All The Kings Horses

April 10, 2002 Volume 4
Articles KING’S WATCH
King’s Watch
All The King’s
Horses
Steve Nison Interview:
Light from the East
by KingCAMBO
A
Options with Options:
The Covered Call nd all the King’s men – could not get Jesse
Livermore interested in this market again. We
would not be able to raise his ghost, his memory,
The Quiver: his relatives, or any of his kindred spirits. Spring 2002,
e-Waves Part 3 is so boring his ghost would likely see more opportunity
and action (selling time share units in Pascal County,
Florida) than fun and trading on Wall Street.
POS.X Index
In fact, if you look at what Livermore himself said, he
warned about staying away from situations just like the
Trading Earnings
one we’re in now:
“In a narrow market [...] there is no sense in trying to

anticipate what the next big movement is going to be - up or
Join us live in our Trader down. The thing to do is to watch the market, read the tape to
Forum. www.kingcambo.com determine the limits of the get-nowhere prices, and make up
your mind that you will not take an interest until the price
Technical Analysis breaks through the limit in either direction.”
Workshops: - from REMINISCENCES OF A STOCK OPERATOR
In the first issue of this magazine, I spoke a bit about

Steve Nison’s Favorite time cycles – W. D. Gann’s “Cycle of 60”. Gann, who
Candle was a contemporary of Livermore’s, felt that was the
most important of all time cycles, though he never
Market Structures seems to have said straight out why or where he got it
from. In his writings, he meant the cycle of 60 years is
FIRST in importance.
What he said got me to wondering, though: Could there

be an interpretation of the Cycle of 60 that has more
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immediacy and usefulness to short-term traders? Could the “cycle” of 60 be broken
down into days instead of years? Could it even be broken down into minutes?
As it happens, two years ago, before I had these particular flights of fancy, I sat
down with my team of crack coders and created KingCAMBO’s Flux Capacitor in an
attempt to try to predict market movements in TIME, based on Fibonacci numerical
sequences. Let me stress from the start, that this pursuit was for FUN first, not to
make any scientific claims. On the other hand, I have been following this thing for
two years now and as whacked as it sounds, 92% of the time it really works.
What I actually did when I first invented the Flux Capacitor was quite similar to the
basics of Gann’s cycle theories. Since then, I’ve taken advantage of some of Gann’s
thinking and done some fine-tuning of the Flux Capacitor.
Follow my thinking here. Gann felt, for whatever reasons, that the number 60 fit
into a scheme of what he called “natural law.” And whoever created the hour (60
minutes), the minute (60 seconds), longitude and latitude (also measured in terms of
minutes and seconds of 60 units), and perhaps even the 360 degrees in a circle (6 x
60) must have thought the same thing.
So what can we do with this fact? First, let’s take the cycle of 60 and divide it into
meaningful components the way Gann himself might have done:
• 45
• 30
• 22.5
• 15
• 11.25
• 7.5
• 3.75
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Now let’s add those same numbers to 60:
• 63.75
• 67.50
• 71.25
• 75
• 82.50
• 90
• 105
Now that we have these numbers, how can we use them for trading? This is easy.
We find the lowest market-structure low (MSL) or the highest market-structure
high (MSH) in recent trading and we mark that as our reference point.
This is where the acclaimed FLUX CAPACITOR comes in. Let me dazzle you with
sheer genius here. Let’s take the time and place of a significant market
structure:
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OK. Let’s bring up a daily chart for the COMPX and pick a starting date. There is a
major top, a MSH on May 22, 2001. Let’s not nit pick on the exact minute for now.
But check it out:
1. Check your charts, when did that first down wave end? May 30th.
Who knew? The Flux Capacitor knew.
2. The wave of selling that preceded last September’s major low started
on August 2nd 2001. Look at the Flux.
3. Where did last year’s all time low come in? 9/21/01.
This is eerie, is it not? The FLUX CAPACITOR, which is simply a tool for measuring
NATURAL time cycles, had this date. It had no way of knowing that a bunch of
maniacs seeking a free pass to Allah and 77 virgins would strap themselves in to
flying missiles and take down the heart of our financial district.
Was the September 21st low a result of the tragedy or was it a basis of natural law?
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Let’s look at another read:
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So far, the high on the Dow for this current year is March 19, 2002. Those that are
faithful followers of the good KingCAMBO know full well about my mighty bear
campaign that exploded in my face. You also know the reason why I had March 19th
as my target date don’t you? It was 180 days – Cycle Of 60 – from the September
low, that’s why.
All right, use the above Flux Capacitor projections to try to find CIT (change in
trend) dates for the balance of this year. One such date happens to be tomorrow,
April 11th. Note how the last date makes a complete year? Why is that? It is 360
degrees of a full circle isn’t it? So, it’s a complete cycle.
Paid members to our trading forum can access our Flux Capacitor in three ways:
· For Swing Trade calculations:

https://www.kingcambo.com/members/flux/swingflux.vi
· For intra- day Gann based pivot calculations:

https://www.kingcambo.com/members/flux/masterflux.vi
· For intra-day calculations based purely on Fibonacci time pivots our original
Flux Capacitor is still up at:
https://www.kingcambo.com/members/flux/
One final thought on the Swing trade CIT dates. I do not promise exact hits all that
often. However, you will find many instances where you get a CIT within one or two,
or at most three days from a projection. My feeling on this: it is because time waits
on no man, and it certainly doesn’t wait for markets to open or excuse markets for
taking holidays and weekends off. Time follows its own natural law.
Do you remember this scene from the film “Back to the Future”?
Doc: “The problem is, you never know where lightning is going to strike
twice.”
McFly: “Oh yeah? Well we do now...”
With that in mind, I sat down with my team of massive coders and created
KingCAMBO’s Flux Capacitor to try and solve the space-time continuum question.
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Play with the Flux Capacitor and have some fun with it. It works on stocks, options,
and futures – as well as the indexes. Pick what you believe to be a major date and
just put that in as the reference date. The Flux Capacitor will do the rest for you.
We have a great issue for you this time, with good stuff from Steve Nison and our
regular staff contributors. So let’s get on with it now as I leave you with “A Light
From The East”… by our resident favorite trader – Romeman.
Happy Trading!
KingCAMBO
Articles Light from the East:
Discovering Japanese
King’s Watch
Candlesticks
by Romeman
Light from the East
Steve Nison, the leading authority on applying

Options with Options: Japanese candlestick charting to Western markets, is
The Covered Call the author of the books Japanese Candlestick Charting
Techniques: A Contemporary Guide to the Ancient Invest-
ment Techniques of the Far East and Beyond Candlesticks:
The Quiver: New Japanese Charting Techniques Revealed.
e-Waves Part 3
He spoke with Kingcambo.com’s Romeman,
who opened the interview with a question from the
POS.X Index
room’s MC, Steady Eddie.
Trading Earnings
Eddie says he wants to retire and he would like to
know where the market is going to close in 30 days.
Join us live in our Trader Well, there’s very few hard and fast rules in technical
Forum. www.kingcambo.com analysis, but there’s one absolute 100 percent rule:
There’s excellent support at zero.
Technical Analysis
Workshops: I think the Nasdaq made a major low in September.
There was a confluence of technical signals back in
Steve Nison’s Favorite September that signaled a major bottom. I think there
Candle were five or six indicators that I had at the highs at around
5150 and I had about four or five indicators – a
Market Structures combination of Western technicals and candle charts – at
the lows in September. These include a hammer and an
island bottom, a successful test of the 1998 lows.
So I think we did put a major bottom in place.
I’m going to be doing an article for Trend Times, called

