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Welcome to the TrendLine Trader Trading Family!!

We strongly recommend that you use the 30 day trial period to become comfortable with the program by trading on paper until you are totally comfortable with how the software works. DO NOT risk “real” money until then.

Please don't be afraid to ask for support. We very much want you to succeed, as your success is our success.

Here are some comments from real traders about our customer service:

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"I would like to convey my appreciation to you for the manner in which I was given tech. support last Friday. I was very impressed with how patient and thorough the help was and also with a personal, friendly touch while we were in email conversation at times. In these times, the impersonal seems to be the mode on e expects of the unseen and unknown, it was a most pleasant experience to have someone tryi ng to help beyond my expectations." "I just wanted to thank you for prompt and accurate help! Please pass on to Barry He is super." "This is great customer service. An email response in less than 1 hour for a non critical request after normal business hours, Amazing! This is what creates loyal customers." "I must commend the customer support I got from you r team today." "I would like to comment on the service that I have received during my trial. I made three calls over the weekend two on Saturday and one Sund ay. They were promptly handled and very cordially. I really never thought I would get a cal l back. Very good job Barry. "Thanks, I've always been impressed with your profe ssionalism, friendliness, and speedy responses to my emails."

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eMail and telephone is free for as long as you are a subscriber.

eMail: support@trendlinetrader.com Phone: 800-228-4256 International Calls: 954-302-7836

Both eMails and VoiceMails are answered 24/7 usually within 4 hours

And most importantly we offer:

FREE one-on-one assistance Where we literally LOGON to your computer and assist with

Installation Issues / Technical Issues / Setup Issues

Online support is available Monday-Friday from 10am-3pm Eastern and by appointment The support area is accessed by going to:

http://www.trendlinetrader.com/ONLINE/support.msi

If you require an appointment before or after hours, send your request to: support@trendlinetrader.com

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TrendLine Trader Software

http://www.trendlinetrader.com 6555 NW 9th Ave <> Fort Lauderdale, Florida 33309

800-228-4256 Fax 954-771-2337 International : 954-302-7836

Congratulations on YOUR decision to become a TrendLine Trader. These first few pages contain quick start instructions and some important updates not included in your TrendLineTrader Trading Manual. Please read it in its entirety. The enclosed CD contains the TrendLine Trader software for eSignal, TradeStation, MetaTrader and

MultiCharts. Please note that the CD is not self-starting. To access the contents of the CD, insert it into

your CD drive. Then double click on the “My Computer” icon. Locate the TrendLineTrader CD, right-

click on it, and choose “Open” from the drop down menu.

For those who ordered the TradeStation Version Please go to page iii

For those who ordered the eSignal Version Please go to page iv

For those who ordered the MultiCharts Version Please go to page v

For those who ordered TrendLineTraderFX Please go to page vi

For those who ordered the NinjaTrader Version Please go to page vii

For those who ordered the MetaTrade 4 Version Please go to page viii

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TrendLine Trader for TradeStation To Successfully Install and Use the TrendLine Trader Software You MUST follow the instructions as outlined in the QuickStart for TradeStation on the accompanying CD. You must also read, in its entirety, the TrendLine Trader Trading Manual. It is less than 60 pages with a lot of screen shots, so it will not take you a very long and will be well worth the effort. After you have read the QuickStart and studied the TrendLine Trader Trading Manual, you must activate your account by going to:

http://www.trendlinetrader.com Go to the members’ area by clicking on Member Log In, and then click on the “Account Mgr.” link on the left. Reenter your username and password and then click ACTIVATE SOFTWARE. Your 30-Day Trial begins when the software is activated. When going through the manual please pay special attention to Page 20 - Important Trading Hints Please take the time to go through the manual and tutorials before doing any serious trading. If you have questions please contact us via email at support@trendlinetrader.com or you can call 1-800-228-4256

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TrendLine Trader for eSignal

If you do not already have eSignal Advanced Charting Please call Scott Wilks 800-322-1819 to arrange for your FREE 30 day Trial. You must install eSignal before you can install the TrendLine Trader Software.

The TrendLine Trader installer for eSignal is located in a folder marked “eSignal” on the accompanying CD. Before running the installation program, close all open programs and disable any virus software that may be running. Double-click on the installer to install the TrendLine Trader Software. You must also read, in its entirety, the TrendLine Trader Trading Manual. It is less than 60 pages with a lot of screen shots, so it will not take you a very long and will be well worth the effort. After you have studied the TrendLine Trader Trading Manual, you must activate your account by going to:

http://www.trendlinetrader.com Go to the members’ area by clicking on Member Log In, and then click on the “Account Mgr.” link on the left. Reenter your username and password and then click ACTIVATE SOFTWARE. Your 30-Day Trial begins when the software is activated. When going through the manual please pay special attention to the following pages: Page 10 – Using Stops. Page 20 - Important Trading Hints Please take the time to go through the manual and tutorials before doing any serious trading. If you have questions please contact us via email at support@trendlinetrader.com or you can call 1-800-228-4256

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TrendLine Trader for MultiCharts

You must install MultiCharts before you can use the TrendLine Trader Software . The installer for MultiCharts is located in a folder marked “MultiCharts” on the accompanying CD. Before running the installation program, close all open programs and disable any virus software that may be running. (If you have a previous version of MultiCharts on your computer, be sure to uninstall it by going to Start/Control Panel/Add or Remove Programs, and then restart your computer.) Double click on the MultiCharts installer and follow the directions to install MultiCharts. Accept all defaults. Once the installation process is complete, double-click on the MultiCharts icon on your desktop. Enter your MultiCharts username and password (this is different from your TrendLine Trader username and password) and launch the program. Your 30-Day Trial begins the first time you launch MultiCharts. The TrendLine Trader Software will show up under the add-on tab when you go to “Insert Analysis Technique.” At this point you should activate your account by going to:

http://www.trendlinetrader.com Go to the members’ area by clicking on Member Log In, and then click on the “Account Mgr.” link on the left. Reenter your username and password and then click ACTIVATE SOFTWARE. You can now work through the MultiCharts Quick Start (in a .pdf file in the MultiCharts folder of the enclosed CD), and then the TrendLine Trader Trading Manual. The TrendLine Trader Trading Manual is less than 50 pages long with a lot of screen shots, so it will not take you a very long and will be well worth the effort. When going through the manual please pay special attention to the following pages: Page 10 – Using Stops. Page 20 - Important Trading Hints Please take the time to go through the Manual and QuickStart before doing any serious trading. If you have questions please contact us via email at support@trendlinetrader.com or you can call 1-800-228-4256

