Disk 1 – Introduction

Flag-Trader Disk 1 begins, as you would expect, with a general overview of the content of the training spread over the 8 disks and goes on to establish Guy Cohen's credibility with reference to his own success as well as that of a number of his students.Volatility

The course is about trading volatility located by finding bull flags or bear flags which indicate the potential for large moves either up in the case of bull flags or down in the case of bear flags.

He is at pains to point out that his whole approach to trading is not to try to predict market movements which he firmly believes to be unpredictable. His approach is to find a situation with potential and then to create a trade around that situation that carries absolute minimum risk but with the ability to benefit from that potential – should it materialise. The minimum risk arises because a 'losing trade' may lose nothing at all if it is not triggered by sufficient movement or is stopped out very quickly if the movement is in the wrong direction.

Once into a profitable trade then his approach is to take a first profit out at a predetermined point while leaving a part of the trade to run on into bigger profits – but only after you have secured the first basic profit.

As all the elements of trade can be determined in advance i.e. the price at which the trade is entered, the position of the stop loss and the exit point for the first profit so these orders can be placed in advance either with a broker or with online trading platforms. This means that the trader can then go fishing, play football or go to the movies safe in the knowledge that the trade will either execute as planned or will simply fail to be triggered if there is insufficient volatility i.e. the price of the stock does not move up or down sufficient to trigger the trade.

Naturally, this requires the ability to identify stocks which may be liable to make large moves up or down. This is done from bull and bear flags hence the product name of Flag-Trader.

It is well known that flags are continuation chart patterns, i.e. there is a high probability that the stock price will continue to move in the direction of the trend, often very strongly, if a well formed flag develops within a trend.

I well remember the training seminar that I attended when chart patterns were first explained to me and they are often blindingly obvious. The only difficulty is finding them among the thousands of stocks in the markets. And what is a potential flag trade today is a missed opportunity tomorrow once the breakout from the flag has occurred.

So finding the candidates to which to apply the simple rules of entry and exit is a major difficulty without some serious help. This is where the online software is applicable which identifies both bull flags and bear flags according to the filters that you apply. Guy was telling me that the software actually sorts through 288 million lines of data in order to achieve this task.

Having found the candidate trades then the user applies the basic rules of entry, stop loss and exit as well as managing the trade. Again, harking back to my first training these are so basic and safe that one is inclined to ask what all the fuss is about. And that is absolutely correct as long as you remember that none of the simple part would be possible without the software presenting you with a manageable number of trade candidates and Guy providing the training to recognise the difference between good prospects and those to avoid.

There are two additional factors introduced that enable traders to determine good from bad candidate trades.

Firstly, that there is no external news due in the near future that will disrupt the 'natural' behaviour of the stock price in relation to the sentiment in the whole market. Unlike Guy's more familiar option trading strategies that require that news in the form of an Earnings Report should be imminent, when trading flags you want any disruptive news to be in the past.

This allows the second factor to come into play which is the natural sentiment in the market which can be determined either from a volume indicator or with Open Interest for optionable stocks. Open Interest being the number of open option contracts to buy or sell the stock at a particular date. Naturally, if there are far more of one than the other that gives a good indication of the likely movement of the price.

By the end of Disk 1 the user is going to be clear that they are going to learn:

• how to use the online software to find candidate bull or bear flag trades;
• how to recognise good and bad flag pattern indicators;
• how to verify using the links built into the website that there are no external news factors that are likely to influence the market;
• how to check that the available Open Interest information supports the trading decision and;
• how to manage the trade to its conclusion,

With all this information available in advance then the trader should be able to place a trade with confidence and with all the parameters specified in advance. This avoids any necessity to hover over your keyboard constantly monitoring a trade as it will execute or not depending entirely on the movement of the market with predetermined stops triggering the exit again depending entirely on the price movement. The end result is a trading style which is pretty relaxed and certainly manageable even for those with the busiest lifestyles.

Summary

Disk 1 gives an overview of the content of the Flag-Trader course, what the student can expect to learn and why both Guy Cohen and the strategy are credible.