Ned Gandevani's S&P500 Winning Edge Day Trading System

by
Ned Gandevani
All Rights Reserved

RISK DISCLOSURE STATEMENT
THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. Y O U S H O U L D
THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR
YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO
TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE
AWARE OF THE FOLLOWING:
IF YOU PURCHASE A COMMODITY OPTION YOU MAY SUSTAIN A TOTAL LOSS OF THE
PREMIUM AND OF ALL TRANSACTION COSTS.
IF YOU PURCHASE OR SELL A COMMODITY FUTURE OR SELL A COMMODITY OPTION

YOU MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS AND ANY
ADDITIONAL FUNDS THAT YOU DEPOSIT WITH YOUR BROKER TO ESTABLISH OR
MAINTAIN YOUR POSITION. IF THE MARKET MOVES AGAINST YOUR POSITION, YOU
MAY BE CALLED UPON BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF
ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR
POSITION. IF YOU DO NOT PROVIDE THE REQUIRED FUNDS WITHIN THE
PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL
BE LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT,
UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR

IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN OCCUR, FOR EXAMPLE, WHEN
THE MARKET MAKES A LIMIT MOVE.
THE PLACEMENT OF CONTINGENT ORDERS , SUCH AS A STOP-LOSS OR STOP-

LIMIT ORDER, WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED
A M O U N T S , S I N C E MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE
SUCH ORDERS.
A SPREAD POSITION MAY NOT BE LESS A SIMFLE LONG OR

SHORT POSITION.
THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY

TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE
CAN LEAD TO LARGE LOSSES AS WELL AS GAINS.
PAST RESULTS OF S&P WINNING EDGE DAY TRADING METHODOLOGY IS NOT

INDICATIVE OF FUTURE PERFORMANCE. THE MONTHLY AND COMPOSITE ANNUAL
RESULTS SHOULD BE VIEWED AS HYPOTHETICAL. IN REALITY, THE RESULTS DO
NOT REPRESENT THE TRACK RECORD OF THE METHODOLOGY ORIGINATOR OR
STUDENTS. THIS ALSO MEANS THERE IS NO GUARANTEE THAT ONE APPLYING THIS
METHODOLOGY WOULD HAVE THE SAME RESULTS AS POSTED. SINCE TRADING
FUTURES SUCCESSFULLY DEPENDS ON MANY ELEMENTS INCLUDING BUT NOT
LIMITED TO A TRADING METHODOLOGY AND TRADERS OWN PSYCHOLOGY, THIS
MANUAL DOES NOT MAKE ANY REPRESENATION WHATSOEVER THAT THE ABOVE
MENTIONED TRADING SYSTEM MIGHT BE OR IS SUITABLE OR PROFITABLE FOR
YOU.
Winning Edge S&P Day Trading System

Ned Gandevani
All Rights Reserved
TABLE OF CONTENTS
Risk Disclosure Document.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Section 1 Introduction........................... ............................... 1
Section 2 Mechanics of a Trading Methodology ............................ 3

Section 3 The S&P Market and Its Internal Dynamics .................... 11
Section 4 The S&PMarketMap.. ............................................ 16
Section 5 The Magic of Common Numbers ................................. 27

Section 6 Key Points - Your Key to Winning Edge Trades ................ 33
Section 7 The Winning Edge Trading Strategy .............................. 45
APPENDICES
Appendix I Common Numbers Worksheet

Appendix II Sample Charts
Appendix III Is Day Trading for You?
Appendix IV Manual Calculation of Trend Line Key Points

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Section 1
Introduction
The Winning Edge S&P System is the result of years of research, observation, scrutiny
and validation. When choosing to pursue trading as my full time profession, I spent a
great deal of time studying and reviewing what the general trading population was
following and was therefore able to assess what their strengths and weaknesses were. I
also remained focused on one single market - the S&P 500 futures - and through very
close day to day observation have learned much about its characteristics, nuances and
general repetitive patterns.
The System as presented in this manual reflects the most conservative approach that I use.
Oddly enough, my most conservative trades tend to yield the highest returns. The System
is very simple and straightforward to help you maintain consistency during your trading.
As humans, wt: luvt; mu c;uq.Aicak things by curr~yuunding and expanding with UUI
collective knowledge. I urge you to treat this System as something completely different
from what you have been using in the past and to not intermix your past experiences, ideas
or theories with Winning Edge. Approaching this method with an empty glass is how it
was discovered - and how it should be studied.
Habitual human behavior, commonalities at various levels, memory and mass psychology
all play a crucial role as to how price is represented on a bar chart. The Winning Edge
System is designed to take advantage of this collective input and then decipher the most
probable future path the market will take. Our information obtained fi-om the charts is in
its purest form - we do not impose a rigid framework or structure to which the market
must comply, but rather let the market tell us what it wants to do.
Winning Edge S&P Day Trading System 1

Ned Gandevani
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I would like to thank you again for becoming a student and fi-iend and I offer this manual
as a reference and study guide to recap the learning experience we have both shared. I
look forward to your advancements and achievements in the field of day trading and wish
you the very best of happiness and success for the future.
Happy Trading,

Ned Gandevani
All Rights Reserved
Section 2
Mechanics of a Trading: Methodology
Characteristics of a Trading Methodoloev and Svstem
Studying successful traders reveals that they all have a trading system. Jack D. Schwager
in his book Market Wizards, identifies a set of common denominators shared by top
traders. Among them, he writes: Each trader had found a methodology that worked for
him and remained true to that approach. It is significant that discipline was the word most
frequently mentioned [in his interviews with successful traders.] Success in trading is based
on two particular pillars; Methodology (or System) and the Traders Psychology. These
two factors are so intertwined that they create a virtual circle. A better trading
methodology and system will result in improving the traders psychology and self-
confidence. A better psychology will help the trader adhere to his/her methodology which
will consequently create better results in the traders performance. Its difficult to build a
successful trading environment with only one of these pillars. An opp,osing and undesired
reaction is also possible in the trading virtual circle - poor trading results may occur when a
traders method is not compatible with his psychology. Poor results can discourage a
trader ii-orn being consistent with the application of his method and might discourage him
fi-om acting on all system created signals, thus creating lost opportunities and unfulfilled
expectations, which in turn would reduce the traders self confidence. It is therefore
imperative that a serious trader consider both of these crucial trading pillars before he or
she engages in trading activity.
What is a Trading Methodology or Svstem?

Whether you decide to employ a subjective methodology or a mechanical system (either
basic rule-based or advanced machine-intelligence-based ), when selecting or creating a
trading method you should consider the followings topics: Entry Point, Exit Point, Money
Management, Market Focus and Personalization of the Method.

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Entrv Point - The entry point is based on a particular time or price where the trader
would initiate his trading position in the market. Entry points are created based on a set of
rules or calculations that are determined by the trading method. A trading system should
tell us the precise point where we should enter the market. This entry point could be either
based on a particular market set-up, a signal, or a hybrid of these two. An entry point is a
crucial and integral part of any trading system.
1. Market Set-Up - An entry point can be generated based on a market set-up or specific
and quantified price pattern. For example: when the close of the second bar is higher
than the close of the two previous bars on a 30 minute chart, Buy at the open of the
next bar. This rule for an entry point was generated by a specific market set-up. A
market set- up can also be based on a price pattern or chart formation. Buy the
market at the break out of an inverted head and shoulder before 12:00 noon would be
an example of this concept.
2 . Signal - An entry point can be generated based on a particular signal. We will define a
signal as an entry point to Buy or Sell, which has been created by a computer program
designed specifically for generating trading entries. In Trade Station signals are
displayed by an upward arrow (buy) or downward arrow (sell), which is usually
accompanied by an audible tone. A signal therefore, is generated based on a series of
calculations or conditions in the market place which may include technical as well as
market sentiment indicators. For example if our 5 day moving average crosses over
our 10 day moving average we place a buy order.
3 . Hvbrid of Market Set-Up and Signal - An entry point can be generated by a hybrid of
a signal and market set-up. For example, enter the market when you get a signal from
your mechanical system and a confirming chart formation. A moving average

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crossover might give the trader his signal, while the double bottom chart formation
gives him the market set-up confirmation to then enter.
Exit Point - The exit point is a trading methods criteria to exit the market and close out
the existing open position. Before we enter the market, we should be aware of where our
exit point will be or what will cause us to exit our position. This can be accomplished
based on one the following:
1. Target Profit - Our exit point can be linked to a target profit. In other words, as soon
as we make our intended profit, we can exit the market. The target profit should be a
derivative of our risk-to-reward ratio. The risk-reward ratio is a predetermined amount
of how much we are willing to risk versus how much we want to make. A ratio of 3 : 1
would imply that we are willing to risk no more than one unit when attempting to make
at least 3 units. This ratio should be based on your own observations and experiments,
as well as psychological requirements. Without a properly set ratio, the game of

probabilities is hard to win. To better assess the profit potential in a market, we need to
study that market and set our profit target based on its potential. For example, the
bond markets daily fluctuation is usually about 16 ticks. It would unrealistic to set our
target profit for one full point (32 ticks) while day trading. In the case of the S&P
market, the daily average swing between its high and low is about 10 to 12 full points.
Of course, there are exceptions on certain days when volatility causes extreme price
ranges, but we cant base our methodology on the extremes.
2. stop Loss - An inherent part of the trading process is loss. Some of our trades will be
winners and others will be losers. But we want to make sure that we dont risk our
total equity capital on one or even just a few trades. Thats why we place a stop loss
exit point for every trade we take. We can have two types of stop losses. One is a
monetary or Price Stop. In this type of stop loss we decide on the amount of money
were willing to risk for our trade. This dollar value can be as little as one tick or as big

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as our total equity capital. The monetary stop can also be based on the average
volatility (price range) of the market. Another type of stop loss is a technical stop.
This is the type of stop that 1 pref&. Technical stops should be derived firom proven
technical indicators or market set-ups.
3. Abrupt Change - It always amazes me to know that many traders will open a position
and then leave it unattended until they get stopped out or make a profit. They take a
very passive approach towards their positions. If they dont make a profit, theyll just
wait until the market hits their stop. The astute trader will observe any abrupt changes
that occur in the market and act accordingly. An abrupt change in the market will
certainly give rise to new or different stop loss plans. If we see that market conditions
change (volatility for example) WC should exit our trades immcdiatcly, regardless of
any loss or profit. At this point profit or loss doesnt matter - we must simply get out.
4 . Timing - After studying the character and internal dynamics of a market, one may learn
how long it takes for a particular market to travel from point A to point B. With this
knowledge in mind, we can determine if our position is making the appropriate amount
of dollars per units of time, to determine if the trade is progressing at a speed consistent
with our expectations. If our open position moves at an unacceptable pace compared
to our past observations, we may have to exit early. This concept can be invaluable to
our trading. On numerous occasions, I have exited a trade utilizing this type of timing
technique, prior to the market hitting my technical or money stop point resulting in a
winning or break even trade, as opposed to a loser . I was able to retain money by
monitoring the market through my timing indications. In some of the financial markets
such as S&Ps, one can monitor market movements based on fi-actal movements.
These fiactal movements are the result of the general publics (retail) thresholds of pain
or pleasure. Since the majority of retail traders in the S&P market are undercapitalized,
as the market moves one to two points for or against them, they jump out of their
trades to cover with a small loss or gain. This constant flow of retail entry and exit

