Search the Community

Discipline: "To know and not to do, is not to know" As I sit here contemplating the subject of discipline, I think back at the early stages of my trading career. I heard the word so often but never really understood how it fit in with trading the markets. First off, let's get to know what the word really means: The dictionary describes it like this: "Training to act in accordance with rules" When someone is winning or succeeding at something, discipline is easy to follow. When someone has experienced defeat, discipline is a wild animal that is looking for a victim to attack. Better said, when your losing, the rules go out the window. Now think about that in your trading career. Its 9:50 am EST and you have increased your account for the day by some $500. That's $1500 an hour! You sit on the sidelines not wanting to risk this precious gain only taking the most perfect textbook patterns. How easy is that? Your momentarily happy and go out of your way to kiss your spouse, pet the dog or cat, nothing can get you down. It's a great day! We'll, let's take a peek at a different scenario. It's 9:50 am EST and you just lost two trades in a row; you are down $500 in your trading account and you absolutely despise hearing someone that is having a great trading morning. Your spouse says good morning and you don't answer or say something to appease her/him so they won't talk to you for a while. The family pet comes over and all you can say is "beat it Rover" and your immediate thoughts are, I have got to get this money back. It's 10:00 am, you see a questionable trading pattern and if you tilt your head to the left and then turn your monitor at a 45 degree angle you can see signs of glory that has $500 written all over it. Your trading plan just went out the window and if you listen closely, you can hear the snarls of the un-caged animal lurking over head. Oh, by the way, his name is "Discipline". You take the trade and you earn your $500 back. What a great day just to be even. The cycle continues until the stock market zaps every last dollar from your trading account and you become another statistic. This just doesn't work you say, as you fade into the distance never to attempt trading again. You lay dormant as another victim that has been serious wounded by the faceless market. Does any of this sound familiar? I bet you can begin to relate to the reasoning behind this message. My friend, discipline is an animal that intends to throw you off course, ditch your plan and humble you. If you have a trading plan, (and you should) you need to honor that plan at all cost of temptation. I know you want to rid the grief of losing for that day so you do what most people do, they move to HOPE MODE and that just wont cut it. You need to find a way to make certain your plan will stay intact when days like this come, and they will! Design you trading plan with this in mind. Set parameters on how you will handle the rest of the trading day. For example: will you scalp only; reduce your risk; only be allowed to trade once more that day if you lose; there are a number of things you can insert into your plan to avoid this discipline killer. Once you experience how powerful it is to just follow your plan and not give way to "Hope Mode" the faster you will learn the skill of discipline. I would be happy to see you join us and to answer any questions you may have. Good trading! Jeff Yates Contributing Editor Interactive Trading Room Moderator Gap, Intra-Day and Swing Trading Specialist Instructor and Traders Coach

Good Morning All: For the next three weeks, I will be looking at things that beginning traders should know as they start this business. Don't be surprised however, if some of you moderately experienced to very experienced traders don't find a few interesting tidbits; Even if they serve as nothing more that review. A Beginner's Handbook Part 1 of 3 Welcome to trading. Are you new to this field? Or is it called online stock buying? Or is it day trading? Or is it investing? Well let's get a few terms straight. This will be the first of a three part series, "A Beginners Handbook". First, at Pristine, we consider 'buy and hold' something that is no longer a term that should be applied to the stock market. Do this if you like in real estate, bonds, gold, but not stocks. It implies a long-term buy and hold with your eyes closed approach that should no longer be used in the stock market. The term 'investing' is fine as long as it does not mean 'buy and hold'. There is nothing wrong with long term holds. We believe in swing trades and core trades that could last for months or years in some cases. However, they are 'managed'. As traders, we do not close our eyes hoping all will be all right. Traders are educated in technical strategies and discipline. They become self-sufficient Most of today's large cap companies are in the technology area. These companies are subject to having their main product replaced by a new technology very easily. Long ago, it required many years for any company to start up a new car company and over take General Motors. Today, anyone can create software in their garage that can revolutionize how something is done and put a competitor out of business. Look at the company Iomega, for example. They are the makers of the infamous zip drives that appeared on computers years back. The current technology at the time was storing information on 1.44 meg disks. They came out with a system to store 100 megs on a disk, and got contracts to put their drive on every major computer. Sounds like a company you can buy and hold forever, doesn't it? It is, until someone discovers that the same information can go on a CD and have it cost much less. At that very moment in time, literally overnight, Iomega is out of business; unless it has other products to sell. The rule is 'change or become extinct'. This example is found over and over again in everything from video sales to computer chips. When practicing 'buy and hold' (as opposed to long term trading), you are relying on news and announcements and fundamental data. Many of you have probably already discovered how worthless this process is. To the extent it has a valid use; it is never to take the news or information at face value. Take a look at Amazon's recent earnings. You can look wherever you want, the comments were the same. "Results from Amazon (AMZN) ... also disappointed the Street". If you are relying on news to make decisions, it must be time to get short AMZN, right?. However, take a look at what happened after the dismal report was out. There was no other news. Those of you that already know this see this happens all the time. So if 'buy and hold' is out, what do we do? You hear stories all the time about all of the 'day traders'. You look around you and you don't see many. You may not even know any besides yourself and those you met at a seminar. Unfortunately, the term 'day trading' is often misused by the media. There is a large group of people that we call 'online investors'. These are the folks that use their computer in place of their telephone to call places like E-Trade, Schwab, etc. and place their orders. They are typically managing their savings or IRA money, and are typically untrained. They were plentiful during the bull run of the 90's, and often were wrongly called 'day traders'. They did not need to be trained because they made money buying stocks in the late 90s no matter what they did. Most of them are all gone now. We consider our selves 'traders', but this does not include the much larger group of 'online traders' mentioned above. Traders use technical analysis to find, enter, and manage trades. That applies to long or short term trades. Those that are focused on trading and exiting by the end of the day with that account are called day traders. We consider traders people who spend a good part of the day with the market. Those who are trained to manage positions that may last from several minutes to several months. While we believe that 'buy and hold' is a dead term, we do use many time frames to hold stocks, the longest of which is a 'core' position. While a core positions may last for months (or years), it differs from investing because there is an exact exit strategy planned for a core position. We also use a 'swing' time frame. This is one that may last from 2-5 days. We also use tactics that would have us holding a stock overnight one time, or exiting the same day. Sometimes exiting part of a position only minutes after entry. So if you are going to trade, how do you buy stocks? If you are trading only a few trades a week, and limiting yourself to swing and core trades, using on of the 'online brokers' is fine. The time it takes to have your order filled is not very fast, but for occasional long-term trades it is acceptable. If you are going to be trading more often, or trading in and out the same day, you will want to use a 'direct access' broker. This is a broker that lets you see all of the market participants, where they are buying and where they are selling. You then place your own order on your computer screen and many of these orders will have instant executions. By instant I mean instant, usually within a fraction of a second. If you need a broker, or not happy with your current broker, consider Mastertrader.com. It has the best rates and service, a variety of platforms, and you earn points to use at Pristine for services and seminars. So, you know what you want to do, and you have selected a broker. Now you need a computer and an Internet connection. Again, for occasional swing and core trading, any machine that can access the Internet will do. If you are going to be active intraday, you will need to have something better. You will need a computer that is competitive with the current top of the line computer, or is at least current with the technology within the last 12-24 months. You will want a fast Internet connection. You need to be looking at Cable, FIOS, Satellite, or T1-3. Depending on where you trade, you will have to evaluate which of these is available and most effective for your money. You will need to have a working knowledge of computers, as your time with the computer will be extensive whether you want it to be or not. So now you are ready to trade, right? Well, no not really. The biggest distinction I made earlier was that 'day traders' are educated in trading strategies and disciplines. This will be the focus of the next Lesson, how to start out trading when you have no education or experience in trading. I will discuss how to build that education as you go, without using up all of your capital. Closing Comments There is perhaps no greater occupation to have than that of a professional trader. Yet, few achieve that title. Few achieve, even thought thresh hold is not that high. In terms of cost and education, most anyone is capable. You have to set yourself apart, and be different. That is part of what we will talk about next week. Until next week, good trading. Paul Lange Vice President of Services Pristine Capital Holdings, Inc.