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TrendLineTraderFX

The installer for TrendLineTraderFX is located in a folder marked “TrendLineTraderFX” on the accompanying CD. Before running the installation program, close all open programs and disable any virus software that may be running. Double click on the TrendLineTraderFX installer and follow the directions to install MultiCharts. Accept all defaults. Once the installation process is complete, double-click on the TrendLineTraderFX icon on your desktop. Enter your TrendLine Trader username and password if prompted and launch the program. Your 30-Day Trial begins the first time you launch TrendLineTraderFX. The TrendLine Trader Indicators will show up under the Insert Menu or the add-on tab when you go to “Insert Analysis Technique.” At this point you should activate your account by going to:

http://www.trendlinetrader.com Go to the members’ area by clicking on Member Log In, and then click on the “Account Mgr.” link on the left. Reenter your username and password and then click ACTIVATE SOFTWARE. You can now work through the the TrendLineTraderFX Quick Start (in a .pdf file in the the TrendLineTraderFX folder of the enclosed CD), and then the TrendLine Trader Trading Manual. The TrendLine Trader Trading Manual is less than 50 pages long with a lot of screen shots, so it will not take you a very long and will be well worth the effort. When going through the manual please pay special attention to the following pages: Page 10 – Using Stops. Page 20 - Important Trading Hints Please take the time to go through the Manual and QuickStart before doing any serious trading. If you have questions please contact us via email at support@trendlinetrader.com or you can call 1-800-228-4256

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TrendLine Trader for Ninja Trader

To Successfully Install and Use the TrendLine Trader Software You MUST follow the instructions as outlined in the Introduction to NinjaTrader on the accompanying CD. You must also read, in its entirety, the TrendLine Trader Trading Manual. It is less than 60 pages with a lot of screen shots, so it will not take you a very long and will be well worth the effort. After you have read the Introduction to Ninja Trader and studied the TrendLine Trader Trading Manual, you must activate your account by going to:

http://www.trendlinetrader.com Go to the members’ area by clicking on Member Log In, and then click on the “Account Mgr.” link on the left. Reenter your username and password and then click ACTIVATE SOFTWARE. Your 30-Day Trial begins when the software is activated.

After activating your software an email will be sent to you with the download link

When going through the manual please pay special attention to Page 20 - Important Trading Hints Please take the time to go through the manual and tutorials before doing any serious trading. If you have questions please contact us via email at support@trendlinetrader.com or you can call 1-800-228-4256

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TrendLine Trader for MetaTrader 4 To Successfully Install and Use the TrendLine Trader Software You MUST follow the instructions as outlined in the QuickStart for MetaTrader on the accompanying CD. You must also read, in its entirety, the TrendLine Trader Trading Manual. It is less than 60 pages with a lot of screen shots, so it will not take you a very long and will be well worth the effort. After you have read the QuickStart and studied the TrendLine Trader Trading Manual, you must activate your account by going to:

http://www.trendlinetrader.com Go to the members’ area by clicking on Member Log In, and then click on the “Account Mgr.” link on the left. Reenter your username and password and then click ACTIVATE SOFTWARE. Your 30-Day Trial begins when the software is activated. When going through the manual please pay special attention to Page 20 - Important Trading Hints Please take the time to go through the manual and tutorials before doing any serious trading. If you have questions please contact us via email at support@trendlinetrader.com or you can call 1-800-228-4256

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The

Trendline Trader Trading Manual

by

Les Schwartz

PRINTED IN THE UNITED STATES OF AMERICA

COPYRIGHT ©2007, 2008 – PATENT PENDING Les Schwartz, Inc.

Revision 24 – 9/24/08

All Rights Reserved. No part of this book may be reproduced in any form, by any means, photocopying, electronic or

otherwise, without written permission from the publisher.

http://www.trendlinetrader.com

Disclaimer: There is a very high degree of risk involved in trading. Past results are not indicative of future returns. TendLine Trader Software and all individuals affiliated with TendLine Trader Software assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for stock observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the stock observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of TendLine Trader Software may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. By completing our on-line forms, you will also be automatically registered to receive periodic updates and announcements from TendLine Trader Software and its subsidiaries. If you are not interested in using our indicators, or in receiving any further communications from us, you will be able to easily un-subscribe from within our website.

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Table of Contents

• Introduction ----------------------------------------------------------------------------------- 3

• Using Stops-----------------------------------------------------------------------------------10

• The Trend Probability Oscillator----------------------------------------------------------13

• The Bias Bar ---------------------------------------------------------------------------------14

• Important Trading Hints--------------------------------------------------------------------20

• Examples (1) --------------------------------------------------------------------------------22

• The TLT_Trade Module--------------------------------------------------------------------33

• Examples (2) --------------------------------------------------------------------------------34

• The Trendline Trader Software as a Stand Alone Trading Method ------------------40

• Whipsaws-----------------------------------------------------------------------------------40

• Filters------------------------------------------------------------------------------------------43

• Adjusting the Filters---------------------------------------------------------------------45

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Trendline Trader Software is a trading tool and automated trading method that was designed, from the ground up, to emulate methods I have used successfully for many years. There is nothing like it on the market today. It was programmed to react to real-world conditions much as I would if I were at the computer exiting and entering trades. I wanted to create a software product that would do what I would do, without the anxiety we all sometimes feel when entering a trade and the second-guessing that often occurs after exiting a trade. Trendline Trader Software consists of three modules: 1) The Trendline Trader

