersects. It may intersect the FT Trigger as it slopes down, slopes up or reaches a low or even possibly a high. In this example, it intersects the FT Trigger at an up slope. From this intersecting point, we can look forward up to 3 bars and we can look backward up to 3 bars only. This gives us a 7 bar range and our job is to find the location of the highest point that the FT Trigger reached. Here, we see that the FT Trigger’s highest point was at the red dot marked E. We have identified the 3 corresponding points in the FT Cycle ( C), FT Trigger ( E) and Price ( D) but they did not all form in a straight line. So, what’s the purpose of this exercise? Well, as we just saw in Figure 19 -1, the actual corresponding Price high to the FT Cycle was not where we might think it is. If we are looking for a “technical” double top, we might be mislead into thinking that the second price high did not reach within 20% of the first high when, at the true corresponding price high, it actually did. In order to code a signal into a software program, you must be able to tell the code exactly what you mean by a double top or bottom and be able to teach it how to find the six (6) corresponding points in a Basic or Extended Divergence signal. In Figure 20-1, you can see the green dots in Price and the cyan dots in the FT Cycle and FT Trigger that Divergence Pro™ identified. When we draw the blue lines G, H and I, we see that this is not a Basic Divergence long (Buy) signal and we’ll find out why next .

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T h e C o u n t e r - Tr e n d S i g n a l s B a s i c D i v e r g en c e L o n g -

We previously mentioned the term “Divergence”. It is easily identified by using our FT Cycle (Stochastic) and the FT Trigger (MACD) indicators along with price. They are very important in the formation of our buy and sell signals. Basically, what we want to see them do is “ move in the opposite direction ” from what the market (price) is doing. Here is an example of Basic Divergence in a signal to go long in the market: Figure 22-1 shows the divergence we would look for in a Buy signal to go long in the market. A Buy signal requires that Price make a “double bottom” (or lower low) formation while both of the indicators form a corresponding higher low. Look at the white down sloping line and notice where the candles hit the two price lows at points A and B. It does not matter what particular price is hit as long as the market makes two separate lows.

A price low (or high) can only occur if the FT Cycle confirms it. That means that, if price appears to have made Figure 22-1 a low (or high) but correspondingly the FT Cycle did not, then there is no price low or high at that point. In Felton Trading™, double bottoms can be formed in 3 ways: (1) The two price lows A and B can be exactly equal. (2) The two price lows can be skewed downward as the second low B does in this example and is lower than A. This is 22 Confidential


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called a “lower low” price formation. (3) The two price lows can be skewed upward from left to right with B being slightly higher than A. This is called a “technical double bottom”. It is required that price must be within 20% tolerance of the distance from A to the highest price high in the middle between A and B. Whether equal, lower low or technical, it is immaterial since all three formations are still a double bottom. With our double bottom requirement met, let us find the necessary oscillator divergence of the FT Trigger and the FT Cycle indicators. Look at the red line connecting the two lows of the Gold and White FT Trigger (MACD). Notice the second corresponding low at point D is higher than the first low of the FT Trigger at point C. This must occur or there cannot be a Buy signal. Finally, look at the blue line connecting the two corresponding lows of the multicolored FT Cycle indicator at points E and F. They must do what the FT Trigger did. That is, the second low ( F) must be higher by any amount than the first low (E). All corresponding indicator lows have the required divergence and we have a Buy signal to go long. The entry to a Basic Divergence long signal is taken when the FT Trigger first turns up to complete its double bottom formation at the second low and the corresponding price bar is the correct up color. In this example, the price up bar is blue and the entry “trigger candle” is noted with a green up arrow and yellow BD (Basic Divergence) label. The powerful software program called Divergence Pro™ will identify all of these low points for you automatically with small red and cyan dots in Price, FT Cycle and FT Trigger and will warn you that a signal is imminent.

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Basic Divergence Short -

Here is an example of Basic (Bearish) Divergence in a Signal to go short in the market in Figure 24-1. To illustrate a Sell signal (short), we simply turn our Buy signal structure upside down. The price candles should form a “Double Top”. Similar and inverse to the Long signal, a double top could be exact, a higher high or a lower high in price. In this example, we have a lower high type double top because the second high at B is lower than its previous high at A. For a short (Sell) signal, we will need the (MACD) to form a required FT Trigger Lower High. That is, our second FT high at D should be lower in Trigger elevation by any amount than the first high C indicated by the down sloping red line. Now, we check our FT Cycle and see Fi ure 24-1 with the down sloping blue line, that the second high F was indeed lower than the first high E. These conditions must occur or we would not have a Sell signal to go short in the market. The entry to a Basic Divergence Short signal should be taken when the FT first turns down to complete its double top at the second high and the Trigger corresponding price bar is the correct down color. In this example, the price down bar corresponding to the FT Trigger turning down is red and the entry “trigger candle” is noted with a red down arrow and a yellow BD (Basic Divergence) label. The powerful software program called Divergence Pro™ will identify all of these double top points for you automatically with small red and cyan dots in Price, FT and will warn you that a Short signal is imminent. C y c l e and FT Trigger For this example (and the previous Buy signal), we would not see any of the white, blue or red lines we have drawn in here for reference. Divergence Pro™ can, however, draw the corresponding line in price to help you see the double tops and double bottoms. Usually, price will make the double top (or double bottom) first, then the FT Trigger will complete its lower high (or higher low for Buy signal). Finally, the FT Cycle will complete the signal with its lower high (Sell) or higher low (Buy). 24 Confidential


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When we get one of these Buy or Sell signal formations, we do not necessarily act on it and enter the market. It simply gives us something to consider for its profit potential. But, before we would actually enter the market, there are a few more things we would like to see. We will discuss other dynamics later in this manual and in the E-course training.

E x t en d e d D i v e r g e n c e L o n g -

Let us take the divergence of the FT Cycle and the FT Trigger one step further and look at some often powerful form ations we call “ Extended Divergence” signals. If you understand the three things we look for in our basic divergence signals previously discussed, then extended divergence will be a snap. Extended Divergence simply means that we look at more data between two major lows or highs of the FT Cycle and FT Trigger. We ignore less significant indicator lows or highs in between the two larger “outside” ones...thus we are “extending” the divergence formation over a larger amount of data. These are structured similar to the Buy and Sell signals previously shown, only bigger. Look at Figure 25-1 to see what an Extended Divergence Buy signal would look like. We have drawn in the red, blue and black lines of our Extended Divergence (Buy) signal here and alphabetically labeled the corresponding points. Notice the obvious structural similarities to the basic divergence Buy signal discussed previously. Here, the price, FT Cycle and FT Trigger lows are spread out over a longer time frame. Some of these Extended Divergence signals can take over an hour to form on a 1-minute chart. Note that in between the FT Cycle lows labeled E and F, there were three smaller, less significant lows. We ignore these since they are not part of the signal. It is important, however, that the “outer ” lows of the FT Cycle ( E and F) be of significant size. Usually they will be noticeably larger than the “inner” FT Cycle lows like we see in this example.

Figure 25-1

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If there is formational weakness in Price, FT Trigger or even the FT Cycle, it does not mean it is not a signal. It would simply indicate a weakness in the signal and its performance could be affected. We would certainly want to consider other market factors carefully before taking any divergence signal that is showing weakness in structure. Fig 25-1 is a perfect example of an Extended Divergence Long (Buy) signal with the required A to B double bottom (or lower low) in Price and the higher low at D vs. C on the FT Trigger and the higher low at F vs. E on the FT Cycle. Price, FT Trigger and the FT Cycle all showed good, strong, significant lows.

Extended Divergence Short -

Now, let us take a look at an Extended Divergence (Sell) signal in Figure 26-1. Notice that we are using the “significant” FT Cycle highs E and F and not the smaller ones in between. The FT Trigger made great corresponding highs at points labeled C and D. F had to be lower than E, and D had to be lower than C (which they were) to make the bearish divergence signal. Remember, price does not have to make an exact double top (or double bottom). Technical tops and bottoms are OK. Higher highs ( B higher than A by any amount) is fine and most often preferred. Divergence, along with Extended Divergence, is a powerful trading tool we often use, but it is by no means the only thing we would need to enter a market trade. Fi ure 26-1

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The Turn Signal –

Figure 27-1 shows two good examples (Long and Short) of the entry we call the Turn Signal. It is aptly named because it is designed to identify when Price is actually turning rather than just producing a small pullback with little to no real profit potential. This is our third and final signal type for going counter to a trend.

Figure 27-1

Turn Signals are best found on a Line Break type chart. A 3 Line Break setting works well. Here, we are using a 300 tick 3 Line Break setting but we could use other settings too, including volume or any time-based selection as long as it shows good clear trading condition according to the Four Market Conditions we will be discussing later.