Good Stocks - Bad Market In a correcting market environment you better know how to determine which stocks are "acting well" and which aren't if you're going to trade the long side. Acting well is a term often used to communicate that one tradable instrument is outperforming something else. This could be the broader market, a sector, another stock or a market internal gauge. For the stocks we are going to look at it, will be relative to the broader markets. It can also mean how that tradable instrument reacts to gaps, support, resistance or the lack thereof. In addition to knowing which stocks are acting well, you'll need to be able to determine with relative accuracy when the market is likely to bounce a bit. In a correcting market even the stocks acting well have a greater tendency not to rise when the market is falling. However, when the market makes a short-term low these stocks are likely to act even better. Meaning, go higher. The first thing that we want to consider is the market timing. For this example I will use the Nasdaq 100 ETF symbol QQQ, which has actually been weaker than the S&P 500 and the Russell 2000. QQQ has reached its first area of price support since breaking down (closed the VOID) and has stabilized between 65 and 66. Friday, prices broke below the prior three days lows, which were very close to each other (a minor breakdown) and rallied back up toward the high of the day. Pristine Tip: A Bottoming Tail (BT) bar that forms in this way - at prior price support - is a strong indication of a short-term low. Now we need to see if QQQ can trade above Friday's high for confirmation of this price action. The chart of YAHOO (YHOO) is most interesting in that it bottomed at close to the same time that QQQ topped. YHOO began to show its strength when it was able to move sideways, rather than retrace lower after the strong rally that created a Pristine Price Void (PVV) below. As QQQ began its decline, YHOO moved sideways at the prior resistance to the left and absorbed that supply (red area). This is what I call acting well. Once it formed a new support pivot, buyers came in when prices dropped back to retest that area. Lastly, YHOO gapped above the sideways consolidation it had formed creating another PVV and has held above that area. Wow, YHOO really acts well! CREE is another stock that acts well. While it did have a failed breakout and then move lower with QQQ, it recovered relatively quickly. Like YHOO, CREE has moved sideways at its prior resistance and is absorbing the supply there (red area). Plus this is happening after a large gap up that created a PVV. Also, on 10-19 when QQQ formed a Bearish Wide Range Bar (-WRB), CREE formed a BT! CREE then formed a new support pivot, has not even come close to test it, and after Friday's bullish day it isn't likely to. Cree is looking real good. I pointed out that Harley Davidson (HOG) had formed a bottom on 10-19 on my first post on Twitter. While HOG was showing relative weakness to the broader market prior to October, it was bottoming. As I showed at Twitter and Facebook, the reason this bottoming action really interested me is because the monthly time frame of HOG was a Pristine Buy Setup (PBS). You can check out the charts at Twitter and Facebook. Like YHOO and CREE, HOG is moving sideways after a strong move at resistance and is absorbing the supply there (red area). Notice that HOG broke below the prior two day's lows on Friday. While it did not recover back the high of the day; these breaks can result in a move higher if prices move above high. HOG is acting well too. All the best Greg Capra President & CEO Pristine Capital Holdings, Inc.

n a prior Chart of the Week (COTW) titled Bringing Common Sense to Trading Part I, I explained how to determine turning points and continuation points with price action alone. This week I am going to show why prices trended as they did Friday. In that prior COTW, I also told you that price oscillators, various other indicators and drawing lines to determine turning points or support and resistance have nothing to do with prices reversing when they do. Friday's drop should reinforce that fact for you. To an extent, these analysis tools do have a self-fulfilling prophecy at times since so many people have been taught to believe the fallacy and use them. The internet based online trading education industry perpetuates these hocus-pocus indicator based methods. Not much has changed over the years. When I started to learn about trading the markets there was no online education, since there was no internet. However, there were mailed letters that gave recommendations and some education. Like most online educators now, those letters also used the indicator mythology. It's not easy getting started with so much information to sift through about how to use these types of technical analysis to trade and invest. I did not side-step the learning and use of indicators, but I did eventually see the truth. Through these COTW letters and our other services I hope you will see through these deceptions that create confusion about price movement. Okay, let me explain what happened on Friday. Before we get to Friday, above is a chart that I posted at the Pristine Facebook Fan Page and the Group Page last Wednesday. In it I showed why sellers would show up the next day, and they did. I also said that ES (ES is the e-mini contract for the S&P 500) retraced further than I thought it would, but those Topping Tails (TT) suggest that short-sellers are waiting to pound it again. This alone did not suggest or predict how much prices would fall on Friday. However, what made that possible was the way prices moved up to the area of the prior TTs. The key here is the fact that there is virtually no overlapping of the candles on the way up. Each candle started at or very near the prior candle close and did not retrace back into the prior candle. In other words, this is a continuous fluid movement. There is no uncertainty among the majority traders. Prices are going up; buy or get out of the way! This arrangement of candles displays strength, power and momentum. But if that is the case, how could prices fall as far and as hard as they did? While this arrangement of candles does display strength, it is the weakest link also. As I have explained in the past, one of the most powerful concepts to understand is that of supply and demand. Where sellers and buyers are and when there is a Void of them. The way prices moved up into the supply area and the TTs (little to no overlap between candles) it created what I refer to as a Pristine Price Void (PPV). When prices move upward so fast there is no support under prices. There are no pullbacks or sideways consolidations. So there is nowhere to buy a pullback based on a price support as a reference point (demand area). There is a Void of support or demand because prices moved higher so fast. In addition, as current prices move sideways over time they move away from any small support area that might be there. This makes any small support area irrelevant. This is a common question students have. What about that small area of price support? What is more powerful or meaningful, that small area of consolidation or the bearish daily time frame and intra-day bearish shock? It's the weight of the evidence to consider as a whole, not one piece of information. Pristine Tip: A truly strong momentum move does not need support. It creates it. I discussed this in the COTW Bringing Common Sense to Trading Part I. Look for momentum moves that begin from a consolidation and have a PVV overhead. Not moves that end at the top of a range. In the chart above, I've shown the daily time frame at the upper left and the 60-min. time frame. In the 60-min. you can see how little congestion (stall in prices moving higher) there is, especially on the Tuesday the 16th. As prices moved sideways and away from what little intra-day overlapping there was, it made those areas less relevant as a reference point of support. The essence of a Head and Shoulders top is that the upward move has ended when the new high fails (the head) and that the time moving sideways (the Shoulders) signals distribution. That price pattern creates a Void below. Also in this example, there is a shock that occurred on the 18th and confirmed the bearishness of the bigger daily picture. Let's assume that you had no idea of the bearish big picture and potential for the larger decline. It's conceivable that you could have thought that prices have fallen a lot and would bounce on Friday and looked for long trades. Well that's fine, but unless the price action becomes climactic near a prior support area or there is an actual trend change on the time frame being traded (in this case the 5-min.), there would be no objective reason to buy. This is a rule all Pristine students and prop traders are taught from the start. Include it into your trading plan and it will eliminate a lot of unnecessary loses. I hope this COTW has helped you understand why prices moved as they did on Friday and see that the commonplace indicator based mythology is unnecessary and misleading. I will be presenting a Free Workshop on Tuesday October 30th. At it I will be discussing what we covered today and other Pristine trading strategies. It will be similar to the coaching sessions I do with students and hope to talk to you there. All the best, Greg Capra President & CEO Pristine Capital Holdings, Inc.

