Trading Laboratory Manual

Trading Laboratory Manual

130 West 42nd Street, Suite 450 (fourth floor), New York, New York, 10036 lTel: 866-59-VELEZlFax: 646-417-6537 1

Rev. 6/24/08

5 Day Trading Laboratory Curriculum Overview Day One

Introduction and review of lab agenda Review of VCM Prop Trader program Distribute VCM Prop Trader Agreements Review VCM Prop Trader guidelines Review website and services Review trading platform Review market and stock scanning process Scan the market for setups (every evening) Develop watch list for next day (every evening)

Day Two

Introduction and observation of gap trades Continue with review of trading platform Review different routes and associated charges Build and practice hot keys Review market internals Review of platform details Scan the market for setups (every evening) Develop watch list for next day (every evening)

2

Curriculum Overview (cont.) Days Three and Four

Live trading day with Oliver Load Live Trading Room for observation Scan for gapping stocks Scan market with platform for setups throughout day Scan the market for setups (every evening) Develop watch list for next day (every evening)

Day Five Order type concepts and hard stop orders Review Sample trading plan Sample trading universe Development of sample trading plan Review VCM Trade Tracking Log Review of CD contents Review common issues/pitfalls for VCM Prop Traders Collect VCM Prop Trader Agreements Questions and Answers

3

5 Day Trading Laboratory Day One Introduction and Review of Activities

Group introductions



Velez Capital Management



Purpose of the Trading Laboratory



Review of daily schedule and office logistics



Review of the curriculum for the week

Review of VCM Prop Trader Program Trading Barriers

Support/Tools for Prop Traders



Trader Advancement Program



Trader Advancement Guidelines



Prop Trader Principles



Distribute VCM Prop Trader Agreements

Discussion of VCM Independent Trader Program 4

VCM’s Hierarchy of Needs The Self Actualized Trader (SAT)

Trading Mastery Conquest of the Seven Deadly Trading Demons

Documented Live Trading w/ a VCM Trader/Instructor

Psychological Mastery

Mastery of each of VCM’s Five Trading Laws

Experiential Mastery *** Technological Mastery ** Educational Mastery *

Formal Education: VCM Trading Method

VCM Trader Pro VCM Trader Execution Skills Hot Key Mastery

TM

Notes: TM *Trade for Life 2-Day Seminar, **1st 2-days of VCM’s 5-Day Live Trading Lab; *** 3rd and 4th day of VCM’s 5-Day Trading Lab; SAT = A trader who finds opportunity money every 5 to 8 minutes.

5

TM

Trading Barriers Education Continuing Coaching Support Risk Control Capital Restrictions Commissions LOSSES Profitability Over Emotions Sticker Shock Trading Mentality

6

Support/Tools for Prop Traders Access to All Services Stock Pick of the Week



Market Analysis of the Week Trading Lesson of the Week Trade for Life Daily Letter Trade for Life Intra-day Email Alert Service Trade for Life Live Trading Room

Trade Tracking Log Sample Trading Plan Sample Trading Universes Trader Interviews Sample Trading Plans from Colleagues

7

Trader Advancement Program

Level

Maximum Lot Size

Daily Loss Limit

Minimum Weekly Target

Payout %

Minimum Trader Weekly

Minimum Trader Annual

TL

10

$10

60%

1

100

$30

$30

60%

$18

$300

2

200

$60

$60

60%

$36

$1,200

3

300

$90

$90

60%

$54

$2,100

4

600

$150

$200

65%

$130

$5,900

5

1,000

$250

$350

65%

$228

$10,775

6

1,600

$400

$600

65%

$390

$18,900

7

2,400

$600

$1,000

65%

$650

$31,900

8

3,600

$900

$1,500

70%

$1,050

$51,900

9

5,200

$1,300

$2,275

70%

$1,593

$79,025

10

8,000

$2,000

$4,000

70%

$2,800

$139,400

11

12,000

$3,000

$6,000

70%

$4,200

$209,400

12

18,000

$4,500

$9,000

75%

$6,750

$336,900

8

Advancement Program Guidelines Trader Advancement Criteria Two consecutive weeks meeting target



Positive P/L Requirement After Level 2



Account Demotion Guidelines



Payout Percentages and Process

9

Trader Advancement Guidelines Risk Management Controls At each performance level, traders will be assigned a maximum lot size, a daily loss limit, and a minimum weekly target. Maximum Lot Size – This defines the limit for any individual order as well as the total lot size limit for all open positions Daily Loss Limit – If the Daily Loss Limit is reached at any point during a day’s trading, no further entry orders will be permitted and a VCM Risk Manager will work with the trader to close all positions Weekly Loss Limit – If a cumulative net loss greater than three times the Daily Loss Limit is reached during a week’s trading, the account will be disabled from further trading for the remainder of the week. Minimum Weekly Target – This defines the minimum net weekly profit that must be achieved in order to achieve promotion to the next performance level (see below for further details) Trader Advancement Process In order to advance to the next performance level, a trader must achieve the minimum weekly profit target for two consecutive weeks. After performance level 2, the cumulative P/L at the current level must also be positive in order to qualify for advancement to the next level. If a trader has a cumulative drawdown equal to twice the minimum weekly profit target at any level, then a VCM Risk Manager will review their trading records to consider demotion to the previous performance level. Trader Payout Rates The percentage of profits that are paid to the trader will increase as traders advance through the performance levels. Refer to the table for the following details: Payout % - This defines the percentage of profits paid to the trader at each performance level. Minimum Trader Annual – This reflects the annualized payout amount for the trader if they averaged their minimum weekly profit target at each level, based on a 50 week trading year. These amounts have been adjusted to reflect the payout after coverage of the software platform fees of $50 per month. (Note that the software fees are only covered with trading profits, and that the trader is not obligated to pay the fees unless the profits can cover the charges.) 10

Account Demotion Guidelines A trader account will be demoted one level if any of the following four conditions occur – 1.

Two consecutive weeks with losses equal to or greater than the weekly profit target for the current level, and cumulative losses at current level greater than or equal to twice the weekly profit target,

2.

Three consecutive losing weeks at current level, and cumulative losses at current level greater than three times the weekly profit target,

3.

Cumulative losses at current level greater than four times the weekly profit target

4.

Accounts will be moved back to Training Level whenever they are currently at Level 1 and have had four consecutive losing weeks.

or

or

11

VCM Website and Services Locations Events Trader Programs Services

Free Services Daily Trading Letter Intra-day Email Alerts Service Proprietary Trading Room VCM Scanner Pro

Resources

Downloads

VCM Traders Log In Test Chat Room Login

12

Day One (cont.)

Review trading platform

Download platform and log in Select password Introduce preconfigured screens VCM Lab (Two 1280x1024) One Monitor (1280x1024) Laptop (1280x768) 1024x768 Charts Data Timeframe Date Range Pre/Post Market Study Line Adding, removing and configuring studies RECT Adding new sections Config Label and Ruler – not needed on top Removing Control Box and Study Info View Use VGrid for daily divide Zoom Point out up/down arrow use Setting Colors Background Load and save chart settings Print Volume bars Study Line Config colors RECT/Config Do not show last price

13

Day One (cont.) Charts (cont.) Tool Bar Can save space without Use up/down arrows for scale Use Page Up/Page Down for time frame changes Tab Control Time frame type Scroll bar

Save Settings/Open New Chart/Load Settings

File – Save Screen function after changes Trading Window Enter Symbol Ability to scroll symbols with mouse wheel Review Level 1 section High-Low Previous Close Last Trade Change from Close Day’s Volume Right Click/Quote Info Demonstrate links to charts Blue Message Line Order Section to be reviewed later Review Level 2 section MMID – Market Maker ID BID/ASK – Price of bid/ask SIZE – Size of bid/ask (in hundreds) Time and Sales Linking to Trading Window Price – Price of print Shr – Share size of print (in hundreds) T.Time – Trade time Color coding for At Ask and At Bid (right click)

14

Day One (cont.)

15

Day One (cont.) Market Watch Demonstrate online help Right click link to trading window Review columns Symbol Open Change% Last %Change Config Add/remove columns Reorder columns Delete/Insert rows Load/save stock symbol lists (have group save pre loaded lists) Add/change symbols Expand Columns Fit In Screen Sorting by column Market Watch 2 – Industry Sector ETFs Market Watch 3 – Nasdaq 100 Market Watch 4 – S&P 100 Market Watch 5 – Starter Trading Universe Market Watch 1, 6-10 – Unassigned

16

Day One (cont.) Top 20 List (VCM Lab page only) Review columns ActiveNasd GainNasd LossNasd ActiveNYSE GainNYSE LossNYSE Also has right click link Make sure stock meets trading plan requirements

Tour of All Pre-configured Trading Screen Layouts VCM Lab One Monitor Laptop

17

Day One (cont.)

18

Day One (cont.)

19

Day One (cont.)

20

Day One (cont.)

21

Day One (cont.) Alerts Trade - Alert and Trigger Find potential trades and set alerts

Uncheck Loop Add SecSym Add Condition Edit Condition

22

Stock Scanning Start with Market Analysis Scan for setups based on market interpretation/bias Check Prior Day’s Watchlist Top Down Scanning Personal Stock Universe Scanning Scan Favorites List VCM Scanner Pro or other automated scanning

23

Top Down Scanning Scan Major Market Indices Determine Market Bias and Highest Probability

Setups for Each

Scan Major Industry Sector Indices Look for Highest Quality Setups in Line with Market Scan Universe Stocks in Most Promising Sectors Look for Highest Quality Setups in Line with Market

and Sector

Top Down Scanning

24

Top Down Scanning

Top Down Scanning

25

What Is a Personal Stock Universe? A manageable (200-300) family of stocks that meet your trading requirements in the following areas:

Average Daily Trading Volume Price Range Exchange Preferences Well-Behaved Price Charts Distribution Among Major Industry Sectors

Why Have a Personal Stock Universe? To become comfortable with price action of small family of stocks To ensure scanning across major industry sectors Because automated scanning systems still cannot match the eye of a trained technical analyst

26

What Is a Favorites List? A small (10-30) subset of Personal Universe Often focused in a few favorite sectors Can be scanned more quickly Can be sorted and monitored throughout trading day.

