The Trifecta

Handbook, v 1.0
By Rob Booker, September 2, 2014

The Trifecta Handbook

Table of Contents
Repeatable Trading
What is a Trifecta Trade?

The Trifecta Handbook

In Trading,
Repeatability is
Everything.
The only thing that matters is your ability to find and take profitable
trades, and then repeat that process.
Your goal as a trader is to find something that works, and then
hammer away on it. Extract every last dollar from it. Thats it.
Trading is not about the news. It is not about interest rates. It is not
about charts, patterns, trendlines, divergences, or even Trifecta.
Trading is about finding a repeatable process and then applying
massive leverage to that process to make money.
Maybe that process includes the news, or charts, or tape reading. It
doesnt matter. Let me repeat: it does not matter what trading system
you use. It only matters that the system is repeatable.
If you showed me a trading strategy that used the cycles of the moon
to plan trades, and it was repeatable, I would use it.
In fact, on the next page, I want to show you a chart with the phases
of the moon.

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Figure 1: The phases of the moon on an AUD/CHF 4hr chart.

It sounds ridiculous. But there is some credibility to the idea that the
phases of the moon are useful when predicting bullish and bearish
moves. Its really no different than saying that there is an inverse
relationship between interest rates and bond prices. Either you can
prove the accuracy of your theory (through profits) or you cannot.
But this book isnt about the phases of the moon (thats the next one).
This book is about a powerful, repeatable trading strategy that I use
every day. Its called Trifecta. Its not the only way to trade. But it
works for me. It works for thousands of my friends.
And I would like to ask you to give it a try.

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Principles Vs. Rules

The market moves in cycles.
This is an example of a trading principle. It is not a rule. A principle
is a belief, conviction, or observation about how the world works. A
principle can guide your behavior; it can be the foundation for a set of
rules. But a principle is a not a rule.
Principles are simple. They can often be summed up in a very short
sentence, or even in one word.
Rules generally cannot be reduced to a very short sentence. Rules
are explicit instructions that compel you to do something.1
I am not very interested in rules. Rules are rigid. Rules become
obsolete as environmental conditions change, but because rules
carry inherent (yet often undeserved) moral authority, we are slow to
toss them aside when they cease to work.
Heres an example of the distinction between rules and principles.
Lets start with an example from outside the world of trading.

EXAMPLE #1: The Drought

Picture this: A drought hits an entire community. Water is running out.

1 For an interesting discussion of rules vs principles, check out this link:
http://sandradodd.com/rules. Its about parenting but still applies. Or read
anything from Stephen R. Covey. Especially what he has to say about Lighthouse
Principles its wonderful stuff.
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It makes sense that the citizens must conserve water during this time.
Thats a principle, and you can reduce it to one word. Conservation.
From that principle, the city council could make some rules:
No watering of your lawn during daytime hours,
No watering of public parks or school fields,
And so on. They are very explicit, and the violation of these rules
carries a penalty.
Alternatively, if the citizens understand the principle of conservation,
and write it into their hearts (so to speak), they never need any rules.
They would know they should not waste water.
In this way, principles are more powerful than rules. You can
have effective principles without rules, but you cannot have
effective rules without principles.
Next, its important to mention that principles can either be valid or
invalid. You could also say they can be true or untrue, but that is a
value judgment which I prefer to avoid. The best way to talk about
the worth of a principle is to say that it either works or it does
not work.
Now lets look at an example from the financial markets.

EXAMPLE #2: The Market

A trader wants to make some money. He looks at $AMZN.

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He notices that this stock moves in swings up, sideways, down;

then down, sideways, and up. This is a principle. You could call this
principle Elliott Wave Theory. Or you could just say, $AMZN moves
in cycles of up, sideways, down, and so on. I just call it The Trifecta
Principle. The market moves in three different phases, over and over
and over again.
A rule based on this principle could be:
When the upward movement peaks, then breaks a trendline, we
sell.
Thats a trading rule. And as you already know, trading rules are
numerous. We can find them everywhere. My trading rules are not
better than anyone elses. Dont latch on to my rules as if they are
God-given. Instead, focus on the principles behind the rules, and you
will be okay.
Trading rules are dangerous if we become slaves to them. Most
of us have met a trader (including ourselves) who obeys trading rules
even when the rules stop working. When we value a rule more than
we value a principle, we become slaves we hand over our power to
a written statement that mandates certain specific behaviors. I have
made this mistake many times.
If we would simply value trading principles above all else, we could
empower ourselves to adjust the rules to be more effective as
conditions require.
So here is a recap:
PRINCIPLES are powerful and simple general statements about
how the world works.

