Tsunami Trading Educators Trading Manual

Tsunami Trading Educators, Inc Trading Manual:

1. Introduction 2. How we are different 3. Our Indicators and Trading Theory 4. Trade Setups and Trade Management 5. Installation of Software 6. Money Management 7. Technical and Member Support 1. Introduction: Congratulations! You have purchased a tool for your trading that will change the way you trade, forever. When we put together the elements of this trading software and program, we had been students of the markets for decades. We had already bought most of the trading courses and trading software out there, and had been frankly disappointed at what was available. In our opinion, there was little out there that was new under the sun, and little that made consistent money day in and day out. Since 90% of traders lose money, and these methods and strategies have been more or less available for decades as well, it would perhaps not be surprising to you to find out that most traders, ourselves included, using these methods had trouble making money consistently. We would categorize the many other products out there in 2 different categories. The first category is the largely subjective trading methods. They will give you an array of indicators, setups and price patterns and then provide a perfect trading example for each in a 300 page manual or 20 DVD home study course. Then they would tell you to go and try to trade it. Or that they would not tell you the optimal pattern or setup to trade, as it “all depended upon your own risk tolerance”. We think that is another way of saying, they did not know what setup was the best and would like to claim success on the ones that did work, always after the fact, and escape the blame for the ones that didn’t work. Or perhaps it’s just a thinly disguised pitch to get the client to take their “advanced mentorship

course” which always would cost several thousands of dollars more. Only in this course would they reveal the real trading secrets and how to apply the method and learn “all the nuances, sitting beside a real trading professional”. Some have such an enormous list of indicators and multiple time frames that have to line up, that it’s really almost impossible to take a trade in real time. Another real problem with subjective trading methodologies is just that, they are subjective! The trader has to decide on his own, which indicator or price pattern or Elliott wave they are in. If they win they are on the top of the world. When they lose, they blame themselves for not checking that last 99th indicator in their 100 indicator check list. That leads to indecision, self blame, stress and no chance of long term success. The second category of trading methodologies we see out there are the predictive ones. Citing the legendary trading abilities of Gann, or the mystical ratios of the pyramids of Egypt or of the petals of a sunflower (Fibonacci), or the phases of the moon and their relationship to Saturn, these methods attempt to predict today’s markets with theories of centuries ago. Since there are so many Fibonacci levels and Gann levels can be placed every 1/8 of the range, it’s no wonder that some of these predictive methodologies will at times, seem to be able to magically predict the future! We liken these magical predictions to the carnival fortune teller. “You will meet a dark and handsome man”. Since the predictions are so general, and since there are so many Fibonacci and Gann levels with so many different points to draw them from, you’re bound to hit one right on! The magic of these predictive methodologies, in our opinion, more are the result of so many traders looking for turns at these levels, a self fulfilling prophesy.. Again, these predictive methods are also subjective and hence can lead to frustration, indecision, and stress. 2. How we are different: We at Tsunami Trading ARE different. We are 100% mechanical with absolutely no subjectivity in our methods, and we do not attempt to predict the markets but instead simply react to them. The key to our success is our ability to read the hidden buying and selling pressure of the markets in real time, using our proprietary copyrighted software. We trade the markets with 100% objectivity and 100% mechanically. Our methodology is based on what moves all markets in all timeframes, and that is the elements of Price, Volume, and Momentum. Tired of all the subjective and predictive methodologies out there, our engineers sought to analyze what really moved all markets. People buying and selling at certain price levels (Price Action), People buying more and more in a trend move likely to continue (Volume Action) and People buying more at an accelerated pace in a trend move also likely to continue (Momentum Action). After years of testing and formulation, these three