“Steve’s Favorite Candle Charting Signal.” My favorite
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signal is a window and the window is the same as a gap in Western technicals. The
Japanese will call it a falling window if the market gaps down or a rising window if the
market gaps up.
We had a few falling windows in the Nasdaq composite. And what happens is the
falling window becomes resistance. So, for example, we had a falling window between
March 19 and 20. That’s where the rally stopped during the week of March 22, right at
the window’s resistance and that’s where the rally stopped early this week [the week of
April 1]. We had a strong rally on April 1. The high of the rally was 1865 and the
window’s resistance was in a zone between 1873 and 1861.
The fact we have a falling window did turn the short term, intermediate term, down. But
I would expect the mid- and late February lows to hold. So short term, a little negative.
Longer term, I think we’re not going to see the September lows again.
Let’s go back to the beginning. You’re credited with introduced Japanese

candlesticks to the West. How did a guy from New York learn about this
method of charting?
I used to work at E. F. Hutton before they were taken over by Shearson. There was a
broker working down the hall from me in New York. She was a Japanese broker. She
would have these chart books sent to her from Japan, because she would talk about
the Nikkei stocks for Japanese clients. We talked from time to time and I saw the chart
books and that piqued my curiosity.
This was a charting method that was around for over 100 years and nobody knew
about it in the West! [In] their equivalent of our Wall Street Journal, their charts are in
candles and I couldn’t believe there was nothing in the West about this. There was a
little book I came across in English, maybe had about 10 pages on it, but that was
about it.
I found a translator, an American who understood technical analysis, who was going to
Japan and I told him, “Buy every book you could on candle charts!” And I had about a
dozen books translated.
When I started to do the research, I could understand why nothing else was done about
it here, because it took about two or three years of research! I was lucky, because the
job I had at that time was working in a research department. They saw the value-added
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of this for trading, so they didn’t mind I did this. I did it mainly at home, but I continued
the research at work.
I gather that candlesticks were first used by the Japanese rice merchants.
Why do you think they leaned toward this particularly pictorial method of
charting, as opposed to Western bar charts or point-and-figure charts?
The Japanese traded rice futures contracts back in the late 1600s, early 1700s. And
they really didn’t have candle charts then. Candle charts really started when the
Japanese stock market started in 1870.
OK.
Back then they were dealing with the psychology of the market. I had a book translated
and in the Japanese book it says, “When all are bullish, there is cause for concern.”
And that book was written in 1755! So before America was even a nation, the
Japanese were trading with contrary opinion.
The evolution was: They had highs and lows of the day. Then they had high, low, and
close. They used to use bar charts up until 1870. And then from bar charts, they got
open, high, low, and close, and then they took the step that we didn’t do in the West.
They made a bar chart into a candle chart.
The data are the same. It’s just the way you draw it. It was a slow evolution, but the
candles really started when the Japanese stock market started in the 1870s.
What kind of reception did you get when you brought candlestick charting to
the US? Were there particular challenges in getting people interested in this
method of following the markets?
Yes and no. I was working at Merrill Lynch’s futures research area. And futures traders
are usually the first to grab onto new technical analysis tools. This was in the late ’80s
and the stock market then isn’t like it is now. Stocks trade like futures now! Back then,
all the volatility was in the futures market. So the futures traders were very eager to
grab onto new techniques and they grabbed onto this very quickly.
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You get early turning signals with the candle charts – very, very fast reversal signals – in
one, two, or three sessions. On a bar chart, you may have to wait weeks and weeks.
When I started to focus more on the equities markets in the early ’90s, that was a little
bit more of a challenge. But the candle charts use the same data as the bar charts.
Yes, you can use a candle chart, but you can also use Western techniques. You can
have moving averages in the candle chart. You can have trend lines in the candle chart.
Essentially anything you can do with a bar chart you can do with a candle chart, so
you’re not giving up anything. The major advantage is you’re going to get reversal
signals.
So I approached it from that angle and that’s the way I strongly encourage traders to
look at it. Use what they’re very comfortable with now and just add the extra dimension
of candle charts to their analysis.
When I did it that way – “use this in addition to,” rather than “use this instead of” – it
really took off.
When the stock market became much more volatile and got day traders involved,
swing traders, and when all the on-line charting services started to have candle charts,
the interest just geometrically, exponentially exploded.
In the second part of this exclusive Trend Times interview, Steve Nison will
reveal the unique value of candlestick charting, how institutions use candlesticks,
the single-best time-period chart to look at to get the major trend in stocks, and
what is the best indicator to use to confirm candlestick patterns. Don’t miss it!
Articles Why You Have
King’s Watch Options with
Options or
Light from the East Options 101: The Covered Call
Options with Options: by Sally8

The Covered Call
In my first article I said:
The Quiver: “You will hear people tell you that most options (about
e-Waves Part 3 80%) expire worthless, but what they don’t tell you
is that there are ways to make money by letting
an option expire worthless! Many people I know
POS.X Index use options strategies for income only and they want
those options to expire worthless. ”
Trading Earnings
I use this strategy almost every month in my trading
account to get extra income. I use it in my IRA to get
income and lower the price of the common that I am
Join us live in our Trader holding. What this does is reduce the cost basis of the
Forum. www.kingcambo.com common.
Technical Analysis I waited until now to write about this strategy because
Workshops: this is the season that usually makes me the most
money in covered calls. The Stock Traders Almanac
Steve Nison’s Favorite shows us that since 1950 the months of May through
Candle October are the worst performing months of the year.
In 51 years, the Dow gained 1299.03 points in these
Market Structures months, and 9235.81 points from November though
April. I want the stocks I own and write to stay the
same or go down some, because I want to keep the
stock, so these are the best months for this play. If I
lose the stock, it is no big deal. I still made money.
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Writing a Covered Call option reduces your stock investing risk because the option
premium received, in effect, lowers the cost of the stock. The Chicago Board Options
Exchange says that, “Covered Call writing is not only the safest of all option strate-
gies, it is also safer than purchasing and selling stocks only.”
Covered call writing provides you with a way to compound your money each month
rather than each year. Many covered call writers earn between 10% and 25% on
their money each month, providing a good income stream on their investments.
Instead of buying a stock and waiting for it to move, investors are able to buy a
stock and take their profit “up front,” and actually profit should the stock price not
move or even fall slightly.
When writing a covered call, you buy a stock and agree to sell it to someone at a
given price (strike price). In return for this agreement, you are paid a premium
(option price).
Writing a covered call consists of selling an option call while simultaneously owning
the underlying stock. You buy a stock and then agree to sell the stock to someone
else at a specified price (strike price). In return for this, you receive a premium
(option price). For example, you purchase 100 shares of XYZ for $50 a share and
then sell a $50 call for $4 per share or a total of $400. This concept may seem
confusing right now, but read on and it will become clearer.
Here’s the math: 100 shares are purchased for $50 per share, for a total of $5,000.
You then sell the option and receive back $400 (100 shares x $4 per share). The
immediate return on this investment is 8.0% (Return = Income/Investment).
Covered Call — A covered call consists of the sale of a call while simultaneously
owning the underlying stock. A call is an option contract which gives the owner the
right, but not the obligation, to buy the agreed upon number of contracts (blocks of
100 shares) at a strike price, on or before the strike date.
Buy-Write — It involves buying the stock and selling the call in the same transac-
tion. It is a conservative approach, as some people like to buy a stock and hope it
goes up so they can get a better deal on the selling of the call. However, that process
would backfire if the stock drops, and then the seller gets less money on the pre-
mium.
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The Basic Concept
The basic concept of covered call writing is very simple. However, for the person
who is unfamiliar with this process it can be confusing at first. A friend told me about
writing covered calls and for a couple of days I was skeptical. The light bulb went off,
and I have been using this technique ever since.
WRITING A COVERED CALL CONSISTS OF THE SALE OF AN OPTION CALL

WHILE SIMULTANEOUSLY OWNING THE UNDERLYING STOCK.
Below is a chart showing different covered call transactions:
EXAMPLE STOCK OPTION STRIKE RETURN IF RETURN IF

STOCK PRICE PRICE PRICE NOT CALLED CALLED
1 - ABC 25 2.5 25 10.00% 10.00%
2 - DEF 24 2 25 8.33% 12.50%
3 - GHI 26 3 25 11.54% 7.69%
4 - JKL 50 4 50 8.00% 8.00%
5 - MNO 48 3.5 50 7.29% 11.46%
6 - PQR 52 6 50 11.54% 7.69%
In Example 1, we bought 100 shares of ABC for $25 a share, for a total of $2500
(100 x $25). Then, we sold the $25 call for $2.50 a share, for a total of $250 (100 x
$2.50). If the stock price stays at $25 or higher, we will be “called out” and make
$250.
IMPORTANT: Selling a call means that you have agreed to sell someone
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YOUR shares of a stock at a particular price. If the stock price on the
strike date (third Friday of each month) is greater than the strike price,
you will sell your shares. This whole process is handled automatically by both
full service and online brokers.
In Example 2, we bought 100 shares of DEF for $24 a share, for a total of $2400
(100 x $24). Then, we sold the $25 call for $2 a share, for a total of $200 (100 x $2).
If the stock price stays at $25 or higher, we will be “called out” and make $300.
Note here that we sold the stock for more than what we paid for it, therefore we
made an extra $100 on the transaction ((25-24) x 100).
In Example 3, we bought 100 shares of GHI for $26 a share, for a total of $2600
If the stock price stays at $25 or higher, we will be “called out.” Note here that we
sold the stock for less than what we paid for it, therefore we “lose” $100 on the sale
of the stock and profit $200 on the overall transaction.
In Example 4, we bought 100 shares of JKL for $50 a share for a total of $5000
(100 x $50). Then, we sold the $50 call for $4 a share, for a total of $400 (100 x
$4). If the stock price stays at $50 or higher, we will be “called out” and make $400.
In Example 5, we bought 100 shares of MNO for $48 a share, for a total of $4800
(100 x $48). Then, we sold the $50 call for $3.5 a share, for a total of $350 (100 x
$3.5). If the stock price stays at $50 or higher, we will be “called out” and make
$550. Note here that we sold the stock for more than what we paid for it, therefore
we made an extra $200 on the transaction ((50-48) x 100).
In Example 6, we bought 100 shares of PQR for $52 a share, for a total of $5200
If the stock price stays at $50 or higher, we will be “called out.” Note here that we
sold the stock for less than what we paid for it, therefore we “lose” $200 on the sale
of the stock and profit $400 on the overall transaction.
If you are still confused, keep reading.
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The Simplified Covered Call Process
Here is the step by step covered call writing process:
1. Select the stock on which you want to write a covered call. Buy the stock. If
you already own it, you are halfway there.
2. Sell the option contract. You must have permission from your broker to sell
options, but approval is almost certainly guaranteed.
3. Wait until the expiration date. Nothing else is required from you at this point.
On the expiration date you may or may not be called out. Generally, if the
closing price of the stock on the strike date is higher than the strike price,
you will be called out. If the stock price is lower than the strike price you
will not be called out, and you will still own the stock.
The Benefits of Covered Call Writing
1. Provides a way for you to make money on a stock even if the stock
falls or does not move. Since you are receiving a premium “up front,” the
stock price can fall slightly and you can still profit. Always look at the chart to
see if your stock is a good candidate.
2. Provides cash flow. You can see an income stream from your trans
actions since the premium is “paid” into your account almost
instantly.
3. Provides you a way to potentially compound your money each