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In Figure 27-1, we have a Turn Signal (TS) long (blue arrow) and a Turn Signal (TS) short (red arrow). Their structures are identical, only reversed. Let us start with the Turn Signal long (Buy) at about 9:30am on the Time Line. It’s formation requires three things to occur simultaneously with the FT Cycl e, FT Bands and Price. In order for a Turn Signal long to trigger, the FT Cycle must be turning up and be blue in color indicating it is strongly bullish. We can see that this condition has been met with the orange arrow marked A. Next, we must have the FT Bands indicator color to be blue indicating that Price has now shifted from bearish (red) to bullish. Arrow B shows this condition to be correct. The third component necessary for a Turn Signal long is to have a blue bullish bar in Price which is seen to be correct at arrow C. We see that Divergence Pro™ has identified all three conditions to be correct and it places the small green up arrow with the yellow TS label in plenty of time for the trader to spot the opportunity to enter the trade and take profit. The Sell (short) version of the Turn Signal is just the opposite in formation. At about 9:02am on the Time Line, we have a Turn Signal (TS) short indicated with the larger red arrow. It’s formation also requires three things to occur simultaneously with the FT Cycle, FT Bands and Price. In order for a Turn Signal short to trigger, the FT Cycle must be turning down and be red in color indicating it is strongly bearish. We can see that this condition has been met with the orange arrow marked D. Next, we must have the FT Bands indicator color to be red indicating that Price has now shifted from bullish (blue) to bearish. Arrow E shows this condition to be correct. The third component necessary for a Turn Signal long is to have a red bearish bar in Price which is seen to be correct at arrow F. We see that Divergence Pro™ has identified all three conditions to be correct and it placed the small red down arrow with the yellow TS ( Turn Signal) label in plenty of time for the trader to spot the opportunity to enter the trade and take profit going short.

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T h e W i t h - Tr e n d S i g n a l s Hidden Divergenc e (Lon g) -

Figure 29-1

Figure 29-1 shows an uptrend in Crude Oil futures (symbol CL) showing Price making its typical higher highs and higher lows as it continues to climb. When Price makes a higher low, notice that the FT Cycle usually does also. The FT Cycle wants to mimic what Price does. Now notice that price made a normal higher low at point B compared to A. Since price came nowhere near forming a double bottom, we would suspect a possible market entry here on Basic Divergence. However, notice that point D on the FT Cycle went lower than point C. At the corresponding points, Price lows went higher while the FT Cycle lows went lower – and that’s divergence by definition. This is a “with trend” formation called “Hidden” or “Reverse” Divergence indicating that the uptrend is likely to continue for additional profit.

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It is not necessary for the FT Trigger to participate in the Hidden Divergence formation. The role of the FT Trigger is simply to turn up (shown at arrow E) and “trigger” the entry with a blue up candle. Divergence Pro™ easily identified this HD signal and placed a green up arrow and yellow HD label at F. Whenever price is trending upward and makes a “stair stepping” higher low while the FT Cycle makes a lower corresponding low, it is called Hidden Divergence (HD). This allows for market entry on the first up (bullish) candle after the FT Trigger hooks up but the FT Cycle can also trigger the signal if it turns up with a bullish up candle before the FT Trigger does. The FT Cycle does not need to be hooking up for entry, but it does need to have established a lower low ( D lower than C) before the trade can trigger with the FT Trigger. Hidden Div ergence (Short) –

Hidden Divergence sell (short) signals are structured exactly opposite of longs.

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Figure 30-1 shows a downtrend in the Euro dollar (symbol 6E). Price makes a bullish pullback and peaks at point A. A little later, another bullish price pullback and peaks at point marked B. Typical of downtrends, notice that price is “stair stepping” downward as these peaks are consecutively making lower highs from one high to the next. In other words, B follows A and B is lower in price than A. Since price came nowhere near forming a double top, we would not normally suspect a possible market entry here.

Notice that point D on the FT Cycle went higher than point C. At the corresponding points, Price highs went lower (orange down arrow) while the FT Cycle highs went higher (orange up arrow) – that’s divergence by definition. Hidden Divergence are “with trend” formations indicating that, in this example, the downtrend is likely to continue for additional profit. Divergence Pro™ finds the formation for you and, with warning, identifies the entry “trigger” bar with the red down arrow and yellow HD label.

The Lum p Trade (long ) -

Here’s a signal type that is unique to Felton Trading™. It is a “withtrend” signal that has a built-in “filter ” that indicates that the trade could have reasonably good profit potential. Figure 31-1 is a look at Crude Oil (CL) on a 5 Renko chart and shows a clear example of the conditions necessary to form a Lump Trade (LP) to enter a bullish long trade. Figure 31-1

In a Lump Trade signal, three main structural conditions must be met. Since Lump Trades are with-trend signals we need to establish that a trend is either established or at least beginning to form. In Figure 31-1, an uptrend is beginning to form with a confirmed higher high and a strong probability of a higher low in Price. Lump Trades actually attempt to test the strength of a price pullback (retracement) using the FT Momentum indicator. But, before we can test a pullback, we must first define it. For a Lump Trade pullback to occur, we need both Price and the FT Cycle to both confirm that indeed a pullback did happen. 31 Confidential


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In this example, we see that Price formed a series of red bars shown at arrow A. The minimum number of bars required to define a pullback is one (1) but there is no set maximum number. To re-confirm that a pullback took place, we also need the FT Cycle to have turned down, in this example, by at least one bar which it did as shown by arrow B. Now we need to gauge how strong (or weak) the pullback actually was and we do that by looking at the FT Momentum indicator. At arrow C we can see that, although the FT Momentum indicator swung downward with a series of pink/red bars, it did not go below the Zero Line shown with arrow D. If Price had gone below the Zero Line, it would have indicated that the Sellers (Bears) were strong at this point and we would not have a potential for a Lump Trade to go long (Buy). Since Price stayed above the Zero Line, we can enter the Lump Trade at the close of the first blue (up) bar at arrow E that forms when the FT Trigger turns up (arrow G). There is a secondary entry that can be taken by waiting for the FT Cycle and FT Bands to confirm the bullish (up) direction if that dual condition occurs no later than the next bar after the standard entry bar. This entry will sacrifice some profit potential (slippage) in the hopes of gaining some accuracy. At arrow H, we see that Divergence Pro™ has successfully found the entry bar and placed a small green up arrow with the yellow LP label signifying a LumP Trade signal to go long in the market. Additionally, in this example, Divergence Pro™ has employed some of its tremendous signal filtering power by requiring all Lump Trades to not cross their respective FT Large Channel midline as shown here with arrow F.

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The Lum p Trade (sho rt) -

Figure 33-1 shows an example of a Lump Trade signal to go short in the E-mini Crude Oil market. Notice that all of the necessary formation requirements described in the previous example are met, only in reverse.

Figure 33-1

Both Price and the FT Cycle confirm that a bullish pullback occurred (arrow A) once the market started a down trend with established lower highs and lower lows showing in Price. Arrow B confirms that the FT Momentum indicator was unable to rise above the Zero Line. We enter at the close of the first red candle immediately following when the FT Trigger turns down, shown at arrow C.

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At arrow D, Divergence Pro™ finds the correct entry point and places the small red down arrow and the yellow LP label. Notice that the FT Large Channel filter was active in this example and that the entry bar did not cross the gray dotted midline. Although not a required filter, it can offer increased accuracy and profit potential to Lump Trade signals.

The Break Out Sign al (long ) -

Break Out (BO) signals are pretty much what their name implies. Price establishes a trend direction or bias then starts to reverse but only manages to form weak pullback “noise” and then “breaks out” of the weak reversal effort to resume the initial trend. Figure 34-1 shows three good bullish examples of the Break Out signal in Crude Oil futures (CL) on a 233 Tick 3 Line Break chart. When trading Break Out signals, it is best to use a Line Break chart.

In this example, we see Price making those higher highs and higher lows typical of an uptrend. Price peaks at the blue (up) bars shown with arrows B before starting a small pullback shown with the arrows A. For a good Break Out signal, we want these pullbacks to be of short duration. On a Line Break chart, we want them to be no more than two bars. Once the small pullback ends, then a single blue (up) bar will completely exceed the range of the preceding three bars and “break out” to begin the formation of a new higher high. The FT Trigger is shown but actually plays no part in the Break Out signal formation. Figure 34-1

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Divergence Pro™ finds each of these three BO examples and places a small green up bar and the yellow BO label on each entry (trigger) bar.

The Break Out “ I sland Bar ” Signal (long) -

As we mentioned in the preceding example, the pullback allowance can be no more than two price bars in a Line Break chart for a Break Out signal. Often the pullback is only one bar. When that happens, we get a special type of Break Out signal we call the “Island Bar ” (IB) shown here in Figure 35-1. We call it that because the lone red bar at arrow B is surrounded by a “sea of blue” bars. We also sometimes refer to it as a “slingshot” due to the “Y” formation that occurs. These Island Bar trades are best used as with-trend signals and here we see the uptrend established in Oil futures (CL). Price peaks at the blue (up) bar at arrow A before starting the single red (down) bar pullback at arrow B. Arrow C shows that the pullback did not continue as Price began climbing its way back up to close at a new price high. Bars A, B and C form the “slingshot” with the red bar being the “handle”. Notice the small dotted green line at the body top of the first blue bar at arrow A. This offers an entry target price where you might place a Limit Order to enter long in the market. Generally, if Price manages to climb all the way back to that level, there is a good chance the bar will close blue. Since every blue (up) bar in a Line Break chart must close higher Figure 35-1 than the (body) high of the last three bars, you should get a good fill price by entering at the dotted green line price. If price goes through the Limit Order and closes blue, we will get that nice fill.

