Phoenix Trading System Design Description

Introduction

The Phoenix Stock Trading System's main Golden Rule is to only trade long when both the market and stock are trending up with momentum, and to only trade short when both the market and stock are trending down with momentum. Another way of stating this rule is that the stronger uptrending stocks are strong for a reason and the probability of them getting stronger is much higher than a weaker stock suddenly reversing itself to new highs. Conversely, the weaker downtrending stocks are going down for a reason and their momentum typically takes them much lower over time. As simple as this rule seems, most traders do not follow it. They typically spend all of their time trying to pick the very bottom of falling stocks or they buy "older generation winners" that have very little upside potential.

In addition to this Golden Rule, our new system is based on a whole Set of Principles and Rules that are analogous to using a "recipe for trading". The concepts, techniques, indicators, and systems that we use in our design rules are like the ingredients in a recipe. As with any good recipe, we believe that the quality of each ingredient, the order in which you mix the ingredients, the way that certain ingredients complement other ingredients, and the amount of each ingredient are critical to the success of the recipe. Instead of food, our end product is providing the lowest risk and highest probability trade we can provide. The key ingredients in our new system are applied to the analysis of the market first and the analysis of the stock second. The following is a list of our key ingredients:

1. Moving averages - help us to understand the trends along with major support and resistance
   • Primary Moving Averages - 20, 50, 200, 500, 1000 period moving averages
   • Secondary Moving Averages - 10, 40, 80, 100, 400 period moving averages
2. Price Chart patterns - certain price patterns on the chart help us predict future price behavior
   • Candle patterns
   • Basing patterns
   • Topping patterns
   • Continuation patterns
   • Moving average patterns
   • Wave patterns
   • Fibonacci patterns
   • Divergence patterns
   • Special power setup patterns
3. Volume- the amount of trading volume plays a major role in our decisions depending on the location, time of occurrence, frequency of occurrence, and its interaction with price
4. Oscillators - their overbought and oversold values, their trends, and their peaks are helpful in predicting future price behavior
5. Risk and Money Management - the key prices to buy and sell the stocks and how to analyze the Reward to Risk of any trade.

Another benefit of using a recipe for trading is that the guesswork and emotion of when or if a trade should be made is minimized. The only requirement is that the trader follows the recipe which we provide in the form of simple CHECKLISTS. We believe that if you don't have all of the best ingredients, the right mix and amount of ingredients, the right process and order of adding the ingredients, or the exact time required to prepare and cook the ingredients, then the trade won't be nearly as successful or it may even fail.

Trading is also no different than cooking when it comes to knowledge and experience. Just because someone has a recipe doesn't mean they are a good cook. That is where seminars, a good web site, market updates, and Model Portfolios and tools play a major role in making the trader the best they can be.

The rules are created in the form of a checklist. The checklist has the importance value for each rule attached to it and you simply add up the value of every rule that the trade satisfies. This represents our line in the sand for making a sound trade.

B. Creation Philosophy

The goal for the creation of this new stock trading system is to provide the highest probability trading platform available in the industry today. The primary focus is to create a design so that the trader can use it on any technical analysis software platform. In this way, the trader has the ability to chart, scan, and make their own trading decisions using any vendor or software they choose. We also feel strongly about not requiring anyone to buy a very expensive canned algorithm program that typically only provides a simple yes or no answer on whether to buy or sell a stock. So not only does this approach save the new trader money, but it provides maximum flexibility to the current traders. Lastly, it helps to facilitate a standard teaching platform for all types of trader knowledge levels. The second major goal is to use a RULES BASED SYSTEM that addresses all the different time frames for trading. Many of the systems available today aren't specific enough on what indicators techniques, and rules work optimally under short trading time frames vs. long trading time frames. Lastly, we want to empower the individual trader by providing a clear set of rules for shorting stocks. This has traditionally been left to the hedge fund world and is not discussed very often with the general public or trader groups. We believe there shouldn't be any reason that an informed trader who uses a sound trading system can't short as easily as they go long. The future will require the next generation trader to short stocks if they want to continue to make money in the stock market year after year.

C. Design Overview

The Phoenix Stock Trading System design is based on a clear cut and easy to understand series of checklists that covers going both long and short as a Long Term Trader/Investor, Intermediate Term Trader, or a Swing Trader. The checklists are really the cornerstone of the Phoenix system. The main reason for doing it in a checklist form is to provide a simple and very systematic way of trading that will help take the emotion out of the trading process. We firmly believe that the "art of the trade", that has provided so much gray area and room for interpretation in the past, can almost be eliminated with this kind of carefully constructed system. There really is no reason for guessing or hoping whether you have a good trade or not with today's very powerful software platforms, ultra-fast computers, and a strong rules based system. The checklists use a mandatory set of rules that must be met before making any trade. The aim is to make the mandatory rule set simple, powerful, and yet easy to understand. Even the beginner should be able to start using this system after only one or two training sessions. In addition, we incorporate an extremely important list of strongly recommended and recommended rules that promote an even higher probability trade. Each rule has a weight value associated with it so the trader can easily evaluate how powerful one rule is relative to another. Furthermore, we have established a specific total value for each trade evaluation so that the trader knows whether any stock satisfies the overall cutoff for no trade (< 55%), a high probability trade (target > 65%) or a very high probability trade (target > 75%). Many of the strongly recommended and recommended rules have more advanced concepts and techniques than the mandatory rules. There relative importance and role in the overall trade are better understood by the intermediate to very advanced trader. Our unique Phoenix Stock Trading System checklist is derived and based on many of the trading techniques, technical analysis systems, an technical indicators used by the best traders in the business today. Each and every trading system or concept that we have included can be fairly successful in its own right. However, we found that the probability for a successful trade went up significantly when we used certain systems or portions of systems in combination with each other. The intent of the Phoenix system design is to use only the most powerful techniques in order to reduce the system complexity as much as possible. We want everyone to be able to benefit from this system from the beginner to the very advanced trader. In fact, as with most systems, the more you know about each rule in our design, the better chance you have of achieving the highest total weight value for a trade and therefore the highest probability tradavailable today.

D. Summary

The new Phoenix Trading System provides the stock trader a very powerful tool that:

1. Seeks to minimize the emotion and the "gray area" of trading by utilizing a very simple and yet powerful rules based system
2. Provides a top down approach to trading which starts out with high level Golden Rule and Principles and continues down to a very detailed list of rules
3. Incorporates a weighted value checklist into the design so that the trader clearly understands the relative importance of certain trading techniques or concepts
4. Provides checklists for every trading style and time frame
5. Empowers the individual trader to be just like the big hedge funds by including short trading techniques
6. Uses a total score evaluation for every trade while defining the targeted probability for each trade as well as whether any trade should be made at all
7. Combines many of the most successful techniques and trading systems available today with our own proprietary rules into a complete system for maximizing the probability of success
8. Allows the part-time or full-time trader to save time picking stocks through the power of very efficient rules based scans
9. Enables a learning based approach for the next generation trader to make the highest probability trades they can make. The only limit is how much effort is put into understanding all of the techniques and concepts.
10. Provides a trading system that can be used on almost any existing trading software platform, including many that are free
11. Leverages the power of technical analysis software with the speed of today's computers to provide a trading system rivaling even the most sophisticated and expensive systems from the big firms