2) The Trend Probability Oscillator

3) The TLT_Trade module The Trendline Trader generates unambiguous Buy, Sell, and Cash signals in real time. It can be customized for the trading instrument and specific time interval you are trading. The Trend Probability Oscillator evaluates current market conditions and helps you decide whether or not to take the trade. The TLT_Trade module attempts to point out the optimal time to enter a trade. We call the Trendline Trader Software an “Automated Trading Method,” and not a “Trading System,” because optimal results can only be achieved with input from the user. Trading systems don’t work. All market action is determined by the sum of all human events that have occurred up until a specific point in time. The forces that control any market at any point in time are unique to that instant. They have never occurred before and they will never be duplicated again. The psychological effect of these factors can be better understood by the human brain than a piece of software. That being said, if you exit the market before scheduled news events that may affect the market you are trading, and limit your exposure in choppy, directionless market, the Trendline Trader

Software will provide excellent results. The concept behind the Trendline Trader is that supply and demand are constantly changing, and by tracking supply and demand, you can have an edge on other traders by knowing the bias of the market at any given instant. Upper Trend Lines are essentially “Supply Lines” that indicate at what level supply can satisfy rising demand. In other words, increasing price has caused demand to dwindle to the point where there is enough supply for everyone to get their order filled at the current price, so no one is bidding higher. Lower Trend Lines are essentially “Demand Lines” that indicate at what level demand is equal to decreasing supply.

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In other words, decreasing price has caused supply to dwindle to the point where sellers are refusing to lower their price any further, and the clamor for more product has caused price to stabilize at the current low. By evaluating how supply and demand changes in real time, you can determine the true bias of the market at any instant. The Trendline Trader does just that. It determines market bias by using a proprietary algorithm that evaluates the market based on the fluctuation of supply and demand in real time. The Trendline Trader is unique in that it bases its trading signal on what is happening right now. When used with the Trend Probability Oscillator and the the TLT_Trade module, it can be used to trade most trading instruments, in most time frames, right “out of the box” using the default settings (except for stops, which will be discussed shortly). Advanced traders have the option of customizing the Trendline Trader using built in filters that take into account five different factors, much as you would mentally filter a trading signal before entering a trade. 1) The Trading Range Filter filters out trading signals that have not shown that they are strong enough to breakout of the current trading range. 2) The Entry Speed Filter determines how long we wait for a trading signal to be confirmed by the trend. 3) The Gap Filter prevents us from chasing gaps or fast moves until we can confirm there will be follow-through. 4) The Trend Strength filter requires a trend to be in place before we enter a trade. 5) The Momentum Filter checks that the market has at least some momentum, and that the momentum is in the direction of the trade. Each of these filters can be turned on and off and customized for whatever you are trading. The Trendline Trader also includes a Trailing Stop Module to help you plan and manage your trade. Adjusting the Stop Module to best manage your trade is the most important adjustment you must make to trade successfully. I personally leave all other settings at their defaults, and just adjust the stop module for the best results for current market conditions. The Trendline Trader is not a “Neural Network.” It does not “learn” from past market movement. It evaluates current market movement to determine the current bias of the market, without the “baggage” of worrying about past events. It looks to the future. The optional filters then can look at the past to see if the current signal is strong enough to overcome the current trading range or a trend that may be in place. The Trendline Trader only gives three signals. These signals are evaluated differently depending on whether or not the automated stops are activated.

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If the stops are activated, the signals are evaluated as follows:

Buy (indicated by Green Arrows pointing upwards and a pop-up window with the closing price of the signal bar),

Sell (indicated by Red Arrows pointing downwards and a pop-up window with the closing price of the signal bar) and

Cash (indicated by grey arrows pointing in the opposite direction of the current trading signal and a pop-up window with the closing price of the signal bar). When used without the stops being active, the signals are evaluated as market bias indicators as follows:

Buy or Positive Bias (indicated by Green Arrows pointing upwards and a pop-up window with the closing price of the signal bar),

Sell or Negative Bias (indicated by Red Arrows pointing downwards and a pop-up window with the closing price of the signal bar) and

Cash or Neutral Bias (indicated by grey arrows pointing in the opposite direction of the current trading signal and a pop-up window with the closing price of the signal bar). At this point we suggest you apply Trendline Trader to a one minute chart of your choice with the stops off and simply watch as the signals evolve. By doing this you will see how intuitive the methodology is. This is a valuable exercise, even if you are an end-of-day trader. Used in this manner, Trendline Trader is simply an extremely accurate bias indicator that will tell you the market’s bias at any given instant. It can be used in this manner to filter , find optimum entry points, and time the market using any indicator or trading method of your choice. If the last signal was a positive arrow, the market’s bias is positive. If the last signal was a negative arrow, the market’s bias is negative. If the last signal was a neutral arrow, the market’s bias is neutral. After doing this, please review the following screen shots of charts with Trendline Trader applied and stops on.

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Note that the Current segments of the upper and lower trendlines are different colors than the historical trendlines. This indicates that those trendlines are “Dynamic” and will continue to adjust, in real time, until firm trends for the highs and lows are in place. (TradeStation users should note that signals are designated by letters instead of arrows in the TradeStation version. B for Buy, S for Sell and E for Exit.) (NinjaTrader users should note that due to a limitation within NinjaTrader the Dynamic and Historical Trendlines are shown as the same color.)

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Note that in this screen shot (taken just a few bars after the last screen shot) the upper trendline has adjusted while the lower trendline remains the same, but both are still dynamic.

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Here is how the chart looks a few minutes later. Remember, only the Current trendlines are dynamic. Historical trendlines are “fixed” and will always show up the same way on the chart.

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(Note: Read this chart from bottom to top.)

