MONEY IN THE
FUTURES MARKET
...AND LOTS OF IT
by Charles Drummond
Ted Hearne and Associates, Inc.
5520 North Magnolia
Chicago, IL 60640
USA
How to Make Money in the Futures and... - Drummond, Charles
http://www.traderslibrary.com/moreinfo.asp?item=2453...D%26sort%3D%26lc%3DQuickSearch%26submit%3Dyes%23245330/01/2004 13.48.29
FIRST EDITION
Ted Hearne
Ted Hearne and Associates, Inc.
5520 North Magnolia
Chicago, IL 60640
Phone: 773-728-6996
Fax:773-728-6886
ted@tedtick.com
Or visit the P&L Dot website at www.pldot.com
r
to self-aware people
I
introduction
Anyone can make millions of dollars in the futures market, if they know the
rules of the game, the game itself that is being played, and why the rules
of the game are as they are. The rules of the game are simplistic and factual,
and ~t is up to the reader to learn the rules of the game and to play by those
rules.
The futures business is one of the toughest in the world, both for the trader
and his broker, as well as the people that handle all the machinations of an
executed contract order. Be that as it may, if we are serious about the matter,
the concept of futures trading can be one of the most stimulating of all
experiences, and to some, more so than sex. The fact of the matter is, is that
it is as it is and that accordingly U must ask U'reself some questions and
determine if it is all worthwhile. Do U enjoy success, and money. And, can U
handle it. Do U want to make millions of dollars, maybe twelve million in eight
years, or achieve my goal of IOO. The opportunity is there, and nothing will
stop the trader from achieving that goal, except his or her capability in
appreciating the facts of life as they relate to the market place, and being
aware of these capabilities, why they are as they are, and what to do about
them, and then what shud be done in relation to executing a market decision,
with which this book will be of some assistance.
Take some time, maybe one year, if U are not that much of a seasoned trader, to
becum a student and a pro of what we call the 'basics' of commodity trading.
( Maybe U will becurn a seasoned trader in that period, as opposed to our other
fellow, the 'blown out of the box' trader who will most likely read a few pages
and quickly go to the market, excited with his new found wisdom,- the flippant
pro that he is. ) Then,U can also, and add it to the above, possibly becum a
student and a pro of ~&L (Point and Line) Charting, of which this writer is the
author. U cannot becum a pro of P&L unless U have passed the 'basics' course.
Why ? Because I said so. ( The book will explain. ) ( something about forests
and trees. ) U cannot be a pro in P&L trading without qualifying as a knowledge-
able graduate in acceptable basic training. So there.
With this in mind, we have geared our approach to the 'just after beginner'
trader, who maybe has been bombed out of the market with a few dozen trades
and wants something to grapple the problem with. Also, it's for the trader who
has a little stature with experience, yet who needs rounding out. But, please
note that this author does not wish to mess around with the mind of someone who
has a winning technique, but only to instruct him/her to stick with it, maybe
with some practical guidance from this book and to broaden his/her knowledge
base, all to support that winning technique. As for the real pro, might I say,
have a good laugh with this book. Who needs it. Right ? Right. U've already
achieved 'consistent winner' status, (altho' U're probably curious about anything
to do with commodities.)
There is nothing in this book to explain what a futures contract is, or what a
'fill' is and so forth. The beginning trader can obtain that information from
any large brokerage firm or any commodity exchange, and after doing so, he or
she mite study a book like this, maybe ·for a few months, - I suggest six months
to a year, - before trading; all to the avail of encouraging u to the principles
which, someday, maybe in eight years, wud entitle U, if I may be so provocative,
to have that twelve million.
1
I have tried not to be academic with writing style. Who needs it ? The only
thing we wish to be academic about is knowledge and ability. The prose is
informal and friendly, perhaps too friendly and uses the modern dictum, when
opportune, - such as 'U' for 'you', 'shud' for 'should', 'becum' for 'become'
and so forth. And why not ! It makes for more st~ulative reading. Also, we
tend to repeat certain sentences, phrases and ideas, so that the trader mite
unconciously becum aware of their imput, and since I place certain relevance
on them, the reader will, consequently, incorporate them automatically into
their thinking processes when he/she evolves and employs a trading plan. Some
sections will be too ponderous, (like this introduction) some too flippant,
-maybe haranguing, maybe too presumptive, possibly parading propinquity, but
at all times prodding, and for a purpose. ( Sorry to be so eloquent. ) The
sections on philosophy, technical analysis, and psychology all are woven one
to the other, because U cannot have one without the other, if U are to respect
this book. I am serious about that. ( I want U to have that I2 million. )
Accordingly, the section on philosophy is·meant to be instructive and didactic;
psychology throngs into the pedantic and the areas of basic technical format,
including P&L Charting involve actuality, and are meant to be realistic.
If the reader wishes to becum an involved student of P&L, I have provided plenty
of material and comments in the section on_P&L (Point and Line) Charting.
Hopefully, he/she will experiment and delve deeper into its concepts. For U
cheaters out there who do not wish to put in the effort, I'm sure U're target
of interest will be in chapter I3, where we parlay .an investment of $3,400
into $220,050 in fifteen weeks. For the serious student, however, the rewards
will be an awareness that P&L can be phenomenal in its application to market
analysis, and accordingly its concomitant financial success, and also that it
is not applicable when not tied into the 'basics' of technical and fundamental
analysis, which will be presented in this book. P&L can be an earthquake of an
experience. It can change U're life, possibly much too fast, since U may have
an over-assumption of U're ability to master the project. It's a big world out
there, and it's the nature of the market to reward U're sudden success with the
opposing debilitation of unexpected, adverse, returning of monies to the market
place. Be careful of assuming that U are a pro of P&L Charting, especially after
a succession of positive market applications.
If U sit and take it easy and quietly trade \-'i th a plan at hand, -.·a well
formulated plan, explained in this book, the trader will find that there's no
end to the enjoyment of what success in the futures market has to offer, and
what it can do for the trader and his circle of influence.
So, don't be in such a hurry that U blow U'reself out of the box.
One more thing. P&L cannot be computerized. So U are at the distinct advantage
of n~t being succombed by the computer markets that exist to-day. u will be
acting long before they do. It's rather a smug feeling to have nothing but the
parameters of your brain with which to operate. Man will survive
One hope •...•• the lord above, preserve the futures market, for us all,
the trader, the hedger, the market place.
contents
introduction;charting;chartists;
fundamentals vs. charting
critique;classification;volume in congestion
analysis;volume in congestion breakout analysis;
volume in trend anal sis·volume in
reversal analysis;~·n,t~r~a~-~d=a~~-===-=~~~~
summary.
(.;.:;'" * "\'<CAl
r
characteristics ;trend_action;types of
trends;trend lines;trend channels;trend
validity;trend and O.I.,volume;fundamentals
and trend;using trend action;breakaways;
gaps;straightaways;when a trend still has
strength ·;trend weakening;trend bucking;
profit taking;what systems work best in
trending markets.
CHAPTER 7 CONGESTIONS · · • · • · · . . . • . . . . . pg . I 4 5
where most of U're money will be made ( more later
r
argument;advantages;characteristics of;
categories;congestion action;analysing
congestions;congestion O.I. and volume;
mid-way congestion patterns;end-runs;
anticipating the direction of breakout; /
antici atin the extent of t e br a o t
mov • u port
K.
£;,~~ o\,
\>ol.J.«J
~--~~}low
CHAPTER 8 TREND REVERSAL . . . . . . . . pg . I 7 8
this is where U take U're money and ruri ( more later
prelude;news;weather;seasonal influences,
and cycles;fundarnentals;price level influences;
trend;spot prices;who trades;chart patterns;
market psychology;inertia;general business
conditions;money-devaluation;changing gov~nrnent
policy;the biggest factor influencing prices
to-day and worldwide:-socialism.
a criticism
CHAPTER 15 MAXIMS . •. . . . pg . 3 9 7
a critique
kettle of fish;classification,general,
specific;short-term trader;day trader;
scalper;floor trader;long term trader;
large trader;experienced,successf~l
trader;protessional trader;technical
trader;trend bucker; 'gap' man;the trade;
exchange member;female trader;small trader;
average trader;public trader;beginning
trader. /
APPENDIX A
CHAPTER 2I ADVICE FOR THE INDIVIDUAL pg.487
CHAPTER 22 PRACTICAL TRADING HINTS pq.498
CHAPTER ONE
I n:t:Jz..o du.c..;ti_o n.
Cha.Jttin.g pW.O~.>oph.y
a.pp11..oa.c.h
wea.kn.e~.>-6 of, c.ha.!7..ting
~.>Vt.eng:th of, c.ha.!7..ting
INTRODUCTION
2 ':HE FORAY
u will find however, Point & Line ( P&L ~ Charting flows very
well with any or all of these methods, because P&L charting is
the penultimate in short-term day to day and intra-day analysis.
I know of no system wherein that particular system analyzes
market momentum, by taking into account the high/low/close of the
specific day U wish to execute prices.
CHARTING
Ph.Ltol>ophy
App!t.oa.c.h
The best systems always involve the writing down of the reasons
why that system is applied, at a given time. The written statement
must answer the statement " Do U want to buy or sell this
commodity", reducing U're reasoning to a simple statement or two,
encompassing maybe the fundamental, technical and outside opinions,
containing the outside opinion last in waying them least. Essentially
however, market fundamentals underpin trend direction, while charts,
volume waves, wiggle-waggles portray the market activity.
4 THE FORAY
identification.
We.a.lz.ne6.6 o 6 c.ha.Jt.ting
Another weakness from charting stems from the belief that altho'
all the facts of a commodity situation are known to the speculator
these facts are also known by large trading houses and other
professionals.
Technicians are famous for making spectacular profits one week and
enormous losses the next. It is a fact of life that prices wi~l
not fluctuate according to what their past performance dictates,
altho' U do get some idea on a day to day basis with P&L charting.
All we know for sure is that. prices will fluctuate, but not how
much.
S:ttte.ngt.h o -6 c.h.a..Jt.:t<.ng
over, from the bottom up to the top and of course, from the
top down to the bottorr.. All markets will one day cease to move
down in price and then each will move sideways for a while and
then advance in price. One day there is always an end to bear
markets in commodities, and there's always an end to bull markets.
CHARTISTS
The argument used by the chartist is" follow the other fellow •..
He probably knows more about the fundamentals than I do. " The basic
tenet of the chartist is " the trend continues until it stops."
Most chartists attempt to anticipate a trend move. Chartists are
famous for making spectacular profits one week and enormous losses
the next. The chartist is always concerned with his ability to
/
recognize the commencement of either a congestion area or a trend
reversal. So long as the trend continues the chartist is happy.
