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PFC™ Synergy Trading System (STS)

PFC™ STS subscription provides traders three sets of technical levels to aid them in making disciplined trading decisions. These levels assist them in establishing positions, defining risk, and setting exit points. While we do not view trading as an exact science, our indicators give the trader tools to take advantage of market tendencies that, when applied in a disciplined manner, present traders a basis for success. The trader can use this information alone or along with his/her own tools and methods to establish a trading strategy that fits his/her goals. It is when the levels from the two or three systems coincide that the trader should place more importance on these levels apropos of entry, stop loss, and profit decisions. This type of synergy between systems is what we look for when we make our trading decisions. If there is no synergy (correlation) between systems we will typically hold off from a particular trade or trade a smaller position. Since we trade multiple markets, we will look for the markets that have synergy and trade these while avoiding markets that have no synergy on any given day.

We view synergy as close correlation between the levels of the three trading systems that are available daily with an STS subscription on A H Shares. Every stock will have its own level of correlation for synergy to exist, so we do not set a specific level of correlation but rather give some guidance as to what is reasonable correlation in different stocks, and let individual traders through personal experience make their own determination of this. The level of correlation for any stock will depend on the stock’s price, range and volatility and will likely change in our view as these change.

The following are descriptions of the three different trading methodologies provided in our STS daily subscription:

Value Range

The Value Range is a part of Market Profile tm, a tool used to study a market that graphically represents market movement with price on the vertical axis and frequency of trade at that corresponding price on the horizontal axis. The graphical representation will often appear similar to Gaussian distributions (bell curves) with the Value Range (value) being the price range where approximately 70% of the trades have taken place. The price action of the previous trading day often will help a trader plan for expected price movement the current day can bring. A market that opens in value will tend to trade in value. When a market opens above/below value, the top/bottom of value becomes support/resistance. If the market penetrates value and builds volume within value, the market will have a tendency to “fill” the value range. If the market does not penetrate the value range, it will have a tendency to trend away from value. It is at this point the trader should look for synergy between LASB, Market Momentum and Market Collar levels for exit/entry points.

LASB

The LASB system is a daily pivot trading system that uses the current market level relative to the pivot for the basis of trading long or short in any given market. The system attempts to profit by capturing a portion of the day's expected range in relation to the pivot level. This system provides users with defined levels for trade entry, risk and profit objectives. As with most trading systems the LASB system will go through periods of profit and periods of loss. Users must be disciplined in their use of the system and adherence to risk and profit levels.

The system functions as follows. First the system generates a LASB pivot number and a group of numbers related to the market above and below the daily pivot number. The numbers provided are as follows: The pivot (LASB#) pursuit and risk (P/R) above and below the LASB # and then first, second and third objectives for taking profits.

3 rd	89.55
2 nd	89.30
1 st	88.70
P/R	88.20
LASB	88.00
P/R	87.75
1 st	87.30
2 nd	86.75
3 rd	86.45

Trading multiple shares tends to maximize the advantage in this system as this allows one to exit from a portion of the position at the first objective and still be capable of participating if the market moves to the second or third objectives. In the following examples we will review trading a position size of 500 shares in a given market and the procedures for exiting the trade. In this scenario we would take profits on 300 shares at the 1st objective and 100 shares at 2nd and 3rd objectives.

For trading examples we will show a trade description for a buy signal and a sell signal. The trading logic is the same regardless of direction.

Buy Signal

Let’s say the market is at 88.10 (which is above the pivot level of 88.00) on the market opening. The trade is to buy up to the pursuit level the number of shares you are allocating to the system. So we enter an order to pay 88.20 or better for 500 shares. We would then enter a stop loss sale just below the risk level below provided (87.75) and sell orders for the portion of the position desired at the 1st objective ( 300 shares at 88.70), 2nd objective ( 100 shares at 89.30) and 3rd objective (100 shares at 89.55). If the market moves to the 1st objective, and our sell order is filled, we would then move our stop to just below the P/R above the pivot (88.20) and reduce size according to our position, which would now be 200 shares. If we are not stopped out or filled at the other profit target levels by the end of the trading day, we would always exit any position at the end of a day.

No trading occurs while we wait for the day to progress except that we can trade the LASB or P/R level above number again if the market pulls back to that level, but we may not want to use the original risk level but use something less to. That is up to the particular trader. If we enter a trade and get stopped out, we can reverse within the area of the pivot and the other pursuit level and enter a stop just beyond the opposite risk level. If this position gets stopped out, then we would wait until the next day to enter another trade(i.e. no more than two losing trades per day.)

It is important to take profits at the objectives as the system is trying to capture a portion of each day's range.

Should the market open above the pursuit/risk PR levels, then we would look to buy a pull back between the pursuit level and the LASB pivot level. This, again, is a personal decision for the trader to scale into his/her total position down to the LASB level in this scenario.

Sell Signal

The following occurs if the market opening below the LASB level. Let’s say the market is at 87.95 (which is below the pivot level of 88.00) on the market opening. We would sell down to the pursuit level the number of contracts we are allocating to the system. So we enter an order to sell 500 shares at 87.75 or better. We would enter a stop loss buy just above the risk level below provided (88.20) and buy orders for the portion of their position desired at the 1st objective ( 300 shares at 87.30), 2nd objective ( 100 shares at 86.75) and 3rd objective (100 shares at 86.45). If the market moves down to the 1st objective, and our buy order is filled, we would then move our stop to just above the P/R below the pivot (87.75) and reduce size according to our position, which would now be 200 shares. If we are not stopped out or filled at the other profit target levels by the end of the trading day, we would always exit any position remaining at the end of a day.

