Dynamic stopcharts

Educational Series:Dynamic Stop Charts

Presented by:David Stendahl

Talon EightGlobal Wealth Management

Copyright © 2008 | Talon Eight, LLC | All Rights Reserved

NFA Disclosure Commodity trading involves substantial risks due in part to the highly speculative nature of such trading. As a

result, an investment in a commodity trading account is only suitable for you if you have adequate means to provide for your current needs and personal contingencies and you can bear the economic risk of losing your entire investment.

Past performance is not necessarily indicative of future results. Hypothetical performance results have many inherent limitations, some of which are described below. No

representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

Talon Eight, LLC has had little or no experience in trading actual accounts for itself or for customers. Because there are no actual trading results to compare to the hypothetical performance results customers should be particularly wary of placing undue reliance on these hypothetical performance results.

Compliance


Presentation Summary

Dynamic Stop Chart

Definition: Dynamic Stop Charts provide a visual reference of all system stops relative to the underlying market and its specific level of volatility.

Presentation Overview

Part Two: Shows the Dynamic Stop Chart in action as stops adjust over a five-day trading period.

Part One: Reviews the three sections that make up the Dynamic Stop Chart.


Part One

Part One Overview:

Review the three main sections of the Dynamic Stop Chart Highlight the closing price data with positive/negative volatility levels Breakdown the active (open) Long and Short positions Breakdown the pending Long and Short trade orders Review the various icons used to distinguish between Trend, Momentum and Pattern

based systems.


Overview

Dynamic Stop Chart Sections

• Main sections: 1 2 3

1. Market Information

2. Open Positions

3. Pending Trades

Let’s take a closer look at each section on the Dynamic Stop Chart.


Section One

Market Information

The Average True Range (ATR) indicator measures a security's volatility. We use +/- 4 ATRs to gauge near term price projections in relation to our trading stops.

1 • Market Close

• Positive Volatility (+4 ATRs)

+4 ATRs

-4 ATRs

Close

• Negative Volatility (-4 ATRs)


Section Two

Open Positions

2 • All Open Positions

• Long/Bullish Stops

• Short/Bearish Stops

Let’s take a closer look at the Pending Orders in section three.

Protective Stops BELOW the Market

Protective Stops ABOVE the Market

Longs Shorts

Market Level


Section Three

Pending Orders

3 • All Pending Orders

• Long/Bullish Buy Orders

• Short/Bearish Sell Orders

Let’s take a closer look at System Icons associated with these Stops.

Buy Stops ABOVE the Market

Sell Stops BELOW the Market (none shown)

Longs Shorts

Market Level


System Icons

Three Different Trading Styles

Let’s take a closer look at the Dynamic Stop Chart in action.

• Trend System: Blue Dash

Long Stop Position @ 89.1362

Long Pending Order @ 90.2200

Short Stop Position @ 90.8808

• Momentum System: Orange Triangle

• Pattern System: Purple X


Part Two

Part Two Overview:

Review the Dynamic Stop Chart over five days of trading Highlight market moves in relation to various system stops Review daily trading order for each system See a pending order execute and immediately activate protective stops


Day One

Dynamic Stop Chart in Action

Let’s continue to the next trading day.

• Market: IEF

Open Trades:Momentum Long Stop @ 89.2587Pattern Long Stop @ 89.1362Momentum Short Stop @ 90.8808

Pending Trade:Trend Long Buy @ 90.2200

Market Price: @ 89.9300

Trading Order:Each system has its own Stop Order to ensure protective execution during the day.

Orders are updated on a daily basis.


Day Two



• Market: IEF

Open Trades:Momentum Long Stop @ 89.2393 Chg. -0.02%Pattern Long Stop @ 89.1484 Chg. +0.01%Momentum Short Stop @ 90.7422 Chg. -0.15%

Pending Trade:Trend Long Buy @ 90.2200 Chg. 0.00%.

Market Price: @ 89.7100 Chg. -0.25%

No Chg.


Day Three



• Market: IEF

Open Trades:Momentum Long Stop @ 89.222 Chg. -0.02%Pattern Long Stop @ 89.1689 Chg. +0.02%Momentum Short Stop @ 90.7422 Chg. 0.00%

Pending Trade:Trend Long Buy @ 90.2300 Chg. +0.01%

Market Price: @ 89.7500 Chg. +0.04%

No Chg.


Day Four



• Market: IEF

Open Trades:Momentum Long Stop @ 89.2090 Chg. -0.01%Pattern Long Stop @ 89.2955 Chg. +0.14%Momentum Short Stop @ 90.7422 Chg. 0.00%

Pending Trade:Trend Long Buy @ 90.2100 Chg. -0.02%

Market Price: @ 90.0400 Chg. +0.32%

No Chg.

Pending Trade:The Buy Stop for the Trend based system (Blue Dash) is now within 1 ATR of the market and is close to triggering a new trade.

System Stop:The more adaptive stop for the Pattern based system (Purple X) has now moved above the Momentum system (Orange Triangle).


Day Five


Let’s review the five days of trading in IEF.