27

Stock Scanning Start with Market Analysis

Scan for setups based on market interpretation/bias

Check Prior Day’s Watchlist Top Down Scanning Personal Stock Universe Scanning Scan Favorites List VCM Scanner Pro or other automated scanning

28

Scanning Checklist Review Multiple Time frames Relative Strength Against Market/Sector Volume Confirmation Areas of Support/Resistance Price Void Areas Reward/Risk Ratios

Have group build scanning page with weekly/daily/60/15

REMEMBER TO SAVE YOUR SCREEN LAYOUTS!

29

5 Day Trading Laboratory Day Two Introduction and Observation of Gap Trades Review of gap trade tactics How to scan for gapping stocks Sort Nasdaq 100 by %Change column How to load a watch list for gappers Observation of gap trade candidates during first half hour of market

Gap Trading Overextension NGB/NGS Reversals GUS/GDS/+BMG/-BMG Relation to Support/Resistance To S/R Overextension Beyond S/R – Breakouts/Breakdowns Reversals – S/R on shorter time frames How to Enter? 2/5 Minute High/Low Not recommended for early levels Later Setup on Intra-day Time frames

30

Day Two (cont.) Continue with review of trading platform Account Manager Window Position Tab – Open positions Shares AvgCost Realized Unrealized Account Tab Realized Unrealized Open BP Current BP Tickets Shares +/- Liq Trade Manager Window Orders Tab – Open orders X – Cancel Status – Order status – Sending, Accepted, Cancelling Symb - Symbol B/S – Buy or sell Qty – Quantity of original order Open – Number of shares currently open Price – Order price Route – Order route Type – L=Limit, M=Market, S=Stop Shrt – Yes if short, No if long TIF – Time In Force=time period that the order is active Tickets Tab – Summary of all orders Executed Beeper Trades Tab – Detail of all order transactions Log Tab – Log of all order actions for the day Symbol Tab – Short availability

31

Day Two (cont.) Global Order Defaults

Config/Default Order at top of screen

Trading Window - right click/Default Order Make sure that Default Order section for trading Window has “Use Global Default” checked

32

Day Two (cont.) Order Section of Trading Window Shares Box Price Box Different ways to set price Route Box Account Box Time In Force AON/ANY Buy Button Sell Button SHRT Button CXL – Cancel Last Order DEF – Default Settings P – Position R – Reverse standard default Lock Account

33

Level 2 Issues Level 1 versus Level 2 information Bid and Ask Sides/Buyers and Sellers Buying versus Bidding Selling versus Offering Adding versus Removing Liquidity ECN Rebates

34

35

36

37

Summary of Market Routes Route

Add

Remove

Route Out

Comments

ARCA

$2.00/1000

($3.00/1000)

($4.00/1000)

Good liquidity; most expensive

ARCA=

$2.00/1000

($3.00/1000)

N/A

Same as ARCA; no cross/route out

BATS

$2.40/1000

($2.60/1000)

($2.60/1000)

High rebate: decent liquidity

EDGX

$2.50/1000

($3.00/1000)

N/A

Highest rebate; low to decent liquidity

EDGA

$0.00/1000

($3.00/1000)

N/A

No rebate; low liquidity

NSDQ

$2.00/1000

($3.00/1000)

N/A

Great liquidity; fast fills; no route out

NSDQDDOT

($0.275/1000)

($0.275/1000)

N/A

Best cost; great liquidity; no route

NSDQNDOT

($0.275/1000)

($0.275/1000)

($3.00/1000)

Great liquidity; expensive to route

NSDQSTGY

$2.00/1000

($3.00/1000)

($3.00/1000)

Great liquidity; super fast; BEST

NY/AM

($0.45/1000)

($0.45/1000)

N/A

VCM has direct line; fast fills; costly

NYSE+

($0.45/1000)

($0.45/1000)

N/A

Fastest fills offered by NYSE; costly

38

Day Two (cont.) Config - Order Handle

Build and practice hot keys Config – Hot Key 58 Buy at Inside Bid 59 Sell/Short at Inside Ask 60 Buy at Ask 61 Sell/Short at Bid 51 Cancel Last 56 Cancel All

Ctrl+R1 Ctrl+R3 Alt+R1 Alt+R3 Ctrl+R2 Ctrl+R0

39

Day Two (cont.)

How to program hot keys Key combinations (check keyboards) Command lines Explain slippage factor in Alt hot keys Ctrl+ Adds liquidity Alt+ Removes liquidity Practice hot keys without execution Display on Level 2 Monitor live orders in Trade Manager Window

40

Day Two (cont.)

Build and practice hot keys (cont.) Practice actual trades with hot keys Both long and short examples Also flip sides Slow moving stocks (e.g., JAVA) only Monitor positions in Account Manager Window Explain use of F9 and F11 hot keys for exits Continue setup and review of hot keys Load remainder of full configuration from Appendix A Review additional hot key options Practice additional hot keys and monitor in Trade Manager Window

Review Hot Key Terminology – Appendix B



Practice with VCM Keyboard Practice program

CTRL Hot Keys Ctrl + Bid Ask (Buyers) (Sellers) -01 +01 -03 +03 41

42

Day Two (cont.) Review market internals Review concept of TICK Alerts at +/- 1000

TICK and TRIN Formulas TICK = Number of stocks on Up Tick Number of stocks on Down Tick TRIN (also known as ARMS Index) = (Advancing Issues/Declining Issues)/ (Advancing Volume/Declining Volume)

43

TICK Principles LEVELS:

Neutral - Extended - Extreme -

Between -400 and +400 Below -800 and Over +800 Below -1000 or Over +1000

Can serve as early indicator of buying/selling flurries Look for extreme levels after extended runs Can set alerts for +/- 1000 Watch TICK range for general bullish/bearish bias Watch for TICK/market discrepancies

44

TRIN Principles TRIN is an inverse indicator LEVELS:

Extremes -

Below .20 or Over 1.80

The trend of the TRIN is more important than the level TRIN patterns - trends, S/R levels, reversals, etc. can be interpreted similar to those of stock prices. In general, use TICK and TRIN as barometers for general market pressure.

45

Day Two (cont.) Review of Platform Details

Trade – News Config – Linkage Loop Tools – Mail Tools – Market Clock Tools – Upgrade Practice with VCM Keyboard Practice program Scan the market for setups and develop watch list for next day Review and analyze overall market as a group Have group scan for tomorrow’s watch list candidates Review candidates as a group

46

Day Two (cont.) Schedule for next two days:

Live Trading with Oliver Focus on gappers for first 30-45 minutes of the day Scan daily bias watch lists coming into 10:00 Start scanning whole market from 10:30 on Looser loss limits Very active trading – designed to practice hot keys P/L for the week will be adjusted out of accounts

47

5 Day Trading Laboratory Days Three and Four Live Trading with Oliver Velez

Looser loss limits Very active trading – designed to practice hot keys P/L for the week will be adjusted out of accounts

Scan for gapping stocks Take trade if tight enough setup presents Scan market with platform for setups throughout day Review Sample Trades from Group Scan the market for setups and develop watch list for next day

48

5 Day Trading Laboratory Days Five

Review concepts of scalping versus trend trading styles

Order Type Concepts and Hard Stop Orders Review of stop, market and limit order principles

Limit Orders Buy Limit Sell Limit

49

Stop (Market) Orders

Sell Stop Buy Stop

50

Stop Limit Orders

Buy Limit

Sell Stop

Buy Stop

Sell Limit

51

Day Five (cont.) Order Type Concepts (cont.) Use of stop market orders for stop loss Protective Stop for Short Position Set symbol and lot size

Set route to EDGXS (can use END toggle) Hit BUY button Select Market order Specify trigger price Click OK Check open orders – Type column

Protective Stop for Long Position Set symbol and lot size Set route to EDGXS (can use END toggle) Hit SELL or SHORT button Select Market order Specify trigger price Click OK Check open orders – Type column

Use of stop limit orders for new positions Stop Entry for Long Position Set symbol and lot size

Set route to EDGXS (can use END toggle) Hit BUY button Select Limit order Specify trigger price Specify limit price Click OK Check open orders – Type column for trigger – Price column for limit

52

Day Five (cont.) Order Type Concepts (cont.) Use of stop limit orders for new positions (cont.) Stop Entry for Short Position Set symbol and lot size Set route to EDGXS (can use END toggle) Hit SHORT button Click OK on warning window Select Limit order Specify trigger price Specify limit price Click OK Check open orders – Type column for trigger – Price column for limit Use of limit orders (incl. short) for profits Limit order for profits in long position Set symbol and lot size Set route to EDGXL Set price field to profit target Hit SHORT button Limit order for profits in short position Set symbol and lot size Set route to EDGXL Set price field to profit target Hit BUY button

53

Day Five (cont.) Order Type Concepts (cont.) Use of range orders for Order Cancels Order setup OCO Stop/Profit for Short Position



Set symbol and lot size Set route to EDGXS (can use END toggle) Hit BUY button Select Range order Place profit target in Low Price Place stop price in High Price Click OK Check open orders – Type column

OCO Stop/Profit for Long Position Set symbol and lot size



Set route to EDGXS (can use END toggle) Hit SELL button Select Range order Place stop price in Low Price Place profit target in High Price Click OK Check open orders – Type column

Set up Preferred Routes on Trading Window

Right Click – Route Configure Preferred Routes – EDGXL and EDGXS Toggle between preferred routes with END key

54

Day Five (cont.)