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RULES are complex, well-defined statements about what to do in

specific situations.
You can trade profitably without rules.
You cannot trade profitably for an extended period of time without
working (valid, true) principles.2
If you are still having trouble discerning the difference between rules
and principles, ask yourself this:
Does this statement I am reading tell me what to do or NOT to do
specifically (a rule), or does it leave it up to me to make my own
decision (a principle)?

SOME FAMOUS PRINCIPLES

All men are created equal.
Love conquers all.
Reading is the most important life skill.
The market moves in cycles.

SOME FAMOUS RULES

2 Ray Dalio is a famous investor known for his love of principles. He is the founder of
Bridgewater Associates, a giant (and very profitable) hedge fund. You can read his
book here: http://bit.ly/dalio-principles. His writings on this topic have deeply
affected me.
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Thou shalt not kill.

Walk on two legs, not on four.

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What is a Trifecta Trade?

The basis of this entire book. Perhaps you only need to read this
chapter.
A Trifecta Trade3 is the process of profiting from the tendency of the
market to cycle through stages of trending, sideways movement, and
counter-trending activity. In other words, we trade market swings.

Figure 2: The GBP/NZD currency pair swings down, then swings back up.

3 The name Trifecta Trade comes from a series of experiences I had with my late
uncle Warren on the streets of Brooklyn, New York, in the summer of 1989. For
some reason, during that summer, he became positively fixated on that word. Every
time he saw three of anything beautiful women, taxis, or three jaywalkers crossing
the street illegally, he would cry out ITS A TRIFECTA! and everyone in the family
(except for me) would become red-faced with embarrassment. I never forgot it. And
now, I hope, you wont, either.
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This isnt new. I didnt invent the idea of market cycles. I didnt invent
the term swing trade. I do not believe that I am an original or smart
man.4
Long before I wrote these words there were traders talking about
trends, and counter-trends, and Dow Theory, and impulses and
corrections and waves and so on. These are good books. But they
are long and boring, and this book is not.
The Trifecta Method is the systematic application of a set of principles
to make money from these cycles of trending and counter-trending
movements.
These principles are all you need to remember:
The market moves in one direction;
The market slows down, moves sideways, or begins to roll
over; and
The market moves either in the same direction as #1, or begins
to move in the complete opposite direction.
But how do we make money from this? Well, to tell you how I do it, I
have to share with you some rules.
And before I can share the rules with you, I need to define two terms.

4 I am not your teacher. Experience is your teacher.
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Trifecta SWING Rules

Apply these rules5 to the 1 Hour FX Charts, and 15 Minute or 1
Hour Equity Charts.
Step One:
a) Identify a missed daily pivot above or below price.
b) If the pivot is above price, you are going to be planning and
taking a buy trade. If the pivot is below price, you are going to
be planning and taking a sell trade.
c) Your profit target is going to be:
a. Halfway to the missed pivot if you want the highest win
percentage.
b. All the way to the missed pivot if you want a larger
reward:risk ratio.
d) Now, move to the next step.

5 I told you that I am not fond of rules. I want to repeat that: I am not fond of rules.
Consider these rules a set of guidelines, which you can break, modify, alter, make
into your own, and play with as if they were made of clay. I slightly adjust these
rules on a regular basis based on my experience.
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Figure #1: Missed Daily Pivot is Trifecta Step One.

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Step Two:
a) Wait for Knoxville Divergence if you are looking to buy, wait
for bullish KD, and if you are waiting to sell, look for bearish KD.
a. The shorter the divergence, the better the trade.
I call Knoxville Divergence lines that stretch shorter than
30 candles NASHVILLE DIVERGENCE. These are rare,
and these divergences set up the best trades.
b. If you get a Knoxville Divergence longer than 100
candles, beware. It is probably best to avoid this trade.
b) Now, move to the next step

Figure #2: Knoxville Divergence, Bullish, Nashville Style

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Step Three:
a) Draw a trendline across the tops of recent candles (for buy
trades), or across the bottoms of recent candles (for sell
trades).
b) Buy on a break above that trendline, sell on a break below that
trendline.

Figure #3: Trifecta buy trade on break above trendline.

NEXT PAGE:
More stuff to think about

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Step Four: THINK FOR YOURSELF

Dont follow my rules.
Learn the rules above, then change them to suit your own trading
style.
For example:
a) It is ok to take some early entries. What happens if you do not wait
for the break of the trendline? You will have an early entry, at a really
good price. The trade might go against you. So what? You can work
your way out of the trade. Is it a good idea to take an early entry on
EVERY trade? No. But maybe you see a doji candle, or some kind of
reversal pattern, that precedes the trendline break. And you take it.
Good for you. Its going to be just fine.
b) It is ok to use a different indicator for getting into trades (on a break
above a fib level, for example). Dont become obsessed with rules, or
my choice of indicators. Of course, if you change the indicators and
get into trouble, you may start second-guessing yourself. But that will
pass over time as you learn to stand up for yourself and the entries
that you take.
Follow the principle here: price always attempts to move back toward
missed pivots. How you go about getting into a trade might be
different than the way I do it. Thats fine.
Dont use traditional stops.
I recommend trading a VERY SMALL trade size, and working your
way out of losing positions. More on this in the later Rollover
chapter.
Small trade size.

