TradersWorld 51

THE OFFICIAL MAGAZINE OF TECHNICAL ANALYSIS
TRADERSWORLD
www.tradersworld.com | May/June/July 2012 Issue #51
Trading Where Traders

Go Wrong
Dynamic Cycles
Diversification Identifying
Holy Grail? Tops and
Bottoms
High Profit
Cup with
Handle
Candlestick Pattern
Patterns
The
Critical
Nature
1
of Volume
www.tradersworld.com May/June/July 2012
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MMA Cycles 41 mance results have certain inherent limitations, unlike
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Contents
High Profit Candlestick Patterns Enhancing
Market Trend Returns
The Fry-pan bottom
By Stephen W. Bigalow 78
May/June/July 2012 Issue #51
Why Trade the Cup with Handle Pattern?
Moving Ahead: Trading Dynamic Cycles By Dale Glazier 82
By Lars von Thienen 6
THE 1:1 STOCK TIME EQUILIBRIUM
The Quest for the Hole in One Golf Ball ANALYSIS
By Ron Jaenisch 22 & THE LAW of VIBRATION
By Dave Franklin 88
The Polarity Factor System
By Daniele Prandelli 27 How To Make Short Term Trading Your Long
Term Investment Strategy
THE PHASES OF A TRADING CAREER Trading, the Operational Mainframe of
By Adrienne Toghraie 36 Successful Commercial Enterprise
By Steve Selengut 95
Diversification The Holy Grail?
By Kevin J. Davey 43 Gold / Mining Stock Index Divergences
Leading Indicator?
Know When to Holdem, By Robert Miner 101
Know When to Foldem!
By Joe Krutsinger, CTA 49 NAKEDSWAN TRADING
By Efrem Hoffman 106
Where Traders Go Wrong
Five Reasons Why Traders Fail Identifying Tops and Bottoms Using the
By Bennett McDowell 55 Sweet Pea Deep Dip Triple Oscillator
Divergence Concept
Dont Be Fooled By Jan Arps 115
By Brady Preston 58
The Critical Nature of Volume
NOTES ON GAP THEORY By Jeffrey A. Killing 124
Part 2
from Novy Principles of Market Flow Elliott Wave Outlook
By Leonard Novy 63 S&P and Gold
By Peter Goodburn 129
The Price of Certainty
BY Joel Rensink 67 The EUR / USD and Gold
By Jaime Johnson 135
The Vibrational Positioning Sequence (VPS)
A Market Forecasting Model based on the Power Cycle Day Trading Course Review
Law of Vibrations 144
By Anthony Scelfo with Thomas Hart 72 The Ivy Bridge Sonata
By Larry Jacobs 146
Traders Book Library 147

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Moving Ahead: Trading
Dynamic Cycles
Think like your cars navigation system
By Lars von Thienen
T
raditional cycle approaches must take two crucial success
factors into consideration: First, which cycle detection
algorithm is used plays a decisive role. Which dominant cycle
should be used to forecast or adjust technical indicators? If the
wrong cycle is detected on the left side of the chart, every trading
and forecasting approach will fail on the more important right side
of the chart. However, current cycle detection engines are not
developed to adequately deal with the features of financial time
series. The algorithms currently being used to detect cycles in financial markets derive from
the domain of frequency analysis toolsets like Fourier, DFT, Wavelets or MESA. All of these
algorithms have shortcomings in the detection of financial market cycles.
Secondly, even if the right cycles are detected, financial market cycles are not static.
Despite the dynamic nature of the cycles that drive markets, traditional approaches project
cycles as theoretically static single or composite waves into the future. Dominant cycles
continuously vary over time in terms of length, amplitude and phase offset based on their
inner core parameter. This means that the length component of a dominant cycle with a length
of 80 days may easily vary between 76 and 84 days but it remains a dominant cycle of 80
days nonetheless. However, you will not know whether a cycle has contracted or expanded if
you only follow a simplistic static projection.
Most cycle approaches will fail

Hence, most of the current cycle systems will fail in the long term due to one of the two
issues discussed above. If you want to trade cycles successfully, you have to accept the
fact that there is no cycle detection algorithm out there that can adequately deal with the
characteristics of financial data. What is even more relevant for every trading approach is the
fact that cycles have a dynamic nature and will not stay static over time.
These facts are not new. However, I have not found any tool or approach that is able to
deal with these two key problems. Traditional approaches to financial market cycles have not
advanced much since Hurst and the mathematics of Digital Signal Processing variations have
certainly been introduced, but no real progress has been made in this field for quite some
time.

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A new cycle approach is born
With that said, I developed my own approach to cycles. This project started 15 years ago.
To keep the story short: I am an engineer and know every pro and con about signal processing
algorithms and developed a tweaked cycle analysis engine that can deal with the unique
features of financial time series data. It outperforms any existing traditional algorithm.
Furthermore, I developed a trading approach that can deal with the fact that dominant cycles
morph over time and have to be continuously monitored in terms of their current phase and
length. Over the last 15 years, my research work has resulted in a dynamic cycle toolset which
is now, by and large able to automatically track dominant cycles. In 2010 following extensive
internal discussions I decided to publish my knowledge for a small community. I found
Wave59 for many reasons to be the right homebase for this. My main intention was to
give the cycles train a push into the next dimension of cycle analysis for financial markets. I
will explain and illustrate this dynamic approach to trade cycles in financial markets with the
following example.
The Dynamic Cycles Approach

This article introduces a dynamic approach for building tradable forecasts. This is only one
of my techniques complex in the backyard but simple, beautiful and powerful on the price
chart. Every time a new bar appears on the chart, we will reassess the state of the current
dominant cycle as our carrier wave for price movements in terms of wavelength, amplitude
and phase offset. The integrated cycles detection algorithm will perform this completely
automatically. Subsequently, we will update this cycle by plotting it into the future. However,
we will only focus on the next expected turning point thats what we are interested in. I refer
to this turning point as ETA Expected Time of Arrival. We are not interested in projecting the
complete static cycle into the future. We are interested in monitoring the next ETA point based
on the detected dominant carrier wave.
As we move forward in time, every bar signifies an update on the next expected turning
point. This dynamic forecast based on the actual state of the dominant cycle provides
information about the next turning point in terms of time and direction. We will obtain real-
time information about when to expect the next major turning point in the market while
we continuously reassess the parameter of the dominant carrier wave. This information is
updated every time a new bar appears. It is difficult to do this manually, so I automated all
tasks required to perform this operation. The outcome is the Dynamic Cycle Explorer. This
tool automatically performs all of these steps. We can therefore fully focus on trade evaluation
instead of manual cycle research.
The difference between many cycle researchers approach and mine should be evident by
now. I do not apply a framework with static cycles and try to make the market fit into it. One
often reads about the significance of the 4-year or 28-day cycle and how these static cycles
can be applied to the actual market situation. This is no longer a promising approach. I have
seen too many static cycle frameworks fail on the right side of the chart. I have successfully
used this dynamic model that determines which cycles are active at a given point in time for
over 10 years now in my own trading.

You use this method to be prepared for important turning points in the market. ETA
points should not be traded blindly. When used in combination with other tools, you will have
very powerful setups to trade in the market, which show up in advance.
Charts say more than a thousand words. Lets look at this dynamic cycles approach in
action.
The dominant carrier wave on the price chart October 2010

I will use a dynamic intermarket cycles-within-cycles approach example to demonstrate
the power of this approach. Lets start in October 2010 with the long-term perspective on
the weekly chart of the S&P 500 index. The dynamic cycle explorer is attached to the chart.
The indicator detects the dominant cycle and checks possible length and phase shifts for this
carrier wave at every bar. The example is based on the pure standard settings of this fully
automated indicator there is no way to back optimize or curve-fit this tool. You would have
arrived at precisely the same situation if you had attached it to the chart on your own on the
given day. The dominant carrier wave is plotted as a green theoretical cycle at the bottom of
the chart and automatically extended into the future. If we look at the past, we can see that
the detected cycle fits nicely to the peaks and valleys of the price history.
See Chart 1: Weekly S&P 500 with dominant cycle and ETA projection (8 October 2010)
What we are interested in is the next ETA point, represented by the dotted blue line, the
word ETA and the short purple line: The next major top is expected to arrive around 29 April
2011. We are thus in an upswing that is expected to last for the next 6 months from now on.
Chart 1: Weekly S&P 500 with dominate cycle and ETA projection (8 October 2010)
Thats the picture the current cycle analysis gives us the long-term carrier wave that will
guide us to time our trades on the daily chart. We will now monitor the ETA point week by
week to check whether the projection will change or not. We do not use this one-time analysis
as a fixed projection that cannot be modified. Instead, we update this projection every week
once we obtain the next bar. This means that we will follow the main dominant cycle and check
whether the length or phase of the cycle has changed, which might lead to an adjusted ETA
projection.
I compare this type of analysis with the Garmin navigation in your car. It provides you
with the current estimated time of arrival at your destination. This arrival time is continuously
updated in real time based on the given traffic conditions. This is precisely what we will do with
the dominant cycle: We will check its current status at every bar and adjust our ETA projection
if needed. So, if we move forward in time, our ETA point will become more and more accurate
from bar to bar.
The peak is detected in advance - May 2011

As we move forward in time, the next chart illustrates the state of the cycle in mid-May.
The blue ETA projection and the purple line have not moved since October 2010. As the
updated current dominant cycle projection indicates, the length and phase has slightly shifted
as we progress toward 29 April 2011. The peak is now projected for mid-May as denoted by
the updated dominant cycle and the blue dot for the current bar. The core cycle is still the
same as in October 2010 only the phase and length have slightly shifted and the dynamic
Chart 2: Updated cycle projection in May 2011 with shifted cycle peak
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explorer was able to detect and has followed the inner vibration of this dominant cycle. The
indicator setup has not changed at all throughout the entire time.
See Chart 2: Updated cycle projection in May 2011 with shifted cycle peak
In general it seems that the market already peaked in the original projection for 29 April.
The updated dominant cycle is now also at the current peak projection. The highlighted box
on the chart with the red arrow confirms this based on the original projection from October
and the current state of the dominant cycle in mid-May. This is a high valid signal that the
dominant cycle remained stable and that we can determine the peak of the carrier wave which
we have been following now since October 2010. The uptrend has evidently come to an end.
And we can see this before the price moves.
Now, since we have reached the peak, we want to find out when the next estimated time
of arrival (ETA) for the expected low will be. This point is again highlighted by the blue dotted
line - dated 27 January 2012. If you compare this projection to that of October, you will see
that the projected low has shifted from 20 to 27 January. This is our approach we are only
interested in the next ETA, not the full static cycle projection. Finally, we can see it: The peak
occurs in mid-May 2011 and we expect a downward trend until the beginning of 2012. At this
point in the cycle analysis, we again move forward bar by bar and follow the carrier wave to
detect shifts in the length or phase of the dominant cycle.
Following the vibration of the dominant cycle September 2011

For the period from the peak in May until October 2011, we are able to follow the
transformation of the active dominant cycle using the dynamic cycle explorer: As we progress
bar by bar from October on, we see that the cycle contracts and that the phase slightly shifts,
with the result that the projected ETA moves closer and closer to the current day. (Please watch
a short video to view the non-interrupted dynamic behavior bar by bar at: www.whentotrade.
com/twmag)
The next chart presents the state of the cycle on 2 September 2011. We observe that the
next ETA was updated based on the current state of the dominant cycle. The next ETA on the
long-term chart is now expected to be 7 October 2011 instead of January 2012. Compare
the last two cycle projections from May and September you can see that it is still the
same general dominant carrier wave: Three peaks and two valleys aligned to price behavior
and the next valley is expected to occur in October instead of January. This is the power
of the dynamic approach it analyzes the active dominant cycle with reference to current
price behavior and vibration it does not curve-fit the static cycle to the past! If we only
considered our static projection from May, we would still be expecting a low in January 2012.
As we are continuously monitoring the dominant cycle, we now know that this dominant
cycles dip is expected to arrive earlier.
See Chart 3: Dynamic shift of the expected dip projection with updated ETA (2 September
2011)
If we look at the actual analysis of 2 September more closely we can see that we have
already entered the cyclical trough period, which will last until mid-October. If you are familiar
with cycle analysis, you know that an expected turning point will never occur precisely on

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the day/week of a sine wave peak or low. We should therefore be prepared for a possible
upswing from this point on since we have moved into the bottom of the cycle. This juncture is
interesting because the price already dropped 3 weeks ago. The main question at this point is:
Has the cycle now perhaps reached the bottom?
Cycles within cycles Sentiment in September 2011

To answer this question, we apply the cycles within cycles approach. To time the trade, we
have to move to the next lower timeframe. To determine whether the bottom has already been
reached, we have to analyze the dominant daily carrier wave. And to add an extra bonus to
the cycles approach, I will use sentiment cycles on the daily timeframe instead of the daily S&P
500 to analyze our position in the market. Markets are driven by emotions. Therefore, if we
are able to analyze the current sentiment cycle, we have the source and leading information
for price behavior. The Volatility Index (VIX) is a useful measurement for the sentiment of the
market.
Hence, to determine whether we are approaching or are already in a major low on 2
September 2011, we apply our cyclic work to the VIX on 2 September
See Chart 4: Daily S&P 500 with VIX and actual dominant sentiment cycle (2 September
2011).
The major market peak which we identified correctly using the weekly cycle analysis is
represented by the small box on the upper S&P chart. We are short since May. We now attach
the same indicator to the daily chart of the VIX (bottom chart). We apply the same standard
Chart 3: Dynamic shift of the expected dip projection with updated ETA (2 September 2011)

settings, i.e., nothing special again. Simply drag the dynamic cycle explorer onto the chart.
The algorithm detects and plots the current dominant carrier wave right onto the chart. The
main swings of the detected cycle are marked with the numbers 1 to 5 on the VIX and S&P
chart. You can see that we have a vice-versa correlation of the sentiment cycle: A sentiment
cycles peak corresponds to a market low and vice-versa. This confirms that the automatically
detected dominant cycle in the VIX is valid with regard to the markets major turning points.
On 2 September 2011 the date we shifted our attention away from the long-term cycle
projection to determine whether the dip had already occurred we clearly see that the
actual turning point No. 5 occurs with an expected low in the sentiment index taking shape
now (=market high). The next ETA projection is expected to occur during a period of high
sentiment reading, topping on 1 October 2011 (Point 6). What does this mean with regard to
our main question: Should we establish a long trade because the long-term cycle is forming
a low right now? The answer is quite simple: The daily chart reveals that price has increased
Chart 4: Daily S&P 500 with VIX and actual dominant sentiment cycle (2 September 2011)
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WWW.TRADERSWORLD.COM January/February 2011 19
since the major low in August (Point 4). However, we know based on this current low sentiment
cycle that the market has reached a daily peak at Point 5! Not a good time to place a long
trade, because we expect the market to move down into the projected Point 6 as shown by
the sentiment cycle ETA for 1 October 2011.
In addition, we can get a clear message now by combining long- and short-term dominant
cycle analysis: If you only looked at the daily chart, you would go short now. However, based
on your knowledge about the longer-term cycle, you know that we expect a major market low
to take shape during this time not the long-term situation we would necessarily like to place
short trades in (only allowed in the aggressive mode)! So, the long-term analysis protects us
from placing a short trade here. On the other hand, if you only used the long-term projection,
you would probably want to go long now. In this case, the short-term analysis prevents us
from going long now in the current situation of the market sentiment.
Support now comes from the cycles-within-cycles approach: We know from the long-term
cycle that we can expect a low to take shape over the next few weeks into the beginning of
Chart 5: Daily S&P 500 & VIX with updated cycle (4 October 2011)

October. The current short-term cycle projects the next market low to begin forming around 1
October. Here we have it: A fit of the long- and short-term projection, an expected major low
around 1 October 2011. This is the timing on the daily timeframe now. Do not go long on 2
September 2011. Wait until the beginning of October before establishing the next major long
position.
Current sentiment cycle fits into the long-term wave October 2011
Again, lets move forward in time and track the dominant carrier sentiment wave day by
day from 2 September onward. The next chart illustrates the situation on 4 October. The same
dominant cycle is still active as the indicator demonstrates. Again only a slight shift took place,
as indicated by Points 1-5 and the ETA mark with the blue line, which have not moved since
our original analysis. The current cycle peak should have been reached as the analysis of 4
October shows.
See Chart 5: Daily S&P 500 & VIX with updated cycle (4 October 2011)
We can observe that price dropped during the time sentiment on the VIX moved up into
our ETA window. Just like it was projected by the identified dominant carrier wave. And now
as we approach the projected ETA, our current cycle analysis confirms that we reached a high
on the sentiment index on 4 October (=market low) . Thus, based on the projection and the
current state of the cycle, we have a picture-perfect and valid sentiment cycle whose peak is
now projected for 4 October 2011. The market has dropped to a level that is even lower than
the previous low back in August hence, the sentiment projection of 2 September protected
us from going long too early. A closely monitored, aggressive short trade would have given us
additional profit during the sentiment ride.
Now we have our cycles within cycles alignment it could not be more clear: The long-
term weekly sentiment cycle projection ETA reveals a low on 7 October (see Chart 3). The
short-term daily sentiment cycle projection ETA confirms this low on 4 October (Chart 4 & 5).
Chart 6: Daily S&P chart with identified market peak and market low updated to today

We have a picture perfect cycle within cycles alignment. The only difference is that we would
not have been able to detect this cycle alignment with traditional static cycle projection tools!
We need the dynamic component which gives it that extra something. Furthermore, with the
dynamic component we are now able to view the formation of the cycles in advance bar by
bar and can prepare.
We have it in now: A major low on 4 October 2011 demonstrated by the cycles. Bear in
mind: Not even price can give us this information for 4 October. No technical indicator, no
trend line, no tool whatsoever would have indicated a major low based on price alone. The
dynamic cycles, however, have.
Lets move forward in time to see how this juncture plays out. The following chart shows
the outcome on the right chart.
See Chart 6: Daily S&P chart with identified market peak and market low updated to today
The projected low for 4-7 October 2011 occurred right on time. Up to this day as I am
writing these lines, the market has moved up as projected by the long-term carrier wave.
The blue line on the right chart presents the trade summary of the example outlined here.
We commenced with the running upswing in October, identified the major peak as projected
in May and successfully fine-tuned the market low with the cycles within cycles approach
in combination with the sentiment cycle in October. The complete example is based on the
standard dynamic cycle explorer. No optimization or curve-fitting has been undertaken. And
I am not cherry picking one specific situation here. A pure analysis of what the cycles within
cycles approach showed us concerning the long-term perspective from October 2010 up to
today.
This approach can be applied to any symbol on any timeframe. Even though this approach
may look simple, discipline in dealing with moving projections and validating auto-detected
cycles is required for it to be successful. With regard to intra-day trading, the dynamic cycles
approach is more complicated than for daily charts. Why? Because there are a lot of interfering
cycles active during the same time on intra-day timeframes like 5, 10 or 30 minutes, which
makes it difficult to detect the single most active carrier wave. Dominant cycles jump over
from one carrier wave to the next they do not shift smoothly as they do on the daily charts.
This is the area where additional research is necessary.
I hope that this article is an eye-opener to the fact that cycles breathe over time and dont
stay fixed. If you accustom yourself with this fact and are able to develop or use tools that can
convert this notion into tradable visual plots via optimized algorithms, cycle projections of this
type will propel you onto the next level of trading and forecasting. In addition, try to detect
and use dominant cycles on sentiment indicators like the VIX to identify major turning points
in the market instead of solely focusing on the major index alone.

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The Quest for the Hole in One Golf Ball
By Ron Jaenisch (First in a series)
S
elf-Actualization is being all that one can be. Albert Maslow
developed the concept and those educated in the 1960s and
1970s typically came across it in their university studies.
Richard Bandler and John Grinder (world renowned for NLP) were
college professors who decided to take Maslows concept to the
next level when they wrote The Structure of Magic. The idea was
that when someone is very talented at something, the outstanding
behavior could be modeled and the behavior could be duplicated
by anyone who would take the time to learn the model. This is
what traders do when they learn techniques that others have used
successfully.
Richard Bandler, was a Psychology professor at the time. He decided to model Virginia
Satir and Milton Erickson. Virginia was a family therapist and Milton was a hypnotist. Both
were renowned in their field for being excellent. Richard and John later went on to develop a
technique known as Neuro Linguistic Programming.
Richard later used his modeling skills to land a multi-million dollar contract with the United
States Army. Richard took on the task that every infantry man needs to know. To hit the
target, when shooting a rifle. He convinced the Army that he could do it quicker and better
than what the army had been doing for years.
The US Army realized that they could do better after several years of occupying West
Berlin.
During that time period the only uniformed German gun toting force allowed in Berlin
was the Berlin police department. The Berlin police sharp shooters consistently beat the
competition that the United States, England and France could provide, every year. This was
very embarrassing to the United States Army.
As a result Richard Bandler was hired to improve the marksmanship skills of the U. S.
Army. He noted that it is normal for a Sargent to shout demoralizing statements at recruits
that were learning how to shoot, (something the Berlin police did not do) He also noticed that
the difficulty of the targets, were the same for new as well as seasoned marksmen. He found
these two factors were the main contributors to the US Militarys in-ability to grow their own
great marksmen, quickly and easily.
As a result there were the two main changes made by the US Army in order to follow the
model of the Berlin Police department. The first was, that prior to shooting the new recruits
would think about successes they had in various areas in their lives and bring that positive
attitude to the shooting range.
The new recruits would be told to aim at a target that was much closer than the normal
target for experienced marksman. The target would then be moved further away as they
improved, until it was at the same distance that experienced marksman was accustomed to.
As traders we can incorporate these concepts into what we do, by having small weekly or
Target and Learn One of the
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We start with the basics and quickly get into very advanced techniques.
This is done with over 25 videos (bite size-15-20 minutes each) over a period
of three weeks. In the mail you also receive an extensive color manual.
Two of the videos have Dr. Andrews teaching a seminar.

Many of the techniques in the advanced course are not available elsewhere
and may have been learned at the kitchen table with Alan Andrews.
To keep things running smothery you are invited to be in a private email group where other Andrews
Babson students ask questions and get answers. Every week several examples are sent to the private
group members. Often examples that are sent out are trades that someone in the group has made.
The intent is to show examples. Some course members in the email forum have over 10 years
experience with the methods.
Our PT3 software as a gift to you, plus over twenty videos that are only seen by course
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In our discussion group over 30% of the focus is upon intraday charts because of the quick
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Credit Cards accepted at http://www.andrewscourse.com/products/default.htm
For those that would like to pay over time, this is available. A product is held for you until
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The massive expanded course

This contains the ORE indicator and many other publicly unknown indicators, is also available. This is
the store house of the written insights, newsletters and documents that we have been able to amass
over the years. There are a limited number of copies that will be published. In addition to the
three massive volumes there are also a large number of videos, only offered with this course,
where we interpret what Andrews wrote and give our insights.
As a bonus we include over special 25 videos They cover what we have discovered in the written
material and the application. The videos cover material not covered in the Advanced Course Videos.
The price varies depending upon how many copies are left. For example the first purchaser will have
paid a lot less than the final 100th purchaser etc. At any time a trading firm that sees the value in the
indicator may purchase all remaining copies of the course. Click buttons below for online videos...
Video of Original works before we copied it. Video ....Part of what you get.

monthly goals that increase as we achieve them. In addition, having a supportive self-concept
mindset is useful. This is accomplished by reviewing on an almost daily basis, prior successes
for new traders. This alone however, does not quickly lead us to the hole in one golf ball. For
this much more is needed.
In my quest for this mysterious golf ball I ran across the works of Alan Andrews and
collected nearly one thousand pages of his writings from various sources.
His writings were over a period of several decades and had a change of focus from time to
time.
Professor Alan Hall Andrews wrote a weekly course newsletter. In March of 1974 he wrote
It was easy to jump to the conclusion that the ORE method was a hole in one golf ball, if
it could do what he claims it could. Shortly after this was written, the ORE method was never
written about again in his weekly course letter.
Tests were conducted in real time on S&P 500 data and it appeared to be a useful tool for
finding significant market reversals.
The above chart was sent out to the public prior to Thanksgiving 2011. As you can see
in the above sixty minute chart the ORE indicator came in at various points that were very

close to the reversal area. Even what was labeled as a Jaenisch Reversal Line was actually
an ORE, but in a greater time frame. The Ore indicator was used in Corn and Sugar recently
and the corresponding charts were posted on the web (viewable at on the forecast page on
Andrewscourse.com)
If the ORE indicator found these turning points, could it find all? Historical studies show
that this is an excellent indicator that finds many golden trading opportunities that are with
the longer term trend, depending upon the time frame that one is focusing upon. And like a
golf club, it is limited in use to specific terrain and objectives. Perhaps it is best to think of this
indicator as a type of golf club.
When we observe someone playing golf, we can tell if they are using a putter, wood or iron.
If we get very close, we can tell more exactly what type of club it is. With a basic understanding
of the type of club that is used for different terrain, we can know what the golfer is trying to
accomplish and the terrain they are in, by the type of club they are using.
My friend Alan Andrews wrote about various trading techniques over the years that dealt
with various types of trading terrain. As a result the quest for the hole in one golf ball changed
to the quest to understand and recognize the terrain and which type of technique is used for
the various terrains.
The Andrews techniques are typically labeled as setups in trading circles. As will be shown
in future articles, in this series, when using Andrewss techniques it is necessary to be able to

recognize the setup that the market has prepared for the trader in order to know which tools
to use. This is similar to Golf, where it is necessary to use the proper tool for the terrain the
ball is in.
One of the set ups, are commonly referred to as prices not having made the median line.
To deal with this, traders used what is commonly referred to as Hagopians rule. This results
in using a break out for an entry. But is this the optimal tool? Much has been written about
this concept over the years. Most of what is found on the web is from the original rules of Mr.
Hagopian.
In the next article in this series, Hagopians rule will be explained and the reader will be
shown what Alan Andrews taught at one of his seminars in the 1980s. This approach results
in a lower risk and less drawdown according to historical studies. Think of it as a new type of
golf club.
In yet another future article, an amazing, hole in one golf ball like track record and approach
of Professor Andrews will be discussed. He would mail out written instructions on Thursday to
his students that they read to their brokers on Monday morning, as orders for the week. This
was to turn 5K into 50K in a few months. In order to write that article the modeling techniques
of NLP are brought into play.
Ron Jaenisch, the author has been trading for over ten years and was personally taught
by Professor Alan Andrews. He offers a course that is available through his website www.
andrewscourse.com. He can be reached at ronj@san.rr.com

The Polarity Factor System
Forecasting Directional Turning Points & Trading Them with Limited Risk
By Daniele Prandelli
What is trading? How is it possible to gain by trading? Why is it that so few people seem
to be able to trade successfully? There are many answers given to these questions, and yet,
for many, trading profitably remains an unachieved dream? Why it is so hard to make money
if we know the answers?
My answer to this question is one word: reality! Awareness of reality! What is reality?
Everyone perceives his own reality, and every point of perception sees a different reality. So,
we know that there are different realities for different people. But the FACTS do not have a
point of view. The FACTS are stubborn, and we can begin to understand that what we think we
KNOW is not necessarily what actually IS. To KNOW and to BE are two very different things.
To KNOW is relative, while to BE is absolute.
What I want to do now, is show my point of view of the process to arrive at what IS, to
arrive at the actual FACTS, rather than my perception of the FACTS. Looking at my point of
view, I see the trading as a speculative activity, where the trader tries to take advantage of
the swings of different markets, stocks, commodities etc The market can go up or down,
so we can BUY or SELL, and in consequence, we theoretically have a 50% probability of being
successful in any trade. But please, can you tell me why, paradoxically, statistically only 1 of
20 is able to make consistent profits? You can see that there is a variable that destroys this
system, somehow destroying the equilibrium. And what exactly is this variable? Well, it is
YOU who are this variable.
It is really quite hard to accept, isnt it? I used to spend a lot of time studying, then when
I had losing trades, I would cry and hate the world because it seemed it was always against
me, but in the end I came to understand that it was only myself that I had to blame for my
losses. My hurry, my greed, my agitation, and my distortion of the truth (another big theme,
maybe for next time).
And this is the key for people who have studied a lot but are still unable to make profits.
After you have studied books and systems, you then have to begin to study yourself! Trading
systems alone are not the only elements of the game. Although my trading Blog has produced
consistent profits with precise strategies for over a year, I can bet that that a number of my
subscribers are still not able to make profits even using the same indications that I trade by
myself. This is because they simply dont know themselves! They are not able to control their
hope and fear, and they hurry. To control yourself, you have to know yourself!
So, I tried to address the issue of what determines successful trading. My Blog demonstrates
that it is possible to make good and consistent profits from trading, and I hope that the point
of view that I present will help to explain why people are still not able to do profits.