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activity has created a unique price fractal in S&P market. An astute trader can easily
capitalize on this idea. Understanding this concept can provide you with easy and
stress free trades that are quite profitable.
Money Management - When the vast majority of available trading books discuss the
subject of money management, they usually refer to the use of protective stop orders. But
I believe that money management in trading should be viewed from a different angle. In my
opinion, money management should deal more with optimization of ones trading account
and equity. What I mean is that if someone has an equity of $10,000 in his account, he
shouldnt trade more than one contract at a time in the S&P market, assuming that the
margin for day trading is not more than $8,000. But in the bond market, the same trader
needs to trade at least 2 to 5 contracts, unless of course he does not possess a satisfactory
confidence level in his trading system and methodology. A trader who overuses or does
not properly utilize the available capital in his account is guilty of poor money management.
Another important point about money management is that as one trades a system and
assesses the resulting win/loss ratio produced, he should then adjust the trade size and
stops to optimize return on investment. If for example you place one lot trades in the S&P
and your account equity is about $7,000, you should not allow your technical or monetary
stop to exceed more than $250 or so. If thats not possible, then simply pass on the trade.
There are plenty of opportunities in the market. You dont need to take extra and
unnecessary risks to be profitable. Look at trading as a long run endurance and not as a
short-lived kamikaze attack. Dont beat yourself up if you miss a good trade, because it is
you and vour svstem that perceive trade opportunities. The same market conditions might
be perceived by many other traders as unfavorable. What this means is that if youve been
able to recognize one good trade by following your trading system, then by definition your
system will show and signal more winning trades and opportunities in the market. Money
management also refers to full utilization of your money in your trading account. If youre
not able to fully utilize your money in the beginning, dont let your money sit idly in your
account - work it. Buy 3 or 6 month T-bills and let the account earn some interest.

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Another important aspect of money management is to never leave excess money in your
margin account. This surplus can be potentially harmful to your trading. When traders
have extra funds in their account, they tend to become lax with their stop placement. They
may possibly increase their stop loss amounts, with the justification that they need to give
the market room to breathe. Or, some might fall into mental stop trap. They simply
dont place any protective stop in the market with the justification that the locals (floor
traders) will run our stops and then the market will move in our favor. Following this
train of thought can create a still bigger and deeper problem. As the market goes against
their position, they begin to start hoping and praying for Gods mercy. Hope and fear are
magnified with each minor tick that justifies or opposes the traders position. Anguish and
jubilation are the emotions encountered with every price print. The end result is an
extremely distressful trade. If by chance you made money on that type of trade, that gain
can be your worst trading enemy and poison. Why? Because the next time you employ the
hope and pray strategy, a losing trade may very well cause irreparable damage to your
trading account. P&y advice is that as soon as you begin to hope and wish for the market
to move in your favor, you should exit immediately. Hoping and wishing is the same as
trading without a plan at all and must be avoided at all times. Therefore, money
management refers to the methods of optimizing ones equity through the proper utilization
and preservation of trading capital, as well as the correct placement and employment of
protective stop loss orders.
Market Focus - Contrary to a popular belief that one trading system and methodology
should work in all markets, I believe that a good trading system is geared for one
yalticular market. Each market exhibits its own behavior and internal dynamics, illustrated
by its daily range, degree of volatility, overall risk and required trading capital. Your
system or methodology should be a personal system which has been designed for your own
mentality, psychology and market of choice. This is essential in order to trade your system
consistently through both good times and bad. A subjective methodology is usually created

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by an intense study of a particular market. To apply the same subjective method to other
markets, is to assume the premise that all markets behave in a like manner. Accepting the
notion that all the markets behave in the same manner day in and day out, would eliminate
the time factor, dynamics and conditions of every trading day and therefore ignore new and
different market conditions and experiences. Furthermore, considering only price action in
a market would negate your observations and research on a markets internal dynamics. In
my opinion, each market shares a set of characteristics common to its group member
markets. A market will also behave uniquely according to its own unique internal dynamics.
For example, although the S&P market shares a set of common characteristics with other
financial market group members (like the bonds, currencies, etc.), its behavior is based on
its own internal dynamics and personality. If interest rates change, the S&P would react
almost in the same fashion as the bonds, since they are both a part of the financial market
group. Components of the group will tend to all react the same way to external factors.
However, the extent of reaction will be ultimately shaped by the S&Ps internal dynamics
and indigenous factors. The inter-market relationship should only be considered with a
long term perspective. Trying to utilize inter-market relationships for intraday activities
would not prove to be profitable to a day trader in the long run. ( In Uure articles, Ill
discuss this point more in detail.)
Personalized System - Its been observed by many good traders over the course of time
that a successtil career in trading depends more on the psychology of a trader, than the
trading system employed. As a trader, you have to feel comfortable with whatever trading
system or methodology you use. This comfort level can be evaluated by your systems
draw down, time consumption, number of trades and signals it produces and so on. In brief,
to ensure the suwess of a trading system or methodology, you must select OI c;reate a
system that is compatible with your personality and individuality. A system that is custom
fit for you, is more easily adhered to, resulting in less second guessing or other discipline
related problems.
Section 3
The S&P Market and its Internal Dynamics
The topics that follow give a general overview of items I considered and researched, when
on the road to discovering the Winning Edge in S&P day trading. This overview is
intended to impress upon your understanding the components which make the S&P
market what it is today. To trade any market profitably, you have to analyze and
understand the parts - as well as the whole. The concepts presented help to explain how
and why this particular methodology works as well as it does. Understanding them will
lend a confidence to the method and its application.
The Market is a Non-Linear Svstem

The market is a non-linear phenomenon. A linear phenomenons actions are based on a
lineal cause and effect chain. This view attempts to provide a linear solution to trading.
Simply put, it states that the future will be a repeat of the past - or that history repeats
itself. A trader with this belief attempts to utilize linear indicators and (over) optimized
values for his or her trading system. An example of this would be a mechanical system.
Mechanical systems are created with the notion that the past will be continuously repeated
in a very similar manner. It is no wonder why these systems are doomed to fail in the long
Market Participant Commonalitv

Market participants all share an assortment of common habitual patterns and behaviors,
which they collectively transfer to the market. This commonality creates levels of price
reaction that gain the attention and respect of the participants. Commonalities include
traders nationalities, analytical techniques, time frames and capitalization. These topics
will be expanded upon in the next section.

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The Market has Memorv
There are essentially two views regarding the financial markets. These views are an
extension of our world view perspectives. One is the Efficient Market Hypothesis, which
is based on the notion that the world was created as the result of a series of unplanned
phenomenon and accidents. According to the E.M.H., market activity and price changes
are determined by rational investors, whose actions determine the fair value for a product -
such as a stock or commodity. This view is founded upon an idealized approach that the
market will always seek to attain equilibrium. Equilibrium as opposed to imbalance, is the
state that the market is constantly striving to achieve. If prices change because of
unfulfilled expectations or erroneous valuations, the overbought or oversold condition
creates a situation where the market tries to return to its fair value level and normalize
itself. This particular view subscribes to the theory that the Market is the efficient vehicle
in determining fair product value. It should also be noted that there are three degrees of
the Efficient Market Hypothesis - Weak, Semi-Strong and Strong. Each version or
variation considers the randomness of capital market behavior in accordance with the
labeled strength or prescribed intensity of influence.
The EffGent Ma&et Hypothesis does nol lend itself lo any sustained trading move in the
market. It suggests that the market follows a Random Walk and therefore does not have
any memory about its past. There is, however, another view of market behavior that is
based on the System Approach, namely the Chaos Theory. The Coherent Market
Hypothesis and Fractal Market Hypothesis are based on the Chaos Theory, whose roots
are founded upon mathematics. Our methodology is based on the non-linearity aspect of
market behavior and the premises of the Chaos Theory. The Chaos Theory states that
globally speaking (the big picture), there is an Order in everything - but locally (the little
picture) there is Randomness. Overall the market is traveling in an orderly fashion, even
though the smaller view only detects what we perceive to be noise. At any time, if we
are able to determine the trend and order of the market, we should be able to optimize our
return on investment. This viewpoint is an extension of the world perspective; that our
universe and its material comnonents have been created in an orderlv nature with a snecific

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purpose. A market view based on the Coherent Market Hypothesis accepts market trends
and therefore market memory. This concept simply states that recent market activities
exert influence on todays market direction. This concept is another important and vital
feature in our Winning Edge S&P System.
This non-linear system view of the market confirms the existence of Key Points.
Participants are sensitive to the Key Points and react swiftly as the market approaches
them. Price reaction and directional change are based on the market participants memory
about the importance and significance of these numbers. Understanding and identifying the
Key Points of collective memories gives us a Winning Edge in our approach to trading.
Inter-Market Relationshb as an External Factor

The S&P 500 as a financial market shares a set of common characteristics with other
financial markets. Based on this, it reacts to economic news and relative financial numbers
when released. For example, changes in the interest rate have a significant impact on the
Bond, S&P, and Currency markets. Although other markets such as physical commodities
would also react to a new economic change, their impact would be to a lesser extent and
of a lower significance, relative to the core financial markets. The CRB Index might
respond to a change due to inter-market relationships, but the S&P would react in a more
similar fashion to that of the Bonds or the Dollar. Overall the S&P 500 as a member of
the Financial Group, exhibits a set of characteristics common within its group members.
Additionally, it exhibits its own generic, unique and individual set of characteristics and
idiosyncrasies. This gives the S&P market its own set of internal dynamics. Trading the
S&P successfully requires a greater and more in-depth understanding about its internal
dynamics.
S&P Internal Market Dvnamics

The S&P market is known as a day traders market. According to current research, 85%
of the market participants are day traders and only 15% are position traders. This

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information tells us that the reactions to news and market events will be for the most part,
rather fast and short term. Market participants are continuously analyzing new
information and events with a short term perspective. We may therefore conclude that the
S&P market is very sensitive to outside pressure and external factors, such as comments
from influential market leaders, media campaigns and political and economic events, both
domestically and internationally. At the time of this writing, we are bombarded by media
blitzes regarding Presidential scandals, Asian financial turmoil and potential war with Iraq.
Although we do not trade according to fundamental analysis, awareness of these special
situations gives us insight as to how the market will behave during certain periods and
whether we should even attempt to trade at all. External forces that would tend to create
a great and unpredictable disturbance in the market, (such as unemployment numbers,
FOMC meetings and large scale Bond auctions) are reason enough to stand aside and be
passive observers. We can always resume trading tomorrow.
S&P Traders
The primary force of market movers in the S&Ps are the Commercials and Institutions.
Based on a study of the past four years - 1994 to 1997 - there were approximately 70%
GollllllerciaVirlstitutional traders and only 30% I et&l traders in the S&P fbtures market.
Retail traders or speculative traders (such as you and I) are represented with transaction
sizes of 1 to 100 lots. (This group of traders doesnt have any reason to worry about the
size of their orders, unless they trade on extremely light volume days.) This means that the
real market movers are commercial accounts and hedge fund managers, who intend to
protect and hedge against their cash positions. The result of this proportion is that the
major rallies and declines are basically caused by direct or indirect (program trading)
participation of major institutional and commercial accounts. This also clearly explains the
strong relationship between the Cash and Futures prices. Variations in the Premium (the
difference between Cash and Fair Value prices) are the basis for program trading by the
commercials. We, on the other hand, are not the movers - we are simply trying to catch a
ride with the big institutions and benefit from their size, strength and duration of
movement.

