Five Tic Trading

By Matt SharpIn Association with TradingAdvisor(Chicago).Com

Five Tic Trading

Preliminary Notice

This course explains how to trade, profitable, the stock market. It utilises a method that for me, works on a daily basis.

However, trading involves risk, you could lose your entire account or more. If youve opened a trading account then you are over 18 and I will assume you to be a grown up. I will treat you as one and assume that you are responsible for your actions, not me.

If you follow the instructions in this course you should enjoy profitable trading with safety.

But I cannot guarantee it and I will not be held responsible for any errors, omissions, or inaccuracies on my part. I obviously will not be held responsible for any mistakes you might make or losses you incur no matter how they happen.

I personally have made mistakes in the past whilst trading, entering incorrect orders and the like, and those mistakes have cost me dearly. If and when the same happens to you then accept the lesson you have just been taught and move on. Dont look for someone to blame. Everything you do in trading is down to you and no one else.

With those comments in mind well move onto the course, but always remember that the markets can be vicious - its up to you to ensure you have all the safeguards in place to minimise the impacts of any errors you make.

Copyright: This manual and its contents are the property of FiveTicTrading.Com and shall not be copied, resold, or published in any way by anyone with the prior express permission of the owners.

Five Tic Trading

Welcome

Welcome to Five Tic Trading. You are about to embark on an exciting journey where you will, probably for the first time, be able to trade the markets and make a regular, reliable, consistent profit. Over the course of a few weeks you will gain complete confidence in the method and be able to increase the size of your trades and the only obstacle to achieving a very high level of income will be your tolerance to risk. I say this because we each have a personal relationship with money that allows some to people to risk $000s without a thought whilst others will baulk at just $50.

Without boring you with my history, I will just say that this method is not my idea. It is borrowed from someone else who just didnt seem to fully appreciate the full potential of this way of trading. I, like thousands of others, probably including you, have been schooled in the trade with the trend, let your winners run and cut your losses short, you cant pick tops and bottoms ideas that prevail in the public trading marketplace.

Rubbish.

After nearly ten years of using these methods to consistently achieve stunningly poor results I came across this method. It is different, you will have to put any previous assumptions about trading to one side, try and come to this system with a fresh feeling. This method now earns me a very comfortable living, but beyond that, it provides a reliable, dependable source of income. You simply cant build your life on trading if you only get one big winner every other month that pays for all the losers then gives you a few crumbs left over. You need consistency and that is here.

Read on, apply the lessons in here, and change your life

Five Tic Trading

Our Objective

As hinted at, our main priority is to make a profit every single day we trade.

Not a fantastic amount, but a profit.

Trading this way gives us confidence in the methodology that then allows us to increase the size of our trades and thus increase our income. Does it matter whether you make $1000 by having a market move 100 points at $10 per point, or move 10 points at $100 per point. The end result is the same, and the point is that getting a 10 point move out of a market is far easier, and happens more often than a 100 point move.

That is the whole rationale of Five Tic Trading. Small moves that happen often.

Losers happen. Unfortunate fact of life and utterly unavoidable in trading. When they do, for us we simply lower our sights for that day and settle for a break-even day. This is just so important from a psychological viewpoint. You cannot keep losing day after day and keep faith with the system youre using. At some point you will give up on it.

With Five Tic we try and avoid that trap by at worst breaking even. That way were fresh tomorrow to do it again full of confidence and not having the thought that today we have to make up for yesterdays losses. Today we can make a profit.

Five Tic Trading

Lets Get Started

Ill discuss the way we apply the Five Tic method quite quickly then start to go over in depth the ifs, buts, and detail stuff later.

This method applies to the S&P, Dow Jones, and Russell. I have also used it on a few other indices with the same success, I dont however have all the details for other markets thanks to a computer crash. These 3 markets will, however give ample opportunities as you will see.

We attempt to pick tops and bottoms using a simple indicator and then use the price action to grab a quick correction against the prevailing trend, often it turns out to be a real top or bottom and the market takes off in a new trend. We however are long gone. This is not a trend following method, its a grab an opportunity and run for it, method. It works.

The indicator we use is the Commodity Channel Index (CCI) set at 45 periods with the measurement being the High+Low/2. This is available on pretty well all charting packages.

We look to Sell when this indicator exceeds 200 and Buy when it falls below -200. This indicator is based on the statistical variance of the price now to where it has been in the last 45 bars. But if you really want to know more then your charting package will give you more details; you really dont need to though.