A COMPENDIUM OF ASTRO-ECONOMIC
INFLUENCES PRACTICALLY APPLIED!
TO 110 YEAR ANALYSIS OF THE DOW JONES INDUSTRIAL AVERAGES
BY RICHARD SCOTT
TWO NEW FINANCIAL ASTROLOGY COURSES & TIME PROJECTION TOOLS!

This new course provides a direct and accessible doorway into the practical application of astro-economic theory for
trading. The difficulty that confronts most astro researchers is that there is too much contradictory material available,
which takes years to organize into a tradable methodology.
Richard Scott spent 8 years doing this research, by hand, watching the markets day after day, studying each change,
and then tracking down every influence and lead that he could find which would demonstrate to him the cause behind
market movements. He compiled 110 years of Dow Jones Industrial Average data, and, with his ephemeris in hand,
tracked down every instance of every influence. This course presents the results of that labor, summarized,
simplified, and clearly explained so that any trader can begin tracking and trading planetary influences in the markets
in a matter of weeks rather than years.
It further teaches how to determine the ongoing energetic background environment that the market is traveling
through at all times. This environment is defined by the summation of the underlying planetary energies at any time.
Any projection you have from any system can now be cross-checked with the Planetary Energy Background, and you
can affirm whether a turn will likely be a top or a bottom, or a trend will go up or down. This is very simple to
understand and to apply to your future charts, giving you an ongoing read on the energetic forces behind the market!
VOLUME 1 TEXT 240P. - VOLUME 2 CHARTS 230P. 250 IMAGES - BLACK SUEDE HARDCOVERS
TECHNICAL ANALYSIS & TIME PROJECTION

THE HARMONY OF MATHEMATICS & NATURE
BY CATALIN PLAPCIANU
ONE OF THE MOST POWERFUL & ACCURATE ASTRO-TIME PROJECTION TOOLS EVER DEVELOPED!
TheTimeProjectionTechniquepresentedinthiscoursedevelopsanewtypeofplanetarytimeprojection,
through the projecting of pairs or groups of planetary relationships into the future. The result of these
combinationsistheprojectionofhighlyaccuratefutureturningpointswithafalsesignalratioofonly2
outof10,orbetter.Thetimeprojectionsarehighlyaccurate,generallyoccurringwithinadayoftheactual
signal, even from points 30 years in the past. Specics of the projections can dene major turns, vs.
intermediate turns, vs. minor turns, and some combinations give very accurate projections of polarity,
whether a turn will be a bottom or a top. Using overlapping projections of multiple planetary
congurationsserveasconrmationsofimportantturningpoints,lteringouterrorstolessthanevenone
falsesignalinten.Thecoursealsopresentsadetailedintroductiontoastrology,twodierentsystemsto
project price, and a means to mathematically determine the SPEED of the market. There are numerous
tradingexamplesgivenforlong,intermediateandintradaytrading.Seeourwebsiteformoredetails!
BLACK SUEDE HARDCOVER 264 PAGES WITH 200 CHARTS & DIAGRAMS & PROGRAMED TIME TOOL
SACRED SCIENCE INSTITUTE WWW.SACREDSCIENCE.COM

EMAIL: INSTITUTE@SACREDSCIENCE.COM US TOLL FREE: 800-756-6141
INTERNATIONAL 951-659-8181 MAIL: P.O. BOX 3617, IDYLLWILD, CA 92549-3617

To know yourself, you have to work privately, deep within yourself, since no one else can
teach you to know yourself. If you think you are ready to know yourself and to be able to keep
your fear and hurry under control, then you can begin to ask the question: how can I make
money in trading? If you know yourself and if you do not have a distortion of the truth, you
can follow a clear strategy in the market, and learn how to make money.
The details of the methods I use to trade the regular swings in the market are documented
on my Private Blog, where every day I give my personal analysis and strategy that I use to take
my positions. The techniques I use to make forecasts and the strategies I use in my trading,
primarily focused on the S&P 500, are explained in my course The Polarity Factor System.
The PFS (Polarity Factor System) is a model I developed based upon an understanding of the
work of the great WD Gann. It gives me indications of the general movement of the market
for the entire year, indicating dates to expect accelerations or pushes, either up or down, but
always indicating to me which direction to follow. Combined with this forecasting tool, I use a
strategy based upon Ganns planetary longitude lines (developed in my prior course The Law
of Cause & Effect) to determine precise price confirmations, where I can place tight stop-
losses, allowing me to safely enter the market and follow the trend with little risk and good
profits in the case of an accurate forecast. This is the reason that Im able to make consistent
profits in the market, by limiting losses while letting profits run when following the trend. My
new course, The Polarity Factor System explains exactly how I do this, so that you can
learn the strategy and discipline that I use to make the same kind profits for yourself too.
The first secret is to have precise and particular price indications, which I define as my
Key Prices. This is a particular price, with a particular energy, which continually repels the
market, or pushes it in one direction or another, up or down. But knowing these price levels
still leaves us needing to know in which direction we want to trade? Here is where I use my
PFS model confirmed by other forecasting models which combine to clearly indicate to me the
way to follow.
If we look at a record of the average trader, noting the losses and gains in each trade, we
will see that what destroys the final results are the big losses, compared to which the small
profits become insignificant. From this analysis we can see that the problem is mental, being
based primarily on an incorrect approach to trading, and superficiality upon the effects of hope
and fear.
I constantly point out that the best way to gain over the time is to cut losses and let profit
run. But this is easier to say than to do By merging the PFS forecast model with my Key
Prices, I have been able to create my reality, my strategy, my method by arriving at what is
the final target: FACTS.
We can observe an example of my strategy by looking at one of my last trades documented
on my Blog, in order to understand my approach. We will speak about the SHORT position
that I took in March 27, 2012. It was a SHORT position with a stop-loss placed just above the
Key Price. The key price given in the daily post was 1419-1420.6. The S&P 500 made a High
exactly in the area of this key level, and following my rules, we took a SHORT position at the
first confirmation of a weakness under this level, with stop-loss just above the Key Price. The
fundamental strategy is this: risk 3 points in the case of an error in the forecast, but gain 20 or

THE LAW OF CAUSE & EFFECT
CREATING A PLANETARY PRICE-TIME MAP OF MARKET
ACTION THROUGH SYMPATHETIC RESONANACE
BREAKTHROUGHS IN GANNS PRICE/TIME RELATIONSHIPS
BY DANIELE PRANDELLI
W. D. GANNS PLANETARY LINES CRACKED USING CALIBRATION FACTOR!
This new course unravels the correct application of WD
Ganns Planetary Longitude Lines. Gann used these
KNOW IN ADVANCE!
lines on his famous May Soybeans chart, but most
people have never been able to figure out how to apply EXPLAINS MISSING CALIBRATION FACTOR
WHICH FITS LINES TO ANY CHART!
them as effectively as Gann did. Until now!
DETERMINE IMPORTANT ENERGY LEVELS
This new course explains why most analysts have failed
USING PRECISE MATHEMATICAL RULES
here! There is a missing conversion factor or calibration
rate which must be used to adjust the planetary
KEY PRICES TO TAKE TRADING POSITIONS
relationships to the scale and vibration of the market at
any particular price level. This book CRACKS the
conversion factor and makes Planetary Lines one of the
FORECAST CLEAR TARGET EXIT LEVELS
most valuable tools youll have in your toolbox.
KNOW IMPORTANT TURNING POINTS THRU
CONFLUENCE OF PLANETARY LINES
Simple to apply with the proper software, which is easily
available, this powerful technique will give an added
DETERMINE THE SLOPE OF THE EXPECTED
dimensional perspective to market action. These lines
TREND THROUGH PLANETARY ANGLES
call both price and time, and are one of the easiest but
most powerful of all Gann tools. Once you know them,
LONG-TERM, INTERMEDIATE AND INTRADAY
you will NEVER stop using these lines to trade from!
FOR A DETAILED WRITEUP INCLUDING CONTENTS, SAMPLE TEXT & CHARTS, FEEDBACK & MORE SEE:
WWW.SACREDSCIENCE.COM/PRANDELLI/LAWOFCAUSEANDEFFECT.HTM
SEE HOW LINES ON CHART CALL MOVES!

Notice how the market just bounces along
from one line to the next, and particularly
how it often turns exactly upon these lines.
Planetary price lines are Magnetic Attractor

Fields which draw the market to them, then
push them away again, giving a trader a map
of the geometric, electro-magnetic lattice that
the market is influenced by. In the same way
that electrons jump between orbital levels, the
market will vibrate between these zones
defined by planetary resonance.
BLACK SUEDE HARDCOVER 240 PAGES


more points in the case of a right forecast. This is a correct strategic approach to build profits
over time. It happens sometimes that I make 2 or 3 losing trades before I catch my profitable
move. But it is not critical if I lose 3 points in 3 trades (9 points in total) if then I gain 20 or
more points. In one profitable trade I make more than twice what I lose in 3 failed trades.
On exactly March 7th, the Blog indicated a buy at 1361.25 futures points on the S&P, and
by March 19th, a part of this trade had already been closed with a profit of 47 points. What
are 3 points in loss when there is the potential for an easy 47 point gain? Really the loss is
little thing, when you know how to limit it correctly And this is what too many people do not
know how to do, so that their risk eats away at their gains and they do not come out a winner
in the end.
Chart 1 was posted on the Blog about the trade on March 27th:
The PFS and the Key Prices presented in The Polarity Factor System are used to provide
these indications allowing one to follow the market and trade with a precise strategy that
permits us to have continuous profits over the time, while keeping the risk under control for
every trade.
In my personal trading, the PFS and the price level strategy are the most important tools.
Chart 1

Two of the important Lows we recently had were on the 4th of October and 25 of November.
th
On the Blog, by using these tools, we bought exactly on October 4 and on November 25.
We did this not because we are infallible forecasters, but because we had an accurate timing
model, and then waited for the exact price confirmations, then all we had to do was follow the
trend. Following the PFS forecast, we had a clear indication of a low in late November, and we
took our Long position accordingly catching a strong upward move.
Chart 2 shows the PFS for the last 2 months of 2011:
Chart 3 shows the S&P500 Index for the same time in the last months of 2011.
How would it be possible not to gain a lot of points when we knew in advance to be ready
for an up push from the 25th of November? The PFS gave a clear indication of a Low, not
on November 20th or 30th, but exactly between the 24th and 25th of November. In cases like
these, it is really easy to make money if you are able to follow this clear strategy.
So, the final goal is always the same. Cut your losses and leave the profits to run. If you
are ready and you have the right tools, you can do it.
It is very useful to have an accurate forecast or idea about the possible future scenario of
the market. I do always have my forecasts to follow. But what is most important is to enter
the market only when price confirms the forecasted direction, and not before. In the same
Chart 2

way it is important to close all positions in the case that price does not confirm the forecast.
No one is infallible, and sometimes I also make bad forecasts. The difference is that Im
here to make money, not to show others that Im the best forecaster in the world. If I am
wrong, and prices tell me so, I accept my error and I quickly cut the loss. In the end I will
have some losses, but all of them will be small, usually not more than 3 points. This allows
me to always be profitable at the end of the year, since my strategy is designed to do exactly
this. I always say that a bad forecast is absolutely not a reason to make a bad trade. Since
we will not place that trade without our confirming Key Prices, if we are wrong the market will
clearly tell us so, and we will not take a significant loss, if any at all.
I conclude with chart 4 that shows the PFS model for the Corn market. Within the Private
Online Forum available to all the owners of The Polarity Factor System, we have been
compiling further historical data in order to create PFS forecasting models for other stocks
and commodities. My latest research shows that the PFS is even more accurate on some other
markets than on the S&P 500, forecasting trends years in advance.
Chart 3

The following chart is an amazing example of the power of the PFS for CORN in 2008. The
PFS forecast called the top of the Corn market within 2 days, and indicated 4 clear trades that
would have produced a 523 point profit.
If you find these studies interesting, and would like to learn more about the PFS forecasting
technique, the Key Prices and the risk management strategy discussed above, you can find
further details on my new course, The Polarity Factor System, at the following link:
www.sacredscience.com/Prandelli/Prandelli-Polarity-Factor-System.htm
For confirmation of the forecasts discussed above, and to see direct proof of the potential
to make money trading with these tools, see my Blog at the following link:
http://iaminborsa-eng.blogspot.it/
Daniele Prandelli
Email: institute@sacredscience.com
Web: www.sacredscience.com/Prandelli/Prandelli-Polarity-Factor-System.htm
Phone: 951-659-8181
Chart 4
BEHIND THE VEIL
A NEW APPLIED TRADING COURSE USING
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We are extremely happy to announce the release of a new and
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metaphysical principles. It unveils many mysterious and difficult forecasts in 7 different markets. His results were
theories and applications similar in approach to those of W.D. impressive, 7 out of 7, yielding 3,161 points in 7
Gann and shows a trader how to use these principles to days, with 7 trades, in 7 different markets!
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THE PHASES OF A
TRADING CAREER By Adrienne Toghraie, Traders Success Coach
www.TradingOnTarget.com
For each phase of a successful trading career, there is a beginning, middle, and end. While
some traders are good at starting a project, others are good at sustaining a project, and still
others are good at completing a project. The problem for traders is that, if they are to make
successful transitions to a new phase, they will have to have the skills needed to complete
beginnings, middles and ends.

No End in Sight
This fact was underscored when a trader named Harry called for help. Harry was very upset
at the prospect of going into the next phase of his life. This long-term, successful trader and
money-manager felt old. Life was no longer exciting for him. Harry knew that changes would
have to be made in his life, and he was keenly aware of the promises he had made to his wife
and family about his departure from trading. In fact, he was at the point of selling his business
to his partner and phasing out of the business completely. So, why was Harry in a panic?
Harry was frightened thinking about his friends who had retired from trading. According to
Harry, they were either bored with life or dead. Of the retired traders who still had a pulse,
all wanted to get back into the game to feel alive again. Harry was also aware of the fact that
he had never learned to enjoy life beyond his trading. He had difficulty relating to his wife,
Edie, who hoped that when Harry gave up trading, their fighting would stop. Her reasoning
was based on the fact that Harry excused his lack of loving involvement by saying that he was
under too much pressure from trading. Harry would placate Edie with the promise, One day,
when I give up trading, everything will be all right. But Harry did not know how to stop and
smell the roses along the way. He had been highly skilled throughout his career as a trader,
and then, as a money manager, but Harry had no concept of how to end things.
Successful endings are critical to a trading career because they set the stage for the
successful beginning of the next phase of life, whatever that might be. If a trader is afraid to
end something and holds on too long, serious losses can result, not just from a single trade
but from a transition that must be made. Fear is usually the issue as it was in Harrys case.
The solution is a new set of associations framing ending and closure as a source of opportunity
and forward movement rather than a source of pain and loss.
Beginning Phase
Of all of the traders I have worked with, Charles is one of the most skilled at completing
the beginnings, middles, and ends of things. While he was still in college, he had started up a
small business with a family friend, which he leveraged into a flourishing operation. Several
years later, when Charles decided that he wanted to be a floor trader, he realized that he
would need a mentor. Charles found a mentor by spending time observing floor traders while
considering, Who do I want to be like? When Charles identified the trader he wanted to
model, he found someone to introduce them. This introduction launched a life-long friendship
as well as the start of Charles career on the floor. The young trader read all of the books his
mentor read and, as quickly as he could, he molded his every action on his mentors pattern.
For the next fifteen years, Charles was very successful, in his trading, in his marriage, his
relationships with his children, and with the other people in his life. Charles was definitely a
good starter.
On the other hand, there was Todd, a trader who wanted everything now. From his need
for instant gratification, Todd wanted to experience the feelings of success before he had
actually achieved success. While he was skilled at creating these good feelings in his own
mind, Todd forgot to put into his imaginings the details and steps needed to reach his goals.
When Todd came to the floor of the exchange, he had no plan for learning his new profession,

which required study and preparation. Instead, he felt he could learn by trial and error. The
result was that Todd experienced so much error that it wiped him out of the business.
Unlike Todd, successful beginners have a different set of associations, which make them
willing and eager to do the things necessary to make this phase successful. They see beginnings
as exciting and challenging. In addition, they see beginnings as the foundation for their project
- not as an inconvenience or as the end in itself.
Mid-phase
After fifteen years, Charles, our successful starter, realized that he had to get off of the
floor. At forty years of age, Charles back and feet were aching and he felt that he was wearing
out. So, Charles did what many floor traders do, he became an upstairs trader. Instead of
resisting the change and clinging to the past, Charles saw the ending of his career as a floor
trader as a step toward a new challenge which he eagerly anticipated.
Charles was also aware that the transition from floor trader to upstairs trader is often
called the kiss of death. To avoid sabotaging himself during this transition, Charles decided
to approach this change as though he was starting a new career. Using his pattern of seeking
the right teachers, he attended conferences, seminars and read books on trading. Once again,
Charles succeeded in completing the transition. Within a year, he had developed himself into
a good discretionary trader off the floor.
Along the way, Charles had also learned about successful middles. He understood that
there would be a second phase in his trading, after the exciting beginning period. During this
phase, he would have to give up the excitement of trading on the floor, and develop his craft
off of the exchange floor. During this mid-phase, Charles would accept the fact that his system
and trading methods worked and that he would need to be content to reap their rewards.
Now, he was in a new period where he just had to follow his plan. Many traders find this phase
boring, so they sabotage their efforts, wanting to go back and rediscover the early excitement.
When he looked at his life, Charles saw the rewards that becoming a successful trader brought
to him and his family. He was exceptionally good at aligning his excitement with following his
rules and the rewards he would get from being a good trader. Charles was a good, mid-phase
man.
The mid-phase of a trading business requires these qualities of character, which are needed
for a successful trader. When trading gets boring, a trader must persevere. When inevitable
losses occur, a trader must stick to his commitment. When the temptation is great to break
your rules, a trader must have the integrity to hold fast to his trading rules and to his word
to himself and others. He must respect the foundation in market study and research that
helped him to get where he is. At the same time, he must be flexible in order to deal with
the inevitable changes that will be encountered. He must be willing to continue to refine his
system to make it the best it can be. And finally, he must be disciplined enough to keep his
business afloat every day, which means that he has to attend to his physical and emotional
well-being and do the things that are hard, but necessary for continued success.
Like Todd, the instant gratification guy, Elliot wanted success immediately. Fortunately,
he was also willing to pay the price and do the things that it took to launch his trading career

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and become very successful - until the period of routine set in. Then, Elliot found ways to
create excitement by sabotaging his results. He would do this by changing his system, adding
new rules and generally experimenting with what was tried and true. Inevitably, Elliots
trading career was lost.
Interestingly enough, Elliot not only acted out this pattern in his trading, but also in his
personal life. He loved romance and seduction. Elliot wanted each romantic encounter to
be another Titanic affair. However, when he finally did extend his honeymoon into a real
honeymoon and married the love of his life, the routines of everyday life and dealing with the
emotional issues that couples face daily, led him to separation and, finally, divorce. Isnt it
interesting how new romances no longer produce the same impact for Elliot because he sees
them through the eyes of a wounded lover?
End Phase - to a New Beginning

Charles, our successful starter and mid-phase trader, had a good life with his family because
he knew how to balance his life. Charles had come to a point where he wanted more special
moments with his children and grandchildren. To accomplish this, he would have to phase
out some of his career as a trader. In typical Charles fashion, he decided to become a long-
term investor. While he was still a day-trader, he looked into long-term investing and began
investing in tandem with his day trading. As a result, making the transition to full-time investor
did not involve learning new skills, but giving up one of his careers. Now, you can find Charles
with his son and his grandson on the golf course, or with his wife in exotic places where they
are experiencing the beauty of this planet and enjoying themselves.
Conclusion
The beginning, middle and end of each phase of a traders career are important to the long-
term success of his overall career. A trader must be able to carry his ambition to trade past the
first few hurdles of learning his business, doing his research and building his system if he wants
to have a trading career at all. A trader cannot rest once his business is established simply
because he likes the challenge and excitement of starting up his business. He must sustain
that trading business through its development and day-to-day activity even though it may
become routine and boring. And finally, it is important to a traders life to know when to end
his trading career. For a trader to make these transitions requires a tremendous commitment
to his goals, a willingness to model those traders who are successful in each phase of the
business, and the flexibility to make the adaptations required for that next step forward.
ADRIENNE TOGHRAIE, a Traders Success Coach, is an internationally recognized

authority in the field of human development for the financial community. Her 13 books on the
psychology of trading including, The Winning Edge series 1-4 and Traders Secrets, have been
highly praised by financial magazines. Adriennes latest book published by Wiley, Trading on
Target, is available at Amazon.com. Adriennes public seminars and private coaching have
achieved a wide level of recognition and popularity, as well as her television appearances and
keynote addresses at major industry conferences. www.TradingOnTarget.com

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Diversification
The Holy Grail?
Kevin J. Davey
www.kjtradingsystems.com
The Holy Grail. If youve been around trading for any period of time, Im sure youve heard of it.
The Holy Grail is the one trading strategy that will make you rich. Most trading vendors claim to have
a version of this for sale, usually at a very reasonable cost. Yet, these vendors dont seem to trade it
themselves. Hmmm.
Anyone testing trading ideas with backtesting software, such as Tradestation or Ninja Trader,
usually finds The Holy Grail soon after working with the software. They get results similar to Figure
1. The problem is they have either tricked the backtest engine, or neglected to add in proper costs.
Once the costs and tricks are accounted for, their actual results look nothing like The Holy Grail!
So, does the Holy Grail actually exist? While traders may find their own personal Holy Grail,
there is no universal strategy that will give profits to everyone who uses it. That makes sense,
because if there was such a system, it would quickly be overtraded, and any edge would disappear.
In 20+ years of trading, I have never found a Holy Grail trading system. BUT, I have found a
good alternative - DIVERSIFICATION. Many strategies, traded together, can produce phenomenal
results. And as it turns out, diversification is much easier to achieve than the mythical Holy Grail.
Figure 1 - A Typical Holy Grail Trading System

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The Power of Diversification
Figure 2 shows the hypothetical performance, in both walkforward historical testing and
simulated live testing, for my diversified SFE Trading System. The total Net Profit, after commissions
and slippage, is very good over the 4+ year test history. There are drawdowns, to be sure. And,
some drawdowns are quite significant, although the trading system eventually overcomes them.
The unique aspect of this equity curve is that it is not based on 1 trading strategy - it is actually
based on 5 unique and independent strategies, traded all at the same time. Each of these 5
strategies, by themselves, is a decent - not superb - positive expectancy trading strategy. This is
evident in the hypothetical results of Figure 3. Clearly, none of those equity curves alone is a Holy
Grail system!
The idea behind diversification is that each trading strategy will perform differently over time,
with different times of peaks and troughs. But when many strategies are combined, the equity curve
will be smoother, and the drawdowns will be less severe.
Hopefully, it is clear from Figures 2 and 3 that you can create a very good system, one that is
better than any of its component parts, by diversifying and trading multiple strategies at the same
time. So, how exactly can you do this? There are a few basic steps.
Figure 2 - Hypothetical Performance, Diversified SFE Trading System

Get unique markets
The first step to creating a diversified set of systems is to identify some different markets.
Ideally, you want markets that have little or no correlation. You can create correlation matrices to help
determine which markets, but it is not necessary. Just pick completely different market sectors. So,
for example, you would not want a system that had both a Soybean Oil and a Soybean Meal strategy.
But a system with Silver and Wheat would probably be OK.
I personally do not calculate correlations for just the market, since 2 negatively correlated
markets might have the exact same equity curve, if they were always traded in opposing directions. I
save my correlation analysis for actual trading results.
How many markets should you choose? The answer really depends on you, but based on the
principles of Portfolio Theory, Id recommend anywhere from 3 to 10 strategies. Less than 3 and you
likely will not have enough diversification, and more than 10 would be both hard to develop, and hard
to trade.
When I developed my diversified SFE system, I looked at 5 different markets:
Figure 3 - Hypothetical Performance, Individual SFE Strategies

I picked these both for their high volume and open interest, and also because many times they
are not correlated. Note, though, that sometimes these markets are HIGHLY correlated. In the event
of a disaster or other Black Swan event, it is entirely possible to have all 5 positions go against you
in any one day. That is why proper risk management and position sizing is so important.
Get unique ideas and timeframes

Remember, your goal with developing an overall diversified trading system is to have
component strategies which are varied. Weve already made the markets unique, so the next step is
to make the timeframes and the strategy ideas unique.
There are an infinite number of unique strategies you can create. You can have counter trend
strategies, trend following strategies, range bound strategies, etc. The possibilities are only limited by
your imagination. The key is to have different strategy ideas for each market. So, for example, if you
want to use a moving average entry (trend follower), use it for one market only. Other markets could
then trade counter trend, or possibly use only overbought/oversold indicators.
For timeframes, try to use as many different timeframes as possible. Having all the strategies
work on 5 minute bars, for example, might lead to perfect correlation during a Flash Crash type
scenario. Multiple timeframes will minimize this impact.
The table below shows the strategy idea and the timeframe I used for my 5 diversified SFE
Figure 4 - Real Time vs. Hypothetical Performance

trading strategies. As you can see, each one looks different than the other. Hopefully that will result
in a smoother equity curve.
Create A Positive Expectancy System

Although there is a theoretical concept called Parondos Paradox, where a winning system can
be created out of losing strategies, it is much simpler to just develop a positive expectancy strategy
for each of the components.
Of course, this is tougher than it sounds. The proper steps to developing a strategy could easily
be its own article, and many have written books about the subject. Suffice it to say that strategy
development is full of pitfalls and traps. And if you do not know what these traps are, then you are
probably not developing the strategy right.
But, the process is made easier because you are looking for good strategies, not great ones.
Remember, you do not need to create the Holy Grail with any one strategy. Your goal is to create
individual strategies that work reasonably well. Trading them together, as a system, will help
overcome the shortcomings of any one strategy. That is because of the diversification impact.
For this step, I recommend creating strategies based on 1 contract traded all the time. Do not
apply any money management or position sizing to it. That can be done later, if you desire.
As an example, here are some performance statistics for the 5 unique strategies I use in the
SFE system. Note that none of these can be considered a super strategy, but all five are profitable,
with good positive expectancy.
Check correlation of results

Once you have the individual system results, you want to make sure that the correlation
between the individual strategies is low. For example, if the correlation of daily returns between any
2 strategies is above 0.9, you might have 2 systems which are too similar. The Net Profit might be
better, but that is not as important as the correlation.
As an example, the correlation analysis for the SFE strategies is shown below. Note the high
degree of non-correlation in the daily returns of the strategies.

