Raschke Execution Techniques

Execution Techniques & Trade
Management Tools
Linda Raschke, LBR Group

NY Traders Expo, 2008
Execution Techniques and Trade

Management Tools
The Relationship Between Entries, Exits
and Stops
LBRGroup@att.net
LBRGroup.com
2/27/2008
Copyright (C) LBRGroup 19971997-2008
Trading is about location and timing.
2/27/2008
Traders want an edge in knowing when and

where to enter and exit trades.
2/27/2008
PROBLEM: A single tool, such as an indicator, does not

always identify a high probability trade opportunity.
2/27/2008
SOLUTION:
Combine conceptual with analytical
techniques. Your ability to process data on
a timely basis (tape reading skills) will also
improve as you gain in experience.
#1 - Market Profile Concepts
+
#2 - Technical Analysis Charting
2/27/2008
Market Profile can help teach market structure

and show data in a conceptual type of format.
2/27/2008
.
Technical Analysis indicators
can help identify
when and where.
2/27/2008
Building a Solid Market Foundation!
#3 CONFIRM (Indicators / Oscillators)
#2 WHEN (Volume Charts or discretionary

tape reading)
#1 WHERE (Market Profile Charts)
Market Understanding
2/27/2008
Self-Understanding
A general comment about the relationship

between Entries, Stops, and Profits
z
z
z
z
z
z
There is not always a relationship between a trade is

entered and where a trade is stopped out.
For example, with time based stops, the stop out level
has no relationship to the initial entry price.
Its not necessarily the entry that makes a model or
system successful. Its all about the exit strategy!
The larger the target, the lower the % win rate.
The smaller the target, the fewer times the stop will be
hit (all else being equal).
The wider the stop, the higher the % win rate.
2/27/2008
10
MARKET PROFILE CONCEPTS

Market Profile is a way of organizing data, activity and
structure.
It is a tool for putting the current trading environment into a
context. When we can detect the presence of the
higher time frame player, we can use trailing stops and
manage a trade differently. When the market is starting
to come into balance, a trader will do best playing for
small wins or scalps only.
There is no greater indicator of what the market is doing
then the market itself.
2/27/2008
11
Definitions and concepts for

understanding the market
z
z
z
z
z
Initial Balance the first hours range

Range Extension move outside of the first hours range
Value Area 70% of the days activity level
Single Print Buying Tail one time frame price rejection
at the lower end of the range (30-minutes)
Single Print Selling Tail Also considered to be a form of
excess. Tails cannot occur in the last time frame of
the day.
Point of Control where the most amount of activity
takes place.
2/27/2008
12
Classic Market Profile chart with Value Area
2/27/2008
13
Overlapping value areas, Selling Tail
2/27/2008
14
Market Profile Value Areas with Expanded Profile
2/27/2008
15
How URGENT is the market

environment?
z
z
Should a trader use market orders, limit orders

or buy and sell stops for trade initiation?
Lets review some basic market profile concepts
to create a framework for understanding how
urgent the trading environment is.
Traditional means of measuring this include
volume, range expansion or momentum
readings.
2/27/2008
16
Six different Day Types 1) Normal

Day
z
Initial Wide balance in first hour. This type of day often

occurs on news where the initial directional move is
strong. Despite the early range is wide, support or
resistance is found off the initial drive, and the rest of
the day is spent testing back and forth in this range.
Normal days are actually rare, despite the name.
A trader must recognize the implications and adopt

countertrend trading strategies for the remainder of the
day.
2/27/2008
17
Normal days and Tails detail
2/27/2008
18
2) Normal Variation Day

z
This type of day does not have as wide a first hours

range as a normal day.
The initial balance or base is upset as the other time

frame player pushes price out of the first hours range.
The rest of the day is then spent forming a new value

area outside of the early base.
2/27/2008
19
3), 4) - Trend Days Standard and

Double Distribution
z
One direction movement fueled by high volume. This is

an urgent environment.
The other time frame player is in control from the

opening price.
Each time frame makes lower lows and lower highs (or,
vice versa).
A double Distribution trend day lacks the strong opening

drive, and instead has a narrow initial balance. Single
prints then market the move out of the initial value are
and the other time frame player remains firmly in control.
2/27/2008
20
Drive outside Narrow Initial Balance
2/27/2008
21
5) - Non-trend Day
z
A Non-trend day has no directional conviction, no range

extension, and minimal activity level.
This type of day often occurs before a big news release

or economic event. Market participants balance their
positions in front of the event.
The is no market conviction and little market

participation.
2/27/2008
22
6) Neutral Day
z
The market tests on both sides of the initial balance.

Price continues to rotate on both side of the opening
price.
Both the buyers and the sellers are active but no one is
in control.
This type of day tends to form a broad value area or

trading range. A breakout from this range must be
accompanied by an increase in volume to indicate that
the other time frame player has gained control.
2/27/2008
23
Neutral Day no conviction
2/27/2008
24
OPENINGS
z
An increase in volume or range expansion

is our first clue that there might be a more
urgent trading environment.
Lets review some of the types of actions

that can take place off the opening.
2/27/2008
25
OPENINGS
z
z
z
Open Auction: Price rotates around the opening without

any clear conviction.
Open Drive: Prices moves in a strong directional manner
right from the opening.
Open Test Drive: After the market opens, the prices
tests in one direction and then sharply turns around and
drives in the opposite direction.
Open Rejection Reverse: The opening is outside the
previous days value area the move outside value is
rejected and the market reverses sharply back into the
previous days range.
2/27/2008
26
Open Rejection Drive, Gap outside

value area
2/27/2008
27
Bonds trend day and drive off opening,

followed by a neutral day, and then another
open-drive.
2/27/2008
28
A market that is out of balance demands urgent entry.