Review Sample Trading Plan – Appendix C Sample Trading Universe – Appendix D Starter Trading Universe – Appendix E How to begin a rudimentary plan Begin with what you know Build example as group Use Practice Trading Plan as example – Appendix F Review VCM Trade Tracking Log – Appendix G Review Day Trade Performance Report on Prop Reports Demonstrate use of Trades Report on Prop Reports to load Trade Tracking Log

55

Why Have a Trading Plan? To Control the Emotions of the Market Day

The Concept of the Trader as Two Individuals Turn the Idiot into a Robot Achieve Calm through Faith in your Plan

To Develop and Document Your Approach to the Market

Do you REALLY Know Your Approach?

To Coordinate an Incredibly Complex Process

Pilots and Checklists

To Measure the Performance of Your Approach

Requires Consistency

To Refine Your Approach

The Road to Improvement

56

Planning Cycle PLAN

REFINE

EXECUTE

ANALYZE

MEASURE

57

Sample Trading Plan Sections Goals Objectives Assumptions Trading Environment Market Analysis Stock Scanning Pre-Market Activities Trading Day Activities After Market Activities Weekly Review Activities Lot Size/Trade Management Money Management Daily Setups Trade Types Continuing Education and Days Off

58

Performance Statistics Batting Average #Winning Trades/Total # Trades

Win/Loss Size Ratio Average Size of Winning Trades/ Average Size of Losing Trades

59

Analysis of Trading Statistics Trading Plan Adjustments Might Involve Shift in Emphasis On

Trade Types



Long vs. Short



Time of Day



Industry Sectors

Can Also Lead to Trade Management Refinements

60

Trade Management Refinement If Win/Loss Size Ratio Lower Than Target, Consider the Following: Quality of Setups/Profit Targets Are Profits Being Taken Too Soon? Particularly if Batting Average Still Healthy

61

Trade Management Refinement If Batting Average Lower Than Target, Consider the Following Quality of Setups Are Stops Too Tight? Particularly if Win/Loss Size Ratio Still Healthy Are Profit Targets Too Aggressive? Particularly if Win/Loss Size Ratio Still Healthy

62

Day Five (cont.) Have group review prop report options, including Day Trade Performance Demonstrate how to download from Trades to Log Review of CD Contents — Appendix H Trader Interviews — Appendix I Review Common Issues/Pitfalls for VCM Prop Traders Review Download Directions in — Appendix J Collect VCM Prop Trader Agreements Seminar/Trading Lab Feedback Surveys: 2 Day Seminar Feedback Survey http://www.polldaddy.com/s/F8DE1310994E5798/ 5 Day Training Lab Feedback Survey http://www.polldaddy.com/s/56B5269CBDA3F17D/ General Questions and Answers

63

Common Issues/Pitfalls Risk management process and responsibilities Focus on trading education vs. advancement

Weekly minimum, not target

Gross versus net P/L

How to access numbers through prop reports



How to estimate fees in advance

Over trading

Consider daily limits

Slow and Steady vs. Soar and Crash

64

Appendix A - Full Hot Key Configuration 25

Preferred Route Switch

End

26

Switch Trading Window

Home

51

Cancel Last Order

Ctrl+R2

56

Cancel All Orders

Ctrl+R0

58

Buy at Inside Bid

Ctrl+R1

59

Sell/Short at Inside Ask

Ctrl+R3

60

Buy at Ask + .03

Alt+R1

61

Sell/Short at Bid - .03

Alt+R3

62

Buy at the Market

F9

63 64

Short at the Market

F11

Bid 1 Cent below Inside Bid

Ctrl+KeyLeft

65

Sell/Short 1 Cent above Inside Ask

Ctrl+KeyRight

66

Bid 3 Cents below Inside Bid

Ctrl+KeyDown

67

Sell/Short 3 Cents above Inside Ask

Ctrl+KeyUp

65

Appendix B - Hot Key Terminology ALT 1 – Buying FROM the ASK/OFFER and REMOVING liquidity – buy the ask/offer – buy it now – buy it immediately – hit the ask/offer – take the ask/offer – go/get long the ask/offer – go/get long immediately – go/get long now – cover on the ask/offer – cover it now CTRL 1 – Buying WITH the BID and ADDING liquidity – buy the bid – bid for the stock – bid for it now – go/get long the bid – cover on the bid – bid to cover – throw it on the bid ALT 3 - Selling/Shorting TO the BID and REMOVING liquidity – hit the bid – sell/short short the bid – sell/short it now – sell/short it immediately CTRL 3 – Selling/Shorting WITH the ASK/OFFER and ADDING liquidity – sell/short the ask/offer – get short on the ask/offer – offer it out – throw it on the ask/offer

66

CTRL right arrow - Selling/Shorting one cent/level ABOVE the inside ASK/OFFER CTRL up arrow - Selling/Shorting three cents/levels ABOVE the inside ASK/OFFER – offer it out one/three cent(s)/levels above/higher/up – throw it out one/three cent(s)/levels above/higher/up – sell/short it one/three cent(s)/levels above/higher/up CTRL left arrow – Buying one cent/level BELOW the inside BID CTRL down arrow – Buying three cents/levels BELOW the inside BID – bid for it one/three cent(s)/levels below/lower/down – cover it one/three cent(s)/levels below/lower/down – throw it out one/three cents(s)/levels below/lower/down Remember that all arrow key orders are ADDING liquidity

67

Appendix C - Sample Trading Plan INTRODUCTION This is a sample plan only, and is not intended to be used as a trading guide. It should be used as a guide for the type of information that can be included in a detailed trading plan. Depending upon the trader’s style and scope of plays, there may be greater detail in a functional trading plan, and the specific guidelines will almost certainly vary considerably. However, each of the following sections should be addressed in some form. GOALS To make an average weekly net return of 125% of my minimum weekly profit target, while trading 225 days/year To average one advancement level per month until Level 12 (at least) is reached Tax percentage goals (consult with accountant) OBJECTIVES Overall batting average of 50% or greater Overall win/loss size ratio of 1.5 or greater Average fewer than 8 round trip trades per day ASSUMPTIONS Trading within the VCM Prop Trader Program Advancement Program No overnight holds No equities greater than $50 in price traded through Level 3 No equities greater than $100 in price traded through Level 6

68

TRADING ENVIRONMENT Because of the wide variety of trading environments, no effort is made to provide details for a specific setting, but rather to indicate the areas that can be addressed in this section. Home versus trading room Environment setup # computers # monitors Television Phone/fax Networking Hardware specifications Trading software description Stock scanning software Market newsletter/website/chat room subscriptions Trading screen setups Daily sector charts Intra-day sector charts Sector universe charts – daily and intra-day Watchlist monitoring charts Trading/focus/market internals charts Scanning charts

69

MARKET ANALYSIS

Perform the following at least every weekend: Scan each of the following on daily, weekly and 180 minute charts: Nasdaq Composite S&P 500 Dow Jones Industrials Major Industry Sector Indices Banking Internet Biotech Networking Broker/Dealers Oil Gold Semiconductors Hardware Software Healthcare Telecomm Insurance Utilities Review other market internals: VIX Put/Call Ratio 10 day moving averages TRIN 10 day moving averages Analyze significant trend lines and support/resistance areas for each of the above Determine market/index/sector staging and bias Review Briefing.com, Finance.yahoo.com or other market news sources for significant economic news or earnings reports scheduled for the upcoming week Consolidate any significant observations into market notes for the week

70

STOCK SCANNING Weekly (Weekend) Scan entire Personal Universe for Daily Setups and anticipatory Daily Setups (those that may be setting up for later in the week) Use VCM Scanner Pro to scan for setups favored for current market conditions Develop list of all setups and anticipatory setups by daily setup type (see Daily Setups) Daily (Evening) Check economic and earnings calendars for next day Scan major indices (Dow, S&P, Nasdaq) Check status of VIX and VXN Scan major industry sectors Determine bias for the next day Scan all stocks from previous day’s watchlist Scan all stocks on weekly setup notes Use VCM Scanner Pro to look for daily setups in favored trade types based on market staging and bias: Sideways/basing: CDB/CAS Up trend: VBS, Basing, RBI Downtrend: VSS, Basing, GBI Look for relative strength and/or exceptionally high volume during the last day or two of trading Use all of the above to develop a daily watch list for both long and short sides Check earnings report dates for all watch list stocks Note industry sector associated with each watch list stock

71

PRE-MARKET ACTIVITIES Use Briefing.com, Finance.yahoo.com or other news source to review the following: Business news Economic calendar Earnings reports Upgrades/downgrades Foreign markets Scan Trade for Life ™ Daily Trading Letter for additions to watch lists Log into Trade for Life ™ Live Trading Room Scan all watch list candidates and develop final list of favorites for the day Load long and short stock watch lists Set alerts near entry points Set up monitoring charts on trading page Check for pre-market bias and overnight trading range Search for potential opening gap plays - Stocks gapping to support or resistance - Stocks gapping against market - Stocks gapping into NGB/NGS or GUS/GDS setups - Pay particular attention to any watch list stocks that set up for opening gap plays Develop list of no more than five favorite opening trades (long and short combined)

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TRADING DAY ACTIVITIES Keep long and short lists sorted by % change from open Keep major sector indices sorted by % change from open Record all trading details (entry points, exit points, lot sizes, time of day, type of play, etc.) in VCM Trading Log throughout the day During first 5-10 minutes: No trade entries in first five minutes After first five minutes: Adjust all watchlist alerts for five minute highs/lows, if any set off Focus on gap trade opportunities during first 30 minutes Can enter one gap trade if appropriate set up Position Entry Checklist: Check for appropriate lot size and risk (see Lot Size/Trade Management) Enter position with appropriate lot size Set server stop order at stop price (optional) Set alerts for points approaching stop and first target Record trade in trading log From 9:50 to 10:10: Look for 10:00 Reversal Plays – enter no more than one Look for stocks that gapped up and showed relative strength by not filling gap when market did (or reverse for short side) - Look for 30 minute entry as Breakout/Breakdown Play Adjust all watchlist alarms for thirty minute highs/lows after 10:00 AM EST Enter no more than one position during reversal period Continue to scan for scalping opportunities in stocks turning on support/resistance at reversal periods throughout the day - Enter no more than one at any single reversal period Continue to adjust alarms for open and watchlist positions Evaluate all calls from Trade for Life ™ Live Trading Room for opportunities that meet my trading criteria Review Trade for Life ™ intra-day E-mail Alerts for trade opportunities Continually monitor strong and weak sectors Look for strongest stocks in weakest (due for rally) sectors (and vice versa) 73