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When I say trade small, I mean really small. If you are trading a
$1,000 account in forex, consider trading for .10 a pip, or even less
than that. If you are trading an equities account, trade a small number
of shares, or use options and risk losing only 2-5% of your total
trading stake if the option expires worthless.
If you want to use traditional stops, do this.
Set your stop-loss below a previous low or above a previous high. If
this doesnt make any sense, then here is a picture:

Dont look at other peoples trades!

Dont get wrapped up in other peoples opinions. There will always be
people who agree with you and who disagree with you.
Dont get obsessed with economic news!
Avoid making long-term bets based on single economic reports.
Trade what you see, not what you are tempted to believe.

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Rolling Over Your Trades

If you do not want to use traditional stops, use these rules.
Rolling Over a Trifecta Trade means that you do not close it
quickly with a loss, but you hold open your trades, even if they
go against you, and work your way out of trouble over time.
The theory behind rolling over a trade is that if you trade small, and
give yourself enough time, you can trade your way out of any mess.
But its more than that. Here are other foundational ideas behind
rolling over a trade.
Every system goes through a bad time. You cannot prevent losses.
You will either eventually have a string of losing trades with small
stop losses, or a trade rollover project that you have to work your
way out of. But either way, bad things will eventually happen.
It is easier to trade small and work your way out of a loss, than it is to
experience a 10-trade losing streak. After a 10 trade losing streak,
most traders throw away their trading system, are psychologically
damaged (from a trading perspective and maybe more) and do not
take their next trades. If you simply hold open your Trifecta trade,
even though it is losing, you will experience fear and worry, but
eventually you will realize it all works out, and you will rest easier.
You cannot prevent losses. You are going to have losses, one way or
another. It is better to face those losses, and learn how to work your
way out of them, than it is to trade scared and worried all the time.
When you have a really tight stop loss, you get kicked out of trades
all the time, and then have to get back in if you want to catch the

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move. This can be difficult if you have a job or a life outside of

trading. In fact, you will miss a lot of your best trades because of this.
Rolling over your trade solves this problem.
Okay, so youve heard why I like rolling over trades. Lets talk about
how to do it.
1) Trade a very small trade size. For a $10,000 account, that would
be $1/pip or less. For a $1,000 account, that would be $.10 or less.
And so on.
2) Take a Swing Trifecta Trade. Place a 500 pip stop on that trade.

If we buy the CAD/CHF at .8335, we would place a stop on that buy

trade at .7835, which is 500 pips lower. (The stop could actually be
farther than 500 pips if the per-pip value of the currency pair is less
than $1 per mini lot, but Im just estimating here.)

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If that stop is hit, you lose 5% of your account. Thats a 5% loss and
that is EASY to make back. It will not get hit very often, but if it does,
you stop out, you take the loss, and its not a big deal. If you trade
with a larger trade size, you will eventually get stopped out of
one of these first trades and you will be sorry. Please stay with
the recommended trade size.
3) If the trade moves against you, wait for another Knoxville
Divergence in the same direction as the original trade. Then, take that
next setup when a trendline is broken.
Here is what that looks like:

As you can see, the 2nd trade has a 500 pip stop loss as well.
You might be thinking, what the heck happens if both of those trades
stops out? Then we lose 10%. But this is VERY rare. Even in 2008 during the mortgage crisis, a trader using the Rollover Method would
make 30% that year, even including the losses.
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4) Trade size should remain constant. With every subsequent

trade, keep your trade size the same. If you are thinking that you
would like to have your 2nd and 3rd and 4th trades be larger then
reduce the size of your first trade. I like to take a first position that is
FOUR TIMES SMALLER than what I recommend in this book. That
way, I can make subsequent trades much larger.
5) Take a maximum of 4 trades in the same direction. Once you
have done this, wait for your trade to turn around. If your 1st trade
stops out, you can add another trade on the next divergence setup.
6) If you break the money management rule, you WILL margin
call your account. If you want to increase your trade size, then use
the quick-stop method by stopping out above the highs or lows.
7) If your trade becomes a loss and requires a second trade,
consider that your only goal is to get out at zero profit, zero loss
(break-even). Do not worry about profit at this point. Just worry about
getting out. As you become more experienced with the method, you
will learn how to get out of all of your trades with profit. But for now, if
you are new, just focus on getting out at break-even.
8) Paying off bad trades. If you have one set of really bad rollover
trades, it is okay to pay off those trades or close them down with the
profit you make on other trades. I dont do this, but at the beginning, it
may help you feel better and ease into the process of rolling over
your trades.