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Using Stops

Please pay close attention to this section. Your success or failure as a trader depends on using stops properly. As I mentioned previously, adjusting the Stop Module to best manage your trade is the most important adjustment you must make to trade successfully. I personally leave all other settings at their defaults, and just adjust the stop module for the best results for current market conditions for whatever I am trading. While many traders talk about “Trailing Stops,” very few traders know the right way to use them. The Trendline Trader includes automated trailing stops based on the Average True Range (ATR) of the instrument you are trading. The Average True Range (ATR) is a measure of volatility. Essentially, True Range measures the length of a bar including gaps up or down from the previous bar. Average True Range is an average of the True Range of the individual bars over a specified period, usually 14, but you can enter whatever value you wish. Lower values will cause the stops to react more quickly to current market volatility. We suggest you always add the Average True Range Indicator to your charts so you can get an idea of current volatility (but you may want to turn off the alerts). Stops can be turned on or off. If the stops are off, the Trendline Trader will generate Cash (neutral) signals based on the movement of the trendlines. This does not necessarily mean that you should exit a trade. Rather, it means that the market currently has a neutral bias and the previous trend may or may not resume. If the stops are on, Cash signals are only generated by the stops. The default for the stops is on (true). If Stops are set to “false,” the Trend_Strength_Filter should be set to “true” to suppress Cash signals in the direction of the trend. Please make sure the Stops are set to the following default levels before using TrendLine Trader. Some version have the defaults set at different values. It is up to the trader to find the optimal levels for whatever they are trading. Stops_On (true) Dynamic_Stops (true) ATR_Length (14) Initial_Stop_ATRs (4.0) Profit_Threshold_ATRs (4.0) Tightened_Stop_ATRs (4.0) The stops have two modes: Regular (“Static”) stops and Dynamic Stops. Regular stops use the ATR of the signal bar for all calculations. Dynamic Stops use the ATR of the previous bar for all calculations. We’ll discuss Dynamic Stops in more detail in a minute.

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The initial stop is calculated from the close of the signal bar. Subsequent stops are calculated from the highs for long trades, and from the lows for short trades. To set your stops you must enter three parameters: 1) Initial_Stop_ATRs – The distance of your initial stop in ATRs. 2) Profit_Threshold_ATRs – How much profit your trade should show before you tighten you stops. 3) Tightened_Stop_ATRs - The distance of your tightened stop in ATRs. If this value is set to zero, the software will give an exit signal when your Profit Threshold is reached. There is no magic formula for setting the various parameters. Each trading instrument is different, each time interval is different, and each trader is different. The best way is to put them on a chart and see how they perform. Testing has shown us that, despite what you would think, most traders do better without tightening their stops too much once a profit threshold is reached. This is probably because the tightened stops are often too tight. Stops which don’t allow enough “wiggle room” cause the trade to be stopped out prematurely. (If you are going to unrealistically tighten your stops, you might as well set the Tightened Stop to zero and exit your trade once your profit threshold is reached.) For this reason, the defaults shown use a single stop value (4.0 ATRs). You should experiment with various values for the Profit Threshold and Tightened Stop to try to improve on the historical results given by the default settings. The biggest mistakes most traders make is expecting profits that are too large and using stops that are too narrow. Keep your expectation realistic. If you can survive flat and choppy markets, the trending markets and big profits will take care of themselves. Before you enter a trade always take a look at the current value of the ATR and your initial stop setting. If your initial stop is more than you wish to risk, you should pass the trade or tighten the stop. As discussed earlier, you may be better off passing the trade than tightening the stop, as the likelihood is that you will be stopped out prematurely if your stop is too tight for the volatility of the market you are trading. By the same token, if the market has been trading in a narrow range, and you feel the stop is too close, you may want to widen the stop parameters to minimize the chance of your stop being triggered once normal volatility returns. Keep in mind that if you adjust the stop module just before entering a trade, it will change the history of whatever you are trading, so you are better off adjusting your stops mentally until normal volatility returns and you can use the calculated stops. Remember, the value of the ATR can be exaggerated following a fast move or gap, so evaluate the risk of your trade before entering. You’ll have to use tighter stops in Trading range markets so you can scalp a couple of points or a few pips and stay in the game. Most traders constantly look for the home run and it is a deadly mistake. Try

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setting the Initial Stop at 3 ATRs, with a Profit Threshold of 3.0 and Tightened Stop of 2.0 ATRs in choppy markets. Again, remember that tighter stops will prematurely stop you out of big moves, so it is up to you to evaluate the market and set realistic goals. As mentioned above, Regular (or “Static”) Stops use the ATR of the signal bar for all calculations. Regular Stops will take you through a well defined trade and allow your trade to survive periods of low volatility. Dynamic Stops use the ATR of the previous bar for all calculations. This means your stops will tighten faster, and the actual value of your Profit Threshold will decrease, if volatility decreases. By the same token, your stops will tighten slower, and the actual value of your Profit Threshold will increase, if volatility increases. (Note: Stops are never moved backward.) We suggest you start by using Dynamic Stops and not using the profit threshold function, as the stops will tighten automatically when a move is coming to an end, and you are less likely to be stopped out prematurely. One type of stop is not better than the other type of stop, but each type of stop can outperform the other in certain situations. You should experiment with both types of stops when learning to use the software. Remember the key to setting stops is to evaluate your stop setting at the first bar of a trade and each bar thereafter in terms of the actual money you are willing to risk and the actual volatility of the instrument you are trading. If a long trade was signaled on the GBP when the ATR was 2.0 pips, and you were using the default stop of 4.0 ATRs, the initial stop would show up 8.0 pips below the close of the signal bar. On subsequent bars the stop will be calculated from the High of each bar, and will be raised if the

(High) – (4.0 ATRs)

is greater than the previous stop. Whether you use static or dynamic stops, the stops will never widen, so you initial stop is you maximum risk. The bottom line is that If you get a cash signal while the trend is in effect, causing you to exit a trade prematurely, or if the stop is too wide on a losing trade and you lose more than you wanted to, it is because that is what you told the software what to do. You must take responsibility for managing your trade.