From 11:15 to 1:30 (doldrums): Scan for strongest stocks in weak market and weakest stocks in strong market for potential market reversals Scan for Basing Setups during doldrums Only play noon reversals/breakouts if unidirectional market move (or very tight market base) throughout the morning After 1:30: Look for Breakout/Breakdown Plays - Showing relative strength/weakness to market - Having based near high or low of day through doldrums - Only take entries that hit after 1:30 Look for VBC/VSS and CDB/CAS plays at major reversal times During last half hour of market: Close all positions - Consider tight trailing stop if trade moving in your direction Daily Trade Limits – No more than eight trades during the day No more than one new entry at any single reversal time No more than one reentry after a loss in a single stock AFTER MARKET ACTIVITIES Update VCM Trading Log for all trades Transfer closed trades to Weekly Trading Log and Monthly Trading Log Review all trades for the day, determining whether plan was followed to the letter Review all stocks on watch lists, determining whether: Any entries that should have been made were missed…and why Any setups are still candidates for the next day’s list Scan for tomorrow’s watch list candidates (see Stock Scanning)

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WEEKLY REVIEW ACTIVITIES Backtest weekly trading using plan guidelines Initiate blank Weekly Trading Log and record results for all trades if managed strictly according to Trading Plan Compare results with actual Review performance records of recent trading by trade type and entry time Consider any adjustments to Trading Plan Use backtest technique to test Trading Plan modifications Perform market analysis for next week’s trading (see Market Analysis) Perform stock scanning for next week’s trading (see Stock Scanning) LOT SIZE/TRADE MANAGEMENT Lot Size Assumptions: Each trade will be sized so that the financial risk, as calculated using the difference between the actual entry and the original stop, does not exceed 1/4 of the daily loss limit for the current advancement level - During Level 1 only, the risk for individual trades may need to be as high as 1/3 of the daily loss limit Trade Selection: Limit trade types to those defined in Trade Types section Risk/reward ratio based on target/stop areas should be 2:1 or greater Trade Entry: If making an anticipatory entry with partial size prior to the full trigger price for the setup, add liquidity with the order whenever possible Stops: Stops should always be determined prior to entering trade Establish stop order at stop point once trade is entered (optional) Set alarm for point halfway between entry and stop - If alarm is hit, evaluate trade and reset alarm prior to stop point Set alarm for point approaching first profit target After two bars close above previous high, move to bar by bar trailing stop in primary time frame The trailing stop will be 1 cent below the low of the last completed bar 75

Profits: At least half profit will be taken nearing a predetermined point of support/resistance, which must represent at least a 2:1 risk/reward ratio If trading large enough size to take profits in halves or thirds, take first profits after a price move equivalent to the distance between the entry point and the original stop (R of 1) Take final profits if any combination of the following occur: Extended 1, 2 or 5 minute bar in your favor Volume spike after extended run in your favor Approaching price support/resistance area Price extended from the 20 MA and color reversal R of 3 has been reached The final portion of the trade (if trading in thirds) can be continued with a 20 MA trail if there is potential for extended run - Stop point is bar closing below (above) 20 period MA in primary time frame MONEY MANAGEMENT Each trade will be sized so that the financial risk, as calculated using the difference between the actual entry and the original stop, does not exceed 1/4 of the daily loss limit for the current advancement level - During Level 1 only, the risk for individual trades may need to be as high as 1/3 of the daily loss limit Do not enter more than one new trade of similar type in the same reversal period Stop trading for the day if daily loss limit is reached Whenever profit equivalent to daily loss limit is reached, do not allow P/L to go negative for the rest of the day Whenever profit equivalent to twice the daily loss limit is reached, take profits and stop trading for the day Stop trading for the week if trade losses reach three times daily loss limit Budget for weekly living expense draw down of half of net trading profits

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DAILY SETUPS VCM Buy Setup/(reverse for VSS) Candidates Bullish picture of power Three to five clean bars down with consecutive lower highs At least one bottoming sign In area of price support OR After 50% retracement in trending stock Volume increase during final day Climactic Decline Buy/(reverse for CAS) Candidates Five or more clean bars down Consecutive lower highs Consecutive red candles Above average volume last two daily bars Extended away from 20 MA NRB, GBR, WRB or Bottoming Tail In area of price support Basing (for Breakout/Breakdown Candidates) Five or more narrow range daily bars consolidating at point of support/resistance Look for tightening consolidation against consistent high (low) Check intra-day charts for confirmation Look for relative strength (for breakout) or weakness (for breakdown) to market Look for supportive pattern (such as VBS) in weekly chart Wide Range Bar Buy (reverse for Sell) Candidates Larger than average daily bar with no more than 10% of daily range in either tail At least second consecutive red bar Volume increasing near end of wide range bar In area of price support Price void within wide range bar – little S/R Red Bar Ignored (reverse for GBI) Candidates Larger than average daily breakout bar followed by narrow range bar Highs of two bars near equal Entire range of narrow range second bar in upper third of large first bar range Above average volume on large bar, quieter volume on narrow range bar Clear air above Breakout/down from area providing strong S/R 77

TRADE TYPES VCM Buy/(reverse for Sell) VBS/VSS Setup in time frame traded Three to five clean bars down with consecutive lower highs At least one bottoming sign In area of price support OR After 50% retracement in trending stock Volume increase during final bars Enter above high of previous bar Initial stop below entry bar’s low Target approaching prior pivot high Climactic Decline Buy/(reverse for CAS) Climactic Buy/Sell Setup in time frame traded Five or more clean bars down Consecutive lower highs Consecutive red candles Above average volume last two daily bars Extended away from 20 MA BT, NRB, NB, GBR, or WRB In area of price support Enter above high of previous bar Initial stop below entry bar’s low Target approaching previous consolidation area or 40-50% retracement Breakout/(reverse for Breakdown) Five or more narrow range daily bars consolidating at point of support/resistance Look for tightening consolidation against consistent high (low) Check intra-day charts for confirmation Look for relative strength (for breakout) or weakness (for breakdown) to market Enter above high of recent basing range Initial stop below low of recent basing range Target approaching resistance area or 2:1 reward/risk Bull 180 Play (reverse for Bear 180 Play) Wide range red bar on primary time frame If next bar takes out high of WRB, enter above high of WRB Stop below entry bar’s low Use 8 period MA trail for target 78

Red Bar Ignored (reverse for GBI) RBI setup with second bar in top third of first WRB WRB should be igniting bar out of base Enter above high of bars 1 and 2 Initial stop below bar 2 Use 8 period MA trail for target Novice Gap Buy (reverse for Sell) Stock should be extended to downside on daily, with WRB on last day Stock gaps down the next day by 1% or more, to area of support Buy above high of first five minute bar (if showing relative strength to market) If gap right to support and primary MA, then use 2 minute entry If initial move is to downside, look for 2 or 5 minute VBS at 10:00 reversal Initial stop below low of day (low of first bar) Target is prior day’s low or 10:00 reversal period, whichever comes first Gap Up Surprise (reverse for GDS) Stock should be extended to downside on daily, with WRB on last day Stock gaps up the next day by 1% or more (pro gap) Buy above high of first five minute bar (if showing relative strength to market) If gap above intra-day support area, then use 2 minute entry If initial move is to downside, look for 2 or 5 minute VBS at 10:00 reversal Initial stop below low of day (low of first bar) Target is prior day’s high, intra-day resistance, or 10:00 reversal period, whichever comes first Continuation Gap Up (reverse for CGD) Stock should be in extended base on daily Stock gaps up the next day above the high of the base (barely) Buy above high of first five minute bar (if showing relative strength to market) If initial move is to downside, look for 2 or 5 minute VBS at 10:00 reversal Initial stop below low of day (low of first bar) Use 8 period MA trail or pivot trail for target If using pivot trail, wait until prior high taken out before moving stop

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CONTINUING EDUCATION AND DAYS OFF Take one half day (Friday) off every week, and one full day off when weekly goal is already met AND three consecutive daily goals have been met Take one day off after three consecutive losing days Continue professional education with: Books/Journals (1/month), Seminars/Conferences (2/year), and Live Trading Room (but with breaks)

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Appendix D – Sample Trading Universe Biotech (BBH) GILD ABI SEPR MLNM AFFX HGSI Broadband (BDH) QCOM MOT GLW BRCM NT TLAB JDSU CIEN PMCS B2B Internet (BHH) CKFR ICGE ARBA AGIL Internet (HHH) EBAY YHOO TWX ETFC AMTD RNWK

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Internet Architecture (IAH) CSCO DELL HPQ IBM SUNW BRCD FDRY JNPR NTAP Transportation (IYT) EXPD CAL JBHT AMR LUV JBLU Oil Services (OIH) HAL RDC BJS NBR HAN Pharmaceuticals (PPH) MRK BMY SGP FRX Regional Banks (RKH) JPM USB WFC BAC BK FITB KEY 82

Retail (RTH) WMT HD LOW WAG CVS BBY Semiconductors (SMH) TXN INTC AMAT ADI LLTC KLAC ALTR NSM MXIM SNDK Software (SWH) MSFT ORCL ADBE CA INTU BMC SYMC CHKP NUAN OPWV Telecomm (TTH) T VZ S BCE Q LVLT

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Utilities (UTH) AEP WMB ED DUK PCG SO Homebuilders (XHB) ETH LEG TOL MDC RYL KBH LEN HOV BZH Financials (XLF) BAC JPM WFC USB SCHW Energy (XLE) WMB CHK EP CNX SE NBR

