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PROFITUNITY PLANNED TRADING - SHORTER TERM MARCH - SOYBEANS
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In this series of trades, looking first at the daily chart (Figure 9-11), we saw that there was a Point Zero that met all our requirements on September 12,1991, with a high of 668V2. It then proceeded to move down, in a five-wave sequence on the hourly chart, to 654V2. (This was more clearly visible on a 60-minute chart.) Following the specific techniques of Profitunity Planned Trading, we would have sold three contracts at a 62 percent retracement, which was 663 with a stop and reverse to

go long five contracts at 668V2. (Our risk at this point for the three contracts would have been $1,375, or $458 per contract.) The beans did move down, tracing out a clearly defined five-wave sequence with a squat on the bottom fractal at 632. Assuming we had waited for the first hourly up fractal signal, the worst we could have done was buy back two contracts at 637V2, giving us a closed-out profit of $1,275 per contract, or $2,550 for both contracts. This would have left us short one contract from 663, with a stop at 668 Vi.

From the Elliott wave count, the fractal, and the Prof itunity windows, we might have concluded that this most likely was a wave 1 down and expected at least a 50-62 percent retracement. Wave 1 down was 36V2 cents and ended at 632, so we would have had a resting sell order to an additional five contracts at 654% or better, with a stop at 668V2. We would have been filled because the market went back up to 662V2 but did not reach the stop at 668V2. From there, the stock market began moving down with third-wave enthusiasm through the last of October and into the first half of November. If we had added the final four contracts at 110 percent of wave 1 (622 1 /2) / we would have then been short a whole load with stops at the bottom of wave 1 (632).

We would then have had a closed-out profit of $2,550 on the first two contracts. Our position would have been:

Short one contract at 663 Short five contracts at 654 3 /4 Short four contracts at 622V2

Our next step would have been to calculate the end of wave 3 using the five magic bullets explained earlier in this chapter. There were five countable waves with a fractal and a squat on November 11, with a low of 578 Vi. In the worst outcome, we would have bought back seven contracts on the daily up fractal signal on November 23 at 602. Our balance sheet would have been:

Short two contracts with closed-out profits + $ 2,550.00

Short one contract from 663 (61 X $50) + 3,050.00

Short five contracts from 654% (52.75 X $50) + 13,187.50

Short one contract from 622V 2 (20.5 X $50) + 1,025.00

Total closed profit $17,262.50

We would still have been short three contracts from 622 Vi with a stop at 631.

Next, we would have sold a 38 to 50 percent retracement of wave 3. Because wave 3 was more than 1.62 times as long as wave 1, we would have sold three more contracts at 619, with the stop for these at 631 also.

To end this sequence of trades, we would have calculated the end of wave 5 and found it to be 561—the exit on all shorts. The balance sheet would now have $17,262.50 from earlier trades in this sequence plus:

Short three contracts from 622V2 (61.5 X 3 X $50) $9,225.00
Short three contracts from 619 (58 x 3 x $50) 8,700.00

Total closed-out profit from September 12 through January 9 would have been $35,187.50 in slightly less than four months. This trading program could have been handled with a $15,000 account, without ever margining over 50 percent of the account equity.

The two examples in this section should give you an idea of the power of letting the market dictate your asset allocation. The added factor of following the market's leadership is low-stress trading, which we address in Chapters 11 and 12.

SUMMARY

In this chapter, we have examined the best asset allocation plan we have found in 35 years of actively trading the markets. All the allocations are based on market information rather than derivative opinions. The design extracts the maximum amount of profit with the least amount of risk. It is easy and does not require continuous monitoring if you are trading on a daily basis.

At this Level Three of trading, our aim is to maximize our ROI with multiple contracts, as opposed to Level Two, where our aim was to make consistent profits on a one-contract basis. It is not unusual for traders at Level Two to double their per­centage return on investments by varying the volume of their trades. This allows them to be maximally invested where there is the least risk and minimally invested where there is the greatest risk.

REVIEW QUESTIONS

•  What is the importance of always using Profitunity
Planned Trading (PPT)?

•  What are the advantages of using PPT techniques rather
than trading a comfortable volume of contracts using
fractal trading techniques?

•  What percentage of your total capacity of contracts
should you place on the first trade?

•  Where would you stop and reverse the first trade?

•  What are the five magic bullets?

•  Why do you exit two-thirds of your position at the top of
wave 1? What is the reasoning behind being fully invested when
wave 3 equals 110 percent of wave 1?

•  How do you decide how many contracts to trade during
wave 5?

•  What do you do at the end of wave 5?

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