We use a one minute real-time chart and when we get a buy or sell signal from the CCI we trail an entry order just above or below the market so that we quickly catch a market reversal when it happens. (Note When not If, no market continues in one direction for very long, and thats were betting on)

Once that order if filled we try to add another order to obtain a better average price. Sometimes it gets filled sometimes not.

Our profit target is just a small distance away and an order is placed as soon as our first order is filled. Sometimes if the market starts to move against us a stop-loss order would be entered but often thats not required. Usually our profit target will be hit and we have one of two winning trades for the day in the bag.

Repeat a second time then turn the computer off and go play!

Whats it look like in real life?

Five Tic Trading

Lets explain this picture.

At 14.30 (9.30 est) the market opens and drops a fair amount which causes the CCI to fall below the -200 line (in pink)

As soon as this happens we enter a buy on a stop order at 1 tic above the high of the signal bar. As you see the very next bar opens then goes up through our buy-on-stop order. We immediately enter a buy on a limit order as shown at the high of the signal bar. We also enter a sell market if touched order at our profit target of 5 tics above the high of the signal bar.In this case our buy-on-limit wasnt filled as the market just went straight up to the 5 tic profit target and hit our sell-market-if touched order. (NOTE The 2 would apply had the limit order been filled, as only the stop order was filled then of course its just 1 MIT). Thats one profitable trade - next.

Five Tic Trading

Immediately the market moves up very sharply and gives us a sell signal by the CCI going above 200. As you see the signal bar is a very long up bar and on its own moves the CCI from below -200 to above 200. Shown on the chart are the order levels you would used for a short trade off this signal - as you see this would have been a losing trade.

BUT - YOU SHOULD NOT HAVE TAKEN THIS TRADE !

This will be dealt with in depth later but just briefly, signals from the CCI are ignored if they are caused by a single bar as this was. We are looking for a trend lasting a little while so that the market can react by a move against the trend, or indeed start a trend in the opposite direction. Large bars indicate that something may have spooked the market and could result, as this did, in a longer move that would give us a loser.

So we pass on this trade.We want the CCI to fall below 200 then either go back above 200 or down below -200. Well refer to this as resetting.

Five Tic Trading

Now the CCI has reset and gone back over 200 so we place a sell-stop 1 tic below the low of the highest low until its filled. We then put a sell limit order in and the take profit orders.

A few minutes pass and we have our profit and done for the day with two winning trades.

Five Tic Trading

Getting Deeper..all of this is covered in the videos that accompany this course.

This system is simple, but, does have quite a number of rules to follow to ensure its success. Well get started on them but as we progress I will, when appropriate, introduce even more. So do read the whole of this course before you even begin to think youve got it.

A bar must be more than 1 tic, if not just ignore it.

Prior to entering the initial stop order to open a new trade just check that if you were to get filled and start the trade where would the stop-loss be? It must be beyond the recent highest high (if starting a short trade) or beyond the lowest low (if going long). If not then adjust the entry to a limit order that allows the distance required for safety.

Trading commences at 9.30am Est when the market officially opens, but, do check the news releases for the day at www.Briefing.com to see if theres anything at 8.30. If there is then start trading at 8.30. Remember - if the market opens with a huge bar that causes a CCI signal then dont take it. We dont trade off a single bar signal.

The limit order entered after the stop entry order is filled. Its a bit more complexOnce the stop order is filled - wait, for that bar to finish. If it has only exactly touched our stop price then place the limit order 2 tics away instead of 1. This improves our overall average price in a situation where we will more than likely get a fill. Lets look at an example..

Five Tic Trading

Continuing on the Limit order rules, if the limit order is not filled within 3 bars, then cancel and replace with another order 1 tic further away still. Then wait 5 more bars and if still not filled then cancel completely and just manage the stop order thats filled. This is a very rare situation and dont get too hung up about it.

Trade managementto help us with this aspect lets introduce the moving average. This is a 21 period average based on the mid-price (H+L/2) . When the price touches the 21 period moving average then move the stop-loss order to the recent pivot high or low plus or minus one tic.

This may coincide with the price achieving a 4 tic profit (of the 5 we are looking for), regardless we move the stop-loss to break-even once we have 4 tics of profit as measured from the price of the Limit Order (whether it was filled or not).