Good Morning All: Over the years, I have written many articles; hundreds, maybe even thousands if you include partial repeats and every short lesson. Sometimes the lesson is a partial re-write, or a new take, or a new way to explain or organize the information. While there are many summaries out there on various topics, and while the topics on this lesson may be found somewhere else, I began a three part series two weeks ago answering a very direct question: What causes failure in trading? This has been a no-nonsense, nuts and bolts look at the question, not a philosophical dissertation. Two weeks ago I discussed 'discipline' as the first true reason for failure. Last week I discussed reason number two; the inability to focus. Today I will discuss the third reason, which will end this series. There may be other reasons, but these are the top three. To clarify again, most people actually fail because they do not get an education. However, that is a decision that people consciously make. I want to discuss why the people who really try, can still fail. What Causes Failure? Part Three of Three Reason number three is the inability for traders to plan and follow up. This is a fairly broad topic, I agree. However, it has to be in there as one of the top three. Again, these three are not in any particular order. Yes, all of these topics are somewhat interrelated. Many may argue that this one is the most important. But what good is a plan, if you do not have the discipline to follow it in the first place? What good is a plan, if it is so expansive no one can review it accurately to see if it was followed? When I talk about planning, I am not talking about planning with a small letter 'p'. I am not talking about preparing a watchlist for the day, or checking the earnings schedule. I am talking about planning the a big letter 'P'. I am talking about the Trading Plan. When I talk about a Trading Plan, I mean a very detailed plan or what you are allowed to trade every day, when and how you trade it, how you enter, how you mange, when you can change it, what strategies, and all the money management rules. If you day trade without a trading plan you follow religiously every day, you WILL fail. You 'may' survive as a swing trader, depending on your background. The other half of this third reason for failure is the inability to follow up. No Trading Plan is worth anything if it is not followed. Closing Comments: This is the end of this three part series. To be sure, the number one reason traders fail is they do not receive a quality education. That is what we do at Pristine, provide the best education in the business. What I wanted to address here is, even after the education, why do some still fail. Lack of discipline, lack of focus, and the failure to create a trading plan and to follow up to make sure those first three are in place. That sums it up. Do you have these three eliminated? Eliminate these three reasons to fail, and you will have an outstanding chance for success. Paul Lange Vice President of Services Pristine Capital Holdings, Inc. http://www.pristine.com/images/educator_plange.jpg

Many of you know that I have a back ground in Stock Car racing. The more I think about it, the more I see similarities that racing and trading the markets have in common. Particularly that they both require intense focus. I was thinking back on my racing days and I remembered a statement that my crew chief made to me. That statement not only gave me the edge in racing but virtually in every other venture that I was a part of. Are you ready for that magic set of words? Well, I think it would be prudent for me to explain a few things first. You see, in racing, you are rewarded for being fast, having cautious aggressiveness and being the most consistent; in addition, everything is measured in fractions of seconds.... In some cases the decisions you make, or don't make for that matter, could injure you or even worse, could be fatal. When you hear these words that I am going to share with you, it may not make sense at first but experienced individuals know how important this is. OKAY, are you ready? My crew chief said to me, "Jeff, if you want to go fast you have to slow way down." Now you can just imagine the confusion on my face when I was told this. I think my exact response was, "Huh?" He went on to explain to me that to be fast, you need to slow down in the corners so that you can set up the car for the exit. Most people drive off in a corner and man handle the car and as a result, they have a poor exit. By simply rolling into the corner rather than driving 100% into the corner, you will have more momentum in the majority of the track, which is in the straight away. I finally began to understand this concept and since then, I have applied it to many things in my life. So, here is the big question... How does this apply to trading the markets? Many people that are embarking on a new career want the experience of success," YESTERDAY"! They "rev up" their trading account and go full-speed into the corner not giving any consideration to consistency. They don't even know what their car has under the hood. They start buying and selling stocks as if they were selling tickets to a Broadway show. No strategy, no plan, just pure adrenalin and emotion. Most new traders feel that if you are in the trading business, you should be trading; not sitting and waiting. Unfortunately, a very high percentage of new traders never make a proper exit off the corner. Man handling their trading eventually causes them to end up in the wall, and I don't mean Wall Street. If they would just learn how to roll into the corner (paper trade) and set their car up for the exit (proper education FIRST) they would learn how to pass the majority of people down the straight away. I had a conversation once with racing legend Bill Elliot who has gone down in history as one of the most winning drivers on the NASCAR circuit. This is basically what he told me: "Jeff, if you were to paint a line around the track where your front tires are tracking, the goal would be to only focus on hitting your marks." He went on to say "Sloppiness or inconsistency of your line around the track is one of the most damaging things a racer can do." That made so much sense to me the more I thought about it. So many people spend so much time looking for the better way around or a better system that they lose the peril and momentum of consistency. By the time they find their "line" (the Holy Grail that does not exist) they have already used up their equipment. You do not need to trade 20 or even 100 trades per day to be a trader. The professionals ARE NOT TRADING the majority of the time, they are just following their line (only taking their setups and not looking for the newest and "better way" to make a lot of money in the markets.) The sooner you learn and understand that taking less trades with more consistent setups is really the only way to achieve financial rewards in day-trading, the sooner you will be on your way to consistent profits. Jeff Yates Contributing Editor Interactive Trading Room Moderator Gap, Intra-Day and Swing Trading Specialist Instructor and Traders Coach

Good Morning All: Over the years, I have written many articles. Hundreds, maybe even thousands if you include partial repeats and every short lesson. Sometimes the lesson is a partial re-write, or a new take, or a new way to explain or organize the information. While there are many summaries out there on various topics, and while the topics on this lesson may be found somewhere else, I began last week answering a very direct question. What causes failure in trading? This will be a no-nonsense, nuts and bolts look at the question, not a philosophical dissertation. I will discuss the top three over three letters. Last week I discussed 'discipline'. Today I will discuss the second of the three reasons for failure. To clarify again, most people actually fail because they do not get an education. However, that is decision people make. I want to discuss why the people who really try, can still fail. Last week I opened here telling you of an inescapable truth I discovered long ago. Everyone who enters trading is exactly the same, and stay the same for a long time. Reason number two for failure continues that tradition. Reason number two, is the lack of, or the inability to, focus. Yes, all of these topics are somewhat interrelated. Nevertheless, they each also have their own merit. Discipline and lack of focus are not the same thing. You may not have focus due to a lack of discipline, but you may not have focus by design. Many traders come to the market with the view that they have to become the master of all around them. They feel they need to learn about economic data, currency rates, foreign politics, and the list goes on. When traders learn technical analysis, the feel the need to put everything to use. I have seen trading plans that have 14 strategies spelled out for a new trader. Yet, all of that information is not going to change what a stock does that gaps over a red bar and pulls back to minor support. It will not change what happens to a stock that is in a perfect 15-minute uptrend. Closing Comments: Perhaps you have read the book "Market Wizards" by Jack Schwager. You should take note of the point of the book. In this book, the author sets out to interview 25 successful traders to determine what they have in common. He wants to find out what strategy it is that they all do, or how the strategies are similar. He finds two things that all traders have in common. One of them, the one we care about, was that no two did anything remotely similar in strategy, however, they all focused on one unique thing, waited for it to happened, and did only that. Focus. Paul Lange Vice President of Services Pristine Capital Holdings, Inc.