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Arrow D shows the trigger bar for entering the “slingshot” whether you choose the Green dotted line or the trigger bar close. Divergence Pro™ places the green (up) arrow and the Yellow IB label to denote this is an Island Bar type Break Out.

The Break Out “Island Bar” Signal (short) -

Here in Figure 36-1 we simply reverse the structure and we get the Break Out “Island Bar” short. We call it that because the lone blue bar at arrow B is surrounded by red bars...stranded, if you will, like a castaway on a deserted island. These Island Bar trades are best taken as with-trend signals and here we see the downtrend established in Oil futures (CL) on a 233 tick 3 Line Break chart. Price peaks at the red (down) bar at arrow A before starting the single blue (up) pullback bar at arrow B. Arrow C shows that the pullback did not continue upward as Price began climbing its way back down to close at a new price low. Bars A, B and C form the “slingshot” with the lone blue bar being the “handle”. Notice the small dotted red line at the body low (close) of the first red bar (at arrow A). This offers an entry target price where we might place a Limit Order to enter long in the market. Generally, if Price manages to climb all the way back down to that level, there is a good chance the bar will close red. Since every red (down) bar in a Line Break Figure 36-1 chart must close lower than the (body) high of the last three bars, we will get a good entry fill by entering at the dotted red line if price goes through the Limit Order and closes red. Arrow D shows the trigger bar for entering the Island Bar Break Out whether you choose the red dotted line or the trigger bar close. Divergence Pro™ places the

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red (down) arrow and the Yellow IB label to denote this is an Island Bar type Break Out signal. Island Bar (IB) Break Out signals can also occur on the Better Renko charts. Here in Figure 37-1, we see two examples of IB’s…one short at yellow oval A and one long at yellow oval B.

Figure 37-1

IB signals on a Better Renko chart usually have flat body tops on longs and flat body bottoms on shorts, as we can see in these two IB examples. There’s no “Y”

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formation like there is in the Line Break charts so we do not nickname these to be “slingshots”. Notice the small arrow and yellow label entries that were found automatically for us in Divergence Pro™.

The Stub Signal (long ) –

The Stub Signal is structurally related to Basic Divergence but with one missing component. Remember in Basic Divergence that there were six (6) corresponding points (locations) that made up the signal? We had two in Price, two in the FT Trigger and two in the FT Cycle. A Stub Signal is almost identical except that they are usually small in form and volatility and the final low (or high) in the FT Cycle is missing…leaving only a “stub” in its place.

Figure 38-1 shows the Stub Signal formation requirements for a bullish Buy signal to go long in the market. As with a Basic Divergence, we must have at least a “technical” double bottom in Price and we must have a higher low formation in the FT Trigger. These conditions are both met as we can see by the two blue lines marked by the A arrows. So far, we have two-thirds of a Basic Divergence long signal by definition.

But now notice that there is no higher low in the FT Cycle because it contains only one low and we can identify its location at the small cyan dot at the bottom of the last red candle. In the place of the 2 nd FT Cycle low, we see a slight bend, or bulge, in the wall of the indicator as shown by arrow B. In effect, the 2 nd low is missing and only leaving us this “stub” that the FT Cycl e even tried to turn down to form the 2 nd low.

Figure 38-1

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When Stub Signals form, by not being able to make a 2 nd low, this offers evidence that there is bullish market pressure exerting itself. It is so strong that the FT Cycle is prevented from making its 2 nd low. Logically, it follows that, if strong market forces are exerting pressure upward, Price should then go up. This is precisely what happens as Divergence Pro™ identifies the proper entry point and places the small green up arrow and yellow ST (Stub) label for us at arrow C. The Stub Signal (sho rt) –

The Stub Signal is structurally related to Basic Divergence but with one missing component. Remember in Basic Divergence that there were six (6) corresponding points (locations) that made up the signal? We had two in Price, two in the FT Trigger and two in the FT Cycle. A Stub Signal is almost identical except that they are usually small in form and volatility and the final low (or high) in the FT Cycle is missi ng…leaving only a “stub” in its place. Figure 39-1 shows the Stub Signal formation requirements for a bearish Sell signal to go short in the market. As with a Basic Divergence, we must have at least a “technical” double top in Price (arrow A) and we must have a lower high formation in the FT Trigger (arrow B). These conditions are both met as we can see by the two blue lines. So far, we have two-thirds of a Basic Divergence short signal by definition.

But notice that there is no lower high in the FT Cycle because there is a 2 nd high. There’s only one high in the FT Cycle and we can identify its location at the small red dot. In the place of the 2 nd FT Cycle high, we see a bulge in the wall of the indicator as shown by arrow C. In effect, the 2 nd high is missing and only leaving us this “stub” that the FT Cycle even tried to turn up to form the 2 nd high. When Stub Signals form, by not being able to make a 2 nd high, this offers evidence that there is bearish market pressure exerting 39

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itself downward. It is so strong that the FT Cycle is prevented from making its 2 nd high. Logically, it follows that, if strong market forces are exerting pressure downward, Price should then go down. This is precisely what happens as D ivergence Pro™ identifies the proper entry point and places the small red down arrow and yellow ST (Stub) label for us at arrow D.

9. Trading The Felton Trading™ Method We have covered quite a bit so far but there ’s still more to go as we now apply some “filters” to our signals in order to try to enhance their effectiveness and winning accuracy. No matter which market you choose to trade, price can only do one of three possible things at any given time. The market can trend upward (uptrend), markets can trend downward (downtrend) or markets can simply move sideways in a range. If that range becomes very narrow, we get a price condition known as “congestion.” Signals that work great for one market condition do not necessarily work well for others. For instance, if the market is in an extended strong downtrend, we would not likely want to go counter-trend on a small, weak Buy signal. Trading counter-trend can be quite profitable but it always requires a combination of market factors to be in place or the risk becomes too great. Always keep the winning percentages on your side by always trading according to what the market does a high percentage of the time. Let’s begin our method training by studying the Four Market Conditions and how we would trade them.

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Sideways Cycling -

This condition is characterized by good up and down “ocean wave” Price action with little to no actual trend bias direction. Sideways Cycling market condition is the only one that can be traded totally bi-directionally with little additional consideration. Go long or short as your signals and filters dictate.

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T r en d i n g C y c l i n g –

Trending Cyclical can also be traded bi-directionally, long or short, but extra care should be exercised when trading counter to the trend direction. Pay attention to your entry in relation to the position in the FT Large Channel. If going countertrend, entry should ideally be in the lower half of the channel and small profit targets would usually be desired.

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T r en d i n g C o n g e s t e d –

Trending Congestion is commonly seen when Price is moving strongly in either direction. This condition is characterized by very small, weak pullbacks in price of short duration. These pullbacks offer almost no profit potential if any signal were taken to go counter-trend. This market condition is for trading only with the trend, never counter to the trend.

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S i d ew a y s C o n g e s t e d –

Sideways Congestion is often referred to as “consolidation” and, as soon as this condition is recognized, no trades should be taken until the market starts trending or cycling again. Sideways congestion is recognized by short jerky up and down price movement with no significant higher highs or lower lows being formed. Any entry taken, long or short, would run into trouble almost immediately as Price would quickly be going against us.

The FT Sign al Filters Trade signals produced by the Felton Trading™ Method (or by Divergence Pro™) are not meant to automatically be taken, no questions asked. They are entry “suggestions” and should only be taken if they meet our additional filter requirements. Good signal filtering is essential. With each new version, Divergence Pro™ is taking on more and more of the filtering duties but there are just some things that computers and code can’t see while humans easily can. So let us go over our filter “arsenal” and discuss each one and how we use it.

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Using the FT Bands -

Figure 45-1 shows the smooth cycling turns (arrow B) and tight trend pullback (arrow A) conditions of the FT Bands. The FT Bands appear as a red and blue “sheath” which envelops the price bars providing a background color to identify the bearish or bullish nature of the market at any given time.

Figure 45-1

The FT Bands act as a signal filter in a couple of ways. In a good cycling market, the FT Bands help us identify when Price turns are likely to be occurring shown in the arrows B area, and also help identify good “with-trend” entry points in highly directional congested markets as seen in the arrows A area. Using the FT Bands along with FT Momentum and FT Cycle gives us excellent confirmation that a Price high or low has occurred. This can greatly enhance the accuracy when a signal triggers in the new Price direction.

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U s i n g t h e F T M o m e n t u m In d i c a t o r -

Figure 46-1 is the indicator filter we call the FT Momentum shown in arrow A. Notice how it’s a histogram made up of basically two colors…red and blue…but with three varying shades of each from light to dark. This is designed to show varying degrees of strength or weakness in Price momentum. We sometimes refer to the FT Momentum indicator as “momentum change”.

Figure 46-1

Any shade of red colored bars in the FT Momentum indicates bearishness in the market and Price is usually going lower. Any shade of blue indicates bullishness and Price usually rises. So, we want any signal to go long in the market to trigger on some shade of blue in the FT momentum as shown with arrow C. Arrow B shows Price reacting to two short signals and the corresponding shade of red in the FT Momentum. The darkest shades of red or blue indicate areas of strength in the bullish or bearish nature of Price at that time. 46 Confidential


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Using the FT Cycle -

The FT Cycle is a type of oscillator called a stochastic. The Stochastic Oscillator was developed by Dr. George Lane to track market momentum.