trading functions were quantified by complex mathematical formulas using the real time information and data available from the exchanges. When we placed all three formulations into one complex algorithm, we had created the PVM number which is our answer to objectively trading the markets 100% mechanically. Unlike other static mechanical systems, which are known to eventually fail as market conditions change, because our software reads what moves all markets in all conditions, we feel our system is dynamic and should withstand the test of time. We did not create a system around one particular market or timeframe. We analyzed from the ground up what moved all markets, and now successfully apply any market on any time frame to our system. Interestingly, although we did not seek to predict the markets in anyway, real-time testing and trading has shown the PVM (Price Volume and Momentum) numbers to be in fact forward looking predictive indicators of the hidden buying and selling strength of the markets! We feel they are the one true indicator of the market every trader must have to trade the markets effectively and with consistency. 3. Our Indicators and Trading Theory: Tsunami Basic Indicator Set: Tsunami Waverider Tsunami Stop Tsunami Trender Tsunami Trender Dots Tsunami StopTgts TsuPaintbars TsuPivots:

Tsunami Waverider: Imagine you are flying an airplane in a horizontal line. There are 2 ways to make the plane rise. Use the engines and pull the wheel back, or dump off weight out the door so the plane is lighter. We use that concept in the markets to predict future price movement. The PVM numbers above the price swings are termed bullish PVM numbers and the PVM numbers below the swings are termed bearish PVM numbers. Our theory states that a bullish price movement should be preceded by either a increased bullish PVM number as compared to the immediately preceding bullish PVM number ( the engines and wheel aiming up thrusting the airplane higher), OR bearish PVM numbers that are decreasing in size as compared to the immediately preceding bearish PVM number( throwing off excess weight out the cockpit door). The PVM numbers are the white numbers given to you by the Tsunami Waverider indicator and are placed right above or below every swing of the market. Tsunami Stop: Because trends once started tend to continue, and we are always seeking to trade with the trend, once we are in a winning trade, we do not look to trade a new trend direction until the trend change has been confirmed. Tsunami Stop is our trend change indicator. It will position itself above the price bars in a downtrend and below them in an uptrend. The Tsunami Stop is one of our greatest discoveries as it determines the true PVM trend extremely well, and it keeps you in the trade much longer than most other methods that we have seen. After the PVM generating Waverider indicator, we feel this one, is probably the most important. You are always told the secret of trading is to let your winners run and to cut your losers short. Well this indicator will let your winners run! Tsunami Stop requires a price bar to completely breach it and for the Tsunami Stop indicator to jump to the other side of the price bars at the bar close, to be stopped on a trade and for a new trend direction to be confirmed.

Tsunami Trender: This complex mathematically derived formula will analyze the entire price series of data and come up with an independent determination of the immediate PVM trend and of PVM trend change points. The Trender indicator is usually very smooth and will signal early change in trend points, while still avoiding many false signals. We will only buy the market when this indicator is blue and will only sell the market when it is red. Tsunami Trender Dots: This is a Show Me study that will simply note for you visually and with an alert if you so desire, when the Tsunami Trender indicator has changed color and trend. Tsunami StopTgts: Finding a good entry is only 1/3 of the equation when trading. Knowing where to place your initial stop and knowing where to place your profit targets is the other 2/3 of the equation. This indicator will analyze the PVM volatility of the market and place above and below each price bar the suggested initial stop and 3 suggested profit targets. Upon entering a trade on any particular price bar, for example a buy, simply highlight the entry bar and the data window will show the Buy stop (the initial stop used for a buy trade in the scalp method), and the 1st, 2nd, and 3rd Profit targets for the trade. TsuPaintbars: This Paintbars study uses several stacked PVM algorithms to determine with a high degree of accuracy “very bullish” and “very bearish” conditions. We will only buy the market when this indicator is blue and will only sell the market when it is red.