Volume confirms the trend. When there is lighter volume, play
for small targets only.
2/27/2008
29
Opening relative to a previous day late

afternoon move.
z
If the market has a move outside of value area in the afternoon with
a weak or strong close, this can either be short covering (in case of
up close) or, the higher time frame player stepping in. If the market
holds above the previous days value area in the early AM session,
then it can be assumed that the higher time frame player was
stepping in, and further upside continuation should be expected.
However, if the price drops below the previous days value area,
then the late afternoon move was nothing more then short covering
by day traders.
Recognizing the presence of the higher time frame player is such an

important concept!
2/27/2008
30
SP classic trend day down, followed by unusual

reversal bar
2/27/2008
31
Same market action shown by 30-minute candlestick

charts
2/27/2008
32
EC market profile 30 minute rising value

areas in trend
2/27/2008
33
EC mark up (Single Prints)
2/27/2008
34
Market Profile Big Picture
2/27/2008
35
Market Profile expanded into 5 minute

intervals with volume.
2/27/2008
36
Classic Trend Day with elongated profile
2/27/2008
37
Volume as a confirmation/non-confirmation tool
2/27/2008
38
Buy at Market, Join the Bid, Take the offer
2/27/2008
39
Most platforms offer multiple methods for

trade management.
2/27/2008
40
A short term moving average has a lower high in a

downtrend. Lets use a sell stop to pull us into a trade.
2/27/2008
41
Bracket your trades Buy stop above/OCO/Buy limit

below
2/27/2008
42
OCO or Bracket Functions can be entered contingent

upon an initial fill, or after the trade has been executed.
2/27/2008
43
Sell Limit placed at previous resistance area
2/27/2008
44
Tighten your stop to cinch in profits
2/27/2008
45
Tighten stop to lower end of previous range
2/27/2008
46
Sell OCO Sell Limit and Sell Stop in case the limit
is not filled
Ec1.lnk
2/27/2008
47
Now use OCO for Exit and trade management
2/27/2008
48
The Trendlines show entry and exit for this EC scalp
2/27/2008
49
Trailing Stop Functions

z
ONLY should be used at specific

structural points!
Breakouts, Trend reversals as defined by

the wave structure, and after
A-B-C formations in a trending market
2/27/2008
50
Keltner Channels on a 5 minute chart
2/27/2008
51
Volatility Stops
z
ATR = Average True Range
3 ATR +/- highest high or lowest low of

last 10 bars
3 ATR +/- moving average of close, high

or low.
2/27/2008
52
DAILY CRUDE VOLATILITY STOP
2/27/2008
53
BEANS, daily chart, ATR trailing stop
2/27/2008
54
The End!
Thanks for Attending.
Contact Information
Linda Raschke
www.lbrgroup.com
LBRGroup@att.net
888.LIMITDN
MF Global
www.mfglobal.com
312.528.3250
CME Group
800-331-3332
312-930-1000
info@cmegroup.com

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Execution Techniques & Trade

Linda Raschke, LBR Group

Execution Techniques and Trade

Copyright (C) LBRGroup 19971997-2008

Trading is about location and timing.

Copyright (C) LBRGroup 19971997-2008

Traders want an edge in knowing when and

Copyright (C) LBRGroup 19971997-2008

PROBLEM: A single tool, such as an indicator, does not

Copyright (C) LBRGroup 19971997-2008

Copyright (C) LBRGroup 19971997-2008

Market Profile can help teach market structure

Copyright (C) LBRGroup 19971997-2008

Copyright (C) LBRGroup 19971997-2008

Building a Solid Market Foundation!

#3 CONFIRM (Indicators / Oscillators)

#2 WHEN (Volume Charts or discretionary

#1 WHERE (Market Profile Charts)

Copyright (C) LBRGroup 19971997-2008

A general comment about the relationship

There is not always a relationship between a trade is

Copyright (C) LBRGroup 19971997-2008

MARKET PROFILE CONCEPTS

Copyright (C) LBRGroup 19971997-2008

Definitions and concepts for

Initial Balance the first hours range

Copyright (C) LBRGroup 19971997-2008

Classic Market Profile chart with Value Area

Copyright (C) LBRGroup 19971997-2008

Overlapping value areas, Selling Tail

Copyright (C) LBRGroup 19971997-2008

Market Profile Value Areas with Expanded Profile

Copyright (C) LBRGroup 19971997-2008

How URGENT is the market

Should a trader use market orders, limit orders

Copyright (C) LBRGroup 19971997-2008

Six different Day Types 1) Normal

Initial Wide balance in first hour. This type of day often

Normal days are actually rare, despite the name.

A trader must recognize the implications and adopt

Copyright (C) LBRGroup 19971997-2008

Normal days and Tails detail

Copyright (C) LBRGroup 19971997-2008

2) Normal Variation Day

This type of day does not have as wide a first hours

The initial balance or base is upset as the other time

The rest of the day is then spent forming a new value

Copyright (C) LBRGroup 19971997-2008

3), 4) - Trend Days Standard and

One direction movement fueled by high volume. This is

The other time frame player is in control from the

A double Distribution trend day lacks the strong opening

Copyright (C) LBRGroup 19971997-2008

Drive outside Narrow Initial Balance

Copyright (C) LBRGroup 19971997-2008

A Non-trend day has no directional conviction, no range

This type of day often occurs before a big news release

The is no market conviction and little market

Copyright (C) LBRGroup 19971997-2008

The market tests on both sides of the initial balance.

This type of day tends to form a broad value area or

Copyright (C) LBRGroup 19971997-2008

Neutral Day no conviction

Copyright (C) LBRGroup 19971997-2008