month rather than each year. Compounding your money is where the
real gains take place.
4. Provides you a way to lower the price you have already paid for
stock. If you have purchased a stock and watched the price fall, you can
write a covered call and receive a premium. This premium has essentially
lowered the price you have paid for the stock.
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The secret to successful covered call writing is to invest in good stocks and
focus on consistency, not on high returns. You will see high returns when
your investments grow over a period of time. That’s why I use this strategy in my
IRA.
The Risks of Covered Call Writing
1. Stock price falls sharply. If the underlying stock falls sharply, you may
end up with an unprofitable transaction. One technique to minimize this risk
is buying your calls back.
2. Investing “short term.” Investing in the market with short-term

transactions involves risk. The market has a tendency to be choppy in the
short-term. You should only invest in stock that you believe in and are willing
to hold for the long-term.
3. Stock price moves up sharply. Although this is not really a risk of losing
money, it is a risk of giving up “potential” profit. For example, you may buy a
stock for $20, sell a $20 call for $2, and make 10% on your money. However,
before the strike date, the stock moves up to $30. You have now profited
10%, but had you just held the stock you would have profited 50%. This
recently happened to me with PG. I initially bought the stock at $75 and sold
an $80 call. PG started soaring and one look at the chart told me to buy my
calls back. I then entered long calls and profited nicely.
Calculating Your Return
Many people get confused when it comes to calculating gains and losses on their
covered call plays. Calculating your “true” return is important not just for invest-
ment purposes, but also for tax purposes. The following should help explain how to
calculate returns on simple, as well as complex transactions.
To calculate the gain or loss, the formula is FINAL SALE PRICE – BASIS. “Final
Sale Price” is the price at which you actually sold the stock. Basis is your breakeven
point or your actual cost of the stock. Basis is important for calculations, as transac-
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tions become more complicated.
Here Are Some Simple Transaction Examples:
At The Money
1. You purchased 1000 shares of ABC Corp. at $50 a share and sold a $50 call
for $5. Your basis (breakeven point) is now $45 ($50-$5).
2. You are called out on the strike day and sell the stock for $50.
3. Your gain is $5 ($50-$45) per share or $5000 ($5x1000 shares). Your
percentage gain on the transaction is 10% ($5,000/$50,000).
In The Money
percentage gain on the transaction is 7.69% ($4,000/$52,000).
Out Of The Money
percentage gain on the transaction is 12.5% ($6,000/$48,000).
How To Get Started Writing Covered Calls
In order to get started, you need to obtain permission from your broker. Since
writing a covered call means that you already own the stock you have agreed to sell,
everyone should be able to obtain permission from their broker to trade covered
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calls. I have not heard of anyone having problems getting permission, so if you do
run into any problems, I suggest that you look for a different broker or make sure
that your broker has a clear understanding of what you are trying to do.
After you receive permission you are ready to begin.
Speaking
The
King’s
English
by Holly
KingCAMBO’s Trend Times © 2002 King Cambo Ltd. All rights reserved.
Articles The Quiver:
eWaves, part 3 of 3:
King’s Watch
Increasing the Odds
by Enthios
Light from the East
In the previous installments of this series, you have

Options with Options: learned how to use Fibonacci to gauge retracements
The Covered Call between the inflection points of a MSH and MSL. You
have also learned how to use Fibonacci to predict W3
and W5 expansions from the Seed (W1). You know
The Quiver: that the most important Fibonacci ratios are 0.236,
e-Waves Part 3 0.382, 0.5, 0.682, 1.382, 1.618, 2.618 and 4.236. You
know that a retracement of 0.50 is “ideal”, that the
target ratio of 1.682 is “often” the best target for a W3,
POS.X Index
and that 2.618 is “often” the target for a W5. If you use
these ratios consistently, you can trade profitably. But
Trading Earnings you can increase the odds greatly by combining meth-
ods. The premise is simple: Use multiple methods to
come up with multiple targets. Then see where these
targets coincide, to create a combined target zone.
Join us live in our Trader
Forum. www.kingcambo.com
Technical Analysis
Workshops:
Steve Nison’s Favorite

Candle
Market Structures
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Figure 1: Combining Methods
Figure 1 shows how I combine the retracement pivots from a previous range, with
the Seed Wave targets of the next, to fine-tune the exit target of W3. I know that
prices will pivot at the 0.382, 0.50 and 0.618 retracements from a prior trading
range. The pivots shown along line (d) are calculated from the prior major trading
range (a)-(b). After the Seed is created, I then draw the Fibonacci expansion tar-
gets off that original seed. The downward targets from the seed wave (b)-(c) are
shown along line (e). The combined target zone is where the pivots and targets from
these two sets of lines coincide, in this example between the 50% pivot and the
161.8% target.
The reason this works, relates back to Fibonacci’s discovery about the growth pat-
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terns of rabbits. The mathematics of the sequence – 1,2,3,5,8, etc. - explain the
growth rate in the general terms. But the market is dynamic; it is made up of not
just one set of waves moving in a given direction, but of sets within sets. Any up
wave series could be contained within a larger down wave series, which in turn could
be contained within an even larger up wave series. And so it makes sense to incor-
porate all the “information” from those other, greater wave impulses, to whatever
extent possible.
Short of producing a complicated algorithm that can automatically take all these into
consideration and spit out the ideal end target, this method of combining pivots and
targets works well. Now I’ll show you two more methods of measuring recent wave
impulses. You can be add these to further strengthen the probability of the
combined target zone.
W2 Expansions
So far, expansion targets have been drawn from the first seed, W1. But why not
measure the strength of the retracement from that first wave, in effect the “seed
retracement?” The retracement from the seed is always W2. Figure 2, a 13-
minute chart of the Nasdaq Futures Emini contract, shows the Fibonacci targets
drawn upward, using the distance from the top of W1 (b) to the bottom of W2 (c), as
the basis. This is the calculation:
((b-c) * (1.382, 1.618, 2.618)) + c
Figure 3 shows the same chart, but adding the W1 seed targets that you are famil-
iar with from Parts I and II of this series. To review, the targets are calculated as:
((b-a) * (1.382, 1.618, 2.618)) + a
Again, I highlight the zone where the combined targets coincide, to create a
combined target zone.
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Figure 2: W2 Expansion targets
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Figure 3: W1 and W2 combined targets
Quantum Expansions
Don’t worry, these are not related to quantum physics. Quantum expansions sim-
ply measure the size of a wave, and apply that to the size of the next wave in the
same direction. Imagining taking a ruler to measure the size of one wave, then
shifting that ruler over to the beginning of the next wave and “cloning” that onto the
second wave. So if the size of W1, from trough to peak, is 100, then the size of W3
(the next wave in the same direction) would also be 100, as measured from its
trough to its peak.
Figure 4 shows an actual, though idealized, example of a quantum expansion. The

