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GOAL
To take advantage of price momentum in a prevailing trend. We enter a trade in the direction of the
trend the day after a breakout of a major high or low occurs (as explained below).
SUMMARY
This strategy requires going through daily futures charts, marking their 12-month highs and lows (or
contract highs and lows for markets that have traded less than 12 months - but for at least six months).
If and when prices in a market close above or below the marked high or low, thats the signal to enter a
trade in the direction of the trend the next trading day.
Remember - for examples of current trades using this strategy see Jims Chart Book as well as our Premium
Alert Service Videos.
CHAPTER ONE
STEP-BY-STEP INSTRUCTIONS
1 Using the Interactive Chart Feature on US Charts Online, go through the daily price charts, and for
each market you wish to follow, mark the 12-month contract high and low points on the chart (see
explanation in the previous section). For our example well use a chart of the December 2007 Wheat
market. Notice how we marked its contract high and low.
Note: To ensure youre seeing as much historical price data on the chart as you need, scroll below the
chart, select the 1024 x 768 (large) option, and click the Resize This Chart button.
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2 Periodically check to see how prices are progressing. If prices are in an uptrend, well pay attention
as they near the high we marked to see if they break and close above that high. If prices are in a
downtrend, well pay attention as they near the low we marked to see if they break and close below
that low. Be patient.
3 The day after prices close above or below the marked high or low, well purchase an option that
meets our budget criteria. If prices close above the high well purchase a call option; if they close
below the low well purchase a put option. In either case, well be trading with the prevailing trend.
Look at the chart of December Wheat on July 24, 2007, the day prices closed above the high. The
next trading day, July 25, is when we would purchase our call option.
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4 To find a call option, go to the Option Quotes page of US Charts Online and select the market
and month you wish to trade. Choose an option that has from 60 to 90 days remaining before its
expiration. For our example, we would choose an option in the December contract. Were looking
at the chart at the end of July, and December options give us well over 90 days before expiring on
November 20, 2007. The screen shot below shows a sampling of available options in the December
Wheat market on July 25, 2007. Purchase a call option that is as close to being in the money as
you can afford. In this example, we might have decided to purchase the 680 call for 35.625 points
($1781.25), or the 690 call for 32.75 points ($1,637.50). We enter the trade into Trade Tracker to
follow its progress.
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Phone 541-955-2885
Toll-Free 1-800-732-3118
Fax 541-955-2889
www.gbemembers.com
5 Continue watching your charts and wait for your signal to exit the trade (See Possible Exit Strategies
below.)
6 In deciding whether to enter a trade, look at the overall picture of the market. If a market has moved
straight up or down without any pullbacks from a breakout, dont be too quick to enter. This is
like trying to jump on a moving freight train. Instead, wait for a pullback in prices followed by a
continuation of the trend. Then let the break of the previous high (or low) be your signal to enter.
This pertains to adding to positions as well as entering new positions. If prices gap open above the
prior contract high in an advancing market (or gap open below the prior contract low in a declining
market), consider waiting to see if prices retrace to a level equal to the prior contract high (or low). If
prices do pull back, you might consider using the Fish Hook pattern or the Robo Entry method.
Training videos for both pullback entry techniques can be found at the GBE website.
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CHAPTER TWO
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CHAPTER THREE
SAMPLE TRADE
Lets look at our hypothetical December Wheat trade to see how it might have turned out. Look at
the chart for the market as of August 23, 2007. As you can see, after a brief pullback, prices rose sharply
from our entry point on July 25. We would have begun looking for an exit point as prices continued to
rally and our call option increased in value.
As prices rose, we would have looked for a signal to exit. We would have seen that on August 23,
Wheat prices hit a monthly resistance target that was made in 1996, and on that day we could have
liquidated our 680 call option for 82.75 cents ($4,137.50), or our 690 call option for 76.625 cents
($3,831.25). That would have meant a profit of $2,356.25 and an ROI of 132% on the 68 call, and a
profit of $2,193.75 and an ROI of 133% on the 69 call (not including exchange fees and commissions.)
In this particular trade we selected a fairly conservative exit point. A trader who was willing to take
a greater risk could have hung on longer to see if prices continued to rise. This is all part of the art of
trading. (Check the weekly or monthly charts at US Charts Online to see what Wheat prices went on to
do.)
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Notice: Hypothetical or simulated performance results have certain inherent limitations. Unlike an
actual performance record, simulated results do not represent actual trading. Also, since the trades have
not actually been executed, the results may have under- or over-compensated for the impact, if any, of
certain market factors, such as lack of liquidity. Hypothetical trading results are also subject to the fact
that they are designed with the benefit of hindsight. No representation is being made that any account
will or is likely to achieve profits or losses similar to those shown.
CHAPTER FOUR
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CHAPTER FIVE
POSSIBLE DRAWBACKS
1 Since were purchasing options close-to-the-money in the direction of a strong trend, these options
will tend to be more expensive.
2 We may have to monitor markets for some time before a breakout of a contract high or low occurs.
3 Since were entering the market at an extreme level, we could be close to the end of the trend, which
means our option could quickly lose value if the market turns. If this happens, we use the exit
strategy for a market moving against us to minimize losses.
Remember - for examples of current trades using this strategy see Jims Chart Book as well as our Premium
Alert Service Videos.
Phone 541-955-2885
Toll-Free 1-800-732-3118
Fax 541-955-2889
www.gbemembers.com