Chapter 24 - Your Trade Program

Phantom indicated that it was time to conclude the talk forum part of Phantom’s Gift and move to
the sidelines in order to complete the first book of his give back project. There were a few
hesitations on the forum but only because of not knowing the further plans that Phantom intends to
complete.
The project has been very successful and well received which pleased Phantom and exceeded his
projections. Several comments were made to the point of wishing for a never ending dialogue
between Phantom and the participants on the forum. Phantom felt it was time for him to stand on
the sidelines in order to see the results of his efforts.
Trading is an extremely difficult business and research is always a demanding part of each trading
day. While Phantom needs to complete a few other projects, none are as important to him as the
efforts he has given on seeing the small trader compete successfully with the big traders.
There are so many turns and new frontiers in trading and only a few have been covered up to this
point. For a trader to know what is required in order to stay in the trading game for a long period of
time is most important and above other aspects. But without the other aspects such as a trading plan
and a system to generate trades, trading can not be completed properly.
There are so many trading plans and systems and while one trader may be able to be successful with
a same system, another trader may have failed to master the same system due to different entry and
exit points. It can be a very fine line.
With Phantom’s rules it is a more even call with the same system. This is what Phantom intended to
see in presenting his trading rules. To more or less level the playing field and improve the standing
somewhat due to the quicker actions required by the rules than actions of the deep pocket traders is
an improvement for the small trader.
The small trader can not survive unless equity is preserved first and foremost in trading. It can be
done but must be done with the skill required. This requires following closely the rules and
knowing oneself. It is difficult to teach this method without a trader’s own experience pointing the
need for the rules which require the trader to run like a coward in order to survive in the long run.
It isn’t too much different from a professional basketball game in that if you missed your shot, you
are running in order to defend at the other end of the court. You know that you will have another
chance if you can continue to keep the opposing team (the market) from running up the score on
you.
It must be instinct and practice is required in order to make it a reaction trained by your practice.
Knowing the rules is just not enough. No one tells a good trader to make a trade, as it must by your
own thought in order to properly follow the correct rules. Same at getting out of positions which
don’t prove to be correct positions.
We proceed with a trading plan after we feel that our behavior and reaction to market conditions is
in our total control. As long as we are prepared for any outcome and adapt our behavior to all
possibilities can we start to follow a good system.
Phantom wanted to give the important step beyond the critical starting rules in order to give traders
a better outlook in their trading. We include some of his writings over the years of his trading on
such things as how to look for an entry and improve the edge upon entry. We shall look at ideas on
system entry and trade signals.
All traders feel there is a system, which is best. The best system is going to fail at one time or
another and that is why we need Phantom’s rules. Bad systems can turn some good trades and be
correct at opportune times. Many of these systems have drawbacks.

Many systems assume that you will have the funds to cover what the back testing indicates is
required to margin your trades. Phantom has studied these assumptions and has his own ideas as to
the difficulty with using back testing as the criteria of system creation.
Often system traders fail to see the entire requirement when emotion takes a seat on the team bench.
This absolutely will defeat the system. What system is best? Phantom has thoughts on which system
you might use to better survive. Which ones are they?
Most of the book has required a couple of readings in order to interpret a lot of what Phantom has
indicated in his insight. It was by no accident that his insight prompts your own questions and
searching. You are with us so far. That was the most important step.
You are doing your own thinking. From here forward it will be a little easier for you. It is
discouraging to have a market take funds away from you and your family. The more soul searching
you do about what the market is waiting to show you the better your outcome will be in using the
rules properly.
Take a break, have a favorite drink or refreshment and get your note pad ready to make your own
notes. You are going to draw your trade plan according to your goals. Phantom will have some
good suggestions about your trade plan.
Your trade plan will give you your entry signals. Phantom’s rules will give you your exits and
drawdown protection. What else is there? If you have the rules for protecting your funds in a losing
game and you have a good plan for putting on good trades which you exit if not proven good trades,
you have it pretty well covered.
It is easier to look greed and fear in the face with the proper frame of mind. You have to be your
own motivation expert in your trading. The motivation must be tilted toward the rewards of keeping
big losses out of your account. Not just today but every day you trade. You must look at a big loss
the same as you would a personal bad habit. It is undesirable to ever have a big loss show on your
statement.