The chart and question shown was posted at the Pristine Facebook Group. Below is my posted answer. The concept of being extended is difficult for most, if not everyone at some point for several reasons. I will discuss reasons generally and then in some detail. However, a complete understanding can only happen in class, but let's start here. Extending means stretched out and suggests a return to a more "normal position." However, to most technical traders and investors, the word extended invokes the belief that the trend is close to over. Being extended has little to do with trends ending. Actually, extended initially suggests that the trend will continue. The first step to clearing up the difficulty to understand extended is to realize that most taught methods of defining extended are based on completely subjective measurements. These have little to no consistency to define the end of a trend. Many times, they don't even result in a retracement to a believed normal position. This leads to confusion and of course a lack of confidence in the method. Exactly, what the question is communicating in the example using a moving average (MA) as a measure. There are various technical tools to measure extended, but we'll discuss MAs now since that is what was used. As with all technical analysis tools there are choices to using them like the settings. Different settings will give different signals or measurements and then setup different beliefs based on them. For example, if we use a simple 20-period moving average verses an exponential one we will see those MAs at different levels. Which one is the right one? Prices may appear to be extended from the simple type since it moves slower than the exponential. What if we use a 10-period moving average instead of a 20-period? Prices may appear to be extended from the 20-period, but they are not from the 10-period. The 10-MA is averaging in the more recent prices were as the 20-MA is also averaging in the older prices as well and will be slower and further away. Depending on what you have been taught or read, you will have a different set of beliefs about what is extended and possible. If you are convince to change the MA type or length, your beliefs change. Soon you'll be second guessing all of them. Been there? Next, I am sure you have seen what is seemingly extended in one time frame that is not extended at all in another. For example, the 5-minute time frame may appear extended, but the 60-minute move has just started. In an example like that, traders focused on the 5-min. can be fearful of continuation patterns or breakouts and require a retracement. However, retracements often do not occur leaving those watching see the move become more extended. In fact, the chart and question is how to handle such situation. Without an understanding of how to interpret and combine multiple time frames anyone would be confused. Lastly, and this comment is likely to raise a few eyebrows, but addresses a deeper understand of what the question relates to. The belief that prices are extended - even in a higher time frame - and that a trend is unlikely to continue is false. It will leave you scratching your head as you watch the extended prices become even more extended. Here is the key and what I hope is a light bulb moment for you. Historically, prices will continue trended higher until the Pristine Price Void (PPV) is closed, Major Support (MS) is violated or resistance is created. In other words, there is no objective reason to think the trend will end, so don't. Pristine Trend Analysis is based on the concept that a trend will continue to a price reference point were traders will sell at. Without that reference point (a Void) to sell at, traders are just guessing at what is extended and where the trend may end. I wrote about this in a Chart of the Week (COTW) titled, "You Have Been Setup to Fail as a Trader." The distance to a moving average alone is incomplete information and misleading. Adding additional indicators like oscillators will add to the confusion. There are hundreds of these indicators to choose from and when you add the choices of the settings possible, the combinations are endless. It's no wonder why there is mass confusion about technical analysis based trading. Clearly, extended is a subjective idea if based on a single concept like the distance to a moving average. Students of the Pristine Method® learn to use Multiple Time Frames, Trend Quality, Relative Strength and Weakness, Support, Resistance and the lack thereof (Pristine Price Void), the influence of the Market or a Sector, Market Internals, Inter-Market Analysis and others. There is a lot to learn to become a professional in any field and technical trading/investing is no different. If you are trading stocks, a futures contact like the S&P 500 e-mini, a commodity or a Forex currency pair based on generally accepted technical analysis tools. Odds are that you are thinking that there is no way you will ever understand price movement. You can and it does not have to be complicated. However, it does require the right education. All the best, Greg Capra President & CEO Pristine Capital Holdings, Inc.

Good Morning All: Over the years, I have written many articles. Hundreds, maybe even thousands if you include partial repeats and every short lesson. Sometimes the lesson is a partial re-write, or a new take, or a new way to explain or organize the information. So, while there are many summaries out there on various topics, and while the topics on this lesson may be found somewhere else, I thought I would take today to start answering a very direct question. What causes failure in trading? This will be a no-nonsense, nuts and bolts look at the question, not a philosophical dissertation. I will discuss the top three over three letters. What Causes Failure? Part One of Three After many years of seeing many issues in trading through the eyes of many traders, I have come to one inescapable conclusion. Something I now consider a fact. Everyone who enters trading is exactly the same, and stay the same for a long time. It is not until later in development, that some break out into 'unique' ground. So relax, everyone has gone through what you are, or have gone through. You may not like the answers. However, you need to hear them. While education in technical analysis is absolutely needed, most who really try, receive that education. In addition, they receive enough to make them potentially successful. For those who do not get an education, it may be the biggest cause of failure. However, anyone can understand the education material once presented, and many who receive the education still fail, so lack of education, while critically important, is NOT making my top three list. Number one quite simply is the ability to do what need to be done, and do it now. The word for that is 'discipline'. This is the number one reason for failure amongst traders. Initially it may be the lack of discipline to take a stop. Later it may be the lack of discipline to reach a target. Note that the trader knows what the stop is, and what the target is. This is why the 'education' doesn't make the list. The problem is, even those that know what to do and when to do it, do NOT do it. Lack of discipline. It shows up in many other places. The lack of discipline to review material learned. The lack of discipline to review trades and make changes. The lack of discipline to create and use a trading plan. The lack of discipline to honestly analyze your trades and determine you need an education. All of the key things in trading are easily learned by someone who wants to learn them. However, they are not easily done. Lack of discipline is a number one reason traders fail. Do you suffer from a lack of discipline in your trading? Is it holding you back from your goals? Closing Comments: This is the first of three things we will look at. After seeing them all, you may disagree about the order. Do not. They will not be in any particular order. They are all important and it is like the 'chicken and the egg' argument. All three of them are critical, and the lack of any of them will cause failure, just like removing one leg of a three-legged stool. Pristine Capital Holdings, Inc. 1-800-340-6477 Counselor@Pristine.com

