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Dear Fast Break Plus Subscriber,

Welcome to this week's issue of FutureSource's service, Fast Break Plus. Today's author of Fast Break Plus is Jim Raker.

Jim Raker has been trading for nearly 20 years and shares his trading advice every night at his website www.smartdaytrader.com.

His in-depth Nightly Report provides extensive technical analysis of the day's action and precise pivot points and trade plans for each trading day. The Nightly Report is on-line by 10:00 PM EST so traders can be fully prepared.

SmartDayTrader focuses mainly on day trading the SP E-mini, but also includes information for trading the Treasury Bonds, QQQ, SPY and OEX.

SmartDayTrader provides a wealth of information and advice for the novice as well as the seasoned trader. Jim can be reached at www.smartdaytrader.com or you can reach him personally at jim@smartdaytrader.com.

You are receiving Fast Break Plus because you have expressed an interest in the futures markets. However, if you are no longer interested in the markets, and don't want to receive this free service from FutureSource, we respect that! Just scroll to the end of this newsletter, and follow the link. You will be removed from the "Fast Break" list immediately.

At SmartDayTrader, we teach traders how to day trade the S&P. We analyze the markets daily using a variety of technical indicators and provide our subscribers with a trading plan each night. This plan includes projected intra-day trading pivots in addition to other "key" numbers. We also provide critical information to keep you on the right side of the trade. I thought it would be informative and fun to have you look over my shoulder and hear my thoughts as we go through a trading day.

For Thursday January 15, 2004 we had provided the following information the night before in our Nightly Report:

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So here's how the market looked at the opening bell. The GLOBEX range was 1132.50 to 1125, but the 15 Minute MACD Histogram looked toppy. Should we wait for 1136 or go short "back through"? We decided to go short "back through" 1128.80 and put in a sell stop. (Note the times on the charts are central time)

So what happened? The market collapsed. Breadth immediately turned negative, the TRIN pushed up above 1.00 and the QQQ was negative. We exited at 1124.25 per our plan and then waited for our next move. We wanted to see the market's reaction to that 1123 area we'd been warning our subscribers about. We took note of the fact that the market stopped falling at 1123 on nearly minus 1000 TICK and bounced.

Now what? We were prepared to get short again if the market broke down below 1123, but we noted that with the bounce off of 1123 the 15 Minute MACD Histogram appeared to be stabilizing and the TRIN was hovering around 1.00. Breadth was still very negative so we made a plan to go long "back up through" the pivot and put a buy stop at 1128.80. We considered getting long at "next low" pivot, at 1125.20, but we felt we needed some more confirmation. We took a look at the bigger picture.

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So what happened? Well our buy stop hit, the TRIN dropped back below 1.00 and kept falling, breadth began to improve and the 15 minute MACD Histogram really improved. 1023 had held, 1025.20 had held and we were long.

So where to exit? We had to remind ourselves that we had come into this day with a market that was way overbought and we had been expecting to go short anywhere above "next high" pivot, so we put a sell stop in at next high pivot, at 1134.80. We figured if we got that, it would be terrific. If not, we'd look for the first sign of failure from this fast run up. The market ran to 1134.50 and stalled, so we canceled that sell order and exited at the market.

Should we call it a day? It was getting late and we'd had a pretty good day so far. We went back over our notes and remembered that we had a goal of selling 1136 with an 8-point stop. We looked at the "internals" and noted that breadth was weak but the TRIN was low, so no real help there. We did note that the Put Call ratio was absurdly bullish and we were still overbought, so we put in the sell order at 1136. Why not try?

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So what happened? As you can see in the chart above, the high for the day was 1136.30 and the 15 minute MACD histogram was fading by the time we filled. From there the market quickly backed off. The TRIN went rapidly from .70 back towards 1.00, breadth slipped and the QQQ went from up 34 cents down to zero! So where to exit? We had a couple of ideas.

First, we don't like to trade past 3:00 PM EST, so we considered exiting at 3. We considered using a trailing stop, but this is one of my least favorite techniques. We considered checking the 1 minute chart because you can sometimes use a cross of the 10 period EMA over the 55 period EMA for short term confirmation, so we took a look. When we saw the breakdown in the 15 minute MACD (cross below the zero line), we got greedy and decided to hold on and watch the 1 minute chart.

And so what happened? We lost a few points by breaking some rules and getting greedy. It really is risky to trade after 3 PM. In addition the TRIN was NOT above 1.00 and the breadth was even, so in hindsight there was no confirmation for a full out collapse-into-the-close scenario. Look at the 1 minute chart and you'll see why we took our profit at 1131.75 (the crossover). Had we just exited at 3 PM we would have filled near 1129.

Now that the trading day was over, it was time to finish filling in the trading diary. We put in the half-hourly readings, with the Tick, Trin, VXO, PCR and breadth and QQQ. We put in the high and low readings for all the major indices and noted where the indices were trading at periods of maximum and minimum tick. We made sure our trading tickets were "even" and that there were no trades left hanging.

After a break, a workout, some quality time with the wife and kids, it's back to the computers. I'll spend the rest of the evening calculating tomorrow's pivots, and coming up with a trading plan, like the one above. Then I'll spell it all out in my Nightly Report which you can access at www.smartdaytrader.com. Drop by and take a look.

I'm always here and more than happy to answer any of your trading questions. I understand there may be some unfamiliar terms here so feel free to ask! Contact me at jim@smartdaytrader.com I hope this was fun and helpful. Thanks to Futuresource for providing the excellent charts. Have a great weekend. Stay warm and TRADE SMART!

Statement of Disclaimer: This report includes information from sources believed to be reliable but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report cannot be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

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