• Market: IEF

Open Trades:Momentum Long Stop @ 89.2014 Chg. -0.01%Pattern Long Stop @ 89.4597 Chg. +0.18%New … Trend Long Stop @ 89.8200Momentum Short Stop @ 90.7422 Chg. 0.00%

Pending Trade:None

Market Price: @ 89.83 Chg. -0.23%

No Chg.

New


Trading Review

Five Day Trading Wrap-up:

IEF lost -0.11% over five days of trading 16 Protective Stops were placed on all open positions 4 Buy Stops were placed for a single pending trade A Trend-based systems triggered … which had an immediate Protective Stop in place In total three trading styles (Trend, Momentum and Pattern) actively traded On day five, IEF was partially hedged with three Long positions and one Short position


Conclusion

Dynamic Stop Charts

Over five days a lot of trading went on behind the scenes. A total of 20 traders were placed, as we adjusted protective stops for open positions and buy/sell orders for pending trades … all to execute a single trade.

Conclusion …

On a day-to-day basis the Dynamic Stop Chart helps us organize and monitor our trading stops across all of our markets … making the job of trading all the more efficient.


Disclosure

Note on Modeled Results The asset-allocation framework discussed in this paper is a new strategy for which actual data are not yet available. The portfolio and its performance are hypothetical and do not

represent the investment performance or the actual accounts of any investors. The securities in these hypothetical portfolios were selected with the full benefit of hindsight, after their performance over the period shown was known. The results achieved in our simulations do not guarantee future results.

The model performance information in this presentation is based on the 100% systematic back-tested performance of hypothetical investments over the time periods indicated. “Back-testing” is a process of objectively simulating historical investment returns by applying a set of rules for buying and selling securities, and other assets, backward in time, testing those rules, and hypothetically investing in the securities and other assets that are chosen. Back-testing is designed to allow investors to understand and evaluate certain strategies by seeing how they would have performed hypothetically during certain time periods. It is possible that the markets will perform better or worse than shown in the projections; that the actual results of an investor who invests in the manner these projections suggest will be better or worse than the projections; and that an investor may lose money by investing in the manner the projections suggest.

The model performance information in this presentation is hypothetical, and assumes reinvestment of all gains with an initial portfolio equity value of $250.000 USD incepted on January 1, 2007, includes one-way transaction costs of the greater of $1.00 per trade or $0.0075 per share, per trade, plus $0.10 slippage per share, per trade, a 2% annual yield on unencumbered cash and/or 2% annual interest on all margined monies, and are net of a 2% annual advisory fee deducted at the beginning of each calendar month.

Although the information contained herein has been obtained from sources believed to be reliable, its accuracy and completeness cannot be guaranteed. While back-testing results reflect the rigorous application of the investment strategy selected, back-tested results have certain limitations and should not be considered indicative of future results. In particular, they do not reflect actual trading in an account, so there is no guarantee that an actual account would have achieved the results shown. Back-tested results also assume that asset allocations would not have changed over time and in response to market conditions, which might have occurred if an actual account had been managed during the time period shown. Talon Eight, LLC may have a different investment perspective and maintain different asset allocation or other recommendations from those shown here.

Note to All Readers The information contained herein reflects, as of the date hereof, the views of Talon Eight, LLC (or its applicable affiliate providing this publication) (“Talon Eight”) and sources

believed by Talon Eight to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein. In addition, there can be no guarantee that any projection, forecast or opinion in these materials will be realized. Past performance is neither indicative of, nor a guarantee of, future results. The views expressed herein may change at any time subsequent to the date of issue hereof.

These materials are provided for informational purposes only, and under no circumstances may any information contained herein be construed as investment advice. Talon Eight, LLC does not provide tax, legal or accounting advice. The information contained herein does not take into account your particular investment objectives, financial situation or needs, and you should, in considering these materials, discuss your individual circumstances with professionals in those areas before making any decisions.

Neither this publication, nor any information contained herein, may be construed as any sales or marketing materials in respect of, or an offer or solicitation for the purchase or sale of, any mutual fund or other investment vehicle, financial instrument, product or service sponsored by Talon Eight, LLC or any affiliate or agent thereof. Offers and sales of mutual funds and other investment vehicles may be made only pursuant to the prospectus or other offering materials then in effect for such fund or vehicle. References to indices or specific securities are presented solely in the context of industry analysis and are not to be considered recommendations by Talon Eight. Talon Eight and its affiliates may have positions in, and may affect transactions in, the markets, industry sectors and companies described herein.

Trading margin accounts involves substantial risks due in part to the highly speculative nature of such trading. As a result, an investment in a margined trading account is only suitable for you if you have adequate means to provide for your current needs and personal contingencies and you can bear the economic risk of losing your entire investment.

Talon Eight, LLC has had little or no experience in trading actual accounts for itself or for customers. Because there are no actual trading results to compare to the hypothetical performance results customers should be particularly wary of placing undue reliance on these hypothetical performance results.


Contact

Talon Eight, LLCGlobal Wealth Management

1600 Scripps Center312 Walnut Street

Cincinnati, OH 45202

513.288.1134

www.taloneight.com

David StendahlPrincipal

Talon Eight, [email protected]

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