No other trading occurs trades while we wait for the day to progress except that we can trade the LASB or P/R level below number again if the market pulls back to that level. But we may not want to use the original risk level, however that is up to the individual trader. If we enter a trade and get stopped out, we can reverse within the area of the pivot and the other pursuit level and enter a stop just beyond the opposite risk level. If this position gets stopped out, then we would wait until the next day to enter another trade. (i.e. no more than two losing trades per day.)

It is important to take profits at the objectives as the system is trying to capture a portion of each day's range.

Should the market open above/below the pursuit/risk PR level, then we would look to buy/sell a pull back between the pursuit level and the LASB pivot level.
This, again, is a personal decision for the trader to scale into his/her total position down to the LASB level in this scenario.

A certain amount of discretion is needed when a market opens at the LASB level. Traders will have a tendency to go in the direction of the last day or two or in the direction of the recent trend. Risk levels are changed so we have defined risk, however a look at technical levels may assist in determining exact levels that we will want to risk below or above a the low or high of the last day if it is very close to the risk level. Our experience is that if the market takes out the risk level on either side of the LASB number, than there is about a 70% probability that the market will go to the 1st objective in that direction in that daily time period.

Other considerations: On choppy days the market will often trade P/R to P/R. PFC™ has no way of predicting a choppy day prior to opening, so if one can, one can use these levels. Use of the Value Range levels and the Momentum levels may assist in getting a feel on this. On an opening gap higher or lower some traders fade the opening against the 1st or 2nd objectives looking for a retracement to other system levels. Doing so is not part of the designed system so establishing a risk levels is then up to the individual trader. These traders look for the market to pull back to the P/R level and possibly to the LASB level for profits and actually often they reverse their positions here.

Market Momentum/ Market Collar

The market momentum and collar levels are developed using our proprietary systems/algorithms. These levels are used to establish trend in a market and where that trend will be slowed or "collared" on a daily basis. When a market moves through the Market Momentum level, it will tend to move towards and be collared at the corresponding Market Collar level. Market movement can be very quick or take time to develop. A rejection of the UM or LM levels will typically be quite fast. Traders need to keep these levels in mind when they are looking for market movement to reach certain levels for say a profit target. Should a market reach the UM or LM level and their profit target levels are beyond these levels they should carefully monitor to see if the UM or LM level is not penetrated or rejected. This may prompt a trader to modify their profit targets or risk levels. As well traders should be aware of the distance between the UM and UMC and the LM and LMC so they are aware of the potential for market movement beyond what might be normally expected in any market. Often times traders are hurt by trying to pick tops on rallies or bottoms on breaks on days when the UMC and LMC are significantly further from the market level even though the market has already moved substantially on a daily basis. These are the days that markets push much further than many traders anticipate and traders get themselves in trouble by attempting to pick tops or bottoms.

Synergy Trading

When the levels from the two or three systems correlate, the trader should place more importance on these levels apropos of entry, stop loss, and profit decisions. This type of synergy between systems is what we look for when making trading plans or decisions. If there is no correlation between systems, we will typically hold off from a particular instrument or trade a smaller position than is typical.

When we first look at the levels that are created, we look for existing correlations between our systems' levels. Upon finding correlation, we will take a closer look at the given stock.

We are, first and foremost, value range traders. We will look to see where the market opens or is trading at relative to the previous day's value range. We will then see if value's high and/or low correlate to the pivot and the P/R numbers. Using our previous LASB example, if the market opens at 88.10 and the market has a value range of 88.68 VRH to 87.70 VRL, we will see that the 87.70 VRL correlates to the Lower P/R level of 87.75. The VRH 88.68 also correlates to the first target above at 88.70. Therefore, these levels will take greater importance in our trading system; and we would be more willing to enter trades in this market because of this correlation. We would, most likely, enter long positions in the market.

If the market proceeds to drop to the lower P/R level, we would again buy at this level because of the correlation of the value low and the lower P/R level. We would, however stop ourselves out of the market breaks below the VRL of 87.70. We have to make a judgement for how far through the 87.70 level to set risk at but risk needs to be set.

Correlations between the systems add credence to the levels and reinforce our decisions to enter or exit the markets at or near these points accordingly. We can look for correlations between the value range's high/low (or the P/R and pivot number) with the Momentum or Collar levels as well.

One point to keep in mind is that correlation could be levels that are within 5-10 cents in one stock and only 2-3 cents in another. In other words, correlation is relative to the stock that one is looking at. If a given stock tends to have large ranges, the number of cents between different levels can be greater for us to consider that synergy exists. Conversely, if a given stock tends to have smaller ranges then the levels have to match to within a couple of cents or so for us to consider that synergy exists.

We find that correlation between our systems enables us to trade markets with greater confidence. The more systems that line up at a given level, the greater import we place on that level. While this does not guarantee that we will have a profitable trade, we have found that the Synergy Trading System has greatly increased the odds of this being the case. If we find no synergy in a market we tend not to trade that market as there are other markets that have synergy so we concentrate trading in markets that have synergy.