Figure 47-1

The FT Cycle is the multi-colored rising and falling line seen here in Figure 47-1. The purpose of the changing colors is to indicate where bullish and bearish Price action might be weakening or gaining strength. We’ve already seen how the FT Cycle produces a divergence signal relative to Price as seen here at the diverging purple lines (arrows G). Now notice at arrow A that the FT Cycle is blue. That’s the strongest color indication that Price is bullish. Now, at arrow B, we see the oscillator turn green indicating that the buyers are weakening. Then, at arrow C we see the color turn to white which is 47 Confidential


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the weakest color for bullish market direction and indicates that a market turn may be imminent. If we were long on the bullish Turn Signal, we might very well be looking for an exit on the trade if we were scalping the turns. Arrows D, E and F show just the opposite when Price is falling with red being the strongest color for the bears (sellers), pink showing weakness coming in and yellow indicating a bullish turn is likely soon. The FT Cycle is a very useful indicator for finding divergences, indicating market strength/weakness and for helping to confirm Price highs and lows (turns).

Using the FT MM Lines -

All robust trading methods incorporate some form(s) of Support and Resistance (S&R) in order to enhance a trades potential to make a profit or to indicate trouble ahead (and to avoid entry). In addition to trend lines and channels, the Felton Trading™ system uses an indicator called FT MM Lines for finding S&R levels.

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In Figure 48-1, we can see by arrows A that we have three (3) FT MM lines shown as blue, cyan and magenta. There are actually an infinite number of these lines possible since they are updated every hour. The “MM” is an acronym for Murrey Math. Although we do not endorse the actual Murrey Math system of trading due to its complexity and rampant subjectivity, we find that the MM lines used are actually quite useful and seem to work better than other techniques such as Pivot Points and Fibonacci Retracement. In actual Murrey Math, the MM lines are labeled 0/8, 1/8, 2/8 on to 8/8 but we find this labeling to be unnecessary. One MM level is just as useful as another in our studies of MM lines. Let’s follow Price as it moves in relation to these FT MM lines. At arrows B, we see that the previous bullish price movement was halted twice as it hit the blue line. Price saw this MM level as “resistance” and headed downward in “stair stepping” fashion as it headed for the cyan MM line. Arrow C shows that Price actually pushed through the cyan line a bit rather than stopping right on it. This is normal since the MM lines are not perfect predictors of where Price will stop. No indicator can do that. But they are generally quite close and that is sufficient for our purposes. As Price heads from one MM line to another, it often produces some pullbacks which result in a signal. Arrow D shows where Divergence Pro™ found a HD short to send Price back on its way to the cyan MM line. A common phenomena that we often see when Price is in a strong trend (such as the downtrend here in this example) is what we call the “MM kiss”. In Figure 48-1, Price comes back down through the cyan line and halts at the bold magenta BD long (arrow F) then heads up for a bit to “kiss the cyan MM line goodbye”, so to speak seen at arrow E. Then, as Price forms the bearish IB “slingshot” signal (arrow G) to indicate the probability that Price will continue downward to the magenta MM line. Price indeed does fall to that magenta level and abruptly stops and reverses direction shown at arrow H. The FT MM lines help us to predict future price levels where the market is likely to halt, bounce or reverse entirely. This can assist us in picking price targets as well as entry points for taking countertrend signals.

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U s i n g t h e F T L a r g e Ch a n n e l –

Trend Channels have long been used by traders as a means of detecting when Price is in a strong trend as well as detecting when trends are coming to a probable end. Felton Trading™ uses a modified Regression Channel that we call the FT Large Channel seen here in Figure 50-1. Although Price is in an obvious uptrend, notice that the top and bottom of the FT Large Channel is colored red and green respectively. The red color indicates that it’s OK to take any short (Sell) signal and the green line says we are fine to take any long (Buy) signal. So, we have placed some Figure 50-1 orange check marks at every signal to show that Divergence Pro™ sees no problem in taking any of them. Divergence Pro™ keeps track of not only the slope of a trending channel but also the channel width. Both are important, especially when trading counter to a trend. So, unless there’s a problem with any o f your other filters, you are free to trade long or short when your FT Large Channel lines are red and green regardless of trend direction.

Figure 50-2 shows a definite uptrend in price. The FT Large Channel confirms this condition by showing green/green on the channel lines. This means you should only consider taking long (Buy) signals and ignore the shorts. In this example, we have placed check marks at each tradable long signal and an “X” to show the short signals you should not take.

Figure 50-2

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Figure 51-1 shows the opposite condition. Here Price is in a downtrend and confirmed with the red/red lines in the FT Large Channel.

Now you would only consider going short in the market indicated here with the check marks placed at the Sell signals produced by Divergence Pro™. Notice the “X” placed at the TS signal to go long. Notice the thin gray dotted line that runs at the exact middle of the top and bottom lines of the FT Large Channel. We use this line as another filter to avoid taking trades that trigger too far on the wrong side of the channel. This is especially important when going countertrend. Trade the upper side for shorts and the bottom half for longs.

Figure 51-1

Figure 51-2 shows us two yellow lines in the FT Large Channel. This indicates that Price is not giving us enough range (up and down volatility) to take any trades long or short.

We have placed orange “X” marks at every signal indicating no trades should be taken. In each of the previous examples, the check marks and the X’s do not appear in real market trading. They are placed here for clarity. It is up to the trader to note the FT Channel color(s) and trade accordingly. Or, the trader may choose to enter the input settings for Divergence Pro™ and let the software filter (remove) any signal in violation of the channel colors or the location of the entry price relative to the FT Large Channel gray centerline. Figure 51-2 51 Confidential


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U s i n g t h e F T T u r b o T w i s t e r s –

Figure 52-1 shows the indicator we call the “ FT Turbo Twisters ” at work. Notice how they turn and twist around each other…thus the name.

Figure 52-1

Each of these three twisting lines have a function. The main ones are the Fast Turbo shown at arrow A and the Slow Turbo at arrow B. The smaller dotted line at arrow C is part of a Keltner Channel (midline) and simply indicates price directional strength/weakness as the colors shift from varying shades of blue (bullish) to red (bearish). These color shifts are also evident in the Fast and Slow Turbo lines. Focusing now on the Fast and Slow Turbo lines, notice where the Fast Turbo, which has been moving away from the Slow Turbo line, suddenly turns around and “attacks” (heads toward) the Slow Turbo line as seen here at arrows D and at arrows E. These are the exact points where the bearish Fast Turbo turned up (bullish) or vice versa. We call these points “ Turbo Attacks”.

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Next, notice at arrow F that the Fast Turbo line went down to the Slow Turbo but was not able to push through. Instead, it turned and “bounced” off of the Slow line and we call this event a “ Turbo Bounce”. At arrow G, notice how, following a Turbo Attack, that the Fast line passes through the Slow Turbo and all three Turbo lines are spreading apart, or “flaring”. We call this a “Turbo Flair ”. These Attacks, Bounces and Flares can add greatly to a corresponding signals potential to make profit, but they are an added burden for the trader to keep track of in addition to everything else. Divergence Pro™ to the rescue once again!

Figure 53-1

In this Figure 53-1 example, Divergence Pro™ makes having the Turbo Twister lines on the chart unnecessary as it faithfully places the A (Attack), B (Bounce) and the F (Flare) points right on the chart near the signals and price bars with labels and red/blue triangle “arrows”. Notice that some occur at the exact time a signal triggers but, if they appear, most often it is one bar after a signal happens. These A, B and F’s often indicate that conditions are good for continued price movement in the signal direction. You can use Divergence P ro™ to filter signals using these Turbo A, B and F’s.

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U s i n g t h e F T Tr e n d M A –

Traders have been using various Moving Averages for many decades to help indicate trends, entry and exit points, etc. At Felton Trading™, we have incorporated a very versatile indicator called the FT TrendMA and we mainly use it to help determine longer term price direction and probable strength.

Figure 54-1

Here’s a chart of the S&P E -mini on a 233 tick Wicked Line Break chart shown in Figure 54-1. The FT TrendMA is shown as a multi-colored line changing from red to yellow to green. The red area, shown at arrow A, indicates that the market is bearish and perhaps Buy signals should be avoided. The green area at arrow B indicates the market has now turned bullish where Buy signals would be in order and shorts (Sell signals) should be considered carefully. The yellow area shown at arrow C, as an example, would indicate a neutral condition that is neither bullish nor bearish. In this case, if other indicators warrant, a signal could be taken in either direction. The FT TrendMA can be set to use many types of Moving Averages including Simple, Exponential, Hull and Weighted. But it should just be used as a guide and not a standalone indicator for market entries.

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U s i n g B l u e I c e –

Felton Trading™ incorporates a powerful Support & Resistance (S&R) indicator called FT Blue Ice . It gets its name from a 55 period Exponential Moving Average (EMA) that we color blue to represent “blue ice”. So, imagine a Polar Bear walking along breathing the nice crisp Arctic air and getting quite hungry. So he attempts to knock a hole in the “blue Ice” to dive in and catch some fish for dinner. Sometimes, no matter how hard he tries, he can’t bust through the thick blue ice…so he moves on to tr y at another spot. Finally, he finds a weak spot in the ice and is able to bust through and submerge. But, eventually, he needs to breathe so he tries to poke another hole in the ice. Sometimes it’s just a small hole big enough to just poke his nose through for a breath but too thick to make a hole big enough to squeeze through. At some point, the Polar Bear finds a weak enough spot in the “blue ice” to b reak and climb through to once again walk along the ice and replenish his breath. If we remember this story, FT Blue Ice is easy to understand.