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The S&P Market Mar,
what Is A Market Map ?

Every territory has its own map. A map is a guide, or set of indications and signs that
would help us navigate or comprehend where we are situated at a particular point in time.
Without a road map, it might be impossible or too time-consuming to reach a desired
destination. The S&P market has its own unique map that one can follow to find out
where he or she is, within the current framework of the marketplace. A market map
results from the habitual patterns and behaviors that can be identified in the market,
through close observation. The S&P market map can give us insight as to the price
swings we should expect during a typical day, what kinds of price patterns may evolve in a
given day and indicate time frames or windows of opportunity, when market movers are
likely to make significant directional changes. Our S&Y market map is also capable of
telling us the likely direction and extent of a major move, according to the type of day (run
up, run down or double-trend).
W&v Does The Market Map Exist?

A market map exists because of several reasons. The Market is a live organism. It moves,
grows, matures and dies. It has energy, momentum and excitement. Its energy is
constantly fed by the market participants. Markets and their price movements follow an
evolutionary path and pattern, specifically the Survival of the Fittest. Some markets die
because there is nw demand for them and some tlu ive until they aI e I eplaced by other moI-e
powerful and more evolved markets. Could the Mini S&P or Dow Futures markets
survive and thrive if there was a significant lack of interest by participating traders! On
some days, the S&P 500 Futures can move up to 30 full points - but on other days, the
total range might only be 4 to 6 points. Some days it can be dangerously volatile, but
suspiciously quiet on others Our S&P market map can show us which days, times and

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levels of volatility are optimal, for better trade selection and overall performance results. It
can also tell us how much of a move we should expect or what type of day we should
anticipate in the market. The S&P market is a reflection of its Market Participants. The
following major premises justify the validity of the market map concept:
0 All traders are human beiws - All market participants are human beings, who in
turn share a set of common characteristics. They all make decisions based on their
emotions and justi@ their actions with a common standard of logic . Market players
are motivated by two basic factors - Fear and Greed. They also share and experience
common stages in life. The majority of traders will react to an unpleasant economic,
political or natural disaster in a similar manner. When theyre happy or sad they act
accordingly. Good news moves the market higher and bad news takes it lower.
Financial market participants are all human beings, which means they all share a set of
common criteria with each other. This commonality helps to create a market map - or
series of patterns and behaviors that are predictable.
0 The maioritv of traders are in the US, - The primary geographic market for the
S&P is the United States. International traders follow U. S. news and events and their
corresponding impact on the S&P 500. However, for a market such as a currency,
London is the primary geographic market arena. Here in the U. S., currency market
reactions are on a second level in the chain of cause and effect. A currency trader
must follow the London market to decipher the true reactions, movements and
changes - just as an S&P trader in Japan or Germany must follow U.S. trading as the
primary source of relevant market information. Therefore, the majority of the traders
are either in the U. S. or are affected by the U.S. Any domestic, political or economic
news or events would affect all of us in the United States and would thereby affect the
S&P market. Cultural similarity in general creates additional commonality for overall
reaction and analysis. Of course, with current progress and advancement in
communication technology, we are aware of important news from any place in the
world, almost instantly. Nevertheless, the U. S. is the primary market for the S&P 500

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and American traders exert more influence on market direction and change, than any
of their counterparts around the globe. This also supports the theory that we, as U.S.
traders (or following U.S. events for international traders) share a common set of
characteristics and behavioral patterns with each other. We all react almost in the
same fashion to political scandals, social and economic news. This commonality
among us as U.S. traders, produces a common and predictable behavior within the
market place.
? Maioritv of traders are day traders - Although we focus on the same news and
market as our Position Trader counterparts, our specific interests, priorities and
decisions can be very different. A day trader spends the majority of the day watching
and analyzing the market, glued to the monitors; we exit our trades at the end of the
day; we incur a higher cost of transactions and related expenses; were usually
undercapitalized and therefore cant endure big losses. Our perspectives regarding
market direction are also different, since we dont care if were in a bull or bear
market, due of the difference in our selected time frames. We focus primarily on short
term and daily events. As day traders, we share a set of common characteristics
specific to us. This type of commonality causes the market to have patterns and
habitual behaviors that are a reflection of our attitudes, fears and beliefs.
?? Maioritv of traders are technical traders - Short term traders and day traders
primarily rely upon technical theories and indicators for their trading decisions.
Although we might follow some fundamental information in a general way, we use
technical indicators and price analysis to guide us in our trading decisions. This
common link also creates a set of patterns and behavior habits that affect the market.
Almost all of us react to various known chart patterns (such as the double top, double
bottom) in a similar way. We appreciate and understand the use of trend lines and
their role in support and resistance. Depending upon the time frame we trade, we will
react accordingly.

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lhe S&P Market Man
There are basically three types of days in the S&P market. Every day the market follows
one of these three daily patterns:
? Run UII Dav - By a run up day, we mean that the market opens and keeps on
going higher and higher. Its retracements (pullbacks from the existing trend) are
minor. At every retracement it makes a higher low. There are maybe two or three
days like this in a month. When the market opens at 9:30 a.m. and makes its low
of the day, we can expect that at about IO:00 to lo:30 a.m. it will retrace back to
the low. This pullback however, will seldom be lower than the previously
established low. It then continues to move higher until about 11:3 0 a.m. to 1:OO
p.m. At this point, it may retrace to the vicinity of the high of the first 30 minute
bar or to an intraday support level. After that major retracement, it will continue
to make new highs. It will end the day with a close above the open and a
significant price range.
Il[llll++~~~+~jl~t i 3
i i
i i i i
iI iI 58 i8
I ? ?
8 I
?
. .~. . . . . .~. . . . . .*. . . *. . . . . ~. . . ~. . . . .. . . 431-7

. . . ~. . . . . . . . . . . . 4x16
??
. . . -. . . . . . . . .*. . ~. . . . . . .~. . . . *. . . ~. .*. . .4320
. . . . . . . *. . .*. . ~. . . . . . . . . . .
In the above chart, 4/17 displays a typical Run Up Day. Notice the retracement to
the high of the first 30 min bar.

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0 Run Down Day - By this, we refer to the opposite of the run up day. The market
will keep selling off right fi-om the opening. Like its counter part, there may be
two or three days like this in a month. After the market opens, it makes its high of
the day by 1O:OO a.m. By lo:30 a.m., it tries to retrace back to the high, after
which it keeps going down until 11:30 a.m. to 1:00 p.m. At this time it may
retrace up to the low of the first bar on the 30 minute chart, or a significant Key
Point. The market will close below the open on a run down day, usually with a
good range. In general, there are two or three days in a month that the market is
either in a run up or run down mode. The rest of the time, the market trades in a
double-trend mode or trading range. It is typical that run up/down days occur
closer to the beginning or end of a month, especially when new quarterly financial
figures are introduced. It is also worth noting that when our System does have a
losing trade, it tends to happen on one of these days. Thankfully, the percentages
are in our favor.
In the above chart, both 4/07 and 4/08 are examples of Run Down Days. Each has a
deep morning retracement typical of this type of day.

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? Double-Trend Dav - As the name implies, on a double-trend day, the S&P market
will have two trends. If at the beginning of the day, the market is in an uptrend,
after testing a Key Point the market will turn around and reverse its direction to a
downtrend. If the market starts off in a downtrend, we can expect the balance of
the day to finish in an uptrend, after turning at a Key Point. The market exhibits
this type of activity, pattern of travel and time, almost every day. So if were able
to identity the Key Points, we can anticipate when and where the market reversals
are most likely to be.
In the above chart, 3131 is an example of a typical Double Trend Day.

Note the 12:30 reversal.
iThe timing pattern for a double-trend &zy goes like this:
At the open, the market is unclear with regard to which direction it wants to move
towards. After five or ten minutes of indecisiveness, it finally begins to move
continuously in one direction, making shallow retracements, until 11:30 a.m. to 1:OO
p.m. At this point, the market is ready to make its second major move of the day, in

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the opposite direction. It continues to move in this new direction until 2:30 p.m. or
so. This is the move we try to identify with our market map and Key Points. It tends
to be significant and fast, creating a nice stress free trade. At about 2:30 p.m., the
market may reverse its direction again until 3:45 p.m., or continue in the same
direction until 3:45 p.m. At about 3:45 p.m., it tends to reverse its direction again.
We note the reversal at 3:45 p.m. for the purpose of exiting open positions - not
initiating new ones. Remember that since the majority of S&P players are day traders,
liquidation of open positions is necessary prior to the session close.
Monitoriw the Market Map - The way we monitor the market map during the course
of the day, is with a 30 minute bar chart. We like to keep this chart visible at all times so
that as the day progresses, we are always aware of the shape, patterns and timing of the
session. References made tn the market map during the course of instruction or in this
manual are derived from a 30 minute chart, unless otherwise stated. Below is an example
of how one might set up a workspace in Trade Station.

