Contents
Introduction
Chapter One: In a Nutshell
What I’m Going to Tell You
The Market Profile
The Point of Control
The Virgin Point of Control
The Jardine Range
The Universal Chart
What I Told You
Part One: The Basics of Market Profiling
Chapter Two: The Market Profile
Measuring the Market Profile with a Price Histogram Chart
Lines in the Sand
Conjecture Lines
Fibonacci as a Conjecture Line
The Best Line in the Sand
Profiles of the Profiles
Chapter Three: The Virgin Point of Control
Those Lines in the Sand
Strength in Numbers
POC as a Price Attractor
VPC as an Even Stronger Price Attractor
Market Memory is Only So Long
Chapter Four: The Jardine Range
What Goes Up
Natural and Potential
Back to Newton
Objectivity is Your Friend, Subjectivity Your Enemy
Part Two: The Universal System
Chapter Five: Getting In: The Oscillator
Those Squiggly Lines
The Great Oscillator Debate
The Stochastic
The Great Settings Debate
So What’s the Use?
Using Multiple Time Frames
My Settings—the Holy Grail (Not)
Objective Requirements to Generate the “Buy” and “Sell” Signals
Executing a Buy or Sell Signal
Chapter Six: Getting Out: Average Range
Quick Review of Our Goal
Catching the First Wave
What Next?
Profit Protection
Do the Research
Optimizing Your Target
Chapter Seven: Jardine Range and The Universal Chart
About Those Profiles
Chart 1: Jardine Range
Chart 2: The “Uni”
Blogging the Trades
Part Three: Putting Theory to Practice
Chapter Eight: Trade Types
Type 1: Standard Keltner Exit
Type 2: Keltner Exit with Fibonacci Extension
Type 3: Counter Market
Missed Trades
Chapter Nine: The Hard Part
Those Pesky Stops
Price-Based Stops
Market-Based Stops
Natural Stops
Lesson: Worst Case Scenario
A Word about Cash Management
Preparing to Lose—and to Win
Chapter Ten: Back To Fibonacci: Jardine Trimesters
Trading Resource Guide
Appendix A: Building Blocks
Appendix B: Fibonacci Review
Appendix C: 500-Day Trade Summary
Glossary
Recommended Reading
Copyright © 2010 by Michael Jardine
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
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Introduction
“How did you survive this technological adolescence without destroying yourself?”
-Ellie Arroway, in the film Contact
I’m not a Jodie Foster fan, but that is one of my favorite quotes, because I believe it sums up our experiences with technology not only in the years leading up to 1997 when the film was made, but even more so in the dozen years since. I also believe that we are beginning to see the first signs of disenchantment with technology, or at least a realization that it’s not a panacea. We can see these rumblings all over the place, from the slow food movement to the slow money movement. Sure, some of the erstwhile Wall Street investment firms-turned-bankers have pulled themselves out of the worst market depression since the Great Depression with the aid of sophisticated computers and so-called high frequency trading, but I don’t see their return on equity approaching anywhere near 50 percent. Yet that is what mere mortals like you and I can achieve by making just a trade a day. All you need is a basic understanding of how the markets work, and an objective method to convert that understanding into a tradable system. I do not claim that everyone can do it. I do not claim that it is sustainable. And I am not sure whether it is scalable. But a 500-day record of trade signals1, posted to my blog each day in advance of each trade, suggests that a 50 percent ROE is entirely achievable using knowledge of the Jardine Range, Fibonacci, and a few plain vanilla indicators.
My first book, New Frontiers in Fibonacci Trading, is an essential field guide of charting techniques and trading strategies focused on and derived from Fibonacci. Everyone has different sensitivities; different methods work for different people. In New Frontiers, my objective was three-fold. First, to lay the groundwork for intraday trading by introducing the basics of the market structure and explaining how a simple arithmetical number sequence—the same one used in The Da Vinci Code—applies not only to growth patterns in nature, but to the marketplace as well. Second, I introduced a number of useful charting techniques, mostly built upon that simple logic of Fibonacci. Finally, I explained, in general terms, how to take these techniques and strategies and build a trading system for yourself—a system that includes not just theory, but practice—applied entry and exit methods, stops, and techniques for optimizing the system by making sense of the “chaos” of what is going on around you, live and in real-time, in the electronic marketplace.
If New Frontiers is a field guide, then Just a Trade a Day is the owner’s manual. It is a concise manual to the most objective and consistent trading system that I have ever come across. I know because I used the tools that I introduced in New Frontiers to create the system, and I have used it consistently and successfully for the past six years since New Frontiers was published.
To create a system, it is important to have objectives. Some people like the excitement of trading all day long. Some enjoy high risk for high reward—Las Vegas is a good place for people like that. My objectives are a bit more realistic, at least to my own sensitivities: I want to minimize my trading to the one or two clear, easily measurable points in each day when a successful trade is most likely. I am not interested in catching a giant fish. I am not interested in netting hundreds of minnows. I want to sit by the bank of the river, enjoy the gurgling sound of rushing water, enjoy my book, then—when the time is right—drop the line in the water, catch a fish, and go home, each day. I do not want to waste my time chatting with other traders who will confuse me with their methods and their fish tales. I do not want to be tempted each time the market jumps up or down, or moves sideways. And I couldn’t care less about missing “the big trade” when the market takes off in a particular direction. I just want my one trade a day.