Phantom is going to look at your statements. If he sees big losses in your account, you will have to
answer to him personally. It is his business when you have a big loss because he is going to see it in
your face. Your tie will be too tight, your face red and you will have a miserable day. POP wants
better treatment for you in your trading. He cares and you must care each minute your position is
against you.
Can you make that good fortune in trading? Only if you lose small and never let turn around
markets take you for a ride. It is your question to answer. Phantom has no one to answer to and
nothing to prove to anyone. You must prove to yourself. Let your performance speak for you. It
should not take you more than six weeks to know for sure.
You can expect to be on your way not because you made some money but because you don’t let
much money get away from you. We have known some big winners and winning was easy for them.
Only thing they forgot or never knew was that though it isn’t difficult to make money it is difficult
to keep it. There is only one way to keep it.
Ok if it isn’t difficult to make money, why don’t you understand before you make money that you
must keep all money at whatever cost you can create with the word small. The biggest loser I ever
saw was a trader who had a few outstanding months of trading in a trending market. You may have
heard of the Hunt silver slide. It can happen to anyone who does not respect the reward of a
SMALL LOSS! YOU MUST see the reward of a small loss. Don’t let it be your forgotten advice.
Let’s look at some of Phantom’s writings and his updated notes as to his ideas on your trading plan.
ALS: Phantom, I’ll transcribe these into our book and have you verify the points, which I don’t fully
understand. Though I have known you my entire trading career I still don’t know everything about

you. When you put thoughts on paper it seems different for me than when we talked answers back
and forth.
I am more like the readers now, as I must read what you wrote instead of what I wrote from your
spoken insight. Do you think this will make it easier for the readers by doing it this way?
Phantom of the Pits: You bet, Art! I am exact in my thought when it comes to making a trading plan
for our traders. You go ahead and put it in the book.
ALS: Okay, here we go!
POP’s (writings): In every trading plan there must be an element, which gives you the edge. It is
that edge which can change the outcome of your trading career. In the pits it is the edge the locals
get for putting on the trade which is their advantage that allows them to trade for a longer term than
if they had not gotten the edge.
My rules are not the plan but the rules are a must in order to have a plan to work. To me the rules
are the most important part of giving me the confidence I need to know that I can and will survive
in my trading. Survival is the most important point of any plan. If I know I can survive then my
plan can be much easier to design.
While my plan may seem advanced to others, there are only three ways for a market to go. I know
you are going to ask what is the third but none the less believe me! There is a situation coming up in
a few days and every trader off the trade floor is not thinking the trade. My writing points out a
third way the market can move
I didn’t want to put this on the talk forum because I didn’t want to confuse new traders with my
thoughts on this point. I am not going to ask you to interpret what I am trying to say. I am going to
tell you what I mean here.
A good trading plan must have the third way a market can move included in the plan. Is the third
way a market can move is the surprise side move. No not exactly!
The third way a market can move is the edge we want in our trade plan. A market that goes with the
trend and then breaks support or resistance, which also flags traders to get out or cause them to get
stopped out, will turn into your friend. The most powerful signals in a plan are the ones where the
market has moved both ways in a trend and are showing reversal to the big build up of trend
followers.
I know of a couple of funds that have been proven winners due to this one input of their plan. Sure
there were other criteria too.
Oh you say but you are the great trend follower of all time. What is wrong with throwing in the
towel early in a trend? I’ll tell you what is wrong! Not throwing in the towel early is what is wrong.
Big losses are the reward when you have convictions in a trend beyond support or resistance. You
got it, the market trips and you must take it. You need not only to take the profit but also to head the
other way. You need to make criteria for this situation in your trade program.
In your trade plan we now have two situations which can give you the edge. The first is the surprise
side and the second is the third way a market can move. The surprise side is an event, which takes
place during the day, and unfortunately seldom allows the public to benefit from on entries. Mainly
because they are already the other way when it takes place.
The public seldom reverses their position because they seldom get out at the right place in the first
place. You must use this knowledge to your advantage and not be caught up in the same situation.