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Patterns and Timings
? Observe the price range of the first 30 minute bar. If the range exceeds 5 full points,
there is a good chance that we might encounter a trading range day, where the days
high and low are established by the first 30 minutes of trading. If there is a breakout
from this range, it will typically occur around 12:00 or 2:O0.
DSP8M-30min 0511303 C=l124.M3 -,*'?r: 0=1121.0#

+cil: H=1128.10 L=l11#.80
1123.0
The first30 minute bar has a range of over 5 points,

which sometimes alerts us to atradingrange day. i126.0
A siiificant break of the range of the first30 minute bar 1124.0

is typically around 12:00 01 2:O0.
1122.0
1120.0
1 1118.0
1116.0
iI
1114.0
i
1112.0
1110.0
1108.0
3:30 '502 11:30 1:oo 29 '5113 12:oo 130 3:OO

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? On a 30 minute bar chart, if the second bar trades below the low of the first bar, there
is a good chance that the market will continue its downward movement until 11:30
a.m. - 1:OO p.m.. Please refer to the following chart as an example.
DSPfltMI min05/07/9t
DSPM-3Omi-1 05/07/9t C=lO%.50
C=lO%.50 %lZ
$I.lZ CI=1109.w3
O=1109.w3 H=l109.90 L=lO97.1D
L=lO97.10
-1130.0
I -1125.0
li
i
-1120.0
I
i -1115.0
-1llQ.O
-1105.0
I -1lOtl.O
II 1
1 II II ,,
'5104 1:tKI 3:oll '585
'5/05 1200 2:DO '5106

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? On a 45 minute bar chart, if the second bar trades above the high of the first bar,
there is a good chance that the market will continue its upward direction until 11:30
a.m. to 1:00 p.m.. Please refer to the following chart for an example of this.
DSP8M~45 min 05104198 C=ll27.70 -2.30 Cl=ll3l.30 H=ll37.D0 L=l126.30
When the high of the first 45 min bar is exceeded,

we anticipate price to continuemoving higher
into the 11:30 - 1:OO time frame.
I -1135.0
-113O.o
-1125.0
-1120.0
-1115.0
When this setup occurs, we are likely to have a

Run Up Day or a Double Trend Day -1110.0
4113 4114 4/15 4/-E u17 4120 4121

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? At about 3:45 p.m., the market may reverse its direction from the immediate preceding
move. For example, if the market is going higher into the 3 :45 p.m. time frame, we
can expect a reversal to the downside. The opposite would hold true for a market
declining into the 3 :45 p.m. time frame.
DSP8M-10 min 05)04!98 6 1 1 2 7 . 7 0 - 2 . 3 0 0=113l.30 H=l137.M L=ll26.3D
i i 1115.0
khis chart illustrates the 3:45 trend:
I reversal that fequently occurs. I
I I
1110.0
llci5.0
1100.0
1095.0
1030.0
1035.0
Intradav Range and the Market Man

On average, the S&P 500 futures contract has a 16 point intraday range. This means that
the market may make 8 point excursions above and below the openinq price of the session
and then establish a major turning point for the day. When we combine this concept (and
how it relates to our Key Points) with the timings of the Market Map, we (;a11 bt=ltt;~
identify opportunities to take advantage of This concept will elaborated on in detail in

Section 6.

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The Magic of Common Numbers
Support and Resistance

When we use the term Common Numbers in the Winning Edge methodology, we are
referring to significant levels of previous support and resistance that appear on price
charts. Because certain prices are reflected as support and resistance, we do not
necessarily label them in terms of their previous attributes - we simply take note of the fact
that they had a significance at some point in time. When examining a bar chart, you might
find that a particular price level has been touched as both support and/or resistance a
multitude of times. Each time price reaches that level, there is a noticeable reaction by the
market participants - the market tends to reverse its current direction. Therefore,
Common Numbers are support and resistance levels that are shared by all participants.
The Sipnificance of Common Numbers

Common Numbers are significant to us because of the Fractal Movement of the market.
Due to the fact that many participants are undercapitalized day traders, time and money
constraints create an atmosphere whereby price constantly shifts from one level to
another. There is a continuous flow of people moving in and out of positions afier a quick
profit or conservative loss. This oscillating action of price reacts to previous support and
resistance and therefore creates the fractal - or minimal fluctuation in the marketplace.
Common Numbers and Traders

Traders can be categorized into two general groups: position traders and day traders.
Within the day trading group, we have further subsets of participants who are
distinguished by the time Came they choose to trade. Some of the most common time
frames utilized in day trading are the 5, 15, 30 and 45 minute bar charts. These different
time fkarnes I epl esent different groups of trade1 s who share a r;ornrnonality of time. Its

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important to remember that Common Numbers identifi significant levels of support and
resistance that are visible to traders of all time frames.
The following charts illustrate Common Numbers on a variety of time fkames. Arrows
denote specific price levels, while an ellipse denotes areas of congestion that are
averaged by the mean of price activity.
-113tl.o
- -1125.0
-1120.0
-1115.0
-1110.0
-1105.0
II
-1100.0
-1095.0
-1090.0
-1085.0
23 30 'A 6 13 al 27 'M
Daily Chart with Common Numbers

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DSFQM-45min 05)01/96 C=l130.00 ~~0.50 O-1121.50 H=l130.50 L=1118.00
1
1140.0
1135.0
1130.0
1125.0
1120.0
1115.0
lllO.rJ
1105.0
1100.0
t
lD95.0
1090.0
1085.0
I
'3117 ' 'V;lO ' '3Li5 ' '3,30 ' '41b2 ' '4/b? ' '41i3 ' '4fi6 ' '4/k ' '4114.' '&I '
45 Minute Bar Chart with Common Numbers
DSP8M-30min Ed01 198 C=l130.00 -~$.%I 0=1121.50 H=l130.50 L=1118.00 I
30 Minute Bar Chart with Common Numbers

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DSP8M-10min 05)OlM1 C=ll3O.tlO .ti?.S 0=1121.50 H=1130.50 L=l118.00 1140.0
1135.0
1130.0
i-
1125.0
1120.0
1115.0
1110.0
1105.0
1100.0
~1095.0
~1O90.0
- _. - - _.- _ _. - _.- .- -. -. _. _ . _ _ _ -. .- .- -- -. - __ . . __. _ . _ _- _. _.- . _ -- _. __. _ - _ _. _. .
-1OQ5.D
'4i27 '4128 '4m '4m '!xll 1:20

'4123 1:lO '4,'24
10 Minute Chart with Common Numbers
DSPBM-1 yin 05101/98 C=1130.00 ;'i:~Fx; 0=1121.50 H=l130.50 L=1118.00

1099.0
/
109Rn
1097.0
1096.0
1095.0
1094.0
1093.0
1092.0
1091.0
1090.0
1 Minute Chart with Common Numbers

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DSPBM-1 VolBars 05101198 C=l130.00 -?i!% Cl=1121.50 H=1130.50 L=1118.00
1140.0
1135.0
1130.0
1125.0
1120.0
1115.0
1110.0
Volume Chart with Common Numbers
How to Identify Common Numbers

When trying to locate the Common Numbers in our methodology, we move from the
larger to the smaller time fi-ame charts, looking for previous support and resistance. We
begin with the Daily and then progress to the 45 min, 30 min, 10 min, 1 min and Volume
charts. Reading Corn right to left, note previous significant highs and lows. One method
used, is to draw a horizontal line on the chart and sweep it up and down, looking for areas
of price with multiple hits. You can record the results obtained on the sample worksheet
found in Appendix 2. (Feel free to copy this sheet and use it each day to record the
Common Numbers). What we will be looking for is commonality across the different time
frames with the same price. Since the smaller time frame charts reveal progressively more
detail, we can fine-tune our numbers. Fine-tuning sometimes creates a range to work
with, such as 112 1.30 - 112 1 JO. A range will never exceed 1 full point in value. When
determining Common Numbers its also important to look for areas of congestion, balance
and averaging.

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After all the Common Numbers are located and recorded, we then can finalize our results
by looking for the most relevant numbers. A Common Number that appears on all time
frames, is a number seen by the majority of traders, regardless of time frame - its a
number that has significance and relevance common to all.
How Common Numbers Are Used

Common Numbers provide two essential ingredients for our methodology. First, they
provide price levels where the market may take off fi-om - or break down from. These are
the price levels where we will want to trade from, because of the anticipated market
reaction to them. Second, Common Numbers provide logical target objectives for profit
taking - again, because of the likelihood that the market will react to them.
The first week or so of VOW- instruction wus devoted tu wvrkinx on lvcutinx these
Common Numbers because of their importance. Thev provide us with Kev Points as well
as target objectives, so its imperative that vou understand how to find them and how to
analyze their relevance.

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Section 6
Key Points
Your Key to Winning Edge Trades
What are Kev Points?

Key Points in the Winning Edge methodology are major support and resistance levels
where we expect the market to either rally up from, or sell off from. We tend to get an
extended move or reaction from these numbers, as opposed to the fiactal movement that
some of the Common Numbers give. Key Point numbers generate reactions in the S&P
market that average 5 tillpoints. The majority of the time, Key Points will also become
the High or Low of a trading session. Because of their potential reactions as well as
precision in determining major turning points, Key Points are the price levels where we
want to initiate our trades fi-om.
TvDes of Kev Points

There are two different types of Key Points, which are categorized as Major and Minor.
Major Kev Points are those points of support and resistance that are created by the Daily
price chart. Significant highs and lows on this type of chart have the greatest strength and
impact on the market when they are tested or exceeded. A second type of Major Key
Point is created when the market reaches new, round numbers such as 900, 1200, 1300,
etc. This is a situation where the market reaction is more psychological than technical
Remember how you felt when the titures broke through lOOO? Even though its just
another number, there is a definite attraction and respect for new numbers. Major Key
Points tend to reverse their original roles when broken. What was support will now
become resistance - and what was resistance will now become support.
Minor Kev Points are the everyday Key Points that we will trade from. Dont be mislead
by the term minor. The Key Points generated each day with the Winning Edge
methodology provide consistent, reliable and precise turning points to capitalize from.

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More importantly, the Key Points are market-generated. They are not the result of
complex neural-networks systems, floor trader secrets or over-optimized indicators.
We derive our information from the simple bar chart.
How to Tdentifv Kev Points
There are two distinct ways in which we identify Key Points for the trading session:
1. Trendline projections of support and resistance
2 . Common Numbers filtered by average range.
Trendline Kev Points

Trend lines are among the most simple but most powerful technical indicators. By
drawing trend lines, we can identify a variety of trends on single or multiple charts. A
trend line will tell us about the market tendency or its direction of movement. For
example, if both the weekly and daily charts confirm an uptrend, it tells us that there will
be more profit potential on the long side of our intraday price bars, like on a 30 minute
chart. Trend lines provide us with an excellent directional filter for our analysis.
One way to identify Key Points is through trend lines on the daily chart. We simply
connect the extremes of the previous, significant and isolated high and low, to the
extremes of our last completed daily bar. We do not draw these lines in the manner most
traders are accustomed to. It is not necessary to average-out or contain highs and lows.
Even if our drawn line has prices extending through it both above and below, we are
simply connecting two points - the previous significant high and low point to the last
completed bars extremes.