After reading this I believe that you will have what is referred to as a Ha-Ha or Light- Bulb moment. The basis of this concept isn't a new revolutionary type of technical analysis, but it is a powerful common sense approach to understand the interaction between buyers and sellers. Find someone else teaching the same - and you'll have found a formal Pristine student. Frankly, there isn't anything new or revolutionary when it comes to technical analysis. However, there are different ways of interpreting the same raw data that we all use. Most do this with a hodge-podge of indicators. Some even make a business out of selling you their proprietary indicators or indicator based system that will tell you what to do and when to do it. Knowing what to do and when to do it sounds great and why so many buy into these marketing indicator schemes. Maybe you remember or bought the once popular red light - green light trading system that many paid thousands for in the mid-2000 period. If you're interesting in a long-term approach to technical investing or trading, the history of the red light - green light indicator approach (gone) and others like it isn't it. The use of indicators or indicator systems attracts virtually everyone that becomes interested in trading the markets. I was no different when I started and tried many indicators and wrote a few of my own. The idea of removing the guess work and the uncertainty is attractive. It is also a powerful way of motivating those interested to buy into their marketing. Been there? Here's the concept I want to share with you....... There are buyers at prior price support (a demand area) and sellers at prior price resistance (a supply area). If you're thinking; I knew that already, that's it? You don't realize what a power concept this is. Let me explain. Virtually all price indicators/oscillators (there are hundreds) attempt to define when prices have moved too far and will reverse, right? Sure, but it doesn't work except in hindsight. These indicators have absolutely nothing to do with prices reversing. If you doubt it, think about why does what becomes overbought or oversold either stays that way or becomes more so without returning to the other extreme so often? It's not that you're using the wrong indicator or settings either. That's thing will keep you in search of the Holy Grail and the next indicator. Next there are technical tools like Fibonacci Retracements, Gann Lines, Moving Averages, Elliot Waves, Andrews Pitchforks, Bollinger Bands, Regression lines, Median Lines, Trendlines and they go on and on. All of them are supposed to locate the area where prices will find support or resistance. All of this hocus-pocus analysis is insane! So, what's the answer? An in-depth understanding of price support and resistance pivot points or consolidations as reference points are where you need to focus. This is where buyers and sellers interacted in the past and will likely do so again. Once you have a reference point, wait for a price pattern signaling slowing momentum and reversal. At Pristine, we define a Support Pivot as a bar or candle having at least two higher low bars to its right and left. A Resistance Pivot is a bar or candle having at least two lower high bars to its right and left; simple. The trend of prices, the arrangement of the candles, changing ranges and volume are some of the other concepts to consider that increase the odds of follow through, but that's for another lesson. As far as where prices are likely to stall, it's the basics you need to follow. There are buyers at prior price support (demand) and sellers at prior price resistance (supply). Let's look at a couple of chart examples. As Google (GOOG) moved lower on the left side of the chart, it formed a Resistance Pivot. As you can see, sellers came in at the same location. You didn't need an indicator to guide you where sellers would be, did you? You only needed to look at the chart for a pivot high. Once the trend was violated, look for buyers (demand) to overcome sellers (supply) at a Support Pivot. As prices move higher in an uptrend, the concept of what was resistance becomes support applies. However, in the strongest trends prices will not pull back to what was resistance. I'm sure you've seen that in the past. At these times, don't chase. Wait for a Support Pivot to form. Once it does, you have a new or created reference point of support where buyers will step in again. Reversal candles are you confirmation at those points. In the chart of Facebook (FB), prices moved up from a low pivot point and there was no clear resistance area to the left. However, once a Resistance pivot formed there was a clear point where sellers (supply) overcame buyers (demand) and that would likely happen again. Once FB broke lower many will look for a retracement to sell, which is fine. However, when supply is overwhelming demand - prices cannot retrace that much. Don't chase out of fear of missing the move, even though that may happen. Wait for a Resistance Pivot to form. Once it does, use that reference point and your Candle Analysis to tell when to act. In the chart of the New Zealand Dollar versus the U.S. Dollar (NZD/USD.FXB) a climactic move lower occurred. This created a Pristine Price Void above and once a pivot low formed we had a reference point where buyers (demand) would show up again. However, we cannot know for sure if that low will hold, and we don't want buy in such a strong downtrend without confirmation. Rather, we want to wait to see if a reversal will form in the same area. If it does, we have that confirmation on the retest and a strong buy signal. I hope this Chart of the Week has provided you with the Light bulb moment I promised. All the best, Pristine Capital Holdings, Inc.

When I began learning about the trading using technical analysis over 20-years ago I filtered through much of the same information you are. I examined the use of trendlines, moving averages, countless indicators and other types of technical measures. All of which were supposed to define a trend, signal changes of a trend or turning points within those trends. What I found is that nothing worked with any consistently and there were too many variables. Especially flawed are the concepts of overbought and oversold, which I will convince you of. Whether you are a stock, commodity or currency trader, at some point you have been lead to believe that by using price oscillators like Stochastic, RSI, Williams %r or the many others you will be able to determine turning points in those tradable instruments. The idea with these is that they can measure the price action and determine when those prices have become overbought (moved too high) or oversold (moved too low). When a signal is given prices will then reverse. Once you've learned this and their ability to signal turns has been instilled in your beliefs of what is possible, you have been setup to fail. It's not your fault since those that teach the use of these indicators in trading courses will show you how well they worked in the past. Of course, real-time experience will show you how often it doesn't work. Let's look at a couple of examples Before we do that, if you have not read the article I wrote called Bringing Common Sense to Trading. In it you will learn how to trade prices action that has moved too far too fast. In the above chart of Google (GOOG), once prices began their move higher there weren't any pullbacks of significance. While conventional thinking would suggest that prices would or should pullback it didn't happen. You see, overbought is a flawed concept that does work and it will limit what you believe is possible. There is a meaning to the word of course, but it has no real existence in the markets. When buyers are in control and there is little to no price resistance to the left prices can move higher and higher regardless of the overbought belief. It is obvious from the chart above, what is overbought can become more overbought and then move even higher. If you still have any doubt that the idea of overbought or oversold is flawed, this chart should take care of it. As Research in Motion (RIMM) started its decline there was never a point where it was overbought within the decline, which is still intact. I know that we can make some oscillator with some setting show an overbought signal at the Pristine Sell Setup (PSS). However, that would setup another limiting belief that it may work in the future or on another stock or currency. FA Get About It. At this point, RIMM could be oversold at zero, but look at this chart. From the high, it fell 20 points and no bounce and then another 20 and nothing. It fell about 50 points before being able to move up and form that PSS! Is that when some oscillator read oversold? There is no oversold or that it has moved too far lower when big money institutions are overloaded and caught. In addition, when there is no significant price support to the left (a Pristine Price Void), the odds are extremely high that the decline is going to continue until the Void is closed. If you are reading this you are passionate to learn about trading and failure is not an option. You are in search of the truth in technical analysis; same as I was. I found it and it isn't in the accepted, over-taught indicator based methods. The truth is in keeping it simple and understanding the messages within the price action. This is the same for day-trading, swing-trading or long-term investing and the same for FOREX, Stocks or E-minis. If you have a trading screen full of indicators I am sure that you have been affected by the plague that infects everyone wanting to learn trading based on chart reading. Consider what I've shown you and remove them, read my other article Bringing Common Sense to Trading and the light will start to come on. All the best, Greg Capra President & CEO Pristine Capital Holdings, Inc.