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Appendix E – Starter Trading Universe Biotech (BBH) GILD Broadband (BDH) QCOM BRCM TLAB JDSU PMCS Internet (HHH) EBAY YHOO AMTD Internet Architecture (IAH) CSCO DELL SUNW BRCD JNPR NTAP Transportation (IYT) JBLU Semiconductors (SMH) INTC AMAT LLTC ALTR SNDK

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Software (SWH) MSFT ORCL ADBE Telecomm (TTH) LVLT Financials (XLF) SCHW

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Appendix F – Practice Trading Plan Build long and short list and look for longer term trades $1-2 risk per trade Establish $1 risk fairly early Can add up to $2 risk if appropriate Trailing stops – pivot points with confirmation on 1 minute chart - The shorter the time frame, the more practice with stops - The longer the time frame, the longer the positions will last Use hard protective stops Use advance limit orders, or OCO, for next profit point Profit plan: - 1/3 at 1:1 return - 1/3 at 2:1 return - 1/3 with trailing stop Move stop to no worse than BE after first profit target Set alerts on both sides for all positions Try to have open positions on both long and short sides of market Restrict universe to Starter Trading Universe (Market Watch 5), with addition of gap candidates Will not be too concerned with patterns, so encourage the group to find trades they like - Emphasis will be on practice following trade management guidelines and using new order types

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Appendix G – VCM Trade Tracking Log

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Appendix H – Contents of Course CD

Sample Trading Plan Sample Trading Universe Starter Trading Universe VCM Trading Log Orbis Pro Trader User’s Guide

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Appendix I – Trader Interviews VCM Prop Trader Interview – July 2007

Can you provide a brief overview of your trading history? I first started when I was 15/16 years old, back in 2000. The trading I did consisted primarily of day trading and some swing trading for 8 months. There was one particular trade that took me out of the game. I bought ELY (Callaway Golf) at 19.27 and 19.50 on 6/07/2001, and sold at 14.25 on 6/08/2001 It was an expensive lesson to learn from the markets. With that being said, it was one of the best lessons I’ve learned firsthand from the markets. To this day this trade has been etched into my mind forever, and I’m generally strict with my stops as a result. I paper traded on daily charts up to 2005 on and off in-between. August 2005 I started day trading as a prop trader. I started off scalp trading – Mostly LU (Lucent). I did this for about 9 months successfully. Lucent however had a merger announcement and it never quite traded the same after that – so I decided to move over to chart trading, with permission from the firm. I chart traded for about 3 months, working on and developing my own trading system during this period before I was profitable. At that point it was desired by the firm that I trade highly liquid stocks for smaller moves but with bigger size. I started trading MOT mainly. I traded it for 3-4 months before I was consistently profitable. By this time, the NYSE Phase 4 Hybrid-Electronic Market was implemented, and being that I relied heavily on reading the tape and viewing 90% of my information through level 2, it became exponentially more difficult to trade MOT the same way I did. Shortly after this, I met Oliver and my new journey began.

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When did you start using the VCM trading methods? I started mixing VCM trading methods with my usual trading at the beginning of March 2007 At the beginning of April 2007 I started using VCM trading methods exclusively. At what level in the Trader Advancement Program are you now trading, and how long did it take from when you started the program to reach that level? I’m currently at level 5 in the Trader Advancement Program. I started this program on 5/14/2007 and officially obtained level 5 on 6/20/2007. How many trades a day do you typically take, and at what times of the day? I average between 6-8 trades per day, and on rare occasions as much as 10-12 trades, sometimes as low as 3-4 trades. In the first 30 Minutes I focus on the gaps. This is my most profitable time period. After this, I focus on the other setups, RBI/GBI, 20MA plays, 200MA etc… Once the lunchtime period hits (11:15am – 2:15pm) I prefer not to trade. I generally don’t do well during this time, and as such - I would usually log off during this time period and review my morning trades, and do something constructive and rejuvenate for evening trading. I would log in around 1:30-1:45 and begin sorting my watch lists for evening trades. For the evening I focus on the usual setups and work from my sorted watch lists (things that have the Picture of Power/Weakness) - whichever ones I like best at the time.

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What percentage of your trades are winning trades? It’s hovering between 45-50% on average. What percentage of your trading days are profitable? Currently about 70% What is the typical size (dollars) of a losing trade for you? I try to limit my losses as much as possible, and as such, each loss I limit to about 10% of my daily stop loss. So currently, I would risk $22-$28 per trade. What is the typical size (dollars) of a winning trade for you? My winning trades typically average about 2x more than my losing trades, $50 in this case. Some trades make more and some less – but it averages out about twice as much as my losing trades. What is usually your primary time frame for your trade setups? My favorite time frame is the 5 Minute. On mornings however, depending on the type of gap, I might go to the 1 or 2 Minute charts for my entry, along with a few trades on occasion where I see it necessary to fine tune the entry on a smaller time frame. What are your favorite types of trades? Gaps, Early RBI/GBI’s that are coming from the first phase of a breakout, or those that occur after a new move ignites (I tend to stray away from RBI/GBI’s that are extended from the 20MA), and the 20MA plays. My favorites are always the setups that trigger from Narrow Range Bars (NRB) – this provides me with a small stop, a good profit potential, and they are generally more explosive.

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How do you typically trail your stops in a position? I use the bar-by-bar trailing stop the majority of the time, and take profits at the targets I pre-determine before entering the trade on the way up or down. If a trade moves far and fast in my direction after already making a good move (usually creating a large green or red bar with some distance from the 20MA) - I would typically take most or all of the position off the table at the first sign of slowing momentum. Also depending on how it does this, I might decide to move my trailing stop down to a lower time frame instead to ensure I lock in the majority of profits if it reverses, but still give it a chance to move further (the trailing stops are very tight if I do this). Do you restrict your trades to a specific stock universe, price range or average daily volume requirement? I restrict most of my trades to stocks trading between $20-80, and 5-7 million shares (or more) per day averaged over 20 days. I have about 35 NASDAQ stocks in my usual list that meet these requirements. Outside of my usual list of stocks, I would also have my list of stocks from the daily charts that meet these requirements (NYSE or NASDAQ), sorted out for a long/short bias on them. I would look at these stocks intra-day for trends. I make exceptions for gap plays, providing there’s enough liquidity and it doesn’t spread much. Do you read the VCM newsletter or listen to the live trading room? Absolutely! Both are excellent resources, and I’m especially fond of the trading room. Paul’s intra-day comments are great, the aftermarket lectures he gives are very helpful, and the ability to ask questions and get into the mindset of how a professional trader thinks and analyzes the setups – what they look for, what they like and don’t like etc… is invaluable.

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How often do you get your trades from either of those sources? Fairly often. If I don’t have something I’m currently looking at, or no potential plays on the immediate horizon, as long as something is called out in the chat room – I’ll definitely take a look. If I’m not in a trade and even if I’m looking at something – I’ll take a quick look at trades called out, and whichever one I have more reasons to take the play based on various factors, and which I like more – I take that trade. I don’t take plays from anyone blindly however. I simply take them as “Ideas” of things to look at, and then make them my plays if I like it. What I mean by this is, no matter how good anyone says a trade is, I won’t take it unless I have my own personal reasons why I want to take the trade, and knowing how I plan to manage the trade based on my trading plan. What change in your trading plan or approach made the biggest impact on your profitability? My profitability has had the biggest impact once I started paying attention to multiple time frames. Taking a great long setup on the 5 Minute might fail if the 15 Minute or hourly is too extended above their 20MA for example, or a 2 Minute setup failing due to a D20MA on the 15 minute, or a 200MA on the 5 Minute for example. What I look for ideally, are trades that operate in a space where there aren’t many obstructions, where things are in its favor. Trades won’t line up perfectly, and there will always be obstructions, whether minor or major – but the more things I can line up in my favor, the better the odds of the trade working. I have a 2-5-15-hourly-daily chart up for the stock I’m trading at all times. I usually trade on the 5 Minute charts, so I’ll generally observe the battlefield all the way up to the hourly chart, and glance at the daily just as a quick reference.

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What else have you added to your trading approach that has helped? Another huge factor that has affected my profitability, is the way in which I record my trades. I modified the VCM trading log created by Malcolm – to cater to things I would like to keep track of, and I also took Saul’s suggestion to take two snapshots of each trade – the entry and the exit. The trading log provides me with valuable statistics on my trading, and the snapshot journal I keep – I can review my trades, and see how all time frames were setup at the point of my entry, how the market was, along with many other things. This process of recording the trades serves as a valuable learning tool for me. The third thing will have to be Oliver’s events. Every time I see the presentations it’s different. It’s different because each time I see the presentation, it’s from the perspective of a slightly more experienced trader, and as such I understand things better each time. The education of a trader never ends. Any final words of advice for other VCM Prop Traders? I would highly suggest keeping a trading journal of your discoveries (even things you knew already but you’ve discovered a deeper meaning for!). The trading log from Malcolm is extremely valuable – if you record the necessary information, you will be able to view various statistics about your trading. This in turn will allow you to view areas of your trading that require your attention, to keep track of your most frequent trading mistakes, and what you do best at. The most valuable learning experience will come from your trades – specifically your losing trades. Be sure to review your trading, by doing this frequently, it reduces the chances you will deviate from your trading plan by any great extent. I’m a big believer of small losses. Stick with your stops! You will generally beat yourself up more for failing to take a stop and suffering a huge loss, than you would if you were stopped out then the trade goes in your favor. More often than not, taking stops save me a great deal of money, much more overall than the trades that came back in my favor and went my way after being stopped out.