The above correlation matrix is over a 4 year period. For shorter periods of time, the
correlations will likely be greater.
Although it is fairly easy to perform correlation analysis in Excel, you might find it easier to just
combine the equity curves, and do an eyeball test. If the overall equity curve looks smoother than
the individual curves, then you have probably successfully created a diversified system.
Putting It All Together

Once you have created a diversified system, one that satisfies your goals for rate of return and
drawdown, it is best to monitor the overall system in real time for a few months. An example of this is
shown in Figure 4. The objective with doing this is to verify the system performs in the future as it did
historically, before you commit real money to trade. You can analyze the results statistically, or you
can eyeball the equity curve. If you notice a distinct change in real time results, chances are your
strategy was developed improperly.
At this point, you can also create a position sizing approach. Since you are trading multiple
systems, you need to be careful with the amount of margin you use, relative to your account size.
If all your strategies are open at the same time, you want to be sure that you do not oversize any
position, and thereby trigger a margin call.
Conclusion
Hopefully you now realize that diversification is one possible answer to the riddle of The Holy
Grail. Creating multiple unique strategies, and trading them together, as I have shown with my
diversified SFE system, is a great way to achieve diversification. This approach may get you one
step closer to the Holy Grail.
Kevin J. Davey is an award winning private futures, forex and commodities trader. He has been
trading for over 20 years. In each of the years 2005-2007, Kevin achieved over 100% returns in a
real time, real money, year long trading contest, finishing in first or second place each of those years.
Prior to trading full time starting in 2008, Kevin was a quality assurance and engineering executive for
an aerospace company. In addition to trading, Kevin also writes, consults and mentors other traders.
Kevin graduated Summa Cum Laude with a BS engineering degree from the University of Michigan,
and received an MBA degree from Case Western Reserve University. Kevin maintains a website,
http://www.kjtradingsystems.com/, where you can find useful information on trading. Also, visit his site
and learn how you can trade the same systems Kevin does.

Know When to Holdem,
Know When to Foldem!
Trading the Equity Curve!
By Joe Krutsinger, CTA
www.eTrackRecords.com
Not all trading strategies work all of the time. One way to decide which strategy to use is
to paper trade them all and choose those that show the most promise based on their equity
curves. Be honest. Do you believe enough in your current trading strategy that youd stick to
it come rain or come shine? Say you have four or five losers in a row will you continue to
trade exactly the same way as before, or will you start bending your rules or perhaps even
discard the particular approach completely? The truth is that most traders abandon a strategy
after three or four consecutive losing trades, thinking it no longer works. In reality though,
no approach will work well all the time. A trend-following strategy simply will not work in
a choppy market, just as a top- and bottom-picking strategy is very unlikely to work in a
trending market. It isnt the strategys fault the market isnt behaving in a way most suitable
to its underlying logic.
The questions you need to ask yourself are When should I stop trading or re-optimize
a strategy that obviously is not in tune with current market conditions? and How do I
know when to start trading the same strategy again? Alternatively, if you trade the same
markets using several strategies, how do you know which strategies currently are the best
to use? Another side of the same dilemma occurs when you dig up that age-old strategy you
once abandoned because it didnt seem to be working, only to discover several years later that
it would have worked like a charm had you just been patient enough and given it some time.
But there are tools that can help you determine when a trading approach is in sync with the
market and when youd be better off not trading it.
System Monitoring Tools

A trader who lost more than $1 million trading pork belly futures was asked why he kept
on trading the same strategy in the same market despite the obvious fact it wasnt working.
His response: This is the only thing I know how to do. The trader truly believed that he had
just been a little unlucky lately and that the only way to come back was to continue trading
pork bellies using the same strategy he always had, until his luck turned around once again.
It never occurred to the pork belly trader that it doesnt matter which markets he trades or
what strategy he uses, as long as he makes money. He should have cut his losses by changing

either the market he was trading, his strategy, or both, and not fall back on the original
market-strategy combination until the elements showed some solid proof of being in sync with
each other again. To avoid making the same mistake as the pork belly trader, you need to use
a filter technique that will monitor your strategys performance from the inside, so to speak,
and tell you when to trade or not trade a particular model on a particular market.
The JoeKrut Diff and JoeKrut Switcher indicators are tools that enable you to monitor
(but not trade) a system during its drawdown periods so that you can begin to trade it as soon
as it shows signs of starting to perform well again. Paired together with any type of trading
strategy, these two indicators may increase overall performance and strengthen your bottom
line. The JOEKRUT SWITCHER indicator was developed as a 30-day moving average of your
strategys equity curve.
(30 on a daily bar to measure a month; 250 on a daily bar to measure a year;
I use 240 on a 60 minute bar, 2880 on a 5 minute bar and 14400 on a one minute
bar)
The idea is to only trade a strategy when the continuously paper-traded JOEKRUT
SWITCHER is rising. For easier and quicker interpretations, the JOEKRUT DIFF indicator
measures the difference in the JOEKRUT SWITCHER indicator from one day to the next. When
the JOEKRUT DIFF is negative, the JOEKRUT SWITCHER is declining and, consequently,
the strategy should not be traded in real-time.
A Free Basic Strategy

To illustrate how these tools work, well show how a trading system called JK-Call Buyer
(written in 2000 and published with the original version of this article in September of 2000
Active Trader Magazine) performs with and without them. The strategy I am giving you has
been developed over the full history of the S&P 500 futures up to September 2000 with no
changes made to the rules or the logic, except I have made it a one input system you can test
on items other than the S&P 500. The strategy works on end-of-day data and gives all trade
signals as market orders the night prior to execution. Here its illustrated with the S&P500
futures, but it can be used on individual stocks as well as buying at-the-money call options.
The strategy exits all trades after 10 days regardless of any other factors.
The rules are as follows:

When you have no current position, enter long tomorrow at the market if:
todays seven-day relative strength index (RSI) is greater
than yesterdays seven-day RSI;
todays close is below the close of seven days ago; and
todays close is less than or equal to the average of the last
seven days closes. Close of Today is higher than the Open of the day
Exit tomorrow at the market if:
todays close is higher than the average of the last seven

days closes, or
you have been in the trade 14 days.
For those of you who use TradeStation, the Easy Language code is:
Input:VarA(7);
Condition1=RSI(c,VarA)>RSI(C,VarA)[1];
Condition2=C < C[VarA] and C<=Average(C,VarA) and C > O;
If Condition1 AND Condition2

then buy next bar at market;
If MarketPosition=1 and (C > Average(C,VarA)

OR BarsSinceEntry>VarA*2) then Sell next bar at market;
Table 1 (below) shows the strategys simulated

performance statistics for 20 years: April 13, 1992 to April 12, 2012.
.
The strategy had more than 77 percent profitable trades for a total profit of more than $335,000
and a maximum of three losing trades in a row. But this strategy, like any other, will under-perform
from time to time. The next step is to see how the JOEKRUT SWITCHER and JOEKRUT DIFF
indicators can improve the performance of this basic system.
By applying the JOEKRUT DIFF and JOEKRUT SWITCHER filters described earlier, you can
avoid trading the strategy when it is out of sync with the current market action. Figure 2 (below) shows
the same strategy and market as Figure 2 just the equity curve chart with the bad area marked in
yellow:
With the addition of the JOEKRUT SWITCHER indicator (the yellow line in the middle of the
chart, with red and green stop and go indications) and the JOEKRUT DIFF indicator (the white line
at the bottom of the chart). Without changing the rules of the system, do this: When the yellow line in
the middle chart is rising, trade the strategy; when the yellow line is falling, exit all real-time trades but
continue to paper trade the strategy and track the hypothetical equity curve until it starts to move back
up again, at which point you resume the real-time trading.
For easier interpretation, you can look at the white line in the bottom chart, which will move into
negative territory as soon as your strategy starts to under-perform and the JOEKRUT SWITCHER
indicator starts to sink. In the case of this strategy, you can see that over the two years Oct 2010
through Oct 2002 the Switcher went RED three crucial times, helping you avoid much of the trouble
in the yellow box of figure 2.

Figure 3 (Below) shows the trade signals generated by applying this strategy on the S&P 500
futures from 2000 through 2003.
The simplicity of the strategy should work as an insurance against it breaking apart when
applied to future, unseen data. If youre using several different strategies on the exact same market
and the exact same timeframe, you could simply look at the JOEKRUT DIFF indicator for each
strategy and trade the one that has the highest value, which should be the one where the market
and the strategy are the most in tune with each other.
Remember the JoeKrut Diff, Switcher and JoeKrut Profit Size can be applied to almost ANY
system, without opening or changing the code!
By going to : www.eTrackrecords.com\switcher
You can get the eld and the tsw for use on TradeStation 9 The eld will include: JK Call Buyer,
a strategy; JoeKrut Switcher, JoeKrut Diff, and JoeKrut Profit Size: Indicators. Any trouble or
questions? Call my office at 573224-3366 or email me at: joekrut@gmail.com
Disclaimer Regarding the Many Illustrations of Systems and Performance Results in This Publication:
THERE IS A SIGNIFICANT RISK OF LOSS IN FUTURES TRADING. THE USE OF STOP ORDERS DOES NOT GUARANTEE LIMITED LOSS. NO
REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
The performance summaries provided above are provided to inform persons considering this system. The performance assumes one contract
of the security traded and $0 round turn for brokerage commission and $0 per contract for slippage. Mr. Krutsinger does not manage accounts for clients
and never has had power of attorney over accounts trading these systems. Mr. Krutsinger is not advising or soliciting anyone to trade or use any system
illustrated in this article. These are educational examples of the art of system writing and development that he wants to share with you.This information is
not to be construed as an offer to buy or sell futures. This information does not purport to be a complete statement of all material facts relating to futures.
We gratefully acknowledge TradeStation Technologies, Inc. for permitting reproduction of the above results produced by TradeStation software.
TradeStation Technologies, Inc. is in no way associated with or responsible for these results.

DOWNLOAD THE FREE TOOLS NOW
ATTENTION SYSTEM TRADERS
DownloaD the FRee SyStem Download Joes

anD InDIcatoR toolS to help! Trading System and
This is the exact same system (JK-Call-Buyer) Joe Krutsinger
Drawdown Indicator
discussed in his article, Know When to Hold em, Know When Toolset for FREE!
to Fold em, in this issue of Traders World. The JK-Call-Buyer
system has been extensively tested over years of data on the
S&P 500. Now you get it for FREE in OPEN CODE! Research CliCk Here To
requesT iT Now
on this system is featured in Joes article in Trader Magazine.
With this system, you will also receive the Fully Automated
Trading System Tool, the JoeKrut Switcher Indicator, de-
signed by Joe Krutsinger, CTA. JoeKrut Switcher tracks the
equity curve of the trading system, allowing you to see a quick
heads up when it starts to move into drawdown. It will also
signal when you are starting to come OUT of drawdown.
Visit Our Web Site:
This system indicator will also come with the JoeKrut etrackrecords.com/switcher
Diff and the JoeKrut Profit Tools.
For more info and a video briefing on this

system and indicator...CLICK HERE
WHo Is JoE KRutsIngER, CtA?

Joe Krutsinger, CTA has been developing fully automated
trading systems for over 36 years. He has an article entitled:
Know When to Hold em, Know When to Fold em! inside the
current issue of Traders World Magazine. The article provides
information and research on this system trading indicator.
Where Traders Go Wrong
Five Reasons Why Traders Fail
By Bennett McDowell, President & CEO TradersCoach.com
We have found that traders usually fail for five primary reasons:
Lack trading skill

Lack risk capital
Improper trading psychology
Lack of support
Lack of experience
1.) Lack Trading Skill:

Usually new traders are so eager to make a killing in the market that they are just too
impatient to learn how to trade before trying to trade. Basically they either wing it, or think
they know what they are doing without objectively determining their skill level.
If new traders can get the dollar signs out of their eyes and focus on developing their
trading skills in a stress free fun environment, they will be off to a good start. We encourage
new traders to paper trade first so that they can practice their trading skills in a risk free and
stress-less environment. Our feeling is that if you cannot be profitable paper trading, then
you will not be profitable trading in the real markets.
Paper trading is an excellent way to practice trading. Once you are consistently profitable
paper trading over a period of time and you feel ready for the real markets, then try trading
in the real markets. The key to properly using paper trading effectively is to be sure you
are consistently profitable, you will feel it when you are! If you do not feel it, then you are
not ready to trade the real markets. Wait until you are ready. Do not deceive yourself here,
it is very important.
If you feel ready and then trade the real markets and become unprofitable, then your
problem is more than likely with you psychology. If this is happening to you, stop trading the
real markets, and go back to paper trading and seek some help with how your psychology is
negatively affecting your trading results.
The key here is to be persistent until you do have the skill to excel. It takes work along
with time and patience, but with both it can be done.
2.) Lack Risk Capital:

In order to be a successful trader, you want to create a stress free trading environment. To
help do this, you need to be trading with risk free capital. By this I mean do not use money
you cannot risk, like money for rent, food, and to support you family needs this month!
It amazes me how many traders do this. It is a recipe for failure and possible disaster.
Dont do it! If you love trading, but lack the necessary funds to participate, wait! Instead
paper trade and develop your trading skills so when you have the money to trade, you are
ready.
3.) Improper Trading Psychology:

How do you know you have the improper trading psychology? Here are a few things to
look for.
Feeling too much stress
Successful paper trading and not successful when trading in the real markets
Getting mad or too joyous depending on your trading outcomes or results (excessive
highs & lows)
Feeling fear
Cant pull the trigger
Fail to exit trading positions at stop loss points
Exit trades to relieve anxiety
Impulsive trading, etc.
When paper trading you are apt not to feel the psychological impacts of real trading.
Thus, Paper trading will not generate most of the above psychological feelings. However,
when making the transition from paper trading to real trading, the psychological issue may
be felt and have to be dealt with just like when you learned the skills of your trading system.
When you hear that trading is both an art and a science it often refers to the combining
of psychology and feelings with that of a technical trading approach.

In order to be successful, the psychology has to be mastered and managed.
4.) Lack Of Support:

Because of the many challenges in trading and because of dealing with issues that require
objectivity, new traders and experienced traders alike may need a support system in place.
TradersCoach.com recognized this need early on and has developed Coaching/Consultations
and Mentoring Programs to provide this needed support to traders worldwide.
Many top athletes and executives incorporate this same coaching and support regime into
their busy schedules in order to excel at their chosen field. It is essential!
Remember there is no amateur trading league. Every market you will trade is made up
of expert traders. There is no little league so to speak. Whenever you enter a market, you
are entering a championship arena where to win you must be one of the best in the arena.
Therefore your skills have to be top notch before you enter the markets. To become top
notch, you will need to practice, practice, and practice some more until your skills are at the
championship level.
Sorry but that is the way it really is! So in order not to lose your trading money, you must
not enter the markets before you are ready. And to get ready you should paper trade and
develop your skills first. If you enter the markets before you are ready or skilled, it will be a
mistake!
5.) Lack of Experience:

Many novice traders fail to realize that when they enter a market to begin trading, that
all markets are championship arenas. An unprepared trader will be trading against prepared
traders and will find it difficult to win.
We strongly suggest that you do not trade with real money until your paper trading has
been profitable for awhile. The time it takes will depend on the time frame in which you are
trading. For example, if you are a day trader, you may do 30 to 100 trades within 10 days. If
you are a position trader, you may do only 100 trades a year. The idea here is to give yourself
enough time to experience different market conditions and see how you do thus improving
your trading skills.
Once you are doing consistently well paper trading, then you maybe ready to start trading
with real money. Once you start trading with real money, you will experience the psychology
of trading. If after trading with real money you experience poor results, you know you have
a more than likely have psychological issues that are effecting your trading.
With experience, you will learn what your psychological strengths and weaknesses are and
begin blending them into your trading to improve your results.
Professional Trading Coach:

You may need help to do this, which is why we provide private consultations to traders who
need help in this area. To learn more about how we can help you achieve results, visit http://
beacontraderscoach.com/

Dont Be Fooled By Brady Preston
H
ave you ever spent a lot of time modeling a market, and then as soon as you
turn it on it gives you unexpected results? A traders usual response to this is to
deactivate it and blame it on a failed system or over- optimizing. In reality, it may
not be a failed system but poor statistical sampling during the modeling phase.
In fact, this system could be performing perfectly according to the population,
but you are comparing it to the sample. When developing a system, we must remember that
it is a sample of data versus a full population. This condition worsens as we apply filters and
minimize the sample further. This is why it seems that optimization fails to work in the future
but in reality you are just receiving a more acute sample of the population. The big question
we should be asking ourselves is how close is the sample to the population?
When modeling markets, traders can often be fooled by an error in the sampling population.
Sampling errors occur due to the fact that we are estimating a population characteristic by
using only a portion of the population size. Therefore, a sampling error is the difference
between the estimate found in the sample and the actual population value. Sample errors
could affect every value on the trading summary sheet due to the fact that our sample did not
give us an accurate estimation of the true population. For a trader this can be troublesome
because we like to feel certainty in our back-testing results.
We can achieve more certainty in our modeling if we follow these general rules about
sampling:
The sampling error will generally decrease with an increase in the sample size
The population size will have a great impact on the sampling error
The more variability in the population, the greater the sampling error
Setting out an appropriate sampling plan can improve a sampling error
Using multiple methods to estimate the population characteristics
Increasing the Sample Size

The most obvious way to produce a large sample size is to use robust systems. As a
trader, if you want larger sample sizes you need less-restrictive filters, patterns and triggers.
Generally what happens is that a trader will back-test a restrictive signal, receive very good
results and believe that he has found a profitable signal. What is really happening is that he
has restricted his sampling size and has ended up with an outlier that will most likely not
produce the same results in the future. We must also remember that adding more signals to a
model is not increasing the sample size, but rather it is increasing the population size, which
gives the illusion of a large sample size. If you want to back-test restrictive signals, I would
recommend applying the signal to other similar markets. The reason for doing this is that
when you add more markets you are not increasing the population size, because the given
market conditions are already unlimited. For example, if I wanted to test a restrictive signal

on the E-mini S&P, I would also verify the results on the E-mini Midcap, E-mini Nasdaq, E-mini
Russell and the E-mini Dow. By doing this we are keeping the population sizes the same, but
increasing the sample size. I would personally feel much more comfortable trading a system
that worked on many markets than a system that only worked on one market. A system that
works on many markets tends to absorb market change better than a single-market system.
When choosing a group of markets to test the signal I find it is best to use is a correlation table
to find markets with similar price action. The image below summarizes how filters affect the
size of the sample. The blue circle is the population, which represents every possibility given
all market conditions. The red circle represents a sample of the population, because we have a
limited amount of market conditions. The yellow filter is what happens when you apply a filter
to your sample, which then filters out some of your sample. The turquoise area with the label
AND is what happens when you connect two filters using the AND operator. The yellow,
green and turquoise area would represent two filters connecting with the OR operator. Just
the yellow and green areas would represent two filters connected using the XOR operator.
Population Size
The smaller the population, the smaller the sampling size can be. In terms of trading, it can be very
hard to determine the size of the population because the population is any possible outcome. There are two
factors that will affect the population size -- the signal trigger and market conditions. We have no control

over the market condition so this means that we must adjust our trading triggers to decrease the population
as much as possible. The only way to really limit the population size is to limit the number of triggers in
the model, because we have already seen how filters only decrease the sample size. The other problem is
that the population size will always be unknown because we are unsure of the market conditions, meaning
that we have not seen all market conditions. Consequently, the best idea for a trader would be to limit the
number of triggers and increase the sample size as much as possible.
Variability in the Population

A varying population will create a sampling error because the probability of catching an outlier becomes
larger. A varying population will primarily come from the market being modeled. Traders will often find a lot
of variability in the population when modeling trend following principles. Trend following modeling tends to
win large trades that will make the system profitable. The hard question then becomes is this sample with
this large trade representing the population fairly? Or is this large trade the only one in the population? The
best way to determine this is to apply this model to other markets to determine if they also have large trades
in their population. Another rule I use is to see how much the largest trade made of the overall profit. If you
were to remove the largest trade the model should remain profitable. Dont be fooled into an unprofitable
model just because it had one large losing trade. Look for models with consistency as they will most likely
be a better representation of the population.
Sampling Plan
One of the most important criteria when modeling markets is to make sure that you have set out an
appropriate plan. The plan should include a system design and an estimation of the outcome. The system
design phase will help insure that you are not developing a system on the fly during the modeling phase. It
is a common problem when modeling that we look for ideas from the back-tested results instead of using
principles in the market. By creating a design plan the trader is more likely to stick to principles and this
should reduce the sampling error. It is always a good habit to estimate the results before you back-test.
From prior research, the trader should have a good understanding of what to expect from the model and
how it will most likely perform. For example, a trader should be alerted if his long-term trend following model
returns 95% winning trades with a win/loss ratio of .50 because it goes against trend following principles. A
trader should have a good understanding of the expected trade frequency, percentage winning trades, trade
length, etc. before modeling starts.
Other Tools to Help View the Population

The main objective to modeling is not to understand the sample but to get the clearest possible picture
of the population and what may lie ahead while trading the model. One of the first things I will do to test
the sample is to calculate the consecutive losing trades. Calculating the consecutive losing trades is one of
the easiest and fastest ways to see how close the sample is to the population. I do this because traders can
be fooled sometimes by the order of trades, which can lead to a smaller drawdown and a lower number of
consecutive losing trades in the sample. For example, look at the charts below; the first one was the exact
results I received from the back-tested trades and in the second one I randomized the trade order.

The order of the trades did not change the primary stats such as winning percentage,
average trade and largest loss. The only significant difference it made was that the drawdown
decreased, which is a very important stat to a money manager. The best solution I have found
to get around this is to generate new trades from current given stats about the model. I find
the frequency of each trade happening in the sample and then generate new trades using this
information. The chart below shows the model in figure 2 with 150,000 new trades generated
using the stats method.
The two main stats that I am interested in are the consecutive losing trades and the
drawdown. As you can see the drawdown has gone from $9,350.00 to $14,606.15 and the
consecutive losing trades went up to 19. If the results came back and the consecutive losing
trades went down, it would most likely mean that the trades from the model were negative
dependant and the trade probabilities would have to be adjusted given the last known trade.
Overall, this will give you a better picture of the population and this will allow the trader to
better understand how close the sample is to the population, providing a better picture of the
road ahead.
My recommendation for systematic traders is that they should keep their models robust,
giving them a clearer picture of the population. They should also understand how filters work
and should not use them to make their model profitable, but to filter out undesirable conditions.
Lastly, traders should start using multiple tools to get a better picture of the total population.

NOTES ON GAP THEORY
Part 2
from Novy Principles of Market Flow
By Leonard Novy
www.trainingfortraders.com
...Gap Trading Part 2
In this article, I am going to continue my talk about Gap Theory as Part 2. You can find
Part 1 in the last Traders World magazine issue #50 Dec/Jan/Feb 2012
How and Why Gaps are Covered

Old Gaps vs New Gaps, Do Gaps expire?
Gap Coverage in Related Markets and Other Games
How and Why Gaps are Covered
Gaps are inflection points. Inflection points are price areas where traders are buying or
selling the market with urgency so that there is a quickness in the move that leaves a price
area thinly traded.
A few decades ago, prior to electronic markets, we were able to find gaps intra day where
bid offers were suddenly and wildly separated due to a report or a surprise news item. This of
course was when open outcry was the norm for order placement. The ability to place trades in
a micro second in the electronic forums have all but eliminated intra day gaps .
Gaps are now created over night between pit sessions as Asia and Europe take turns
trading the same market during their pit sessions It is therefore important to use a pit
session daily chart or my favorite, a pit session hourly chart so that you can see the gaps.
When it is our turn to trade the ES as an example, the market may be trading above the
high of the last bar, or below the low of the last bar of the pit session from the previous day.
For us this gap would be a price area that we have not explored. This generally causes day
traders to fade the gap, to trade in the opposite direction of the opening flurry. It is presumed
that the market may have gapped up or down on a report or that the Europeans may have
pushed the market into an overbought or oversold condition on a short term basis. See chart
below

As you can see, the markets have been very directional lately with traders having very little
success fading the gaps as the penetration back into the gap is very shallow before resuming
in the direction of the gap. This is indicative of highly emotional markets.
Old Gaps vs New Gaps, Do Gaps Expire?

The answer is no and yes. Gaps in commodities that are tied to supply and demand
considerations tend to stay relevant because commodities vacillate in wide swatches of price

movement. A low price in a commodity is not a bad thing.
Gaps in stocks and indexes can become fossilized over time since the general pricing of
equities rises to higher plateaus over a very long time. I dont expect to see the Dow Jones
trading at 300 ever again whereas I expect to see gold trading at some point in the future at
$300 an ounce.
Common gaps (gaps created within consolidations sometimes called Pattern Gaps) are
expected to be covered sooner than later, but they can remain uncovered for quite a long time.
I have seen common gaps remain uncovered for years.
It is a good thing to keep a list of all common gaps. Very old gaps lose their importance as
related to old news but if the market approaches a very old gap it still takes on importance as
a target. Traders are conditioned to using gaps as targets
Gap Coverage in Related Markets and Other Games

Related markets are those markets within groups, sectors, or categories that tend to move
in the same direction together, albeit at different rates of speed.
In the example below the chart on the left is the hourly E-mini S&P 500. The chart on the
right is the hourly E-mini NASDAQ 200. The S&P 500 generally represents the broad based
economy and in recent times has been affected by the strength and weakness of banks
and financial centers throughout the world. The E-mini NASDAQ 200 generally represents
technology.
These two indexes move in similar directions and both are subject to higher or lower gap
openings on the same day. But how these gaps get covered is an interesting and informative
matter.
There was a gap higher opening on the charts on March 26. Then on March 28 the ES came
down to cover its gap. The NQ however did not cover its gap. That information would imply
that the NQ is holding up better than the ES but the common gap on the NQ is still unresolved
and a target for the traders as an area of better support.
The next day on march 29, the NQ finally drops into its gap and then rallies. The same
trading contour is duplicated on the ES while it surpasses its gap to the downside before
rallying.

The rally that ensues in both markets leaves the NQ gap behind still not entirely covered.
This would imply that both markets would be subject to falling back down to finish off the job
of covering the NQ gap.
And that is exactly what happens on the 4th of April. The benefit to having this information
is that if you were trading the ES you could make better decisions about pending changes
of direction in the market as well as better targeting areas of support and resistance by also
watching the NQ
There is always a chance that a common gap can be left uncovered in urgently driven
trending markets but that would be the exception rather than the rule.
In summary it took 3 attempts for the NQ to entirely cover its common gap created on
March 26. The ES covered its March 26 gap on March 28 in one attempt but then moved in
tandem with the turns on the NQ as it continued to struggle to eventually cover its gap.
For more on Novy Principles of Market Flow please contact me at info@trainingfortraders.com

or 760 841 1522 and go to www.trainingfortraders.com

The Price of Certainty
Part One
By Joel Rensink
The game taught me the game. Jesse Livermore
Extraordinary Achievement Is Less about Talent Than It Is about Focus.