We believe in the 80/20 principle in many aspects of life, including trading (i.e., 20% of the workers do 80% of the work; traders will make 80% of their money in 20% of the time, etc.). So the key, then, is to determine when to SOH (Sit on Hands), and when to trade more aggressively (push the throttle), and take 2x to 3x the normal share size, provided your Trading Plan permits. Here are a few of my considerations when deciding to get more aggressive on the long side (opposite for shorts): Is the market environment what we call a "green light day?" For this, we focus on the trend of the broader markets and following market internals. Imagine if the SPY, DIA, and QQQ were all quality patterns on the weekly, daily and hourly charts, with multiyear monthly major support? Is the TICK bullish, with support at 0 on the day, and oscillating above 0? Is the TRIN bullish, in a tight range below .5? If so, you should be diligently searching for high odds, quality patterns to trade long for day trades and swings. Next, the reliability of the pattern is key. You want a stock showing relative strength to the sector and broader markets, and a pattern that delivers a huge reward-risk (i.e., huge target with a small stop). Remember, you must always be asking yourself how much risk you are assuming in relation to the desired target. When you see the high odds patterns that you recognize, and the internals support longs, you should be ready at the keyboard and possibly "Push the Throttle", in alignment with your trading plan. Finally - are you a good trader? Do you have enough experience in the market and are you hitting your goals? DO NOT PUSH THE THROTTLE if you are having a bad day or bad week or bad month. DO NOT PUSH THE THROTTLE if you are still in the early stages of learning and losing consistently. Don't worry, your time will come. But the key is to keep yourself from BLOWING UP your accounts while you are learning. The bottom line is that if you are losing, any urges you get to PUSH THE THROTTLE may be result of revenge trading or frustration. It will do nothing but beget more frustration and larger losses. KNOW YOURSELF. So, if you are 'hot' and you are 'seeing the market' well and have been doing well following your plan and successful, then you may consider PUSHING THE THROTTLE. I find that when I "Push the Throttle" my win percentage skyrockets - only because I have experience and these days and trades are HUGE winners. But if you are NOT there yet, and you know whether you are or not, DO NOT DO IT. Manage to your plan and gain consistency and profitability thru great market experience and review, and you will be ready to PUSH THE THROTTLE when the time presents itself. KURT CAPRA Contributing Editor Instructor and Traders Coach

In last week's Chart of the Week (COTW), I explained why there would not be a severe market correction any time soon. However, I did tell you short term the odds are that a minor correction is not that far off as we are coming into what is historically the most bearish time of the year. That being said, we need a common sense way of measuring the likelihood of a historical cycle repeating, rather than blinding following history. Let's look. For a short-term correction to occur there has to be a reason for that to happen, other than just the time of year. Many seasonal periods have failed to produce the expected based on the past. Here is what else has to be in alignment with this time of year. First, in an uptrend, the Void of price resistance has to be closed. Without an area of price supply to the left, prices aren't likely to pullback much. Second, the majorities have to be willing to take on a historical high level of risk with bets that the trend will continue after having doubting it. This is seen through an acceleration of prices moving higher and an increase in speculative leveraged bets. In other words, the trend is now obvious to the latecomers and they are entering close to the worst possible time. This started happening last week. In the chart above, prices of the S&P 500 measure by the ETF symbol SPY began accelerating higher the week before last and are nearing resistance. This resistance is also the all-time highs from 2007, so this area will be an obvious point that all will focus on. So why are so many increasing their buying into an area where selling will show up? It always happens that way and I believe that it's just human nature to ignore the obvious risk when greed kicks in. There is also the fear on the part of money managers that they have missed the move and are jumping in. The second component needed is speculative leveraged betting and there is no place better to measure that than with the activity of options traders. The chart above displays the number of put options traded verses call options in equities on each day and a 5-day moving average of those daily closes. The 5-day moving average and the daily close have reached a historical level where short-term corrections are not far off. Combined with the upward momentum into prices resistance it tells us that the odds of a short-term correction are high during this bearish yearly time. Historical cycles in the market can be a good guide to timing change, but alone they are not enough. It's the combination of technical concepts and market internals with historical cycles that make them valuable information. All the best, Greg Capra President & CEO Pristine Capital Holdings, Inc.

Over the more than 20 years that I have studied and traded the markets there have always been advisors with an opinion that the market is close to a crash or a severe drop. While these opinions often come with relatively convincing reasons, the majority of times it has not happened. Wouldn't you like to know when the risk in the market is high based on historical facts, rather than another's opinion? I did and I'm going to show you what to use. As the markets approached the recent prior highs it was a reasonable assumption that selling would increase - and it did. However, it wasn't reasonable to assume that selling was going to produce a severe decline. Before we get to why, if you didn't read the prior Chart of the Week (COTW) please do that. In it I explained how Pristine students learn to recognize when support and resistance reference points are created and how to use them. If you used this simple, but powerful concept you would have known when and where bullish traders were taking a stand. You would have also known that the odds of the market moving higher after the retest had increased. Thursday's big move up tells me that those short had no idea or were in denial of the growing strength. Okay, let's get to the big picture. As we know, the market has a strong tendency to do the opposite of what the majority believe will happen. The question is, how to know when the opinion of most investors has become too bullish or to bearish? That's easy to know, if you know where to look. Each week at the website www.AAII.com individual investors vote their opinion as to whether they are bullish, bearish or neutral on the market. In the chart above, the green line displays the percentage of those that are bullish; the red line displays the percentage of those that are bearish and the blue line is a moving average of those bullish divided by those that are bullish plus those that are bearish. This provides us with a ratio that when at historical extremes it warns us when too many investors are bullish or bearish. As you can see from the chart, the blue line still has a ways to go before too many investors become bullish. The historical data for this and many other market internals, which are automatically updated on a daily and weekly basis, are available from www.pinnacledata.com. The next chart shows the spread or difference between 30-year long-term interest rates and 3-month short-term interest rates is at the top. In the lower half, it shows the weekly closing price of the S&P 500. As you can see, when the difference nears zero and below the risk of a severe market correction is very high. There are other factors to consider for market timing, especially short-term timing, but these two gauges will serve you well as a long-term guide for market risk. When both are at extremes, too many bullish and the difference between long and short-term interests below zero history tells us big trouble is not that far off. The above chart is a bull market (choppy at times) and until our long-term guides turn bearish history tells us that it makes no sense at all to even remotely think crash or severe correction. Short-term, the odds are that a minor correction is not that far off since we are coming into what is historically the most bearish time of the year. After that comes a bullish period, and assuming our internal guides are bullish - the markets will move higher. You might think that the markets have more than doubled since the lows shown in 2009 and they cannot move even higher. However, that's human reasoning. We know that doesn't work in the markets and why we need to use tools like I've shown you as a guide. Greg Capra President & CEO Pristine Capital Holdings, Inc.

Swing trading relies on a firm understanding of technical chart analysis and allows traders to buy low and sell high when done successfully. Swing Trading is a common method in the forex markets and focuses heavily on identifying support and resistance levels.

Serial Correlations are also referred to as ”lagging correlations” or “auto correlations.” These correlations are a key determinant in technical analysis practices, which are used to forecast later price movements.

Special Thanks to Burton Malkiel for graciously joining our discussion on Efficient Market Theory and his book "Random Walk Down Wall Street". Mr. Malkiel is a Professor at Princeton, Noted Author and Market Participant. As die-hard Technical Analysts ourselves, we have waited months for Burt to find time in his busy schedule to chat with us. You will find him charming even if you disagree with him. To listen to the interview simply click the headphones above. Please share your thoughts on what Burt has to say regarding his theory and popular book (now in its 11th printing) and why you as a Technical Analyst do not believe the markets are random. I look forward to your comments.