Figure 55-1

Divergence Pro™ will automatically create the FT Blue Ice chart for you as seen here in Figure 55-1. See the blue EMA line at arrow A. It’s our “blue ice”. There’s another SMA line at arrow B that we call the “snap line”.

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Now, from the far left side of this chart example, imagine our Polar Bear walking along our “blue ice” and getting hungry. At arrow C, the polar bear charges at blue ice and tries to “break through” but with little success. He might have caught a small meal but the ice was just too hard and thick to really submerge. So, at arrow D, the Polar Bear gives up and walks along the ice to try at another spot. Each time the Polar Bear tu rns and charges at blue ice, he must cross the “Snap Line” (arrow B). When he does, the price bars turn opposite their previous color…alerting us to a Price attempt to bust Blue Ice. Arrow E shows us that the Polar Bear has finally made his way through the ice and is now submerged merrily catching fish to quench his hunger. But, eventually, the Polar Bear must surface to breathe and we see two attempts to do just that at arrows G. Notice the bullish “snap” at arrow F as the bars changed from red to green. One try later, at arrows H, the bear breaks through and once again is able to walk along the thicker Blue Ice as he searches for a new spot to submerge again. Notice at arrows I that two bearish “snaps” occurred where our imaginary Polar Bear decided to charge Blue Ice but abandoned the effort before he even got there. These weak attempts indicate strength on the buyers side of the market and that Price should continue upward. Price hitting Blue Ice and bouncing back gives a similar indication. Once Price penetrates Blue Ice, we look for strength on that side and watch for failed and abandoned attempts for Price to get back to the other side again. Each failed or abandoned “snap” attempt indicates good opportunities for taking signals corresponding to which side of Blue Ice Price is on. Notice the odd yellow price bar at arrow J. These are somewhat rare. They show where Price on a particular bar closed right on the Snap Line. We do not consider these yellow price bars to have made a Blue Ice Snap.

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10. The DivPro™ Software Successful trading requires concentration and multitasking. Questions like “Are we in a trend?” “Is there enough volatility?” “Does this setup meet my criteria?” or “Do my indicators agree?” need to be addressed prior to entering a trade. In the excitement of a fast moving market, such analysis can easily be mismanaged, even by experienced traders. To help make such analysis during live trading, we use a variety of specialized indicators. Among these are FTCycle, FTTrigger, FTMomentum, FTBands, FTMarketCondition, FTTurbo, and FTTrendMA. Foremost, however, is FT DivergencePro™ (DivPro™ for short) which organizes all relevant information into a single signal generating software program. With FTDivPro™, we can, if we choose, remove all other indicators and use its advanced filtering mechanisms alone to show Felton Trading™ signals. B u i l t - i n B a c k a n d F o r w a r d T es t i n g

FT Divergence Pro™ includes simulated trading functions that allow back and forward test results to be displayed live on chart. (Detailed results are also available in NinjaTrader's output window.) Installation

Divergence Pro™ software, and all Felton Trading™ indicators, are written for use in NinjaTrader. To install Divergence Pro™ and its associated tools, first remove any previous Divergence Pro™ installation. To do this, in NinjaTrader's Control Center choose File, Utilities, Remove NinjaScript Assembly, select the previous assembly, and click Remove. Next, from Felton Trading ’s Box.net location, download the latest Divergence Pro™ installation zip file. Then in NinjaTrader's Control Center, click File, Utilities, Import NinjaScript, navigate to your installation zip file, select it, and click Open. Once installed, FT Divergence Pro™ and its associated indicators will appear in the indicators list accompanying each chart. (Indicators are reached by right clicking on chart and choosing "Indicators," or by pressing CTRL + I.) You should now be ready to add Felton Trading™ indicators to your NinjaTrader charts. In addition to manually selecting and adding FT indicators to your charts, you may also download chart templates from Felton Trading ’s Box.net location. Templates hold your chart colors, all chart indicators and their settings. Downloaded templates should be placed in your Documents, NinjaTrader 7, templates, Chart folder. Once there, right click on chart, scroll to the bottom of the pop-up window, choose Templates, Load, and select the template of your choice. Once done, a typical Felton Trading™ chart should look similar to Figure 58-1 below.

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Figure 58-1: Typical Felton Trading™ chart

B a s i c N av i g a t i o n

FT Divergence Pro™ contains an extensive list of inputs giving it the ability to adapt to a wide range of trading styles within the Felton Trading™ method. These inputs are divided into ordered sections, each addressing a fundamental feature of the software. To navigate these sections more effectively, we suggest collapsing unused categories by clicking the boxed minus sign ("-") to the left of those section headings. See the red arrow in Figure 59-1 next page. Clicking the resulting boxed plus sign (“+”) re -expands the collapsed section.

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Figure 59-1: Collapsing Unused Input Sections – Expanding Help Text Sub-Window

Beneath the input section of the Indicators Window is a small Help box (lower right) describing the significance of the selected input line. In Figure 59-1 above, the input line and corresponding help section is titled “NT Sound and Text Alert” and marked by a yellow arrow. However, the help text is often only partly visible. To see the complete text, drag the top line surrounding the Help box upward to enlarge the box until it contains the remaining text. Also, note that the input line itself is sometimes partially covered on the right. This text section can also be expanded by dragging to the right the midline separating the input name and its variable. Override Primary Setting s With ...

The first input in FT Divergence Pro's primary settings is "Override Primary Settings With...". This contains a drop-down menu of options used to reset the primary settings in FT Divergence Pro™. "UserSettings" displays by default. As long as this is showing, FT Divergence Pro™ will accept any input showing in the indicators window - typically involving changes made by the user. If anything other than "UserSettings" is showing, then upon clicking Apply or OK, FT Divergence Pro™ will adopt settings from a stored list corresponding to the 59 Confidential


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selected override choice. “ResetAllToDefault” resets all primary settings to the ir default values; “ResetFiltersOnly” resets only filtering options to their default values (filtering options are those in the signal sections); “ResetBackTestOnly” resets only back testing input values; and “NoFilters” sets all filter inputs to their most liberal values, allowing the maximum number of chart signals. Color and display options are not affected by these settings. They affect signal-generating and back-test inputs only. Section Z. Core Settings (Locked): Note that FT Divergence Pro™ is controlled entirely separately from all other FT indicators. Changes to other FT indicators have no effect on signals in FT Divergence Pro™! For example, if settings in FT Large Channel are changed to require more volatility in non-trending markets, these changes will have no effect on signals, unless the corresponding settings are changed in FT Divergence Pro™. Section Z. Core Settings (Locked) holds the primary settings for all signal-generating indicators contained within FT Divergence Pro™. It duplicates settings in all primary FT indicators, which are typically displayed separately on chart. However, these settings are "locked" by the first line in this section: "KEEP ORIGINAL CORE SETTINGS" must be set to False prior to making changes in section Z.

Finally, in some cases, FT Divergence Pro™ inputs are not a single variable but are a series of inputs separated by commas, such as "T, T, T, F, F, F" or “1.5, 1.5, 1.5, 1.5, 1.5, 1.5”. In these cases, each element separated by a comma refers to the input for a different signal type, in the order LP, ND, HD, ST, BO, TS (Lump, Normal Divergence, Hidden Divergence, Stub, Break Out, Turn Signal). When necessary, this allows each signal type to have different values. However, if all signal types can have the same value, the comma delimited string can be replaced by that single value. For example, the series of comma- delimited 1.5’s above could be replaced by a single 1.5 to indicate that all signals will use the value "1.5". Further examples of this, and other input details, are available in the training videos. Divergence Pro™ S i g n a l A l e r t s

In Figure 58.1 above, confirmed signals are marked with red and green entry arrows accompanied by their appropriate signal labels. Note, however, that the HD signal arrow on the far right is gray. Divergence Pro™ indicates a signal on the first tick the signal becomes valid (intra-bar). Signals are not confirmed, however, until setup conditions are met at bar close. The right-most HD signal bar above has not yet closed, and hence the arrow is gray. If the bar closes while the setup is valid, the arrow will turn from gray to green, indicating a confirmed HD long. Conversely, at the moment the setup becomes invalid , it will be removed, optionally leaving behind a gray marker to illustrate an unconfirmed set up on that bar. (See "Keep Persistent Warning Label" in FT Divergence Pro™ section B. Show On Chart.)

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Secondly, note the green message in the upper left corner of the chart. This is a written alert providing additional information about each setup. This also alerts intra-bar "pre-setups," those meeting basic criteria but not filtering choices. Message box options are controlled in FT Divergence Pro™ Section C: Message Box (Figure 61-1 below).

