(Note: This is an excerpt taken from Thirty Days of Trading, to be available in Summer ’06.)

I wanted to share all my set-ups with trades in my first book and show how I use them in this one. It’s obvious to you by now that my main source of set-ups is momentum trades. This is not to say that I do not like swing trading. However, my definition of swing trading involves first recognizing a trend (using the Wave) and then waiting for a correction within the trend that will allow me to enter.

It’s my definition of a correction that prohibits my entering swings more often. This is a point that I want to make clear because, if you are personally comfortable with shallower retracements -- unlike my preference for the typically larger correction to the Wave -- then, you will certainly have more chances to enter on a pullback or bounce.

Remember that a swing trade is valid as long as it is trading below a four-to-six o’clock Wave (downtrend) or above a twelve-to-two o’clock Wave (uptrend). This means that, if you enter swings on a shallow correction, your stop is still the line of the Wave that is opposite of the trend. (i.e., the top line of the Wave in a downtrend or the bottom line of the Wave in an uptrend). Let me add that momentum trading will get you in on the ground floor of a potential trend. Again, think back to the four market cycles.

By the way, if you are wondering what I use to “confirm” swing trades (like the way I confirm momentum trades with the MACD Histogram), the only confirmation necessary is that the Wave is heading in the correct clock angle at the time of the entry and that prices touch whatever correction price you are waiting for, whether that be a Wave line, a Fibonacci Level, a pivot level, etc.

Notice that all the “lines and levels” have one thing in common: They are all different ways of identifying support and resistance. Be sure to park a limit order at these levels! It will allow you to have an order that will execute as soon as price trades into your swing entry target. It is just as easy to park a proactive order when swing trading as it is when you are momentum trading. Part of the trade set-up is identifying exactly what price you define as a pullback or bounce and that (as long as the Wave is still traveling at a swing trading clock angle) is your limit order price.

Another set-up I did not employ throughout this book, because I do not use it often, is the Wave / CCI entry. As I do with all my other trading types, the market environment and the way I enter the trade is what differentiates one type from another. The Wave / CCI is no exception. This style fills a very particular niche. It seems that I did not make this clear when I first introduced this entry in one short chapter of my book, Forex Trading for Maximum Profit, endearingly named by one my students "the little brown book”.

Because it is a very simple entry to set up and is totally indicator-based, the Wave / CCI garnered a following that I never even imagined it would. By now, most of you may already know of my introduction to the CCI. It was literally more than a decade ago when I traded commodity futures, and please keep in mind that I was in college and didn’t have much access to outside trading material!

I (quite naturally!) assumed that if one trades commodity futures, one should also use the commodity channel index. Long after that, I did get my hands on a book that explained the calculation and use, but, by then, I was using +100 and -100 readings as “on / off” confirmations for some time. But I digress.

The Wave / CCI set-up is geared toward those Wave readings that are like rolling hills. Rolling hills have a habit of not giving the Wave enough time to travel sideways at the three o’clock angle and set up a momentum trade. It is also appropriate for those (more aggressive) momentum trades where the Wave will not level out to a three o’clock angle and tends to stay more within a two-to-four o’clock angle.

There are two sections of the chart that I have highlighted, one with a square and the other with a circle. The section within the square is a good momentum trading Wave. Notice that it’s flat at three o’clock.

Now, take a look at the section within the circle. See how it tried to get flat but never spent enough time going sideways to set up a momentum trading Wave? I have dropped a vertical line down the candle that broke down through the Wave so that you can see the CCI.

Here’s the way this works. When prices cross down through all three lines of the Wave and the CCI is reading at least a -100, the short entry is confirmed.

There are two highlighted circles on the daily chart of the Yen. Each is a section of the Wave that began transition but never leveled out enough to register a flat, sideways Wave. It is precisely these breakouts and breakdowns that the Wave / CCI can help set up.

Just as swing and momentum entries are best applied to very specific Wave clock angle readings, so is the Wave / CCI entry. Don’t let the ease of this set-up lull you into frequent and incorrect set-ups. These set-ups work on any time frame -- just as the swing and momentum do -- but it is vital that you begin all set-ups with a clock reading.

It really is as simple as this:

The goal is to have an entry style that is appropriate for all market cycles, which is to say that you will know what type of set to look for once you have taken a Wave reading. And, I know I said it thirty days ago when we started this adventure together, and it’s just as important that we end the adventure with it now: Start all your analysis with the Wave.

*Reprinted (and modified) with permission from Raghee Horner, of www.EZ2TradeSoftware.com.