TsuPivots: This indicator will paint on the chart for you everyday the key pivots of the day where the markets will oftentimes turn. They use a different formula than what is commonly available in the trading arena, and we find them to be very effective. We find them useful in our trading mostly as possible additional targets for trade exits. Trade setups and Trade Management: Scalp Strategy: In this strategy, if the system is flat we look to enter on the very next occurrence of a buy setup or sell setup. Once in the trade we use the Buy Stop or Sell Stop ( the yellow dot below the entry bar is the Buy Stop, the yellow dot above the entry bar is the Sell Stop) lined up with the entry bar as the initial stop on the trade. Once a 1st PT has been reached, the system switches to use the Tsunami Stop as the trailing stop on the trade. Nonscalp Strategy: In this strategy, the system uses Tsunami Stop as both the trend filter and stop on the trade. The system will only take buys above Tsunami Stop and only taking sells below Tsunami Stop. The nonscalp strategy uses the Tsunami Stop also as the stop for the trade (whereas in the scalp method, the system will use the initial stop (the yellow dots lined up with the entry bar) until the 1st PT has been reached, and then switch the stop to the Tsunami Stop trailing stop).

A buy setup: A PVM configuration where: The most recent Bullish (upper) PVM number is larger than the prior Bullish (upper) PVM number OR The most recent Bearish (lower) PVM number is smaller than the prior Bearish (lower) PVM number Enter long at the close of a blue Tsunami paint bar with the occurrence of a blue Tsunami Trender Line/Tsunami Trender Dot. A sell setup: A PVM configuration where: The most recent Bullish (upper) PVM number is smaller than the prior Bullish (upper) PVM number OR The most recent Bearish (lower) PVM number is larger than the prior Bearish (lower) PVM number Enter at the close of a red Tsunami paint bar with the occurrence of a red Tsunami Trender Line/Tsunami Trender Dot. Trade Management: If using the scalp method, line up your cursor with the entry bar, The data window will show the buy stop ( initial stop you will use if you are buying the market) and it will show you the value of the sell stop ( initial stop you will use if you are selling the market). The data box will also show the 3 buy and 3 sell targets for this trade. If using the nonscalp strategy, you will not be able to place a hard stop into your trading platform (you might want to place a far away security hard stop just as a precaution in case you lose your internet connection). In this strategy, the Tsunami Stop trailing stop is the stop on the trade and only is stopped out when the Tsunami Stop line jumps on the other side of the price bar at the bar close. When that occurs you would simply exit at market.

TsuBot-Your Automated Trading Assistant: If you leased TsuBot-Your Automated Trading Assistant, you now have at your disposal, the greatest trading assistant available on the market today! We took the proven algorithms of the scalp and nonscalp strategies and hard coded the whole process into TsuBot. TsuBot will color code the PVM numbers for you (Cyan for bullish and Magenta for bearish) and completely monitor markets conditions for you for buying and selling opportunities. If you set TsuBot to the scalp strategy, the rules of that strategy are followed. If you set TsuBot to the nonscalp strategy, the rules of that strategy are followed faithfully. TsuBot makes no errors and can monitor multiple markets for you at the same time. Her alerts are visual, verbal, and they can be emailed to your cell phone or broker for Auto-Trading. TsuBot has numerous inputs to customize to your trading preferences:

Here is a LIVE 10 minute trading video of TsuBot trading the nonscalp strategy! http://www.tsunami-trade.com/install/videos/Tsubot9.29.avi

Scalp TsuBot Trades:

Nonscalp TsuBot Trades:

Software Installation: 1. Your software will arrive via priority mail from the USPS. You will find your customized CD, this short owner’s manual and a completion of transaction receipt. Please fill in and sign this receipt and fax it back to our office fax. The Fax number is 650-897-8200. 2. Insert the CD into your computer. There should be 2 files, one entitled Tsunami Setup.exe and the other your customized Tradestation ELD. Please note this ELD is customized to your personal customer ID and Network ID which can be obtained by opening your Tradestation platform and clicking on the top menu, the Help Icon. Then it will state About Tradestation 8.3. Click on that and it will be displayed Licensed to Customer number xxxxxx, Network ID = yyyyyy. We need both the Customer number xxxxxx and the Network ID yyyyyy to be emailed to us to prepare your software)