Five Tic Trading

Pre-Open Set Up

As already explained we only trade the normal market hours, 9.30est onwards unless there is a new release at 8.30, in which case we start then with normal trading.

However, the markets do occasionally give us a set up before the normal market that allows us to get a trade very early in the day - this is what to look for and how to trade it.

1 At about 9.20 as youre preparing for the trading day look back from the last 1 minute bar and see when the CCI last crossed the zero line.

2 Now look to see if the CCI has crossed above or below 200 to give us a signal - we wont have traded this of course as its before the normal trading day.

3 If it has, then (assuming its crossed below-200 and were looking to buy) follow the lowest highs down until an entry would have been achieved.

4 Place a Buy stop order in the market at the lowest high price for action only during normal hours (after 9.30 - most trading platforms allow you to specify whether the order is for execution immediately or during normal hours)

5 When 9.30 arrives the order may or may not be filled - If it is then treat as you would any normal trade. If the order is not filled after a few minutes then cancel it and await a normal trade set up.

Five Tic Trading

When we have a loser And we will, then our target for the day is simply to break-even. Usually this will mean continuing until weve had two winners and the loser. Then quit for the day, probably just slightly ahead.

There are quite a number of rules that govern what to do following a loser, these are critical for your success.

Its after a loser that emotions take over and the previously disciplined mechanical approach gets thrown out in favour of getting back at the market. Dont

Stick exactly to the rules here and you dont need to think. You can maintain the mechanical approach which will always beat an emotional response.

We are only referring to a full loss here, partial losers simply mean you continue trading until you have reached your profit target for the day.

What you do depends on the circumstances which caused the loser.

A If the CCI indicator stays above (or below) the signal line throughout the trade until you are stopped then you must now switch to a longer time period than 1 minute - with Esignal this will be a 3 minute chart - with others it may be a 2 minute chart. You must then wait for a completely new CCI signal from that chart. It must also be at a better price than the original trade. Additionally the profit targets are now bigger, (as mathematically the bars will be bigger due to longer duration). This also helps recover our loss faster. We now look for a 7 tic profit (from the stop order price) and use a 10 tic stop-loss, again from the stop entry order price.

B If the CCI indicator fell below the signal line (or above) and doesnt give a new signal before being stopped then simply take the next signalled trade as usual.

In either case both the stop order and the limit order are entered at the stop price, ie. Buy (or sell) 2 contracts on a stop order.

C If, however the CCI does NOT give a second trade in the same direction, but crosses the zero line and signals a trade opposite to the first, then simply apply all the rules as normal.

It was mentioned that this method can be applied to 3 markets, S&P, Dow, and Russell. We can use this to also assist in achieving a break-even day as each of these markets trade a different size contract. If you look at the Appendix youll see that the Dow is smallest followed by the S&P, then largest is the Russell.

Five Tic Trading

So, if our loss occurred on the S&P say, we could then switch our trades to the Russell, knowing that in dollar terms we will break-even with less price movement than staying on the S&P. However the same could also be achieved by trading twice the number of contracts on the Dow; again a smaller price movement would return dollars to us.

I really dont have hard and fast rules about this.

For me I trade the Dow initially looking for my two winners there. If a loser happens then Ill switch to the S&P where 1 winner will recover my losses. If that is also a loser Ill switch to the Russell where again 1 winner will recover the S&P loser.

In my experience it is very unusual to have back to back losers - but - if you want a more reliable, but slower way of getting to break-even then following a loser wait for the CCI indicator to go back through the zero line and take a trade in the opposite direction. Just occasionally you might not get back to break-even but you will avoid taking two losers in a row (even though this is pretty unlikely) and having a really bad day.

Losers tend to happen most when the market is in a strong trend and the pressure wont allow the market to retrace even the small amount were looking for - so, as this method is not about trading with the trend just maybe we have to admit the market is not going to be kind today. Dont fight the market - you wont win!!

Remember markets typically trend less than 30% of the time (which is why trend following systems are such rubbish), so dont lose sight of the bigger picture.

Example of trade sizes helping recovery(assuming only 1 contract - obviously the logic applies to multiple contracts also)

Loser on the Dow is 12 tics at $5 per tic = $60 lost.

Switch to the S&P where a winner gives us 5 tics at $12.25 = $60 recovered. Done for the day.