Most people think you have to be very smart to be an effective trader. It certainly doesnt
hurt to be smart, but being smart is definitely not enough. In the pits I saw many very smart
traders lose all their capital within a year of starting. And having lots of money is no guarantee
either. More about this later....
Im sure a number of you have read Malcolm Gladwells new book, Outliers- The Story
of Success. If you havent, youre missing out. Its a must read for traders. Hes also
written The Tipping Point and Blink. Two exceptional books for traders, because The
Tipping Point helps you understand the way things (think: people and markets) work in the
real world, and Blink explains how people actually think about thinking. Both books can help
you formulate your own permanent edge in trading. Outliers, takes away the mystery about
how exceptional people (human outliers) succeed according to consistent principles.
For example, its been proven that someone with an IQ of 150 is much more likely to
reason better than someone whose IQ is 80. The same idea holds where the comparison is
even closer between IQs of say- 100 and 130. But this relationship isnt as consistent when
one compares two people who have relatively high IQs, an adult of 130 and another adult
whose IQ is 180. The higher you get past, lets say, an IQ of 110 -- patterns of attainment
because of relative intelligence stops being much of an issue.
So far, so good for traders.
It seems that IQ has a threshold. Past a certain threshold, youre smart enough to accomplish
just about anything. Einsteins IQ was 150. My barbers IQ is 160, and his greatest passion
is shooting skeet, not splitting the atom. Individual desire becomes the largest factor after
that threshold is past.
Psychologist Robert Sternberg has done a lot of research about what he terms practical
intelligence. It is about the difference between being book-smart and street-smart.
Practical intelligence is more procedural in nature. It is about your knowing how to do
something without necessarily knowing why you know what you do. Its not knowledge for
its own sake. Its knowledge that helps you read situations correctly and get what you want.
Cause-and-effect kind of intelligence.
Practical intelligence is the kind of intelligence that doesnt necessarily test well when IQ
tests are taken. You can have lots of book smarts and very little practical intelligence or lots
of practical intelligence and not much book-smarts. Or you can have lots of both.
This means that if you have enough intelligence to know the intense preference of a $500
trading profit versus a $500 loss, and know how and why either of them can happen -- you
meet the minimum qualifications for success in trading.
Outliers suggests strongly that just because people would like to excel at some skill doesnt
mean they will. And I agree with Mr. Gladwell especially as it applies to highly competitive
arenas like trading. There are heavy personal costs involved.
Malcolm Gladwell introduces a concept of approximately 10,000 hours of effort being
required to become a human outlier in any field of endeavor.
He compared diverse groups of talented/skilled individuals such as soloists, pianists, chess
Grandmasters, basketball players, composers like Mozart, Canadian hockey players, computer
programmers. Even groups like the Beatles or individuals with the success similar to Bill Gates
-- can credit most of their success to spending more than ten years in the preparation of their
skill sets.
What is so illuminating from reading Gladwells book is the kind of focus necessary from
the outlier individual. Their 10,000 hours or more of intense focus typically results with little
initial monetary gains.
Even though most of these outlier types become very successful financially, money is not
the initial or prime driver to the outliers success.
The incredible secret of their success? They love their work.
Do you love the markets and market research so much that youd do it for years without
a profit?
In 1995 I met an incredibly determined trader, Doug Seifert, who barely survived on the
receipts from driving a cab, because he didnt make money trading. Anything he made extra
while driving cab, he lost in the market. He traded on borrowed seat, posting red ink every
year for 28 years until he finally had his first marginally profitable year in 1998. In 1999, he
earned 3 times the size of the considerable losses he accumulated over his previous 28 years.
And didnt have another losing year for the rest of his life. He told me that it was as if the
market all made sense to him. And he couldnt understand why he didnt see it before. (This
was the most extreme case I ve ever seen. I do believe I would have given up if I wasnt
profitable after a year. In Market Wizards (1989) Tom Baldwin stated that if you can afford
to stand in the pit long enough you HAVE to pick it up. It is just a matter of how long you
can afford to stand there before you do. I didnt think that was necessarily true until Doug
proved the concept. He had determination!)
If you had the choice of being a private trader making $100,000 a year or being a Wal-Mart
greeter every day for the rest of your life for $100,000 year would you take the former? I
know I would.
Being able to govern your own time and effort, have the opportunity to get better at a skill,
and have a situation where you can scale up your reward versus your input is meaningful.
Being a greeter at an anonymous box store for even twice the money a year is nowhere near
as satisfying as living by your wits, and the certain knowledge that your actions create your
profits.
It is not necessarily how much money we make that ultimately makes us happy. Its
whether our work fulfills us.
This brings up the question: is there any way of getting around the 10,000 hour rule? My
answer: yes and no. Youll see why shortly.
A commonly heard statement is, What one man can do, another can do! I absolutely
know this to be true, if are talking about similar men, with similar abilities and temperaments.
The two-pronged question for most of us is, how long will it take me and how much will it cost?
Or, what is the price of certainty?
It would stand to figure, if someone has already spent more than 10,000 hours becoming
successful in trading, you should be able to follow in their footsteps and become as successful
as them in much less time. Ideally, that would work. If you were almost identical to them for
the skill at hand.
It rarely does though, because of what I call the Tiger factor.
Currently worldwide, there are an estimated 60,000,000 golfers. In the United States
alone there are an estimated 25 to 40,000,000 golfers.
Only a very small percentage of these players are considered pros. Pros get paid.
Professional golfers are basically divided into two main groups. The majority of professional
golfers (at least 95%) make their living from teaching the game, running golf clubs and courses
and dealing in golf equipment. Like Kevin Cosner in the movie Tin Cup. A very small but
high profile group of professional golfers earn their living from playing in golf tournaments.
Like Tiger Woods, and thousands of lesser players, making much less than Tiger.
Having watched Tigers career for years even though I am not a golfer, I m impressed with
the fact that he was introduced to golf before the age of two, and played it constantly because
he loved it. He had support from an athletic father, who was extremely supportive of his sons
interest. I also find it telling that Woods father, Earl said that Tiger first beat him at golf when
he was 11 years old with Earl trying his very best. From that point on, Earl lost to his son
every time they played together. Tiger first broke a 70 score on a regulation golf course at
age 12. (Source: Wikipedia.org).
Of the last 14 years, Tiger Woods has been the year-end, number-one-ranked golfer for 11
of them. As well and consistently as he has played in the last two decades, today he is ranked
eighth in the official World of Golf.
Tiger definitely has spent more than 10,000 hours honing his craft. Probably more than
30,000 by most accounts.
The thing is, his current competition at the top of the leaderboard, like Luke Donald and
Rory McIlroy (who started playing at 18 months old), to mention just a couple - have all spent
at least 10,000 hours of playing too. All these guys have watched countless golfing videos of
previous pros, had coaches helping them..., but nothing hones skills like the experience. They
love the game and they love to win.
A new golfer can analyze Tiger Woods swing, training regimen, attitude, etc. But if he
wants to have results similar to Tigers, he will have to make golf his own. By working at least
as hard as Tiger. By experiencing the bad lies, the wind, rain and the pressure to perform that
a real pro has to handle.
Here is the parallel to trading.
You can have an edge shown to you by another winning trader, but to get great at trading
- the countless trades you execute yourself will actually teach you how to trade! Each trade
you take will be different from every previous one, with different news vying for your attention
minute-by-minute; with emotions erupting you didnt believe you could have. And real losses
of real money faster than you thought possible. Relatives and friends who tell you that trading
is nothing but gambling and you are a fool.
A known winning trader Victor Sperandeo, was interviewed in the New Market Wizards
(1992) by Jack D. Schwager concerning his views about teaching others to trade.
He said that over a five-year period, he trained 38 people. Of the 38 people, only five
(13%) made money. Each of these people spent months with him side-by-side, while he
taught them everything he knew about the markets.
One of the most profitable traders Victor ever taught was a high school dropout who
seemed to be afraid of everything. So he took losses quickly. Another guy he trained was a
certifiable genius, with a 188 IQ, but never made any money from trading in five solid years.
Victor believes the key to trading success is emotional discipline, and that intelligence takes a
backseat to it every time.
To be a successful trader, you have to be able to admit mistakes. People who are very
bright dont make very many mistakes. In a sense, they generally are correct. In trading,
however, the person who can easily admit to being wrong is the one who walks away a
winner.... In trading, you cant hide your failures. Your equity provides a daily reflection of
your performance. The trader who tries to blame his losses on external events will never learn
from his mistakes. For a trader, rationalization is a guaranteed road to ultimate failure.
Mr. Sperandeo was asked if he had to do it all over again, how would he proceed?
Victor said he would look for people who had the ability to admit mistakes and take losses
quickly. This is because he believes that most people look at losing as a personal flaw. So
when it comes time to take a loss according to their game plan, they deviate from the game
plan because its just too hard emotionally, to take the loss.
Many new and even seasoned traders agree that trading psychology makes it almost
impossible to learn to trade correctly. So is the solution trading a mechanical trading system,
preferably one designed by a pro? From what Ive experienced, it comes down to your love of
the game, and your personal focus.
For more than 20 years, trading systems; particularly mechanical trading systems have
been all the rage. For the last decade; short term trading systems-- primarily trading the
E-Mini S&P, and in Forex- Expert Advisor programs have been the most popular. For those of
you who have traded them, how successful have you really been?
Have you tried one system after another with bad results?
Youre not alone. Tens of thousands of traders have tried systems that theyve failed
with. (My #1 recommendation: Avoid multiple indicator systems like the plague. With few
exceptions they are a black hole for your mind and your money. More on this topic in The
Price of Certainty, Part Two)
One thing Im certain of is this: you need to find an approach that you not only are
comfortable with, but one that suits your personality. (Otherwise, youll have too much
difficulty executing your trades, and especially taking losses.)
Maybe you want to trade multiple markets on the same time-frame. Or you might want to
trade a single market on numerous time frames many times a day. Maybe you love options
or some form of arbitrage strategy. Unfortunately, in my experience, less than 25% of you
will start trading effectively with the first method you discover. But it is essential whichever
methodology you settle on that there is no conflict between your personality and your
trading style. Unless you want to go through severe mental reprogramming which can take
precious additional time.
And regardless of which markets and time frames fit your personality, its essential to find
(at least at the beginning) a simple approach based on a recurring market principle. Not
necessarily mechanical, but the concept you trade needs to have well-defined risk. Or money
management will be impossible.
Successful trading is a business of low risk entries, and reasonable exits. It has to be done
with proven mathematical edges based on unchanging principles leveraged with reasonable
amounts of capital. Because the Tigers of the trading world are trading with every advantage
possible.
After years of reading and studying charts, and a worn copy of How to Make Profits in
Commodities, I started off trading long, narrow range breakouts on daily charts. I was
profitable my first year. And the next 3 after that. Even though it isnt considered a sexy, new
age trading method, at least half of my yearly profits still come from trading breakouts from
narrow ranges.
Ive enjoyed more than 30 years of researching virtually every reasonable method possible.
Ive tested promising ideas for months with Tradestation and newer simulators, realizing that
negative test results are just as important as positive ones. Trading has more opportunity now
than ever before.
The Price of Certainty, Part Two will deal with the monetary costs of trading. How much
capital do you really need to become a functional trader? Can you really afford to trade? How
much money can you expect to make?
Joel Rensink has been a professional futures, floor and forex trader for more than 30 years.
In addition to his daily active trading, he is a consultant for determined traders, trading firms
and hedge funds seeking robust trading models. For any comments or questions on the article
above or the markets, e-mail him at: leonardo@infiniteyield.com

The Vibrational Positioning Sequence (VPS)
A Market Forecasting Model based on the
Law of Vibrations
By Anthony Scelfo with Thomas Hart

W
.D. Gann spoke about the Law of Vibrations and said everything is governed by it.
He never explained the details of it nor did he reveal where he got his information
about the law. There was only one other person at that time who was speaking
about the law of vibrations and that was George Gurdjieff. Gurdjieff also called it the law of
the discontinuity of vibrations, or the Law of Octaves. He said there are two fundamental
laws governing the universe, the first of which is the Law of Three (every action has 3 forces:
active, passive, and neutralizing) and the second is the Law of Vibrations or Octaves. From
the point of view of this author, the Fibonacci numbers stem from the universal Law of Threes.
The Law of Vibrations is not as recognizable. Basically, the law is something like two steps
forward, one step back. Like the musical scale which contains whole notes and half notes, an
octave of vibrations has two intervals, one part way through, called the mi-fa interval and one
toward the end called the si-do interval corresponding to the points at which the half notes
would occur in the musical scale. A scale is complete when the rate of vibration has exactly
doubled.
It is helpful to understand that the Law of Vibrations is not ordinary knowledge. You cant
find it in the encyclopedia or in libraries or just about anywhere. It is knowledge that was
hidden for a long time Gurdjieff tells us. Where did it come from? From all I could discover
Gann and Gurdjieff obtained this knowledge in India or in the Near East from some type of
monastery or spiritual group that used the knowledge for spiritual development. Gann said
that all he learned about timing the stock market he learned from the bible. Besides getting
knowledge of the spiritual quest from these religious texts, we also find universal laws. The
Law of Vibrations is one such law.
In the early 1980s, I became interested in the stock market and said to myself that if
the Law of Vibrations governs everything, it must also govern the stock market. It took me
two years to figure out the relationship and to come up with mathematical formulas which
express the Law of Vibrations as it manifests in stock market moves. It took me a few more
years to come up with the different scales of movement which explain different phases of the
market. Simply stated, there are small scale movements within larger and larger scales of
movement. If you are familiar with fractals and the Mandelbrot Set, then you can visualize
the concept. There is a small market move, then a big one and another larger one, but all
looking the same, like the Russian dolls that fit one inside the other. Another way of saying
it is that you have an octave within an octave within an octave as in the harmonics of music.
The micro leads to the macro would be another expression of the Law of Vibrations.
Why the name Vibrational Positioning Sequence?

One day I was trying to explain to my wife how I use the Law of Vibrations for trading the

stocks / commodities market. She knows nothing about the markets but she said it sounds
like GPS (Global Positioning System). After thinking about it, I realized that this was a good
description of the vibrational sequence, a GPS for the stock market. It tells you when to turn.
And so the name VPS was created.
Comparing VPS with Fibonacci

Most people involved in the stock market world are familiar with the Fibonacci series
of price movement which is a similar concept to the theory of Vibrational Movement, so a
comparison between the two methodologies might be a good place to explain just how the
vibrational sequence works. The Fibonacci sequence is a series of numbers based on the
difference between consecutive numbers being added to the last number in the sequence.
This is often referred to as the Fibonacci ratio. The Fibonacci Cycles are based on two numbers
and the Fibonacci ratios between them. Enough literature exists to explain the Fibonacci ratio
that it is probably mundane to go into greater detail.
Similarly, the idea of vibrational moves is based on a beginning number, called the Anchor
Point, from which all future peaks and valleys are projected to follow. In contrast to Fibonacci,
the VPS which expresses the projected rate of change generates a more complete forecast of
the highs and lows; VPS is more precise than Fibonacci. The VPS sequence is derived from just
one anchor number and not the difference between two numbers. Fibonacci is incomplete, but
in competent hands, it is very good. We do not seek to take away from Fibonacci, but only
to say it is limited compared to the vibrational wave theory. Thousand of traders are using
Fibonacci but only myself and my trading partners are using VPS.
Below is a table which compares the two:
Fibonacci VPS
Uses two anchor points to forecast a Uses just one anchor point
retrace
Calculates 5 anticipated retracement Calculates 21 anticipated stopping
lines, points over a 14% market move,
- 11 following and 10 fading
Used by just one group of technical
Used by thousands of technical traders (so far)
traders

Pros and Cons of the Vibrational Positioning Sequence
Lets be honest, every indicator has its own strengths and weaknesses. We think the
advantages of VPS far outweigh the disadvantages. Some Strengths:
The VPS is not a lagging indicator. It is forecasting future moves.
If you wait to enter a trade at or near a projected number, you will be at the safest entry
point with little or no heat (drawdown).
Quite often, the market will bounce off or hover around the projected stopping points. This
is a sign of consolidation.
Once given the formulas for computing vibrations, with a simple handheld calculator an
ordinary trader can stay one step ahead of the market.
With a little experience using VPS, a trader can know when big moves are coming. As the
market advances up or down, some of the future price channels get larger and you will
know in advance how large they will be.
Disadvantages of using the Vibrational Positioning Sequence

What are the difficulties with using the vibrational sequences?
You do not know for certain on which scale a price move will stop. For example, some
trends are longer than others and may continue at an ever expanding scale.
You do not know how long it will take to advance to the next forecasted price. There may
be a forecast for an up move of 20 points in a particular index, for example. That could
happen in one day or it may take several weeks. After a while, you will get an idea. In
todays market, it is not usually too long.
It cannot be guaranteed that the market will stop at each and every projected point;
often, the market will bypass a projected stop and overshoot. For example, in a strong
up market, price will not step back retrace when projected to do so. It may only stop
at one projected up point for a while and then go on to the next up point without ever
retracing. So, if youre too form-oriented and insist that price must stop and reverse at
every projected point, this theory will not work for you.
The market is a living thing, so to speak. It likes to have the last word. These projections
are just potentials. You could think of the potential turning points as support and resistance
lines - or as overbought/oversold lines. They may hold or they may get penetrated.
Examples
We will try to give some examples, but it is difficult without giving away the whole show,
so to speak, since VPS in its construct is actually quite simple. Using the Law of Vibrations
we could have forecasted the major highs and lows for the decade after the high in 1929.
Following the high in 2011, we correctly forecasted the SPX low of 1075. For the near future
VPS is forecasting a high of 1520 and beyond that 1800. The latter forecast is an example of
a very large scale move. Of course, there are more in between forecasts.

Figures 1 and 2 compare Fibonacci and VPS using a daily chart for a commonly traded
Futures Index. Figure 1 shows the price bars over a period of about 2 months.
Figure 1 Fibonacci Retracement Construction

To calculate the Fibonacci Retracement Lines, you need to identify two points a recent
low (Point B) and the previous high (Point A). After connecting the two, Fibonacci will project
the five price points at which you would expect a retracement. Just looking at this chart, you
would have to agree that Fibonacci fails to accurately forecast the market retracement all the
way up to the anchor high and beyond.
Figure 2 shows the same index over the time period, about 2 months, with the VPS forecasts
plotted on the screen.
Figure 2 VPS Construction

Step one is to establish the Anchor Point from which all future points will be derived. In
this case, the recent low in the market. The previous high is not needed. Whenever price
penetrates a projected point, shown by the white arrows, the next two stops are plotted. On
day 2, a decent up move had been established so, at Step 2, we plot the next projected points
at A and B. At the end of day 3, when price closed above point B, we simply re-plot. Step 3 is
to plot the next forecast points at C and D. Step 4 occurs on the next day - we plot the next
projected points at E and F. Note: there is nothing to recalculate from day to day, only to plot.
All of the calculations were made when we input the Anchor Low at Step 1.
After Step 4, notice that price never moves down to point E - there was only a brief
downturn, and then a price move up to F, which took several days. On the day the index
reached Point F, Step 5 would be to plot new projections G and H which happen to be a
fading pair of projections. In just two days, price dropped to the point we projected at G.
There are some points in between A and D that we did not include but which we would
have if we were trading the index intra-day. Also, plotting is not necessary. We use it here for
illustration.
Figure 3 an example of VPS on an Intra-Day chart

Inside each big move are smaller sequences of moves. These smaller sequences can be
used for day trading. Figure 3 is an intra-day chart from a recent trading day in April 2012
which shows how we used VPS to successfully take several points of profit out of a narrow
trading range. Figure 3 using VPS for Intra-Day trading
The market was coming down from a high and hit our Target on the VPS and went below
our number by one point. At that low, the Anchor Point, we plotted another VPS, expecting an
up move and went long near that low. We put in a sell Stop at Target 1, which it reached so we
were out with a profit of $200. The market hovered at Target 1 for a time; consequently we
went short and exited near Target 2, for a profit of $130. At Target Point 2, we went long and
exited again near Target 1 for a profit of $140. The volume was low so we did not expect the
market to get too far too fast. After the market returned to Note 2 we went long and exited
again around Target 1s high for a profit of $100.
Figures D lists the first 10 trades of the day. As can be seen, the first trade was at 7:58
and the 10th trade was at 10:15 for a profit of $700, less commissions, over a period of 2 hours
and 20 minutes. There were more executed trades later in the day and we managed to make
a few hundred more dollars, but the ten listed trades give you an idea of how we used VPS for
intra-day trading.
Figure D
Further development of the VPS trading Model
In the past, VPS was only available to a handful of investors. Recently, we began to
develop a fully fledged trading system which incorporates VPS. Upon completion,
it could be made available to a limited number of like-minded investors. Until then, we
are available to train a small, limited number of people in how to use VPS to forecast
turning points in the market. Contact information can be found at the end of this article.
Prerequisites for training

There are just a few prerequisites for learning how to use VPS.
The first is that one must have a flexible mind. The mathematical formulas which are the
basis of VPS do not lend themselves well to automated trading, at least, not without a
computer model approaching artificial intelligence.
The next thing is that one must use these projections first, before looking at other indicators.
This is not a lagging indicator. It is forecasting the future. See what to expect first and
then see how the other (lagging) indicators fit in.
Getting the projections is the easy part. The part that takes time and flexibility is learning
which anchor point to use and when to change anchor points. Part of it depends on whether
you are day trading or swing trading.
Willingness goes a long way. One has to be willing to let go of what one knows for a little
while, not forever, but for a little while. It is necessary to immerse oneself in the VPS
calculations and their projections onto a trading chart; then, recognizing trading patterns
will become second nature.
It is best if one already knows how to trade and has been through the learning curve. Based
on years of experience, the futures market has been proven to be the best medium for
using VPS, more so than individual stocks. VPS will work for individual stocks but not as
well. VPS can also be used for the Forex or any of the commodities, although gold is most
challenging.
Anthony Scelfo, P.O. Box 820, Oregon House, CA 95962, ascelfo@gmail.com

High Profit Candlestick Patterns
Enhancing Market Trend Returns
The Fry-pan bottom
By Stephen W. Bigalow
A
ll boats rise in a rising market. Candlestick analysis provides a huge advantage for
profiting in a rising market conditions. It identifies candlestick patterns that will
produce inordinate profits when the general market is in a slow steady uptrend.
A slow uptrending market condition reveals there is no change of investor sentiment for
extended periods of time. This allows candlestick patterns to perform, resulting in extremely
large profits.
Candlestick signals make analyzing market patterns relatively easy. Trading patterns
become recognized patterns because of the reoccurring mental process of investor sentiment.
Normal investor decision-making is flawed with the input of emotion. Human emotions
are contrary to investment rational decision-making. Being able to graphically analyze what
investors normally do provides a huge advantage for the candlestick investor. Candlestick
analysis is capturing and analyzing investor sentiment on a chart.
Western analysis has identified many reoccurring patterns. Adding candlestick signals to
the analysis makes the anticipation of the pattern easier. Whether patterns are identified on
a one- minute chart for day trading or a weekly chart for long term investing, the sentiment
for each time period is clearly defined with candlestick formations. Once recognizing that
a trading pattern is developing, it can be better analyzed and more accurately timed when
utilizing candlestick signals.
Candlestick analysis is not rocket science. It is simple investment philosophys put into
a visual graphic. The 400 years of actual investment results from Japanese rice traders
have provided high probability signal results. The candlestick signals illustrate the investor
sentiment mostly defined as fear and greed. Human emotion, when it comes to investing
FRY PAN BOTTOM

funds, will always have the same ingredients. The candlestick signals are simply the graphic
depiction of investor sentiment. Candlestick signals were not discovered and tested by
computer back testing simulations. Candlestick signals are the result of centuries of analyzing
how human emotions effect a price trend. The signals, occurring over and over at specific
points in a trend-reversaI, provide a statistically proven trading platform. If you understand
how the signals are formed, youll understand what makes prices move.
One of the most highly profitable stock market trading patterns is called a Fry-pan bottom.
The Fry-pan bottom pattern is very easy to recognize and easy to understand how it forms.
Understanding the ramifications of the psychology that forms the Fry-pan bottom allows an
investor to prepare for the potential of a high profit trade. The Fry-pan bottom pattern is
aptly named. It does not take a high degree of technical analysis to figure out the investor
sentiment that forms a Fry-pan bottom. This pattern gets its name because it looks like a
Fry-pan bottom. The pattern is a slow curving pattern to the downside, flattening out at the
bottom, it is slowly coming up out of the other side of the pattern. The analysis for the investor
sentiment that forms this pattern is very easy to understand. Initially after a downtrend,
the selling sentiment starts to wane, making the trajectory of the downtrend a slow inactive
bottoming trading pattern.
After a lengthy period of time, the sentiment almost becomes neutral, forming a flat area.
This lack of interest, one way or the other, eventually starts to incorporate a very slow change
of investor sentiment to the plus side. The new positive outlook shows the same lack of
enthusiasm on the buy side as it did on the sell side. However, the difference now becomes
that the selling interest has disappeared and the buying interest is slowly coming back into the
price. This pattern, unlike other patterns that become effective when stochastics indicate an
oversold condition, utilizes the condition of the stochastics in an opposite manner. It is usually
when stochastics are approaching the overbought conditions that the investor sentiment can
now be gauged.
DANG
The alert for this pattern is activated when stochastics get up in the overbought area. The
price now shows that confidence has built back up into the price in the form of a large bullish
candle or a gap up coming out of the positive side of the Fry-pan bottom pattern. This buying
indicates that investor sentiment has now produced confidence of being back in the position.
A gap up or a large bullish candle becomes a signal to buy even though the stochastics are
approaching the overbought area. That enthusiasm, coming out of a long bottoming action,
usually will create a strong buy trend.
As illustrated in the DANG chart, a Fry-pan bottom was forming over the past three weeks.
That slow bottoming action is the Fry-pan bottom. The psychology is simple to analyze. First
investors had a negative bias. That bias became neutral, then started slowly moving back to
the upside, revealing the building back of investor confidence. A conservative investor could
have bought after the first little bullish engulfing signal knowing that the stop loss would have
been any trading below the bottom of that bullish candle. A more aggressive trader would
start buying as the candle formations started to enlarge, revealing that investor sentiment
was dramatically building up confidence
Being able to analyze the formation creates a fairly low risk trade as well as an aggressive
traders strategy. Note how the downward trajectory was very slow, followed by a few days of
indecisive trading, small spinning top signals, then a small bullish engulfing signal that was
followed by a slow uptrend. This stock market trading pattern was occurring during a time
when the indexes were in a steady downtrend.
The result of a Fry pan bottom is that when it breaks out through the peak that started the
downward trend, the force of the new confidence will move it to much higher levels. Does
this work every time? Not every time, but the probabilities are extremely high. This is the
type of knowledge that is easily obtained through candlestick analysis. Once you understand
the commonsense logic of how the formation is formed, the eye will become easily trained to
DOW
LF
identify this type of stock market trading pattern.
This evaluation creates a consistent platform for analyzing when to get in or when to get
out of a stock. A gap at the top usually represents a time to start looking to take profits. In
a Fry-pan Bottom analysis, a gap-up out of the end of the pattern indicates strong buyer
sentiment. A gap up or a strong bullish candle reveals an optimal time to buy. Occurring at the
end of the slow positive trend reveals that investors have gained their confidence and want to
get back into the position with zeal. This is the area that will produce very large profits.
This calculation does not need to be exact. Visually the buying can be seen as the confidence
starts building back up. When that buying level starts approaching the same level as when
the pattern started to develop, that is when to start taking action. Because of the length
the time that a Fry-pan bottom takes to develop, they should not be a primary source for a
trading strategy. However, they can be used when the timing becomes apparent. Although
they do not occur with great frequency, the percent return produced makes them well worth
being able to recognize the formation. Being able to correctly analyze candlestick formations
allows an investor to better evaluate when a high profit moves are about ready to occur.
Stephen W. Bigalow is author of Profitable Candlestick Investing, Pinpointing Market Turns

to Maximize Profits, High Profit Candlestick Patterns and Candlestick Profits, Eliminating
Emotions is also principal of the www.candlestickforum.com <http://www.candlestickforum.
com>, the leading website on the Internet for providing information and educational material
about Japanese Candlestick investing. Over 28 years of extensive study and utilization
of candlestick analysis has produced an array of easy-to-learn educational material about
Candlesticks. As one of the leading Candlestick experts in the nation, Mr. Bigalow, through
consulting with major trading firms, has developed multiple successful trading programs from
the day-trader to the long-term hold investor