3. Now double click the Tsunami Setup exe. Follow all prompts clicking Next twice then Finish.

4. Now Go to the Start Menu on your computer, Click Start, All Programs, Find the program that says Tsunami Trading Educators, highlight that line and drag your cursor to the right onto the words Enter Password:

5. Copy down the 6 digit number in the ID row. That is your hardware ID for this computer and will never change for this computer. Email us that hardware ID and we will send you back a long string of numbers and letters which is your new password for this computer. Copy and paste that new password into the new password slot and click OK. 6. Now log into your Tradestation account, if not already logged on. 7. Double click your customized Tsunami software ELD ( its on the CD disc we sent you)

Click Next

Click Finish. 8. Only after you have received the new password and installed it into the new password slot will your indicators work. After they are fully installed and enabled with the new password we will now install them to your charts. 9. Open your Tradestation platform.

10. Click on the top of the platform, File, New, Window, Chart analysis, OK 11. Right click chart, Insert Analysis Techniques, Indicator 12. First highlight TsuStopTgts indicator, then click ok. 13. Right click chart, Insert Analysis Techniques, then holding the CNTRL button down the whole time, left click TsunamiStop3, Tsunami Waverider3 and TsuTrender1. 14. Right click chart, Insert Analysis Techniques, Click ShowMe on the top, then TsuTrenderDots1 15. Right click chart, Insert Analysis Techniques, Click PaintBar on the top, then Tsupaintbar 1.2. 16. Right click your chart, Background dragging, enable Congratulations! You have installed the Tsunami Basic Indicator set!

Money Management: Probably one of the most important things we can teach you is proper money management. 90% of traders lose money and many will blow their accounts out before they even really get started. The most common reason for that we feel is improper money management and position sizing. If you follow the Tsunami money management plan, it should be nearly impossible to lose all your money. I will repeat that, if you follow the Tsunami money management plan, it should be nearly impossible to lose all your money. Of course never say never right?! Anything is possible in trading including losing all your money and then some!!! Perhaps to be more legally proper, we should say if you follow our money management plan, you will finally have a good chance at succeeding at this very difficult but rewarding profession! We analyzed why losing traders lose and came up with a few ideas. We already discussed 2 of them. Trading largely subjective methodologies, and trading predictive methodologies. Both methods are in our experience inconsistent and difficult for the average trader to master. We also already discussed our feeling that a 100% mechanical and objective approach that utilizes the tenets of Price Volume and Momentum in a dynamic fashion is a better way to trade. Yet a trader can lose with the Tsunami system as well! How you might ask? Any trader can lose with even the greatest system in the universe if they practice poor money management (trading too much size for their account balance) and poor self management (being unable or too stressed to take the trades without hesitation, or trying to cherry pick the trades). We feel these 2 very common trading errors are what lead to failure for most traders, even if they are armed with a powerful trading system like ours. The answer to both problems we feel is the concept of OPM (Other People’s Money). If we can trade only or mostly with OPM, you should feel less stressed and less hesitant to take the next trade. It’s not your money anyway, right? The way to trade with OPM as much as possible, short of being a broker, is by trading only minimal size at first, ie 1 contract and slowly build up your trading account. Set a conservative yet still aggressive profit goal you must make per contract, then only when you get to that goal of having made that much of OPM in profit, are you allowed to increase your trading size. For example, after a respectable period of successful paper trading, start trading with only 1 contract of the market of your choice. It makes no difference if your account balance is starting at $5000 or $500,000. You should start trading with 1 contract at first. You are new and bound to make mistakes. Plus you only want to trade with OPM as much as possible! The equivalent minimal unit of stocks or options or whatever