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3SP8M-Daily 05)01/98 G1129.60 -2 ::I: :$n 0=1122.00 H=1130.50 L=1118.10
Previous signkant high
1125.0
1120.0
t 1115.0
1110.0
-109D.O
-1085.0
Previous signkant low ~
13 20 27 M
_._.___________._._...~...~..~,......~.......~..~.....~.~............~.~....~...-.~.-....~...-.~.~..-.~.~~.~.-. . .._._._..___.._..._...~..~.~.~.~....~......__......__..._..._._._._......... .____....___.___._...~.........~.....
In the above chart, observe how price has exceeded the trend line on 3 of the bars. Again,
we are not concerned with all the bars - just the most recently completed bar and the
previous significant high and low.
DSPBM-Daily 04/l 7198 II=1131 -00 +tS.ZI 0=1114.60 H=1131.50 L=ll12.20

Previous significant high Last bar completed 1140.0
1130.0
1120.0
1110.0
1100.0
i?
J 1090.0
i. lmo.o
16 23 30 A 6 13
The above chart is another example of how we connect the previous significant high and
low to the high and low of the last completed bar.

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How to Determine the Previous Significant Hiph and Low
When trying to determine which exact bars qualify as the previous significant high and
low, apply the following rules:
A Previous Significant High - must be followed by 2 bars, each having a lower high and a
lower low than the preceding bar. There must be a minimum of 3 full points in range from
the high of the previous significant high to the low of the second bar. Please refer to the
following chart for an example of this.
DSPBM-Daily 04109~98 C=l119.50 +-i:.?J 0=1115.50 H=I121.20 L=l113.80

Previous significant high 40.0
c 35.0
30.0
25.0
20.0
15.0
10.0
These two bars have lower highs -1095.0
and lower lows -109oSl
-1085.0
-lml.o
.16 -23 -30 A 6

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A Previous Significant Low - must be followed by 2 bars, each having a higher low and a
higher high than the preceding bar. There must be a minimum of 3 full points in range
from the low of the previous significant low to the high of the second bar. Please refer to
the following chart for an example of this.
DSP8M-Daily 04108198 C-1119.50 -7X 0-1115.50 H-1121.20 L-1113.80
I-
-1140.0
These 2 bars have
-1135.0
higher highs and higher lows
113o.cl
B
1125.0
4 c
-:1>:l120.0
i
II
-1115.0
A
-1110.0
-1105.0
-1100.0
Previous significant bw 1095.0

t
In the preceding chart, observe how we did not take 2 other bars into consideration when
determining the significant low point. Bar A did not qualify since it failed to make a
higher high than the previous significant low. Bar C also did not qualify, since it failed
to make a higher high then Bar BY Bars B and IY were the two bars to actually
qualirjl our previous significant low.
The Three Zones

Once our trendlines are drawn, three distinct zones are created, namely the BUY ZONE,
SELL ZONE and BUY AND SELL ZONE. Lets look at each zone in detail.

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BUY ZONE - The upper trendline drawn on highs, provides a level of support to price
that is trading above it. If price opens above this upper trend line and then trades down to
it, we anticipate buying when we reach this important support level. Trading above this
line takes into account changes in the prevailing trend, which is why we will biased to the
buy side. The following chart illustrates our BUY ZONE.
DSP8M-Daily 04124198 C=lll2.80 .1390 0=1125.00 H=l130.20 L=llO9.30
1140.0
n BUYZONE
-1120.0
-1115.0
You can see that if price is above 1125.00, we will be in the BUY ZONE. If we were to
open at lets say 1130.20 and then trade down to 1125.00, we could be buyers at that
support level. The upper trendline provides us with one of four possible Key Points.
Sell Zone - The lower trend line drawn on lows, provides a level of resistance to price
that is trading below it. If price opens below this lower trend line and then trades up to it,
we anticipate selling when we reach this important resistance level. Again, trading below

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this line takes into account changes in the prevailing trend of the Daily chart, which is why
we will be biased to the sell side. The following chart illustrates our SELL ZONE.
DSP8M-Daily 04124198 C=l112.80 -73.96 0=1125.00 H=ll30.20 L=llO9.30
1140.0
1135ci
\
1130.0
1I \
1125.0
llM.0
1115.tl
1110.0
1105.0
-A 6 13 20
As illustrated above, you can see that if price is below 1110.00, we will be in the SELL
ZONE. If for example we were to open at 1104.40 and then trade up to 1110.00, we
could be sellers at that resistance level. The lower line therefore provides us with our
second Key Point.
BUY AND SELL ZONE - The area between the two trend lines drawn is considered to be
our BUY AND SELL ZONE. Its named as such because we dont have any particular
bias with regards to direction - we are willing to be buyers m sellers, under the correct
conditions as well as position within the zone. When we open inside the BUY AND
SELL ZONE, our upper trend line provides resistance to higher prices and we are willing
to be sellers from here. Conversely, when we open inside this zone our lower trend line

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will provide support from a falling market and we will consider being buyers from here.
Please refer to the following chart for an illustration of the BUY AND SELL ZONE.
DSFW&Daily 04/24)98 C=l112.81I -!S.t?O 0=1125.00 H=1130.20 L=l109.30
-1 140.0
-1 135.0
-1 130.0
II BUYANDSELLZONE
'-1 125.0
-1 120.0
-1 115.0
_/\\ =1 110.0
-1 105.0
13 20
In the above example you can see that the BUY AND SELL ZONE is in between the
prices 1125.00 and 1110.00 and has an actual range of 15 full points. If we open within
this zone and trade down to 1110.00, we will consider being buyers. An open within the
zone and a rally up to 1125.00 will most likely provide us with an opportunity to be
sellers.

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DSP8M-Daily 04/30/98 C=l119.20 +.:'.X?.I 0=1109.00 H=1123.80 L=l107.70
I
-1140.0
-1135.0
-1130.0
-1125.0
- -1120.0
-I 8 -1105.0
I/. 1100.0
-1095.0
-1090.0
A
1085.0
~~ -
30 'A 6 13 20 27
Lets now examine the preceding chart and its zones. First, note that Bars A and B
were the two bars to qualify our previous significant low. We can see that the:
BUY ZONE - is above the price of 112 1.00

SELL ZONE - is below the price of 1115.00
BUYANDSELLZONE-isbetween1121.00and1115.00
With this information, we know that:

1. If we open above 1121 .OO and then trade down to it, we will look to buy.
2 . If we open below 1115.00 and then trade up to this level, we will look to sell.
3 . If we open between our trendlines in the BUY AND SELL ZONE, we will look to be
buyers at 1115.00 or sellers at 1121.00
Lets now consider the second type of Key Point we can generate.

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8 Point Common Number Kev Points
We had previously stated that the average daily range for the S&P is fi-om 16-25 points.
What this means to us is that the market is capable of making upward and downward
excursions each day approximately 8 points above and below the opening value. For
example, if we open at a price of 1122.50, its possible to go up to 1130.50 or down to
1114.50. But 8 points above and below the open is just a starting point - an
approximation of where price may reverse at an intraday extreme. We have to now look
for a Common Number that is 8 points away from our open.
The 8 Point Common Number Key Point (usually referred to as our 8 point number) is
the second type of Key Point that we can initiate trades fi-om daily. Remember that it
represents an extreme for the day. For this reason, it is justified to sell an 8 point number
while in the BUY ZONE, or to buy an 8 point number while in the SELL ZONE. Bear in
mind however, that under these conditions, we will want to be a bit more cautious as well
as protective of accrued profits, since the obvious bias is not necessarily in our favor.
When trading the 8 point numbers, try to be aware of the Market Maps timings and
patterns for the day. For example, selling the 8 point number while in the BUY ZONE on
a Run Up Day may have limited profit potential.
When there is a very wide BUY AND SELL ZONE, the 8 point numbers provide
opportunities to profit from on days where the market wont reach our trend line Key
Points. Additionally, on days that have a very narrow BUY AND SELL ZONE with an
opening very close to or within it, our 8 point number trades may afford us with the mnst
practical and profitable trades.
As a final note regarding our eight point numbers, note that if we open MORE than eight
points away from a trend line, we will disregard the trend line Key Points and only make
use of the 8 point Common Number.

Ned Gandevani
All Rights Reserved
When comparing the qualities of the two different types of Key Points, I refer to the
following analogy: 8 Point Common Numbers are the every-day scheduled events of
the market. This is the habit - the routine of the market and its participants. Trend Line
Key Points are the special events on our calendar - and because they are special, they
are given a priority and precedence over the routine events.
Please refer to the following chart for an example of the 8 Point Common Number Key
Points.
DSP9M-45 min 051[34/98 C=l127.70 -2.30 1.30 H=1137.00 L=l126.30
----------------------------- _____----_~~------~-- ------------------ 114cl.O
1135.0
1130.0
1125.0
112oJl
1115.0
1110.0
1105.0
1100.0
In this example, the 8 point nMnbers were within .I I3
of the closest common numbers found 1095.0
ODen: 1131.30 1030.0

+8 points: 1139.30
-8 points: 1123.30
1085.0
In the above example, the addition and subtraction of 8 points from our Open landed right
on Common Numbers. Sometimes, the r;alclulatiuns will put yuu l-i&t on a Trend Line
Key Point! There are times however, that you must adjust the 8 point number by a few
points to reach an obvious Common Number. I3ecause we are dealing with extreme

Ned Gandevani
All Rights Reserved
conditions of the market, we are more interested in moving FARTHER from the Open
than closer. For example, if we Open at 112 1.20, our 8 point Sell number would be near
1129.20. If the obvious choices of Common Numbers are 1130.50 and 1128.20, we will
be more inclined to use the farther number (1130.50) since it represents an extreme for
that particular day.

Ned Gandevani
All Rights Reserved
Section 7
The Winnine Edee Trading Strategy
Overview of Strateev
The basic strategy of the Winning Edge Trading System is to initiate trades at our Key
Points to capture moves that begin at significant turning points. We are not trading with
the immediate trend, but are actually trading counter-trend. The basic assumption is that
when price arrives at one of our pre-determined points, there will be a change to the
current market direction. Lets now examine the specifics we use to open and close our
trades.
Methods of Entrv
As we discussed earlier, a trading system must have a sound and practical entry strategy to
enter trades. The Winning Edge entry point is based on four elements. First and
foremost, is our Key Points. Our proprietary technical indicators, moving average
crossover and confirming price patterns constitute the balance. After we have identified
our Key Points for the trading day, we then watch HOW price approaches these numbers,
through our Market Map. The four elements that we use for timing our entries are as
follows:
1. Kev Points - This is by far the most important component of this methodology. The
Key Point is where we trade from. The remaining three components aid in the timing of
entry, but are only additions to our Key Points.
2. Indicators - The technical indicator we employ at our Key Points is named Winning
Edge for TradeStation format. (If you use a charting package other than Omegas, let
me know). When both of these proprietary cyclic indicators turn simultaneously (within
1 bar of each other) we have our signal entry. The two indicators are represented as +s in
the sub-graph, to facilitate reading them - as well as reduce second guessing associated

Ned Gandevani
All Rights Reserved
with reading plotted lines. The following is an example of how simultaneous turns will
appear on a chart. Note that the examples are to illustrate the indicator signals only and
are not indicative of actual trades.
DSPBM-1 min 05104198 C=ll27.70 -2.38 0=1131.30 H=ll37.00 L=ll26.30

1134.0
1133.tl
1132.0
1131.0
Just a few examples to illustrate I
simultaneous turns in the two
Wiming Edge indicators. I
113Q.o
The turns were completed within 1 bar of one another
or simultaneously
1129.0
Winning Edge 1.00 0.90

2.00
1.00
0.m
-1.m
I
12:18 1226 1234 1242 1250 1258 I:06 I:14 1:22 1:30 I:38 1:46 I:54 2:02 210
3. Movine AveraPes - We employ the crossover of 2 simple moving averages, namely

the 3 and 5 period. We are only concerned with the averages crossing each other - not
price crossing through them. The averages can be plotted directly on the price bars, or as
a histogram as illustrated. A copy of the histogram indicator will be provided to you on
the Indicator Diskette.