So I used the techniques in New Frontiers in Fibonacci Trading to create a logical system for trading, what I call the Jardine Range. It may work for you straight out of the box. It may complement a method or system that you are already using. Either way, I hope that Just a Trade a Day will deliver consistency and objectivity to your trading, while removing stress and endless hours in front of the screen, so that you can spend your valuable time on what is truly important to you. Like fishing. Or just listening to the sounds of a gurgling stream.
1 The 500-day record of trades, taken from my blog, is summarized in Appendix C.
I learned this in junior high school: “Tell them what you are going to say, then say it, then tell them what you said.” Many years and a MBA later, I learned that no matter how long the document, if you can’t distill the “tell them” part into one or two pages—the so-called “Executive Summary”—then anything else you write will simply not be read. So here is what Just a Trade a Day is about.
Each day, the market starts fresh. I trade the S&P Futures E-mini contract, known as the “ES,” which is one of the most liquid financial products in the world. Liquid is good. The more liquid, the less open it is to manipulation. Each day when the market opens, I have absolutely no idea whether it will go up or down. Actually, I am reasonably sure it will do both. I just don’t know which direction it will head in first, and I don’t know where it will end. None of that matters, as long as I know what the likely range is for that day.
I developed an indicator called the Jardine Range, discussed in Chapter 4. It is not a crystal ball that says prices will go to the high or to the low of that range. But it is a very useful tool that tells me what to do if prices reach the top of that range (go short), and what to do if prices reach the bottom of that range (go long). Usually, the market touches only one end of the range each day, hence, the title of this book. Occasionally, it touches both ends of the range, in which case, I have a frenetic two trades in one day. Sometimes, it touches neither end of the range, in which case, I am content to relax, read a book, or work on my other projects without any interest in what the market is doing. Rarely, it extends beyond that range. Those are the options.
So I created a system to trade the Jardine Range. It’s very simple. I sit and wait until the market moves to either end of the range. I then trade a reversal from that end. For example, if the market moves up to the top end of the range, I go short. If it moves to the bottom of the range, I go long. I then use a combination of indicators—including Fibonacci—to help maximize the exit of the trade. Then, I am done.
The Market Profile™ is an indicator trademarked by the CBOT, but it is also known as a Price Histogram. Basically it shows, in histogram format, how much time (or volume) the market spends at each price point. Imagine a pennant with prices going up the pole (or axis) of the pennant. The shape of the pennant is determined entirely by the price action during the market. If the market covered a large range and did not spend much time at any particular price point, the pennant would be long and blunt. If the market covered a small range and spent a long time at a given price point, then the pennant would be wide and sharp.
This is the “point” of a pennant—the one place where the market spent the most amount of time on any given day. Sometimes a pennant can have two or more points, but typically it has only one. The point can be sharp or blunt. This is a useful piece of information because it represents the point—or price zone—where the market was most “comfortable” trading during a given day.
Human nature being what it is, we tend to like to return to areas of comfort. If you went to a restaurant and enjoyed the food there, chances are you would go back. And chances are that if you were driving by it and happened to be hungry, you would stop. Traders do the same thing with the Point of Control (POC). The closer the market moves to a previously comfortable price point, the more certain you can be that it will actually go there. Very few animals approach the watering hole without taking a drink—unless, of course—they get scared away! So, what happens when the market moves to a POC? Exactly the same as when an animal moves to the watering hole. It takes a pause—or a drink—then it heads back.
The Virgin POC, or VPC, is a term that I came up with to define a Point of Control that is untouched, that is, that the market has not yet re-visited. It’s like a new watering hole that no animal has drunk from. The logic is that people, unlike animals, tend to be drawn to known areas of comfort that nobody else has been back to yet. It’s why skiers flock to their favorite slopes after a fresh snowfall. They know the area, and they know that the snow there will be fresh and virgin. The strength of a VPC is much greater than a normal POC and, as such, it is more dependable as an indicator.
The Jardine Range simply takes the closest VPC above and the closest VPC below the opening price of the market. Those are the two strongest “gravitational pulls” that will influence the trade day. At some point during the day, there is a 95 percent chance that prices will touch either of those two points. If prices touch one of those two points, there is a high probability that it will bounce back. That’s the Jardine Range—the two places where you are most likely to catch your fish for the day.
Once prices rise to a VPC from below, you can expect a rebound. That is a good place to go short. Once prices drop to a VPC from above, you can expect a rebound. That is a good place to go long. The Jardine Range tells you that these are the most likely places for reversals, as large or small as those reversals may be. You may then use the technical indicator or method of your choosing to enter your long or short trade. I developed the Universal Chart