Why Trade the Cup with Handle
Pattern?
By Dale Glaspie
M
any traders/investors swear by the Cup with Handle. On the other side there are just
as many that dont want any part of this beast. So what is the truth! Those that trade
it with great success have spent the time necessary to understand how and when it
works and when it doesnt. Others have tried it when the market wasnt right and have met
defeat.
To fully understand how to use the pattern correctly you must first experience the other
side. The old adage for every action there is an opposite reaction applies in this case. Not
until after developing the Inverted Cup with Handle during the bear market from March 2000
to September 2002 and beginning an in-depth study on how these two patterns interacted
was I able to glean a clear picture on how to trade them.
The Cup with Handle is a bullish pattern and is formed when a stock, while in an uptrend,
stops to take a rest. If the market remains bullish after the pattern is formed it will usually
breakout and move up for good gains providing other factors such as strong fundamentals,
earnings and relative strength, exist. If the market turns bearish during the consolidation
period the pattern will meet almost certain death even with the best fundamentals. This traps
those that try to force it to work and they end up in a losing trade.
The Inverted Cup with Handle is a bearish pattern and is formed when a stock, in a
Chart 1 - (HPQ)
downtrend, takes some time to consolidate. After the pattern is completed if the market is still
bearish, the stock will breakdown giving the trader that enters a short position a rapid gain.
If on the other hand the market turns bullish while the pattern is being completed it will meet
almost certain failure, which means instead of going down the price will take off to the upside.
Both of these patterns are formed when a stock is trending either up or down. It must be
in a trend for a while before either pattern can form. What I am about to say is going to shed
a light on your trading that you never before knew existed. Why can I say that? Because I
am the one that discovered it and no one else has ever mentioned it anywhere. The reason
is because they didnt know about the Inverted Cup with Handle pattern.
Here it is! Why wait for these patterns to form before we make a trade. Lets get in when
the trend begins to form. That first leg up or down will be the most powerful. It will also
offer you a great opportunity with low risk. Many strong downtrends start from a failed Cup
with Handle pattern. Likewise a good number of uptrends start from failed Inverted Cup with
Handle patterns. I call these directional changes Transition Phases. When the Cup with
Handle fails as the market turns bearish we are entering the Down Transition Phase. Likewise
when the Inverted Cup with Handle fails as the market turns bullish we will be entering the Up
Transition Phase. There are three identifiable trades associated with each phase.
In the past we have been told a market cycle occurs when we go from a bull market to a
bear market back to a bull market. Using what I call the Four Phases of the Cup with Handle
Cycle we go from a bull market phase to the down transition phase to the bear market phase
to the up transition phase. Previous wisdom has stated the stocks will follow the market about
70 percent of the time. By using the Cup with Handle Cycle philosophy we can increase that
to better than 90 percent of the time.
In the following paragraphs I will point out the different strategies I have identified to trade
Chart 2 - SBS

each phase of the Cup with Handle Cycle.
Bull Market Phase The Cup with Handle pattern works great in a well established bull
market. The first trade will always be from a Cup with Handle setup. After breaking out above
the Pivot Point Trendline and moving up, the stock may make a correction that requires us
to exit. If the uptrend starts up again we use my Up Trend Strategy to enter a second trade
and any other trade we make in this uptrend.
Note: The Pivot Point Trendline is a horizontal line drawn to the right of the Pivot Point
Price (PPT) which is the Close on the bar that made up the Right Side of the Cup. This line
will become a powerful Support and Resistance Line.
Down Transition Phase There are three trades used in this phase depending on where
the pattern development is when the market turns bearish. If the Market has already turned
bearish when the pattern is completed we use the CHandle Strategy. This strategy enters
a short position, as the stock will be expected to immediately enter a down trend. In other
words the pattern will fail in the handle of the cup. If the pattern is in the handle of the cup
when it fails it will trade up to the Pivot Point Trendline (PPT) and appear to repel or bounce off
the PPT. Here we would use the CBounceOff Strategy to catch a ride on the down trend. If the
stock price has already brokeout above the PPT and the market turns bearish and reverses we
want to get in the trade when it closes back below the PPT. This strategy we call the Reversed
Cup with Handle Trade. If either of these trades makes an exit before the down trend ends,
additional trades can be made using the Down Trend Strategy.
Bear Market Phase The Inverted Cup with Handle pattern is used in an established
Chart 3 - GGC

bear market. After breaking down below the PPT the strategy will enter a short position. If
a correction causes the strategy to exit before the down trend ends, additional trades can be
made using the Down Trend Strategy.
Up Transition Phase During a prolonged bear market there will be a large number of
Inverted Cup with Handle formations ready to fail when the market turns around. This phase
offers some of the best trades you will ever have the opportunity to engage in. Markets
usually turn around in one day enabling the astute trader to get in at the beginning of an Up
Trend. If the market has already turned bullish before the Inverted Cup with Handle pattern
is completed we would use the IHandle Strategy to enter a long position as soon as the stock
shows up in our Daily CupWatch Report*. If the stock is in the handle and moving back
toward the PPT when the market turns we would use the IBounceOff Strategy as it will likely
repel or Bounce Off the PPT to start the uptrend. If the stock has already broke down and
closed below the PPT when the market turns up we would use the Reversed Inverted Cup with
Handle Strategy to catch the uptrend when the stock broke out above the PPT on its way up.
This is my favorite strategy. It enables us to get in at the lowest possible price with little risk.
Since 2000 we have had four major bear markets come to an end and after each one there
were a good number of Reversed Inverted Cup with Handle trades. During the fourth quarter
of 2010 I made a 241% profit trading options using this pattern. Many of those trades came
from Visa, Mastercard and American Express.
There is not enough space available in this article to go into the detail needed to fully
exploit the Cup with Handle Family. Since 2000 I have been doing research and development
on a set of strategies that automatically trade each of the trades explained above. There
are 10 different strategies that make up the CupTrade Strategies. The following charts will
Chart 4 - CRL

show you how some of these have worked in the past. It performs in this manner consistently
with low risk.
Chart 1 for Hewlett Packard (HPQ) shows how the stock formed a Cup with Handle pattern
during the end of a Bear Market and the beginning of a Bull Market. In the chart I have
explained how the CupTradeLE Strategy entered a long position when the stock broke out
above the Pivot Point Trendline on stronger than average volume. We would only make
this trade if the company has strong fundamentals and has proven it can make a profit over
several quarters.
When the price forms an Inverted Cup with Handle during a Bear Market it usually breaks
down rapidly and rewards the savvy trader with large gains in a short period of time. Such
was the case with Chart 2 SBS.
Most bull markets will last for several months or even years. During this time there will be
a large number of Cup with Handle patterns formed. When the markets turn bearish most if
not all of these will never breakout or will fail shortly after breaking out. Chart 3 shows how
GGC failed immediately after it was reported in the Daily Cupwatch Report. We were able
to capture good gains by using the CHandleSE Strategy. Notice how the DnTrendTradeSE
Strategy entered the last three trades after the initial trade that was based on the failed Cup
with Handle made an exit.
When the Cup with Handle fails after it has already broken out it will more often than
not cross back below the Pivot Point Trendline where we get in a short position by using the
ReversedCWHTradeSE. Chart 4 for Charles River Labs (CRL) provides a good example of this
powerful trade.
My favorite strategy of all is the Reversed Inverted Cup with Handle Trade. It is formed when
the market turns bullish after a strong bear market. Stocks that have broken down below the
Chart 5 - SHOO
80
PPT will turn around sharply and cross back above the PPT for large gains. Remember all Cup
with Handle patterns are formed after the stock has been in an UpTrend for a period of time.
The traditional cup with handle trader will miss this first uptrend completely as they await the
Cup with Handle setup. Chart 5 for Madden (SHOO) shows how the ReversedInvCWHTradeLE
Strategy caught this powerful move just as the trend started up. Notice how the Cup with
Handle formed at the top of this first runup. The rest of the world missed this 90% gain in
two months.
When the market turned around in one day on March 9, 2009 all three major indexes,
Dow Jones, Nasdaq 2000 and the S & P 500 along with several good stocks including Apple
and Madden (see previous chart), had formed Inverted Cup with Handle patterns that would
fail and cross back above the PPT to make tremendous gains. Chart 6 for the NASDAQ 2000
Composite ($COMPX) offers a good example of how the ReversedInvCWHTradeLE Strategy will
make unbelievable trades. This strategy will enter the market at the lowest possible point,
just as the uptrend begins. This approach may be new to you. If you wish to be included in
one of our upcoming seminars to learn more about the opportunities of trading the Cup with
Handle Family of Trades, email me at daleg@cupwatch.com or call me at 800-453-9080. Visit
my website at www.cupwatch.com.
*The Daily CupWatch Report is available by subscription and identifies stocks that meet the
criteria used by our strategies.
Chart 6 - SA
87 81
www.tradersworld.com May/June/July 2012
THE 1:1 STOCK TIME EQUILIBRIUM
ANALYSIS
&
THE LAW of VIBRATION
By Dave Franklin
Mr. Franklin is an independent Analyst / Researcher who has devoted the past thirty years
of his life to seeking the attainment of purely mathematical explanations to movements of
stocks and the DOW 30. His Time Sine Wave Analysis and Stock 1:1 Time Equilibrium
Analysis represent the current State of the Art and the Fruit from these past thirty years.
Progress only comes through free thinking and applied inspiration.

unknown
It was in the very early 90s that I began to look into the movements of stocks and the
market. Before that time, my mind was uninformed of all prior published ideas. That is, I
had not read any Thing which purported to offer scientific explanations for the movement of
securities. One could say my mind was blank and free of all prejudices and predispositions.
Being completely unbiased, I started looking at pure numbers, in particular, stock option
prices. My research was done at the local universitys Business School Library. Over a six
month period, I had reviewed many hundreds of rolls of microfilm which contained the record
of many years of End-of-day stock and option prices.
WHAT I OBSERVED
Within ninety days or less of the Expiration of stocks True Option Cycle, options near the
strike price on both sides of a straddle would become very cheap at nearly Equilibrium
(1:1) values. Shortly thereafter, the stock would launch upward from this Equilibrium.
BACKGROUND
Part of my formal scientific training was in chemistry and biological science. From that
experience I came to understand the following:
Every Thing in Nature and the Universe, living or inorganic, possesses unchanging physical
and chemical properties that exhibit balance and constant, fixed proportions and ratios.
REPEATABILITY and RELIABILITY

A scientific proof requires two conditions must be met, in order to validate the results
of the experiment, and prove a theory to be true. Starting with identical ingredients and
conditions, the product(s) or results must always be the same. A simple example is how
water is made.
Mix Hydrogen and Oxygen gas together, ignite them with a spark, and the results always
produce water. Achieving over and over again, the same results with the same ingredients
and conditions, is known as REPEATABILITY and RELIABILITY.
In my nearly three decades of research into the movements of stocks and the market, I
have endeavored to achieve results that satisfy those two criteria of a scientific proof. In the
very beginning of my stock research, I intuitively understood the following:
The only way to consistently succeed in any kind of security trading is to possess an
objective, rational, purely mathematical method, tested and proven over time, whose
results consistently exhibit the scientific criteria of REPEATABILITY and RELIABILITY.
After years of dozens of varieties of Real Time calculations made using Time and
Distance values found in stock options, only the TIME component exhibited the promise and
characteristics of REPEATABILITY and RELIABILITY.
THREE TRUE TIME CYCLES

Each optionable stock has only ONE TRUE TIME CYCLE. A True Time Cycle for an
optionable stock will be only one of THREE ORIGINAL OPTION TIME CYCLES wherein
options are naturally born and expire. Here they are:
JAJO: January, April, July & October

MJSD: March, June, September & December.
FMAN: February, May, August & November.
EXAMPLES
1. IBMs True Option Time Cycle is JAJO.
2. WMTs True Option Time Cycle is MJSD.
3. BAs True Option Time Cycle is FMAN.
HOW TO FIND A STOCKS TRUE OPTION TIME CYCLE

1. Go to the website: http://www.cboe.com/DelayedQuote/QuoteTable.aspx
2. In the SYMBOL text box, enter the stock symbol, click on List all options,.. and SUBMIT.
What will appear is a complete list of all currently available options on that stock. The
months comprising the stocks TRUE TIME CYCLE will be revealed by the option month(s)
displayed just before the LEAPS options.
TIME
The author hopes the reader finds the following easy to comprehend:
A FICTIONAL, TRUE MATHEMATICAL EXAMPLE

Stock XXXs price is 100.00. The 2012 DEC 95 Call is 10 points. The 2012 DEC 105 Put is
10 points.
Verify for yourself, the following statement, based on the facts stated above:
There are 5 points of Call TIME in the DEC 95 Call, and 5 points of Put TIME in the DEC

105 Put. The Time Ratios expressed here is a 1:1 relationship: AN EQUILIBRIUM of TIME: 5
points Call time to 5 points Put Time.
The Time Sine Wave Analysis now has a perfect beginning according to the Law of
Motion (Vibration), to begin tracking in Real Time, Call and Put Time for these two options.
THE LAW of MOTION
All motion begins from a point of rest, seeks a point of rest, and returns to the
Equilibrium from which it sprang. Dr. Walter Russell
In 1993, I found in the writings of the late illuminated Dr. Walter Russell, his LAW of MOTION.
This Law became the missing link that provided the degree of accuracy, understanding, and
the repeatability and reliability exhibited in the COMPASS CHARTS of The Time Sine
Wave Analysis.
RESTATEMENT of The Law, in mathematical terms:

All motion begins at a mathematical 1:1 (Equilibrium), seeks a mathematical 1:1
(Equilibrium), and returns to a mathematical 1:1 (Equilibrium) from which it started.
THEREFORE
The Time Sine Wave Analysis begins each stocks individual True Time Cycles at a
perfect 1:1 Equilibrium of Time, per Dr. Russells Law of Motion (Vibration). Further, each
individual Time Cycle begins at a fixed, constant value of Total Time determined by many
years of practical experience.
From carefully selected options not less than 7 months out, The Time Sine Wave
Analysis locates the strikes which yield nearly equal values of Call Time and Put Time. Using
factoring, these two Natural values of Call and Put Time are brought to identical starting
values. Then, these two individual Time values are tracked forward in Real Time, until their
Death on Expiration Day.
THREE PROVEN FACTS

Here are three proven facts that illuminate CAUSE via the Law of Motion:
1. WHENthe stock moves UP from the beginning Equilibrium Strike Price, Put Time goes
UP and Call Time goes DOWN.
2. WHEN..the stock moves DOWN from the beginning Equilibrium Strike Price, Call Time
goes UP and Put Time goes DOWN. See the attached JPEG for graphic illustration of
these observed Real Time facts.
3. Within the last 90 days of an individual Stock Time Cycle, that Stocks next Expiring
Tue Time Cycle always achieves a 1:1 Time Equilibrium. That is, Call and Put Time
must, and do come together.
The diagram below illustrates Facts 1 & 2 above:

LONG and SHORT SIGNALS
Verrry eenteresting..spoken by Artie Johnson, playing the German Soldier character on

Rowan & Martins Laugh-In

REAL TIME GRAPHIC RESULTS
The stock is found to change direction upon the following Time conditions:
1. WHENthe BLUE and RED lines in the TOTAL COMPASS come together at a 1:1 Time
Equilibrium.
2. And/or
3. WHENthe BLUE and RED lines in the stocks individual Time Cycle Compass attains a
1:1 Equilibrium.
HERE ARE REAL TIME LONG & SHORT SIGNALS on GOOGs TOTAL COMPASS:
SPECIAL NOTE:
The BLUE and RED lines observed in the TOTAL COMPASS CHART represent the sum of
individual Put and Call Time as seen in the stocks Three Original Option Time Cycles.

HERE ARE REAL TIME LONG & SHORT SIGNALS on GOOGs INDIVIDUAL TIME CYCLE
COMPASSES:

In the two Real Time Charts above, please
note the fact that the stock changes direction Order all Back Issues
as Time perfectly obeys the Law of Vibration, of Traders World
by moving from one 1:1 Time Equilibrium to
the next.
Magazine on CD
Comprehension of these proven TIME
Contains all of the back issue articles
principles depicted above operate as CAUSE
of Traders World Magazine on CD in a
on TIME via the Law of Motion (Vibration)
pdf reader format. 4901 - Issue #1,
and serve to provide timely, valuable insights
February 1988 Gann & Elliott Wave.
as to whenthe probabilities are very high,
that a stock will change direction in Real Time.
50 Back Issues
$69.95
There is nothing more important
than an idea whose time has come.
An invasion of armies can be

resisted, but not an idea whose time These are many of the trading articles
has come. Victor Hugo from major traders from the last
20-years. Some of the covers are below.
PROPRIETARY MATTERS
For a complete lising or to order go to:
The author asks the reader to appreciate the
www.tradersworld.com
following: or call 800-288-4266 or 417-882-9697
Due to the expenditure of more than thirty
years of human capital in order to come to these
Time revelations, the authors Time calculation
formulas and methods must remain completely
proprietary.
The author welcomes inquiries by individuals
or firms who are seriously interested in the
professional employment and application of
these Time discoveries.
David W. Franklin, The Time Sine Wave

Analysis

The Market Cycle Investment Management Methodology (MCIM)
Steven R. Selengut
Most investors, and many investment of investing as a competitive event. What index
professionals, choose their securities, run their or average comes even close in content to your
portfolios, and base their decisions on the unique portfolio of securities?
emotional energy they pick up on the Internet, The MCIM methodology is not a market timing
in media sound bytes, and through the product device in any sense of the word, but its disciplines
offerings of Wall Street institutional boiler rooms. will force managers to add equities to portfolios
They move cyclically from fear to greed and back more during corrections and to take profits
again, most often gyrating in precisely the wrong enthusiastically during rallies. As a natural (and
direction, at or near precisely the wrong time. planned) effect, portfolio "smart cash" levels will
The MCIM methodology combines risk increase during upward cycles, and decrease as
minimization, asset allocation, equity trading, buying opportunities increase during downward
investment grade value stock investing, and cycles. (See the "Process" Chart)
base income generation in an environment Absolutely no attempt is made to pick
whose time frame recognizes and embraces the bottoms or tops, and strict rules apply to
reality of cycles. It attempts to take advantage
of widespread "fear and greed" decision-making
by others, by using a disciplined, patient, and
common sense methodology.
This methodology embraces the cyclical
nature of markets, interest rates, and economies
--- and the political, social, and natural events
that can trigger changes in cyclical direction.
Little weight is given either to the short-term
movement of indices and averages, or to the
idea that the calendar year is the playing field for
the investment "game".
Interestingly, the cycles themselves seem
to concur with the irrelevance of calendar year
analysis, and it makes little sense at all to think
both buying and selling

disciplines. NOTE: these
rules are covered in minute
detail in The Brainwashing
of the American Investor
(click on the book on the
left to order the book from
Amazon.
Take the opportunity to
come to the Kiawah Golf
Investment Seminars
for more information click
here.
60 WWW.TRADERSWORLD.COM January/February 2011

How To Make Short Term Trading Your
Long Term Investment Strategy
Trading, the Operational Mainframe of
Successful Commercial Enterprise
By Steve Selengut
Click delete right now if you are looking for a shortcut to obscene wealth based upon some
new algorithm or magic app that will predict the future price either of individual investment
securities or of the financial markets in general.
Sure, there are countless trading tools and information collection/analysis mechanisms
that can help you prepare for the wanton unpredictability of markets; and there are tons of
opportunity signaling methods, screening techniques, hedging strategies and the like that you
can experiment with.
You can even pretend to understand Modern Portfolio Theory, as it attempts to transfer your
wealth to Wall Streets new breed of passive managers and economists. Theyll suggest to you
that good performance is staying even with a bunch of indices and averages that institutional
wiz-kids manipulate for your entertainment. (Google: Indexed Investment Illusions)
But most programs are designed to reward the genius and hard work of their creators, not
the passive involvement of add to cart speculators looking for assistance making investment
decisions. Face it people, much as I still love the over-regulated markets that we call Wall
Street, the Masters of the Universe are clearly more interested in enhancing their own
wealth then ours.
If you have grown to the point where you know you need a long term strategy that fuels
itself with short-term trading; if you recognize that most investment professionals (stock
broker, financial planner-advisor, etc.) have been regulated out of the individual security
business; if you are wary of wealth managers who have never managed any wealth of their
own --- welcome.
Welcome to the realization that investing does not involve rocket-sciencesque formulae that
replace common sense decision making; welcome to the appreciation of short-term trading
as the portfolio management equivalent of running a for-profit-you-betcha business; and
welcome to the concept that trading is the operational mainframe of all successful enterprise.
Short Term Trading vs. Day Trading vs. Buy and Hold vs. Exchange
Traded Index Funds
The short-term trading style that powers Market Cycle Investment Management (MCIM)
has some elements of day trading, a securities selection universe that would make buy n
holders smile, and an entrepreneurial mindset that just scares the bejesus out of people with
the happy-to-be-average mentality of ETFs.

Theres not an MCIM short term trader alive who wouldnt be thrilled to buy and sell a
security in the same day with a net-net profit of between seven and ten percent. It happens.
But our expectations are that we will hold on to our selections for an average of four to six
months. Day traders want to get in and out of a position as quickly as possible, and at a target
profit that is easier to obtain quickly.
The distinction may be a function of age, wealth, responsibility, experience, or business
sense --- it boils down to this: the more experienced we become, the more aware we are of
the need for a secure income that is under our own control, and the more we choose not to be
brainwashed by Wall Street, the more we realize that we need a long term methodology that
will get us from point now to point then.
MCIM trading focuses its selection process on the highest quality US based companies,
plus a select few foreign company ADRs. If you were a Buy and Hold investor, you would be
comfortable with most of the companies that make up this elite group of successful businesses
--- but thats about all.
The Buy and Hold approach fears the tax code more than it loves profits. The indexed ETF
approach is a combination shell game and roulette wheel that hinges on the mathematical
skills of Wall Street economists. Both are sold to the public with an Emperors New Clothes
rationale that asks for our trust and faith in a cadre of product sales persons and experts who
have never failed in their ability to be in the wrong place at precisely the wrong time --- even
if the high tech math is impressive.
Gimmicks have never solved the mysteries of the stock market; mathematics can only be
applied to markets past; the future will never become knowable. Hello!
The basic problem is that people want to embrace the myth that there is a knowable right
place or right time; another is the mindset that the only good market is a rising one. And then
there is the need for most professionals to cram all performance evaluation into a calendar
year, compared to the S & P or the Dow.
Market Cycle Investment Management uses a reality based short-term trading mechanism
as the operating system for your long-term investment plan. Its different, and respectful of
whatever directional change the forever fickle investment gods bring your way. It can operate
within, and automatically balance, any asset allocation.
A Chart For All Seasons --- Lines & Dates You Can Relate To
Although the chart focuses on the time surrounding the recent financial crisis, it could
easily be applied with similar results to patterns of activity over the past forty years. The best
long-cycle illustrations were clearly the Crash of 87, and the Dot Com Bubble; the best
short-cycle illustrations could well be the second of those below, and the period surrounding
9/11.

The IGVSI line tracks Investment Grade Value Stocks trading on the NYSE. They are S & P,
B+ or better rated and dividend paying --- significantly higher quality and safety than those
in either the Dow or the S & P 500. The Yellow line tracks the S & P, the Pinkish line tracks an
index of taxable and municipal bond Closed End Funds (CEFs). Only IGVSI equities, and high
quality CEFs, find homes in MCIM neighborhoods.
Every security pays some form of income, and all income is reinvested using cost based
asset allocation. Equities are purchased at least 20% below their 52-week highs; income CEFs
are purchased whenever income bucket cash is available. All securities have profit targets of
10%. No security is held for more; any security could be sold for less.
The S & P average is unmanaged, yet widely used as a benchmark for portfolio manager
performance --- typically, it outperforms most of them, but...
The most are professional, Managed By The Mob mutual fund managers. (Check the
Glossary in your copy of the Brainwashing book for this and other quotation mark surrounded
terms.)
It is nearly inconceivable that any (six figure) MCIM portfolio could underperform the S& P
500 in any true cyclical scenario (Peak to Peak, Trough to Trough, or combination). Ya follow?
The Chart Includes Some Important Dates:

June 30, 2007: Both equity indices (the S & P and the IGVSI) were at their highest levels
in five or more years; the income Closed End Fund index was down slightly from highs it had
achieved earlier that year.