Figure 61-1: Message and Alert Options

Divergence Pro™ also provides audible alerts as part of NinjaTrader's Alerts window. Audible alerts play sounds identifying the market, chart, timeframe, and additional (optional) information. Audible alerts are controlled in Section D. NT Alerts Window, with sound files downloaded and installed according to directions on our Box.net website. Visual Customization and Templates

All FT indicators can be visually customized to user preference. In FT Divergence Pro™, visual customization options are spread throughout various sections. The primary visual choices for on-chart display are in Sections A: Signals, B. Show 61 Confidential


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On Chart, K. Turbo Lines, and in the Plots section. Section A controls which signals are displayed, along with a few filtering conditions for each. Section B and the Plots section control most coloring options, and Section K controls Turbo markers and background coloring. After making color choices and setting display options to your preference, we strongly recommend saving your selections as a chart template. To do this, close the indicators window, right-click on chart, and choose "Templates... Save As" from the bottom of the pop-up window, saving the template with a name of your choice. Saving a template will save all user inputs, not just visual choices. Consequently we suggest saving one template with color choices only to serve as your default coloring scheme. One further display option bears mentioning here: Show Filtered Signals in Section B allows the user to see grayed-out markers on chart for signals filtered by Divergence Pro™. This can be especially helpful when changing filtering options, allowing the user to see all possible setups from which Divergence Pro™ is selecting signals. S i g n a l F i l t e ri n g

FT Divergence Pro™ includes an extensive set of filtering options for each signal type. Felton Trading™ signals each employ unique setup conditions and consequently have their own filtering requirements. These can be found in Sections E: Normal Divergence through J: Turn Signals. (A few general filtering choices are also in Section A.) They include filters like "Confirm with Price Channel" (i.e., FT Bands ), "Confirm with TrendMA,” and "Max Bars from Agreeing Volatility Bar”. Changing the filtering conditions affects when the corresponding signal will appear. For example, if “Confirm with TrendMA” is True in the Hidden Divergence Section G, all HD signals will confirm only if the slope of the TrendMA agrees with the signal direction. (This is typically a 20-period SMA, as set in Section Z: Core Settings.) Similarly, if “Max Bars from Agreeing Volatility Bar” is set to 15 in Section I: BreakOut, then no BO (or IB) signal will confirm unless a volatility marker has occurred within the past 15 bars. (Note that the volatility marker must match the BO volatility-bar setting in Section A.) Details for the meaning of each filtering choice can be found in their corresponding Help box, as described in Basic Navigation above.

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11.

The SignalPro™ Software

Introduction

In the beginning, Felton Trading methodology was primarily a divergence based trading system with Basic and Extended Divergence for counter-trend and Hidden Divergence for with-trend trading. As the method evolved into a coded system, it was logical to give it a name that reflected this. Thus the name DivergencePro™, later shortened to Div Pro™. As the software evolved, several new signal entries were introduced that had nothing to do with divergence at all. So it became apparent that a name change was necessary to avoid any misconceptions or confusion. As Felton Trading adopted more “customized” bar chart types such as the LineBreak and, more recently, the Renko, the time was right for a name change of the software…and thus the name SignalPro™ was born. The SignalPro™ Chart

Since SignalPro™ incorporates everything that currently exists in DivPro ™, there really isn’t a single type of bar chart that SignalPro™ can use. However, there is one that is exclusive and now is a good time to introduce you to it. In Figure 63-1, you can see the FTSupremeOHLC on a CL 16 tick, 1 step chart..

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The lighter blue and red uniform size bars are your Renkos and, in this case, each one is exactly 16 ticks tall. The step setting is 1 and this means that each Renko bar exceeds the previous by 1 tick if a trend is to continue. Trends stop and market turns occur when Price cannot move another tick in a trend direction. In Figure 63-1, you can see several red arrows pointing out some of the features, signals and indicators of the chart. Indicators - Arrow A shows a VMA (Variable Moving Average) which some traders use to help identify increasing or decreasing market volatility. It can also serve as a guide for stop placement when trailing. Arrow(s) B show the blue bullish and red bearish FTOverlay to help gauge buying and selling strength. Arrow C shows the FTMovingAverage which helps us to identify the SA signal entry. Arrow D points to the FTSupremeMomentum Line. This line, when dark red (bearish) or dark green (bullish), shows when the market is particularly strong in the respective direction. Signals – Arrow E points to a SM (Supreme Momentum) signal. This occurs when the Supreme Momentum line starts its dark color slope. Arrow F shows an SA signal which is created when the FTMA line (C) changes from red or green to yellow and then back to the original red or green color indicating strength coming into the market. Arrow G shows us the BR (Bottle Rocket) signal, named for the long “tails” on the OHLC bars (K). BR’s are particularly strong and popular signals among Felton traders. Finally, Arrow H points to a Turn Bar, noted by the large red or blue body of the candle. Notice the yellow labels and colored arrows associated with most Turn Bars . These labels are familiar signals you’ll probably recognize from DivPro ™. Features - Arrow(s) I show the potential target lines (bullish and bearish) of the SM signals. These lines are automatically generated for you by SignalPro™ often well in advance of an SM signal even triggering at the beginning of an FTSM line slope. Arrow J indicates the background color of the FTSM indicator and lets you know when the FTSM line is in a strong slope position on your trading chart and also on any other FTSupremeOHLC chart timeframe you choose as long as the step size is 1. Arrow(s) K point to the thin white lines which are your OHLC bars. These accurately keep a record of what Price actually did within each Renko bar. The data is accurate historically, also, for whatever number of days that you have loaded. Arrow L shows the beginning of a FTSM line slope and prints with a green horizontal line for bullish and red for bearish. This means that you you don’t actually even need to have the FTSM Line and Background running on your chart to know when a slope will begin and where it will end in the future if Price is able to continue in the trend direction.

SignalPro™ Signal Pro™ is continually improving, with significant upgrades released every month on average. Filtering choices and settings can change as the program evolves; likely becoming simpler as testing determines which filtering options are most effective.

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12.

The Mental Side of Trading

If we had to rank the major causes of student failure, negative human emotions (and the havoc they cause) would easily rate #1. There is just something about sitting and watching those candlesticks moving up and down all day that completely mesmerizes us. It looks so devilishly simple. Get in and get out, right? How hard can that be? Quickly we find that the markets are deceivingly difficult and frustrating. No matter which position you take, long or short, the market is going to do its best to make you feel like the dumbest trader to ever look at a chart. Your only protection is the safety of your trading rules, yet the market has a way of lulling us into false security or just plain scaring the daylights daylights out of us to get us to break our rules. The sad part is, about 90% of all traders blow up their trading accounts because they cannot follow their own rules. Rules are crucial to successful trading. As a car driver, if you choose to disregard the rules of the road, you probably will not be driving very long. You can bend the rules now and then as a car driver but you do not have that luxury in trading. Break your trading rules and the market will break your trading account. So, how do we become a truly disciplined trader? First, we start with a good trading system or method. You must have total confidence in your trading system and your ability to trade that system correctly or you can never become disciplined. By disciplined, we mean you always have logical justification for everything you do in the market, according to your rules, and never trade by guesswork, intuition or gut feeling. Trading discipline means you are able to trade without being paralyzed or influenced by fear. The biggest cause of trader failure isn’t because the system didn’t work. It’s because they didn’t work the system. Fear of loss and the fear of losing out (greed) are the single most difficult demons to learn to control. Realize that your goal isn’t to abolish fear. That would be virtually impossible short of a lobotomy. Human emotions are part of our being. Our goal then is to control our emotions to the point where they do not interfere in our decision making. When we rush to trade, place or run our stops too tight, exit 65 Confidential


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winning trades too quickly while exiting losing trades much too late, we are the victims of fear. The most effective weapon against the devastating effects of fear is confidence. Did you ever notice that all tasks requiring skill are done best by confident individuals? Trading is no different. In fact, trading is one of the most demanding and least forgiving of all skills you can perform sitting still. People aren’t born confident…they acquire it through knowledge and lots of practice. When you can lose five times in a row and take a sixth trade without any thought of previous loss, you are a confident trader. It comes from the unshakable belief that trading is simply a “numbers game” once you have mastered a good robust trading system. Do your job right and the numbers will remain in your favor and you should enjoy a long and successful career as a professional trader. Getting there takes work. A good place to start building rock-solid confidence confidence is in simulation trading. Simulators such as the one offered in NinjaTrader mimic live account trading extremely well. It allows you to put your your emotions “on hold” while you master your method and trading platform. Few traders can learn much of anything while they are scared to death. So utilize a great resource and sim trade until you you can win on virtually any given day following your system rules religiously. While you you are building your skill level and confidence, you’ll need to pay attention to some additional areas, too. Trading successfully also takes a great deal of patience, focus and a positive attitude. If a trader fully understands his or her trading system but is consistently losing when other’s trading the same system are winning, the problem is nearly always mental. There are destructive negative emotions at work and they must be fully understood and dealt with. They are: Fear & Greed Impatience Recklessness Attitude Perfection There are a few others, but these are the main culprits that sabotage trading success. Fear keeps us mentally paralyzed and unable to enter trades when we should. Greed keeps us in trades too long and causes us to “snatch defeat fro m the jaws of victory” victory” on a regular basis. Impatience will not allow us to let signals come to us. By the time a signal properly forms, impatience     

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has made us an emotional wreck. Recklessness causes good winning trades to consistently fail due to mechanical entry and exit errors.