Ned Gandevani
All Rights Reserved
DSPBM-1 min 0!5/04/98 C=ll27.70 ,2 31: 0=1131.30H=l137.00 L=ll26.30 Mov Avg 2 fines 11
Examples of a few of the crossovers

of the 3 and 5 simple
moving averages.
1:22 1:30 1:38 1:46 1:54 2:02 2:lCl 218 2126 234 2:42 250 2158 3.X
4. Price Patterns - The following chart formations usually occur at price turning points:
?? Head and Shoulders - Either standard or inverted, turnarounds at the Key

Points sometimes create a head and shoulders pattern. This typically happens
between lo:30 a.m. and 12:30 p.m-
a Double Top or Bottom - Another significant chart formation in our system is

the double top or double bottom. Again, the market creates this formation
around or at our Key Point and between lo:30 a.m. and 12:30 p.m. On the 1
minute chart, which is the chart we trade from, a double bottom is made with 5-6
bars - we are not talking about a 30-40 minute pattern.

Ned Gandevani
All Rights Reserved
The following chart hi&lights examples of the price patterns we look for at Key Points, to
further confirm directional change. (They are examples only and do not illustrate trades).
D SP8M -1 min 05Al4k38 C=l127.70 -2.';rO
1097.5
Headand Shoulders
lcl97.cl
i
-1096.5
I
I" I 1 111 I&, -1096.0
1
' -1095.5
11 '1
I l- 1095.0
1 I1 - 1094.5
-1094.0
-1093.5
-1053.0
-1092.5
-1092.0
1091.5
* .m t
10.48 IO:56 ll:D4 11:12 II:21 11:29 II:37 II:45 11:53 12:Ol 12:09 12:17 12:25 12:33
Methods of Exit
One of the dilemmas that almost all traders are faced with, is when to exit a successful
trade and take profits. If you exit a trade too early, you miss a greater move and profit. If
you dont exit soon enough, the market may turn around quickly and wipe out your
unrealized profit, or stop you out with a loss. In this section Id like to deal with our exit
strategies. Exit strategies include:
?? Wave counts
? Reaching a Key Point or other important support/resistance level

? Specific price pattern

Ned Gandevani
All Rights Reserved
Wave Counts
The best way to take a profit from the market, is to let the market tell you when its ready!
The market makes its major intraday moves in a three step fashion. It is very similar to the
Elliot Wave Theory, but we wont get hung up on complicated variations, counts or
measurements. We simply look for three distinct moves in the direction of our trade. As
we approach the high or low of the second thrust, we monitor the price action very
carefully, preparing for the eventual exit. If our second thrust should reach our first level
target - an intraday Key Point at an obvious support/resistance level - we can exit the
trade and not necessarily risk profit for a third price thrust. Does this three-pulse price
movement happen all the time? Of course not - but it does occur often enough that we
can implement it as a viable component of our system. As a matter of fact, when watching
price travel to a Key Point for trade entry, we will usually look for a three wave move to
avoid premature entry.
Reachine a Kev Point

We can project market moves based on intraday support and resistance levels - that is,
newly formed Key Points. As the day progresses, new Key Points are created which form
possible future turning points. If our trade is so early in the day that there is not enough
data to derive these levels, the previous days support and resistance zones will provide
useable Key Points. However, we must make sure to plan our exit in front of these levels.
We view these targets as important price levels because other traders have recently paid
respect to them - and will remember them as well.
Specific Price Patterns

Once again, the double top/bottom and head and shoulders patterns can be utilized within
our system. We originally employed them as final filters when signifying a direction
change for entering into trades. Their reliability also tiords us additional clues for trade
exit, in that they usually forewarn of a turning point.

Ned Gandevani
All Rights Reserved
Note that any one of the above mentioned exit strategies is enough to close an open
position, although the 3 wave concept is our primary tool. Sometimes you will only
see one strategy as the exit trigger and other times there might be a combination of them.
The following chart gives an example of all three exit triggers occurring at the same time.
-1137.0
-1136.0
-1135.0
lntraday CommonNumber
-1129.0
-1128.0
-1127.0
-1126.0
Onefinal comment: One could decide to exit the market after it reaches a specific dollar
profit. However, in doing so, you should consider that the minimum moves in S&P
market are about 1.5 to 2 points. Typical trades generated by the Winning Edge S&P
System are generally 4 to 8 point moves and we prefer to let the market tell us when the
trade is over. Setting fixed dollar amounts for profit is possible, but not entirely
compatible with the philosophy of our method.
Star, Loss
Every good and profitable system must define its stop loss point. Where should we place
our stop loss? Should it be a mental stop or should we have our stop loss in the market?
Whing Edge S&P Day Trading System 50

Ned Gandevani
All Rights Reserved
There are some pros and cons for each approach. The following may provide insight for
your personal choice when determining how to best use stops.
Mental Star,
The argument for having a mental stop is that there is a chance the floor traders will
gun all resting stops for their personal gain, only to then let the market continue on its
natural path. You might feel as though your analysis was correct from the start, but the
trade was thwarted by the antics of the pit. In some cases, this might be true. However,
the danger lies when you begin to hope that the market will soon turn back in your favor
after moving, adjusting or widening your mental stop. As humans, it is part of our nature
to procrastinate the implementation of necessary immediate action, when subjected to
adverse conditions. We simply hope that the prevailing condition of adversity will go
away. This type of mentality can obviously cost us dearly. If you know yourself well
enough to determine that a mental stop will turn into an actual market order automatically,
this strategy may work for you. However, if you are more likely to start hoping and
wishing that the market will turn around after your mental stop is hit, your best chance of
survival in this profession is to put a stop into the market. One thing you should always
consider is that as soon as you start hoping when youre in the market, there is a pretty
good chance youre on the wrong side of the trade - and you must exit immediately.
Stop Loss Placement

Placing a stop loss order can be tricky based on the following observations:
? T~picaZ Price Movements - In the S&P market, monetary stops are usually placed
about one to two points fi-om entry. So at any given moment, many of the stop losses
are being filled and taken out. The floor knows that the majority of the retail traders in
the S&P 500 are undercapitalized. They are the people who have come to the market
with their grand wishes and unrealistic hopes for winning big. They cant fiord to
lose more than couple of points. Thats why a typical, minor price move in the market
will last for one to two points.

Ned Gandevani
All Rights Reserved
? Stop Size - If you place a very tight stop, youll be taken out fi-equently and you
might miss some great oppnrtunities Rut if you select a large stop, ???? might wipe
out your account in a short period of time. So where do we place our stops? My
answer is that we dont place our stop based on monetary values. We use a technical
stop.
Technical Stops - The best way to place a stop loss point is based on the market
conditions. We let the market tell us when were wrong in our position. This way, when
were stopped out, we can analyze and review our technical stop methods to improve our
trading results. Our Key Points and indicators tell us that price has turned now. We feel
that a top or bottom is b place.
When we enter into a trade, we expect price to move
immediately in our direction. A logical area to place a stop loss is just above or below
the price extreme near our entry. When our System gives us an entry, there are no such
things as: letting price settle, giving price plenty of room to fluctuate or retesting
established price extremes. We are either right or wrong Corn the start. Depending on
how long you wait before placing an order and where you are filled, you should be able to
place a technically based stop within 3 points of your entry price. We also avoid round
numbers (986.00, 100 12.00, etc.) since institutional traders tend to utilize these values. If
you feel that a particular trade is very aggressive considering prevailing market conditions,
you may elect to use a price somewhere between a technical level and a monetary amount
to minimize possible losses.
Remember that our Key Point, signal bar and actual fill will almost always be three
different numbers, depending upon a variety of factors. Timing, order/fill speed and
volatility all play crucial roles in how far away from a technical stop point our entry may
be. Learn to be flexible and sensible when determining your exact stop loss point. If the
dollar risk of a technically based stop is too much for potential profit or your account -
dont take the trade. Theres always tomorrow.

Ned Gandevani
All Rights Reserved
SYSTEM SUMMARY
The Winning Edge Day Trading System as described, is a low risk, high probability
methodology that will yield l-2 trades per day on average. The system as presented up to
this pint represents the least aggressive approach to trading our Key Points. To
summarize: we are looking to initiate trades from predetermined specific price levels (Key
Points) in accordance with the prevailing trend ( determined by our trend line generated
Zones). We monitor how price reaches these points and when it reaches these points with
our Market Map. We have specific entry rules (indicators, averages and patterns) to know
when to initiate the trade as well as specific rules to close out a trade (3 wave move, Key
Points, price pattern). We also know where to place our stops for optimal risk
management. Before attempting any of the more aggressive trading techniques, these
basics of the core system must be understood and traded, to establish a confidence in the
method and a feel for the market reactions at Key Points. These trades represent the
lowest risk and highest reward opportunities for us as traders and typically generate 4-8
point profits with a l-3 point risk.
For more aggressive traders who completely understand the concepts presented and want
to generate a slightly higher number of trades, the following additional scenarios are
presented. These trades do not deviate at all from the core system with regards to Key
Points, the Market Map or entry/exit techniques. They simply provide special
opportunities the market offers us to take advantage of
Gap Openings
When a day has a gap opening, it means that there is a measurable difference between
yesterdays closing price and todays opening price. We are not too concerned with gaps
of less than 1 point. However, when the market gives us a distinct price gap at the open,
two different situations may occur.

