The Professional Trading Edge

Overview: Elite Trading Partners L.L.C. employs active portfolio management through the use of specific proprietary tools, tactics, techniques, strategies, methodologies, technologies, risk control models, and additional professional trading resources in the daily execution of our Trading Plan on behalf of our Elite Trading Partners, which are not disclosed in this forum. This includes further information about our automated opening orders strategies, market-on-close (MOC) strategies, our intra-day scalping criteria, methods, and strategies, as well as the professional trading direct market access provider and various research and technical analysis services that we utilize. However, we believe this overview provides a reasonable level of insight into our basic foundation of stock selection for potential Elite Trading Partners to consider. All successful trading strategies are grounded in two very fundamental but critical concepts - Probability and Risk Control. As a trader selecting stocks to trade, you are seeking to put as many factors (edges) as possible in your favor that create a statistical advantage, thereby increasing your probabilities to realize profits on each position. By also having strict risk controls in place for each position, you are accepting and acknowledging that no system or methodology is perfect, and you can easily and willingly record losses if your position reaches your maximum drawdown level. It is important to remember that you are a trader when you buy or short a stock and a trader when you sell or cover a stock, but during the time in-between you are a risk manager. The simple truth is, regardless of the methods used to arrive at their decisions, successful professional stock market traders are merely better stock pickers and better risk managers than are most other market participants. The Elite Trading Partners Trading Plan follows a Market-Neutral, Sector-Based trading methodology, coupled with a with a very defined stock selection process and long/short pairs strategy. With over 15,000 publicly traded stocks to choose from, a key component to efficient and successful trading is knowing exactly what you are looking for. According to a widely cited University of Chicago study, 75-80% of a stock's risk and price are directly attributable to the overall market and the stock's underlying sector, while only 20-25% is stock specific.* It has been our experience that this is a very powerful piece of information to consider when plotting a trading strategy. Just like produce in your supermarket, sectors move in and out of season. Whether in a Bull or Bear market cycle, individual sectors and industries offer identifiable areas of strength and weakness that can be exploited for profit. Monitoring sector rotation trends is therefore a very important part of the market-neutral professional trader's daily operation. To help guide us in our buy/sell/short decision making process, we rely on Point & Figure (P&F) charting as our primary source of technical analysis. In our experience no other technical analysis method interprets sector rotation trends and equity price action with such a high degree of accuracy as does P&F charting. If you purchase a security but the underlying sector is declining and institutional money flow is negative (supply is in control), you are at an immediate performance disadvantage. Conversely, if you sell short a stock and the underlying sector is rising and institutional money flow is positive (demand is in control), you are positioned against the prevailing trend. A weak stock in a rising sector will often outperform a strong stock in a declining sector, illustrating the effect of institutional money flow. Close monitoring of sector rotation and institutional money flow is essential to insure that even short-term positions stay as close to ''in season'' year round as is possible. Market-neutral sector-based trading is also analogous to preparing for and playing in a football game, in that first you measure the overall risk, or ''field conditions'' (futures, dominant market trends, volatility, market sentiment, interest rate environment, earnings season, etc.) of your chosen financial market before you take the field. You then analyze and evaluate 43 broad industry sector screens to determine where you believe model ''field position'' exists for ''running plays'', i.e. purchasing or selling short stock.Within these 43 sectors are approximately 200 sub-industries, allowing you to narrow your focus even more clearly. We utilize multiple highly efficient web-based resources through which we scan sectors and run our stock filters on a daily basis, seeking stocks that match our initial criteria of potential trading candidates. Your evaluation methods are then focused on only the top tier (leaders) for long trades, and bottom tier (laggards) for short trades, of companies and stocks within a favored or unfavored sector, as ranked and measured by our proprietary professional analytic resources. The Relative Strength (RS) ranking is one of our primary performance indicators. It measures a stock's performance in all market conditions relative to its peer group and the overall market. By taking long positions in fundamentally strong stocks with a high Relative Strength ranking and taking short positions in fundamentally weak stocks with a low Relative Strength ranking, you greatly reduce the possibility of trend reversals. Over time you will be maintaining a dynamic list comprised of high potential ''draft choices'' of desirable stocks from which identifiable high-probability long and short profitable trade set-ups are likely to emerge. In sum, you are only interested in participating in uptrending ''bullish'' sectors for long positions and downtrending ''bearish'' sectors for short positions, then executing a ''pairs trading'' strategy when initiating positions by matching each long purchase with a short sell, creating a market neutral hedge within your trading positions. In varying circumstances, derivatives (options) may also be used as ''supplemental insurance'' when scaling up a position. In our assesment these conditions, combined with disciplined risk parameters, give the trader significantly higher probabilities for the realization of trading profits, while also offsetting a great deal of the typical market risk associated with trying to guess a singular market direction. Consistently producing trading strategies, by their nature, do not attempt to get you in at the bottom and out at the top if long, or the converse if short. Rather, they seek to position you at a superior risk/reward entry price level in stocks showing a defined uptrend or downtrend, and to alert you to consider exit levels at the first sign of major price weakness or strength. As a disciplined professional trader following a well-defined strategy, you have already given yourself a major statistical advantage from which to start your stock selection process, and have gained your first significant edge.