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The Trend Probability Oscillator

The Trend Probability Oscillator evaluates the probability that a trend is strong enough to result in at least a break-even trade when a signal is given. It has two components: 1) The Oscillator 2) The Bias Bar above the Oscillator The oscillator itself evaluates the signal. The “Bias Bar” evaluates the environment in terms of the likelihood of a trend beginning in the near future. When the Oscillator is Green, it is suggested that you take only Long trades. When the Oscillator is Red, it is suggested that you take only Short trades. The direction of the oscillator moves inversely to the change in volatility. This is because up trending market tend to show decreasing volatility while down trending market tend to show increasing volatility. Long Trades are usually most reliable when the Oscillator is Green and Positive. The more positive the oscillator, the lower the risk. Short Trades are usually most reliable when the Oscillator is Red and Negative. The more negative the oscillator, the lower the risk. Two important exceptions: 1) Following a flat, quiet period, a strong Negative oscillator value suggests the probability of a trend. In other words, a green oscillator moving downward is a strong confirmation of a Buy signal following a flat, quiet period, and a red oscillator moving downward is a strong confirmation of a Sell signal following a flat, quiet period. The reason for this is that, following a period of consolidation, an increase in volatility suggests a tradable move. 2) Following a choppy period, a strong Positive oscillator value suggests the probability of a trend. In other words, a green oscillator moving upward is a strong confirmation of a Buy signal following a choppy period, and a red oscillator moving upward is a strong confirmation of a Sell signal following a choppy period. The reason for this is that, following a very choppy period, a trending market will show decreased volatility. To put it another way, following a flat period, one would expect the oscillator color to agree with the signal, but the oscillator value should be negative regardless of whether the signal is long or short. Following a choppy period, one would expect the oscillator color to agree with the signal, but the oscillator value should be positive regardless of whether the signal is long or short.

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The Bias Bar The color of the Bias Bar above the oscillator varies from Deep Red to Light Pink to Grey, and then from Pale Green to Dark Green. The “Redder” the bar, the stronger the trend to the downside. The “Greener” the bar, the stronger the trend to the upside. A Grey bar suggest a random market with no bias. One caveat here. Dark Red bars and Dark Green bars can also indicate the end of a trend is near. Be especially cautious of entering or re-entering a strong trend, based on the bar being Dark Red or Dark Green.

In this screen shot of USDJPY there is a Sell signal at point A, but the oscillator is Green and the Bias Bar is Green. This is a higher risk trade.

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In the eSignal version, the Bias Bar is shown along the axis of the oscillator instead of above it, as it appears in the other versions. Note how random the Bias Bar is during this interval. This is how a choppy market can look, and you should be very cautious when entering trades in a choppy market. If the interval you are trading is consistently choppy, change intervals or trade something else. Don’t become a victim of your own inflexibility!

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The signal at “B” is a good short signal. The Bias Bar is moving from Neutral (Grey) to increasingly deeper shades of red, and the Oscillator is red, if somewhat choppy. In real trading, it is unusual for all factors to fall into place perfectly. Usually, some factors are positive and some negative. You have to be the “jury” and follow a preponderance of the evidence. The more factors supporting your trade, the lower the risk. Please note that we consider any Signal that results in a break-even or better trade a “Good Signal.” As a general rule, the value of the oscillator is the least important factor, while the color of the oscillator and bias bars are the most important factors.

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Sometimes you may want to delay entry into a trade to see if conditions become more favorable. The short signal at “C” is starting to look better a few bars later. Ideally, we try to enter a trade at a price equal to or better than the close of the signal bar. Note that it is not usually a good idea to wait too many bars after a signal before entering a trade, unless you are in a flat market and waiting for something to happen.

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Earlier we told you that, following a flat, quiet period, a Negative oscillator value suggests the probability of a trend regardless of whether the signal is long or short or the color is Red or Green. Here is a good example. The signal at D looks to have some promise. (A personal observation here is that you will often get a false signal following a flat period that reverses quickly and “slingshots” in the opposite direction for a nice move.) Interpreting the Bias Oscillator is an art, not a science, but it is quite intuitive and you should be able to use it successfully to interpret market bias in a very short time. To review: A good long trade set-up shows a Green Oscillator with a value that is positive and increasing, and the Bias Bar moving from Grey or Pale Green to darker shades of Green. A good short trade set-up shows a Red Oscillator with a value that is increasingly negative, and the Bias Bar moving from Grey or Light Pink to darker shades of Red.

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Following a flat, quiet period, a strong Negative oscillator value suggests the probability of a trend regardless of whether the signal is long or short or the color is Red or Green, as long as the color agrees with the signal. Following a choppy period, a strong Positive oscillator value suggests the probability of a trend, regardless of whether the signal is long or short or the color is Red or Green, as long as the color agrees with the signal.

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Important Trading Hints: 1) Try to enter your trade at the closing price of the signal bar or better. This will often cause you to wait for a retracement, which improves the probability of a winning trade. 2) Try to enter your trade on a bar moving in the same direction as your trade. If you are using candlesticks, try to enter a long trade on a green candlestick when the price is at or below the signal price. Try to enter a short trade on a red candlestick that is at or above the signal price. If you are using a bar chart, try to enter a long trade when the price is above the open of the current bar and when the price is at or below the signal price. Try to enter a short trade when the price is below the open of the current bar and when the price is at or above the signal price. We strongly suggest you learn to use candlestick charts. 3) The best trades usually follow a flat period or a period of consolidation. 4) The best signals usually occur when the Bias Bar is neutral or has just changed from neutral to a slight bias in the direction of the signal. 5) Signals given when the Bias Bar has turned directly from red to green or visa versa should be viewed as higher risk. The darker the colors, the greater the risk. The strongest confirmations by the Bias Bar occur following a neutral period. 6) If you are in a long trade, and unconfirmed short signal is given, consider holding your long trade with your current stop until a confirmed signal is given. If the confirmed signal is long, adjust your stop to conform to the new signal. If the confirmed signal is short, exit and go short. If you are in a short trade, and unconfirmed long signal is given, consider holding your short trade with your current stop until a confirmed signal is given. If the confirmed signal is short, adjust your stop to conform to the new signal. If the confirmed signal is long, exit and go long. Signals given directly following an extended move should usually be avoided. Wait for the next period of consolidation. 7) Not all parameters will fall in line for every trade. Be more aggressive entering trades during periods when whatever you are trading seems prone to trend. Be more conservative in choppy markets.

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8) You must evaluate your stops for every trade in terms of actual dollars risked. Strangely, most traders lose money because their stops are too tight. As an example, if a market is very quite, and your stop of 4.0 ATRs is very tight, you should probably widen your stop or you may be stopped out as soon as volatility returns to the market, regardless of the direction of your trade.

This chart is an example of a trade being stopped out prematurely due to trailing a stop too tightly. (The stop setting here is 2/2/2.)

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Here is the same signal with the stops set realistically. Having your stops set realistically can result in you catching the entire move and while reducing whipsaws. (The stop setting here is 4/4/2) Remember, the stop settings affect the entire sequence of trades. Following are some more examples of real trading situations.