Recklessness has a sister named Anxiety that constantly feeds it. Together, they make sure you can never enjoy consistently smooth and correct order executions and winning trade management. In trading, attitude is everything. Never trade when you are angry, frustrated, upset or just not able to stay focused. Most traders understand and agree how the previous emotions can cause problems for the trader, but what is wrong with perfection? Actually, it can be very destructive because trading is not and never will be a perfect science. It is an art, a skill and losing trades will happen. But, by being able to control the amount of loss as well as, to some degree, the amount of wins, trading success can be enjoyed on a consistently profitable basis. Those who strive for trading perfection are always changing their strategy. They comb the world and pack the trading chat rooms looking for the next ultimate indicator. They could never be happy sticking to one trading strategy, even if it consistently made money. To be successful as a trader, you must recognize losing to be inevitable and an inseparable part of the game and eliminate the desire for perfection in trading. Perfectionist personalities make terrible traders until that trait can be recognized and overcome.

T h e V i c io u s E m o t i o n a l C y c l e –

All traders, in the beginning, experience an emotional rollercoaster each day they trade…even with every trade they take. We’re not just talking about sweaty palms and knocking knees here…those are external symptoms of what’s happening between their ears. Take a look at the following graphic and let’s go through the cycle of emotions traders experience and most never overcome.

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Every trader who has ever entered a live trade with their “real money” account can easily relate to Figure 66-1…the Vicious Cycle of Human Emotions that all traders must learn to control. Notice we say “control” and not “eliminate”. We cannot help being human and, as humans, we are Figure 66-1 all emotional beings. We cannot help feeling a wide range of emotions but we can learn to prevent reacting to them. Let us imagine a trader taking real trades in the market using their actual trading account. Real money must be at risk for these emotions to do their greatest damage. The day starts off well with a winner or two and the trader feels strong Optimism about reaching his or her goal for the day. They feel Excitement as profits increase with only a small loss or two along the way. “Hey, trading is a piece of cake”, they say to themselves. “With this system, I’ll be wealthy in no time.” Profits continue to rise and the excited trader starts feeling the Thrill of finally having financial freedom within their reach. A few more wins and our trader can hardly contain themselves. Their heart is beating joyously as they reach for the calculator to figure how many weeks it will take to make their first million. They have reached the pinnacle of human emotion…Euphoria. At this stage of the cycle the trader can easily fall victim to overconfidence. This is a false sense of confidence. It has no solid foundation. It was built on a few winning trades and this type of confidence can easily crumble.

Now a trade is taken that doesn’t go well. Perhaps overconfidence caused the trader to

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become a bit greedy and stay in a trade too long. It turns against the trader and loses. Perhaps the market condition has deteriorated or a string of losing trades follows and the trader starts feeling their first negative emotion… Anxiety. “I just need to relax my stop”, the trader says. But the losses continue…only faster now. The trader is thinking, “This just can’t be happening. The market has to give me those losses back. It owes me!” Our trader can’t believe how quickly losses can happen. “Not to me, the other guy is supposed to lose”…it’s called Denial. The trader begins to rationalize. “I think I just need to increase my stop and lower my profit target.” But the losses pile on and turn into a financial hemorrhage. As all of the previous profits evaporate, our trader’s denial turns into the realization that they weren’t “bulletproof” after all. This is when the trader begins to sweat as the feeling of real Fear begins to take over. Notice in Figure 66-1 that the Fear emotion is where the red dots first appear in our Emotion Cycle graphic. This is the beginning of where most traders selfdestruct. It is where most mistakes happen. Trades are badly mismanaged, rules are bent, broken or abandoned altogether in a frenzy of emotional turmoil that completely destroys our trader’s ability to think clearly. As Fear causes mistakes, more losses occur and the trader quickly plunges through Depression and into total Panic. More trades are taken now with most of them being weak or, worse yet, not even legitimate trades according to the system methodology. They are stab-in-the-dark guesses and they are bound for failure. Oh, a few will win giving our trader momentary hope but the majority will not and the trader’s account will co ntinue to evaporate. Now the emotional cycle passes into an acceptance ( Capitulation) that costly mistakes have been made and disaster has struck our once euphoric trader. As they begin to realize the extent of their losses in their frantic attempt to “ get whole again”, they hit the very bottom of human despair… Desperation. From fear to desperation, these “red dot” emotions are the ones that leave the deep mental wounds and scars. Left untreated, these scars only serve to cause the trader to continue to fail in the future as they exit winning trades much too early and exit losing trades much too late. Here it is easy to fall into a vicious cycle.

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So, the desperate trader finally seeks help from his or her mentor. It is what they should have done when things first started to go bad. But fear and panic clouded their thinking and they only sought help when they became desperate. So, together the trader and the mentor analyze what went wrong and try to build a clear understanding of the problem and a strategy to help prevent a reoccurrence in the future. With knowledge gained from their bad experience, our trader sets out with new Hope and attitude. They feel a sense of Relief as their wins exceed their losses and their trading account begins to recover. Is our imaginary trader “over the hump” and headed for blue skies and rainbows? Maybe. But the learning curve is never a straight line from any point in the process. When you think about it, every difficult skill capable of producing a healthy steady income is never mastered overnight. It’s a process – not an event. But, each downturn of the learning experience should trigger the realization that something has gone awry. The trader should stop trading and analyze what the culprit is. Have the markets gone soft? Has the trader become too aggressive? Are rules being broken? Sometimes the trader (especially in the beginning) will need to get with their mentor to sort out the problem. But the main thing is to stop trading real money and fix the problem before continuing. One of our very good trader students was once asked, “What is your number one recommendation for new students?” Without hesitation, the trader replied, “Stay in simulation trading longer than you think you need to.” Good advic e indeed. Sooner or later, every trader will venture forth and trade from their live account. But many, if not most, do so prematurely. They are so eager to start making money that they start trading their live account long before they are fully prepared to do so. They lack the method mastery. They lack the experience. They lack the ability to control emotions. They lack the level of real confidence that it will take to see them through the rough spots. It’d be like putting a 3 -month old colt in the Kentucky Derby. It is just not ready and a lot of practice and training lies ahead. Trading is all about learning. Not just the method or the platform…but about learning everything necessary to consistently win. That means learning about patience, discipline, focus, emotions, attitude and real determination. It also means learning from mistakes…and mistakes will be made. Finally, it means to never stop learning because the markets always have something new to teach us. That’s why learning in a grou p of passionate traders under the guidance of a

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professional mentor is so effective. That way, the lessons of the markets are never missed.

13.

Becoming a Professional Trader

The intent of this manual is to acquaint you with the Felton Trading™ system and methodology and get you started on the road to success as a professional trader. Many of you might already be enjoying profitability, but want to hone your trading skills and add to your effective trading arsenal. Whatever trading level you are currently at, novice or advanced, we look forward to a long-term relationship through daily communication. This comes in the form of Live Trading Room activity and commentary, regular Live Training sessions and one-on-one personal mentorship whenever needed. Although a manual is a good start, you’re best source of knowledge and understanding will be through the totally interactive training vehicles mentioned above. Nobody ever became a successful trader by reading a book so take full advantage of the excellent resources that Felton Trading™ offers. These are unmatched in the industry and are designed for lasting trading success. It’s great to reach your trading goals…it’s even greater to be able to keep reaching them. The best way to accomplish this is to have a master trading plan. It begins with reading this manual. Once you have thoroughly reviewed each section and have at least a fair understanding of the basics, the next step in your trading plan should be to attend as many of our free online Live Training sessions as you can. If you miss one, then review the recorded video of it as soon as convenient. Write down anything you don’t understand and need help with. M ake sure all of your questions are answered fully and you understand the answer completely. Finally, even after you have been exposed to vast amounts of trading knowledge, you will still need one more thing. An old Chinese proverb says, “What I hear , I forget; What I see, I remember; What I do, I understand.” The point is, in order to fully understand the method, you will need to “ do”. So, be sure to attend the daily Live Market Trading Room sessions that are held each weekday . That’s where everything will all “come together” for you as you see the method actually perform in the live market. Nothing beats having practical trading experience in the live market with your instructor “holding your hand”, so to speak, and guiding you to successful trading. While you are learning and honing your trading skills, be sure to only trade in simulation. Your broker can help you get set up with NinjaTrader’s simulation trading platform that will allow you to place orders in the real market, but without risking your real money trading account if you make mistakes (and, trust me, you will make mistakes, but that is how you learn).

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Becoming a trading professional has little to do with how much money you are making. It has everything to do with how well you can execute your trades according to your method and its rules and thus reach your trading goals. The object is not to win every trade. That is never going to happen. Your goal is to win more than you lose, and you do that through sound Trade Management. It is beyond the scope and ability of this manual to try to teach Trade Management, but the topic is addressed and taught in the Live Market virtually every day. Becoming a professional trader takes time, a lot of dedication and hard work. Too many traders think that trading is a virtual money machine or a golden goose getrich-quick way to an unlimited paycheck. If it were that easy, everybody would be doing it, right? You must make a solemn commitment now to do whatever it takes for however long it takes. Trading success can be yours for the rest of your life and Felton Trading™ will be there to guide you all the way.

14.

