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Good Morning All; For this series of four letters, I am going giving you some exact steps that will help you tremendously if you have the technical knowledge, but cannot seem to turn the corner on making good profits. There are going to be four things that you can do that I feel will 'dramatically change your trading career'. The results will be immediate, every week. It should be stated again, that if you do not have the technical expertise, you are not at the level that these comments will help. If you don't know how to look at a chart, no amount of refining will help you. Where do you get this expertise? There is no better place than Pristine's Trading the Pristine Method Seminars. Talk to your counselors about the end of the year deal that will be gone, not to be repeated, after the holidays. After a long time of working with many traders, one discovers that there are certain truths that cannot be denied. There are four things that are done so consistently wrong by new, and even fairly experienced traders, that each of these mistakes results in bad trades 90% of the time for most traders. If traders would simply follow these four rules, they would eliminate most of their losing trades. The fourth rule does not really fall into this "90%" category, but is perhaps the most important. Four Things That Will Change Your Trading Career: Part Two of Four Here is the second rule, and the subject of this lesson. Traders should ONLY take trades that exactly fit the parameters outlined in their trading plan. It sounds simple, but again the facts behind this are staggering. Of the four 'secrets', this one is the easiest to describe, and really requires no technical expertise, just discipline. However, it is arguably the one that costs most traders the most money. Having a trading plan is simply the most important step to trading. It is the only concept that has a 100% correlation with success. 100% of successful traders use trading plans. 100% of traders who do not have plans fail. What more needs to be said? Unfortunately, there is still great aversion to having a trading plan. Here is the pattern that usually happens. First, traders simply leave a seminar or training course and sit in front of the market with the intention of 'developing' a plan over the first few days. The trials and tribulations of trading, combined with the huge dislike for the 'work' of writing a plan keeps 80% of the traders from ever beginning to write one. Of those that begin to write one, 80% never finish, or they do finish a plan that is so poor and vague it cannot be used. Of those that do finish a reasonable plan, as bizarre as it sound, 80% of those never use it. Of those that use it, 80% never follow up properly to see if they are truly following them, or if they are effective. Where are you in this process? No. Stop. Really; go back and answer that honestly. WHERE are you in this process? The purpose of this article is picking the one most important concept to follow up on to eliminate losers. When traders are asked to go back and review their records, it is found that when they go back and pick out the trades that were not really in their plan, an amazing 80-90% of trades taken outside the plan fail. 80-90%. Does that get your interest? Don't believe it? Check for yourself. While it would be interesting to see your results (feel free to send them to email@example.com), experience tells me that few will send them, because few will REALLY do it. Stop and take these lessons seriously. These four 'secrets' will change you career, if you are not doing well now, and if you actually do what they say. Here is what you should be doing to check this. The results below are typical of what you might see. The worst category will be the strategy that is 'no strategy', and you will likely be worse than this example. Closing Comments The point of this lesson is simple. The glory of this does not come from a chart; it comes from the discipline to follow a plan, and more importantly, the discipline to check to see if you are following that plan. By following up in this one area, you may be able to stop the majority of your losing trades. So you ask, "But I don't have a trading plan, or I don't have strategies outlined in my plan, what do I do?" The answer is simple, develop a detailed trading plan that has one or two specific strategies, and follow them. In the next issue of this letter we will look at the third 'secret' that will change your trading. Paul Lange Vice President of Services Pristine Capital Holdings, Inc.
