Long Term Secrets To Short-Term Trading

Figure 9.7 T-Bonds (30-minute bars). Graphed by the "Navigator" 
(Genesis Financial Data Services). 

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I am not nearly as comfortable without this confirmation taking place. An exception can be made if 
other technical gauges such as trendlines or positive oscillator readings are appearing on your chart or 
screen. You can take such trades, but there is no better proof of a market's ability to rally than taking out the 
high or falling below the low when a crossing from positive to negative has taken place. 
Let's start with the May 8, 1998 chart. The first 30-minute bar saw a big down move resulting in a 
negative crossing, but the following bar did not fall below that bar's low so no entry. Finally on the 13:50 
bar, we would have sold short as the index was negative and we traded below the prior bar's low. Our entry 
would have been 120 7/32. 
Will-Spread stays negative all that day as well as the next, finally turning positive on May 12 on the 
9:50 bar. Now comes the acid test ... will the rally continue? And it does as the 10:20 bar trades at 119 14/32 
netting us a gain of 25 ticks or $750 per contract. 
We are now long at 119 14/32 and looking for a negative crossing to go short. The first break below 
zero occurs on May 14 on the 12:50 bar. Again, we wait for confirmation, but none comes on the next bar. 
We now wait for that bar's low to be violated. Our "trailing" stop to exit and reverse is finally elected when 
the 14:20 bar trades down to 120 4/32. Our net gain is 20 ticks or just a little over $600 per contract. 
We steel our nerves for the short trade and await a new development, a penetration of Will-Spread back 
into the positive zone. This does not take place until the 8:50 bar on May 18. The rally continues with a 
full-fledged buy at 120 14/32 on that day. We lost money on the short, in fact, our net loss was 10 ticks or 
$312.50. 
Could we have prevented this loss? Sure, in retrospect as Monday morning quarterbacks, but blindly 
following the rules, you would have taken the hit. When this happens, and it most certainly will, I take 
consolation in the following statement: 
Casinos do not win on every roll of the dice either. 
We did end the day with a 5-tick profit or about $150 to help lick our wounds and offset the loss, and 
the next trade (remember, traders fight wars not battles) would have made $500 per contract. 
An astute trader may have exited the short position on the second bar of trading when it took out the 
previous bar's high. Reasons? Will-Spread was quickly approaching the zero line. We should limit losses, 
and price had a volatility breakout at 120 5/32 for a net loss of just 1 tick or $32.50 plus commissions. You 
may not have chosen to exit, but that would have been my choice on the strength of the action of 
Will-Spread in conjunction with the breakout of the trading range. As I said, this is a thinking person's 
business. 

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If you were in a quandary about what to do, you could have looked at a 5- or 15-minute chart on 
May 18. There you would have noticed both time frames giving a clear-cut penetration of Will-Spread to 
the upside suggesting the best course of action would have been-at the very least-to pitch your short 
position. 
Will-Spread and the S&P 500 Stock Index 
This same idea works quite well in helping us catch short-term swings in the various stock index 
contracts such as the New York Stock Exchange, Dow Jones, Value Line, the Mini S&P as well as the 
S&P 500 full-size contract. 
Although Gold makes the world of Bonds go around, it does not have as strong an impact on stocks. 
As you now know, however, interest rates do; so I suggest you use either T-Bills or Bonds in your 
Will-Spread setup. Using 30minute bar charts, I am employing the difference between a 3-period and 
15period exponential average. Admittedly, this is a lot of work to do by hand, but the better quote software 
such as Omega's Trade Station and Genesis Data have now built my indicator into their programs. 
Instead of just randomly choosing time periods to present to you to illustrate the value of Will-Spread 
I am first going to show you "The Anatomy of a Crash," by highlighting the biggest crash of all times, the 
1987 debacle, as well as the 1997 and 1998 waterfall slides. 
The Crash of 1987 
Here it is in all its glory; the largest stock market decline in the history of the world! A decline that 
changed lives and fortunes, a decline of such disastrous proportions lawyers were still suing for damages 
from the drop 5 years later. Even now, books are written claiming to know why it took place or explain it 
away. Academics have suggested many ways to prevent the damages of such speculative busts in the 
future. Big deal, I say; it was predictable-then-not now, with Will-Spread (see Figure 9.8). This amazing 
index dipped into the negative zone on October 14 at 311.50 staying short all the way through the debacle 
telling its followers the bottom was not yet in sight. Interest rates vis-a-vis T-Bills were not supportive of 
the market and without that confirmation we should not look for any buy signals. Indeed, just about any 
buying, other than the absolute low, would have proven costly. 
The exit or first crossing back into positive territory came on October 20, 1987, with the S&P bloodied 
and battered at 219.50, a profit of $46,000 per contract. The margin at the time was only $2,500 (Figures 

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