In analyzing the likelihood or the occurence of a trend reversal,
or the activity of a congestion area, or something is wrong with
his trend, the chartist becums very unhappy.
we.a.kn.e..o .6
The \·Jeakness of fundamental analysis is that U can never be sure
if the facts known to U are all the relevant facts.
PRICE IN
PRECEDING '\'VIR
CONIUM~
TM~jt)
\
''
TOT AI. DOMESTIC SUPPL'f
Sa
'
u.s.
FINANCING
,--- --,
SV"Pi.IES II GOVERN""£"" ' \
0' I SUPP:1~1 1
Rvt. , PROGRA""S I
RIC£.
ETC '-------/
U.S.-OATS
..ll. GOOOS AHO
SEFMCES
. . · • (Courtesy of The Demand and Price Structure tor WHEAT, Tet:hnit:al Bulletin
1136, U.S. Department of Agrit:ulture, 1955, p. 12.)
l
I2 THE FORAY
U.oa.g e.
CHAPTER TWO
moving ave.tz.a.gu
weighted moving avvz.a.gu
OJ.> c..iLf..a.toM
volume oJ.> c..i.U.a.toJt
bai.a.nc.ed volume
~e-6i-6.tan.c.e index
index numbeM
-6 :tltuc:t.ww..J!. .th eo Jtiu
}., ect6 0 n.a.f.
.time c.yc.le
wave .theoJty
undeM.tanding gen~ ec.onomic.-6
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l.>uppo!L.t and Jtuil.>.ta.nc.e.
c.o n.t!Lall.ia.J'l. o p-<..nio 11.
c.ommi.t.tme.n.t oc :tJz.a.deM Jte.po!Lt
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point and t)-<..guJte
ma.:the.matic.a.t .ttL.e.nd ana£y.oi'->
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2
METHODS IS
DISCUSSION
Never in my life have I seen anything like the plethora of methods
which are coming on stream for the use in forecasting commodity
prices. There are literally hundreds of techniques and approaches.
This chapter will present rather briefly, but a few.
Some of them are rather conventional and this author will place
an asterick beside the ones which he personally uses. Listed in
this chapter there are approximately thirty-six ways and means of
forecasting prices. This does not take into consideration all the
wonderful glorious little tidbits that cum thru the revelation of
P&L charting.
( This author is very happy with P&L charting, for it enables this
trader to quantify price action on a daily and intra-day basis.
I know of no other systen wherein each day's specific activity
means more than the trend or congestion in which prices are trading.
Each day's activity thru the use of P&L charting portrays the
evolution of a trend or congestion, sometimes within one day. )
Often these traders do not even use their own systems and seem to
me, at least, to be continually fighting the market. If a trader
has a trading plan incorporating several methods of forecasting
prices and combines them in a way which he can continually trade
profits from the market, then this trader is worth listening>o·
In the section on planning, this author will succinctly portray
his approaches to the market place and U will be surprised how
flexible he is.
1
METHODS
I) fundamental
2) mechanical
3) technical
FUNDN'...ENTAL
MECHANICAL
I) chart
2) computer summaries
3) moving averages
TECHNICAL
In the last several decades, a vast amount of work has been done
to erect a means of technical tools, - all with the aim of
anticipating futures prices from trading statistics. e.g. price,
volurne,O.I.
2
METHODS I7
The technical approach from the simplest to the most complex and
esoteric falls into four broad areas.
There are many different methods for charting. The most popular
are
a. daily high/low/close bar charts
b. point and figure method
c. moving average of closing prices
MOVING AVERAGES
The majority of models are founded on a system of moving averages.
Some of them are sophisticated and ingest large numbers of variables.
Essentially all models draw a bead on the direction of a trend after
it is manifested and will keep U in the market as long as the trend
is unchanged. Some moving averages attempt to anticipate changes
in trend. These types are profitable to the properly capitalized
trader who can initiate a recommended position and can underlie
1
18 METHODS
more losing than winning trades. The rationale behind the moving
average is in determining when price direction deviates from
recent average prices. As long as the current price remains above
the average price of say the last ten, twenty or one hundred days
the trend spins onwards. The most ordinarily observed average is
the ten day moving average of closing prices. The advantage to
this method is that it gives equal weight to each day's price.
The moving average assumes that the trader bestows as much
importance on last week's prices as he does on yesterday's.
METHODS I9
One moving average system which has some tradition behind it,
but which does not make big money is the " lagged seven week
moving average method " developed by Vunn & H~g~ett'6,Financial
Service, LaFayette, Indianna.
OSCILLATORS
The oscillator takes a moving average to the current price -
the moving average to a weighted moving average. The drawback of
this system, as of most others, is that it functions best in a
strongly trending market. One point to observe is the momentum of
the move. While the uptrend is intact, the oscillator will be above
the zero line.
20 METHODS
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·- -300
"Oversold"
V' "Oversold"
' -400
METHODS 2I
But do not initiate a short position until the twenty day oscillator
penetrates the zero line. This system will not put U in the market
as often but may put more profits in U're pocket when U do trade.
22 METHODS
VOLUME OSCILLATOR
In a faster moving commodity construct a fifteen day moving
average of the high daily trading volume. In a slower use a
thirty day or six week moving average. Experiment with both
moving averages simultaneously for a while. Similiar to an
average curve, the moving average volume curve smooths out
the daily and weekly fluctuations of volume data. With
acrescent prices, volume meters activities of buyers and
with decrescent prices, volume gauges activities of sellers.
On the same chart plot also a fifteen day moving average of
prices for quick comparison to make the moving average more
sensitive to short term changes. Add to U're chart a five
day weighted moving average of volume. Notice when and how it
penetrates the fifteen day volume curve. After an interval of
observations U will be in a position to formulate U're own
rules and adapt them to U're own trading plan.
BALANCED VOLUME *
The dominant theory behind balanced volume will be that the
trader assumes that large scale accummulation or distribution
can take place in the market because the.activity wud have been
done quietly. It is further assumed that it is carried out with
small or deceptive ranges. The balance volume curve is used to
illustrate the true state of affairs by showing whether volume
is greatest during periods of rising or falling prices. When the
bias of volume deviates significantly from the price curve,
unusual activity is presumed to be taking place. Under normal
circumstances, the balance curve moves parallel to price. However,
when the curve begins to diverge from price, this divergence
indicates accurnmulation or distribution.
2~ METHODS
42
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-16
-18
RESISTANCE
Each day the trader calculates a resistance index in the
following way.
the no. of contracts traded \
divided by (high price)minus(low price)
2
METHODS 25
21.00
20.50
~ I
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,..
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= I
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Q. I
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0 410
.. 20 I I I I I
0 Ill I II I ll II 11 I II Ill
December 1970 l Jonuory 1971
June 1971 live bogs dally cloae venus dally resistance
index for December 197D-January 1971.
INDEX NUMBERS *
Another useful statistical measure is the index number. It
provides a system for recording comparative changes at different
points in time. Index numbers can measure any comparative of
data, such as changes in copper production from year to year -
or variations in business cycles - deviations in commodity prices
or any other quantifiable sum, reduced to a single summary figure
to register all diverse activities e.g. Consumer Price Index
( is the most popularized index ) . Such unific computations can
quickly reduce relative price changes and puts it with consumption
or anything else U may wish to compare. Indices are especially
beneficial in analyzing seasonal patterns.
STRUCTURAL THEORIES *
see Chapter 24
TIME CYCLE
WAVE THEORY
see Chapter II
CORRELATION ANALYSIS *
-the government
MARKET THEORIES *
There are natural laws and principles which govern price activity
in the market place. Altho' there are many complex factors
affecting the market, in reality there are only a few basic
principles in price movements.
METHODS 29
FUNDAMENTAL ANALYSIS
VOLUME * Chapter 4
CASH * Chapter 5
BASIS * Chapter 5
ODDS * Chapter 5
50 %RETRACEMENT * Chapter 2
CONTRARIAN OPINION *
In using the contrarian op~n~on approach, the first effort, of
course is to observe U'reself and the majority from a disinterested
or unattached position. That step in itself is the most difficult
to accomplish. Remember, with this thought, everyone agrees .....
more profits are earned by those who can accept the emotional risk
of going against universal opinion. The public is not always right
and is usually wrong. ( Always wrong ! ) Who buys at the top
of the market and who sells at the bottom of the market ?
the greedy and follow the mass type of trader. That's who
METHODS 31
NEWS *
News is published in the newspapers. But, experienced traders
act on it when it is initially transmitted by the wire services.
Information available to everyone has little or no value. The
futures market has an uncanny ability to "discount" future events
well before they are recognized by the very many. Someone,somewhere,
of course, must know something and have acted on that knowledge.
( This does not mean to say someone can control a market - impossible
-but they take advantage of news via price trend expectations ) .
Futures reflect their actions. By the time the majority learns a
piece of news it is already too late. It is after the fact. The
majority is always wrong. Considering the enormous amount of news
and information that is recieved, - one can place very little trust
if any, in this and these data.
( The astute trader considers " buying rumour - selling news " )
The trader might list hard news items such as registered warehouse
receipts and committment traders report to his trading program.
The use of hard news data is one of my secret tools, in that,
I sniff around to find out if perhaps copper or soybeans, or silver,
or cotton or whatever, are likely to explode next year or the
year after. 1 spend a lot of time sniffing around for hard data
which will portray L~e potential for an upcoming major bull or
bear move.
.. r=
I
.. .... ,.,,, _.. .._~! • ::·! ~h_t:~,l.\ ' ...... I
1 :: .
m. I 'I Deloyed encllnQ I
I I I I
tt:!tU, ;. l
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ll•v I '1
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jl.. i
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.... I
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The ?&F chartist makes two assumptions that the bar chartists
does not.
One last comment: I prefer Point and Figure charting for long
term trades based on settlement prices only.
2
METHODS 35
"'''"' "~--~ ......,, -·----~
Well gang, this is where I cum in. At least where I carne in.
Such was the birth of Point and Line Charting. I'm delighted
to =eel that I am not really breaking that much new territory
and that point and line charting has some historical support.
some thoughts:
in general, with mathematical trend analysis, a trend
is more likely to endure if its slope is high and its sca~ter low.
When a breakout occurs from a mathematically defined trend channel,
this breakout augurs a trend-reversal or deceleration of the existing
trend or a sideways movement.
PREf'ld UMS
Premiums exist whenever forward contracts trade at substantial
premiums over nearbys (backwardation}. Then such premiums may
appear to offer an extra incentive to sell.Whenever, forward
contracts are at a sizeable discount to nearbys, then such
discounts may appear to constitute an extra incentive to buy.
2
METHODS 37
CHAPTER THREE
.o pe.c.l.U.a:tiv e ac..tivi:ty
c.oY!..6pinac.y .the.o~y
MARKET PLACE 39
Yet, commodity futures have not touched ten percent of the number
of traders who participate on the American Securities market.