Last Monday, February 25th, the broader markets gapped higher and then declined all day to close near the session lows. It was a wide range bearish day that suggested more selling was to come and it did - for a couple of hours. I too thought there would more selling than what did occur, but here's why I knew it wouldn't be a major decline as so many thought it would be. At the end of the day on the 25th, there wasn't much reason to think there wouldn't more selling to test lower price support. That night I posted at the Pristine Facebook Group "Today's reversal suggests more selling is coming. However, major declines historically do not happen with the typical wrong-sided option traders already betting heavily on a drop. I cannot get too bearish based on that." The above current chart was updated until the 25th and was also posted to show my reason why I did not expect a major decline. Historically, major corrections do not happen with option trader sentiment being bearish already and they positioned for the drop. That being said, I didn't think the drop was over that day either. Most options traders have a short-term bias, which tends to cause erratic moves in the ration day today. For that reason, we smooth the day-to-day fluctuations with a moving average (blue line) for a bias at extremes. We can also look at the sentiment of intermediate to long-term investors as a guide. The American Association of Individual Investors (AAII) surveys their membership each week if bullish, bearish or neutral. Let's look. Other than short periods in 2010 and 2012, these investors have been bearish on the markets. Those times of bullish extreme a market pullbacks happened that turned them bearish again. Not enough of these investors have turned bullish now, which would signal a correction. So this ratio is also saying to stay still bullish. When AAII Bull Ratio turns bearish and the typical wrong-sided option traders are buying too many calls (bullish bets), it will be time to look for a larger correction. Markets moving to new all-time market highs are likely to start that shift in sentiment. The brown line above is of the S&P 500 ETF symbol SPY. Prices are close to the all-time high from 2077 and that does suggest corrective price action. Isn't that what we have been seeing? Yes, so far that corrective action has been sideways on the daily time frame, rather than down. On the above weekly line chart of SPY, the dark green line is marketing Minor Support (mS)and the light green line is Major Support (MS). A pullback to the dark green line or midway between both lines (if prices do pullback) would be a normal bull market retracement. Below the light green line and MS and the weekly uptrend would be broken. The blue line is one of our guides of when a larger correction of more than 20% is not far off. The line is the difference between long-term interest rates and short-term interest rates. Historically, when it moves under zero (an inverted yield curve) a recession and larger bear market is not far off. As you can see, it's nowhere near that level and still bullish. It may be hard to accept a bullish bias when the markets have moved as far as they have over the last few years, but that is why we use market internals as a guide. Not our emotional beliefs. Until sentiment becomes bearish, history tell us that the markets are not likely to experience a major decline. That doesn't mean bull market corrections will not happen. I hope we get one that will setup a new buy. However, the odds that the majority of the option traders will ever or are catching the top now are low. Greg Capra President & CEO Pristine Capital Holdings, Inc
Bringing Common Sense to Trading In this week's Chart of the Week, I'm going to share with you one of the concepts taught in Pristine seminars. 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 forma 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, Greg Capra Greg Capra President & CEO Pristine Capital Holdings, Inc.
Looking at a chart, you always know in retrospect that prices moved sideways, but how to know in advance? In the NeverLossTrading concept, we integrated a study, which measures changes in implied volatility and informs the trader by painting a "Purple Zone" on the chart, indicating, that the price/volume development of a share has reached this critical stage of consolidation. Then, we either apply short term sideways strategies, or wait for the breakout signal, to trade along with the direction after the breakout. In the “Purple Zone”, we find little directional movement with various counter price trend activities until a breakout to the up- or downside occurs. To support the visibility of such price development, we shade the price chart for the time-period purple and produce a very powerful indicator, signifying: Apply short term sideways strategies, with limited risk or do not to initiate trades when the Purple Zone continues, by not knowing when it ends and in which direction prices might breakout. rend-trade when the Purple Zone is over, if the first candle outside the Purple Zone shows an arrow pointing to the trade direction: o Purple Arrow: To the upside o Purple Arrow: To the downside. GE Breakout After a Purple Zone At times we get asked why the zone is purple? The answer is: It marks a time-zone of indecision where the market forces negotiate until an upside or downside price-move concludes the decision making process. The color purple is achieved by mixing red (down-color) and blue (up-color). For the beginning financial market investor, the best is not to trade in the “Purple Zone”, but right after, when a trend is established. More advanced traders gauge the price range in the zone and take trades already at the first break out. By being aware that even light-tower-candles that occur can quickly be reverted while the “Purple Zone Indicator” is present. If we are in a trade that enters a “Direction Change Zone”, we either exit the trade or adjust the range for the stop not to be taken out by radical price movements. If we are unwilling to accept additional risk and still want to stay in the trade, the stop line (red line) of the Double-Decker at entry into the “Purple Zone” builds the point where we put our stop. A directional arrow after the Purple Zone identifies a high probable trade entry. If there is no arrow on the first candle after the Purple Zone, the study recommends not to enter into a directional trade. The best trade entry for a trend trade is two ticks above/below the trade proposal painted on the chart. The same functionality applies for Intra-Day- and Swing-Trading Charts. After our new software update, we are now allowing in the NLT-Purple-Zone-Indicator to put a computer generated price proposal at the end of the Purple Zone arrow: SPY, ETF of S&P 500 Index Signifying the Overall Market Move The trade direction-pointing arrow after the Purple Zone now resides on the price level of the cloud and identifies the new price direction to trade. The width of the cloud can be adjusted from the factory setting of 2 to a higher or lower level: If the level is set to zero, the Purple Zone Cloud disappears. If it is set to 1, it narrows the width of the cloud. A setting above 2 widens the cloud setting. Further: The alert sound and the end of Purple Zone alert can be set to individual preferences. Additional Switch Functions: - If you want the computer generated trade proposal, set the switch on “Yes”. - To receive a sound alert, when the End-of-Purple-Zone -Indicator is triggered, put the switch on “Yes”. The “Purple Zone Indicator” is an integral part of our software package. See, how you can integrate it in your trading. We offer four mentorship programs, geared to the need of the individual Investor: NLT Top-Line, for the Independent investor, where we install real-time analysis software. NLT HF-Stock-Trading: For frequent traders, able to trade the markets every day. NLT Wealth Building: If you are trading two times a week/month. NLT Income Generating: For day-trading futures and options.