amplitude of W1 is 1516 – 1463 = 53 points. Add 53 to the start of the next wave,
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1489 + 53 = 1542. In this case, we missed by one point. The quantum size of W3
was 0.98 x the quantum size of W1.
Figure 4: Simple quantum expansion
The quantum of W3 is not usually 100% of the quantum of W1, though 1.0 is a good
starting point for a multiplier. W3 might be smaller, or it might be larger, than W1.
So we can use the Fibonacci ratios and multipliers of 0.618. 1.0, 1.382 and 1.682 to
measure the quantum of W3 against the quantum of W1, then compare that to any
of our other methods – W1 expansions, W2 expansions, or previous range
retracements – to come up with a combined target zone.
Figure 5 shows the same chart as Figure 4, using both W1 targets and quantum
expansions to create a combined target zone. At the risk of sounding repetitive, let’s
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look at the two formulas for a W1 expansion and a quantum expansion, so that you
can clearly see the difference between the two.
W1 expansion: ((b-a) * (1.382, 1.618, 2.618)) + c
Quantum expansion: ((b-a) * (0.382, 0.5, 1.0, 1.618, 2.618)) + c
Figure 5: W1 and Quantum expansion as combined targets
Figures 3 and 5 show combinations of only two methods. You now know four
methods. I use a different color for each of my Fibonacci tools, so that I can have all
four methods up on one chart to get an even clearer idea of where the Fibonacci
target zones are. Unfortunately, the clearer the idea, the more your chart gets filled
with lines! You can experiment to see which combination of Fibonacci targets and
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ratios work best for you, and when to use which ratios. For example, when W2 is
very small or only one or two candles in length, perhaps the W2 expansion method
will not yield a good combination. Likewise, if prices are not retracing from a previ-
ous major trading range, then it would not make much sense to look at prior range
retracements and one of your combinations.
Multiple Quantum Expansions
Just as I used one quantum expansion from W1 to help determine the target zone
for W3, I also use the two consecutive quantum expansions of W1 and W3 to help
determine the target of W5. Figure 6 continues from Figure 5. It shows the
quantum expansions from W1 and W3, and well as the original W1 target – three
methods altogether – to pinpoint a combined target zone for W5.
Figure 6: Multiple quantum expansions with W1 targets for combined targets zones
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The five waves in this eWave pattern are labeled (1), (2), (3), (4), and (5), respec-
tively. The first set of lines (a) shows the targets from the W1 seed. As always,
1.618 (161.8%) is the notional W3 target and 2.618 (261.8%) is the notional W5
target. I say “notional” because that can change, depending upon the other combina-
tions that we use.
The second set of lines (b) represents the W3 quantum expansion taken from W1.
The third set of lines (c) represents the W5 quantum expansion taken from W3.
From these three sets of lines, there are two combined target zones (d) and (e).
Zone (d) is made up 161.8% of the quantum expansion from W1, and 100% of the
quantum expansion from W3. As you can see, on Tuesday prices gapped right up
into zone (d) then moved slightly higher, proving that even the Fibonacci growth
patterns are not an exact science in the chaos of the market. Or are they?
The Last Laugh
You may ask why combined target zone (e) in Figure 6 was not reached. It ap-
pears to be the “stronger” of the two zones, because the 261.8% target from the W1
seed, and the 161.8% target from the W1 quantum expansion, overlap exactly; they
are a perfect match. If Fibonacci were an exact science, wouldn’t prices have
reached that point? Figure 7 shows the last laugh:
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Figure 7: Another look at the combined target zone
Summary
There are four types of Fibonacci retracements and targets that can be used to
create expansions targets for waves. These are prior range retracements, W1
(seed) expansions, W2 expansions, and quantum expansions. These can be com-
bined to create target zones to increase the probability of targeting trade exits. The
four types are shown in Table 1 and refer to Figure 8:
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Figure 8: Creating combined target zones for potential wave DE
Table 1: Summary of methods to target potential wave DE
Name Description Formula
Retracement Using retracements from ((A-B) * (0.286, 0.382, 0.618)) + B

pivots
W1 Expansion
prior major range AB
Using growth targets

Special
((C-B) * (1.382, 1.618, 2.618,
targets projected from the seed 4.236))+ B
wave BC (W1)
W2 Expansion Using growth targets pro- ((C-D) * (1.382, 1.618, 2.618,

targets jected from the retracement 4.236)) + D
wave CD (W2)
Quantum Taking the quantum size ((C-B)*(0.382, 0.618, 1.0, 1.382,

expansion targets of the seed wave BC (W1) 1.618, 2.618, 4.236)) + D
and applying that to
potential wave DE (W3)
Articles The POS.X 50
Why are we still looking at these
King’s Watch
losers?
by Huka
Light from the East
The POS.X is a study in extremes. The index is made up of fifty
former high flyers. Even in their heyday, some did not operate
Options with Options: under a fundamentally sound business model. Some really
The Covered Call were and are great companies. For a time, ALL of these stocks
magically traded for hundreds of dollars per share. It was a
high time in the city as bosses rode scooters around the office,
The Quiver: brought the dog to work, offered employee wine tasting
e-Waves Part 3 lunches and massage sessions after those stressful days. Then
came the correction. (I used to be one of those bosses! Those
were the days…) Now these little stinkers, not ready to be
flushed away, trade at a mere fraction of their former prices.
POS.X Index
For this reason we disrespectfully, but, with good intentions,
call them Pieces Of S***. They offer moneymaking
opportunities and occasionally sophomoric entertainment at
Trading Earnings KingCambo.com.
A series of neutral economic indicators and war in the

Middle East has put the brakes on the markets. As we
Join us live in our Trader look at the overall market since March 15, The NASD
Forum. www.kingcambo.com closed at 1,770.03 posting a loss of 98.27 points or 5.2%.
The DOW is down 335.69 with a close of 10,271.64, for a
Technical Analysis loss of 3.7%. The NQ’s closed at 1389 with a 25-point or
Workshops:
7.6% loss. Posting even larger drops, the POS.X got
whacked with only five of the fifty stocks posting gains.
Steve Nison’s Favorite The index found itself sucked into the downdraft of the
Candle markets with a loss of 36.44 points, down 8.79%. The
junkers at the bottom of the POS pile are: FMKT down
Market Structures $3.94, WEBM with a loss of $3.57 and RHAT down
$2.05.
So here we are again, back to and below support levels.