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VCM Prop Trader Interview – August 2007 Can you provide a brief overview of your trading history? I started trading after taking Oliver’s 7 day Master Trader course on April 14th 2007. Prior to that, I traded my 401K account as an amateur on an irregular basis losing money left and right! Being inexperienced and with poor knowledge, I did very poorly and have lost a lot of my hard earned money. I realized I needed mentoring and guidance before I lose it all. Learning about Oliver Velez and joining this program that enforces discipline in addition to providing knowledge and mentorship was the best course of action I have taken to improve. When did you start using the VCM trading methods? On April 23 2007, after completing the 7-day VCM Master Trader course. At what level in the Trader Advancement Program are you now trading, and how long did it take from when you started the program to reach that level? I am currently trading at level 5. It took me 3 months and 9 days to reach that level. Level 1 to 3 took the longest for me. As time progressed it took me less time to go from 3 to 5 as I gained more experience. For example: it took me 1 month and 5 calendar days to reach to Level 2; 1 month and 9 calendar days to go from Level 2 to Level 3. As I gained more experience, it took me 10 calendar days to go from Level 3 to Level 4, and qualified for Level 5 after 7 calendar days. How many trades a day do you typically take, and at what times of the day? Currently I am averaging about 15 trades per day. This number, however, has not been consistent and it varies a lot based on the type of trades I made. For example, when I trade 5 or 15 min charts, I do fewer trades, sometimes only 3 and 4. There were days I traded as a scalper (lower time frames) when I made significantly more trades.

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Most of my trades I take them in the morning and I usually stop during the lunch time (noon until 2:15 pm). . I have experimented trading at lunch time and I found out I don’t do well, so now I avoid trading during those hours. If I see the market is very active in the afternoon, then I trade during those hours. After my trades I take that time to update my trading logs and review my trades. What percentage of your trades are winning trades? The number varies, but in my last statistics for the month of July I have an average of 68%. The minimum I had for July was 50% and the maximum was 86%. I had 100% but these were days when I made few trades only (1 to 5 trade) and did not consider them in the calculation because they represent a small sample data. What percentage of your trading days are profitable? My last statistics for the month of July I have an average of 80% gross (4 losing days in 20 trade days) and 70% net (6 losing days in 20 trade days). This number however, has not been consistent. In June for example, I only averaged 38%; in May 58%, and in April 50%. What is the typical size (dollars) of a losing trade for you? This number changes based on the level I am. In Level 5 I try to keep the trade risk for any single position under $50 as a general rule. However, when I am scalping and trading lower time frames, I keep it much lower than that. What is the typical size (dollars) of a winning trade for you? Around $30. However, if I am scalping, the number is usually lower. What is usually your primary time frame for your trade setups? Usually 2 and 1 minutes when scalping, and 5 and 15 min for non-scalping trades.

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What are your favorite types of trades? Gaps, breakouts, and VBS/VSS (and like Oliver, NRB are my favorite reversal signs because they tend to be the most powerful!). I noticed that I like to go long more than shorting. I still have to experiment with other types of trades that have been taught to us but I haven’t done them yet (e.g. Bear/Bull 180 among others) How do you typically trail your stops in a position? Usually the VCM bar by bar method, the 20MA and pivots, but now I am starting to use the 8MA after the trade matures. Do you restrict your trades to a specific stock universe, price range or average daily volume requirement? Not yet, but I intend to as I build more expertise. Usually I trade the stocks that are posted as bullish, bearish, and gappers every morning in the trading room by Paul before the market opens. After the market opens I scan and monitor those stocks during my trading day. I haven’t built a list of favorites stocks yet but I will as I learn which type of trade and time frame I am best at. Do you read the VCM newsletter or listen to the live trading room? Definitely! How often do you get your trades from either of those sources? Very often! (every day I trade) What change in your trading plan or approach made the biggest impact on your profitability? Learning to take fewer trades until I develop more winning trades, especially in the beginning. After that I can increase the number of trades. Also taking smaller stop losses until I develop more experience and improved results. I have noticed that personally if I focus on making smaller profitable trades but consistently rather than the big homeruns, I can do better at the end of my trading day. Also waiting for higher probability trades where there are more reversal signs present.

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What else have you added to your trading approach that has helped? After taking the online course several times, I was reminded that I should not anticipate the move of the stock but take the trade after the stock confirmed what I anticipated. This I added as mandatory in my trading approach. In addition, I started paying more attention to the market, (particularly the QQQQ when trading NASDAQ stocks) before I take my trades. I try to be in synch with the market. Lately I have added to my trading approach the use of the 8MA as a trailing stop. Any final words of advice for other VCM Prop Traders? I am still learning and making mistakes from which I am learning even more, but I can share what has worked for me so far: I experimented a lot and advise all beginners to do the same until you learn what you are good at and what you like. I am still experimenting with the all the different types of trades since I haven’t done all of them (eg. Bear/Bull 180, RBI/GBI among others). As a beginner, any trading plan I have during a week is likely to be very dynamic and change as I experiment with the different types of trades and trading Levels. As time progresses, modify your trading plan to give you new different options that will give you enough experience to learn what you are good at, but don’t know it yet. This has worked for me. I continue to give myself this opportunity and experience all the different types of trades that have been taught to us. Only then I will know which type of trades I like to do more and am naturally better at. For example, I was terrified at the idea of trading fast moving stocks (especially GAPS in the morning) or scalping using lower time frames, but forced myself to do it after several weeks. I found out to my surprise that over time I am no longer afraid of these types of trades and enjoy them. Also In the beginning I only did VBS/VSS before doing breakout plays. The idea of doing all the plays I learned right after the 7-day course was too overwhelming for me, so I took my time to try each type at different stages of my trading learning curve, as I felt ready. Furthermore, I figured my chance to make mistakes and learn from them are better in the early stages when I am not as concerned about making money for a living. For example, I tested the platform whenever I felt the need to, even if it meant losing money: there was one day when I was in Level 2 where I lost all the profits I made that day and ended at a loss because I was experimenting and testing the platform with using the S-STOP and the hot-keys. 99

VCM Prop Trader Interview – October 2007 Can you provide a brief overview of your trading history? I have been trading for over a year, but I have been trading under the VCM philosophy since June 15th of this year. At what level in the Trader Advancement Program are you now trading, and how long did it take from when you started the program to reach that level? I am currently at level 6, and have completed the first of two weeks towards my next advancement to level 7. It has taken about 3 and half months to achieve this point. How many trades a day do you typically take, and at what times of the day? Anywhere from 5-20 trades to day. I usually trade from the opening bell to 10:30, never any later. What percentage of your trades are winning trades? Anywhere from 40 to 60 percent. What percentage of your trading days are profitable? 55% What is the typical size (dollars) of a losing trade for you? No more then 150.00 dollars when trading 1000 share blocks What is the typical size (dollars) of a winning trade for you? Anything over 500.00 dollars when trading 1000 share blocks

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What is usually your primary time frame for your trade setups? I focus on using the 5 minute and 2 minute charts for my entry and exits but also look at the 15min, hour and daily for long term bias of the stock. What are your favorite types of trades? My favorite types of trades are novice gap ups and downs. When you enter a gap trade, is it always over/under a 2 or 5 minute high/low, or do you sometimes wait for a later entry to set up? When I enter a gap trade, let’s say it has gapped down more then 50 cents pre market, and it has clear a major support area, I will decide whether to short or long the stock when the market opens and the stock either breaks down under the first 2 min low or breaks out above a two min high, in either position I use a 10 to 15 cent stop. How do you typically trail your stops in a position? When using a trailing stop in a position I use a few different options. I will usually use prior highs and lows of the current or previous days, any other prior support or resistance areas, or if playing an up trend anytime the stock violates the 20ma and vice versa for shorting a stock.

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Can you clarify what you mean when you say you sometimes use the highs and lows of the previous day for a trailing stop? When using a previous days high or low in relation to a previous stop, I will stop out my position if a stock that I am shorting breaks out over yesterday’s high, the same applies when longing a stock. But in more trades then not my stops are a lot smaller. My trading plan centers around taking small losses and multiple attempts on the same play, since the commissions are cheap. Do you restrict your trades to a specific stock universe, price range or average daily volume requirement? I have my daily stock lists. This consists of stocks that I am very familiar with their trading patterns. As far as price range and volume, I normally like stocks between 80 and 100 dollars, any volume over 700,000. Regarding your daily stock lists, is the list constant from day to day, or do you scan for a new list each day? My core list rarely changes. It consists of maybe 5 stocks that I know in and out. On a daily basis I scan pre market gaps, I look at stocks in the news, stocks from chat room, but in the end everything comes down to technical analysis. Do you read the VCM newsletter or listen to the live trading room? I read and listen daily. How often do you get your trades from either of those sources? Anywhere between 15 and 30 percent.

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What change in your trading plan or approach made the biggest impact on your profitability? The biggest impact on my profitability was simply sticking to my trading plan. For me that’s a scalping plan. Learning to take a small loss and move on. And lastly learning to trust the trade. So your trading plan is primarily scalping, and you are through trading one hour into the market. What is the duration of your typical trade, and do you usually trade multiple positions at the same time? Well, my trading plan is the following when I scalp stocks: I enter single positions (even though I am preparing in the near future to do up to 2 to 3 positions), I enter my position as early as seconds after the bell if a certain stock looks extremely weak or strong, knowing I may only hold this position for 30 seconds or if my stop is triggered. Now, on the flip side, if the stock behaves the way that I have predicted, I will hold it until it hits a point that I have mapped out on the chart. This could be anywhere from 30 seconds to a few 5 minute bars. I am currently trying to hold stocks a bit longer due to the recent success I have been having, trying to stay with the 3-5 bar movement that most stocks follow in normal market conditions. What else have you added to your trading approach that has helped? I have had to learn to forget about previous days but to analyze each winning and losing trade, what made them work and what didn’t. Any final words of advice for other VCM Prop Traders? Yes I have two things: One should never get too greedy when trading. Second is that traders must be persistent even in the face of failure.