Good Morning All: Last week I continued with part two of a three part series to help beginners, and maybe some 'veteran' beginners also. Last week we looked at different time frames and the types of accounts used to encompass those time frames properly. We talked about how education is so over looked by so many yet so needed, as everyone will pay their dues one way or another. Here is part three. In this issue, are finally ready to begin trading, so let's go over some rules to get you off on the right foot. A Beginner's Handbook Part 3 of 3 Once you have made all the decisions that were discussed in the first two lessons and have received an education to the level you feel you need to begin trading, the decisive moment arrives. At this point, I want to make sure you have a few tools in your tool belt when you begin trading. First, there is a steep learning curve in trading. I suggest (well, insist if I can...) that you start out slowly with very minimal risk amounts. Get used to your trading software. Understand the plays. Begin to pick your favorites and really develop your trading plan. At this point your plan is likely just a 'shell'. Know how to get in and out of trades. The odds are that you will lose in the beginning. You are learning how to apply what you have been taught. You will make mistakes. The question becomes, do you want to have all this learning cost you serious money or small money? By the way, it is good to start out paper trading, but as soon as your plan develops and you know your trading software, begin trading very small risk amounts. The most important aspects of trading are not learned trading on paper. Most of you reading this need to understand something. The vast majority of traders who come in to the market fail. Many people try to do this without any education, and those who do are the first ones to fail and usually do so in a big way. However, even with an education, it is not an easy game. There are reasons why even somewhat educated traders still fail at this. For most, there is a lack of discipline by individual traders regardless of whatever education level they may be at. In addition, a lack of capital that forces traders to trade with 'scared money'. It is simply a fact that most traders try to make a living from the markets with very little capital base to work with. That causes over trading and poor management decisions. If you have been trading for a while, do any of these things sound like they are powerful issues that are currently impeding your progress? Another skill you must develop is the habit of keeping good records. Keeping records and statistical information can give you an excellent insight in your trading. There are many things that traders should track such as Sharpe ratios, batting averages, percentage gains based on any particular strategy, percentage gain based on long or short, etc. During this process you should be perfecting your trading plan. One that out lines the types of plays you will look for. It should restrict you from trading certain times and plays that you do not want to trade. It should outline money management rules for you, for handling both winning and losing days. It should set up your share size rules, and it should dictate what kind of record keeping, analysis, and continuing education you will do. Some of these I touched on in prior week in this letter. Here is one of the most important things you can do for you trading plan, and for your continued improvement. Pay attention to the analysis part and make plans to follow up on all of your trades. Most traders spend 90% of their time trading. 10% on preparation and 0% on follow up. This is a very big mistake. Traders should spend as much time following up on trades as they do trading. That does not mean that from 9:00 - 4:30 must be counted as 'trading time'. Your plan may call for you to trade the first hour and last hour. The time in between could be used to review the morning trades and prepare for the next day, paper trade new ideas, etc. You should spend considerable time printing charts of the trades you make and evaluating them and learning from any mistakes. Good traders understand that the money lost when making a bad trade can be an 'investment' in a process that works to eliminate mistakes and improve trading. Closing Comments Good traders also understand that the market is always right, and the best we can do is play the odds. Be flexible and remember that even the best trades can be stopped out. This is the final article on "A Beginners Handbook". Paul Lange Vice President of Services Pristine Capital Holdings, Inc.