It is estimated there is a minimum - I repeat - a minimum -
( maybe I shu d publish this book ) - of 500, 000 active
commodity traders in the U.S. alone, and that there are as many
as 2,000,000 Americans who actively and inactively i_nvest in
the futures market. Half is contracted on the Chicago Board of
Trade ( C.B.O.T. ) - between I/4 & I/3 on the Chicago Mercantile
( C.B.O.T is 25 yrs. old, Mere. is 54 ) - and the eleven other
remaining commodity exchanges absorb the remainder. Commodity
trading has been around since 1848.
Wellllllllllll
40 HAPJ\.ET PLACE
Midamrr1CI !..o!!J!~"' a .:zos 1
Commodtry Silwer eo.eoo----
Eachanqoe ;l~er cotn\ 09:?_______ ~3
;;;.~~;- -----------, ~~.;-~-
~;;,"-------- 12.2"79=-----
~.~------- ---2:132 _ __
totol 2J5,3si- - - - -
MinMa_po_l••------~.,"heit 11'~?-~--=
Grarn Exch•nge pork beUtes 2.294_ _ _ __
total 119.168
N~~.-..~Y~o-,~~-------~.=cc~o~•~---------~27~84i-~-----
-===~--------~27S.416---
Coco• Exchan•j!CJO!__ _ ____:t:::otal _ _ _ _ _ _ _ _ _ _.;.:
New York ~9''· no.11 87S:i7e
Coffee & Sugar domentc sug•r. no. 10 1~ ~4
bchanqe coffee 7 .u60
total 902.48:;:2_ _ _ __
New York Cotton ~tton :65.372
Exch1n9e. froz~n conc~ntra&ed
Citrus Anoctates. ~~9:!. ;uic_e __________;1c:2::,::3::.,.4~9::;3;----
imported frozen
bonolou beef 954
idaho potatoes 489
apples 0
total 437,7~
P.ciftc Commodrt1es ~onut oil 1 .812
Exchan9l.lnc. toul 1,812
T~o~·~·~~----------------~·~ll~co~~~~·~··~----------_!1!8~.3~3~2~.0~5~5~-------
1973
,Soybean a 5113.14&.&59.000
Sliver
Com
ss.ua.•s 1 .eoo
5 ••,, •.039.500
Canlt
•a.5t1 .•00.562
WI\U.t
•1.077.600.200
lntemauona• Money 36.830.000.000
~•nOll
25.Q60.600.00C
Pork Bellies
23.805.•, c. 190
Soybean Meal
11.•53.300,000
Coopo•
13.558.' 18,630
Uve Hogs
13.388.728.997
Conon
12.198.000.000
Su;ar
11 .617,398.530
Eggs
8.266.058.247
Cocoa 7.221.251.865
•~d Broders
5.071.500.000
Colt.. • .•50.106,025
Silver Cotns
3.558.292.•60
Lumtter 2,753,502.815
Potatoet 2.85S.037 ,470
Plywood
UH.700.000
Frozen Con. Orng Jca
1 .MO.oco.ooc
Piabnum 1,210,188,t40
Oall 1.144.251,000
Prooane
250.000.000
Cocomll 011 118. t22.000
Stud Lumoer
101.500.000
Frozen Bone••• 8eef 74.8'72.914
Wool
15.000.000
Gr••n Soronu,.. 44.111.052
Plllllchum
1•.365.250
Sktnrwte H11r11 268,118
Butler 263.114
Mercury 7•.100
TOTA~ 1520.131 •• $6.071
3
+211.2%
(,3%
Oats (MociA.m)
S.O,.O.ano (CST)
S.O,.O..na IMociA.m)
1,172
7,1111&,138
1,\04,7:!
1,423
1,417.277
!1194.832
.
.. 21.4'10
6.0".0
- 10.0'10
5-.!CBT)
. s- (lollcWft)
Silwer (Conwl)
2.257~8
3&6.SSS
3.513.301
2.551.133
378.~11
3.122.08S
..
+1'1..1\0
3.1%
7.0".0
m - 25.,.
So., OiiiCBT)
S.O,.O.an meal tCBT)
LhreiiDQ. proo-.
2.&35.~6
2,373,.453
2.90t.2fo<
2.413,086 .
.. 14.1%
5.nr.
U . S . _ , - (CUE)
P-tNYMEJ
371
U.S ....., ...,,. (NYME) 1$,514
118.1171 45.227
1.123 - 36.ho
+126.5'10
L.NacaNe(CI.IE) 2.831.5'7 $.603.375 •1122"4 Plalftlm (NYME) 122:124 405.552 •Z28.t'lio
LNa carua IMociA.ml
" - CoiN& !CME) 133.274
!iof.Q5ot
561.181 •326.3%
~r(Catne•)
Zinc (Comax) -.
1.070.210. 1,4011,188
: ~.· 677
.. 31.5%
'='
....
I.NaiiOQSICMEJ 1.307,712 1,767.&34 .. 35~ FI""IICial lnctrvtnltfllt
I.Ne , _ (MocWII) 1511.32• 115,827 6.2% GNMA COR ICBT) 422,421 153,181 ... 120.0"4
Peon< coetooes ICME) 1.351,130 1.442.3&2 &.2"4 GNhiA CO ICBT) &.532
Bonelas.s -1 INYME) 2.&80 5.170 +111.2"4 CorM>eroao- (CST) 3.553 18,7&7
....,-..s!CBT)
Ftash ews ICMEJ
&f,W
130,042
74.&&oc
73.210
_.,..,.
.. 15.0"4 T~ICBT)
T-Dills CCME, 1 3 - )
32.101
321,103
555.350
7&&,352 •134.2'1oo
Foe<~. I- ,. T-llilta ICME. !.,.at)
-""
5.512
eon.. C (NYC&SE)
Supar • 12 INYC&SE)
c-(NYCGE)
214,202
s..pat • 11 INYC&SEl 1 .055.11&0
15.&76
307.&28
• '1&3,11511
1,016,773
2U7S
222.732
-
-Z3.5'lfo
3.1'10
.. 311.5%
- 27.1%
:J-1 inanciaJ
.__
~a(aUIMM)
'7711.771
71.701
2.305.1174
243,337
•1115.1"4_......
+2C».2%
" ' - (NYCoE) 53 Canacloan oouar 1111,13f 20t,ll03 .. 2ll.t'lio
IC:IIIlo ...,._. (CME) 4,727 80 o..•• ~ 134,3&1 400.$oll •1111.1'10
Rooond-
..-a-(HYME)
CoiSOftCNYCE)
478.558
826.3115
4!io4,11S
1.155,1101
- 5.1%
.. 311.11%
o..tl DUIIcfer
..._,..,
l'reriCIItranc
2;112'
3,150
82.261
......
3.515
3&2.100
.. 27.5%
.. 41.2%
+3oiOA
w-
FC or-... ;..a (NYCE) 317.821 215,405 - 24.5% ...._"_
Sooiu ~!frio
1'7.o211
105.11611
17.127
321.338
... 6.3%
•200.4'lr.
~(CST) Sla.770 281.483 - 21.1% 'fDiallloAI- 5U.428 1.5&3.De\ •118.5%
"'-ICMEl .a&,llll1 560,3158 .. 15.1%
Si..o-ICMEJ 1187 U72
silwer
1.110.776
8!1!:1.813
813 ..192
mbean tnaal 630.916
-......
P'V"""""'
iced broilen
nud lumber
217.63!
36.282
23.264
411
9.67•.179
Cbicavo Morun1ilt froten ~rk bellies 2.0!17.~
bchonvo Oftd liYe cantt 1.370.471
lrnemat.onal li•• hop ~3.257
MDMtoiY Morket ''""tORS 47,.948
Junat.r 66.539
iaca.antM v•n 4:3.989
cat\adtan dollar 33.807
di'U'Dcht tnartr: 12.320
IWIII frMC 17.722
brrtisll oound 1~.790
meaac.n oeso 9.717
iiwe feeDer cattit 7.423
idMo CtOtltoes 6.137
tr•i" aorvhums 1 .35<1
italian hr~ !:92
frozert eops 85
fro~tn.skirlnecl- 2
tDUI •.67%.218
eo......odoty sih•er 81!:.166
E-ltfO.IIOC. copper 251.219
............, 1!:5
fOUl 1.066.502
tnnl'ftlttOf\al clutch ouildtr 8.751
Comrnorcaat iuhan hn 8.027
Exchan;t fisttmeal 5.700
beltiaf'l irene 5.184
;..,.,.._veft 2.451
I>OOPtr 696
tWill franc 70
dtu'IICI>t merit 25
canadian dO&t11 12
british DOUftd 10
conon...ctojJ 4
pork bellies 2
frtiiCit mnc 1
"-•City
Boaftl of Trotlt
.......
IOta!
rain aorthufftt
30.133
292.921
2
total 29Z.9Z3
3
MARKET PLACE 43
When U are trading in the stock market U are working with 40,000
stocks and more choices. In commodities U're pract~cal choices
are usually fewer than twenty. With commodities U are dealing with
real things, real prices, real supply and demand forces. There is
always a buyer for commoditites. The same can not be said for some
stocks.
!1..2iRKET PLACE 45
It has been said that the beginning trader always moves from the
stock market to commodities because I) he realizes that's where
the action is 2) he no longer has enough money to maintain a
stock account. And for this I say whoopeee ! All he/she needs is
$I,OOO_to $5,000 for commodity trading. - i f he/she behaves
himself/herself.
When U trade in the stock market U're working with 40,000 choices.
In commodities, choices are usually fewer than 20.
Stock values are not real and tangible. They are arbitrary and
emotional. They are set values by the traders themselves and not
by outside supply and demand forces. Stock markets exists only
by investor's dream of rising prices. They're hoping to find a
greater fool who will buy their stock for a higher price than they
paid. In commodities, half the traders want the price to rise and
half want them to decline. They can make money either way.
SPECULATIVE ACTIVITY
MARKET PLACE 49
CONSPIRACY THEORY
Take U're "stops" for example ..•.. U will eventually get U'reself
stopped out without their help if U put them in the wrong places.
It's up to U, to place stops where normal market forces e.g. random
walk, - won't grab U. ( Look in this book for suggestions on stops.
I personally feel that shady floor brokers are just a little drop
in the bucket. And, don't forget that floor brokers are on both sides
of every market. U do not have situations where everyone on the floor
is long or short and so ganged up against the unsuspecting p~lic.