I don’t care how bullish or bearish a position you have established appears to be, there is a place in
every day when it is going to be right to be out of that position. The odds are that you won’t hit that
place most days. You’ll find that it seldom happens when expected in trends. That is why you must

have that exit planned during every day. You must be prepared within your trade plan to use the exit
if needed.
How do we put this into our plan? If you are using Point and Figure charts, you can often see the
45-degree line of support and resistance. A good trend will give you several attempts at the support
and resistance lines. After several attempts a reversal day will break through the line. At that point
you will have stops and the stops can generate more orders coming into the pits. As the price moves
through it will generate more orders to exit.
You don’t want to stay around long after the first move through the line. Even if it does reverse back
again, you usually will have a good clue that you did the right thing by offsetting as consolidation
starts to take place if the line holds.
Some of your biggest trends and moves come from the breaking of support and resistance of a
strong established trend. Put these criteria in your trade program. Even if you were to only trade this
edge, you would be making the best moves of your program.
Let me qualify this for you a little more. This is the third way a market can move. The market must
have moved in the direction of the trend and then broken support or resistance. It is not the same as
the surprise side moves.
The surprise side move is different in that it can be caused by a reversal of a market after going the
way of a report and then failing. The surprise side also can be when opinion is one way and the
market has no more traders to re-enforce the opinion with positions so the market fades the other
way.
You must have a surprise side plan in your trade program at all times also. The surprise side over
the years of research for me has always been the opposite way the market opened in all markets
except one. It is up to you to search that one market out. It tells you something about taking a
diversified trade plan by spreading your trades over several contracts. If you trade five different
futures and you see that only one can be the one, which I expect to be a surprise side in the direction
of the open, you have the odds in your favor in your thinking.
I don’t want to mislead you on the surprise side. What I mean is that if the market opens higher and
closes higher for the day but lower than the open, it is what I call the surprise side. It is the same on
a lower open and it closes higher than the open then it is the surprise side. Go do your research on
the open and closes but not in respect to higher or lower on the close but in reference to the open
only.
The big money is made on the surprise side. Why do you think that is? It is because the
professionals are not only getting out before most but also going the other way when the rest of the
trade starts getting out on stops.
You should make yourself a data chart and research this knowledge to confirm it before you put it
in your trade program knowledge.
First the market opens and last the market closes in reference to the open. This is your data research
required for this input. What do you find over the last six months? What do you find in a trend and
when not in a trend? Chart it or data scale the information and use that in your program.
You see opening prices are good indicators of where the market will close in relation to the open in
certain market conditions. It seems to have certain creditability due to the way the market
information is reported in newspapers to off floor traders. Some traders only get the open, high, low
and close most of the time.
Opening prices are bad news most of the time. There are times when opens and gaps are with high
creditability in predicting the close direction. Learn them from your technical research and use them
in your trade program.

During a surprise open there is little you can do if you are already the wrong way but to protect your
position. If you are right by mistake of the surprise open, consider yourself lucky but listen to your
plan just the same. If your program said to offset after a higher open and you get a surprise higher
open, do it and then re-enter your trade when you have the criteria met of your program met.
Many times an extreme open will give you support at the opening range as the gap indicates to the
professional trader an invitation to continue to move in the same direction as new orders to follow
continue to come into the market in waves. You must consider this phenomenon in your trading
plan and input it carefully in your program.
It is just as important to not make a mistake about good gaps on the open. Watch them and research
what happens with them. There will be a two-sided market in those situations but only because
there are always many traders willing to take a profit. Use that as we have said in the past to your
advantage. These profit takers are your friends in these situations.
Gaps are certainly a study needed since they are your opening indicators and can change most
trading plans immediately. Use the information you gather on gaps to implement good trading plans
with the gaps being a possibility for each day.
Getting back to the third way a market can move is not as many think in picking tops and bottoms.
It is not picking tops and bottoms. Third way moves are your acknowledgments of what the market
is telling you about the existing trend. It is finding lack of continuance and is going to reverse
somewhere along the trend. It is usually after the support or resistance of the trend has been flirted
with and broken. Be aware of your support and resistance points in your plan each day.
Always take into consideration the possibility that the third way moves in trends are of the most
powerful moves in markets. If you have missed the existing trend for some reason you can always
be ready for the third way move out of existing trends. Don’t ever force the trade until the resistance
or support has been violated depending on which way the trend established is moving. Have your
points in your daily trading plan.