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Example 1

Following a short signal at bar A, the market flattened out and the next few bars did not provide a good entry (See Hint #2). Bar “B” is a short bar that allow entry at the signal price. The Bias Bar is moving from grey to red and the oscillator is red, if somewhat choppy.

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After our stop triggered on the previous trade, we get another short signal at “C.” Beware of theses “bounce back” signals following a sustained move. They often don’t follow through unless the underlying market is experiencing a news-driven rally or sell-off.

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That was the case here.

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Example 2

As we continue to follow this sequence, the long signal at “D” never offers us a good entry. By the time the Bias Bar and Oscillator are in agreement at bar “E” it is difficult to get our optimum entry price. Nothing is perfect in trading so this is a judgment call. I’m pretty aggressive, so I would likely have taken the trade….

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which would have resulted in a small loss. It’s usually best to be patient and not to force the trade.

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Example 3

The long signal at Bar “F” can be entered at “G” at the signal price or better. By insisting on entering at the signal price or better, and requiring the entry bar to be moving in the direction of your trade, you improve your chances of making a profitable trade, but risk missing some trades.

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Example 4

The short signal at Bar “H” should be passed. Subsequent bars do not allow entry at the signal price or better where the trade is confirmed by the Bias Bar.

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Example 5

The is very important! The long signal at Bar “J” can be entered at Bar “K”. We then get a short signal at Bar “L.” Since the signal at “L” is never confirmed, you can hold your long position, with the same or a tighter stop. Following the Long signal at Bar “M” you would adjust your stop to conform to the new parameters (while never moving your stop lower).

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Example 6

The short signal at Bar “N” should be viewed as a higher risk trade. The Bias Bar has moved directly from green to red suggesting indecision in the market. The following two trades are also questionable given the choppy nature of the market.

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Example 7

Trading decisions are rarely clear cut. As we stated in Hint #3, the best trades usually occur following a period of consolidation. It this case, there is no chance to enter the trade signaled at bar “P” at the signal price or better. Since this signal is following a period of consolidation, and the market has moved above its recent trading range, aggressive traders may decide to enter even if they can’t enter at the optimum price.

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Example 8

In this example we are in a long trade when a short signal is given at bar “Q.” The neutral Bias Bar suggests a consolidation. Since the short signal is not confirmed, we hold our long position (per hint #6) and adjust our stop to conform to the new parameters following the long signal at Bar “R.” Remember, we don’t increase the distance of our stop, but only tighten it according to the new parameters when circumstances allow.

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Example 9

In this example, getting in at the signal price or better is pretty difficult. In fact, many good trades don’t offer an ideal entry point. The question is how do you know when to trade conservatively, and how can you have a trading plan where you don’t constantly second guess yourself? My solution is to trade instinctively (aggressively) when I am winning and conservatively when I feel I am losing too many trades. By trading conservatively, you get to slow the action down and regain your composure.

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Example 10

Yet another example of a trade taking a “breather.” We are in a long trade entered at bar “T” when a short signal is given at Bar “U.” We hold our long trade until the short signal is confirmed, our stop is triggered, or (as in this case) a new long signal is triggered at bar “V.” We then adjust our stop to conform to the parameters of the new trade.

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Example 11

Always be suspicious of a reversal signal following a significant move. In this case a short trade was signaled at Bar “W,” but the Bias Bar didn’t confirm. This won’t always be the case Any signal should be considered high risk, whether it is confirmed or not, if it is coming after a significant move without a period of consolidation.

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The TLT_Trade Module

The TLT_Trade module attempts to indicate optimal times to enter trades and, probably more important, when not to enter trades. It is basically a directional momentum filter that looks to enter trades when momentum appears to be increasing. TLT_Trade indicates when you should consider entering a trade and the direction of the trade you should consider entering. Red crosses indicate that it is OK to enter a short trade. Blue and green crosses suggest that it is a good time to enter long trades. A plain red cross suggest the momentum is fairly weak to the downside, while a bold red cross suggests momentum is fairy strong to the downside. A blue cross suggest the momentum is fairly weak to the upside, while a green cross suggests momentum is fairy strong to the upside. If no cross is present, it indicates that there is alack of momentum and a trend change may be imminent. If you are using TLT_Trade you should not trade in the absence of a confirming signal. If a group of crosses alternate from blue to red, it indicates that momentum is oscillating around the zero line and it is a risky time to enter a trade. Note: When the TLT_Trade indicator is applied, it defaults to: "Update on every tick" under the Properties tab for TLTfx, Multicharts and MCFX and "Update value intra-bar (tick by tick)" under the General t ab in Trade Station. This causes different outputs historically and in real time. These check boxes should be un-checked when applying the TrendLine Trader Trade indicator.

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Example 12

In this screen shot of GPB, a short signal is given at point “X.” The next bar is a valid entry bar. TLT_Trade shows positive momentum and the bias bar has gone from grey to red. This would likely turn out to be a good trade. Remember, the TLT Trade module is just another form of confirmation. Some traders swear by it, others consider it “overkill.” How and when you use it is up to you.

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Example 13

TLT Trade works on a different algorithm than the oscillator or the Bias Bar. Therefore, they are not redundant and complement each other. Here the trade signaled at “Y” would be considered if you used the Bias Bar alone, but both the oscillator and TLT Trade suggest a directionless market.

Keep in mind that how strict you are with entry rules is up to you. In choppy markets you should use stricter entry rules. In markets that tend to trend, you should loosen those rules to catch more good trades. While strict rules will keep you out of many bad trades, they will also keep you out of some good ones.

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The Trendline Trader Software as a Stand Alone Trading Method

The Trendline Trader Software is a robust stand-alone trading method. Try to enter trades at the closing price of the signal bar so your performance will match or beat the performance of the Trendline Trader Software. Try to enter a long signal on a long bar and a short signal on a short bar. If you miss a trade, so be it. Make the market come to you. You can improve performance by doing your best to stay out of choppy markets, You should not hold a positions in advance of scheduled news events, but you can enter a trade on the first valid signal following a scheduled news event or even mid signal on a confirming bar a few minutes after the event. If you have your own methods of filtering trades that you feel will improve your performance, by all means, use them.