I do not accept any conclusion that there are more crooks on the
floor or elsewhere in commodities than there are in the stock
market or other investment activities. - and I hold firm to this
opinion, and that includes governments, in spite of what the
socialist says. ( I have yet to meet an honest real estate broker,
-pardon me, I just met one. ) ( For that matter, an honest
president of a country. )
3
To get a further idea who U're fellow - traders are - wait 'till
U get to chapter I6
MARKET EMOTIONS
" M.en do not t:!:"ip over mountains ..... they trip over mole-hills "
- Confucious
What I wud like to put overy every page is " Keep Things Simple "
!1ARKET ?LACE 53
CHAPTER FOUR
VOLUME
c..JvLt.i.qu.e
d.o.u,J.. Mca.:t<.o n
CRITIQUE
"'·:d 'tten about i 't. Clues generated by volume action are especially
valuable to those who are alert to them, because so few do
perceive them when they occur. It is a rare head and shoulder that
is overlooked by the fraternity of technicians. In contrast,
volume action is seldom given more than casual notice by even the
most diligent technicians. The greater the following, the less
golden the opportunity. Conversely, the smaller the following the
more golden the opportunity. So it holds true with volume watching.
" The economic facts of life are many. The grandfather of them
all i:s the law of supply and demand. "
Anthony M. Reiuach, The First Lew of Economics, Essays on Liberty, Volume IV,
The Foundation for Economic Education, 1958, page 38.
CLASSIFICATION
I) attendant
.2)prognostic
In head and shoulder formations, the left shoulder will enjoy the
most volume and the right shoulder the least, the volume at the
head somewhere between the two. Volume between the peaks is
customarily light and meaningless.
The only exception to the declining volume rule are the saucer
and scallop, wherein volume reaches its low ebb at the apex, or
nader.
All that activity at 42 ¢ may seem that prices are about to spiral
upwards, and that the activity at 40 ¢ means that the selling
activity is weakened. All that activity at 42 ¢ means there are
more eager sellers whereupon as the buyers dry up, prices will
drop once again.
In :::ummary
IN BREAKOUT ANALYSIS
Volume may generally figure most at the birth of a congestion
area, but as the chart unfolds and a moveout occurs from the
congestion, volume will run at a peak an the breakout. Volume
may generally ebb towards the congesti~n area's termination, but
on breakout volume sharply increases.
.1
h~gh
t
deer.
vol. vol.
on as
outset prices
move
to
apex
4
VOLU:t>'..E 59
~ t~
congestion
~ rI ~ ~ r re-enters congestion
------~------~---------breakout false?
60 VOLUME
I I I
I I
: C~ltN M.tl
E&C:M
I
1966
.. [ ~~~ IS$
I
I i
I
I I fl;iflJ"' i30
I I~
l.llr-.., :,.: I 1\
I
I
I
I
II' ... I
l.r
I
I
I i 'Lr
I I : 1..... ~ ''- I
12:5
I lit" ,... I
I
I
~ 1~1 I I
I
O>&r~
' I
r .. - 120
ccPVt001,. C'KI.JC' SI:JIYlC:: I
A W••kly ~11ca~an of
c:ov.oozn IIIZSI:I.JOI auar.a&~. z.e.
en. Ubcny Plua •.1'. •.1'.10006 I I
II$
I I I i I
I
"'" :ci:tt
1
;o.N ..... I I
""
I
! ,.. I ...,.,. 11"' I
; ... UJIItENT II TEitUT
I I I
: !
:
'''""'·'···
I I I ! I
20
~' .
'
I I ~~·
~~·
~--~,
;-~ 0
I JAil: FEB. MAR.
62 VOLU!·lE
Summary
VOLU!'..E 63
In the next section,we will delve more deeply into volume and
reversals. At this juncture, it is worth mentioning that if the
trend is up, and the volume is rising, new buyers are corning
into the market. Near a top, higher prices and higher volume
denote topping action. Higher volume is stimulated by those
buyers who finally cross the psychological threshold, convinced
that a bull market has at last been in·full swing. They are
latecomers plus those who went short prematurely and are now
covering their short positions. With this high volume is the
concomitant wide price fluctuations, what I call the
"pumping action " of market tops. This is the blow-off and is
the final eruption for the death-knell. All aggressive bull
blow-offs terminate in high volume and big market swings,
on a day to day basis and a daily basis. So if prices have had
a good run, either for seve+al days or weeks ( even months )
and volume is suddenly becuming incredible ( often at record
levels ) and bullish news is cumig out of the woodwork, and
there are staggering price swings, the market top for the year
is fast approaching, probably within days.
Summary
I) minor
2) major
4
VOLU!".E 65
Summary
VOLm.1E 67
OR
tpening
next day
opening up
next day
spurted
nri
up
steady
r111 progression
during approx.
~
stayed
last hour of
f all
day
here
.JnOSt of
trading.
the day
good
volume or
activity.
=~ a lo~er opening may be anticipated the
following cay o=: - prices contin~e to
=all right up to the close in a steady
erosion, - expect an unchanged to lower
opel'!ing.
quatrile
wall trading in
I
of
sellers
)
upper quatrile
last hour of
trading -vd th
-
2
--
market
good volume
trenc
3
up
lower
- 4
--
opening
next cay
VOLC:·!E 69
?rosnostic volume:
GOOD LUCK
•
5
7I
CHAPTER FIVE
OPEN INTEREST
\~HAT IT IS
Open interest ( O.I. ) is expressed as a numerical value and is
always equal to half of the number of " open " contracts. " Open "
contracts are bets ( contracts ) , both long and short, separate
and not connected with each other in any way, that have not as yet
been " closed " thru offsetting transactions or the making and
taking of delivery. When there is no betting, both long and short,
there are no open contracts, and the O.I. is of course, zero.
For every unit of O.I. there are therefore, two open contracts.
Let us say that "A" and "B" decide to bet on a particular contract's
worth. "A" will take the long side, and "B" will take the short.
We now have two contracts, one long and one short. Now we have "A"
and "B" in the market. If either one of them decides to add to
their number of contracts, then the 0.1. will increase accordingly.
72 O.I.
Let's say that some nev: people enter the market - "C" and "D" .
"C" going long and "D" going short. These people will also
increase the 0.1 . . ( "A" and "B" are still holding on to their
positions - they're still in the ball game ) . But what happens
if "A" somehow gets around to selling to "B" The result: - they
have closed a contract. ( Each of their contracts was previously
"open" . ) . Accordingly, 0.1. will decrease when these characters
"A" & "B" , who are " old " longs sell to " old " shorts. ( "C" &
"D" entered the market after "A" & "B" did, so "A" and "B"
suddenly became " old " ) .
But, 0.1. will remain the same, unchanged, if one of these old
longs, say "A" decides to sell to a new guy who enters the picture.
( We will call him "E" - "E" has had no previous position in the
market.) ((having fun?)) Now, "A" and "C" are "old" and they
sell to a new long - perhaps "E" - so that the long open contract
is now passed on to "E" . so there is no increase or decrease in
O.I.
Tht Ring Suooose that a t:ro~er re:eoved a new oroer from a customer. Jones. to
Method buy wnee:~t fut·.Hes contract~ The orok.er would execule rne ore•.!!' anc'
h1s settternent Clerks record; wou1d >i'low that Jones bo"'g"t trom 1,1r
St~nle-t Later. Jones. real,z,ng a orof1t on a pr,ce 1ncrease. m'gl'lt de:,de
to llou,date oy se111ng I"J~c< me owme numoer of wl'leat futt.:res
conrr.1:ts ..:ones wou'o !;tve an oroer to tha' effe:t to h1s orok:er Jones·
contracts were ofiered on :he mar~et ana oougtll ov a man named
Lar$on. Suooose that Larson w1sned to uou1daie h•s obugaczon two
oavs later be<:aus<.: of a pr,ce oec11ne ano tl'le oes"e to cut ,,s lo~'!!s H1s
contracts wouio be offer~::t in the market Let ·s aosume :hat they wece
bought by Sm1th. SuPPose that Smuh a flour m!IIP.r. wameo 10 rake
delivery of the wheat when the contract reached matunry H1s broker
would arrange for the delivery and payment between Sm1th and the
or~g,nal seller of :l'le cor:rac:s. Sran1ey Any ooilgdtJon r~.a: had bee"
undertaken bY Jones or Larson hao s1nce oeen oifset. JJQuJOated bv
rhelf eoual ano oPPOSite futures transacuons O!te,~ tl'lJS I:Jnd of cl'lam
of buyers and sellers 1nvolved as many as 50 or more parr,es
RULES
O.I. 75
( getting confused ?
76
O.l. increases only when fresh new people enter the market,
when new purchases are offset by new sales.
Since it is the effect on O.I. that is reported and not the type
of transaction, the technician interested in this aspect of
market behaviour must infer the latter from the former.
further:
Golden Rule
FURTHER EXPLANATION
When we explain the concept of O.I. in a more expanded manner,
especially the concept of when 0.1. gets swollen, there's more
potential for a price change, in either direction. The following
quot:a~ion from" Making Money In Commodities", by Eugene Epst.ein,
Braeger Publ. Inc. is presented.
The Dftly ioowble COIIMCUOn betwnn this rise JD 011011 iiiiCn:ll llllllbr !11'01•
aasis lila! !be pncc will coalitluc to nsc is !be lllca Ulat we lhaii u .. 11101'1 of
tile same. 10 That as. new loap will conlitluc to enter !be market, will COIIUIIUI
to· be more awcum lllan lho~nd ut will conunuc to bid ap !be pnc:c. lluas.
!be ,_llin& is, if you ro tonr tlOW, DC>tt wilt& you will be able to ICII your cci~~o
uact to one of tile new lonp, wilo will pay you a premlllftl for n.
llut !be morc-of·lbr- arrwneat is a"PDllcablc to aay 'IUI&IIt or c,., ifl.
tcmt lbeory. 'Take a cwauon where !II'ICCS art rissnr-and CI'PCflllllerat , _
llnWtrf'*ti. If there u still some -.ol..,...-u then usually will be-lbr - = c
open coatractl arc IIJII'Ply tllmlll& ower. At least onc.of !be followiii&IWO lhillp
il~c:
l. New lonp are l&ian& coaaacu away frDm ol~ lollp. Since prica an
ftlllll, it must mean Wt the aew lonp are bidclin& pncos 10 a bilb -.11
Inc! to mclucc old lonp to ftliDqllllh Uleu CODuactJ.
2. 01~ shorts an telinquiahillc thm conuacu 10 new shorts. SiN:a ~an
nsift&. old shorts m111t be biddm& up !be pnc:c m order 10 iDGuct -
sboru "' co- il_lto 'tile lll&rkct.
Why caa't lbcrc be a b&ndwatOft effect m this puUcu1ar cue! Ntw loDp
are COfiWII mto the market bccaiiiC IIIey beline 'lllere u an 11!1UIII4 In tba otTIII&
from the lewcl at which IIIey tab tlleir lonr poaitiON. Old lborts are tetliDI out
or !be market bcca1110 they beline an UIIUCIId will oc:ur from the kMis at
which they make then offset!IDJ uansacuon1. Old l011p are scllinc out to the
new lonp pollibly because they feel they nupt u well rab Uleir 'PfOfiu.