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VCM Prop Trader Interview – April 2008 Can you provide a brief overview of your trading history? I traded stock options for about 3 years on and off. This was really just gambling on news, newsletters, and Investools. After losing a substantial amount of money, I decided to seek professional help from VCM at the recommendation of a friend. When did you start using the VCM trading methods? I took my first VCM trade on 8/01/2007. At what level in the Trader Advancement Program are you now trading, and how long did it take from when you started the program to reach that level? It took me almost six months to reach level 8 where I have been for the last two months—eight months total. How many trades a day do you typically take, and at what times of the day? Generally I take about five to ten trades a day. However, when the market is slower or choppy, I have more stop-outs and therefore take more trades. What percentage of your trades are winning trades? 40% (2008 average) What percentage of your trading days are profitable? 64% (2008 average) What is the typical size (dollars) of a losing trade for you? $50-$150 What is the typical size (dollars) of a winning trade for you? $150-$400 What is usually your primary timeframe for your trade setups? 5 minutes What are your favorite types of trades? Break downs How do you typically trail your stops in a position? Once I reach a target, I’ll trail it by 5 minute bars.

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Do you restrict your trades to a specific stock universe, price range or average daily volume requirement? Here’s where I’ve experimented quite a bit. I started out by playing everything under the sun, then I focused only on the Nasdaq, now I mostly play gappers. Most stocks I trade now are between $18-$90 and at least one million shares a day in volume. When you say you trade gappers on a five minute timeframe, are you often entering right off the first five minute bar, or do you wait for a later setup to form on the five minute chart? I wait for setups on gappers after 15-20 minutes after open. I’ve experimented with entering after the first 5min bar, but usually my nerves can’t handle it or my stops are too tight for the volatility. I plan to continue experimenting with earlier moves since those seem to have the best payout when the work. I’ll have to wait until my nerves can handle it though. For now, I’m working on building a plateau of success before I strive for higher goals to allow me more time to digest. I still have several bad habits I’m working to rectify before I increase my risk. Do you read the VCM newsletter or listen to the live trading room? I occasionally read the newsletter. I used to participate in the live trading room, but I wanted to find my own way. While Paul is obviously a spectacular trader and a great asset to both VCM and new traders, I realized that his trading style is not conducive to my personality. I have learned an intense amount from Paul during the 6 months I listened to him trade, but I wanted to develop my own style. However, I could not have done any of this without his direction, experience, and knowledge. I find myself aspiring to achieve his calmness during the trading day. The most ironic thing is that my style of trading is becoming more and more similar to Paul’s even though I don’t listen to him. I guess his lessons have really stuck. I do plan on participating in the room again in the near future. How often do you get your trades from either of those sources? Never, at least not in the last few months.

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What change in your trading plan or approach made the biggest impact on your profitability? Taking smaller risk per trade. Through levels 1-6, I would take my entire maximum share size. This would cause my account and more importantly, my emotions, to be very volatile. Taking smaller positions allowed me to take more trades and forced me to make more money with fewer shares; therefore improving my accuracy. This was challenging as I had to lower my expectations for immediate and faster profits, but was rewarding since my progress was more linear and steady. What else have you added to your trading approach that has helped? I try to always have a hard stop in place. I find that if a trade moves against me without a hard stop in place, I have a hard time taking my mental stop, especially when it has moved significantly from where I was supposed to exit. Any final words of advice for other VCM Prop Traders? I, by no means, consider myself a successful trader yet and feel awkward filling this interview out. It might be a little premature to seek my advice, but I hope my words have offered some encouragement. I would say that experience is your friend. I have traded over 2 million shares since I started with VCM. Take as many trades as you can and learn from them. Like many things in life, going through the motions is necessary to get real value from a lesson, even if that means making known mistakes. The key is to learn from those mistakes and making efforts to correct them. Once you make the mistake and pay the consequences, you’re more likely to remember what NOT to do as opposed to someone telling you how you shouldn’t do it. VCM is paying your way to make these mistakes and therefore learn, but if you worry too much about making profits, your learning curve will undoubtedly be wider and longer.

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Appendix J – Download Instructions TO DOWNLOAD THE VCM TRADER PLATFORM, USE THE FOLLOWING LINK:

http://www.orbisfn.com/vcm TO DOWNLOAD THE PLATFORM FOR THE LIVE TRADING ROOM, USE THE FOLLOWING INSTRUCTIONS:

Velez Capital Management’s Trade for Life TM Live Trading Room

Thank you for enhancing your trading career with Velez Capital Management by signing up for our live trading room. You may access the room anytime you like while a member. Our moderator is generally talking between 9:00 a.m. and 4:30 p.m. EST, but it is best to tune in early in case there is something happening that morning. The moderator will be talking as well as typing, so make sure your sound system on your computer is working. The moderator will be giving written comments and talking throughout much of the day. In addition you will find the camaraderie of chatting with other traders and sharing experiences. There is market commentary, plays given in real time, analysis of plays, educational comments, lectures, and question and answer times. The material presented to you will change the way you think, and remove most of your prior notions about the stock market. Now that you have enrolled, let me welcome you to the inner circle of professionals.

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DOWNLOAD THE ROOM You will need to install the software needed to have the best chat room service capabilities on your computer. The following link will walk you through the installation process… 1. Go to this link:

http://www.vcmtrading.com.

2. Near the top right hand corner you will see the “VCM Traders Log In”

3. Click on that to be taken to the log in page. Here is where you will log in. If you are a VCM Proprietary trader, use you User ID and password you currently use to log in to Prop Reports. If you are a paid subscriber or on a free trial, use the password you selected when registering. If you forgot the password, there is a “Forgot your Password” link that will send your password to your email.

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4. Once logged in, click on the ‘services’ tab

5. Here you will find information about your services account, and the links for whatever rooms are available to you based on your subscriptions. Click on the ‘Connect to Proprietary Trading Room’ button. You will be taken to a page that will allow you to ‘Connect’. (There is also an option for a ‘Java Link’ which should only be used if you are not allowed to install software on your computer). When you click on this for the first time, you will be prompted to download and install the software. While following the instructions you will be asked for the following information:

Relay Server – Relay5 Room – VCMTradeForLife The above must be entered EXACTLY as shown (capitals matter). 6. For clients running two Hotcomm rooms at the same time, (such as running the VCM Proprietary Trading Room and the VCM NewsRoom at the same time) you will need to run the rooms on different machines OR use the STANDARD/PRO version of Hotcomm which will need to be downloaded here –

http://www.hotComm.com/ftppub/hcsetupx.exe . This will provide you with a seven day trial for free. If you wish to keep this version, you will need to pay for the standard/pro version of the software. Instructions and rates can be found at

http://www.hotcomm.com/downloadHC.asp.

If are or become a paid subscriber to the VCM News Room, email [email protected] to request an unlock code to keep the license for the standard/pro version which lets you run two rooms on one machine. 7. Here are some helpful tips on using the room.

http://www.hotcomm.com/guide/CL_help.asp

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TO DOWNLOAD THE PLATFORM FOR THE CUSTOMER SUPPORT ROOM, USE THE FOLLOWING INSTRUCTIONS: The following will provide you with directions for accessing the Velez Capital Management Customer Support Room. This online room will be available for any VCM traders requiring assistance with their trading platform or account between the hours of 8:30 AM and 4:30 PM Eastern, Monday through Friday. When entering the room, please be prepared to type a brief statement of your problem. One of the assistants monitoring the room should assist you shortly. You should also be ready to provide the assistant with your phone number in case the issue is more easily addressed over the phone. Please be aware that you will need to exit any other HotComm room, such as the Live Trading Room or the Lecture Room, in order to access the Customer Support Room. Please choose one of the following procedures in order to obtain the best learning experience possible. 1. To access the room, we recommend that you download the full version of the VCM Customer Support Room. This is the same software that we use for our Trade for Life™ Live Trading Room, and will create a shortcut icon for the room on your desktop. This will provide you with crystal clear reception and a constant connection. To do so, please follow the VCM Customer Support Room Download instructions below. 2. Alternate method – If you are unable to download software because you are at an alternate location, you may also log in with the following link – no downloads required -however, this is a Java application which may disconnect on occasion. http://relay9.ezpeer.net/im-live/VCMSupport.htm?-rm=VCMSupport For either method of access - You will simply be asked to supply a name that will appear as your login name. YOUR LOGIN NAME SHOULD BE YOUR VCM ACCOUNT NAME. This will help our staff in assisting you with any account issues. The password for the room will be “support” The room will be open from 8:30 AM to 4:30 PM Eastern, Monday through Friday. If you try to log in early and receive a message saying that the room is not available right now, you know you have registered properly and will be able to access the room at the proper time.

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DOWNLOAD INSTRUCTIONS: VCM Customer Support Room 1. Go to this link:

http://www.hotcomm.com/ftppub/hclsetupr.exe

2. Click ‘Run’ when the box comes up asking “Do you want to run or save this file?”

3.

4.

Click ‘Run’ again if any security programs ask you again.

Read the Terms of Use and click ‘I Accept’ if you do. You must accept to continue.

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5.

The program will begin installing. Answer YES to the question: ‘Would you like to add short cuts to your desktop for rooms that you connect often? After you have created one, just cancel if it asks a second time.

6.

The software will continue installing and it will ask you for the following information:

Relay Server –

Relay9

Room – VCMSupport The above must be entered EXACTLY as shown (capitals matter). Click finish on the final dialogue box. Once installed all you need to do in the future is click on the icon that was placed on your desktop. You should use your VCM Account Name as your ID for the room. If you have previously downloaded the room and used a different ID, you can change your ID after entering the room by left clicking on your ID at the bottom of the page and specifying a new name. Your password for the VCM Customer Support room is “support”.