September 30, 2007: The S & P 500 established a new All Time High while both the
IGVSI and the WCMSI moved slightly lower. No profits were realized within the S & P as it
climbed. MCIM portfolios, however, held considerable profit-taking (smart) cash just waiting
for new equity opportunities. Closed end funds were generating around 7% at the time of this
S & P bubble.
March 9th 2009: After a 17 month blood bath, equity prices hit rock bottom. S & P equities
fell more than IGVSI equities; income CEFs fell less than either; income levels remained stable
throughout the drawdown; MCIM users were compelled to reinvest all available cash in lower
priced securities. The S & P and index ETFs suffered passively as owners either jumped ship
or abandoned their retirement plans indefinitely.
By April 29 2011, MCIM portfolios were at new all time high value levels, although only
the IGVSI had established new high ground, and flush with smart cash which became
mostly reinvested during the May through October 3rd correction!
Can you tell me why we call it smart cash, and have you lightbulbed whats not in the
chart?
The IGVSI and WCMSI components, both individually and within sectors, have cycles of
their own --- with a range of movement both different from and similar to those of their
neighbors. And so it goes, cycle after cycle after cycle. Disciplined short term trading turns
market volatility (major or minor, short term or long term) into increased wealth and increased
cash flow --- without ever even thinking that there is a chance to actually know what is
going to happen next.
This is what makes short term trading both a long term strategy and a potent force for both
wealth creation and income production --- much more flexible and versatile than any other
approach I am aware of. And those MPT probabilities, standard deviations, and correlation
coefficients --- well frankly, Scarlett, what have they done for you lately?
Experience, Understanding & Discipline; Planning, Organizing &

Controlling
Clearly, theres more to complete portfolio management than an eight minute read of a
Traders World article. Theres more than just money, education, opportunity, luck, or effort. In
addition to the development of realistic expectations (no easy task itself), there are at least
six basic elements or skill sets required for long term investment success, with an emphasis
on the long.
Success in creating wealth doesnt make a person a qualified investor (only a government
regulator could think so) --- but an understanding of investment securities (not investment
products), coupled with basic management skills can do just that.
Why are the best and the brightest from all backgrounds, professions, and successes
so easily victimized by Madoff-like scams, Wall Street derivative betting mechanisms, and
oxymorons like passive management?
Investing itself is fairly simple, but developing reasonable expectations and constructing
a manageable plan may not be. Relying blindly on the best minds of the biggest operators
on Wall Street will lead to disaster nearly 100% of the time, mainly because of their product-

driven mentality.
Going the popular route may feel all warm and fuzzy at the onset, but the road to sustainable
wealth takes every bit as much experience, understanding, and discipline as it takes to become
a neurosurgeon, attorney, or politician (just wanted to see if you were paying attention with
that last one).
If you dont have investing experience, work with a person who has been successful
investing his or her own money --- and beware of all we-thinkers. Develop an understanding
of market, interest rate and economic cycles, and of actual securities before they become a
component of some product. Be skeptical of anything future predicting or hedging, and create
personal minimum guidelines concerning quality, diversification, and income production.
And, you must trade, just as you do in your own business or profession. You must have
disciplined, flexible, downward-only, profit-taking objectives. If you think of investing as a
betting devise, if you avoid income because you have enough of it already, or if you feel
fine with speculations because you can afford to lose --- you will fail as an investor while your
advisors prosper.
The same management or professional skills needed in any other endeavor are needed
even more in investing because of the emotions you have about your money. You must plan
and organize your portfolio; you must control, and direct your employee, and you must be
the ultimate decision maker. You must direct the trading, with appropriate selection rules and
disciplined selling targets.
Yes, you must trade, as you embrace the investment cycle and use it to your advantage;
you must make short-term trading the operating mechanism of your investment plan. Youll
find that short term trading can be done most effectively with high quality individual equities
and equally high quality income CEFS.
A profit, any profit, is a terrible thing to waste. Perge.
Steve Selengut
http://marketcycleinvestmentmanagement.com
http://valuestockindex.com
Author of The Brainwashing of the American Investor: The Book That Wall Street Does Not Want
YOU To Read

Gold / Mining Stock Index Divergences
Leading Indicator?
By Robert Miner, Dynamic Traders Group, Inc.
It has often been described that the relative bullishness or bearishness of a precious metals
mining stock index to gold is a leading indicator of the gold trend. Lets compare gold trends
and reversals with a gold mining stock index and see if this is the case or not.
The GDX is an ETF which tracks the NYSE Arca Gold Miners Index (GDM). The index
consists of 31 large, medium and small cap gold and silver mining stocks. It is a good proxy
for the broad precious metals mining industry. The GDX has only been trading for four years
which will provide enough information to begin the gold / mining stock trend comparisons. The
XAU has a much longer history of data. The XAU is a gold/silver mining stock index of just 16
large cap stocks. However, just 5 of the stocks comprise over 60% of the index so it certainly
represents the major large cap companies but not the broad mining stock industry. I prefer
to use the GDX for this study because it is a broader based index and is a tradable ETF but I
also refer to the XAU.
Ill compare the trends and reversals of GDX with the continuous gold futures contract to
see if it gives us any consistent indication of the relative strength or weakness of gold.
Besides comparing chart patterns, I made an Excel table to compare the dates and price ranges
of obvious swing highs and lows in both gold and the GDX. The table compared the time ranges
and price percentage change between swings. For space reasons, I have only included a few of the
recent swings in the table below. I will first describe the general observations, then well take a look
at the recent gold / GDX data and see what it may indicate for the current gold trend as of mid-April.
1. Gold and GDX tend to make swing highs and lows at or very near the same time.
2. The percentage change between swing highs and lows both up and down in the GDX is
usually 50%-200% greater than for Gold. We can consider GDX a leveraged gold play
but be warned that declines are usually much greater than for gold. Leverage works
both ways.
3. Any divergence of price, time or pattern between gold and GDX is usually resolved in
favor of GDX. This is by far the most useful information.
What do I mean by gold / GDX divergence? Here is an example. In Feb. 2009, gold made a
swing high, a correction into April and another minor swing high in early June below the Feb.
high. GDX made only very minor corrections from its Feb., but was much higher at the early
June high. GDX was relatively stronger during this period or a bullish divergence in favor of
GDX. Gold eventually resumed the bull trend to new highs, catching up with the bull trend of
GDX. GDX was leading the trend. The relative strength of the GDX warned that the gold bull
trend was likely to continue.
This is only one example but shows how to compare the trends and swing highs and lows

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of gold and GDX. In most cases, the gold trend is resolved in the direction of the GDX trend.
Lets take a look at the relatively recent positions of gold and GDX. Below is a table of the
swing highs and lows for the past year, going into the gold Sept. 2011 high and right up to
date to the early April 2012 low. The last column refers to the note number found below the
table.
Gold / GDX Swing Comparisons
Gold / GDX Swing Comparison Table Notes

1. April/May High: Gold high made later than GDX and above prior Dec. high. GDX high
double top with Dec. high. GDX relatively weak to gold. A bearish divergence for gold.
2. Sept. high: Gold Sept. high much higher than the May high. GDX Sept. high just above
April high. XAU Sept. high below its April high. Mining indexes relatively weak. Not
confirming golds new high. A bearish divergence for gold.
3. Sept./Oct. low: Gold swing low higher than prior swing low. GDX lower than prior swing
low. GDX relatively weak. A bearish divergence for gold.
4. April low: Gold low above prior swing low but the GDX low below prior swing low. GDX
relatively weak. Another bearish divergence for gold.
The bearish divergence of GDX to gold into the April 2011 high warned gold may be at or
near a major reversal. Gold did eventually make another spectacular run up to a new high
in Sept. but on another bearish divergence with GDX (and XAU). From the Sept. high, gold
began the largest decline since the Oct. 2008 low. The bearish divergence of the GDX to gold
warned the upside in gold may be limited.
The bearish divergence of GDX to gold at the recent Dec. and April lows warn gold may
eventually catch up to the GDX bear trend and any gold rallies may be just corrections in a
bear trend.
Chart 1 is weekly gold showing the relationships of the swing highs and lows described in
the table above. Chart 2 is weekly GDX for the same period. You can easily see the relative
weakness of GDX compared to the gold positions at the highs and lows. See Charts 1 and 2.
In a related article in this issue (EUR/USD and Gold), my compatriot at Dynamic Traders
Group, Jaime Johnson, describes the technical reasons the Dec. low in gold may have completed
an ABC correction which implies gold will eventually continue the bull trend to a new high. The

Chart 1 Miner Gold Wk.
Chart 2 Miner GDX Wk

bearish divergence of GDX to gold warns this
may not be the case.
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March high, it would be a warning gold may All Gann Lines (8/8ths)
be weaker than the technicals appear and All Vertical Time Lines
gold may continue to decline to below the All Squares in Time
Dec. low, whether in a complex correction or Entry Price Points
bear trend. Overbought/Oversold
However the gold trend plays out in the next

few weeks to months, the bearish divergence Parallel Momentum Lines
with the gold/silver mining stock indexes as of Set Speed Angles (7)
mid-April is at least warning us to be cautious Set Learning Mode Data
about expecting new highs in gold. Present Best Entry Price
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NAKEDSWAN TRADING
Where traders come to convert their pain points into profit
IntegratedIdea Generation & RiskIntelligence:
A New Framework For Converting Your Pain Points into Trading Profits
I
n this article, Efrem Hoffman, Founder & Visionary of NakedSwanTrading.com, features
a new kind of market intelligence, called RiskWindows; and describes how the research
service built around it, and generated by his proprietary software innovation, is offering
traders a unique quantitative and leading indicator, which is developing a solid record of
analytic accuracy.
Real market data from today and tomorrow is utilized to test its predictive strength, and
build industry traction from its ongoing performance. This is already being demonstrated
by the stream of market calls made on NakedSwanTrading.com and its Twitter feed source,
NakedSwanTrader. For a real-life sneak- preview of how our research is made actionable, look
no further than our illustration in Fig. 4, and our special webinar event (posted in March on
NakedSwanTrading.com), regarding the precise timing of Apples reversal.
Hoffman describes the financial markets as the most extensive and longest running data
warehouse on human social behavior that ever was an elaborate laboratory having an
unparalleled shelf-life for testing out new theories of how human experience and interaction
can impact your pocket book.
[Every month more than 100 Billion transactions or 19.3 tera-bytes per year get executed
across all traded asset classes in North America alone, along with 41 trillion messages per day
pushed out across the 13 U.S. Stock Exchanges, 9 Options Exchanges, and 60+ Dark Pools of
capital assets] -- according to Interactive Data -- making the social media data store, of the
Figure 1
more than 845 million people that record and share 30 billion traces of their daily lives per
month on Facebook alone [according to McKinsey Global Institute], look like a ball in the park.
Tapping into this collective intelligence, he has also rigorously tested this research framework
in the midst of financial hurricanes in equity, commodity, and currency markets, to successfully
warn investors right before the top of the Housing Bubble and Mortgage Meltdown; specifically
pre-identifying, the demise of WorldCom, Bear Stearns, Lehman Brothers, GM, among others,
before any signs of trouble emerged. A review of the much more mixed market settings,
scrolling back as far as 400 years across world capital markets, shows similar predictive
intelligence.
The richness of that information field goes some distance to explain why Wall Street is in
an arms race to re-invent and make better sense of all this information.
To address these growing demands, our mission is to play a leading role in the development
and contribution of change-making technologies, to help transport this new science Out of the
Lab and into your Trading Room.
Stay tuned! -- Efrem Hoffman is bolstering his operating capabilities to make
NakedSwanTrading.com the premier innovation center and on-line destination for trader
education, alpha-idea generation, and global risk intelligence -- all designed to make learning
how to maximize RiskWindows, for your trading style, a snap.
That means eliminating your blind-spots to help you keep your wallet closer to your hip and
on a competitive playing field with institutional traders.
One research group inside NakedSwanTrading, known as the Big-Data Science and Human-
Decision Network, is tasked with the challenge of mathematically sniffing out digital records
of market data to look for deep structure that explain the HOW and the WHY of the markets
human social wiring, and specifically quantifies how and when traders with different market
perceptions and time horizons are plugged into the global grid of fear and greed. We call this
analytics engine, Bottom-Down Intelligence first drilling down to the very first and smallest-
scale transaction of an individual security, and then digging deeper into our underlying
Figure 2
motivations for making trading decisions; and the interactions that shape the market outputs
of our minute to minute transactions across groups of market securities.
Another characteristic that is unique to our research strategy is that we defined a novel
mathematical notation that corresponds to our discovery of an elaborate mathematical structure,
which exists in and of itself, without fine-tuning parameters to match past experience. The
structure dynamically traces out the extremities of price movement across all time-lines,
while the mathematics of this solution framework decodes how, when, and at what valuation
level market decision-makers (buyers and sellers) will observe and act on perceptions of
momentum change into the future -- specifically when viewed from the perspective of each
performance time-line.
Hoffman likens what they do to building a telescope of human perceptions, saying that the
techniques they engineer are transforming our scientific understanding of market rhythms in
the same way that astronomy and relativity revolutionized our discovery of the cosmos, or
how biology has inspired our design of more efficient information transfer, as well as lighter,
stronger, and cheaper materials, with a more energy efficient purpose.
To advance our capabilities in these areas, for the better part of 16 years, Efrem Hoffman
has conducted ongoing scientific investigations to addresses the most elemental themes
about human market dynamics, namely, personal influence and salience of decision-makers,
diffusion, and viral propagation of information -- that telegraph market contagion; as well as
the shape of the social network (code-named i-Grid) which gives rise to these attributes.
His weapons of analysis have their home at the intersection of where first principles of
quantum physics meets the mathematics of social interaction.
He has engineered a High-Definition Risk Map that shows what extremes could be expected
Figure 3
over a period of time (branded under the RiskWindows Trademark); how devastating tail-risk
events like credit crunches, currency crises, and market crashes can be; and which asset
classes and global hot-zones are going to be on the forefront of recovery after prolonged risk
events. For retail investors, busy with their full-time commitments, as well as wealth advisers
and professional traders alike, this could help them whittle down to a dozen or fewer areas
where they could be focusing on high performance growth opportunities, and another dozen
areas where they might want to go short in the near term -- out of more than 5,000 liquid
assets including stocks, financial futures, commodities, currencies, bonds, and global-asset-
class proxies, such as todays diverse array of exchange-traded funds (ETFs). This process is
designed to yield diversification without redundancy; namely, because our analysis allows
traders to avoid generating a large number of mediocre ideas that would otherwise drag down
the best performers.
Our real-time market updates on NakedSwanTrading.com are specially formulated to
put this information at your fingertips, so that you can enter your trading positions right
near overhead resistance or baseline support, before your competition takes a piece of your
potential profits.
The service addresses three actionable time-lines, ranging from intra-day trading to 5 days
forward, 2 to 3 week trends, as well as 3, 5 and 9 month macro events. When we see a market
crisis on the horizon, as we do today (see Fig. 3-7), we extend the outlook beyond 12 months,
and upwards to 3 years.
Efrem Hoffman summarizes his review of how he uses this proprietary information to build
a unique market intelligence service:
By combining a forensic analysis of global trends -- and their inter-market variables --
with a bottom-down research process, we are helping traders hunt down the hidden structures
Figure 4
and subtle relationships between markets and the trading participants that create them. This
type of insight enables RiskWindows to give traders first-mover advantage in zeroing in on
attack-points (see figures 1 through 7 for an illustration) -- special Risk-On, Risk-Off switches,
that allow traders to sense upcoming short-term price trends, expansions or contractions in
volatility and liquidity, as well as anticipating buying and selling inflection points of all shapes
and sizes, with just-in-time action cues.
To account for how traders weigh in on events on different time-scales, we are the first
in the industry to create market momentum maps that chart out future perceptions of zero
momentum crossing points -- branded under the trade name, Momentum Perception Maps
(MPM). This process begins by overlaying zero momentum isobars on a price chart, one
for each marginally longer trader time horizon -- starting from the tick (single transaction)
level to multi-generation time-lines. Analogous to isobars on a weather map, which plot out
boundaries of equal pressure, zero momentum isobars are curve-linear lines, overlaid on a
price chart, that represent constant price levels of zero momentum. When the full spectrum
of such isobars are displayed at once, and across all assets covered, a 360 degree view of
global decision-maker pressure points are instantly rendered visible. How? By tracing out the
gaps between valuation levels that correspond to future zero momentum crossing points on
different time horizons. These forward-looking valuation zones define what different trader
groups will see in hindsight on their momentum oscillators, such as MACD or RSI. Because
the momentum jet stream, which these isobars telegraph, is versatile in shape and malleable
in structure, many interesting and pertinent properties of future momentum change can be
deduced and quantified with unparalleled resolution and lead-time. These properties are
illustrated in Fig. 1 (step 1) and Fig. 2 (step 2), where we walk you through the construction
of a risk window from start to finish. They are further exemplified in our free weekly analysis
of global markets on NakedSwanTrading.com.
Specifically, these zero momentum isobars are designed to indicate how fast an asset will
be rising or falling in value its speed or momentum.
Moreover, contrary to the popular belief that a stock must first slow down, or even stop
Figure 5
before plunging lower, we have discovered an anomaly in this occurrence at special points in
an assets lifecycle, which we call attack-points -- located at the leading edge of risk windows.
These points define when peoples perceptions of market sentiment can instantaneously
change or be magnified without any application of force or external stimuli. This is a revolutionary
development, Efrem adds, because it implies that black swan events have been misclassified.
They are often born out of the background noise of prior crises. This intelligence can forever
change the way traders defend their assets ahead of parabolic manias or market capitulations.
As an illustration, you need not look any further than those times when a runaway stock
or commodity heads into the stratosphere, only to find out later that it plummets back to
earth without a shred of warning. What makes these special events counter-intuitive and
exceptionally difficult to grasp or quantify, with any level of logical certainty, is that they
violate a well guarded principle of classical physics which we have all been endlessly trained
to believe ever since our childhood experiences with nature. These stories of our pastime
indicate that before an object (i.e. baseball or price) can fall back to ground level (fair value
equilibrium), it must first slow down, or even stall out completely as it passes through its
zero acceleration point. Although this slight change in momentum can be usually exploited
to detect trend change in price, when a market is parabolic in nature and closing in on its
high tick before the final bell rings, there is very little that a momentum indicator can tell
you regarding the opening transactions on the following day. But all too often, and with great
surprise, markets can gap down violently, blowing through your capital preservation stops or
even decimating your option-driven income-generation strategy even in those instances
where there is no sign of negative pre-market action.
Traders can be guided to avoid these types of market train wrecks with potentially high
levels of consistency, by following our free weekly webinars, and subscribing to our attack-
point database, which we will be rolling out, in Q2 and Q3, as an online application service
solution. It was our risk window analysis of these attack-points, as showcased in Fig. 4 (time-
stamped on Twitter feed: NakedSwanTrader ), that enabled us to precisely predict and map
out Apples (symbol: AAPL) parabolic reversal, with high confidence, specificity, and lead time,
Figure 6
as it plunged from its high point this past week, taking many investors by surprise.
What should really get traders excited about NakedSwanTrading.com is that its market
intelligence is now signaling, loud and clear, unparalleled short and long opportunities in
multiple equity, commodity, currency, and bond markets, right as they are entering a large
number of attack-points and critical risk windows, which are expected to amplify the frequency
of trade during the next 18 months and beyond. Figures 3 through 7 provide a sneak preview
of such tail-risk that will likely impact several key markets, including the e-Mini NASDAQ 100
Futures, Apple (AAPL), e-Mini S&P 500 Futures, SPDR S&P 500 (SPY), and Spain ETF (EWP).
Start building your information advantage today by subscribing to our free weekly webinars;
and checking out our latest market commentaries and archived videos trend pieces at: http://
NakedSwanTrading.com ; Twitter Feed: NakedSwanTrader
Fig. 1 Step One in the Construction of a Risk Window, as illustrated on the 89 minute price
sampling interval of the NASDAQ 100 Futures (June Contract) sell-off, which triggered near
April 4th (as illustrated in Fig. 3), following the run-up on a breakout which began on March
13, 2012 (as depicted in this figure).
Fig. 2 Step Two in the Construction of Risk Window trigger points and attack- points,
as illustrated on the 84 minute price sampling interval of the NASDAQ 100 Futures (June
Contract) sell signature, which was evaluated before April 2nd. Note: Attack-Points signify
zero momentum crossing points that are first observed by longer-term traders -- before
shorter-term market players this implies an inversion in the ordinary flow of incoming future
information, leading to short term momentum players running for the gates as soon as large
block orders come in from institutional traders that act on information regarding momentum
changes first.
Fig. 3 NASDAQ 100 Futures (June Contract) Risk Window for Sell Off which began near
April 4th; 2738 to 2757 is overhead resistance ; 2633 is critical support; Extreme Base-Line
Support: 2535 if a spike low into May; Each price bar represents the price range of an 84
minute time interval.
Figure 7
Fig. 4 Apple Inc. (symbol: AAPL) Risk Window for Sell Off which began near April 11th
crossing below $633.00 (as predicted in our NakedSwanTrader Twitter post on April 10th,
2012; just above $640 level was overhead resistance level, identified at that time, and which
trapped prices and reversing them as low as $571 so far, as of April 17th. Trailing resistance
has now dropped down to the $620 to $627 price zone into April 24th. Next significant base-
line support comes in at $556 to $548 price zone, with a risk of a spike down to 538 to 526
levels. Each price bar represents the price range of a 60 minute time interval.
Fig. 5 E-Mini S&P 500 Futures (June Contact) Shorter-Term Risk Window (see Fig. 6 for
longer term outlook) for Sell-Off which began near April 3rd, crossing below 1415 attack-point
at the first red arrow; 1420 to 1430 price zone was overhead resistance, identified at that
time, and which trapped prices and reversing them as low as the 1352.50 so far, as of April
10th. Trailing resistance has now dropped down to the 1396 to 1405.50 price zones into late
April. Next significant support comes in at 1340 with 1330 to 1320 offering longer term base-
line support into the May period. Each price bar represents the price range of an 89 minute
time interval.
Fig. 6 S&P 500 ETF (SPY) Long-Term Risk Window for Sell-Off which is in place for the
period of early/mid December 2012 through 3rd Quarter 2016, with the most precarious
liquidity crisis playing out in the interval as early as Dec 2012 or as late as July 2013 into Jan
2014, and possibly again in 2015. A violent long-term market sell-off with extreme downside
volatility will ensue when Price trades below the 145.20 attack-points (the strip in time between
December 2012 and June 2013, where the upper teal line hugs the upper yellow line), and
particularly while the upper white line is sloped up into the future in any portion of this strip.
Longer term extreme overhead resistance, which covers the interval into the 3Q 2016 is
resting at $156 to $157. $114.81 is baseline intermediate term support until mid-year 2013
[in event of an all out market crisis -- Spain, being the canary in the coal mine when selling
escalates through critical longer-term support levels as illustrated in Fig. 7 -- before December
2012, $128 to $123 will support market into year-end], until such time that price trades below
the Red Horizontal Line (which rests at a level of 109.42) for at least one trading week. If this
level is breached thereafter, then the $80 level to as low as $72.59 on a spike low is in the
cards. If before 2017, price trades below $72.50 level for at least one week of persistence, an
all out market meltdown into the $40.00 level (equating with the S&P 500 near 400 or lower)
is a real possibility. As nearer these times, detailed crisis advisories and warnings will be
issued and updated on NakedSwanTrading.com as well as our Twitter feed, NakedSwanTrader.
Fig. 7 SPAIN ETF (Symbol: EWP ) Long-Term Risk Window for Sell-Off which is in play
for the period into April 2013 to as late as September 2013 marks the interval with highest
potential for crisis. Critical Support is now resting at a price level of $22.30. If prices trade
below this level for at least one week, this market has no base-line support until $5.00. The
only good news is that this support level rises to $10.00 in 2014 that is if we are not already
below this level when we get into this time zone. Until such time that this ETF trades above
$28.21 for at least one week, EWP will remain one of the weakest markets in the world with
longer term overhead resistance starting out at $33.75 to $36, thereafter. A dire situation
indeed!
The

A Critical Alert Window was opened on AAPL starting in March which led to a
precise Attack-Point set up at the 633 level on April 10th. Traders had eleven full
days to develop short strategies as AAPL was on the verge of a serious drop.
Efrem Hoffman laid it all out on his HIGH-DEFINITION RISK MAP days in advance!!
EFREM HOFFMAN is Offering His Market Intelligence on dozens of markets as they

set up their exact Attack-Points for trading strategies.
You can see the NEXT AAPL before it
See Efrem's exclusive article on Risk-Windows in this issue. happens!
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others.
He has invested over 16 years of research for the purpose of identifying

Tail-Risk Attack-Points on specific equities, futures, commodities and
emerging markets as they enter their Critical Risk-Windows Efrem Hoffman states there are going
to be extensive trading Critical
See his decades of data mining experience using dozens of computers to Windows Setting up over the next 18
drive the analytical engine that distills the bottom down intelligence
Months!
Benefit from this analysis utilizing advanced math and physics tools to To learn more about Efrem Hoffman, go to:
secure a telescopic and forward looking view of market rhythms and www.NakedSwanTrading.com
human perceptions.
www.nakedswantrading.com
Copyright 2012 Nakedswantrading.com

Identifying Tops and Bottoms Using the
Sweet Pea Deep Dip Triple Oscillator
Divergence Concept
By Jan Arps, President,

Jan Arps Traders Toolbox
A s technical analysts we use various tools

to consider historical price and volume
characteristics of the market to measure factors
such as price trends, power and momentum.
Oscillators are particularly important tools
because they often lead price by changing
direction before the price changes direction,
thus helping traders to frame buy and sell
decisions.
Oscillators got their name because they
oscillate up and down within a fixed range over
and under a central line. That is, they dont
follow a price up and down a price chart like a trendline or a moving average; instead, they
oscillate up and down from an upper overbought zone to a lower oversold zone. When an
oscillator crosses above the overbought zone it can be compared to an automobile exceeding
the speed limit. If the oscillator crosses below the oversold zone, its like an automobile going
too slow for the prevailing traffic flow.
Many oscillators consist of a pair of oscillating lines: a fast line, which is the basic value
of the oscillator, and a slow line, which is usually some form of moving average of the fast
line. There are at least three ways to utilize oscillators in the technical analysis process:
Look for crosses of the slow line by the fast line.
Look for the oscillator to cross into and then out of overbought or oversold territory.
Look for divergences between the movement of the oscillator and the movement of the
price.
This article will focus primarily on process #3, looking for divergences. We will discuss how
to identify and trade divergences between the movement of the oscillator and the price.
Divergences occur when two or more successive oscillator peaks diverge in direction from
corresponding price highs or when two or more oscillator valleys diverge in direction from
corresponding price lows. For example, consider the chart in Figure 1 displaying price and an
oscillator.
On the left of the price chart we see two price peaks, or bumps in a strong uptrend. Note
that the more recent price bump is higher than the preceding bump. Now look at the two
oscillator bumps occurring at the same time as the price bumps. Notice that the most recent

oscillator bump is lower than the earlier price high bump. If a trendline is drawn from one price
bump to the next price bump and another trendline is drawn between the two corresponding
oscillator bumps, the two lines can be seen to diverge away from one another. This is referred
to as divergence and is usually a sign that the uptrend in price is losing steam and energy
and that we may be approaching the end of the uptrend.
Now lets look at the right side of the chart in Figure 1, where prices are in a strong
downtrend. This time the bumps are price valleys. A trendline has been drawn from one
price valley to the next price valley and another trendline has been drawn between the two
corresponding oscillator valleys. What do we see? We see that the two lines are pointing in
opposite directions, converging toward one another. This is a sign that the downtrend in price
is losing steam and energy and that we should be looking for an opportunity to buy instead
of sell.
Confusingly, most traders use the term divergence to refer to both of the conditions
just described, even though the trendlines converge in downtrends and diverge in uptrends.
Nonetheless, to conform to popular usage, we will be using the term divergence for the
rest of this article to refer to both divergence in uptrends and convergence in downtrends.
So, a sell divergence occurs when price is making higher highs while the oscillator is making
lower highs. Conversely, a buy divergence occurs when price is making lower lows while the
oscillator is making higher lows.
One problem with divergence analysis is this: Changes in trend direction come in many
sizes, from very brief to very deep, so the trader has to decide what kind of divergence pattern
Figure 1 - Normal DIvergence

is most reliable for putting on a winning trade. When the price bars are in a strong uptrend
you will often see a lot of small peaks and valleys caused by sloppiness in the price wiggles
as shown in Figure 2.
Note that the first major bump in the oscillator below the price contains minor wiggles that
should be ignored. We call that pattern a lobster tail. If it is bigger than a small lobster
tail, we call it a prong, or deep prong. These are just fun nicknames. Once the oscillator
crosses below the midline and back above it, we get a second bump that we call a smoothie
because it is relatively smooth. These false signals can cause a lot of frustration for the
divergence trader, so we must use a set of rules that allow us to identify only significant
divergence patterns that are likely to anticipate a major trend reversal.
The Deep Dip Concept

One of the most reliable ways to make sure your divergence signal is valid is to ignore
lobster tails and prongs and look for what is known as a deep dip divergence pattern. The
concept of the deep dip pattern was first introduced by trader and divergence expert Jay
Dorger in the 1990s. This concept requires that the oscillator must cross its midline between
bumps to ensure that the divergence is big enough to be taken seriously. A deep dip oscillator
pattern looks something like the example in Figure 3.
On the left side of this chart we are in an uptrend and are watching for a divergence pattern
to signal the end of the uptrend and the beginning of a new downtrend. The first step in this
Figure 2 - Lobster Tails and Deep Prongs

process is to look for a hill to form in the oscillator while it is above the midline. The oscillator
should then roll over and cross below the midline. Before reaching the oversold zone, the
oscillator should reverse back up above the midline, forming a valley below the midline.
The oscillator should then create a second, lower, hill-shaped bump above the midline.
When it again rolls over while the price continues to reach new high levels, we have a strong
sell signal. Although the oscillator must display a pair of distinct successively lower peaks
interspersed by a distinct valley below the centerline for a sell reversal signal in an uptrend, the
price doesnt necessarily have to display recognizable peaks and valleys over that interval. For
a valid sell divergence in an uptrend to occur, the price level corresponding to the rightmost
(lower) oscillator peak must simply be higher than the price level corresponding to the previous
(higher) oscillator peak to its left.
Conversely, for a buy signal to occur in a downtrend we must wait for an up-divergence to
develop in the oscillator valleys below their midline. The first valley will have to reach back
above the midline before returning to create a second, higher valley. After the divergence
forms between the two oscillator valleys and a downtrending series of prices, we have a strong
buy signal.
The oscillator below the price in these examples is a Stochastics oscillator. The trendlines,
dots and DDD (deep dip double) annotation on the chart were automatically drawn by the
JADV Deep Dip Double Divergence tool from Jan Arps Traders Toolbox. (www.janarps.com )
Figure 3 - Deep Dip Double