Of covrsc. Dew lboru arc comin& into !be market bcca1110 they beliew !lriCOS
ue rome tO dedme from tile lncls at wnidt they ,.... made lilar sales. lut JO
far the new lonp and old lboru are in ClwJc. Why caa't IIIey ccmun~~t to be'
I n... arruea Ulat an ll!'tn:nd mipt conwnac on nsmc opeD mtanst and 011
Stcaliy open tnterest. To CO!ft!'ICJC tht 'Uili\'CTIO or poaillilibcJ. wbat &boul-
firmsiiC an ~&ptrCDQ on cleclinlll& open illtercst' Our theory of dcdimD& opeD
rntcrcst bu to aaume WI the clll:imc will CWIIItuall}' SID!I: if It tlidtl't, lbelllhc
comrnDdtry will Cftlltll&lly lose aU bqui4lty.
llcanllc dus modilicau011 m m•nc. our tlleOry wW to like this: Whea a r1JC in
11ncc OCCIIn on dccllnlllc open antcrnt, n meaN that both lonp and sbons arc
lrqwda!IDJ. lt also lbCalll Ulat mons arc more •rcr to liqwdatc tlwllonp-
hCIIco buymr p.......,. iJ Cl!CICdm& scillllc prasurc. The cledme 111 CI'PCfl in'ICI'IIt
!lillY conuniiC for 1 wllilc, With lboru ,..., to place lUJh•r and luJher bids m
onir. to set lonp to sell. Swentll&lly inc clecbnc wiU halt (altholllh the "!!U'Cftd
Ill 'tile llftCO will conunue) once lonp wiU> remam dr:cade they art 101111 10 hol4
on to !bear ccmtncu. Unclcr those CUCIImStaJICCS, olC lboru wlao -ftt 10 liqui-
date will ,.... to nand then conuaeu to new sborts; 111 order to attnel !hac
new lboru. 'IIIey will hi" to con'lltluc to bid Ull 'tile pnce. Soon moup OpeD
rnterest may nae baci: to tts old leooel, once newlbons ancl newlonp ODme 11110
Ulemarkct.
One or the IINqiiC features of a nsc m11ncc ma awl by 1 clac:line mopen
itlteresl is WI Jl .. clearly 0\IC to only oac factor-the burml - or ol~
lboru offsct'lin& thear positiOIIJ. The lbons are looltmc to cet out became they
UJOCC' an Ulltrau1. 'This fact lw iftl!lu'ed one scbool or thoupt to .,... tbatan
Ulluencl is in fact CODfiJmecl by a dedltlc in open illterat. Tbc -ms soa
Ulat shorts tend to be tlleiiiWIIIIO!Ie,o-tht IIWCftlt, ilftOtmt apeculator llft{m
10 10 loos. So If tilt mons a!IICI an Ulluen4, it's lik.ely !bat they'll t11r11- to
be npL The ida il. ;1111 &II hypotbait-lnltlt makaa - a & t IIIDft- shaD
!be olber nypou.a. wc-.e beet! COillidailts-
'To 111111 Ull' We~ upcl for the Miotic" of beliftlnl tb&t &D lqllftlll!ll-
lil<cly 10 conunue if it's accompuucc1 by l, a rue 111 open illterat. 2. no ciiDce
in open interest. and 3, a decline 111 opeD lntcrat. On tile bail of lolie. theas,
there is no w-rto cbOOK amonsmesc three ll.llmli!IWU. •
CRITICISM
The use of O.I. in analyzing the market is disadvantageous to a
considerable extent. This analysis is replete with a number of
ill-defined terms : "low volume" increase in O.I." , " decrease
greater than seasonal expectations " and several others. To make
use of O.I. , the technician must quantify his terms to avoid
meaningless generalities. The general rules of O.I. are well
publicized. Many traders memorize some rules with repect to 0.!.
and then pretend they are rationalizing by parroting these /
routinely learned principles. Obviously, not every trader is
correct in his assessment. The application of these classical
principlesl.eads to the problem of the " self-fulfilling .prophesy"
which is one inherent disadvantage of using for example, another
analytic tool price patterns. 0.1. behaviour which is clearly
bullish or bearish can be discounted in any existing price level,
as easily as any other familiar supply/demand factor.
r
5
0. I. 79
0. I. IN TREND ANALYSIS
Notice how in the following examples, the big price move came
afte~ the second arrow. Yet in the build-up period between the
first and second arrow, O.I. rose significantly. This increase in
O.I. during a sideways or moderately advancing market foreshadowed
the path for a further price advance after the second arrow.
5
C.!. SI
I ·----~----·------
t
l.
o...n.· ?r-
COOIOD%2'1' c:KU:r S~IIIV1C:Z
~ ~••klr ~llca~en of
C:OO.CCU7 ~ »UJU:MJ, D1:.
One Uloerey Plau ••,.. 11.1'.JOOOi
82 0.!.
I U I
·-'·- - - --. ·--.--:+~-.-.-.--;--'
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---. -+..:...+-+-'::....
' I,;,_ 1,_'f-1~'-i'-t-+'-+1...,.~-+-'+++-+-i
. -----~ ' ·~....;......;;:....;:~'~-+!-+!·-'-,+4~,....;.~-+-+1-+1-+,++++i
I
Of, ' I
.. - - - -- _ _;_~;-l-~.....~--...;'....:.·~·...~--U.--'-1--!-'-.....-i--+-+-+--+-+-i
' I '
•
I
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'
, I
'
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.D
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NOV.
~ :rr..
co-.K:>D::-r ou.J~:: niiiYla:
.t. "••U7 l"W>lic:au ... of
:~n ~ s~. DC..
10... 1-U>c~ Pl.o:u "'·"· 11!.1'.::1:0006
5
o. I. 83
O>A.r~ Pr-
C:::OV.OD1TJ' 01.uc: srJrncz
A ~••kl7 ~l1e•~lon ot
~nT ~ •u~t.C.U~. XJC.
0... Ul...n7 PJ&a.a •.\'. •.\'.:J~ •
i ~
. '
l ,_ 1 H ' +-.
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"I ~ ~~-~ ~ ,. ·H~H-........,...,...;.....,. ... _. •-+. . ......;-+-+1•... t_J_ . ~.r:""
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-- ..! ..
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~ =~ ~. J. J.::...,.;-3 i- r--r-:-4~-, .......~,+-l~~·..J.-.;~-..;.....liloooi-l
~~- -'-: +~-· ~~i-J..;. _;f--i ·~-+-+-L...;.lf-.+.~1
.-
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. U.C .. M0ll%00o11AL LIN! • ON£ 00li..Al
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-
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NOV.
.. • 77
APR.
• "'
MAV
Owart. P.--
CDVtOI21T1' cxu::r SJ:JrlllCZ
a ~••kly ~licatioa of
CDOtOI:Iln ~au~. DC.
One ~~ Pla&& M.Y. X.Y.20006
5
O.I. 85
Bow does the O.I. data unravel in a downtrend towards the bottoming
formation ? The answer lies in that lower prices and higher O.I.
at the commencement of the downtrend expose the shorts who flex
~~eir financial muscle and aggressively crowd the trend. How ~o we
know that ? For what other technical reason are prices declining ?
The longs are obviously losing money. Eventually they must cover
their long positions by selling. Offsetting of these long positions
adds to the selling pressure, further depressing prices and reducing
O.I. When new sellers are no longer interested in entering the
market from the short side and old sellers take profits, o.I. is
further reduced, thereby signaling the bottom of the market, at
which point ~~e market becums technically strong.
0. I. 87
For instance, pork bellie O.I. normally peaks around the end of
December and then diminishes as it approaches the end of its "crop"
year, with the lowest O.I. during the final liquidation of the
August contract, wherein O.I. climbs towards the end of the calender
year once again.
Hog and pork bellie seasonal O.I. patterns run roughly parallel.
Potatoe O.I. climbs from the expiration of the May futures contract
which signals the end of the potatoe crop year. It climbs until
February of the following year and then cums under liquidation.
With the grains and their allied products, O.I. is lowest in the
spring and greatest during the fall harvesting season.
Egg O.I. peaks at the end of summer and has a low ebb during winter.
The O.I. seasonal patterns of cocoa, cotton and orange juice have
a distorted pattern, due to sporadic speculative enthusiasm, altho'
they are crop year products. Therefore, O.I. is of little significance
88 0.!.
~r ~• :-157[·• ••
~
;__ ..
--~·-
5 ••
NOV.
r
o. I. 89
120
---·----
I
I~
:
··!
: )._;_ -4--
·~1. 1 •
d
110 INT£R£ST
-•~OTt&o-•
'FA ..
.
.. -
eo VOL.Uiol£ OF SO
TRADING ~ -!- -i-,_
oR__,......,· . _ ....! ·~· .. ,~ - ' -·-. - i-.~ ,,
H --'-+ ..,..--.. :::;:::::::;::+ • . . . .,..... . -:_:,-:-±:±f:!::i=: I :- HtF
:•·- =t1~l!=±~·t_ ~~~r:=::· ~ ~~-=~=~r:=
60~ ~-
,..,.. --
.................. ......
•--.- • - ...... <144'f
......... ., . ,,. ......
. . .,..
c.-..•C~Wt..,.,_,~r,.._.,•~
ect. ..... ....
.....
0
.........
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'·"" ........... ~
---·--- ~
...-t. ea.
. . . . . . . . . . . . . . . .9 •• -~..... ,
....
! l
5
O.I. 9!
--------
I '
r==
.10
I I
..100l
i
ao;
i
60'
40
t......
.... ....,. . .. .... _.........
......-.............
;..:-., ..............
-------- ............
........ ..:Yo ......
·····~ ................. . ,,
·~~~~-~~~~L~--~~~--~-~--~-~~~~~~~~~~~~~~~~-~.~~~~.~~-~~~~~~-J,
................ _...
c-.wCiMII...,....c-.w.....,......., --..
92 0. I.
. so
~~-~~"~~~~~.~L~~~~~~~~~~~~.~."~-~~-~.~~o;
t±fjooN~ ~
.....,.,. -• ,._ ..,.,a..ct'a •,.. ,. •• •• ., •·••w•••at;t'
0 I
I I AND VOLUt'iE
I am not a great believer in spending much time in fooling
around comparing volume to O.I. But, I will look at anything
if I think I can make a buck from it in the market place.
Rules:
if prices are up and,
!) volume and O.I. is up - the market is strong
2) volume and O.I. are down - the market is weak.
