How To Use The Floyd Numbers To Gain An Edge

"How To Use The Floyd Numbers To Gain An Edge"

with Dave Floyd

send your questions to:
tradertalk@tradingmarkets.com

The following charts were created to show you the effectiveness of using The Floyd Numbers (FNs) in your trading. While the FNs are not absolute, but merely areas of potential support and resistance, they will allow you to adjust share size on a per-trade basis in order to take full advantage of high-probability setups, as well as uncover trades that may not normally have fit in your parameters.

The first chart, Brocade Communications (BRCD), shows you an effective way to utilize the FNs by simply drawing them into your existing one- or five-minute chart. This puts the numbers right into the price action, allowing you to easily see setups.

What I do to make using the FNs easier is to actually draw them on my one- and five-minute charts. In this case, you would extend the lines out to the right so that they will be present when tomorrow's prices populate that chart. The next chart will show the continuation of June 26, 2002, trading. I also color the lines so that I know the significance of each one.

So in this case we have levels that present us with potential entry points either on the short side or long side depending on the overall price action as well as the futures. In this case, the Nasdaq futures also hit resistance (KTN) and sold off hard, giving you the opportunity to short BRCD.

The next chart is a one-minute chart of Applied Materials (AMAT) from the gap down session on Wednesday, June 26. 

This blue arrow is on loan from Dave Landry, and it clearly shows that the trend is down. Not exactly the type of chart that gets you really excited to be a buyer...or is it?

On the surface it appears that looking to go long AMAT, other than on a whim, would be crazy. It is clearly trending down, and as is seen, there are no valid reasons for a long setup.

However, factor in a FN on the second chart as well as looking at the S&P futures (sitting on support, KTN), and suddenly what was once a crappy setup suddenly becomes a trade that offers potential upside with limited risk, assuming you use a protective stop. That is the power of using FNs, as well as integrating the futures and their respective KTNs to come up with a powerful combination.

FN at 18.62. With the Nasdaq and S&P futures firming after the big gap down, the trade was pretty low risk if you used a protective stop. Normally, without the knowledge of that support level, it would have appeared as though you were trying to pick a bottom. In this case, you were making an educated bet.

The same type setup is also seen on the two one-minute charts below of Veritas Software (VRTS). Again, at first glance, a long setup seems unreasonable, however, once the FN is factored in, the trade seems more logical.