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DOWNLOAD INSTRUCTIONS: Velez Capital Management’s

TM

Trade for Life

Training Room The following will provide you with directions for accessing the Velez Capital Management Training Room. The VCM Training Room is available only to VCM Proprietary Traders. The purpose of the room is to help new traders with the transition from the Live Trading Lab to the VCM Proprietary Trading Room. The Instructional Room will have fewer trades per day than the Proprietary Trading Room, but will spend more time reviewing the set up, entry, exit and trade management for each trade. There will be daily examples of trades that are stepped through on a bar by bar basis to help new traders learn how to apply the VCM methodology. There will also be regular review of the basic platform and trading principles that are covered in the Live Trading Lab. The primary goal of the Training Room is to get newer traders comfortable with their platform, chart reading, and trade execution skills so that they can move into the Proprietary Trading Room with confidence. The room will be staffed between 9:00 AM and 4:30 PM Eastern, Monday through Friday.

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DOWNLOAD THE ROOM You will need to install the software needed to have the best chat room service capabilities on your computer. The following link will walk you through the installation process… 1. Go to this link: http://www.vcmtrading.com. 2. Near the top right hand corner you will see the “VCM Traders Log In”

3. Click on that to be taken to the log in page. Here is where you will log in. If you are a VCM Proprietary trader, use you User ID and password you currently use to log in to Prop Reports. If you are a paid subscriber or on a free trial, use the password you selected when registering. If you forgot the password, there is a “Forgot your Password” link that will send your password to your email.

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4. Once logged in, click on the ‘services’ tab

5. Here you will find information about your services account, and the links for whatever rooms are available to you based on your subscriptions. Click on the ‘Connect to Training Room’ button. You will be taken to a page that will allow you to ‘Connect’. (There is also an option for a ‘Java Link’ which should only be used if you are not allowed to install software on your computer). When you click on this for the first time, you will be prompted to download and install the software. While following the instructions you will be asked for the following information:

Relay Server – Relay8 Room – VCMtraining The above must be entered EXACTLY as shown (capitals matter). 6. For clients running two Hotcomm rooms at the same time, (such as running the VCM Proprietary Trading Room and the VCM Training Room at the same time) you will need to run the rooms on different machines OR use the STANDARD/PRO version of Hotcomm which will need to be downloaded here –

http://www.hotComm.com/ftppub/hcsetupx.exe . This will provide you with a seven day trial for free. If you wish to keep this version, you will need to pay for the standard/pro version of the software. Instructions and rates can be found at http://www. hotcomm.com/downloadHC.asp. 7. Here are some helpful tips on using the room.

http://www.hotcomm.com/guide/CL_help.asp

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Appendix K – VCM Prop Trader Agreement

Velez Capital Management Proprietary Trader Agreement - Master ________________________________________________________________________ The Company and you agree that you will, as an independent contractor to the Company, select purchases and sales of securities for day-trades in the Company’s account, with funds provided by the Company (“Stock Trades”). You agree that all transactions selected by you are to be day-trades and at no time will a security be held over-night, except under the current guidelines of the program. If a position remains open after 4:00 pm E.D.T. you hereby expressly authorize the Company to close any open position in your sub-account without notice. You further understand that the Company may close your position at any price available, which may result in substantial losses to your account. You will receive, as full consideration for your services hereunder, a percentage of the net trading profits as detailed in schedule A attached. Such net trading profits shall be calculated on a monthly basis by the Company, whose calculation shall be final and binding, absent manifest error. You will be paid any net trading profits within 30 days after the last day of any month that ends with a positive Net P&L (defined below). Your relationship with the Company is that of an independent contractor, and not an employee or a customer of the Company for any purpose. This Agreement may be terminated by either of us, with or without cause, at any time, effective immediately upon written notice given to the other party. The Company will track within a Company sub-account that it maintains with any securities brokerage firm that it selects (the “Company Account”), all transaction results for Stock Trades that you select. Those Stock Trades will be tracked separately from all other activity and transactions within the Company Account, including securities transactions selected by the Company, by its employees and/or by other independent contractors. The portion of the Company Account so tracked, and which holds the securities positions that you select for the Company Account from time to time, is called the “Trader Sub-Account.” You recognize that the creation of the Trader Sub-Account is an accounting mechanism only. The Company will maintain a profit and loss record on the Trader Sub-Account, reflecting all profits and losses on the trades you make therein, net of all transaction fees, costs and expenses incurred by the Company for such trades to be effected. The net amount of the profit and loss on the Trader SubAccount, as computed from time to time, is referred to as the “Net P&L.” The Net P&L will be zero before your first trade. If the Net P&L at the end of any month is negative, you will not be entitled to any compensation for that month, and the negative Net P&L will be carried forward to the following month. If the Net P&L is positive at the end of any month, there will be “net trading profits,” a percentage as per schedule A. Each month will start with a Net P&L equal to the Net P&L at the end of the immediately preceding month, less any distributions of net trading profits made to you therefrom.

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The Company intends to monitor the Net P&L continuously, and will be able to ascertain at any time, including in the middle of any trading day, if there is a negative Net P&L (a “net trading loss”). You recognize that, as noted above, the creation of the Trader Sub-Account is an accounting mechanism only. Therefore, it is the Company, and not you, who is the party to each Stock Trade, and, as between the parties to the Stock Trades and their respective brokers, it is the Company which is responsible for such net trading losses. The compensation that you will receive hereunder will be a percentage of the net trading profits as per schedule A, if any. Mandatory Distributions: If you have a net positive balance in your Trader Sub Account at the end of each Trading Month, the Trader Payout will be: (i) credited to your account; (ii) set apart for you or (iii) otherwise made available to you, so you may draw upon the Trader Payout amount at that time. If you elect to NOT have the Trader Payout actually disbursed to you at that time, you must give notice to the Company when you desire such disbursement. For each year, the Net PNL for the month of the December will be made available to you on December 31. Such funds will be distributed in the normal course, however, you may be distributed the Trader Payout for the month of December at that time, upon written notice to the Company. For every $12,000 of compensation that you receive, you will also receive an additional bonus payment of $2,000 from VCM until such time as your original training tuition has been completely reimbursed. You understand and agree that all right, title and interest in and to the Company Account, the Trader Sub-Account and the profit and loss thereon are and shall be the property of the Company, except to the extent that you are entitled hereunder to receive a percentage of the net trading profits as per schedule A. Therefore, you should understand that any losses on securities transactions in the Company Account, including in the Trader Sub-Account, belong to the Company, and not to you, and so are not available to you to offset any ordinary income or capital gains that you may earn during any tax year. You represent to the Company that you are lawfully able to enter into and perform this agreement, and doing so will not result in a breach or violation of any agreement to which you are a party or by which you are bound. You understand and agree that all software, designs, inventions, improvements, trade secrets and works of authorship owned or used by the Company or its affiliates, and all financial information, pricing strategies, client or customer lists, supplier lists and other information regarding the Company or its affiliates and their respective business operations or procedures, constitutes valuable confidential and proprietary property of the Company and its affiliates or the persons from whom the Company has obtained the right to use same (collectively, “Confidential Information”). You agree that except as directed by the Company and in the ordinary course of the Company’s business, you will not at any time disclose to any person or disseminate, directly or indirectly, for your own benefit or the benefit of any others, any Confidential Information, or permit any person

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to examine or make copies of any document, computer disk, or other media for the storage or manipulation of information, that contains or is derived from any Confidential Information, whether prepared by you or otherwise. The provisions of this of this letter agreement will survive any termination of this agreement and any termination of your relationship hereunder with the Company. You agree that upon request by the Company or in the event of the termination of this Agreement, you will immediately turn over to the Company all documents, computer disks, and other material in your possession or under your control that contain or have been derived from any Confidential Information or that relate to any work performed by you for the Company, without retaining any copies of such materials. You represent and covenant to the Company that you shall abide by all securities laws, rules and regulations with respect to all Stock Trades selected by you, including, without limitation, laws that prohibit the use of non-public information in making securities transactions. You understand that the Company is not a securities brokerage firm, and holds no license or registration from the SEC and NASD, but is a private company engaged in trading and investing in securities for its own account. Upon the termination of this Agreement for any reason, you immediately shall close all open positions in the Trader Sub-Account, and immediately upon doing so, shall cease all trading and other transaction activity therein. The Company will determine the Net P&L and distribute your portion of any net trading profits as provided in schedule A herein. You agree to indemnify, defend and hold the Company, its corporate affiliates and their respective officers, directors, employees and shareholders harmless, from and against any loss, damage, liability, claim, cost, award and expense, including, without limitation, reasonably attorneys’ fees arising out of or in connection with any breach by you of your obligations hereunder, or the enforcement by the Company of its rights hereunder. This agreement shall be governed by, and construed in accordance with, the substantive laws of the State of New York, without reference to any conflicts of law principles. You and the Company agree that the Company’s principal executive offices are located in the State of New York, in the County of Nassau, and that it is reasonable and desirable to apply the laws of the State of New York to any dispute between the parties hereunder. You and the Company hereby irrevocably consent to the personal and subject matter jurisdiction of the federal and state courts located in Nassau County, in the State of New York with respect to any action, suit or proceeding arising out of or relating to this agreement or any of the transactions or relationships contemplated hereby. You may not assign any of your rights, or delegate any of your duties hereunder, without the prior written consent of the Company, which may be withheld in the Company’s sole discretion. Any attempted or purported assignment in violation hereof shall be null and void.

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Schedule A Transaction Fees: $0.0002 per share plus/minus all ECN & exchange pass thru fees. Note that this rate is subject to change should the transaction fees be changed for the firm. Data & Software Fees: Trader Payout:

$50.00 per month. Note that this rate is subject to change should the cost of the trading platform and data feeds change for the firm.

Upon graduation of the Velez Capital Management Trainee Program traders will begin to receive 60% of their net trading profits less monthly data & software fees. Further adjustments to the payout percentage will be based upon the guidelines of the Trader Advancement Program in effect at that time.

Trader: Name___________________________________________ Address_________________________________________ ________________________________________________ SS #____________________________________________ E-mail__________________________________________ Home Phone______________________________________ Cell Phone________________________________________ Date_____________________________________________ Signature_________________________________________ Velez Capital Management LLC Office Manager____________________________________ Date_____________________________________________

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