THE DEVELOPMENT OF THE CROSSHAIRS FOR STOCK AND OPTIONS TRADERS

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I recently received an email from a very kind gentleman who asked me to reveal the formula for my CROSSHAIRS.  What follows is my answer.

THE CROSSHAIRS FORMULA

The CROSSHAIRS formula is very simple actually but has taken several years to develop and is a direct result of my need to reign in my emotions and develop my patience, both of which all traders must ultimately deal with in order to become successful.

The CROSSHAIRS all but eliminates the emotionally based errors common to unsuccessful traders.  Let’s look at a recent chart as an example(you can also see my ABOUT ME page for another example).

This is a DEPLOYMENT chart for Freeport-Mcmoran (FCX):

AND the DAILY “TERRAIN” chart:

I make my decision to trade based on several factors, the main one of course is my CROSSHAIR on the DEPLOYMENT CHART as you see above.  Once the CROSSHAIR has formed I look at the following for confirmation:

1) the general market condition:  is the general market in a trending mode, pullback mode, consolidation mode, etc. In other words, what TERRAIN are we in and does this TERRAIN provide an advantage?  In the TERRAIN chart above there has been a strong move for several weeks but for the last several days the indicators show a potential move in the opposite direction (BEARISH DIVRGENCE) as the stock has moved a GREAT DISTANCE.

2) Are there any major lines of support/resistance or TANKS that could affect the potential move?  In this case the 21 TANKS are possible MAB and a good profit target to shoot for.

3)  Is there a news event (such as earnings) that could affect my trade?

THE VERTICAL CROSSHAIRS LINE

Once these have been answered to my satisfaction I enter the trade based on the vertical CROSSHAIRS line.  This line is based on a combination of technical indicators whose distinct parameters I have found to be highly probable in providing consistent profits.

THE HORIZONTAL CROSSHAIRS LINE

The horizontal CROSSHAIRS line gives me the price at which I will exit the trade for a loss.  THIS IS THE MOST IMPORTANT ASPECT OF THE CROSSHAIRS.  Every trader must determine when to exit a trade BEFORE the trade is made!  This eliminates the emotions that can ruin your trading career.  For me, the loss rule is best represented visually, not by a percentage loss, or a dollar amount, but visually. 

PROFIT TARGET(S)

My profit target is small but allows for a move of several dollars.  In the case of FCX, the profit target is the 21 TANKS on the DAILY chart (the blue line on the DEPLOYMENT chart). From the formation of THE CROSSHAIRS to the blue line is approximately 5 points.  Whether you are trading options or stock there is enough of a move here for you to bank good money.

I will not reveal the exact parameters of THE CROSSHAIRS nor will I reveal exactly when I exit a trade for a profit.  The former has taken too long to develop just to give it away and the latter is based on each individual trader’s appetite for risk.  Suffice it to say I take just a small chunk in the middle, then wait on the next CROSSHAIR to form. 

I take advice from SUN TZU when revealing my battle strategies when he said,

THE MILITARY DEVICES YOU USE FOR VICTORY MUST NOT BE DIVULGED BEFOREHAND.

  

 

 

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