So, under the well known rules of volume and O.I. , when prices
are up and volume and O.I. are up, the market is strong and shud
go further. So, taking all this into consideration, it is suggested
that in general, the combined rise of price and O.I. on high volume
has bullish significance, particularily in the early stage of an
upmove. But the bullish significance diminishes as the O.I. further
increases and the speculative public assimmilates all the bullish
factors that fueled the advance.
A great many major bull markets start out where volume and 0.!.
start building up and price moves up gradually- the " creeper".
- volume creeping up, and O.I. creeping up, price creeping up.
If the market has a nice base formation, prepare for a very
successful trade. A great many bull markets occur when U have this
type of situation
- - ·-··-- - ·tD
--.CD
When there is more volume than usual, any, all, or two out of
three of the following things are happening :
1. There is more liquidation than usual: Longs and shorts are settling their
contracts (which leads to a decline in open interest).
2. There is more "turnover" than usual: Old longs are handing their contracts
to new longs; old shorts are handing their contracts to new shorts (which
brings no change in open interest).
3. There are more new contracts created than usual: New longs and new shorts
are coming into the market (which leads to a rise in open i;terest).
" The rise in volume we are concerned with is accompanied by a rise in open
interest. Therefore, the third tendency is dominating. Suppose we take the case
where a rise in volume occurs simultaneously with a rise in price. lt must mean
that new longs and liquidating shorts (buyers) are exerting more pressure than
new shorts and liquidating longs (sellers), When Cox speaks of the trend catching
on, he appears to be assuming that buying pressure will continue to exceed selling
pressure.
But as with open interest, there is no more reason to believe a trend will con·
tinue if it is accompanied by rising volume than there is to believe it will eon·
tinue if it is accompanied by either steady or declining volume. For example, if
volum~ is steady, there is the ''usual" level of liquidation, turnover, and addi·
tion to open interest. Not only can an uptrend happen on steady volume, it can
continue on steady volume; all that is needed is for buying pressure to continue
to exceed selling pressure. A similar argument can be made for declining volume.
Say. that volume is declining but open interest is rising. Under these circumstances,
there are less liquidation and less turnover than usual-longs are buying and hold·
ing; shorts are selling and holding. Hence there is little or no volume from that
quarter. What is happening is that new longs and new shorts are coming into the
market, thereby creating the rise in open interest. Because there is a rise in the
price, buying pressure of the longs must be exceeding the selling pressure of the
shorts. Once again, there is a new bandwagon from which to extrapolate. "
Report.
Fint, tair.e the rolauonshi~ between a nsc 111 ooer. Interest anc! a nst m the
;tncc. A.J we have notecL when o~cn mtcrest nses. 1 it means that nf'lt snons
anc new ion~ arc coftun& tnto tile market. If tlus ha~ IWIIWWieously wath
a nse tn the !>nee, 11 means tilat buytnE pressure oi tl\e new lonp has ex=eQed
sellinc pressure of tlte nnr sham. In ot/ler worci1, new lonp were wtll:nc
10 place thetr betS at a 1\t~er and 1\tJher pncc 1n order 10 eel new altoru 10 bet
au.anst them.
•Whzt can we ptlttr from tltJS Sltuauon that woulc! uulicate that the uptfftld
u likely to conunue~ The advocates of IISIIIJ open mtcrcst II\'C us 'OCry few
dues. For r~ery new lone there IS a new alton. At !be current level to wllidl
tltc pncc has nscn. there ts as muclt of a commianau to a clownll'enc! u there
as to an u!>trend.. It is l.nlc to say that the ftCW shoru mtcltl not llaYC beet\
willinc 10 enter the market w1tltout a nse m pncc. llut of what pou~blc relc·
vance is that? It u all iJ> the put. It would hnt been nice to eaaohalt a lana
penman pnor 10 the pncc n10, but !be pnce wu not "-blc m adftllee.
The qucsuon is whether to cssabhsh a lone poauon - · at a lcftl where the
shons ~ willlnC to enter the market.
So aU we havo arc more snons titan usual wilJin& to bet on a pncc clechnc
and more lonp than usual willinc to bet on a price lise.' The fact that there
~re more beu on both 11lles of !be marltet docs dwtre !be lltuauon. but no:
m sllclt a way as to mcllcatc the cluec:-.10n 111 11'111Cb the pncc will so. AI: it
rnuns IS (I) if. for whatever fCUOII, the lltlii.DOII tums bcansh, there will
probably be more lonp titan usual looltinc to relinqUISh tlteit conuacu. or
(2) 1f for wl\atewr reason the snuauon \llms bllllish. there will probably be
more shoru than USIW loolUnr to rellnowsh tltCJ1 conuaeu.
COIISlcler thc IICanalt tum of r~enu: In ordor to offset tltcu pcmDon&. Iones
will baYC to sell. llecausc there are more cf them titan ll&ual. the scllinr ~e
will be srcatcr than USU&I. Th111. the cleollne 111 pncn lillY co fuur ad farther
titan 1! there had been no pnor buildup of open mterest. On !be other lw>c!.
rlus may nor happen: If new lonp ce>rne mto the market. their buylfll pres-
sure will offset lbc selllnc preaurc of old lonp. ad pncca may nnr decbAc
much.
COIISlcler the b•.•llish tum of eYitiU. The amc thml may ha!>pen, ucq~r In
fC"Cn&. Shoru w•u look to offset their posauons. In order to do 10, !bey
will have to buy. Because there are more of thtm titan usual. tha burin& pres-
sure will be Jrcater than usual. anc the mu!1111r nsc m pncc pcaibly r..-per
th2n usual. HoWCYcr, a Slmilar t:aftat applacs: If new allons come mto the
market. the Ouytnl pressure of olcl allons wtll bt offset by the seiWI& prcuure
of new shoru.
CONTRARIAN OPINION
The reasoning behind the theory of contrarian opinion is simple
enough. A bull market cannot continue unless new bulls can be
attracted to the market and at higher and higher prices. At some
point during a bull market there will be no more new bulls to be
found. It is at these prices that a market will end. u will have
a rally with a 20 % bullish factor, but it takes a 90 % bullish
factor to indicate a decline.
SOYBEAN OIL
SOYBEAN MEAL
Criticism : - the theory goes that since most losers are small
traders, the safest position is in the opposite of the market to
them. There are disadvantages because hedging activity accounts
for the largest share of the positions, but even then by nature
of hedging, hedgers lose. In fact, these losses feed the financial
pot in which speculators draw for their profits. On the other hand,
not all hedgers are truly hedgers. Many operators are sometimes
hedger and sometimes speculator. Additionally, not all small
traders lose. Finally, the report is involved with the tenth of
each month. By the time the report appears, traders may already
have switched. positions. Nevertheless, one can find some use for
these figures. This approach attempts to focus on data showing the
activities of winning and losing groups of traders and then suggests
the following action :
CASH
The cash price is the price fixed in the wholesale and retail
outlets of the country. ( While the futures price is the price
at Chicago, New York, Kansas City etc. commodity exchanges. )
Cash price fluctuatesthruout the year. The futures price will
fluctuate above and below the cash price, but will never vary
too widely from it ! Cash price sets a ceiling on how high futures
prices rise and a floor on how low futures prices fall.
Futures prices will not fall so far below cash prices that cash
" dealers " wud be better off by buying the futures contract.
CASt.< I!l
( ( ( What happened to the last· ten pages. Don't ask
I don't know. - Chas. Drummond ) )
and, taking delivery, than they wud be by buying the actual cash
product. Futures prices will never rise so far above the cash
that the exporters, merchandizers, farmers and millers wud be
better off selling on the futures market than they wud be by
selling on the cash market. The futures contract will never
vary much from the current cash price. So it is rather important
to watch the cash market closely. By utilizing " basis " charts
( coming up next ) a trader will know exactly by how much price
variation exists. Also, it is very important to watch closely
the relation of the present cash to the normal seasonal price
patterns for cash as in th~ following illustrations:
Sc:pt
Jnn
June
Nov
ICED BRCiiLr:;>_c;
July
1\pr
Nov Dec:
--------~------------------~-----------------------------/
S<-pl
::::2 CASH
They will sho~ U which direction cash prices shud be trending, and
any deviation from this is subject to analysis. When the cash price
of a commodity fluctuates, the futures price will also fluctuate.
(see also" seasonal patterns" , in appendix).
Nov Sept
Dec Apr.
Oct
/'
SOYJ1J.)\.'Il OIL
.Jul 11ug
~c
.~~
Jnn Apr / \
/Pee ~ \//
Jan "'-....__/ Oct
Sept
5
BASIS II3
THE II BASIS II
At any given tilne, there exists various " basis " for each
commodity, reflecting the following v~iable factors.
J'U'IMG nit Baryo""' lhr •BeMJ ... A chnet'lla•e ma~tuf•etur~r Mtv1 Cihau ftiCGI fOr Dtc:eMbef ddr.ct'y. at JOO poinu
-aasrs.. F.-rahltsh an •c:cr-rvWt Or,.., ,...._,I.,... 11>< O.C:C..."'' '"'-· Whefo "'Cllllliden 11>< ,.._ ..,.,..,._
"'~""._m or ti!ICftUftt tor tht menulacntrer .,ill r-•rc:h~ De=t'I'IM!' futures. thus fl-.inJ: ttn CID'It &.::1M for Gharl•
tN ,..,,en... of • tpeet.
- •• '"' ~ olthc o-w.~oer ·-· "'"' )0(1,..,.....
r...! r»<koloctuals.
/
Srlf Oft ller ·a..su .... A CIICIDa Oc.aler •lis a manuf•aun:r ac1ua1 COCDI for Dec:nnber tldMry at 200 fiDims
bahliVI an ~·~f' ahttw the [)ccemt.er lutar&. hehewinJ thll. tomee~~M JWior to Dc:cemba. he will be
pt"eel'tigm or 6~rrt tOt" abk to f'Qrc.h.-. the Gh.... coc:o. tar left tb.ft 20(\,......... D"'Cf Dec:elllihEr.
AD.IUS'ft...C
. _...y
•C"CDatWNG , ..
lh<cak of a~
r»<kol-aab.
£z,.....,llf C~. A looeir:n _ , _ , IMkl• to 11;. _.,.,ill_..,-
lC fler ......,..S
t.M •Mr. lhe ,....._. is hftos·
ltn-"" a -lc-
...aTIC"'\ti.AI. ¥11."" AMtlf'irrr C,..,.,.., · A chocolate" m•'"'faeur,tf. wt.o tub ur- hft ea1:01 buta ;........,_,. ~ ,nca ~
OP TMl!. w••cn
'""'· aclll lVI- • . _ - lhis ; , _ , . - lhc -•kco - •- - I'Cf
I liPft:IIU....., I - ; irtdlen. _ , l t i i i i C I - - .