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Here is what a Rollover Trade looks like on USD/MXN:

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How to Take a Swing Trifecta Trade

Setup: 60m Chart, Daily Pivots, Any Financial Instrument
1) Missed Pivot, 2) Divergence, 3) Trendline Break
Frequently Asked Questions
1) Do you have to wait for the pivot
to be missed? No. You dont. If you
take the trade before the pivot is
missed, thats ok.
2) Do you have to wait for the
trendline break? Yes. I would
recommend you ALWAYS wait for the
trendline break.

What is the best profit target?

1) Halfway the distance to the missed
pivot. You will win more often.
2) The nearest pivot of ANY kind. These
will result in quicker wins, more wins, more
happiness. I like this idea.
3) Daily or weekly pivot? It does not
really matter, but I prefer whichever is
closer. In the example above, the green
weekly pivot is directly above price. What
an easy profit target.

TRADE SIZE:
If you are stopping out below the lows,
then trade 2-3 mini lots per $10k in your
account.

3) What is the best profit target?

The one that gets hit. High probability
trading means you are happy.
Happiness means you are going to
make more money. See more in the
sidebar on this page.
More Questions
1) What happens if price moves
lower than the divergence shown
in #2 above? The trade is invalidated
and you should remove your pending
order. If you are already in the trade,
get out or plan to fight the trade with a
rollover strategy.
2) For how long is a missed pivot
valid? Take any trade that sets up
within 7 trading days of the missed
pivot. After that, forget about it.

If you are trading the rollover method,

trade 1 mini lot OR LESS per $10k.
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How to Roll Over a Trifecta Trade

How to Deal with Your Emotions

How To Do It

A 1-3% drawdown is common, normal,

and not a problem.

1) Take a Swing Trifecta Trade. Place a

500 pip stop on that trade. Trade $1/pip
per $10,000 in your trading account, so
that you will lose 5% if the trade stops out.

1) If you are worried about your trades,

you are a normal person. Now that you
recognize your worry, make sure you have a
plan, write down that plan, and follow it.
2) If you find that you are nervous and
anxious all the time, take smaller trade
sizes OR do not trade the Rollover
Method. You do not have to roll your trades
over. It is not a requirement.
3) The rollover method is what a broker
does. A broker takes the other side of the
trade, waits it out, and the market comes
back. I personally know a dealing desk
manager who held GBP/JPY sell trades
from customers in 2008, until the CEO
forced him to offset the positions for a
$15 million loss. Two weeks later they
would have been a $100 million profit.
5) This is how banks trade. Look at the
COT (commitment of traders) reports. Banks
hold positions from speculators until the
market comes back. TRADE LIKE THE
BANK.

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2) If the trade moves against you, take

another trade in the same direction the
next time you see Knoxville Divergence
plus a trendline break.
3) Trade size should remain constant.
Do not increase your trade size with each
trade. If you want to break this rule, then
reduce the size of your original trade to .50
per pip per $10k in the account.
4) Take a maximum of 4 trades in the
same direction. Once you have done this,
wait until your trade turns around. This
should remind you not to add more trades
too quickly.
5) If you break the money management
rule, you WILL margin call your trading
account. Do not trade a large trade size
with the rollover method.
6) ONCE YOUR TRADE IS A LOSS, your
only goal is to get out at break-even or no
loss. Do not worry about profit, worry
about getting out of the position.
7) If you have one set of trades that are
bad roll over trades, and one set of
trades that are very profitable, it is okay
to use 50% of the profits from the
profitable set to pay off the bad trades.
But thats it. Every set of trades should be
viewed as a unique problem/opportunity.

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Conclusion
If you dont like Trifecta, dont trade it.
Trifecta is not for everyone. Rolling over trades will cause you some
distress the first time you do it (and probably the first 5 times). But
once you learn how to trade out of trouble, something magical
happens.
When you learn to face your losing trades, and work your way out of
them, you become a better person. You will start facing your fears
and problems in every other area of your life. You will not give up on
things you want. You will battle for what is important to you.
The central idea behind Trifecta trading is that we choose a direction
and then we make our trades profitable. We take responsibility for our
trades. We take a leadership role. We do not think we can make the
market do something, but we do believe that we can make almost
any bad trade turn out ok.
And remember: although its easy to get fixated on the rollover
method, its important to remember that most of your Trifecta trades
will be profitable on the first entry. We will have wonderful win
streaks, weeks on end, with trade after trade working out nicely.
Ill be back in a month or so with some additions to this book. In the
meantime, enjoy!

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