else you may fancy to trade can be applied here as well. Set a reasonable profit amount that you must make per contract before you will allow yourself to increase trading size. In our live trading room, we trade the E mini ES (@ES), 5000 share charts and the Eurocurrency futures (@EC), 1000 share charts. A hypothetical illustration of the “magic of money management” in these contracts is shown below. In this hypothetical illustration, which takes into account no losing days which should be considered almost impossible to accomplish with any trading strategy or method, we used the daily profit goal of 24 tics per contract traded ($300 a day/contract) in the @EC, and increased trading size by one contract every $2500/contract gained. In the @ES we used the hypothetical daily profit goal of 4 points per contract ($200 a day per contract) and increased trading size by one every $1000 / contract gained. Two different starting account balances were used in this illustration.

As you can see the results can be quite impressive using proper yet aggressive money management. Also remember, after the initial period of 1 contract trading with your own money, after that it was all trading with OPM! Is this really possible you may ask? Perhaps with a lot of practice and some good luck! To be fair, you could also have lost that amount of money or more, in this short period of time as well. However, one of our

traders recently reported to us that he is following our money management plan as discussed above, and so far, he is in fact on schedule! He started with one contract and now is trading two! He is trading the @EC 1000 share charts using the nonscalp method going all on and all off at the 2nd Profit Target or 24 ticks per day daily goal. He provided us proof of his claims!

Will he make it all the way to the $44,800 price level and beyond by the 40th trading day? Since trading is risky and involves other factors beyond any system’s control, ie the trader’s psyche, only time will tell if he will be able to ultimately succeed, however he certainly has had a nice start and we believe his early success validates the significant potential of our aggressive, yet still conservative (only trading with OPM as much as possible) method of money management! Food for thought. What is your favorite market? Develop your own trading money management plan and apply it! With Tsunami you have all the tools you need. You just now need the will, discipline, and determination to succeed. Your success really is in your own hands! 7. Technical and Member Support: Demonstration Days( Monday – Thursday) : We demonstrate the system live in the Emini ES and Eurocurrency Futures from 9 AM EST – 11:00 AM

EST. From 11:00 AM EST – 11:30 AM EST , we demonstrate the software on Stocks and Other Markets by request. At 1130 AM EST – 1200 noon LarryK will demonstrates the system on the spot Forex markets. Member’s Day ( Friday): We devote all of the Friday session to the members only. Here is the ongoing weekly schedule of classes: 800-830 AM EST. - Software Installation 830 -930 AM EST.- PVM Lecture with John G– He explains the rationale behind the software and why you should understand this is a universal concept in trading and hence can be applied to any market on any timeframe. 930 – 1100 AM EST. – Live Futures Daytrading (@ES and @EC) where JohnG will demonstrate the concepts learned from the PVM Lecture and how to apply the software to different markets and time frames ( Futures, Stocks, Commodities, Forex) 1100- 1200 AM EST. – Forex Lecture Series with Professional Trader LarryK If you still have questions after these live daily educational sessions where you are encouraged to ask any and all questions in real time, you can always call us at 505-918-2270 or email us at [email protected]. The best of luck in your trading and please only trade with risk capital! The Tsunami Trading Team ====================================== DISCLAIMER ====================================== FUTURES AND OR STOCK TRADING CAN INVOLVE HIGH RISKS WITH THE POTENTIAL FOR SUBSTANTIAL LOSSES. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE THE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. ALL TRADES DEPICTED OR DISCUSSED IN THE CHATROOM, WEBSITE OR COURSE ARE TO BE CONSIDERED STRICTLY SIMULATED AND HYPOTHETICAL. TRADING INVOLVES HIGH RISK AND YOU CAN LOSE A LOT OF MONEY. WHEN INVESTING IN SECURITIES YOU MAY LOSE ALL OF THE MONEY YOU INVESTED. WHEN INVESTING IN FUTURES, YOU MAY LOSE MORE THAN THE FUNDS YOU INVESTED.