Ned Gandevani
All Rights Reserved
1. The market tries to close the can Statistically speaking, the market will attempt to
close an opening gap 64% of the time. If the market should open lower than yesterdays
close, it will try to come back up to that price and trade - even if the direction for the day
will be down. Its the markets way of cleaning up unfinished business, before
proceeding with the balance of the day. How does this affect us?
Lets say, for example, that the markets gaps down on the open just below a Key Point in
the SELL ZONE. When price rallies up to our Key Point, we would be poised to sell the
market. However, if the market tries to fill the gap 64% of the time, we need to be very
cautious. There is a good chance that the market will rally all the way up and fill the gap,
before its decline begins. Selling early at our lower Key Point would result in a losing
trade - even though the eventual direction would be correct. If the market is going to fill a
gap in price, it will generally do so early in the trading day - usually before 10:00 a.m.
You will see a distinct attempt by the market tn move into the gap area by this time.
When we see a gap in the morning, it is best to analyze the general area on our various
time fi-ame bar charts to locate Key Points within the gap area or at the filled gap price.
The chart on the following page is an example of a morning gap opening, to a Common
Number.

Ned Gandevani
All Rights Reserved
DSP8M-l tin 04103!98 C=l135.50 9% -li 0=1131.5# H=1137.20 L=ll;8.50
1 DoubleBottomPrice Pattern
. .._..,... . I:26
. . . . . I:45
. . . . . . . 204
. . . . . . 223
. . . . . . . . . 2:42
. . . . . . - . . 3:Ol
. . . . . . . . . . 3:20
... 3139. . . . . . . . . . . . .%I8
. .-. . . ..A951
, . . . .-IO:10
. . . , . . hI.29
. . . . . . . -10~48
:. . , ., . :III7
. . . . ., I ......,
2. The market is unable to fill the paw If the market is not showing a strong attempt
to fill the opening gap after the first half-hour of trading, there is a strong possibility
that the gap will be unfilled for the balance of the day - or at least the morning. An
example of this would be: the market gaps down on the open and into our SELL
ZONE. After 35 minutes of price showing no sign or strength to fill the gap, we might
conclude that the market is ready to drop. But if the market cant climb high enough
to reach our Trend line Key Point. how do we enter? Again, the answer is to look for
Key Points generated from support/resistance levels found on our various time-frame
bar charts.

Ned Gandevani
All Rights Reserved
DSP8M-5min 04Al3/98 C=l135.50 +.Z 0=1131.50 H=1137.20 L=l12#.50
I 1118.0
i Price fmm a Double Edtorn m a ; 1116.0

CommonNmberwithoutfllingthe gap 1
I I
1114.0
1112.0
1110.0
1108.0
lM6.0
I I
1104.0
t41 1 I I ,
I
12:tN I:05 2:ltl 315 '3123 lo:40 IL45 1250 I:55 3:#1 '3124 11:30 1235 I:40
The above chart illustrates how price might not close a morning gap, especially when a
price pattern forms at a Common Number.
Gaps can provide opportunities for us to take advantage of early in the II~OI-ning, wkxx
price levels are derived fi-om Key Points not generated from trend lines. Always
remember that with a high tendency to fill opening gaps, we have to be cautious when
trading near them. Waiting for a well formed price pattern is a way to confirm a turning
point before entering a trade.

Ned Gandevani
All Rights Reserved
Final Thouphts
Since the market in a non-lineal system, it is impossible to replicate every type of scenario
and opportunity the market can present. Each day is a learning experience - a chance to
learn something new about the market and ourselves. What has been presented will offer
the focused trader plenty of trades to select firm during his or her career. Remember that
we are not trying to capture every single twist and turn of price. We are waiting for
specific conditions to develop which will yield high probability outcomes.
If you feel that you will need additional time and coaching to master these techniques or to
improve yourself as a trader, please contact me for fkture arrangements.
Happy Trading,
Ned Gandevani
Wining Edge S&P Day Trading System 57

Ned Gandevani
All Rights Reserved
Appendix II
Sample Charts
DSP8M-1 min 04124198 C=l113.00 -'iZ..O 0=1125.10 H=l130.20 L=ll09.30

-1130.0
I/I' 1,
I -1126.0
I ------ I --------------------------
I rude w,,1
Market trades down through the 1126.00 -1124.0
!W Key Print and came back up to the

Sell number. We had the indicators turn
together, with a moving average crossover.
Double bottom
r
9:36 9:46 956 10106 10116 1026 lo:36 lo:46 tO.5; 11:06 11:16 11:26 1136 11:46 11%
-DSPEIM-1
- - - - - - min
- - - -04/21198
- - - - - - -C=1135.80
-----
Initial target

Ned Gandevani
All Rights Reserved
DSP8M-I min 04/08/98 C=lII2.p0 -'3.W 0=1120X1 H=l12l.tlil L=llll5.ClCl
II Head and Shoulders Pattern
CommonNmber
-1116.0
-1115.0
-----___-------- r---------------------------------------~--- 111450Ky-~~n~-----
Strong reaction off Ky Pointwithindicators and crossover -1114.0
I
DSP8M-I tin 03127i98 C=IICC3.OO .,32G 0=1117.00 H=lII7.80 L=lO99.00 t1112.0
--
1
I h
cI
I
,JTlf
3 waves down for
12:Ol 1209 12:17 12:25 12:33 12:4f 12:49 12:57 1:05 1:13 1:21 1:29 1:37 1:45
Winning EdgeS&PDayTradingSystem 2
Ned Gandevani
All Rights Reserved
-1117.0
-1116.0
-1115.0
-1114.0
-1113.ll
D SPBM Daily 05/07/98 C=l098.30 -8.50 O=llIl9.50 H=l109.90 L=l097.10

1140.0
t
Previous Significant High -1135.0
-1130.0
-1125.0
BUYANDSELLZDNE
Previous Significant Low
-20 -27 M 4

Ned Gandevani
All Rights Reserved
DSPEIM-1 min 05/07!98 C=1098.50 -8.10 0=1109.00 H=llO9.90 L=1097.10
1. 3 c 1106.0
I ntraday Common Number
-1102.0
Double Bottom Pattern
O p e n -8=llOl.00 -1101.5
and is also a Common Number
Winning Edge 1 . 0 0 0 . 8 0
I n d i c a t o r s t u r n within 2 bars - 2sm
11:24 11:37 11:50 12:W 12:16 1229 12:42 12:55 I:08 I:21 I:34 I:47 2:00 2:13 2:26
DSP8M-30 min 05)07/98 ~=1098.50 -9.10 O=llFJ9.00 H=llO9.90 L=lv97.10

t I
I I c 1130.0
iI i
-1125.0
! Can you identify the I i t 4 iI(jlL

t 1120.0
I t i
I t
different types of / I
-1115.0
days illustrated?
t1 I /
1110.0
/I
t
-1105.0
-1100.0
-1095.0
-1090.0
-1 cB5.0
I I I I I I I I
4124 2:3O 4,27 1 2 3 0 4R8 I:00 4i29 I:30 4i30 200

Ned Gandevani
All Rights Reserved
Appendix III
Is Dav Trading Ror You?
The following article is written with the intent of highlighting what I consider to be
important elements specific to day trading. The eight points which I expand upon give an
overview of the day trading process and its requirements, to aid you in deciding whether
day trading as a profession is right for you or not.
1. Markets The first and foremost consideration for day trading is market selection. Not
all titures markets provide an opportunity for day trading. Markets with low intraday
volatility do not generate enough price movement to justitjr commission costs and
potential profits. A day trader needs to seek markets with high intraday price volatility
and change. Based on previous research of market volatility the financial markets such as
the S&P 500, Treasury Bonds and Currencies present the best vehicles for day trading.
When discussing volatility, we need to consider a few different concepts carefUy.
Without getting bogged down with too many technicalities, I call your attention to the
following: Volatility refers to the rate of change on an intraday or daily basis. As a day
trader, your interest lies in which market offers the widest price swings in a day. The
following example demonstrates how high levels of volatility can also be a two-edged
sword, The S&P 500 fLtures market on average moves between 16 to 25 points per day.
This is based on research of S&P daily price ranges from 1994 to 1997. The data shows

Ned Gandevani
All Rights Reserved
us that if we have the right methodology and systematic approach, we can certainly make
a considerable amount of money in this particular arena. However, the very same market
is also capable of exhibiting wild, extreme and violent intraday swings. As an example,
examine small time frame bar charts (1 through 5 minute) and observe how much price
can change in so little time. Three point moves ($750) can be found on 3 minute bars at
times - which is great for profit, but must also be viewed as potential risk. This volatility
translates into the fact that we are capable of losing $750 to $1250 in minutes - which is
way to risky for my equity capital. In short, we must learn to distinguish and clarify what
we mean by acceptable volatility. Gauging volatility in a market helps us to maximize our
profit potential and minimize our risk.
Based on research, markets like the S&P 500, Bonds and Currencies offer the best
conditions for day trading with regards to volatility, liquidity and access. Of the three
groups, the S&Ps have gained the reputation and recognition as being a true day traders
market. It is composed of approximately 85% day traders and 15% position traders. The
following points discuss the distinct differences between day and position trading.
2 . Technical vs. Fun&mental Day traders rely heavily upon technical indicators - as a
contrast to the position trader who makes use of fundamental leading indicators. Tricks of
the trade for day traders include specific chart formations, intraday support and resistance
points as well as opening and closing prices of the day. For the position trader

Ned Gandevani
All Rights Reserved
however, intraday activity of a market has less significance than overall market activity
and direction. The day trader is more of a Technician - while his counterpart, the position
trader is more like a Fundamentalist. The day trader may choose to utilize a variety of
technical indicators for the decision process of entering and exiting trades. There are over
100 indicators available for all the charting programs marketed. The intention of these
lagging indicators is to help you determine whether a market is in a trend or about to
reverse its direction. There are two types of indicators available: Static and Dynamic
(also referred to as Adaptive). Static indicators have a fixed input for the variable and its
settings are based upon the notion that the market will repeat its past price history and
movement identically and repeatedly. Adaptive indicators attempt to take into account
new market conditions and make corresponding changes to input values accordingly.
Overall, a typical day trader relies upon his/her selected indicators for trading decisions -
which therefore implies that they reject the Efficient Market Hypothesis and its implication
of the Random Walk Theory. (We will expand upon these concepts in future articles).
3. Profit Tarpet Its very unlikely that one will make a killing on any particular
intraday trade. Day traders look for relatively smaller profits and fewer losses.
Position traders on the other hand, get in and out of many trades, with the hopes of
eventually getting in on a meaningful and sustained trend. This means more losses of
small value with a lower percentage of winning trades overall - but significant profits
on winning trades to offset the costs of finding the best entry point. Overall, the
mathematics for each of these trading styles are quite different. When you evaluate a day
trader or day trading methodology, you need to see a higher percentage of winning trades