Most systems will not give you criteria other than expected entry points and exit points. Thus must
be further establishment of your trading plan. It is good to have a system, which you can have
confidence in, but you must complete the total trade plan in addition to it.
Seldom is a trade system a complete trade plan but there are some which are. On selection of a
system to trade I feel it is best to have an additional trading plan along with the system. Mainly I
feel this way because there are times when your system can generate a period of losing trades. You
must be able to filter as well as protect with my rules when this happens.
Look for a system, which allows you the opportunity to complete a trading plan along with the
system. You should be able to find the needed criteria to allow the dual situation in your trading.
Many systems writers say that you must follow them exactly at all times. What happens when an
unpredictable event total changes a market from technical to chaos? How can you continue to
follow a system on that event? This is why I like a trading program in addition to the system. And
above all else the rules of survival take priority over all.
So we are saying that the best system is one which allows you the best lateral movement in your
determination of trading throughout the day. We are also saying that rules of survival are much
more important than the system. But without the system you will have no positions established.
Many call money management the same as we call the survival rules. Don’t rule out either
explanation of survival. You can only succeed if you trade in the long run. This is not the same as
saying long term trades. Long run trading allows you the opportunity to be around for good moves
in both the present and the future. If you trade just for today you had better just buy a lottery ticket.
When you select a system there are drawbacks to each one. Look for a system that back tests data
currently. What I mean by this is that it must be current in the last six months or so. What good is

the system if it takes the past 50 years into consideration but not the current six months, which
reflect our current market conditions best. I like to see a system back tested in two stages, one for
lots of data and one for the past six month data.
If you design your own system compare both sets of data from the long term and six-month data. If
they conflict you must refine the system somewhat to a better signal generator. If you can’t refine it
better then use both sets of signals and throw them out when they conflict. This can be a good filter
for you in your trade signals. Who is to say that times don’t change in cycles just as do market
swings? Use it to your advantage.
More times than not when you have conflicting signals you will be better to disregard them. Your
powerful moves come when all your signals tend to agree. Don’t make the mistake of having too
many indicators as the more you have the wider the road must be and the more difficult it will be
for you and you may over stay the market because you entered too late.
Too many indicators will cause you to enter too late many times. This also leads to staying in
beyond the proper time. Most systems will not give you a good intra-day reversal signal, as they
tend to be more day to day signals. You need your trade program to flag you on third way moves in
trends at reversals.
Don’t be a hero and don’t use a system, which requires you to be a hero by holding on the extra day.
If you do you will find yourself missing the reversal signals and catching the bounce instead. This
will change your outcome and sometimes invalidate your ability for the particular system you chose.
This is another good reason you should have a trade plan along with the system chosen.
I have covered the most important aspects of what you should include in your trade plan but this is
now way complete. There are unique inputs from each market you want in your system like
seasonal tendency, volume, open interest and other factors which are unique to each future contract
you trade.
Your plan can be generic with minor specifics of each future. Keep in mind that you still need a
fairly simple program. The system is what will be complicated. It may include several moving
averages or other indicators. Try to not use too many lagging indicators. You are talking about
future and not past. Stay closer to leading and forecasting in your system choice. The reason I say
this is because quick and extreme moves take place in trading.
What kind of signals do you want to trade? Mostly you should use a trade plan to keep you from
chasing markets. Your system may require you to buy strength and sell weakness or buy the open. I
don’t like this type of trading anymore. You must have a filter but keep execution as part of the
trade plan. You can have two possibilities set as long as one of them guarantees that you do indeed
follow your signals. It will only change and moderate your entry places.
A system can not know what the market is doing after entry. Your trade plan can. That is your edge.
It is not second-guessing but intelligent gathering upon entry. Systems may be giving you a signal
again and again. Does this mean to add at every signal? Your trade plan must address that. I have
liked the three add on points. Use your own ideas.
I hope this helps you with your trade plan. The ideas are unlimited but you must narrow them down
and keep your plan relative simple.
–Phantom of the Pits–
Let’s look at some of Phantom’s writings and his updated notes as to his ideas on your trading
plan “—ALS