Forty-six of the fifty stocks in the index have suffered
losses in the past two weeks with WEBM taking the
largest loss. ASKJ was the top gainer in the index with a
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gain of $0.99 or 72%. There is something inherently troubling about seeing the likes
of ASKJ as the top gainer in any index. I guess that’s the nature of being a POS.
Looking at my POS highlights from the last Trend Times article, we had fair results:
NTAP had a high of $19.19 a gain of $1.00, but did not hit my target of
$24.00.
UCOMA is currently testing the first target, T-3 at $6.03 for a gain of $0.79.
CSCO tested the first target its 200 daily moving average with a high of
$17.93, a gain of $1.00. It did not even come close to my $22.00 target.
Always take the cookies when the plate is passed.
ELON also tested the first target price of 19.50 for a gain of $0.79 but, like
the others, it fell short of my top target price of $22.00.
With uncertainty in the Middle East, the markets may continue to be hampered. I
don’t see any catalyst for a rise, but I’m looking forward to another roll of the
bones…With this in mind, here are some stocks I am looking at:
CSCO could go either way. It has broken below its 20 daily moving average
of 16.68 and has support of $14.50. If CSCO breaks above $17.00, it has a
shot at $18.00.
ELON (I still like this one) is holding well above the 200 daily moving aver
age of $18.35. The first resistance level is $19.50 with a price target of
$22.00.
JNPR has $10.75 support. $12.14 its 20dma is the first target and $14.75 is
my top target.
PMCS has daily support of 15.25 with a first target its 20dma of $16.51 and
an extreme target of $19.60.
WEBM has $15.90 support. $17.80 is the first target then $18.90.
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The following are the only POS.X stocks that are above their 200 daily moving
averages:
ASKJ
DCLK
ELON
FMKT
KANA
NTAP
PALM
UCOMA
There are several POS’s that are below their 20 and 200 daily moving averages and
are approaching support levels. Here are a few of the most attractive stocks worth
keeping an eye on:
AMCC $7.50
CSCO $16.50
EXTR $8.85
GLW $6.50
JNPR $11.00
ONIS $5.30
PMCS $16.00
RHAT $5.00
SUNW $8.40
TMWD $3.10
Always remember, POS.X stocks move according to the rules, i.e., Moving Averages,
Fibonacci Levels, gaps, etc. They can go down faster than they go up.
So why are we still looking at these losers? The POS.X stocks move with greater
percent changes than their less odorous brethren. Thus they give traders an amus-
ing way to make money.
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3yr. 3yr.
Ticker 2/4/02 2/25/02 3/15/02 4/6/02 Change
POS.X Low High
Index 1. AKAM 2.5 345 4 3.27 4.06 3.59 -0.47
Highs are rounded, 2. AMCC 6.01 110 10.1 8.62 9.17 7.8 -1.37
(pennies don’t matter
in thin air) 3. AMZN 5.51 113 12.5 13.73 14.03 13.5 -0.53
4. ARBA 1.42 183 4.3 3.78 4.65 4.14 -0.51
5. ASKJ 0.92 190 3.14 1.14 1.38 2.37 0.99
6. AVNX 2.7 273 4.16 3.4 4.4 3.5 -0.9
7. CFLO 0.84 182 1.37 1.06 1.09 0.86 -0.23
8. CIEN 7.13 151 10.63 7.93 8.95 8.13 -0.82
9. CMGI 0.6 163 1.53 1.3 1.55 1.28 -0.27
10. CMRC 1.66 138 1.97 1.83 1.82 1.26 -0.56
11. CMTN 0.65 126 1.17 0.95 1.05 0.93 -0.12
12. CMVT 15.03 125 19.66 16.88 13.92 12.51 -1.44
13. CSCO 11.04 82 18.6 15.6 16.54 16.15 -0.39
14. DCLK 5.23 125 10 11.1 12.7 10.95 -1.75
15. DIGL 1.16 150 5.77 5.07 6.25 5.52 -0.73
16. ELON 5.38 113 18.8 16.67 17.9 18.21 0.31
17. EXTR 5.85 129 11.95 8.24 9.26 9.58 0.32
18. FDRY 5.26 212 6.93 6.1 7.27 6.44 -0.83
19. FIBR 1.5 113 3.4 2.85 2.96 2.43 -0.53
20. FMKT 6.25 370 21.62 20.94 24.7 20.76 -3.94
21. GILTF 2 181 4.11 3.95 3.78 2.76 -1.02
22. GLW 6 113 7.1 6.94 7.82 6.79 -1.03
23. HAND 1.13 100 4.6 5.15 5.16 4.03 -1.13
24. ICGE 0.34 212 1.1 0.81 0.85 0.62 -0.23
25. JDSU 4.74 153 6.63 5.38 6.1 5.58 -0.52
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3yr. 3yr.
Ticker 2/4/02 2/25/02 3/15/02 4/6/02 Change
Low High
POS.X
26. JNPR 8.9 244 13.94 9.9 11.42 11.42 0
Index
Highs are rounded, 27. KANA 3.5 1,755 17.04 11.78 16.79 14.95 -1.84
(pennies don’t
28. LBRT 6.37 148 7.8 6.47 6.21 5.43 -0.78
matter in thin air)
29. LNUX 0.76 320 2.22 1.73 2.15 1.38 -0.77
30. LVLT 1.89 132 2.54 2.45 3.95 3.85 -0.1
31. MUSE 2 108 9.8 8.36 8.49 8.22 -0.27
32. NTAP 1.5 153 12.57 16.7 20.18 18.35 -1.83
33. NUFO 2.1 165 3.36 2.4 3 2.9 -0.1
34. ONIS 3.5 42 5 5.29 6.22 5.66 -0.56
35. OPWV 5.15 208 6.26 5.49 6.88 5.68 -1.2
36. PALM 1.35 165 3.4 2.98 3.07 3.56 0.49
37. PCLN 1.8 165 7.46 4.27 5.05 4.58 -0.47
38. PMCS 9.37 255 21.96 16.55 16.25 16 -0.25
39. RBAK 1.17 98 4.6 3.09 3.72 2.78 -0.94
40. RHAT 2.4 151 8.22 6.15 7.06 5.01 -2.05
41. RIMM 6.84 175 24.3 21.97 27.08 25.64 -1.44
42. RMBS 4.86 127 7 5.51 8.09 7.22 -0.87
43. SCMR 3 200 4.2 3.47 4.09 3.44 -0.65
44. STOR 3.1 154 5 3.33 3.94 3.15 -0.79
45. SUNW 7.5 65 10.17 8.07 9.06 8.71 -0.35
46. TERN 2.36 143 6.32 6.17 7.02 6.8 -0.22
47. TMWD 1.17 136 4.64 3.85 3.75 3.3 -0.45
48. UCOMA 0.5 115 5.23 4.1 5.19 5.98 0.79
49. WEBM 6.13 336 22.1 16.6 19.9 16.33 -3.57
50. YHOO 8.02 250 16.25 14.46 18.74 18.17 -0.57
Total 196.09 10,062 426.52 363.83 414.66 378.22 -36.44
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Articles A guide to Trading
King’s Watch Earnings
Steve Nison Interview: by SteadyEddie
Light from the East
Let the games begin!!!

Options with Options:
The Covered Call Earnings season is going to be kicking off this week with
the likes of YHOO, RMBS, GE, DCLK, MCAF, JNPR and
MERQ, just to name a few. For a complete list of all
The Quiver: scheduled earnings reports:
e-Waves Part 3
http://biz.yahoo.com/research/earncal/today.html
POS.X Index
If you have been on the KingCambo.com site the last
couple weeks, you have been hearing me sing my hit
song, “who is going to warn tonight.” As you all know,
Trading Earnings most companies have decided to save the bad news for
pre-market, i.e.: PSFT and CHKP. These stocks were
smacked down hard on the lower revenue numbers,
and rightly so. With the “NEW” accounting rules coming
Join us live in our Trader into play, thanks to the Enron disaster, most stocks will
Forum. www.kingcambo.com have to fess up this time around and actually have to lie
less…
Technical Analysis
Workshops:
With pro forma earnings on the way out, companies will
have to report what they have and not what they hope
Steve Nison’s Favorite to have. This is no easy feat since most of these compa-
Candle nies have been lying for years, and telling the truth will
be detrimental to the longevity of the stocks life.
Market Structures
Here are the guidelines that I follow when trading
stocks before/after they report earnings.
1. NEVER hold a stock into earnings

unprotected.
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There’s nothing worse for a trader than getting caught in the earnings HALT.
To avoid having to use the puke bucket, follow these simple rules:
If you are long, make sure you buy a put if you are short make sure you have
a protective call. This is called a hedge, playing both sides. This is what the
big boys do, and we can do it, too. This is a strategy that can be applied when
position trading and swing trading as well. Learn the strategy, and use it.
2. The revenue number and the forward-looking guidance are what

matter.
Here is the scenario:

Let’s take YHOO for example. YHOO is expected to report two cents per
share and revenues of $161 million for the last quarter. If YHOO reports
five cents and revenues of $158 million, what happens to YHOO
post-market?
If you guessed the stock goes down to Chinatown ™, you are right. The
revenue numbers are key, and usually are very confusing to figure out at
first. The first piece of info you’ll need is what revenue numbers are
expected. For more information:
http://whispernumber.com/wn_revenues.cfm.
You’ll need a premium news service to get the actual numbers in real-time.
When the stock reports, I use Dow Jones Professional Investor & Business
Wire.
Now there is still the conference call that follows the earnings reports. Most
conference calls are at 5 pm EST. Using this scenario, YHOO just missed
revenue numbers and the stock is headed down. On the conference call,
however, the CEO or whoever is talking uses key words for bullishness:
raising guidance, internet advertising is coming back, and so on. Bearish
terms: lack of visibility, Internet advertising is not coming back anytime soon,
and so forth. It is always better to listen to the whole call. These guys are sly
and always slip something in at the last few minutes of the call. The following
day, the analysts/CNBC will have their say - which will also add to the
volatility.
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This type of uncertainty can be an account maker or an account breaker if
you have an unprotected position. This is why when I choose to trade
earnings reports, I always have a hedge and stick to just trading the options
strangles & straddles.
3. Sympathy plays and sector trading
A sympathy play is a stock that is the same sector as the one that is
reporting. Listed below are some sympathy plays stocks that move with:
YHOO CSCO QLGC CHKP PSFT

AOL JNPR EMLX ISSX SEBL
AMZN BBOX NTAP SYMC ORCL
OVER ADPT BRCD MCAF INTU
CNET AETH EMC SCUR BOBJ
Those are just a few, you can find other sector plays here:
http://biz.yahoo.com/p/technoconameu.html
Trading earnings can be either an account maker or an account breaker literally, just
ask some of the traders that decided to hold long or short unprotected positions into
any one particular earnings report. Keep in mind that you may have to call them at
their new job because most of the gamblers are gone.
Good trading & always set your stops,
SteadyEddie
Announcing: The KingCAMBO.com
Open House . . .
Starting Tuesday, April 16,
2002:
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KingCAMBO.com
The Traders Think Tank
www.kingcambo.com
technical analysis WORKSHOP
Articles
King’s Watch
Steve Nison’s
Favorite Candlestick
Light from the East
Signal
Options with Options: by Steve Nison, CMT
The Covered Call President, CANDLECHARTS.COM
Steve Nison, CMT, was the very first to introduce candlestick