Ned Gandevani
All Rights Reserved
with relatively small losses. The position trader will typically have a higher frequency of
losers that are small, but much larger profits on winning trades.
1 . The
Capital
capital required for day trading is substantially less than for position
trading. For every contract you take on as a position trader, you need to post margin in
your account, as required by the CFTC. Trading the same market and assuming the same
strategy on an intraday day trade will typically require much less capital for margin. For
example, a position trader needs to have a minimum of $10,000 per contract to trade the
S&P with overnight positions. The day trader is able to post half that amount (and
sometimes even less) for his intraday trades. This means that as a day trader, you are able
to more effectively utilize your capital than the position trader since your equity can work
in more trades at the same time, bringing increased profits to the successful trader.
5. Time Required Day trading requires more time and attention than position trading.
You need to monitor your trades constantly until all positions are closed out. Position
trading requires much less time and day-today attention. With proper money
management, long term traders can leave their positions unattended for days or even
weeks. By contrast, in day trading you will need to watch, evaluate, adjust and change
your positions many times during the day. The very nature of day trading and its
associated conditions and intensity will preclude the majority of investors from being able
to participate due to their regular jobs and commitments. Although some
commercially available systems and tutors boast the ability to day trade markets with little
to no intraday monitoring, they should be viewed with caution and suspicion due to the
nature and character of the markets. Day trading is a full time profession and must be

Ned Gandevani
A l l R i g h t s Reserved
treated as such if you want to succeed. Ask yourself the following when you consider the
possibility of day trading for a career: can you make enough profit AFTER commission
costs, data feed costs, program/educational costs to justify your new endeavor as a trader?
Does the potential profit justify YOUR TIME? The decision to day trade full time
requires serious consideration before committing yourself . Day trading is a career and
occupation - not a hobby or amusement,
5. Commission costs It will cost you more in commissions day trading than in position
trading. In day trading, you might have to enter and exit positions a few times in a given
day, whereas with position trading you enter and exit trades with much less frequency.
You therefore need to look at the cost of doing business when evaluating a trading
methodology and system. There are many ways to reduce the commission costs incurred
when day trading. These include but are not limited to: On-Line trading via the inter-net,
Discount trading and negotiating with potential brokers when shopping around for a
suitable candidate. As a day trader, you need to get quick and accurate fills. Brokers and
their respective clearing firms (FCMs) usually specialize in a few markets, so be sure to
select a firm that will cater to your needs. There is no sense in trying to trade the S&Ps
successfully through a firm that specializes in agricultural products. Deal with a firm that
will be well suited to the trade execution requirements a day trader has. Try to shop
around and get floor access - real floor access, as opposed to a trade desk situated
somewhere on the floor that cant even a& in your trades with a hand signal during fast
market conditions, Some may argue that the quality of fills may not bc a crucial factor in

N e d Gandevani
All Rights Reserved
the overall success of a trading methodology. I agree - but it helps a lot in the long run
and makes your trading seem easier.
7. Egzipment Requirements In day trading, active participation in the trading process
requires a real-time data feed and charting program. The cost of these essential
components can be quite substantial. In position trading, you dont need access to real-
time data - and in some cases delayed data is even unnecessary. You may be able to
obtain your information from one of the financial newspapers like the Wall Street Journal
or Investors Business Daily. When considering which of the real-time data vendors to
chose as your source, do your homework and shop around for the fastest, most reliable
and affordable. Depending on which market you trade, you might be able to access your
data through the internet at a cheaper price than the satellite or cable alternatives. Be sure
to check for compatibility between your data vendor and the charting program you
choose. There are a wide variety of charting programs available to day traders and their
cost will correspond to their sophistication. Some of the real-time vendors even provide
yuu with their own in-house charting program. Regardless of developer, they all have a
multitude of STATIC indicators to choose from.
8. Personali~ More important than anything else mentioned above, the personality of
the trxler plays an important and crucial role in successfbl trading. You need to have a
deep and insight&l understanding of your character and personality traits. Is your make-
up best suited to position or day trading? Are you even suited to be a trader at all? The
reality of the trading world is that you dont just trade the market - you trade yourself in
the market. If you dont know yourself well enough to identifjl your strengths and

Ned Gandevani
All Rights Reserved
weaknesses, trading will assist you - but at an expensive price. It would therefore make
sense to try a few of the popular personality tests to identify and become more conscious
about your strong and weak points. We all have positive and not-so-positive traits in our
personalities. Like everything else in life, the key to success is building on our strengths -
not fighting against who we are by trying to change our undesired traits. For example, if
fast decision making is problematic for you, then you should consider position trading to
be more suitable that day trading. Or if youre a great procrastinator, you must make sure
that your entry order is accompanied by a protective stop loss order, to ensure that a
losing trade is not compounded by your natural reluctance to put off the proper
decision. This is a personality trait that can run you out of trading - and your equity - very
quickly.
You might also find out (possibly through one of the personality tests if you are currently
unaware) that you are the type of person who constantly strives to be the best and most
perfect at your trading. Lets label this type of person as the Perfectionist. This type of
trait can cause a lot of problems and big losses for a trader. The Perfectionist tries extra
hard to not have any losing trades. Unfortunately for him, this only means more
disastrous losses. Multiple consecutive losing trades handicap the Perfectionist from
taking the next trade because hes now gun shy and scared to pull the trigger again. The
result - more lost opportunities.
A crucial factor in being a successful trader is to recognize and believe with your heart
that trading is a game of probabilities. Sometimes you win and sometimes you lose. You

Ned Gandevani
All Rights Rcscrvcd
can separate yourself fi-om the losers by formulating a trading plan that helps you reduce
losses while maximizing gains. Proper stop loss placement and optimal management of
winning trades are keys to winning at the probabilities game.
Most of the time we tend to forget that we make our decisions with our EMOTIONS and
then justify with our logic. The assumption of rational investors in the Efficient Market
Hypothesis couldnt be further fi-om the Truth. On the contrary, when it comes to trading
we all become quite irrational. In behavioral finance, the notion of the irrational investor
is the norm. In trading, more than anything else in life, we rely heavily on our emotions,
either through unrealistic and ultra-optimistic profit and fortune goals - or pessimistic and
hopeless expectations based on our previous experiences. Rather than thinking in the
Present, we often think in the Past (with our past experience associations) or in the Future
(with a desirable and idealistic outcome perception). To remain focused in the Present and
judge our trade as it unfolds Now, requires practice. But more important than practice,
you must know who you are and understand your personality first.
Trading is like a clear mirror that reflects our inner personality and character. It is not
only capable of bringing us great financial rewards - it can also help us to know ourselves
better. This benefit can greatly contribute towards our evolution as better individuals and
human beings. This is one of the most important reasons I have cultivated a love for
trading. It is the ultimate endeavor for a tiee and beautiful life.

Ned Gandevani
All Rights Reserved
Appendix IV
Manual Calculation of
Trend Line Kev Points
In the event that you do not use Omegas TradeStation and cannot make use of our
automatic Key Point indicator, the following example and formula illustrates how to
obtain the Key Points from trend lines manually.
The formula is as follows:

Lower Key point = Last bar low + (last bar low - previous significant low)
# bars between last and previous significant low
and
Higher Key Point = Last bar high - (Previous significant high - last bar)
# bars between last and previous significant high
To calculate the Trend line Key Points for 5/8/98, we have the following:
Last completed bar: 5/7/98 High: 1109.90 Low: 1097.10
Previous Significant Low: 4/27/98 Low: 1081.70
Previous Significant High: s/4/98 High: 1 1 3 7 . 0 0

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IF YOU PURCHASE OR SELL A COMMODITY FUTURE OR SELL A COMMODITY OPTION

UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR

THE PLACEMENT OF CONTINGENT ORDERS , SUCH AS A STOP-LOSS OR STOP-

A SPREAD POSITION MAY NOT BE LESS A SIMFLE LONG OR

THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY

PAST RESULTS OF S&P WINNING EDGE DAY TRADING METHODOLOGY IS NOT

Winning Edge S&P Day Trading System

Risk Disclosure Document.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

Section 1 Introduction........................... ............................... 1

Section 2 Mechanics of a Trading Methodology ............................ 3

Section 4 The S&PMarketMap.. ............................................ 16

Section 5 The Magic of Common Numbers ................................. 27

Appendix I Common Numbers Worksheet

Winning Edge S&P Day Trading System

Winning Edge S&P Day Trading System 1

Winning Edge S&P Day Trading System 2

Mechanics of a Trading: Methodology

Characteristics of a Trading Methodoloev and Svstem

What is a Trading Methodology or Svstem?

Winning Edge S&P Day Trading System 3

Winning Edge S&P Day Trading System 4

gives him the market set-up confirmation to then enter.

as well as psychological requirements. Without a properly set ratio, the game of

Winning Edge S&P Day Trading System 5

Winning Edge S&P Day Trading System 6

Winning Edge S&P Day Trading System 7

Winning Edge S&P Day Trading System 8

The S&P Market and its Internal Dynamics

The Market is a Non-Linear Svstem

Market Participant Commonalitv

Winning Edge S&P Day Trading System 11

Winning Edge S&P Day Trading System 12

Inter-Market Relationshb as an External Factor

S&P Internal Market Dvnamics

Winning Edge S&P Day Trading System 13

passive observers. We can always resume trading tomorrow.

Winning Edge S&P Day Trading System 14

what Is A Market Map ?

W&v Does The Market Map Exist?

Winning Edge S&P Day Trading System 16

Winning Edge S&P Day Trading System 17

Winning Edge S&P Day Trading System 18

. .~. . . . . .~. . . . . .*. . . *. . . . . ~. . . ~. . . . .. . . 431-7

the high of the first 30 min bar.

Winning Edge S&P Day Trading System 19

Winning Edge S&P Day Trading System 20

In the above chart, 3131 is an example of a typical Double Trend Day.

iThe timing pattern for a double-trend &zy goes like this:

Winning Edge S&P Day Trading System 23

Winning Edge S&P Day Trading System 22

DSP8M-30min 0511303 C=l124.M3 -,*'?r: 0=1121.0#

The first30 minute bar has a range of over 5 points,

A siiificant break of the range of the first30 minute bar 1124.0

3:30 '502 11:30 1:oo 29 '5113 12:oo 130 3:OO

Winning Edge S&P Day Trading System 23

Winning Edge S&P Day Trading System 24

DSP8M~45 min 05104198 C=ll27.70 -2.30 Cl=ll3l.30 H=ll37.D0 L=l126.30

When the high of the first 45 min bar is exceeded,

When this setup occurs, we are likely to have a

4113 4114 4/15 4/-E u17 4120 4121

Winning Edge S&P Day Trading System 25

DSP8M-10 min 05)04!98 6 1 1 2 7 . 7 0 - 2 . 3 0 0=113l.30 H=l137.M L=ll26.3D

Ned Gandevani's S&P500 Winning Edge Day Trading System

Ned Gandevani's S&P500 Winning Edge Day Trading System

. .~. . . . . .~. . . . . .. . . . . . . . ~. . . ~. . . . .. . . 431-7