EUR/USD The EUR/USD continues to gain momentum. Trading closed at 1.2300 on Friday. Overall Market was moving on higher notes. The disappointing US GDP although at forecast, leaves traders hoping for monetary stimulus from the Feds this week. As a lot of fundamental factors are releasing this week that would affect dollar and indirectly the euro price. Euro is expected to carry its move in this week, looking ahead into the coming week, markets are likely to remain on toes with some heavyweight economic data slated for release in terms of the FOMC rate decision and job numbers from the U.S. With Job market in the U.S still sluggish and hampering other indicators, market watchers would be fervently looking for the Nonfarm Payrolls data next week to take a better account of the labor situation in the world’s largest economy. Today Market is expected to carry its move around 1.2310 putting its support at 1.2232 and resistance at 1.2378. Fundamentals to Effect Euro Chart Representation GBP/USD The GBP/USD is trading at 1.5722, which is a very misleading number. The GBP has no support and no reason to be trading at such levels, except that the US dollar weakened so over the past few days. As the ECB President Draghi vowed to save the euro, the euro gained momentum pushing the greenback downwards. On Friday, the negative GDP print in the US also pulled the USD downward and the forecast of monetary stimulus this coming week from the Fed has again weakened the USD. In London, everyone is at the Olympics so no one cares about FX at the moment; they are all chasing other metals. As there is no reason for the euro to move up except USD downward movement, so today market move is quite unexpected, it may move down if the USD influence is diminished. Market move is expected around a price range 1.5718 putting its support at 1.5670 and resistance at 1.5771 Fundamentals to Effect GBP Chart Representation Gold Gold is trading at 1617.85 holding its gains from previous week starting as markets have shift the safe haven of the USD and the JPY to gold. As a result of USD price downward movement. Market has shifted his trend to invest in metals instead of crosses and stocks. Gold trend line is upwards moving and gold is expected to carry its movement even higher than last week’s ending day movements. Today Market is expected to move in price area around 1621.6 putting its support at 1614.5 and resistance at 1631.9. Chart Representation Silver Silver movements are somehow connected with gold movements. As the gold is moving on higher notes so is silver. Investors are considering these metals as safe heaven. Last week GDP coming out from US side was quite unexpected, that left the USD being weaker. Today Silver is expected to move around a price area of 27.65 putting its support at 27.47 and resistance at 27.95. Chart Representation Dow Jones Index Under the influence of upward moving market DJI is also moving upwards, as it has crossed the price level of 13000 on Friday touching 13061. It can be said that it is a result of dollar index downwards movement that has made DJI to move upwards. Today Market is expected to move around 12967 putting its support at 12873 and resistance at 13124. Chart Representation Crude Oil Crude Oil was largely ignored in Friday’s trading, holding at 89.50, as investors waited for the 2nd quarter GDP numbers. Although the print met expectations, forecasts were set so low, that the report was disappointing. The prior quarter GDP was at 2.0% and this quarter was revised to 1.5% which is a huge drop. With the US one of the largest consumers of crude oil, and a drop in growth to this extent, will force a downwards revision to crude oil consumption levels and demands for the balance of the year, pressurizing prices. So a steady move is expected in Oil prices. Today Market is expected to move around 89.92 putting its support at 89.40 and resistance at 90.71. Chart Representation Support and Resistance

At times, traders can decide to use customized indicators or software plug-ins to add to the existing indicators in order to enhance the results of technical analysis. Some of these software include automatic pivot point calculators, trend line markers, chart pattern recognition tools, candlestick recognition tools, etc. Traders use them to get some extra information that are otherwise not provided by the pre-existing indicators on the charts.

Elliot Wave Theory is based on the concept that trades unfold in a series of 5 trend waves and three correctional waves. For example, an uptrend would show 5 upward movements, with each movement separated by a correctional downward movement.

Many trading systems are based on candlestick formations that are found on Candlestick Charts. Many of these are reversal patterns that show market indecision, and these trading systems can be identified quickly for short term strategies.

One of the things that separates the forex markets from those where other asset types are traded is the fact that currencies are priced in pairs. Essentially, what this means is that we are never buying or selling a currency by itself. Instead, currency performance can only be viewed in relative terms and this can have drastic on the type of trades that should be placed and the various strategies that should be implemented. If this didn't complicate things enough on its own, another factor that traders must understand is that some currencies are highly correlated with some of its counterparts and inversely correlated with others. But while it might seem to be a daunting task to research and memorize the ways various currencies align with each other, currency correlations can provide traders with potential trading opportunities and tactics for managing your total risk exposure at any given moment. Understanding Correlation Comprehending the interdependence that is seen in currency pairs is easier in some cases than it is in others. For example, when dealing with the EUR/JPY we would expect there to be some similarities to others, such as the EUR/USD and the USD/JPY. A trading session particularly strong buying activity in the Euro would likely send the EUR/JPY higher but if the same trading period saw the EUR/USD trading lower, we would know that the US Dollar was the strongest of the three currencies that session, with an inevitable run higher in the USD/JPY. More specifically, correlation can be measured using the “correlation coefficient”, which ranges from +1 (highly correlated) to 0 (unrelated or random) to -1 (inversely correlated). Currencies with a coefficient of +1 would essentially move in lock-step with each other. Currencies with a coefficient of 0 would have no decipherable relationship with each other. Currencies with a coefficient of -1 would show price patterns that are mirror images of each other. Of course, most currencies will not fall exactly into one of these categories and instead will fall into some interval degree of these three coefficients. Correlation Tables Many currency brokers offer currency tables that display the correlation coefficients of the most commonly traded pairs. These are updated regularly, so traders will always have the most up to date information. Below is the currency table that is offered by OANDA, separated by regular time intervals: The table above shows the relationships between the EUR/USD forex pair and its commonly-traded counterparts (along with silver and gold). Relative to the EUR/USD, the EUR/JPY has a 1-week correlation coefficient of 0.81, while the USD/JPY has a 1-week correlation coefficient of 0.57. To better understand these coefficients, the following descriptions are given: 0.0 to 0.2 Very weak to negligible correlation 0.2 to 0.4 Weak, low correlation (not significant) 0.4 to 0.7 Moderate correlation 0.7 to 0.9 Strong, high correlation 0.9 to 1.0 Very strong correlation From this, we can see that the 1-week correlation between the EUR/USD and the EUR/JPY is “strong,” while the 1-week correlation between the EUR/USD and the USD/JPY is “moderate.” The EUR/USD and the EUR/JPY will move in the same direction 81%, while the EUR/USD and the USD/JPY will move in the same direction 57% of the time. These numbers, of course, are constantly changing depending on the various market conditions currently in place. In this case, the longer term 1-year correlation became stronger in the EUR/USD – EUR/JPY, while it weakened in the EUR/USD – USD JPY. Interestingly, looking at the table above, the EUR/USD and the USD/CHF had a perfect negative correlation of -1 during the latest 1-week to 3-month periods. With this, we can see that these pairs moved in opposing directions 100% of the time. In the next article, we will look at ways this information can be used to construct trading plans.

