Day Trading Using the MEJT System. Jeffrey Tennant
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Publishing details
HARRIMAN HOUSE LTD
3A Penns Road
Petersfield
Hampshire
GU32 2EW
GREAT BRITAIN
Tel: +44 (0)1730 233870
Email: [email protected]
Website: www.harriman-house.com
First published in Great Britain in 2013
Copyright © Jeffrey Tennant
The right of Jeffrey Tennant to be identified as the author has been asserted in accordance with the Copyright, Design and Patents Act 1988.
ISBN: 978-0-85719-289-9
British Library Cataloguing in Publication Data
A CIP catalogue record for this book can be obtained from the British Library.
All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the Publisher. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published without the prior written consent of the Publisher.
No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result of reading material in this book can be accepted by the Publisher, by the Author, or by the employer of the Author.
About the author
Jeffrey S. Tennant, M.D., is an individual investor. Since 2002 he has been giving daily online analysis (most recently at www.timeandcycles.com) of the S&P 500 Index. He has relied heavily on the MEJT system to make his predictions, and he wrote his first book The MEJT System: A New Tool for Day Trading the S&P 500 Index because of the large number of requests he received from traders who wished to learn his methodology.
In addition to performing technical analysis of the stock market, which he has done for over 30 years, his lifelong interests include ophthalmology, trivia and chess. He and his wife, Noreen, have four grown children: David, Hilary, Andrew and Bradley.
Introduction
Allow me to introduce MEJT: It is chat room shorthand. Me stands for ‘me’; J and T are my initials.
Allow me to introduce the MEJT system: It is a methodology I developed in the summer of 2002 to help me day trade the S&P 500 index. It is based on the principle that market action during certain times of the day can help predict future price action.
And allow me to introduce the track record of the MEJT system: It works.
Since 2002, in various online forums, I have posted predictions – based in large part on the system – before nearly every trading day. Most recently I have made my calls on both www.timeandcycles.com (a subscription-based service on which I also frequently comment intra-day) and on financial-trader-online.tradersdaytrading.com (a free site, on which I post after hours).
Since the autumn of 2005 I have kept track of all the targets that the system says are required to print. As of the end of 2012, a period of over 1300 trading days, there are only 17 days in which the targets remain unfilled. The track record for what I call ultimate signals is even better. There are only two of its targets that remain unfilled.
However, the system is not a panacea. The targets do not always fill when one would like them to, and a large move in an undesired direction can intervene before a target is satisfied.
This book explains how I use the system to help me trade.
What the MEJT system is
The MEJT system is a set of rules that enables one to determine if a market move is sustainable or is destined to retrace. It establishes price targets, as well as areas of support and resistance.
What the MEJT system is not
MEJT is a major help to the day trader and should greatly improve his success rate, but it is an addition to, rather than a replacement for, other forms of technical analysis. The MEJT system is not the holy grail of trading. You cannot write a program that will execute trades based on the system, walk away, and expect profits to pile up in your account.
One reason is that the system does not give precise entries and exits. In this regard it is similar to other indicators, such as trendlines, RSI, MACD and Elliott wave.
Another reason is that, while the targets sometimes are hit on the nose and the market stages a reversal that appears uncanny, more often than not the market goes past the targets (sometimes by a considerable amount). Unlike targets in other systems, MEJT targets tell the trader the minimum, rather than the maximum, one should expect from a signal.
How this book is organised
My first book, The MEJT System, was published in 2011. I received many positive comments, which I appreciated, and also some suggestions for improvement, which I appreciated just as much.
The first suggestion I am addressing is to explain how I use the system in real time and give the trading rules as I go along. In my first book I gave a lot of rules before showing how they were used; some people got overwhelmed. It is not necessary to read my first book to benefit from this one, but people who want all the rules spelled out first can find them there.
The second suggestion was to improve the graphics. I prefer a dark background for my charts in TradeStation. I use lighter colours to highlight the bars that the system relies upon to make its calls. I feel the best way to learn the system is for a reader to have his computer open alongside this book and do the same. Not only are the graphics better, but one can also use the mouse to identify prices precisely. Human nature being what it is, people tend to be reluctant to do that.
Unfortunately, what is easy to read in TradeStation is less easy to read elsewhere. Accordingly, for the purposes of this book I have changed the conventions I use to identify the MEJT bars.
Identifying the MEJT bars
The MEJT system is based on charts with five minute bars. The three bars beginning at 9:05 Central time (one hour before New York time) are labelled am MEJT (am for short), am+1 and am+2. The am bar is identified by an arrow.
The am bar is also the default reference bar of the morning. If am+1 has a higher high and a lower low than am, it becomes the reference bar. If am+2 has a higher high and lower low than both am and am+1, then it becomes the reference bar. If the sequence of these three bars indicates a move in the morning is not sustainable, then prices are forecast to return to the reference bar. The reference bar is identified by dotted lines at its high and low.
Figure A shows the MEJT bars of the morning session.
Figure A: the morning session MEJT bars
The three five minute bars beginning at 12:10 Central time are labelled MEJT, MEJT+1 and MEJT+2. The MEJT bar is identified by an arrow in a circle.
The MEJT bar is also the default reference bar of the afternoon. If MEJT+1 has a higher high and a lower low than MEJT, it becomes the reference bar. If MEJT+2 has a higher high and lower low than both MEJT and