The Quiver:
charts to the Western World. He is acknowledged as the leading
e-Waves Part 3 authority on candlestick charts. Steve is the author of the two
internationally acclaimed and best-selling books, Japanese
Candlestick Charting Techniques and Beyond Candlesticks. His
POS.X Index books have been translated into eight languages.
Steve’s work has been highlighted in financial media around the

Trading Earnings world including the Wall Street Journal, Institutional Investor,
Worth Magazine, and Barron’s.
As a renowned and sought after speaker, Steve has trained

professionals from hundreds of financial firms from around the
Join us live in our Trader world (including World Bank and the Federal Reserve), on how
Forum. www.kingcambo.com to apply - and profit from - these methods.
Technical Analysis Steve is President of Candlecharts.com which provides premier

Workshops: educational products and advisory services. Their client list
includes hedge funds, NASDAQ and NYSE market makers and
major brokerage firms.
Steve Nison’s Favorite
Candle To help you to fully harness the power of candle charting
techniques, Steve Nison will be offering his first ever advanced
candle seminar. Details are at www.candlecharts.com.
Market Structures
In a few months Steve will also be giving web-based seminars.
To be among the first to be alerted when these will be available
please send your name, email address and telephone number to
nison@candlecharts.com or call us directly at 732.254.8600 or
visit our site at www.candlecharts.com.
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Candle Charting Basics
What are Candlestick Charts?
Candle charts are Japan’s most popular, and oldest, form of technical analysis. They
are older than point and figure and bar charts. Amazingly, candlestick charting
techniques, used for generations in the Far East, were unknown to the West until I
revealed them in my first book Japanese Candlestick Charting Techniques back in
1991 B.C. (Before Candles).
So named because the lines look like candles with their wicks, Japanese candlestick
charts are Japan’s most popular form of technical analysis. Candle charts are over
100 years old, and, as such, are older than Western bar charts and point and figure
charts. Yet, amazingly, these charts were unknown to the Western world until
recently. Candle trading techniques have now become one of the most discussed
forms of technical analysis around the world. Almost every technical analysis soft-
ware and real time system now has candle charts. This attests to their popularity
and usefulness. The worldwide interest in candle charts continues to expand for
many reasons:
This article is a basic introduction to candle charting techniques. But even with the
primary candle signals discussed, you will discover how candles open avenues of
analysis not available anywhere else. My goal here is to provide a sense of the
potential of what the candles can offer.
What are the Benefits of Candle Charts?
Candle charts are easy to understand: Anyone, from the first-time chartist to the
seasoned professional can easily harness the power of candle charts. This is because,
as will be shown later, the same data that is required to draw the candlestick chart
is the same as that needed for the bar chart (the high, low, open and close).
Candlestick charting tools will give you a jump on the competition: Candle charts not
only show the trend of the move, as does a bar chart, but, unlike bar charts, candle
charts also show the force underpinning the move. In addition, many of the candle
signals are given in a few sessions, rather than the weeks often needed for a bar
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chart signal. Thus, candle charts will help you enter and exit the market with better
timing.
Candlestick charting tools will help preserve capital: In this volatile environment
capital preservation is just as important as capital accumulation. You will discover
that the candles shine in helping you preserve capital since they often send out
indications that a new high or low may not be sustained.
Candle charting techniques are easily joined with Western charting tools: Because
candle charts use the same data as a bar chart it means that any of the technical
analyses used with bar charts (such as moving averages, trendlines, retracements,
Bollinger Bands, etc.) can be employed with candle charts. However, candle charts
can send signals not available with bar charts.
If you are a seasoned technician, you will discover how joining Japanese candlesticks
with your other technical tools can create a powerful tool for understanding the
market’s health.
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Constructing the Candlestick Lines
Exhibit 1: Candle Lines
The broad part of the candlestick line in Exhibit 1 is called the real body. The real
body represents the range between the session’s open and close. If the close of the
session is above the open then the real body is white the close of the session is lower
than the open.
The thin lines above and below the real body are the shadows. These are the
session’s price extremes. The shadow above the real body is called the upper
shadow and the peak of the upper shadow is the high of the session. The shadow
under the real body is the lower shadow and the bottom of the lower shadow is
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the session’s low.
Candle lines can be drawn for all time frames, from intraday to monthly charts. For
example, a 60 minute candle line uses the open, high, low and close of that 60
minute period; for a daily chart it would be the open, high, low and close for the day.
On a weekly chart, the candle would be based on Monday’s open, the high and low of
the week and Friday’s close.
A small real body (white or black), however, indicates a period in which the bulls and
bears are more in a tug of war. Such small real bodies give a warning that the
market’s trend may be losing momentum. As the Japanese phrase it, the “market is
losing its breath.”
Notice that the candles to the right in Exhibit 1 have no real bodies. These are ex-
amples of doji (pronounced doe-gee). A doji is a candle in which the opening and
close are the same. Doji represent a market that is in balance between the forces of
supply and demand. The emergence of a doji in a trending market could be an indi-
cation of a market turn. If a doji follows a tall white candle the Japanese would say
that this doji is “a symptom of uneasiness at a high price.”
For many of you who are already familiar with candle charts, you will know that
most of them are reversal signals. Patterns such as hammers, shooting stars, en-
gulfing patterns, and so forth, ususignal that a prior trend is in the process of chang-
ing direction. One of my favorite candle patterns, however, is a continuation signal.
That means that the trend before the signal should continue after the signal.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Exhibit 2: Rising Window
Exhibit 3: Falling Window
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Specifically, the pattern I am referring to is rising and falling windows. The
window is the same as a gap in Western technicals. That is, a gap higher is called a
rising window (see Exhibit 2) in candle terminology. A falling window (Exhibit 3) is
the same as a gap down in Western technicals.
While the terms “windows” and “gaps” are synonymous, the Japanese window,
however, provides a signal and unique trading technique. Specifically, the Japanese
will state “corrections stop at the window.” This means that a rising window (the
whole window) should become support on any corrections. And a falling window
should become resistance on any rallies. In other words, once the market gaps
down, the short-term trend is pointing south.
Exhibit 4: NASDAQ
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
We have a classic example of a falling window in the recent action of the NASDAQ
Composite. Observe the falling windows at 1 and 2. These windows became resis-
tance on rally attempts. This chart nicely illustrates the value of candle charts as a
tool to preserve capital. While the two tall white candle sessions (shown at the blue
arrows) showed that the bulls had control, the window’s resistance was still in force.
As such, in spite of the tall white candles, one should be cautious about entering long
positions because of the window’s resistance. Indeed, one could consider selling at
this window with a stop on a close above the top of the falling window.
CANDLES AND THE OVERALL TECHNICAL

PICTURE
Remember a basic principle: candle charting techniques are a tool and not a system.
Candle charting techniques must be incorporated with other trading guidelines. For
example, effective candle charting techniques requires not only an understanding of
the candle patterns, but also a policy of using sound, coherent trading strategies and
tactics.
You should always remember basic strategic principles such as using stops, deter-
mining the risk and reward aspects of a trade, observing where a candle pattern is
in relation to the overall trend, and monitoring the market’s action after a trade is
placed. By understanding and using these trading principles, you will be in a position
to most fully enhance the power of the candles.
This is only a basic introduction to candle charts. There are many more patterns,
concepts and trading techniques that must first be considered. But even with these
basic concepts, you can see how the candles open new and unique doors of analysis.
I view trading or investing like going into a battle. Trading requires many of the
same skills needed to win a battle; there is strategy, skill, psychology, competition,
strategic withdrawals, and yes, even luck.
In this context, there was a famous 17th century Japanese general named Shingen.
Whenever his troops went into combat they carried a banner which read, “moun-
tain, wind, forest, fire.”
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
By utilizing candle charts as a powerful weapon in your battle of trading, you will
know, like General Shingen’s troops knew, when to be:
as immovable as a mountain
as quick as the wind
as patient as the forest
and when to invade like a fire
By combining candle charting techniques with your own insights you will have an
unbeatable combination!
May the candles enlighten your trading!
STEVE NISON’S
CANDLE Charting Seminar
New York Workshop schedule:
Workshop
1
The Essentials
MAY 25-26, 2002 Starts from the beginning.
You will learn everything from
the basics of candle chart
“Secrets to Becoming a Samurai