Divergence analysis can be a very powerful tool to identify potential major reversal points
in the price trends. However, it sometimes takes a trained eye to quickly spot divergences
between the price and an oscillator, so heres a reminder: always look for significant bumps
in the oscillator first. Then look at price to see of these bumps are diverging from the price
trend direction. In the oscillator, look for falling peaks for sell signals and rising valleys for buy
signals. Then look for corresponding rising peaks or falling valleys or in the price.
Watch for Crossings

You want to be quick in identifying oscillator bumps. If you wait until an oscillator bump
is fully formed, referred to as a roundover, you may have lost the opportunity to get into
a trade near the beginning of the new trend. Many divergence traders dont wait for the
roundover to complete to look for significant oscillator turns. Instead, they look for crossings,
where the fast oscillator line crosses below its slow line near the top of a peak or above its
slow line near the bottom of a valley. If this developing bump is the second part of a pair
that is diverging from price and meets our other qualifications, we have a strong and timely
indication that prices are about to reverse direction.
In Figure 4 we see the fast line crossing below the slow line of a developing oscillator peak
before the slow oscillator line actually rounds over. Consequently, in this example, we can see
the oscillator crossing signal approximately three bars before the actual price peak occurs.
Figure 4 - Roundover

This gives us some extra time to set up for a trade when the next price bar makes a lower
high.
The Sweet Pea Deep Dip Triple Divergence Pattern:

Solving the Problem of False Divergence Signals in Strongly Trending
Markets
Double bump divergences work well in oscillating markets, meaning markets where prices
are moving sideways or gently trending. However, in strongly trending markets, double bump
divergence signals sometimes go astray and give signals before the end of the trend. One
way to deal with this problem is to wait for a triple bump divergence to confirm the end of the
trend. Triple bump divergences are just what the name implies: three bumps in the oscillator
forming a diverging pattern with respect to the price trend, instead of just two bumps.
The important fact about triple bump divergences is that they are more likely than double
bump divergences to occur at the end of a strong trend and less likely to occur in the middle
of a strong trend.
For example, Figure 5 displays a price chart with the Stochastics oscillator displaying a
triple-bump deep-dip divergence buy pattern near the bottom of a strong downtrend and a
triple-bump deep-dip divergence sell pattern near the top of a strong uptrend. See Figure 6.
Lets consider the types of price pattern associated with a triple-bump sell divergence.
Figure 5 - Deep Dip Triple

I want to first call your attention to an old standby in technical analysis, the Head and
Shoulders formation. A Head and Shoulders is three peaks in price that look like a head
and shoulders outline. Usually the second peak is the tallest and is referred to as the Head
while the Shoulders represent the (lower) first and third peaks. The common trading rule is
to draw a trendline between the bottoms of the two shoulders (the neckline) and take your
short position when the price crosses the extension of the neckline.
However, we wont be using the neckline break in this study of the triple-bump divergence.
Instead, when we see a head and shoulders top formation in the price, we will be making these
small, but very important additional stipulations for it to qualify for a triple-bump divergence
topping pattern: First, I want the third bump in price (the right shoulder) to be higher than
or equal to the first bump (the left shoulder). Also, this triple-bump price formation should
occur at the end of a long, hard-charging trend; not somewhere in the middle of a sloppy
sideways price movement.
At the same time, I want the first peak in the corresponding oscillator pattern to be the
highest of the three to qualify as a sell signal. The second and third oscillator peaks must
both be lower than the first oscillator peak. Note that the second oscillator peak may still be
lower than the third oscillator peak, but it must not be higher than the first peak! The most
important factor is that the first oscillator peak be higher than the third peak.
Jay Dorger, the originator of this concept refers to the triple-bump divergence pattern as
Sweet Pea, his slang for Three Peaks, so we have incorporated that into the name of our
pattern identification tool.
When we are looking for a Sweet Pea pattern for a triple-bump sell setup, any of the three
price patterns, the Head & Shoulders, the Hunchback, and the Straight Three shown in
Figure 6 would qualify. However, it is important to note that a Head & Shoulders pattern
DOES NOT qualify in the oscillator, because the leftmost peak of the oscillator must be the
highest of the three.
If you turn these images upside-down, you would have a set of buy divergence patterns,
with the exception of the inverse head & shoulders in the oscillator which does not qualify, as
mentioned above. Now the leftmost valley of the inverted price pattern must be lower than
the other two valleys while the middle valley can be either higher or lower than the rightmost
valley, so long as it is lower than the leftmost valley. In other words, no inverse head-and-
shoulders in the oscillator!
As in everything technical, these patterns are easier to see in hindsight. They are there
in real time but only after some time has gone by do their individual fingerprints truly reveal
themselves. Thus it is quite helpful to computerize the recognition of these patterns to alert
the trader. We cant trade hindsight.
Remember, oscillator divergence is trying to signal a new trend at its very beginning, and
that is dangerous, because you are going against the momentum of the old trend. Sometimes
divergence signals merely call a hesitation in the old trend, in which scalping a few points is
the best approach, and then the old trend just kicks back in and keeps going in the original
direction.
Divergence traders seeking to identify significant turning points must be cautious, only

Figure 6 - Three-Bump Divergence
taking well-formed three-bump formations. Oscillator bumps must dig significantly below
their midline in order to qualify as a deep dip divergence bump. A lot of triples in a strong
trend can be shallow and mushy. They are easy to see in hindsight, but would we really
have made a trade on some of those triples? Eliminating the mush is why we look specifically
for the Sweet Pea Deep Dip Triple divergence pattern. We might lose some good trades by
sticking with the deep dip theory, but in the long run it is a safer and more reliable indication
of a potential major trend turn.
In summary, divergence is a powerful tool to identify potential reversals in price direction.
Waiting for a divergence signal before trading a reversal in trend direction can greatly help
the trader with his timing. No matter what time frame or symbol you trade, when you find a
Deep Dip Triple divergence bump formation and let the Arps Sweet Pea Divergence Finder pat
you on the back to confirm the pattern, I do believe you will value this pattern as a treasured
component of your trading toolbox, or at least be aware of it in your trading.
Jan Arps Traders Toolbox

www.jarps@janarps.com

New! The Arps/Dorger Sweet Pea Divergence Finder
A Sophisticated Divergence Tool To Identify In Real Time Those Symbols Ready To Make A Significant Trend Reversal
For technically-inclined traders, divergence analysis is recognized as one of the most reliable ways to identify the end of a trend
and an impending major price reversal.
Incorporating divergence analysis into your trading can greatly improve your odds of capturing the most profitable trading
setupgetting onboard early in a new trend. It doesnt hurt either having a sound methodology to enable you to know when to
bank your profits and to cut losers short.
For the novice and advanced trader

alike, we describe in this months edition
of TradersWorld Online magazine various
types of divergence patterns and the best
patterns to trade.
The Sweet Pea Deep Dip Triple-bump

divergence pattern is our favorite
oscillator divergence pattern to trade
because it is more likely to occur at the
end of a strong trend and solves the
problem of false divergence signals that
can occur in strongly trending markets.
To help traders identify this pattern in
real time, we have created the
Arps/Dorger Sweet Pea Divergence
Finder tool. The chart image on the
right shows this tool identifying both a
three-bump divergence buy signal and a
three-bump sell signal. In both cases you can see how the three-bump deep dip divergence signal leads to a major change in
trend direction. The Sweet Pea Divergence Finder is applicable for day trading as well as longer term and swing trading.it works
well on any symbol and timeframe.
As a special offer for TradersWorld Magazine readers, we are offering the Arps/Dorger Sweet Pea Deep Dip Triple Divergence
Finder and the JADV Deep Dip Double Divergence tool, as described in the article, as a set for $299.95 (The set retails for
st
$399.95). This offer is good through June 1 , 2012. (Tools currently available for TradeStation and MultiCharts. Soon to come:
NinjaTrader and eSignal).
To order, click on this link: Arps Triple and Double Bump Divergence Toolset
_________________________________________________________________________________________
www.janarps.com
Backed by over 50 years of trading experience, Jan Arps Traders Toolbox has been the serious traders preferred source for
unique, powerful trading tools since 1991. Besides having created numerous revolutionary proprietary tools, our world-class
services to the trading community include personal mentoring, incomparable trading clinics, and expert custom programming.
THE CRITICAL NATURE
OF VOLUME
Part Two
By: Jeffrey A. Kilian Trader, Technical Analyst, Educator
In part one we laid out the case for trading the US Equities and SP500 E-Mini Futures
Markets only when we have substantial volume behind the trades we will be taking. I covered
how most market participants are wrong in their trading decisions and therefore lose money
when they trade. We also covered that we as professionals who work in the business every
day know that even though what most dedicated traders do is correct.......they have missed
the critical ingredient know as volume.
Volume is the catalyst behind the most explosive and profitable moves in trading any
instrument within any market place, and to this day still remains the number one factor
that determines the probabilities of future price directional movement. Where volume is the
number of shares or contracts that are traded over a calculated period of time, the result of
those volume numbers must then be used to determine the current and future Supply and
Demand ratio of what we are analyzing.
Chart #1
A professional trader will focus his or her attention on the Smart Money Volume. This
volume is the most important type of volume as it is created by the people whom actually
move futures and securities and E-Mini Futures from one level to another. These are the heavy
market participants including off shore hedge funds, US based institutions, major market
makers along with specialists on the trading floor who will orchestrate the mechanics behind
the new price moves before the general public is aware of what is about to happen.
Here is the key traders and investors: We learn how to know before the general
public knows, where prices are headed.
Reference the Metastock Professional chart below of the DOW clearly indicating the major
sell off by the institutional Smart Money on the 03-16-2012 before the market corrected. See
Chart #1
Now after viewing the DOW correction and understanding that the volume in fact was the
catalyst behind the correction, the effect of what the Smart Money does now creates a new
level of demand or supply that was previously non-existent.
Where that ratio of supply and demand changes, so do the opportunities to invest or
trade in anticipation to make money whether long or short. However without a sufficient
amount of accumulated volume incorporated into the analysis of our trading decisions, we
leave a reward to risk ratio on the table that is just unacceptable. Where trading is a business,
we must only take trades with substantial volume behind them to become superior traders
and eliminate sub standard trading.
The most important thing that I teach every client is to how to know with a high degree
of accuracy, what is the current state of the Market. Every serious trader absolutely
positively has to spend a minimum of 20 minutes every single night analyzing the current
Chart #2
state of the US Markets so you know when an event has taken place such as the volume
sell off on 03-16-2012, and that now it is time to start paying very special attention to the
upcoming trading opportunity to make the lions share of money.
View the Metastock Professional chart: Energy Sector 10. See chart #2.
SELECTING THE RIGHT SECTOR TO SHORT

Selecting the right sector to short is a matter of making a relative comparison between
all sectors in your organized data base and the Market. In this case we are making a relative
comparison between the Energy Sector 10 which is one of the sectors in a special SP
1500 organized data base by number that myself and Metastock have created, and the Dow
Jones Industrial Average.
Now because we have just made a careful examination of all the sectors within our database
and have arrived at the conclusion that the Energy Sector was the only sector having a
substantial volume spike on the exact same day as the DOW, we are now sure that we
have confluence of Insider Volume that has to play itself out one way or the other. It
will either be the catalyst for a short move, or a long move. Again either way, we as superior
traders will be ready to capitalize on that move because we are now in waiting and tracking
this sector, all the groups within it, and obviously the stocks with the strongest set ups in
progress to take the trade with conviction, when we are sure that the high probability set
ups have completed themselves, and our precision entry point has been clearly laid out long
before our trade will ever be taken.
View the Metastock chart of the Energy Sector date: 03-20-2012 See Chart #3.
Chart #3
USING YOUR END OF DAY ANALYSIS TO MAKE REAL LIFE TRADING DECISIONS
Once again lets be clear where trading is a business, we want to take only the true high
probability trades to load up and make a substantial amount of money in a short period of
time. To do this we use only the proven Technical Analysis techniques that have stood the test
of time and through Objective Analysis, we arrive with actionable intelligence to trade as a
professional.
The trend line break on 3-20-2012 was a clear signal within the chart pattern itself, that the
volume previously illustrated to us on 3-16-2012 has now played itself out and has revealed
to us that it in fact it was an inside Smart Money sell off. So now in fact what we have
just completed is a simple relative comparison between the volume on the Dow as compared
to the volume on the Energy Sector and the relative comparison between that volume, as it
played itself out and the trend line violation within the chart pattern to show us how we
can let the trade come to us. Remember as a professional trader, your greatest positional
advantage is PATIENCE.
HOW TO BE SURE THE VOLUME WAS INSTITUTIONAL SELLING

Money flows in and out of a Market, Sector, Group and individual stocks and the E-Mini
Futures as sure as the sun rises and sets. Not just any money, but real money and millions and
millions of insider money. Im referring to institutional money that drives prices to and from
one level to another. These people are the ones that I have developed a trading methodology
to Find Track and Trade because when their movements are clearly identified, we have a
trading opportunity that otherwise simply does not exist.
View the Metastock professional chart of the Energy Sector with The Chaikin Money Flow
Chart #4
Indicator. See Chart #4.
The Chaikin Money Flow Indicator clearly indentified a strong negative divergence ( A
connected to B ) as compared to the chart action long before prices ever sold off during
this short selling opportunity. Even more, this indicator clearly marked out additional strong
downside momentum again before the prices sold off in this incredible short selling opportunity
( C connected to D ).
Trading is a business and by investing in yourself in getting the proper education about how
to learn what really works in real life trading can make all the difference in your trading career.
The small cost of education far out weights the loss of your hard earned capital in a lesson the
markets will teach you until you master these proven trading techniques. View the Metastock
chart of the entire Energy Sector short move. See Chart #5.
Jeff Kilian is a real life Trader Technical Analyst and Educator. He has clearly developed a
Smart Money Trading Methodology that trades only the true high probability trades. His focus
is US Equities and the SP 500 E-Mini Futures Market. He has become one of the most sought
out Trading Mentors in the world today.
Outside of The inside Technicians standard training and courses,he now offers full exclusive
professional trader mentoring 10 and 20 day programs for those who are serious in becoming
real life profitable traders. See the latest Mentor program details on page 7 and page 8.
Jeff Kilian: Founder of www.theinsidetechnician.com
Chart #5
Elliott Wave Outlook
S&P and Gold
By Peter Goodburn | Copyright 2012
Use of Ratio & Proportion

R.N. Elliott (1871-1948) developed his theories of repetitive pattern development of the
stock market after the dramatic events of Wall Street during its collapse between 1929-1932
that led to the Great Depression. He was inspired by Robert Rheas book entitled Dow Theory
and in the fourteen years that were to follow, completed a detailed, methodical analysis of
price behaviour that was to eventually distil into a comprehensive and exact method of pattern
recognition from which the seemingly chaotic activity of the markets could be viewed in an
orderly manner.
Elliott introduced the investing community with two underlying aspects of his methodology
that were the driving forces of the Wave Principle and these later, inadvertently created
two branches of discipline that were to direct the course of its application by successive
practitioners in the decades that followed. The first is derived from human activities that
develop from our social-economic processes commonly referred to as the mass-psychology
of market behaviour. The second relates to the study of numerology and geometry, how its
governing laws of measurement and form manifest in the creation of waves and patterns
with regular occurrence. This raises the question of cause and effect which discipline brings
us closer to the underlying cause of price development? It seems the psychology/socionomic
aspect has taken precedence since the theory has been popularised, particularly during the
last twenty-five years or so. Despite this, Elliotts original work revealed the causation of
price-development in his definitive work Natures Law the Secret of the Universe (1946)
where he devoted many passages to numerology through the Fibonacci Summation Series
and geometry through the philosophies of Pythagoras.
After Elliotts death in 1948, one of his successors, Hamilton Bolton stated that wave
form takes precedence over ratio/proportion analysis and this has generally been echoed by
others since, although it seems this is because very little research on its potential has been
published during the last twenty or so years. The use of Fibonacci price ratios (fib-price-ratios)
is nothing new to Elliott Wave practitioners, but it has mostly been applied in a very basic and
rudimentary way. I rather consider ratio and proportion, pattern and form as the two sides of
the same coin one cannot exist without the other neither is dependent nor independent but
instead co-existing as interdependency. Without its use, it is possible to construct a wave count
around whatever whim or fancy that fits the subjective personal desires of the analyst. But
including it, this increases the probability of a concise and objective approach to successful
forecasting.

S&P and Gold Forecasts
S&P 500 - When applying Fibonacci-Price-Ratios (fib-price-ratios) to any analysis of a
market, we begin by constructing stringent measuring tests to the price data and across
several differing degrees of trend its generally a top-down approach, beginning with the
long-term data first, then successively lower. Each pattern retains certain key fib-price-ratio
measurements that recur over and over again. One aspect that is also important is to apply
fib-price-ratio measurements to the data in log-scale through all degrees of trend. Over the
last fifteen years, I have collected and archived several hundred examples of these and
established a set of guideline measurements to work from.
An example of this is shown in fig #1. The S&P 500 was expected to decline last year into
a counter-trend pattern this was empirically tested in the manner mentioned above, through
various degrees of trend. Even before the decline began, our analysis expected a deep counter-
trend corrective decline based on the measuring of the preceding advance this was going
to be a big one. As the price data began to unfold, it became clear that it would unfold into
an expanding flat pattern, labelled (A)-(B)-(C) and subdividing into a 3-3-5 sequence. The
Figure #1
starting point of measurement is always wave (A), in this case unfolding between 1344.07 to
1249.05 (Feb.-March 10). In order to project the conclusion for wave (B), three most common
fib-price-ratios would be used to extend wave (A) by either, 14.58%, 23.6% or 38.2% - these
will encompass about 80% of all (B) waves is such patterns. A fib. 23.6% extension projected
to 1367.53 with the actual high recorded to 1370.58. In common expanding flat patterns,
wave (C) can be projected to its conclusion by using the same ratios to determine which
one would finalise the pattern, an overlay of Fibonacci retracement levels of the preceding
upswing would be added to search for a convergence. In this particular example, we realised
wave (C) would extend beyond the common measurements because of its location within
this aggregate/larger pattern. This meant extending wave (B) by a fib. 161.8% ratio and this
projected the low for wave (C) to 1074.82. As wave (C) began to unfold, we were able to add
another fib-price-ratio to the developing five wave impulse pattern to test for convergence
levels. In any five wave expanding-impulse (not a diagonal-impulse) pattern, one of the most
common ratios used to determine the completion of the fifth wave is to measure this unfolding
by a fib. 61.8% (correlative/correlation) ratio of the first-third waves, i.e. 1370.58-1101.54
x 61.8% - 1230.71. This measured the terminal 5th wave to 1075.24. A convergence of this
kind is very powerful, and acts like a magnet, attracting the price to it. It is the ultimate in
proportion, a natural law that states price action unfolds through the points of least resistance.
The actual low was recorded on the 4th October 2011 at 1074.77.
At the low of 1074.77 last October, this decline was labelled as ending one of two ongoing
counts the first as primary wave 2 of a larger five wave expanding-impulse pattern in progress
as cycle wave C that began from 1010.91 (June 10) very bullish. The second as primary
wave A of a larger complex corrective pattern labelled cycle wave B and acting as the counter-
trend to the preceding advance from the March 09 low. As the progress of the Oct.11 upswing
unfolded, an interim high formed later that month to 1292.66. From this, another set of fib-
price-ratio measurements were taken see fig #2. We wanted to test this upswing as part
of primary wave B of a complex expanding flat corrective pattern. The first measurement was
to extend the 1074.77-1292.66 advance by a fib. 61.8% ratio and this projected a potential
high for wave C to 1448.87. The second extended the entirety of primary wave As preceding
decline between 1370.58-1074.77 to the upside by a the common three ratios the 14.58%
level to 1420.04 and 23.6% to 1451.52. The latter formed a convergence and so for the last
several months, we have been expecting a test to this price area and have waited to see its
reaction whether it would accelerate higher to confirm a larger 3rd wave in progress, very
bullish, or alternatively stage price-rejection and a subsequent reversal signature that isolates
the entire advance from 1074.77 as a zig zag pattern very bearish.
Earlier this month, prices tested the minimum 14.58% extension level at 1422.38 and
have subsequently triggered a reversal signature basis prices breaking below the preceding
reaction lows of early March 12. This provides an early warning of reversal. Isolating a zig zag
advance from the Oct.11 low labels this upswing as ending primary wave B of a much larger
expanding flat pattern with wave C downside projections until Oct.12 towards 979.45 (40.68
month cycle). This is measured by extending primary wave A by a fib. 38.2% ratio and this
converges with the fib. 50% retracement support of cycle wave As advance that began from

the March 09 low (666.79-1422.38 log scale!).
Gold - There has been a lot of forecasts published on gold in recent weeks, perhaps more
bears emerging as analysts downgrade their expectations perhaps due to the fact that prices
have remained below last years peak of 1921.50 (LBMA spot bullion). Despite this, the
Elliott Wave Principle (EWP) combined with Ratio & Proportion studies determine the longer-
term uptrend as intact.
The decline from the Sep.11 high of 1921.50 is identified as a counter-trend pattern
that ended intermediate wave (4) at the late Dec.11 low of 1522.48 see fig #3. Since
then, prices rose rapidly to the late Feb.12 high of 1791.16 whilst unfolding into a five wave
expanding-impulse pattern. Evidence of a five wave impulse is usually enough to confirm the
larger uptrend has resumed, but this could also become the final sequence of a horizontal
(running) flat pattern with bearish implications for the next several months. How can these
two scenarios be separated? The subsequent decline revealed its true intensions the initial
decline to 1688.56 was extended by a fib. 61.8% ratio to test as a counter-trend zig zag
Figure #2
One of the Universal Laws that we apply to the Elliott Wave Principle is that of the Law of Vibration, or Motion.
This study is an acknowledgement of this profound Truth as it reveals the hidden nature of another as it mani-
fests across the geometric plane - the existence of Natures rhythm or frequency as revealed in the Law of Po-
larity. The most basic yet prolific symbol known to Man is the circle. It has stretched across the aeons of
time immemorial. Hidden within its motion are the ratio relationships that make up its DNA. Attrib-
uted to (Leonardus) Fibonacci the ratios that build and guide the organisation of growth & decay - a
natural phenomenon that exists not only in the material world, but also in our thoughts that in
turn, translate into the markets! Ralph Nelson El- liott left us a great legacy in his mono-
graph The Wave Principle (1938) and it has most undoubtedly stood the test of time in
its robustness as a tool for price-predic- t i o n , es- p e c i a l - ly during the last dec-
ade when many other methodol- o gies h ave collapsed. It has its de-
tractors though, and despite being a strong advocate and prac-
titioner of the Elliott Wave principle (EWP) myself, am sym- p a -
Waves to Patterns
thetic of their dismissive remarks. Why is that? Simply put, some
big calls or forecasts have not unfolded in the way we might h ave
expected or hoped certainly, I pe- rienced failures too. Some have
worked quite well, but then degraded over time making them re- du n d a n t s o m e -
as
time later. The EWP is so dynamic in its predictive qualities that there is a human
temptation to make bold statements at key intervals but in the heat of t h e moment,
obvious clues get missed. There is one element to the EWP however that i s the key in
resolving this issue and that is combining Elliotts original concept of Pat- tern Repeti-
tion with his less known studies of Ratio & Proportion. Elliotts Introduction to the Fibonac-
Ratios to Proportion
ci Series. Soon after publishing The Wave Principle, Elliott was sent several books, rec-
om men- dations and various articles related to Natural Laws of science & metaphysics by
Charles J . Collins, director of Investment Council Inc. These included works from Pro-
fessor Arthur Henry Church entitled On The relation of Phyllotaxis to Mechanical Laws
a n d Sir James Hopwood Jeans The Mysterious Universe. This also led to Elliotts inves-
t iga- tion of the Fibonacci sequence that he referred to in his Educational Bulletin dated Oc-
to- ber 1, 1940 in which he stated The Basis of the Wave Principle is very oldPythagoras in the
sixth century B.C., Fibonacci in the thirteenth century and many other scientists, including Leon-
ardo da Vinci and Marconi, have all shown that they were aware to some extent of this phenomenon
Fibonacci was an Italian mathematicianHis Summation Series of Dynamic Symmetry agrees in every
respect with the rhythmic count of the Wave Principle. What Elliott read and learnt in the years that fol-
lowed his receiving those books from Collins ignited his fascination and shaped his theories of the Wave
Principle around the concept of the Fibonacci Summation series and its inherent relationship to ratio & pro-
portion. In this same Educational Bulletin, Elliott placed emphasis on the fact that his discovery of five waves
of progress followed by three waves of regress was emulating two of the adjacent numbers found in Fibonac-
cis summation series, 5-3 added together equals 8, another in the sequence... | Understanding the principles
of Natures Law is to learn the universal language of form and vibration Waves to Patterns as Ratios
to Proportion. These manifest in all financial price data and can be discovered in the most clear, concise
and pragmatic illustrations of the Elliott Wave-Compass report visit us now on www.wavetrack.com .
ELLIOTT WAVE-COMPASS
1 Elliott Wave perspectives for global markets:
Stock Indices
Bonds
2 Currencies (FX)
Commodities

W W W.WAVETRACK .COM
pattern. This projected wave C of the zig zag to 1628.11 the actual low recorded to 1628.16!
Furthermore, wave C of this zig zag unfolded into an ending-diagonal pattern, a wedge-shaped
formation that confirms this as the completion of the zig zag without any bearish alternative.
Prices have since advanced into three waves, then declined into three waves to 1612.26 that
together confirms a counter-trend pattern is set to extend the original single zig zag decline
from 1791.16 to 1628.16 into a double pattern with price projections to 1551.86 sometime
during the next few months. The secondary zig zag decline is measured so that it unfolds by
a fib. 100% equality ratio of the first whilst more critically, ending above the Dec.11 low.
Fibonacci ratio and proportion studies remain an important aspect of Elliott Wave and
remains an effect tool in the process of proofing and determining a successful forecast.
Peter Goodburn is the senior Elliott Wave analyst at WaveTrack International and is the author
of the monthly institutional Elliott Wave-Navigator report and the bi-weekly private client
Elliott Wave-Compass report. Details at www.wavetrack.com
Figure #3
The EUR/USD and Gold
By Jaime Johnson
Dynamic Traders Group

While the EUR/USD trades inversely to the Dollar Index it also tends to trend with gold
which can help determine trend and trade direction for all three markets. I want to emphasize
the words tends to trend. The patterns of gold and EUR/USD are usually not the same and
the occurrence of them trending together is not as consistent as the EUR/USD and Dollar
Index inverse correlation. Nonetheless, looking at both gold and the EUR/USD can often help
determine net trend directions of both markets.
In this article we are going to look at pattern and momentum position of both markets to
see if trend direction can be determined over the next several weeks following the writing of
this article. While the EUR/USD and gold sometimes do not trend together, if momentum and
pattern suggest they will trend together, trades in the potential trend direction should be of
higher probability.
The Dynamic Trader analysis and approach to trading is used to determine trend and trade
direction. The analysis is based on Elliott Wave and oscillators. While the oscillator used in
these charts is a propriety oscillator to the Dynamic Trader software, any oscillator can be used
in which the bearish and bullish reversals of the oscillator (or highs and lows of the oscillator)
correlate relatively well with the swing highs and lows of the markets. This article was written
the first week of April 2012.
EUR/USD Weekly Closing Data

Chart 1 is a weekly closing data chart of the EUR/USD. Closing data often cleans up the
noise caused by intraweek volatility so we can see a clearer pattern. However, since the Forex
market is a 24 hour market, it is not a good idea to use closing data in the daily time frame
or lower. However, the Forex market does close every week, so closing data may be used in
the weekly timeframe.
The May 2011 high in the EUR/USD appears to have completed an ABC correction off the
June 2010 low. A few things support this. First, the June 2010 May 2011 rally has a clear
three wave corrective pattern. Secondly, the Jan. 2011 probable Wave B low has been taken
out. Last but not least, the decline off the May 2011 high has unfolded in a five wave pattern.
If the May 2011 high is in fact a Wave C corrective high, the June 2010 low should eventually
be taken out, but this may take months to occur. What we want to know is the probable trend
direction over the next several weeks.
A couple factors suggest the net trend direction for the next few, if not several weeks
should be bullish. Firstly, with the May 2011 high a probable corrective high and with the June
low a probable completion of a five-wave decline off the May 2011 high, the rally off the Jan.
2012 low should also be a correction. However, the typical price target for the completion of
a corrective high, the 50%-61.8% retracement zone of the May 2011 Jan. 2012 decline

has not been reached. Also the (8) weekly DTosc is bullish, a momentum signal the net trend
should be sideway to up for a few to several weeks potentially reaching the typical price target
for the completion of a corrective high.
Gold
Chart 2 is a gold weekly chart. I am not using closing data because it really does not give
us much more information. The Dec. 2011 low is a potential completion of an ABC corrective
decline off the Sept. 2011 high. However, there still needs to be a trade above the Nov. 2011
potential Wave B high to further support the completion of a corrective low. But there is a
five-wave rally off the Dec. 2011 low complete as of the March 2012 high supporting the
Dec. 2011 low as a corrective low. The decline off the March 2012 high also has corrective
characteristics. Also, the low of the week ending April 5, 2012 is slightly below the typical price
target for the completion of a corrective low, the 50%-61.8% retracement zone of the Dec.