Keeping a basis chart is easy. First, record the cash price for
any given commodity . ( Ask U're broker, or use the "Wall Street
Journal" ) . Then take the contract price of the nearest expiring
futures contract and compare that price with the cash price. If
cash is above the futures, one plots on the positive side of a
zero line. If the cash price is below the futures, U plot that
on the negative side of the zero line. Some traders feel that it
is unwise to take a long position unless the basis chart shows
a strong positive and to take a short position unless the basis
chart is strongly negative. The basis chart is often a key signal
to an upcoming trend reversal. At the birth of a bull market,
the basis often switches from a negative to a positive and a
bear it often swings from a positive to a negative. Any sharp
movement in basis *******--* - remember this, ( as well as in
volume, O.I. or anything else that is sharply unusual as a market
force ---- that suddenly hits the market ) indicates a dramatic
change in upcoming futures prices.
ODDS IIS
n!':r.J• cr.rrLI: ~~
llighcr Lower llighcr Lower
Jnnu;::;• 7lt. 2H J:mu;::-y 7St 1S'
FcL1·•.:::ry 1.2\ SBt :F'<'bnl:;ry ~0'1. SOt
!·larch 7lt 2!:'1. l-lil!"C'h .(5:. S~\
l'.pril ~4'1. 116':. 1\pr.il 7~1. 20'1.
tlay -<2'1. SBt l·iay SS'l. 30t
JU.."'C SOt SOt June BOt 20'1.
Jul~· 63t 37~ July 7St 2St
llugu::\: ~8'1. o;. 1\t•~u:.t: 3St tiO'i
Sept:c1~!>:-r SH ll6t fit'!t'tcmbcr t.O!:. GO~
Octc..!•c:::- 29t 7l\ October Ot lCIO~
No"c~.?cr
Da:CC!l:,':"tc:- ,........
3Ct. G~':.
~Ot
Novcmb~'r
l>~c~:uJcr
30t
75t
70t
25~
~ ~
HiCJh<.:r Lc•wcr nigher Lo\.Jcr
~1ilnu:-:ry Gilt 32~ Janunry 63t 29~
J"cl.Jru:~:-y 37;. I,'~ rcl.>ru<'.:o.")' 21'- 7Jt.
~\o:~rch (•3t l ~~~ 1-.;:,;n:h 42t. ~.~~
J,f>ril 7lt lS'.. J\pril 39t Ot
Muy 7-H lH H~~· 45~ SOt
,,unc 39t 47 .. .1uJ~t:: 32t. SC't
Jul)'
]\UQU!:t
"~
.(2t
~!;~
47t
July
JI.UCJ\lSt
l C\:
45~
ft4!t
!:iS~
ScptC::".bC'T 37'i 45'6 SEOJ:"ter•.ber 6Ct 26\.
Octobm· o; !l2t October 7H 26':.
Novcr.1hrr 39~ 5!>t tlovmnbc:r en. ll~.
~ccml•c:-r 64 ~. 13~ DCCC'It.l.JI'!r 68'0 26'.
~ ~~
lli g!lcr LOI•'l'Or lligher La..ier
January 66';. 2\lt .1 Oln\1ll%')' GGt 2lt
February 37~ 55\ J"cl:l::-:m:;.:y 61; 36\.
Mllrch SO\ 42'6 •~arch 50'6 39t
7\pril 39\. S3t J\pri~- S7i 3Gt
!'.ay 3:.! .. C,H !'1ay I.G~ 46>.
June 1St 7-1':. June 46t SO>.
.Ju)y ,,~
SSt July S1t ~g ..
~U;TU!;t ~ !>t. -'2\ }\UC)\l!':t 36\ ~7-
Scpt.crr:'~:-:- GGt 26\ s~ot-.cl':l!:>c. r Ht 86~
October 74t 21'. Cictober 3.6\ 54\
NOVP.ml>cr •7G";~ ll\ No"cn:b c:r 86\ lH.
Peccmbc': 114~ ll\ Pccmr,!)e:::- 75\ 25\
01:1\::r.;: .1tllCI': ~
lli!)hcr l ..rn·!CT 'fiN: !I) .,her 1/.'>wcr Ti(•e
~ ~
Jlighct· La\•cr Tied Hitther Lower 'l'ieci
~
Bighc:- L~c:: '!'ice
J;:m (,f!~. 3(1';. 2t.
Feb GCI~ 38";. 2;
J.l:lr 77: 21':. 2t
llpl· GB~ 30":. 2\.
J>~y G.3: 37';.
Jun GO~' 40t
Jul S!;~ 43'~ 2t
Aug ?.7'1. 73t.
Scp 30t 70':.
Oct. ~2'.;. ·sn-;.
Nov l,(i';. 42t. lOt.
Dec (,~~- 35~.
:::rs
CHAPTER SIX
TRENDS
ch.Mactell.M ti..cA
tlte.n.d actio •t
type.¢ 0 r) tJt e.n.do
t!te.n.d .U.n.e.¢
tlte.n.d chan.ndo
.t/'te.n.d valicU.:ty
tlte.nd and 0.7. , vo.tume
tlte.n.d we.ak.e.n.ing
bz.e.nd bu.c.k..ing
p!t.o~d ta.k..ing
wha..:t .OtJ.6teJnJ.J woJLk. be.¢:t in :t/z.end.ing mcvz.k.eto
6
TREN'DS !!9
CHARACTERISTICS
There are three types of trend.
I. downtrend
2. uptrend
3. sideways believe it or not )
The basic tenant of the chartist is ..... "a trend continues until
it stops. " Once a trend has commenced it tends to endure at
least until a significant counter force intervenes. One important
characteristic nature of price trends is that once established,
they tend to persist for long periods of time. Prices tend to exhibit
more sustained price trends than wud be expected on the basis of
pure chance.
I20 TRENDS
Any major trend, up or down tends to start slowly and then accelerate
sharply as the momentum of buying or selling accelerates. Trends
almost invariably exceed one's wildest dreams or any chart prediction.
However, there is one little factor, that must always be kept in
mind and that is that some cursory studies ( Commodities Futures
Game, Tewels, Harlow, Stone, HcGraw Hill publ. ) have indicated
that commodities are without important trending characteristics as
much as 85 % of the time, and this will be the subject of our
next chapter, on congestions.
TREND ACTION
A trend is a kind of stable disequilibrium, which has a
stability of its own, which restricts the movements of the prrce
within the boundaries of what's sometimes called a trend channel.
Clearly, prices are unlikely to move in the same direction every
day, day after day. There are always profit takers - or whatever -
which is why U get minor reactions. Long and maxi-term trends
without congestive interuptions of major importance are virtually
non-existent. ( Most traders sooner or later becum serious congestion
area students - and U shud too . ) •
trend liJle
I22 TREKJS
TYPES OF TRENDS
There are three types I. uptrend
2. downtrend
3. sideways trend
I. trend channel
2. run-away, breakaway market
3. congestion movement trends
I. maxi-move
2. major move
major counter-trend
3. medium ( intermediate ) trend
medium counter-trend
4. minor trend
minor counter trend.
5. mini-trend
mini-counter trend
.. ·--·····- ------
--- ------. ..
/
e.g. isolated low e.g. isolated high
/
\
!24 TRENDS
I I
~
a trend is said to exist.
This ideal trend action is rare. More typically, trend action will
assimilate the irregular spurts and set-backs. Stated very simply,
the market can move in only three possible directions - up - down-
sideways. Altho' this may sound obvious, the fact remains that it
is actually difficult at times to determine the trend direction of
a given market. A study of past markets clearly indicates that all
bull markets are periodically interupted by minor downward reactions
and that minor rallies are standard elements of bear markets. The
extent of the counter minor trend depends on the magnitude of the
existing major trend. The price level and the technical condition
of the market can be taken into consideration. The chartist must
be aware of all the trend types, and must at all times be able to
distinguish between them.
TRE~DS I25
The biggest problem for traders is when to buy and sell. It is not
that difficult to predict the direction of a current trend, or that
it may reverse in the near future. Riding a trend is relatively
easy and one method this author respectfully suggests is the
utilization of P&L charting.
TREND LINES
When three or more isolated lows during an uptrend can be
roughly connected by a straight line, an uptrend is said to exist.
Such an ideal trend action is not too common. More typically, trend
action will assimilate irregular spurts and set-backs. Internal
trenc lines can be useful when trend action is so irregular. To
draw a trend line requires concatenating at least two points. This
shud be considered a provisional trend, then as the chart pattern
develops, the technician shud be alert for either a confirmation
or a rejection of the original trend projection. The interesting
feature of this method is that the line drawn with the straight
/
edge defines the support level of/
/ prices as they make upward headway.
An ideal way is to extend the trend
line one week forward, until they
are technically justified.
!26 ':'RENDS
. - - ... ----- - - - - - - - - - - - - · · .•
·---··- ·- - -
-: --·~----
,.
·--------------:--
. -:~~=-l ~D!:.~·~;:!~
.. .. - .. --- ...... ···-------· --·-··-····· ·-·--·. t
Jt.?~~~~~~~~~~~;;t
~-· !----·- --~~.---------····-- ·--·! --·----· ---- --· r --·- ----· ·----------··2to
-~=--~-=-_-_:=-=l=-::=:rJFM
_: -~:~;--"' : --~~~r-=-
--- . - ....... ---·-·-----
~~~ -~-
-- - ~ :- ----·
- :· ~: ·= ·t· ~ ---~~ -~·::=~~-~ ~~ ±·~-"'11'--7'--.=
. .~-=-==--- - -. . ;. . . .
-- .. - - - 1 - -··----·- -- · - -
-. - · - --···--·1
I
·---··-=lf------==::1970
, •' I • ' ·I I'
.z, •FES.:to
. -;-1,__,~:'~~1,
I•
---;---..- -
1 1
' : I J I
1
i •
I .JAN. MAR.
20 3
Af>R.
,,.
MAY
15 · , .
I
12 ·
.JUNE
261
I
10
.JUI...Y
24 7
AUG.
21
SEPT.
11 I2
I
16
OCT.
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I NOV .
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SUiiAR liD·. 11 SEI'T. 1971.JI.Y. ·
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~.MOIIIZ~JA&. ~~·.fiOINn 0
•.
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I ; I ~ 1. ' :
.,
.U. Y
.. ..,
I .IUNE
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'
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I .JULY
•
, .. 1,
•
AUG.
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SiE".
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21
I DEC:.