If S&P a loser then weve lost 7 tics at $12.25 = $86 lost

Switch to the Russell where 1 winner gives us 10 tics at $10 = $100 recovered.Done for the day.

Five Tic Trading

Charting and Trading Platform

Doubtless there are many solutions to this but Ill let you know what I do. If you wish to find an alternative solution, feel free, it may even be better than I do!

CHARTS

I used to use Qcharts. I now use Tradestation. This is a real-time charting package that I have used on a couple of occasions in the past and now use for Five Tic Trading.

It is available at www.tradestation.com

Tradestation costs around $80 per month unless you do more than 10 trades per month in which case it's free. There is a monthly charge of about $80 to receive the data for the three markets we trade. You do not need to sign up for news as we dont need real time news stories, checking www.briefing.com prior to the market open is sufficient.

TRADING PLATFORM

I used to use www.Interactivebrokers.com .

I now use Tradestation as above

Opening an account is long winded due to the disclaimers and so on but they do provide a straight forward trading platform with good execution times.

The minimum account size is, I believe, $5000 to trade futures.

You most definitely want to paper-trade for some days, if not weeks - just to be completely confident with the trading process. Honestly, the order entry process is one of the most difficult parts of FiveTicTrading. Even with Tradestations great Order Matrix you need to be on the ball! Dont underestimate how difficult it is to enter the correct orders under pressure!

Once youre trading you need to be able to enter, amend, and cancel orders without thinking, and they need to be the right orders!!

SO DO PRACTISE - until its second nature.

Five Tic Trading

Putting it all together

Lets go through a typical day - thats of course a day where we have two winners, then pack up.

08.15 am Log onto www.briefing.com and check if any news out at 08.30am. If yes, then start trading then, else start at 09.30am est.

09.25am Look for a Pre-market set up and get ready to place the orders if there is one.

09.30am Normal trading begins.

CCI crosses 200 signal line (above or below) Lets assume its below so were looking to Buy.Was the signal generated by a single unusually big bar? If yes then skip this signal.Check to see if the Stop-loss order will be outside the recent lowest low if the Buy stop order gets filled. If Yes..Put a stop order in 1 tic above the high of the bar giving a CCI signal. As the bars complete trail this stop order down until we are filled.Once filled wait for that bar to complete.Did the bar go through the order level or stop exactly on it?If it went through then now place a buy limit order 1 tic below the stop order thats just been filled - thats at the lowest high.If the price did not go through the order price then place the limit buy at 2 tics below the stop order - thats now 1 tic below the highest low.Place the profit taking order 5 tics above the lowest high - the order is sell 2 on a stop.If the market starts to go against us then place a stop-loss at 7 tics below the lowest high - the order is sell 2 on a stop again.Wait!!When / if the price touches the 21ma line then move the stop-loss order to 1 tic below the recent lowest low. When the price gets to 4 tics above the lowest high, so thats just 1 tic from our profit target, then move the stop-loss to the limit entry price.Be patient!!Profit target gets hit. Cancel the stop-loss order and await the next CCI signal.

That concludes this explanation of Five Tic Trading. I wish you every success with it and urge you to join the members web site where you will have access to all the training videos, all the daily video updates, and email access to ask any queries that might arise.

Best RegardsMatt Sharp

Five Tic Trading

Video Tutorials Available

1 Setting Up a Chart

2 The Basic Trade

3 Pre Open Set Up

4 A Loser - Then Recovery

5 A Normal Days Trades

THERE ARE ADDITIONAL VIDEO TUTORIALS AVAILABLE HERE

Finally there are 10 Daily Updates you can watch. This will enable you to get a good idea of how FiveTic is actually applied.

July 9 th July 10 th July 11 th July 12 th July 13 th July 16 th July 17 th July 18 th July 19 th July 20 th

Five Tic Trading

Appendix

Contract details:-

S&P mini ES 0.25points = 1 tic = $12.25 per contract

Dow Jones mini YM 1 point = 1 tic = $5 per contract

Russell mini AB 0.1 point = 1 tic = $10 per contract

Profit Targets :-

S&P 5 tics from the limit order price (same as lowest high - if going long)

Dow Jones 7 tics

Russell 10 tics

Stop Entry Orders

S&P 1 tic above lowest high (if going long)

Dow Jones 2 tics

Russell 2 tics

Stop-Loss Orders

S&P 7 tics below lowest high (if going long)

Dow Jones 12 tics

Russell 12 tics