Day construction to learning how
to use single candle lines and
Trader – Steve Nison’s Most the candle patterns to spot
Potent Eastern and Western early reversal signals. Steve
Trading Weapons.” will also reveal how to com-
bine his favorite candle chart-
Including for the very first time ing signals with Western
ever: Advanced Candle technical tools such as moving
Charting Techniques. averages, Bollinger Bands,
trend lines and many others.
Everyone quotes the Master.
2
Now learn personally from the Steve’s first ever
Master –Steve Nison, the “Fa- Advanced Candlestick
ther of Candle Charts.” Charting workshop!
Geared to those who are very
Steve will explain, step-by-step,
how to fully exploit the incredible
Day knowledgeable about candle
charts, or have taken Steve’s
opportunities that candle charts full day workshop, or seen his
present to today’s markets. video workshop. In this
ground breaking course, Steve
presents new and powerful
methods (many of which are
Date & Time: Saturday & Sunday not in his books) for trading
May 25 and 26, 2002: 9am-4:00pm with candle charts with maxi-
Breakfast and Lunch included mum precision and effective-
ness.
Location: The Manhattan Club
200 W. 56th St. at 7th Ave
(in midtown Manhattan) Kingcambo exclusive bonus: Mention
Note: To ensure the closest person-
Kingcambo.com & get two months advisory
alized attention and interaction, Day service when you sign up ( a $590 value)!
One is limited to only 25 students
and Day Two to only 15 students. We More info: www.candlecharts.com
expect to close out quickly, so sign
up now!
technical analysis WORKSHOP
Articles
King’s Watch
Market Structure
Trading
Light from the East
by KingCAMBO
Options with Options: Buy low, sell high. Sell high, buy low. If it’s so
The Covered Call easy, then why isn’t everyone doing it?
In truth, it is pretty easy if you decide to take the

The Quiver:
guesswork out of it. In order to do this, you have to
e-Waves Part 3
become adept at pattern recognition.
POS.X Index Most traders I have known over the past few years
have struggled mightily with the concepts of market
structure lows, market structure highs, market struc-
Trading Earnings ture triggers, and market structure failures. I suspect
there’s a reason for this: They get so caught up in the
mumbo jumbo of the lingo that they fail to grasp the
basic principle itself.
Join us live in our Trader
Forum. www.kingcambo.com Think of a market structure as the place in time (re-
gardless of the length of the interval) where a current
Technical Analysis wave stops and then reverses.
Workshops:
Market structures form in every type of instrument
Steve Nison’s Favorite and in every type of time frame – in indices, like the
Candle Dow and the Nasdaq and the Sox semiconductor index;
in stocks, like Juniper and Cisco and Yahoo!; and, for
Market Structures that matter, in the options of these underlying indices
and stocks. The same is true with the futures markets
and commodities.
Wherever candlestick charting exists, market struc-

tures form. They also trigger, fail, perfect, or evaporate
and re-form.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
A current wave of selling will end in a market structure low. From this it follows
that a current wave of buying will end in a market structure high.
Finding Bottoms - Market Structure Low (MSL)
A market structure low (MSL) formation consists of a three-candlestick pattern

called “low, lower low, higher low” – or, as I prefer to say, “bear, bear, bull.” It
doesn’t matter if we are talking about a one-minute time frame or a one-month time
frame. The rule applies just the same.
The following weekly chart of the QQQ is a good example of an MSL. The triple Q is
a great stock - perhaps the best there is for trend trading. It lets you trade the
ranges of the Nasdaq without having to learn about and to trade futures. Another
reason I like the QQQ is that in trading it, I will not be subject to the same kind of
violence or volatility that occurs (often without any warning) in the E-mini futures
contracts of the Nasdaq or the S&P500 indices.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
In Figure 2.1, notice the last three candles, which form a three-candlestick pattern
of low, lower low, and higher low. That’s an MSL or bottom. And that’s all there is
to it! For me, it is as plain as day if I think in terms of “bear, bear, bull.”
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
The MSL Long Trigger
OK, now that I have found an MSL or bottom, do I then scream, “Load the boat
long”? Maybe, if I have no sense or feeling of the risks involved. But savvy traders
know – with whatever charting system they use – that before they decide a real
bottom has formed, they want to see a definite long trigger. That sudden surge that
looks so exciting now may only be a temporary phenomenon. We want to try to get
the real thing, so we wait for an MSL long trigger to form.
An MSL long trigger happens when a succeeding candle closes above the high of
the three-candlestick MSL pattern. It does not have to be a consecutive candle –
and oftentimes it isn’t. But it must be a higher closing candle.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
In Figure 2.2, you see the three-candlestick pattern of the MSL that we looked at in
2.1. At the close of the final candle on this chart, the long position is entered. The trigger
formed on a close above the high of the MSL.
Let me repeat: The triggering candle does not have to appear immediately after the MSL
has formed. There might have been a few small candles in between. What matters is that
the candle closes above the MSL itself; then it’s a long trigger.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Finding Tops - Market Structure High (MSH)
Now that I have learned about buying low, selling high would be the next good thing to know!
As was the case with an MSL, the market structure high (MSL) is a three-candlestick pattern. It is
called “high, higher high, lower high” – or as I prefer to say, “bull, bull, bear.”
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
In Figure 2.3, which is a 60-min. intra-day chart of the QQQ, we see that a three-
candlestick pattern of high, higher high, lower high has formed, creating our MSH or
top.
The MSH Short Trigger
The MSH short trigger confirms that it is time to exit a long position – or to open a short
position.
Remember how the MSL trigger had to close above the MSL to trigger the long? Well
now, the MSH trigger has to close below the high of the MSH to trigger the short.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
In Figure 2.4, the MSH three-candlestick pattern forms, and then the short position is
entered on the close of the final candle on this chart, which is below the low of the
MSH. That’s our trigger!
Again, it helps me here to remind myself that triggers do not have to appear immediately
after the MSH. There might have been a few or even a dozen small candles in between.
What is critical to the trigger, when it comes, is that it closes below the MSH itself.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Now that you know how to spot tops and bottoms – and by the way, I encourage you to
take whatever time is necessary to master this charting technique if it’s new to you –
wouldn’t you like to see how you can make money trading these triggers as they develop?
Trading On Market Structure Triggers
Now that I am more confident about “finding the bottom” as well as acting upon it, how
would I actually manage a trade?
This is no secondary matter! You will find that, once you are in a trade, serious, cash-
threatening questions bombard you relentlessly: “What about a stop loss? Where am I
going to exit? How do I find the top?”
I want to be clear about this right here: I really hate cash-threatening questions in my
life. If they come up, if I have to ask myself these things, it means one thing and one
thing only: Someone has my cash and it’s not me. And if I don’t protect my capital on a
consistent basis, the day will come when I won’t be trading any more.
This raises the importance of stop losses, of exiting a losing trade before it takes a cata-
strophic toll on your capital.
Before I enter any trade, my first rule is to set a stop loss. When trading the MSL long
trigger, my first stop loss is the MSL itself. If the trade begins to move against me, my
stop-loss exit is going to be an MSL failure. An MSL failure occurs when a candle
closes below the low of the MSL pattern.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Figure 3.1, a chart of the QQQ, the Nasdaq 100 tracking stock, shows the initial
boundaries that are set prior to acting on an MSL long trigger.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
The Long of It: Trading the MSL Long Trigger
Now that we have an idea of where to set our entry and exit points, let’s move on to a
trading situation. Imagine that I’m following Check Point Software Technologies (CHKP)
during the trading day on a three-minute chart. I spot the formation of an MSL, which is
then confirmed by a long trigger. What do I do?
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Follow along with me on Figure 3.2 as I review getting into and out of this CHKP trade:
1. The MSL has formed here at 10:27 AM, at a close of 41.55
2. MSL failure line is marked at the low of the MSL, which is 41.38
3. The MSL Long Trigger takes effect at 10:30 AM at a close of 41.70 - above the
high of the MSL. I am now in the trade. At this point, I use a new rule: When
going long, as each candle closes on an up tick, I raise the initial stop loss to the
close of the preceding candle.
4. 10:33 AM candle closes at 42.15; I raise the stop loss to the preceding candle close
of 41.70.
of 42.15.
of 42.30.
7. The next two candles do not close higher but neither do they hit the current stop
loss. This is judgment-call time. I can either lock profits (sell) or tighten my stop
loss still higher.
of 42.85.
of 42.97.
10. The next candle does not go higher but neither does it go low enough to hit stop.
Once again it’s judgment-call time. I can lock profits (sell) or tighten the stop loss
higher.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
of 42.97.
12. 11:00 AM candle closes at 43.61 on a small real body with long upper and lower
shadows; this formation is known as a Spinning Top Doji. I raise the stop loss to
the preceding candle close of 43.55, and since Doji candlestick formations often
presage a change in direction, I become very alert here.
13. 11:03 AM candle forms a MSH at 43.09 by closing below the previous high
candle at 43.61; it also closes below my trailing stop loss of 43.55. I exit the trade
here at this close (or if I’m particularly aggressive in preserving my gains, during
the interval in which the bear candle was forming). The key moment was the
violation of the trailing stop-loss line!
The total time in this trade was 33 minutes, from the 10:30 AM MSL long trigger to the
trailing stop-loss exit at 11:03 AM.
The profits I could have grabbed on this particular trade would have been roughly be-
tween 1.39 and 1.85. That’s not too bad for a 30-minute swing!
The Short of It: Trading the MSH Short Trigger
The first rule, and I repeat this because I constantly have to remind myself to do it, is
setting a stop loss before I enter the trade. When trading the MSH short trigger, my
first stop loss is the MSH itself. If the trade begins to move against me, my stop loss exit is
going to be an MSH failure. The MSH fails when a candle closes above the high of the
MSH pattern.
To understand what I’m talking about, let’s look at another chart of the QQQ.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
Figure 3.3 shows the initial setup prior to an MSH short trigger.
Let’s again take a look at a real intra-day situation now, going from entry to exit. This
time we’ll be looking at a Qualcomm (QCOM) swing trade on a daily chart.
Again – I cannot not stress this enough – the time frame in which I am using these
methods does not matter, what matters is the methods themselves. The methods hold
whether we’re talking about a one-minute scalp or a one-week swing.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
This happens to be a particularly outstanding example of how things can go wrong when
an MSL fails. Remember that once the MSL has formed and once we get our MSL long
trigger, we go long with our stop loss set at the failure of that MSL.
In Figure 3.5, two previous MSLs had already failed. The fact that there are two is not
important. I merely included them on this chart to illustrate the patterns. What is impor-
tant is the ability to recognize the failure of any MSL.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
1. The first MSL forms.
2. The second MSL forms.
3. The MSL failure trigger line is established.
4. An aggressive short position is opened following the greater trend.
5. Trailing stop losses are aggressively lowered on every down tick until a new MSL
forms.
In this QCOM trade, I would have gone short on the failed MSL at 60.12 and closed at
56.12 or higher, as the hammer candlestick formed an MSL.
MSH Failure
When a MSH or top fails, what does it mean? It means the greater trend is going
higher. So short positions are stopped out and new aggressive longs can be entered.
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
In Figure 3.6, a three-minute intra-day chart of Veritas Software (VRTS), I would go