Trading in the forex market tends to be a little confusing when you're first starting, which is why it's vital to your success as a trader to understand technical indicators and use them within the framework of your forex trading strategy. Forex indicators assist traders in predicting the direction in which the currency market will travel. Following the indicators will give any forex trader the information they need to work their forex trading strategy. You see technical analysis is just the study of the short term price action in the market. Now, this short term price action is determined by the buyers and sellers in the market. Markets are just buyers and sellers trying to buy or sell. Their emotions rule the markets. When these buyers and sellers all start behaving in the same manner, you can well imagine market can become highly predictable. When things become predictable, they lose their value. This is the exact reason why when majority of the traders use the same indicators they become useless. The different types of Forex trading indicators depend upon the need of an individual. For just a technical support, a trader needs to set up the whole scenario of deriving the very least of information from the indicators. This can be a set up of two or more kinds of indicators which are combined in order to obtain very helpful results. In a layman language, indicators are something which alarms you to trade. It sets up informative surrounding and makes work much easier. It is supported by trend, cycle, volume and momentum in trading. The indicator uses trend to show the ongoing setup of the market. It makes the trader aware of the uprising or downfall in the market which can be used as a piece of information. The Bollinger Bands They give very good signals and can be used as support\resistance indicators, telling us - before the move occurs - that a reversal is prone to happen. When price touches the lower band it is oversold, and when price touches the upper band it is overbought. The trading method for the Bollinger Bands is basically to look for price-action support and resistance levels, and confirm them with bounces on the Bollinger Bands themselves. This results in very high win rate and consistent profits. The Simple Moving Average, or the SMA, is an interesting indicator that most traders do not use in the right way. Most traders use it as a trend-following indicator to enter trades after a trend has been established, however we use it in an entirely different way. For example: The last five closing prices for MSFT are: 28.93+28.48+28.44+28.91+28.48 = 143.24 To calculate the simple moving average formula you divide the total of the closing prices and divide it by the number of periods. 5-day SMA = 143.24/5 = 28.65 The most accurate and predictive way to use the SMA is in the bounce method: we wait for trend to establish, but instead of randomly entering, we wait for price to retrace to the moving average and bounce off it. Relative Strength Index The RSI is the abbreviation of the Relative Strength Index, which is introduced by Mr. Welles Wilder in 1978. The RSI method is one of the Oscillator analysis, which indicates the gapping in the forex market using figures, 0 to 100. RSI = 100 - ( 100 / ( 1 + RS ) ) RS = Average of inclining prices for X days / average of declining prices for X days Now you have to choose which one is best for your trading

A Broadening Formation is seen when market activity is seeing relatively high levels of volatility. Sometimes called a “megaphone pattern” because of the broadening shape of the pattern, traders view this formation as an asset that lacks clear trend direction or a clearly defined trading range. In many cases, traders view these formations as a sign that trades should not be initiated until market volatility starts to calm.

It has been asked many a time I’m sure, where traders get their levels from. Indeed, without any knowledge of the specific approach to technical analysis an individual uses, it may be particularly difficult for the non-initiated to understand why certain prices are being singled out as important. There are two ways to identify levels, which are in my opinion complimentary to each other. The first is simply objective structural reference points. Like for example, swing highs or swing lows. They are fixed price points where important action has previously taken place. The other way is subjective activity based reference points where price specific important trading hasn’t taken place. This might be for example, a moving average or a trend line. This technique is trying to define the current mode of trade. It is my opinion that there is no right or wrong way to go about either of these types of analysis. There are many different ways in which different traders successfully define their levels. The key is to have an approach which is as consistent and as unambiguous as possible. I feel it’s important to recognize the variety of methods which are used and to understand that whichever you use, most other participants will be using something else. Possibly even the vast majority of people. It’s my opinion that the very best levels can be transposed between methods and thus the number of participants who have interest in a specific level increases drastically. This is the importance of confluence. I will briefly outline the basis for my approach to defining levels. Objective reference There are two main approaches I use here which are less straight forward than they might first seem:- Volume areas & highs/lows. 1)Volume areas. The peaks and valleys of volume at price provide an excellent indication of where prices have been accepted and rejected in the past, if they are used properly and consistently. What I mean by properly is the period the volume profile takes into account must be identified for good reason. For example, it could be that I want to look at all the volume at price since the start of a prolonged uptrend, or it could be that I’m looking at a recent bracket/balanced area or trade, or even I could simply want to view this volume by day/week/month/quarter/year. The thing that I particularly like about volume at price is that no matter what each participant’s methods are, the profiles show up where they traded. What I like less is that they take no account of time. Whether you agree with this or not is up to you, but I feel that time is one of the bounds of any auction, so along with price and volume, it is important to monitor. This is where MP helps to some degree. Because market profile is based on time (in general each 30min time block is assigned a different letter and so when that price trades in that block, the letter is placed next to the price once, regardless of how much is traded) it is easier to see where quick and big moves have happened and ended. You can always just look at candlestick/bar charts or whatever else, but the way it shows up as “single prints” in a market profile, is particularly clear to me. 2)Highs/Lows. Here I am looking for the most recent highs and lows of market swings, intraday sessions, weeks, months, brackets and anything else which may be significant. They show very specifically where the last auction extreme ended. So if when the market gets there again, the perception of value and what is “unfair” I still the same or similar, the market should reverse from the same area. In particular, I am looking for strong and weak reversals. A strong reversal would be one where we move very quickly away from a new swing high or low, a weak one would be where the market ‘butts its head’ against the level a few times possibly with diminishing volume on each subsequent attempt. These are important markers. I’d also point out that this doesn’t necessarily take into account the beginning of a move. So for example, the start of a big move directly after an out of line US jobs report could have significance. Or if a balanced market which is winding up (or forming a pennant) before a break, the point at which the activity changes is important potentially. It’s the break before the break- or the point at which the activity changes. Subjective reference The subjective analysis I use tends to be based on near term activity more than longer term activity for much of the time. I do pay close attention to the longer term subjective activity of a market of course, but as I’m a day trader and one who doesn’t use subjective analysis alone for entry, what affects me the most is frequently what has just happened. Some of the things I look at as a measure of subjective market action are:- Fibonacci retracement/extension levels. Rotational intensity. Value Area movement. VWAP. Trendlines. Fibonacci retracements and extensions are something many people do not like. I wouldn’t like them either if I were to use them in the same way, but I don’t. I went through how I use them here. Rotational intensity is about the amount of retracement on each counter-trend move. Is it unusually large or small? Is it increasing or decreasing? Is it fast or slow? A change from what I am seeing at a certain relative level, warns me the market might be turning. Value area movement is very simple. The value area is basically the 1st standard deviation of volume (or TPO in MP) and shows where most of the volume has traded in a specific period. If the VA is moving one way or another, in much the same way as the rotational intensity, a change could warn me that something is different now. VWAP or volume weighted average price is a metric used by institutions. Time spent moving away from the VWAP shows the volume is progressively being traded in one direction. When price oscillates back and forth across the VWAP, it’s more likely that for that specific time period, the trade is at least to some extent, balanced. Trendlines and channels are important to me as an indication of market mode. I find behavior often becomes very linear and uniform the stronger the market is adhering to a particular line. So when that line is taken out, I’m on alert. If it’s taken out the market can either move into short term balance before deciding to continue or reverse, or it can break and reverse hard and fast. Sometimes it’s a hybrid of the two which happens. The specifics which I have mentioned are by no means exhaustive and I certainly do not believe that they are the be all and end all to trading. It’s always important for me assess my levels and assign a degree of importance to each. For example, one way in which I assess volume is that the more recent and the more defined (very high or very low volume compared with adjacent areas), the more important the area is. Confluence between objective and subjective levels (or between themselves) is also a particularly important idea to me. It means that there is a higher chance that others are viewing the level and that whatever happens there, it will be of some importance to the overall auction. How do I take into account different methods others use? It’s very difficult to do this at all if I’m honest. The trouble is that there are so many ways to look at the market. The volume profile is the backbone of my analysis because it shows where the market has traded no matter what the methods used to analyse it. So what are your favourite methods to pick out levels? 1) What is the level and what does it represent exactly? 2) To which market and how do you apply these levels specifically? 3) How do you use them in your trading?