Online Training, Mentorship and Other Support

As a trader, you should never stop learning, but the knowledge you pursue must be worthwhile. The value of divergence indicators, dual and multi-timeframe confirms, support and resistance and everything else covered in this manual is powerful stuff when used properly. Your trading system is your financial lifeline. Don’t allow your trading strategy to become corrupted by hyped fads that don’t work. The Internet is infested with them. Understand that there is no magic indicator and no get rich quick system in trading. The true power of trading success lies within you and you alone. You have the ability to make trading work for you or against you. If there is a ‘holy grail” it lies within you. But you can’t do it alone and, with Felton Trading™ , you don’t have to. At Felton Trading™, we’re just an email ([email protected] ) or phone call (361578-7425) away for quick access to a vast universe of excellent trading knowledge and mentorship. If you are overseas or just prefer to use Skype, that can easily be arranged, also. All the manuals, trading books and articles combined cannot match the learning power of having real-time trading experience and professional mentorship during actual live market conditions. Nothing beats having a trading pro hold your hand and keep you on track until you are ready to completely trade on your own. In trading, it is truer than ever that knowledge is power. We look forward to sharing our knowledge with you and give you the power to achieve your trading and financial goals and keep achieving them. The Story of the 3-Legged Stool - I knew a trader a few years back who

liked to trade counter-trend.

One day he tried to fight a particularly 72

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stubborn trend and his first and second attempts failed miserably. On his next attempt, he chatted, "Well, three's a charm". It wasn't. For some reason, this old story got me to thinking about the old 3-legged stool analogy. My, how rock-steady they are until you take away one leg...and their "charm" comes crashing down. But, what does this have to do with trading? A lot. The goal of trading is ultimate, consistent and lasting success, right? But, beyond that, "success" means different things to every trader. That is, we don't all aim for the same amount of money (profit) in the same period of time with the same amount of capital and risk using the same strategy. To achieve our own individual definition of success, there are some fundamental critical elements that can be considered to be the three "legs" of a stool. They are: Method, Mindset and Mastery. With an actual stool, each leg might be made up of wood, plastic or metal. In our "Trading Success" stool, each leg is made of a subset of components. Let's look at each one in more detail. The Method leg is comprised of the markets you trade and how you trade them. The markets might be Equities, Options, Futures, Forex, Nadex, etc. The choices here are huge but not as many as the number of ways in which we can trade them. I often remind my students that, "There are several methods to consistently win and a million ways to lose". Trading with the right methodology is important and it's even more important to realize that the right method for one trader might be a disaster for you. For instance, when choosing a method, careful consideration must be given to the amount of complexity and the level of drawdown pain involved. Your method choice, no matter how well it works for someone else, will never work for you if it doesn't fit your personality and style. Many traders mistakenly believe that, if they find a winning method that fits, that's all that matters and vast riches are theirs for the taking. Nope. The next leg of our trading stool is Mindset. This encompasses the entire spectrum of trading psychology. It goes well beyond just having a winning attitude and would certainly include patience, discipline, focus and maintaining unshakable confidence in the heat of battle. Developing the 73 Confidential


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proper trading mindset involves overcoming the negative (as well as enhancing the positive) effects that human emotions play in assisting or sabotaging trading success. No trader ever consistently achieved their trading goals, no matter how good their method or system, without first achieving good psychological control. The final leg or our stool is Mastery. You can have the greatest trading method in the world and have total emotional control but you will fail to succeed if you are not totally knowledgeable and competent in what you are doing. A golfer, for instance, can identify all of the great techniques (Method) that the pros use and have total confidence in their ability to become a Sneed, Palmer or Woods, but, before that's ever going to happen, they're going to have to hit a lot of golf balls (Mastery). This means more than just practicing, however. Practice doesn't make perfect if you practice bad habits and a lot of traders do just that and never realize it. This is where good professional mentorship comes in and it's the only way a lot of traders are able to stay on target for the long haul. So, next time you're getting ready to trade, ask yourself, "How many legs are on your Trading Success Stool?" If you don't have all three, the markets will charm you right out of your money in a hurry. The moral: Don’t be a fool on a 2-legged stool!

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15.

Glossary of Terms

Bear Market - A market in which prices generally are declining over a period of time which could range from hours to months or even years. Opposite of Bull Market. Broker - A person paid a fee or commission for executing buy or sell orders for a customer. Bull Market - A market in which prices generally are rising over a period of time which could range from hours to months or even years. Opposite of Bear Market. Chart - The use of graphs in the technical analysis of futures markets to plot trends and other movements of price and volume of trading for the purpose of generating a signal to enter a trade. Congestion - In Technical Analysis, period of time characterized by repetitious and limited price fluctuations in which sellers attempting to cover their short positions are unable to find an adequate supply of contracts provided by buyers willing to liquidate. Contract Month - The specified month within which a futures contract matures and can be settled by delivery or the specified month in which the delivery period begins. Cycling - The up and down movement of market price similar to that of ocean waves. Often referred to as market volatility. Divergence - When the price of an instrument is moving in one direction, but an indicator (or possibly another market) is moving in the opposite direction. Divergence is most easily seen on a graphical chart when price is making lower lows, for instance, while an oscillator is making corresponding higher lows. EMA – Exponential Moving Average Exchange - A central marketplace such as the CME (Chicago Mercantile Exchange) with established rules and regulations where buyers and sellers meet to trade futures and options contracts or securities. Futures - A standardized, transferable exchange-traded contract that requires delivery of a commodity, bond, currency or stock index, at a specified price, on a specified future date. Futures contain standardized terms, trade on a formal exchange and are regulated by overseeing agencies such as the CFTC. Futures Contract - A term of reference describing a unit of trading for a commodity future. An agreement to purchase or sell a commodity for delivery in 75 Confidential


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the future at a price that is determined at initiation of the contract and obligates each party to the contract to fulfill the contract at the specified price .

Instrument - This refers to a particular market such as oil, gold or an index that the trader is observing on their chart. They are represented by symbols such as CL, GC and ES as respective examples. Limit Order - An order placed with a brokerage to buy or sell a set number of contracts (or shares) at a specified price or better. Limit orders also allow a trader to limit the length of time an order can be in effect before being canceled. Depending on the direction of the position, limit orders are sometimes referred to more specifically as a “buy limit order ”, or a “sell limit order ”. Line Break Chart - Line Break charts, such as the 3 Line Break, usually help traders more accurately determine the current direction of a market trend and alert them sooner when the trend has changed than do other methods (FT Cycles, moving average crossovers, etc.). Line Break charts display a series of vertical bars that are based on the closing prices. These bars are often seen sans the wick/tail shadows but Felton Trading™ uses a specially created Line Break that produces the wicks and tails which are necessary for backtesting as well as helpful when trading. In a 3 Line Break chart, for instance, price cannot close unless it has (1) exceeded the high or low range of the preceding 3 price bars (not including the wicks/tails) and (2) price must be above or below this level when the bar counter has completed its count setting. Every time there is a higher close a new up bar is created. When the price closes below the low of 3 previous bars the trend shifts to down and we start drawing red (bearish) bars. Every new closing low draws a new red bar and so on. Line Break charts often can help a trader spot trend reversals quickly. There are many uses for Line Break charts. You can use them for entries, exits and make wonderful places to trail your stops to catch the majority of the move. Long (Buy) - One who has bought a futures contract to establish a market position in the hopes that the price will rise. Opposite of Short. Market Order - An order that a trader makes through a brokerage service to buy or sell an instrument immediately at the best available current price. A market order is almost always executed quickly because it does not contain restrictions on the buy/sell price or the timeframe in which the order can be executed. Mini - Refers to a futures contract that has a smaller contract size than an otherwise identical futures contract. Momentum - In Technical Analysis, the relative change in price over a specific time interval. Often equated with speed or velocity and considered in terms of relative strength.

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Overbought - A technical opinion that the market price has risen too steeply and too fast in relation to underlying fundamental factors. Rank and file traders who were bullish and long may soon turn bearish .

Oversold - A technical opinion that the market price has declined too steeply and too fast in relation to underlying fundamental factors; rank and file traders who were bearish and short may soon turn bullish. Position - An interest in the market, either long or short, in the form of one or more open contracts. Resistance - As markets move up and down, they encounter price levels that cause the market to halt for a while or possibly completely reverse direction. When a market is moving upward and encounters a price area where new selling will emerge to dampen a continued rise, it is said to be finding “resistance” . Retracement - A reversal within a price trend. Scalping - A trading strategy where quick trades are taken for small profit targets. Short (Sell) - The selling side of an open futures contract. One who has bought a futures contract to establish a market position in the hopes that the price will fall. Opposite of Long. Simulator - Also known as Simulation Trading, Sim Trading and Paper Trading. This invaluable feature enables the trader to set up a “simulated” trading account and actually trade real-time markets using it. With NinjaTrader, the effect is extremely realistic and allows the trader to master their method and the trading platform without risking any of their actual “real money” trading account as their skill level increases. Slippage – The difference between where we wish to get filled in our trade entries and exits and the actual fill price. Slippage can be positive but usually it results in lost profit potential. SMA – Simple Moving Average Stop Limit Order - A stop limit order is an order that goes into force as soon as there is a trade at the specified price. The order, however, can only be filled at the stop limit price or better. Support - As markets move up and down, they encounter price levels that cause the market to halt for a while or possibly completely reverse direction. When a market is moving or trending downward to a price area where new buying is likely to occur and stem further decline, it is said to be finding “support”.

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Felton Trading Course Manual

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