Classic Trading Tactics:

Theory and Practice

Session 2
Linda Raschke

Linda Bradford Raschke,

LBRGroup, LindaRaschke.net
 Risk Disclosure

Futures’ trading contains substantial risk and is not for every investor. Risk
capital used to trade Futures is money that can be lost without jeopardizing
one's financial security. PAST RESULTS ARE NOT NECESSARITLY INIDCATIVE
OF FUTURE RESULTS WHEN PAST PERFORMANCE IS MENTIONED. The
contents of this webinar provided, displayed or conveyed in this presentation
is not intended to guarantee success or positive results using this material and
information. Linda Raschke is not responsible for the accuracy of this material
in this presentation and it is only the opinion and trading strategies used or
acquired by Linda Raschke. This is presentation is demonstrated using historic
data and PowerPoint slides. This may be considered a solicitation for
business. There are no claims or use of trade history or P&L from past
performances used in this webinar.
 Copyright Notices

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© 1996 – 2020 LBRGroup / Linda Raschke

All Rights Reserved.

Certain chart images are copyrighted © CQG

Certain chart images are copyrighted © TradeStation
Certain chart images are copyrighted © PhotonTrader
Working the Market’s Trend for the Day With the
Intention of Holding Overnight

• Taylor Trading technique

• Volatility Breakout Systems
• Pinball, Pinball2, 5SMA retracements
• 3 bar breakouts
• Wide Range Reversal “V” patterns
• Eating the Tail

Short term swing trading is a blend of strategy and tactics while at the
same time falling short of a mechanical system.

The models are durable and robust, but fall short of being a
mechanical system.
 George Douglass Taylor

“Even when the trader may have an advantage with

his method of trading, he does not have a sure fire
way of operating in the market and – it is well that
no such method has been devised.”
Taylor – Each Day has its own “Play” and a trader needs to have their business
plan detailed out before the day’s opening.

The trader who knows how to act when the

expected happens, is in a better position to act
when the unexpected happens.

A trader is ready to trade or not to trade - at the

opening or shortly thereafter -unencumbered by
comments or opinions

You can believe the tape at all times. Learn to

read it and believe in nothing else for short
term trading.
My Tool Kit: Keltner Channels, 2-period ROC, Daily Candle bars, 5
simple moving average, slow line of the 3/10 oscillator.
 TAYLOR

“We separate and designate each trading day for its own
expected action.”

When the low is made first on a Buy Day and the close is nearer
the high, we look for and expect an up opening and penetration of
the Buy day high (PDH) to sell on. In an uptrend area, you must
expect not only slight penetrations but deeper ones as the tops
are progressively higher.

The price may go higher after we sell out- so what- the opening
may also be the high. We sell and ‘at the market’ and we are not
concerned with how high the price may go after we sell out.
 Taylor Types of Days

‘BUY DAY’ (follows multiple high to low days)

Buy Day with Low Violation – Look Long

Buy Day with Good Gap Up – Look Long
Buy Day, High Made First – (no ‘Low Violation’ yet)

‘SELL DAY’ (follows an UP day)

Sell Day with High Violation = True Sell Day/Expect ‘Range Day’
Sell Day with Low Violation = ‘Buying Day Low Violation’ – Look long, scalp
only….
Sell Day –continuation long.. (Same as ‘Sell Day’ – but there has been no High
Violation yet)
 Taylor Types of Days – continued….

‘SELL-SHORT DAY’
Sell Short Day with High Violation – Look Short
Sell Short Day with Good Gap Down – Look Short

3 Other Days:
Z Day – consolidation Day after big trend move. May be Buy Day or Sell Short
day “Scalp Only”
Inside Day
3-Day Balance

After an especially strong multi-day move, market may need only a single
session to correct off. Taylor suggests altering the count in a strong trend like
this.
 Taylor Core Concepts

Summary of Core Concepts of Taylor (and some Market Profile):

Concept 1: Swing Highs and Swing Lows are made 1 of 2 ways: - With a
‘Violation’ (test above/below previous day swing high/low) - With a Good Gap
(market traps previous day players by gapping the other way)

Concept 2: Inside Days/2-Day ‘Balance’ - Play is to ‘go-with’ a move out of an

inside day (forget the Taylor count)

Concept 3: Residual Momentum - ‘High Made Last’ vs ‘Low Made Last’ - Study
the closing action closely. This is when institutions are dominating the action.
Pinball Sell and 5 SMA sale – this is what it looks like
on the intraday charts.
Pinball Sell on the beans on
the close, the next day has
high odds of high to low day.
Tails: Price rejection spikes, or, continuation. Evaluate the lower time
frames. It is all about context.
Breakout from 3 bar
triangle. Disregard 5
SMA sale and pinball.
Three bar triangles have been the best pattern that
leads to Trend days.
Eating the Tail. The
Day before was a
Buy Day Scalp Only.
Eating the tail on
the hourly chart.

Trend Reversal
Point
Extended Run = 7+
closes on one side
of a 5 SMA
Pinball and 5 SMA dips still
provide legitimate quantifiable
entries into runaway markets.
Trading Range or
Railroad Tracks after
large STD move.

Spikey tests abound

in trading ranges.
3/10 Sell Divergences (10-day window)
Putting it together showing grid
display. The market has traded
three days high to low after
leaving an island gap. It tested
below a previous low. The
bottom right displays the volume
nodes – similar concept to price
bar overlap indicating a slowing
of momentum. The orange dots
on the upper right chart show
the 7 AM reading. Think of this
as the opening price in the SPs
or NYSE stocks. How does the
market trend off this level? The
lower right chart shows the
“cave” left by the gap down and
sharp break. Very often the
market will go back and refill
these caves in a consolidation
zone or trading range.
 s

Concept 4: Key Reference Point - It is easiest to monitor price action with a

reference point to help interpret price action - Reference Point is usually the
previous day high or low – (Key Reference Point might also be a very High-
Volume price where you expect support/resistance)

Concept 5: Market Profile Concepts Work Well To Augment the Taylor Read
Strong Volume-Based Moves Are a ‘Go-With’ - A Violation (of a high or low)
with a strong volume is good confirmation of the Taylor play for the day intact.
Money Management Tips for short term Swing Trading

The biggest downfall for overnight swing traders is not taking

profits when they should in ranges. It feels great to catch a trend
from the following day. The market closes with a profit and the
temptation is to think the market will breakout or have a bigger
swing. The market may continue on a bigger streak, but it usually
does not. If the trade was a short term swing play in the first
place, (as opposed to a breakout from an prolonged
consolidation or bull or bear trap with structure, stick to the
“systematic exit.”

- Volatility Breakout systems = in one day and out the next. We

will discuss exits and entries in a later session.
- Larry Williams exit = exit on the first profitable opening.
- Taylor – exit on a penetration through the previous days high or
vice versa.
 More on Exits

The best way a trader will follow the guidelines for exit strategies
is by having the intentions written out the night before. “Exit on a
push above or test around the previous day’s high.” This is what
I write down on my trading plan at night.

Taylor: “Don’t let it bother you because you covered your short
sale and after that the price went lower and is closing on the low
for the day. You have a profit and that is what you are trading
for.”
 Parting Words from Taylor

“There is no profit that gives greater

satisfaction to a trader than the one
he makes by being right.”