2011 March 2012 rally. It is also in the typical time target for the completion of a corrective
low, the 38.2%-61.8% time retracement zone of the Dec. 2011-March 2012 rally.
So the Dec. 2011 low is a probable corrective low off the Sept. 2011 high and the April
low so far is at or near both typical time and price targets for a corrective low off the March
2012 high and the (8) weekly DTosc is bullish. It is very likely a corrective low off the March
2012 high is near completion, if not already complete. If it is not yet complete, the bias is the
immediate downside should be limited before it is complete and the net trend direction over
the next few, if not several weeks should be bullish.
Different Patterns, but High Probability Trend Direction.

While the patterns for the EUR/USD and gold are totally different, they both suggest the
trend direction over the next few, if not several weeks should be up. However, the upside
potential in gold is greater. For the EUR/USD, the immediate upside may be limited to the

50%-61.8% retracement zone of the May 2011 Jan. 2012 decline. With gold, if a corrective
low is at or near completion off the March 2012 high, the March 2012 high should be exceeded.
If the Dec. 2011 low is a corrective low, the Sept. 2011 high should be exceeded.
Remember, as I mentioned before, gold and the EUR/USD tend to trend together, but
often dont. However, as of the writing of this article, pattern and momentum suggest they will
trend together for the next few, if not several weeks in a bullish direction.
So, What Side of the Market Should You Be On?

With a probable multi-week rally in both the EUR/USD and gold, you should look for potential
long positions in these markets and short positions in the Dollar. However, keep in mind,
during a multi-week bull trend, there should be multi-hour to multi-day corrections to the bull
trend which can also be taken advantage of in the lower degree time frames. So regardless
the direction or time frame you choose to trade, always use objective trade entry strategies,
always use stop-losses, trade more than one unit and have exit strategies for each unit, use
stop-loss adjustment strategies, use a money management plan and most importantly, be
disciplined enough to stick to these trade strategies.
For education on practical trade strategies for every time frame to take advantage of the
potential week-week rally in the EUR/USD and for corrective declines during this rally, check
out my NoBSFX Trading course (info below).
More Information as the Market Unfolds

With the EUR/USD and gold, as well as any other market, more information is revealed
on whether the longer term outlook is correct or not as the market unfolds. For continued
analysis of the EUR/USD and gold as well as many more top Forex and Futures markets as
they unfold and for further education on the analysis used in this article, check out the DT
Daily Forex Report and DT Daily Futures Report (info below).
Jaime Johnson is the author of the NoBSFX Trading Workshop. For complete information,
go to www.nobsfx.com. For more info on the Dynamic Trader Daily Stock and ETF Reports,
Futures Reports, Forex Reports and DT Alerts Reports which Jaime Johnson co-authors, go to
www.dynamictraders.com.

Decoding the Hidden Market Rhythm
Software Review
By Larry Jacobs
C ycles influence the movement of the financial markets. They

are directly tied to peoples moods and emotions. If you can
get a handle on cycles in the market, it will substantially improve
your trading ability. So cycles are very important in the market and
it can mean the difference between success and failure in trading.
After hearing the presentation of Lars Von Thienen at our last
Traders World Online Expo #10, I was very interested in his cycle
software that is an add-on to Wave 59. So I was able to get a
copy of his book and software for a review in this issue of Traders
World. Mr. Thienens book is entitled Decoding the Hidden Market
Rhythm, A dynamic Approach to Identify and Trade Cycles That
Influence Financial Markets. It is a 255-page book along with a
CD which contains the software add-on to Wave 59 that takes full
advantage of his cycle concepts.
In the book Mr. Thienen explains that most approaches to identify cycles in the market fail
basically for two reasons. You have to detect the right high or low to get the starting point
and that is very difficult as there are a lot of cycles, so which one do you select. The second
reason is that you need to identify the right force behind the cycle, such as tidal movements,
planetary positions, which is also extremely difficult.
He believes that astrological cycles have an influence on cycles and particularly those
associated with the Sun and the
Moon. Therefore, solved the cycle
analysis problem, he developed
a method specifically designed
to analyze the financial time
series datasets of the market.
By designing Discrete Fourier
Transform (DTF) methods
including the Goertzel algorithm,
validated by means of statistical
measurement methods and his
own approaches to detrending
he was able to develop his own
method for measuring cycles
in the markets. Building on
his expertise as an engineer,
software developer and trader, Chart 1

he was able to develop this
method as add-on software for
Wave59.
The software for Wave 59 has

the following in its Cycles Menu :
Cycle Swing Indicator
Cycle Scanner
Cycle Plotter
Dynamic Cycle Explorer
Manual Cycle Explorer
Superposition Energy
Wave
This menu is actually now

integrated directly into Wave59
in the Cycle 2.0 update. It is a
dropdown menu. The advantages Chart 2
of this direct integration with
Wave 59 is that any updates can come directly from within Wave 59 updates and it is also
easier to use. It also requires the Pro2 version of Wave59.
The easiest indicator to use in the menu is the Cycle Swing Indicator. With just the click
of the button you have the swing cycle on your chart automatically. You can change the up
and down colors and the thickness of the lines plus plot adaptive bands. This indicator is very
fast and indicates sharp turns
on the screen. It is also easy to
see divergences on the screen
with this indicator. This indicator
is much better and faster
to indicate divergence than
using standard indicators for
divergence such as stochastics,
RSI, etc. See Chart 1.
Another tool in the menu
is the Cycle Plotter. This tool is
mainly used for research. You
can plot up to 8 different cycles.
You can set the start date, the
length and amplitude. You can
also set it to anchor to a high
or a low. You can tell it how far
to plot ahead. It can be set to
Chart 3
zigzag instead of the sine wave
form. It can create single
plots or a composite plot of
several different plots. This is
very interesting if you know
how to use it properly. There
is a detail button that allows
you to see the composite
plus the individual plots. See
Chart 2.
The most basic tool is the
cycle scanner. You are able
to scan the market to find
the cycles. The scanner was
based on an engine developed
by Mr. Thienen. You can set
the analysis start date. The
easiest one to do is using the
Chart 4 hotspot 1 and 2 which is the
beginning and end date of the
scan. It can also be set on the last bar of the chart minus for example 300 bars. It can also
be set manually to a start and ending date. The parameter can be set to the length range for
example 50 to 299 bars. The output can be also set for cycle strength or amplitude.
The scanner has two tabs, one for the Professional Spectrum Plot and the other with
the Dominate Cycle Data.
See chart 2. The Spectrum
Plot gives you a visual idea
of the cycles. The x-axis
gives you the cycle length
and the y-axis gives you
the amplitude of the cycles.
It also gives you the top 5
cycle lengths. The Dominate
Cycle Data tab gives you the
results of the engine such as
cycle length, amplitude, date
cycle low, cycle strength and
% real cycle percent (Bartels
Value). Note that the cycles
in the Dominant Cycle Data
report is sorted on Cycle
Strength.
What do you do with
Chart 5

this information? You can
plot it on the chart with the
Cycle Plotter. By using copy
and paste through your
computer, all of the scanner
results can be put into the
Cycle Plotter. This can be
done for the individual cycles
and also the Composite plot
for all the cycles that you
have inputted. See Chart
5. Experimenting with the
composite cycle plot based
on 4 cycles, I have found
it to be very accurate. The
composite plot is very useful
to do a forecast into the
future. So it is easy to do a
cycle forecast by using the
Cycle Scanner to just first Chart 6
find the dominate cycles and then copy and paste them into to Cycle Plotter and creating a
Composite of the cycles. These static cycles and also be used in conjunction with the cycle
swing indicator which shows divergences. So this gives you a check between the cycle forecast
and momentum and you can do this for every turning point.
Another feature of the program is the Dynamic Cycle Explorer. It uses presets such as range
length minimum and maximum. It can be set for both short and long term. It is generally
anchored to the last major low. It creates a sine wave at the bottom of chart that is in sync to
the market. Bar by bar the cycle the dominate cycle is checked to be in sync with the market
as the market moves. When the sine wave at the bottom of charge is stable and starts to turn
up you know you have a market bottom. Then you can look at the next estimated high turning
point. You could then follow the market bar by bar making sure it stays in the frame of the up
move and that gives you a valid projection of the move.
The static forecast and the dynamic cycle explorer forecast will in many times be in sync
and that gives you more assurance that the market is on track.
The last item on the menu is the Superpostion Wave Builder. See Chart 6. You can go into
many back years to analyze the market. The feature requires more history on the chart. It
uses offset years to analyze the markets. They are set up for basically the years of 8. 11,
19, 27, 30, and 38 years. These years are based on the cycles of the sun and the moon. I
wont explain them here, but the book explains why. You can also change the offset years to
anything you want such as every 10 year, or presidential election years, or planetary based
years or whatever.
Finally the combination of the Cycle Smooth RSI and the Swing Cycle is excellent for

intraday trading. In many
cases a 2-4 minute chart
can be used for fast
moving markets such as
the QQQ. The basic rules
are to look for divergence
on both indicators. The
Cycle Swing indicator is
what to keep your eye on.
Look for example bearish
divergence. If it is near
or above the upper band
and turns down a short is
confirmed. If it is near the
lower band and bearish
divergence is in place
skip the short. For bullish
divergence if it is near or
below the low band and turns up a long is confirmed. If it is near the upper band and bullish
divergence is in place skip the long trade. See the Nasdaq 100 Chart 7.
Situation 1: Classic Sell Signal (10:06)
Divergence Cycle Swing
Over upper band CSI (Cycle Swing Indicator)
Over upper band cRSI
Situation 2: Classic Buy Signal (11:10)
Near lower dynamic band CSI (Cycle Swing Indicator)
Divergence cRSI
Situation 3: NO SELL SIGNAL ! (12:24)
Divergence cRSI
BUT: Cycle Swing is near its LOWER band! This means cycle momentum will go UP shortly
-> No room for a short trade right now! Even if the divergence is in place. The Cycle Swing is too
low to enter short now.
Situation 4: NOW - > SELL SIGNAL ! (13:00)
Divergence cRSI
AND: Cycle Swing is ABOVE upper band -> now we have the right time to enter a short
(compare to situation 3 the low cycle swing prevented us from going short there)
Situation 5: NO BUY SIGNAL ! (14:24)
Divergence cRSI
BUT: Cycle Swing is near its UPPER band! This means cycle momentum will go DOWN
Power Cycle Day
Trading Course
Review by Larry Jacobs
Larry Gaines spoke at our Traders World Online Expo #11.

After his presentation, we were very impressed with his course.
He is the developer of the Power Cycle Trading Courses. Mr.
Gaines believes that one of the fastest ways to build wealth
is to participate in market moves that happen all the time. It
is also good to be in the big market moves that happen only
occasionally during the year. You need to be ready and in the
markets for these moves. He believes that in order to participate in these moves you need
to have a trading edge. It seems that he has that edge, which greatly reduces your trading
risk, produces excellent returns and will return a good nights sleep without worries. Larry has
over 30 years of professional trading experience and thousands of hours of research. He has
developed a trading system that is highly accurate, and can be adapted for both day trading
and longer term investing.
In reviewing his course, I learned all about his patent pending, 4-step Power Cycle Trading
Model. It can be used for any market, such as gold, corn, silver, stocks, ETFs or even FOREX.
It works on virtually any market that has real-time data and good market liquidity.
The system is based on a four-step cycle trading model. It uses four powerful indicators to
signal a price cycle change by identifying:
A defined price range
Price volatility
Change in price cycle
Change in price cycle momentum
These indicators are used with highly accurate custom settings in a specific way to identify
intraday price trends. They provide timely entry at the beginning of an intraday price cycle.
The system is mechanical; this helps day trading because it eliminates the intraday and often
emotional decision making that happens to most traders throughout the trading day; this
frequently sabotages profits. A highly systematized model alleviates the difficulty in making
quick decisions on entries and exits. These decisions can otherwise be highly stressful and
difficult. Many times stress is the biggest detriment in day trading, so if you eliminate this
negative factor, trading results can be instantly and dramatically improved. Once this happens,
traders typically realize more consistent trades with bigger profits and fewer losses.
Larry also provides a virtual trading room, which helps the members learn and implement
the 4-Step Power Cycle Trading Model. He posts excellent results from actual trades called
out in the trading room on his site at www.OptionsOnTheOpen.com. Larry emphasizes that the
more one trades with a mechanical model, the more one gets in sync, and therefore successful
with that model. I agree with that.
The trading model is also used for screening intraday trades. The system uses different
time frames to do this, such as a 15, 45 and 60-minute chart. The model for daily charts
provides the overall direction of the market, automatically giving traders the advantage for
trading in the direction of the trend. This is an important bias filter that keeps traders in the
right direction of the market at all times and easily increases the probability of success. The
bias can be down or up, allowing profits no matter which direction the market is headed.
The Power Cycle Day Trading Course provides a proven trading system developed by a
veteran professional with a simple execution plan. It explains in detail how to enter trades,
identify exit zones to get out of trades and how to use all important risk management.
Larry believes that 90% of trading success is due to mental and emotional control. If you
are not in control of your emotions, you are doomed. To be successful, a trader needs to know
what the market thinks and then get in alignment with it. He feels it is not that difficult to be
successful given the right tools. When emotion is removed from trading, then it is much easier
to generate consistent profits.
The Power Cycle Day Trading Courses contain:
Step-by-step workings of the model and its custom model indicators
how to use the indicators to monitor and set alerts across the various asset classes
how to identify a potential market position from a chart for any time frame
step by step identification for clear and easy entry and exit points
various trading vehicles that can be used, such as options, stocks, ETFs, or futures
The course includes a 95 page color manual explaining the trading system in detail; it
provides a search tool that allows for questions to be immediately answered. The course also
includes 18 videos with over 5 hours of course material. A 2 month membership to Options
On The Open virtual trading room is also included in this course program for a limited time.
This provides access to a unique live online trading desk where experienced real traders use
the Power Cycle Trading system, along with Larry. Members learn how to select and execute
weekly options for day trades and option spread for swing trades using the Cycle Trading
Model. Members receive powerful mentoring every day on the trading desk by easily seeing
how the trades are executed, posted and frequently reviewed by Larry.
Right now, an options course, Option Trading Made Simple is included as a bonus in this
program. This course teaches how to select an option strike price for day trades, swing trades
and long term trades using the options delta. It also teaches how to trade option spreads
using the option delta. Larry refers to this as the practical way of using an options delta to
make money and reduce trading risk through the use of options. The Option course is a 17
page color manual with 3 course videos explaining option delta and how to use it to set your
strike price.
For more information about Larrys Power Cycle Trading Courses go to: www.
OptionsOnTheOpen.com.

The Ivy Bridge Sonata
By Larry Jacobs
T he new Ivy Bridge Trading Computers are

being released from Sonata. These will use
the new Intel 22nm Ivy Bridge 3rd generation
at 3.1Ghz to 3.5GHz and can easily overclock
to nearly 5.0 Ghz. Most traders today now use
2 - 6 (24-inch) monitors. The more screens a
multi-core processors. They give you around trader has usually improves his productivity
20% more power using 20% less energy. The and profit. It is also very important that the
also use the new z77 motherboards that are computer be nearly silent as traders need
easy to use and can easily overclockable, that feature to concentrate. Another feature
even for the average user. They can be set to that the Sonata Trading Computer has is a
overclock only when you need the power. The removable front port for cloning your drive
multiple-core feature allows you to run many for backup. This feature is nice if your drive
programs at the same time. They also easily fails, then it is easy just to replace the drive
connect to the new solid-state drives, which through the front port and you are up and
are 100 times faster than the old hard disk running in a couple minutes. So if you are in
drives. the market for an upgrade, now is the time.
So why does a trader need this power? The Sonata Trading Computer that supports
Today the trading computer needs to have the up to 4 monitors starts at $1399.00
power to monitor the markets even when the
volume shoots up. Old computers now lockup For more information go to:
when there are volume spikes in the markets. www.SonataTradingComputers.com
To monitor many charts, view business news,
chat rooms, etc. The Ivy Bridge processors run

Traders Book Library
Classical and Modern
Technical Analysis
800-288-4266
A Unique Approach To Forecasting Market Reversal

Points, A comprehensive guide for predicting precise,
price and time turning points for any market. Price:
$36.00
By Ivan Sargent This book is possibly one of most advanced books
in technical analysis you will read regarding price and time reversals.
Knowing the Price and time of a stocks reversal point is undeniably
an important element for to successful trading. Unlike most trading
books which use indicators, oscillators, and basic geometry to forecast
the markets outcome; this technique uses a series of lines which when
accurately placed can deliver reversal points with amazing accuracy.
Trend lines, retracements lines, channels, fan lines, pivot points etc, all inspect a stock chart
from the outside, which is more or less the obvious point of view. While these techniques can
give probable predictions at times, for many of us this just isnt enough. Now what would
happen if you were able to analyze charts from what I like to refer to as, the inside of the
chart? As you read on in the book, you soon will discover an amazing way find reversal points,
and finally realize that back doors to chart analysis do exist.
When attempting to look at the market from the inside the main thing you need to understand
is that the rules in which how the market is predicted changes completely. Normally when using
trend channels or retracement lines to determine the markets trend direction for instance, its
ok to allow the chart to slightly exceed or come close to either of these lines and still be in legal
limits for correct analysis. However these rules do not apply to this different type of analysis.
This type analysis requires that all lines be accurately placed for accurate predictions. Its a
little more work, but at the end of the day it has its virtues.
When using tools which allow you to see the market from the inside the predictions that
manifest within the analysis are totally different than common technical analysis. Here are two
main occurrences that you will notice when working with this type of analysis. A) Exact target
points will be forecasted or, B) A complete miss of a target point, and nothing else.
This is not a case of a 50/50 hit or miss. When you apply this technique to the markets it
becomes a matter of line accuracy resulting in high target percentage. As you read on through
the book, you understand how to use this technique and see how easy and powerful this
technique can be when used in conjunction with other analysis.
Patterns of Gann Price: $159.00
By Granville Cooley This set of books [included within this bound volume]
is not about pulling the trigger. It is not a system on how to make a million
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astronomical relationships between numbers and their possible application to
the number of W. D. Gann.
The Definitive Guide to Forecasting Using W.D. Ganns Square

of Nine Price: $150.00
By Patrick Mikula It has been almost ten years since I wrote a book about W.D.
Ganns forecasting tools. I wanted to return to this subject with a book that
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the official book of record for all the Square of Nine forecasting methods. I
believe I have achieved that goal. This book contains virtually very Square of
Nine forecasting method.
Complete Stock Market Trading and Forecasting Course Price:

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By Michael Jenkins The author is a serious, highly successful, professional
trader. In his two books, Geometry of the Stock Market and Chart Reading For
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more of his ideas and direction, many of his readers literally begged for more.
Jenkins has written this complete course in response to these requests. In his
books, Jenkins explains, among other concepts, how he uses some of Ganns methods and
techniques, but he never mentions Gann. In this course, by contrast, he specifically states
that many of the ideas are those originally developed by Gann, and he goes into great detail
on how he personally uses these ideas and techniques. If you want a detailed, in depth course
on how to use Gann in your own trading, this may prove to be what you have been seeking
all this time.
W.D. Gann in Real-Time Trading Price: $69.00

By Larry Jacobs If you feel that you would like to do short term scalping or swing
trading in the markets, then this book might be for you. It illustrates many
short-term Gann mathematical trading techniques which have a high tendency
to work intraday. Various intraday time frames are shown and how they can be
used together to keep you in the direction of the market. 200 pages

Patterns & Ellipses Price: $49.95
By Larry Jacobs Stocks and futures move in elliptical paths. When a market makes
a gap, its price action usually passes into a new sphere. All its activity will remain
in the current sphere until it moves into another new sphere. This new book tells
you how to use ellipses along with detailed chart patterns to determine if a stock or
futures contract is bullish or bearish. 100 pages
Pyrapoint Price: $150.00

By Don Hall Mr. Hall discovered a secret from one of Ganns associates Reno who
shared a desk with him on the floor of the Chicago Board of Trade. Apparently
Gann carried a piece of paper with him to the floor every time he made a
successful recorded trade. Mr. Hall found out what that paper was and developed
the Pyrapoint trading method around this. An easy to understand trading software
program was fully developed. It creates a natural trend channel and areas of both support
and resistance. Its clearly tells you when the trend changes. 300 pages.
The Structure of Stock Prices Using Geometrical Angles Price:

$49.95
By Russell M. Sedlar This chart based book shows how the Geometrical Angles
described by W.D. Gann, when used is this newly discovered way, literally become
the controlling force of stock price fluctuation, causing tops and bottoms to form
and trend lines to be determined.
Gann Master Charts Unveiled Price: $49.95

By Larry Jacobs Complete 100 page book explaining how to use Ganns Master
Square of Nine Chart, The Gann Hexagon Chart and the Gann Circle Chart. Many
articles on the square of nine are also included from past issues of Trades World
Magazine
The Geometry of Stock Market Profits Price: $45.00

By Michael Jenkins This book is about Jenkins proprietary techniques, with major
emphasis on cycle analysis, how he views and uses the methods of W. D. Gann,
and the geometry of time and price. Youll find angles are important & how to
draw them correctly and more.
Geometry of the Markets Price: $49.00

By Bryce Gilmore Book explains the theory behind time in the markets, Ancient
Geometry and Numerology, Squaring Price Levels, Time Support and Resistance.
Heliocentric Planetary Cycles.

Chart Reading for Professional Traders Price: $75.00
By Michael Jenkins This book is a complete, comprehensive study on reading
charts, forecasting the market, time cycles, and trading strategies. Explains
reversal of trends, when to expect them, and how to know the trend has change.
Shows you how to forecast with great reliability how long the new trend will last
and its price target.
The Secret Science of the Stock Market Price: $149.00

By Michael Jenkins In this book Mr. Jenkins gives a start to finish scientific
examination of time and price forecasting techniques starting with basic line
vectors and advances the concepts to circles, squares, triangles, logarithms, music
structure and ratio analysis. These concepts are developed into a comprehensive
method that allows you to forecast any market with great accuracy. Mr. Jenkins
demonstrates how a few simple calculations would have predicted many of the greatest stock
market swings of the past seven years with accuracy down to the day and price targets within
one point on the market averages. This new book advances the work started in his other
books and course but goes much further revealing little known secret methods only a very
small handful of professionals know and in many cases he reveals proprietary techniques
never before revealed to the public at any price. The chapter on the Gann Square of Nine
is much more complete than 90% of courses available selling for hundreds to thousands of
dollars more. This chapter alone is worth several times the cost of the book but the secret
ratio analysis at the end of the book will truly change your trading habits forever. When you
finish this book there is little left to learn about advanced trading and forecasting techniques
with the rare exception of astrological methods, which are not covered in this work. This
book goes from beginning concepts to the most advanced so anyone can greatly benefit from
reading it. All concepts are demonstrated with actual chart histories. It is not, however, for
the casual investor who does not want to take the time to calculate a simple square root on a
hand held calculator. If you liked Mr. Jenkins previous books and/or his trading course, then
this one will easily surpass your expectations.
Simple Secrets of the Trading Master Price: $90.00

By Jack Winkleman In the ebb and flow of the markets over a longer time such as
one year or more, it is important to know what the market has done in the past.
Certain years seem to follow the patterns of previous years with uncanny likeness.
This is a book put together by Mr. Winkleman and is a very valuable tool. This book
tells a trader how to used past harmonic cycles for forecasting future trends. This
book is a picture of the markets since 1920 in Soybeans. As an added bonus, it has a track
record of the Dow Jones Cash Index from 1900 - 2006. Cycles are nothing more than repeating
patterns. Trends follow cycles. This book gives you the key cycles in the market. All you need
to know is what those repeating patterns are. That is why the historical charts become so
valuable and this is why this book is so important. With the content of the book along with
charts, it is nearly 200 pages in length.

The Art of The Trade by Jeff Rickerson Price: $24.95
In this book the author focuses on some of his basic theories such as The Seven Golden Keys
to unlocking unlimited trading profits/success. He introduces his UNIFIED THEORY of Price/Time
and THE POINT OF SINGULARITY. Also introduces to the reader Albert Einsteins method of
predicting price movement. Reveals his Price/Time Quadrant Analysis and why knowing these
four quantrants are important to maximizing trading profits. Learn the Anatomy of Picking a Top
or Bottom and the simple formula for Trend/Profit as well as the Four Key principles to generating
MILLIONS in trading profits! He discusses the Cracking the Code & Unlocking the Secrets of
Trend/Profits. Finally learn How to Accomplish your Investment Goals and the Secrets of The
Riches People.
The Art of the Trade II by Jeff Rickerson Price: $24.95

In his second book on trading the author reveals what Albert Einstein had to say about predicting
prices; (most traders never have learned this valuable trading idea by the one of the most
profound thinkers of our time!) How to apply a simple rule to generate 16 times more profit and
how to properly design and develop trading systems and the three most important aspects in
trading. He also discusses his Market Timing Matrix. He also discusses his Dynamic Trend Syntax
and Delta Neural Analysis. You will also learn a simple formula for calculating buying/selling
pressure within a market and how to trade it and The Ten Laws/Principles of Price Trend. Also
covers Options Trading Made Simple. Author also goes into how to use volume and price when
trading.

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THE OFFICIAL MAGAZINE OF TECHNICAL ANALYSIS

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