Whipsaws A whipsaw is when you enter a trade in one direction, only to have the trade move against you a short time later, resulting in a signal in the opposite direction. When you enter in the opposite direction, the same thing happens. You have been “whipsawed.” Everyone hates whipsaws, but they are a part of trading. If you are afraid of being whipsawed you will be afraid of entering trades and will likely miss many of the big moves you need to be profitable while you avoid whipsaws. This is where most trading systems breakdown. In an attempt to filter out whipsaws, the developers create systems that also filter out many large, profitable moves. As a trader, I have always been more concerned with missing the big move, than taking a small loss. I believe many would-be traders fail because they are unable to come to grips with the fact that they will probably lose more trades than they will win. The key is to make more on the winning trades than you lose on the losing trades. When I developed the Trendline Trader Software I was determined that it would miss as few big trades as possible. The Trendline Trader takes trades aggressively. As long as a bias can be detected, a trading signal will be issued. We then rely on the Trend Probability Oscillator to filter out weak signals. We have also built into The Trendline Trader a series of filters (discussed in the next section) that allows you to customize the software to produce optimal results for whatever you are trading. (Note: For most trading conditions the default filter settings are fine. As stated previously, adjusting the Stop Module to best manage your trade is the most important adjustment you must make to trade successfully.)

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All that being said, there is no trading method in the world that can make money on something that doesn’t move (unless you are trading options). Even the most tradable trading instruments have days when they go nowhere. While you can’t read the future, when you see that the market is stagnant, either take trades much less aggressively, look for something else to trade, of just pack it in and go fishing. As an example, while testing the Trendline Trader Software, I recorded results for trading Research in Motion (RIMM) (one of my favorite trading stocks) on a Friday afternoon. As a rule, I don’t trade on Friday afternoons because the market often goes nowhere, and that was the case on this day. After a number of trades the market had gone nowhere, and I was just slightly ahead. Luckily, the 11th trade was a nice winner and I was able to show a profitable afternoon … but I should have gone fishing. Which brings us to our first method of avoiding whipsaws:

Trade something that moves … when it moves. That’s not as hard as it sounds. As I mentioned, I don’t often trade stocks on Friday afternoon. The market is too quiet. You can’t make money if you don’t get movement. If you are a stock trader, trade stocks that move when they are in the news or trade stocks in the public eye. Stocks like Apple Computer have provided an abundance of trading opportunities over the past couple of years. Don’t trade Friday afternoons, and is it often a good idea to bypass the lunch hour. If you trade index futures or eMinis, trade the indices after scheduled economic news or important national or international news events. Again, don’t trade Friday afternoons and consider bypassing the lunch hour. We also very strongly suggest you only trade the indices during actual market hours. The pre-and after market is subject to too much manipulation. If you are a commodity trader, trade something that is in the news or in the public eye. Oil is usually a good bet these days. If you are a FOREX trader, trade scheduled economic events that can move your market. You can go to

http://www.forexnews.com/GlobalCalendar/default.asp

for a calendar of scheduled economic events. One caveat here: If you are trading scheduled news events, stay in cash until the after the event, and then let the Trendline Trader Software determine the direction of your trade. Just because you can trade FOREX 24 hours a day, that doesn’t mean you should trade FOREX 24 hours a day. The Euro and GBP don’t move much when European and U.S. businesses are closed. Trading the GBP evenings in the U.S. can be deadly.

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Forex markets tend to move most when the primary market of at least one currency of the pair you are trading is open. You will generally get the most movement when both primary markets are open. This is called “Trading the Overlap.” You can view market schedules for the major currencies by going to:

http://www.gftforex.com/forex/24houraccess.asp Note: If you are trading forex using an eSignal datafeed, don’t try to trade using eSignal’s combined feed (i.e. EUR A0-FX). This combined feed includes over 200 contributors and is virtually impossible to trade. Try to use your broker’s individual feed if possible (i.e. EUR@FXCM A0-FX). You can get a list of all contributors by going to the “Symbols” menu item/Symbol Directory and scrolling down to “Forex (Format and Contributors).”

Trade a Profitable Time Interval.

There is one thing that happens over and over again that I can never understand. Someone will say to me “I’m trading the GBP on a one minute chart and I’m getting killed. What should I do?” The obvious answer is, “Don’t trade the GBP on a one minute chart. It is moving too slowly.” Look at a five or ten or 15-minute chart, and if it is stagnant, trade something else or just don’t trade. Many swing traders would do well to look at hourly charts. There are many trading instruments that are difficult to trade in certain time intervals. Try to trade the time interval that gives you the most “bang” for your buck.

Celebrate your wins

You will have a lot of winning trades. After a big move, it is unlikely that another big move will begin in the next few bars. More likely, the market will make a false countermove or a failed continuation move and then trade flat for a while. To some degree, you can time your trades. I have found that when I trade Research in Motion (RIMM), on a one-minute chart, I can usually sit out the first two or three trades following a big move without missing another big move.

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Filters

The five filters suppress signals that may be too weak to trade. Probably the easiest way to set the filters is to compare identical charts using different settings in the Trendline Trader. This section will give you an idea of how the different filters work and how to find the best settings. The filters can be adjusted and turned on and off in the “Format Studies” window, or by going to the indicator list for the charting platform you are trading. All of the filters try to do the same thing in different ways; filter out bad trades in flat and choppy markets. For this reason, no one filter will have a huge effect on results when using the default values. In other words, by design, the filters are somewhat redundant. Don’t get obsessed with looking for the perfect filter settings. As we have stated a number of times, adjusting the Stop Module to best manage your trade is the most important adjustment you must make to trade successfully. In general, you should start by using the default values for each filter, and make changes by using different combinations of filters. You can then try adjusting the settings of the individual filters, as discussed in the next section. We suggest you start with all filters off (false) except the Momentum Filter using the default values. This is the default configuration: Momentum_Filter (true) MF_Fast_Direction(true) MF_Fast_Length(7) MF_Slow_Direction(true) MF_Slow_Length(21) MF_Strength(false) MF_Length(21) If the default configuration works for whatever you are trading, leave the filters alone. The filters will filter out some bad trades, but can also delay entry into, or cause you to miss good trades. One way to add filters is to set all filters to true and then remove them one at a time, checking the historical chart to see how each filter affects results. Another way is to add them one at a time using the following guidelines. If you find you are getting too many trades triggered in flat markets, set the Momentum Filter Strength component to “true:” MF_Strength (true)

