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Preface vii 1 Taylor's Contribution to Technical Analysis: The Book Method 2 The Buy and Sell Envelopes: Measuring Support and Resistance 5 3 The LSS Pivotal Buy and Sell Numbers: The Trend Reaction Numbers 7 4 Putting Numbers on Support and Resistance: An Example Using a Hypothetical 5-Day Period 9 5 The Early Range and the Anticipated Range 15 6 Bond Calculations 17 7 The Five-Day LSS Oscillator: How to Measure Market Strength 21 8 The 3-Day Difference: How to Measure Market Momentum 25 9 Chart Patterns: Finding Symmetry in the Market 27 10 Price Reversals: When the Symmetry "Fails" 31 11 Thursdays: The Weakest (Strongest) Day of the Week 35 12 Stops: Where to Pull the Plug 37 13 Mondays: The Ideal Day to Buy 41 14 Time and Price Trading: How to Target the Exit Level and the Point of Maximum Adversity 43 v SNIPERT RADING WORKBOOK vi 15 Confirming Indicators: Divergence Tools That Pinpoint Price Reversals 47 16 Yesterday's Close: How to Use the l-Day Strength Indicator to Measure Strength 51 17 Gap Trades: When to Fade the Opening 53 18 Self-Assessment: Can You Learn from Mistakes< 55 19 Finding the Two Major Daily Trends: The Best Ti mes to T rade Every Day 59 20 Pit Traders: The Basics 61 21 The Five-Day Average Range: Measuring the Market's Volatility 65 22 Stock Market Seasonal Trends: The Best Time to Buy and Sell 69 23 Learning to "Embrace the Uncertainty": Finding Profits on the First Trade 71 24 Price Rejection: What It Means 73 Strategies for Getting out of Trouble: 25 Exit-and-Reverse and Averaging 77 26 The Relationship of Yesterday's Close to Today's Open: Where Should You Buy< Where Should You Sell< 81 27 Market Sentiment: Another Timing Tool 83 28 Tuesdays: The Afternoon Opportunity 87 29 Market Engineering: How the Market Stages a Rally- and a Decline 89 30 The Psychological Component: How to Avoid the Most Common Pitfalls 93 31 The Weekly Stock Market Pattern: How the Market Trades 97 32 Your First Trade: How to Place an Order 99 33 Market on Close Orders: A Useful Exit Strategy 105 34 Limiting Losses: When to Pull Back 109 35 Slow Stochastics: A Divergence Tool 113 This study guide is designed to be used with Sniper Trading. All the formulas and strategies covered here are outlined in that text. Whenever possible, I've tried to present examples that are realis- tic and likely to occur during the normal course of trading. Please note that this material is designed to complement, not substitute for, the textbook. While the formulas are cut-and-dry, some of the accompanying material is interpretative in nature. For this reason, you may arrive at more than one answer for some of the questions. Do not let this frustrate you; the market is complex and does not always offer an easy answer. The sooner you recognize this complexity and inte- grate it into your trading, the better off you will be. I've tried to pose a question and suggest a possible solution within the same chapter. This is so you won't have to flip back and forth as you move through the text. The chapters are designed to stand by themselves, enabling you to tackle one strategy before moving on to another one. VII George Douglas Taylor's contribution to technical analysis cannot be underestimated. He believed in measuring both market rallies and declines, and then averaging the numbers to arrive at some approximation of what should occur on the next trading day. He called this the "Book Method." I later incorporated these numbers into my LSS 3-Day Cycle Method, adding an additional formula that I called the Trend Reaction Numbers. These same numbers were later called the LSS Pivot Buy and Sell Numbers. Leaving aside this additional formula, let's first look at Taylor's original four key numbers-the rally, the decline, the buying high, and the buy- ing under. 1 2 SNIPER TRADING WORKBOOK Questions 1 What is the rally number and what does it measure? 2. What is the decline number and what does it measure? 3. What is the buying high number and what does it measure~ 4. What is the buying under number and what does it measure~ Answers 1 The rally number measures how far the market rallies from one day to another. It is the difference between today's high (the last completed day's high) and the previous day's low. Accord- ingly, if today's high is 1274.00 and the previous day's low is 1231.00, the difference of 43.00 points is the rally number. If one is trading U.S. Treasury bonds and today's high (after the close) is 105-18 and the prior day's low is 104-30, the rally would be the difference, or 2°h2T. his number tells us that on this particular two-day period, the market rallied 2°h2in price. We might use this information to determine how far above today's low price the bond market might rally tomorrow. Hence, assuming we are going to use the 2%2n umber, with a low today of, let's say, 104-19, we can estimate a rally of approximately 2°h2o, r a high of 105-07 (10419/3+2 2°h2= 1057h2). 2 The decline number measures how far on average the market tends to decline from a prior day's high to today's low. If yes- terday's high was 1294.00 and today's low is 1286.00, the decline is 8.00 points. Let's say today's high is 1323.00. Given an 8.00-point average decline, what can we expect for tomor- row's low? The answer is 1315.00, or 8 points lower, based on TAYLOR'S CONTRIBUTION TO TECHNICAL ANALYSIS 3 just one day's reading. In an actual example, we would average several declines. Let's say you are trading bonds and you arrive at a decline of 1-17. You would then subtract this number from a previous day's high to arrive at a possible low or support on the following day. Let's assume the prior day's high was 10517h2. By subtracting the decline number, you would arrive at an answer of 104-00. 3. The buying high number measures how far above the prior day's high the market traded today (the day just finished). In a rising market, you will have positive buying high numbers. In a declining market (with lower tops), you will have negative numbers. The formula for buying high is today's high minus yesterday's high. So if today's high is 1249.00 and yesterday's high was 1243.00, the difference is 6.00 points, the buying high number. If we want to assume the same buying high num- ber will prevail tomorrow, we simply add on the buying high to today's high. This will give us a target of 1255.00 (1249.00 today's high + 6.00 buying high = 1255.00). Let's say you are trading the u.s. Treasury bonds. Today's high is 103-11 and yesterday's high was 102-17. Obviously, the market has been rising rapidly, as reflected in a buying high of 26h2I.f the mar- ket continues to rise at this rate tomorrow, the buying high would give us a target top of 104-05 (103-11 today's high + 26h=2 104-05). 4. The buying under number measures how far today's low traded under yesterday's low. Hence, for a positive number to occur in the buying under, you must have a lower low today, since the calculation is yesterday's low minus today's low. A rising mar- ket will give you a negative number for the buying under. Let's say yesterday's low was 1260.00 and today's low was 1267.00. The market has been rising. This will give you a negative num- ber of -6.00 for the buying under. When you go to subtract 4 SNIPER TRADING WORKBOOK this number from today's low of 1267.00, you will arrive at a higher number-namely 1274.00-since two negatives added together result in an addition. An easier example is when yes- terday's low was, let's say, 1077.00, and today's low is 1075.00. The difference is 2.00 points. Using the buying under to gener- ate a new low tomorrow will result in 1073.00 as the target low (1075.00 today's low -2.00 buying under = 1073.00).