long when the bull candle closes above the previous MSH. Since the “top” failed, the
greater trend is still long. Just as in an MSL failure, entry is aggressive. Stop losses are
raised in the direction of the trend on every up tick.
1. MSH forms and the failure line is established
Kin gCAMBO’
gCAMBO’ss
KingCAMBO’
TRENDTIMES
2. No action is taken anywhere in the boxed area, because the MSH never gets
tested.
3. The MSH fails as this candle closes above the trigger line, which is the high of the
now-failed MSH.
4. Trailing stop losses are raised aggressively on every up tick.
5. A new MSH forms which closes the trade signal.
The VRTS trade should have been good for between 1.50 and 1.75. It’s just another
example of why they coined the old market adage: “The trend is your friend.”
Reading List
The Arms Index (Trin Index): An Introduction to Volume Analysis
by Richard Arms
Just reprinted. Finally, it’s updated and back in print! Get an in depth look at how volume -
not time - governs market price changes. Describes the Arms’ short-term trading index
(TRIN), a measure of the relative strength of the volume in relation to advancing stocks
against that of declines. A true trading gem.
The Encyclopedia of Technical Market Indicators
by Robert Colby
Most comprehensive description of technical indicators, over 110 fully detailed. Included full
mathematical derivation for each along with comparative reviews by the authors to gauge
the study’s reliability.
Reminiscences of a Stock Operator, Seventy-Fifth Anniversary Edition
by Edwin Lefevre
This timeless classic has been preserved in a beautiful limited edition. Bound in leather with
gold edged pages the small run of 1500 copies is a tribute to the legend of Reminiscences.
Each copy is individually numbered.
R. N. Elliott’s Masterworks: The Definitive Collection
by R.N. Elliot
Here is your chance to dive deep into the mind of the genius that created and pioneered the
use of the Elliott Wave Principle. This unique collection of works includes the Wave Principle
(1938), The Financial World Articles (1939), Selected Essays (1940-41) and Nature’s Law,
The Secret Universe (1946) and commentary throughout from Robert Prechter.
* Get these books online: http://www.kingcambo.com/bookstore
Power
Upgrade your
Trading.
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Four port video, 64 MB DDR SDRAM (16Mb/CTR or DVI/Monitor)
Support for up 16 monitors
40GB 7200RPM ATA/100/133
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Traders’ Bookmarks
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About Trend Times
KingCAMBO’s Trend Times magazine is published online twice monthly
and features a wide variety of concepts, strategies, and thinkings of
full time professional traders.
This magazine is about traders teaching traders. What you will find
here is a wealth of information about expanding your trading skills, as well
as new approaches to trading you may not have considered.
What you will not find are hot stocks to watch, strong buy
recommendations and piker front-running trade recommendations.
Pricing
We have committed ourselves to keeping editions fairly priced. Quarterly
subscriptions will be $34.99 for 6 full issues; so about 5 bucks and change
every 2 weeks.
Subscriber Extras
All subscribers to this magazine will have free access to the general
discussion channel at our live online forum:
http://www.kingcambo.com/members/chat
You will also be entitled to review nightly article updates to our Fear &
Loathing column, review end of day trading recaps, and some other good
stuff.
Get with the TREND: Subscribe Now

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All The Kings Horses

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April 10, 2002 Volume 4

Articles KING’S WATCH

“In a narrow market [...] there is no sense in trying to

In the first issue of this magazine, I spoke a bit about

What he said got me to wondering, though: Could there

· For Swing Trade calculations:

· For intra- day Gann based pivot calculations:

McFly: “Oh yeah? Well we do now...”

Steve Nison, the leading authority on applying

So I think we did put a major bottom in place.

I’m going to be doing an article for Trend Times, called

Let’s go back to the beginning. You’re credited with introduced Japanese

Options with Options: by Sally8

WRITING A COVERED CALL CONSISTS OF THE SALE OF AN OPTION CALL

EXAMPLE STOCK OPTION STRIKE RETURN IF RETURN IF

1 - ABC 25 2.5 25 10.00% 10.00%

2 - DEF 24 2 25 8.33% 12.50%

3 - GHI 26 3 25 11.54% 7.69%

4 - JKL 50 4 50 8.00% 8.00%

5 - MNO 48 3.5 50 7.29% 11.46%

6 - PQR 52 6 50 11.54% 7.69%

If you are still confused, keep reading.

Here is the step by step covered call writing process:

The Benefits of Covered Call Writing

3. Provides you a way to potentially compound your money each

The Risks of Covered Call Writing

2. Investing “short term.” Investing in the market with short-term

Calculating Your Return

Here Are Some Simple Transaction Examples:

Out Of The Money

How To Get Started Writing Covered Calls

After you receive permission you are ready to begin.

In the previous installments of this series, you have

Steve Nison’s Favorite

((b-c) * (1.382, 1.618, 2.618)) + c

((b-a) * (1.382, 1.618, 2.618)) + a

Figure 4 shows an actual, though idealized, example of a quantum expansion. The

Figure 4: Simple quantum expansion

W1 expansion: ((b-a) * (1.382, 1.618, 2.618)) + c

Quantum expansion: ((b-a) * (0.382, 0.5, 1.0, 1.618, 2.618)) + c

Figure 5: W1 and Quantum expansion as combined targets

Multiple Quantum Expansions

The Last Laugh

Table 1: Summary of methods to target potential wave DE

Name Description Formula

Retracement Using retracements from ((A-B) * (0.286, 0.382, 0.618)) + B

Using growth targets

W2 Expansion Using growth targets pro- ((C-D) * (1.382, 1.618, 2.618,

Quantum Taking the quantum size ((C-B)*(0.382, 0.618, 1.0, 1.382,

A series of neutral economic indicators and war in the

So here we are again, back to and below support levels.

Index 1. AKAM 2.5 345 4 3.27 4.06 3.59 -0.47

4. ARBA 1.42 183 4.3 3.78 4.65 4.14 -0.51

5. ASKJ 0.92 190 3.14 1.14 1.38 2.37 0.99

6. AVNX 2.7 273 4.16 3.4 4.4 3.5 -0.9

7. CFLO 0.84 182 1.37 1.06 1.09 0.86 -0.23

8. CIEN 7.13 151 10.63 7.93 8.95 8.13 -0.82

9. CMGI 0.6 163 1.53 1.3 1.55 1.28 -0.27

10. CMRC 1.66 138 1.97 1.83 1.82 1.26 -0.56

11. CMTN 0.65 126 1.17 0.95 1.05 0.93 -0.12

12. CMVT 15.03 125 19.66 16.88 13.92 12.51 -1.44

13. CSCO 11.04 82 18.6 15.6 16.54 16.15 -0.39