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If you find you are getting too many trades triggered in choppy markets, set the Gap Filter to “true” using the default values: Gap_Filter(false/true), GF_Length_Highs(10) GF_Length_Lows(10) GF_ATR_Length(14) GF_ATR_Multiplier (2) If you are still getting too many bad trades try adding the additional filters one at a time, using the default values. We suggest you start by adding them in the following order: Trend_Strength_Filter(true) Trading_Range_Filter(true) Entry_Speed_Filter(true)

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Adjusting the Filters The default values for the five filters provide good results for a wide range of trading conditions. I usually use TrendLine Trader with the “out of the box” configuration: All filters off except the momentum filter with the following values:

Momentum_Filter (true) MF_Fast_Direction(true) MF_Fast_Length(7) MF_Slow_Direction(true) MF_Slow_Length(21) MF_Strength(false) MF_Length(21)

All you have to do is turn on the alerts for TrendLine Trader and configure your alerts in the Format Study, Format Analysis Technique, or Edit Study window (depending on the platform you are using. Advanced traders can try adjusting the various filter parameters to improve performance. Three caveats: 1) It is the nature of traders to always want to find the “Optimum Settings.” Keep in mind that the “Optimum Settings” for one trade, is likely not the “Optimum Settings” for another. So, just try to find settings that work. 2) For day traders, consider setting the filters you are using to “false” at the beginning of the trading day, since the filters will be processing questionable information from the previous trading day until the maximum look back period of the filters reached. 3) Be realistic. If you are trying to trade something that is not going anywhere, either trade something else or quit for the day. There is no way to turn a negative mathematical expectation into a positive one.

1) The Trading Range Filter

Trading_Range_Filter(false/true) TRF_Length_Highs(5) TRF_Length_Lows(5) The Trading Range Filter filters out trading signals that have not shown that they are strong enough to break out of the current trading range. You have to tell the filter how far back to look to determine the current trading range. The default is set at 5 periods for the highs and lows. Settings of 1 will filter out all trades since the trading range is always the current bar. Lower settings, like 5 and 5 will make the filter more purely a trading range filter. Higher settings, like 10 and 10 or 20 and 20 will give greater preference to trades in the direction of the trend and cause the system to react more slowly to trend changes.

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2) The Entry Speed Filter

Entry_Speed_Filter(false/true) ESF_Length_Highs(10) ESF_Lookback_Highs(5) ESF_Length_Lows(10) ESF_Lookback_Lows(5) The Entry Speed Filter determines how quickly a trend change is recognized. The Filter determines the direction of the trend of X periods and then looks back Y periods to see if the trend is strengthening. The defaults number of periods is 10 for the highs and 10 for the lows, and the default look-back period is 5. You should try setting the number of periods to the length of an average swing, not the length you wish a swing to be. Use the approximate average length of both short and long swings. Longer filter lengths may get you into trades in the direction of the trend quicker, but will recognize trend changes a bit slower. Shorter look back periods will get you into trades faster. Look back periods greater than 5 will often result in too long a delay in entering trades.

3) The Gap Filter

Gap_Filter (false/true) GF_Length_Highs(10) GF_Length_Lows(10) GF_ATR_Length(14) GF_ATR_Multiplier (2) The Gap Filter uses a multiplier of the Average True Range (ATR) of X number of bars to determine if a trading instrument has moved to far to fast. It compares the high of the current bar to an average of the highs and lows over X periods to determine when a gap is not tradable. (Note: Average True Range (ATR) is discussed in the Stops section.) The defaults are an Average True Range (ATR) of 14 periods and a look back period of 10 for the highs and lows. The critical adjustment is the multiplier of the ATR. The default is 2.0. Basically, this means if the high of a bar is more than 2.0 times the ATR above the average high, a Buy signal will be suppressed. If the low of a bar is more than 2.0 times the ATR below the average low, a Sell signal will be suppressed. Optimum setting depends on what you are trading.

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4) The Trend Strength Filter

Trend_Strength_Filter(false/true) TSF_Length(10) TSF_Avg_Length(2) TSF_Aggressive(true) The Trend Strength Filter requires that a trend in the direction of the signal be in place or the signal is suppressed. A proprietary algorithm gives a value to the trend strength of each bar over the past X periods. The output is then averaged over the past Y bars to smooth the output. If Stops are set to “false,” the Trend_Strength_Filter should be set to true to suppress Cash signals if you are in a trade in the direction of the trend. The defaults are a look-back period of 10 and an averaging period of 2. Higher look-back periods may result is fewer trades and slower entries, but may filter out some bad trades. Lower look back periods will result in faster entries. A look back period of 100, for example, will keep you out of all trades not in agreement with the trend of the past 100 bars, if that trend is of sufficient strength, while immediately entering trades in the direction of the trend. Averaging periods greater than 2 will have a slight dampening effect on the speed of trend identification (but not a critical effect). The aggressive setting only comes into play if the Stop module is not being used. When it is set to “true,” any cash signal given will be suppressed as long as a trend in the direction of the trade can be identified. This should not be changed.

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5) The Momentum Filter

Momentum_Filter (true/false) MF_Fast_Direction(true) MF_Fast_Length(7) MF_Slow_Direction(true) MF_Slow_Length(21) MF_Strength(false) MF_Length(21)

5) The Momentum Filter checks that the market has at least some momentum, and that momentum is in increasing. The “Directional” designation is kind of a misnomer. The Fast Direction and Slow Direction components don’t care what direction the momentum is in, as long as there is momentum in some direction. The momentum strength component filters out trades where momentum is not increasing. We suggest, to start out, that you use the default values for length and only adjust whether the different components are on (true) or off (false). Note: Regardless of the platform you are using, make sure to turn Alerts on for TrendLine Trader and configure your alerts in the Format Study, Format Analysis Technique, or Edit Study window.