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T
TP.=:NDS I27
i ·• , ·: I n;.;
. ' ' I litO
-----~-~~~~.\~·~+-----·-··~: .: A straight line
1~---------+-T---~~~·~~ ~~-~~-~--~--- more than likely
t\:" 1 1 t ~r I ' ;~ _,.-
,, , · ·;II • , i I -·-,..!. ~ harnesses price
--~--~-~.;_·
-.- • ....,£_·_-.· - J'-"'i-t,.;..;·~
.,...!!;.-
1,-:f..JUu;::::,.:.:_;_--'-t11 . '
:r.JI.ill...Jllli==".-~
.. , ttfh·~ ' -·--.- ~·-·-
_._.. _-· tops together, as
;, ••w ., , mrrrllr--\' b _..,. SO
li.
opposed to an
. t "• :1:: 1.".' . -T--f'IU'rf:-li-\-~- intervening rallies
as the bear trend
evolves.
_.;_----~.---:-;--· ·- --------~~~~~~~.~.~-~---~
Create a weekly
\~
\ high/low/close
bar chart and
take a look
at those
trend lines
\
There are three tests of trend line validity.
I. number of times the trend line is approached
2. its steepness
3. length of time the trend line prevails
fails to go
Create a monthly above "I" .
high/low/close
bar chart and
take a look
at those
trend lines!) And, if the current action is
carried below the former trading
low, "2" it gives us the
I-2-3 topping formation
( see chapt. 8 )
Trend lines are not necessarily straight lines. They may occur
or may begin as a straight line and then curve. Chartists who
recognize only straight trend lines are apt to miss many valid
non-linear trend lines. However, this author feels that there are
enough lines to be prolated to the chart page without getting into
all sorts of circles or semi-circles. Trend lines are the simplest
to utilize and shud be if possible, one of the few graphic technical
6
~RENDS !29
TREND CHANNELS
When a trend line exists and a parallel line can be drawn to
roughly connect three or more highs, a trend channel is said to
exist. Trend channels can be constructed with a little care, and
common sense application. The upper limit may be subject to an
occasional revision until it is clearly delineated. e.g.uptrend
Any price going thru the trend channel's limits is a call for action.
A serious penetration of the outer wall denotes a danger signal to
the over-all prevailing trend. In an uptrend channel, a serious
penetration of the lower wall has obvious bearish implications, But
I30 TRENDS
-- -
- -- -
Sometimes, lines connecting isolated highs and lows,
utilizing major trend lines create a major ~
-;if /~I
11 J J I.-
':'RENDS !3!
.,
.;... . -·
----· --·-· ..... _ . -- . ·--
j ' • I
~~--·~+l~j~·~·4-~~~--~-r~
~~~~-~+-~~+---~~
.:-.--+-+--L--1..
271
IS
A"R.
79
I
ll
t.IAY
10
JUNE
,.,.
JULY
22
' " AUG.
2
1
16
SEPT.
:10 "
1 OCT.
21
1
II
N
o..ft rrCI!'
C'C•11'C!Dl'ZT CXUC' SI:JrVlC%
A W•ckl~ ~li~a~an of
CD910C1TT •ru•-or •u~. 1JIC.
One J.1l:oan,' Plau "·'~'• JI.'S' ·'000£
TREND VALIDITY
There are four hypothesis of trend validity.
In a downtrend, lower prices and higher O.I. expose the shorts who
flex their financial muscle and long positions are covering their
positions by selling. Offsetting adds to the selling pressure,
further depresses prices and reduces O.I. when new sellers are no
longer interested and old sellers start to take profits, O.I. is
further reduced which marks the end of the downtrend.
/
TP.ENDS :: 3 3
There are only two ways to trade and that is using trend activity
and using congestion activity. Most trends are by themselves
actually congestions, in that they often retrict thaaselves to
a trend channel, wherein several short term trades are possible.
The other extreme exists wherein one may be able to decipher that
a long term trend is underway and holding and even adding to the
position - not taking profits - until the trend has distinctly
exhausted itself.
Small traders tend to rely on long run trend following methods for
profits. Such trading theories result in strategies of buying
strength and selling weakness which enable the small trader to
reap high profits in years when such trends are in long duration.
Unfortunately, the markets more often than not are trading markets
rather than trending markets. That is, there is more of a chance
6
TRENDS 135
One cannot beat riding a major bull or bear and pyramiding; and
within a few weeks and months creating a considerable fortune.
Maybe, each commodity has one major run up and major run down
each year. Even in these runs up and down, congestion areas are
more frequent than infrequent and it behooves the trader to
recognize I) when a market is strongly trending 2) when it is
entering a congestion, and 3) is congested and 4) when the market
breaks out and 5) being able to anticipate the breakout.
I. trend channel
- each time a lower wall in an uptrend channel is
touched or approached wud be a buy point and each
time a upper wall is touched or approached wud
be a sell point.
the sooner the trend will reach its ultimate price objective and
corresondingly, the shorter will be that trend's life.
~~~){~ter
r trend
trend bucking
~P..ENDS I37
-l
~,ounter trend
breakout f
/-bucking
~ support
congest~on
:38 TRENDS
BREAKAWAYS
After a congestion area has prevailed long enough to be widely
recognized, buyers and sellers will usually have accummulated
in the wings ready to jump into the market. And, on the breakout
there will be marked pick-up in activity. This volume action has
no prognostic value; the customary market pick-up and trading
activity after a breakout tends to leave the validity of the
6
TRENDS I39
breakout in doubt.
If the volume subsides and the trend proceeds on its way then
the breakout was indeed valid. But if the volume remains high
and the trend promptly reverses itself, the breakout's validity
will continue to be left in doubt. Many seasoned traders avoid
positioning markets in anticipation of breakouts. They claim
traders are better off waiting for markets to tell them what to
do. There are some seasoned traders who position markets in
anticipation, but profits in this type of positioning is only of
minor attraction to these traders. What they consider important
is the added confidence in markets they have operationally
anticipated.
TPZN~S I4I
STRAIGHTAWAY
A run-away, - straight -away market is made up of multiple
consecutive days ot closing prices in the same direction,
occasionally broken by one day in the opposite direction of
its trend. Because of the strong pressure of a straight-away,
two consecutive days in the opposite direction to the straight
away is rare.
Following a very steep move, often the trend will still be valid
as the correction will only serve to alter the sharp into a more
moderate trend in the same direction. As a general rule, prices
have a tendency to crack about 50 % following an extended priee
move. A correction of less than 50 % is evidence of a powerful
trend. So, if the SO % correction from a steep move corresponds to
a strong support or resistance area, it is very likely that the
correction will be altered or be arrested at that level and the
trend will still have strength.
Remember that trends tend to last longer than most people can
anticipate and major topping formation of a major trend usually
evolves with a considerable degree of dancing around. As prices
commence their topping activity, it will give the trader ample
opportunity to take profits and possibly commence shorting
procedures.
I 42 '!'P.E~I)S
TREND \~EAKEN I NG
A greater than 50 % correction from a very steep move is a
possible form of a reversal and the harbinger of reversing prices
yet to cum. The trend is weakening. for example, if in an uptrend
channel, prices fail to reach the upper limit of the channel,
there is weakness
developing in the
trend.
e.g. upmove
/'h
a trend line is broken
also consider
contrarian opinion
committment of traders
cash,basis,odds
also see straightaway pg. I4I
':'RENDS I43
TREND REVERSAL
There's a whole chapter on this. See chapter 8 ·
TREND BUCKING
The theory goes that since most losers are small traders, the
safest position is opposite to the market. Also, hedging activity
accounts for the largest share of the positions.
Scout thru this book for scads of info on trend bucking. Make
U're own list, but be aware of all the perarneters involved
before U assume that U can buck trend effectively.
PROFIT TAKING
There are two ways of taking profits within the confines of
a trend move. First, one takes profits on the intermediate -medium
term and intra-day swings that occur during the trend move,
incurring many, many trades over possibly· several months. This
aPProach is at best risky for the novice trader and maybe shud
be left for the professional scalper.
Second, a large trader will often utilize only the major price
move and will have established a good market position at the
beginning of the major price move and nearly all of these large
traders take their profits long before the move has run its course.
The large long-term trader cannot score a profit by buying and
selling with the public. He very rarely takes profits at the end
of the major move.
CHAPTER SEVEN
CONGEST IONS
Mgume.nt , pJU.l..o.oophy
a.dva.11-t.a.g e1.>
c.ha!ta.c:c~ :tJ..CA on
c.a.-t. e.g 0 tU. el.>
c.onge~.>tion a.c.tion
a.na.ty zing c.o ng e1.> :tJ..o no
c.onge~.>tion, 0.1. and volume.
rn-i.d-wa.y c.ong e~.>tion pati:Vtno
e.nd- !ULYL6
a.n;t,i.cJ.pa.,ting .:the dbte.c.:tJ..o n o 6 bJtea.fwld:
a.n:t.,i_cJ.pa.,tin.g the. e.xte.n.:t o 6 the. bJtea.k.ou;t move.
.6 up po Jt.:t a.nd Jt e1.> -i.-6 ta.nc. e.
50 % Jt e.:tJta. c. em e.n.:t-6
ARGUMENT J PHILOSOPHY
A price at rest tends to stay at rest.- a price in motion
~ends stay in motion are the essential tenants of the sharp,
~o
s~arp trader. A price at rest exhibits an established floor or
ceiling for itself which is merely the graphic representation of
supply and demand conditions at the prevailing price level.
All we really know about prices is that they fluctuate and that
conges~ion areas are one expression representing price movement.
Conges-tion areas have been said to exist 65 % - 85 % of the time.
To this author's view, there are two categories of price congestion.
Mf\N\
2. congestion areas within a trend channel
If u accept this premise, one can readily see that prices are in
congestion one way or another, almost 90-95 % of the time. The
astute trader can make use of price movements within all conqestion
patterns, if he/she has a reasonable plan approach. Accordingly,
the trader will concomitantly and consistently garnish enormous
profits almost on a day to day basis. This author prefers to
designate the above congestion area #I - horizontal congestidfi -
as 'resting area' - that is, prices are banging around within
distinct high/low prices for a considerable length of time,
( 4 - 20 days , to months to years ) . And, #2 , the more vertical
congestion area of trend channels, this author designates as
'angular congestion' , the trend channels, or restriction of prices
by trend lines.
CONGESTIONS I47
ADVANTAGES
Wh er ea s a trend is an opportunity to utilize one enormous profit
essentially by sitting tight, congestion area is an opportunity
to realize many small profits by alert activity over the congestion
area's life. During a congestion area, dozens of clear cut buying
and selling opportunities present themselves. The moment one can
identify a congestion area, these opportunities are there for the
taking.
The biggest problem for traders is when to buy and sell. It is not
too difficult to predict the direction of a current trend, or that
it may reverse in the near future. Anyone can follow a trend and
all trend following systems work well in a consistent runaway
price movement.
We know for sure that prices will fluctuate, but not now much and
because U trade only in a congestion period, U are protected from
large losses by being aware of the congestion area's confines. This
author isfirmly committed to the view that the successful commodity
trader requires him to be both an astute trend and congestion area
student. Let me explain ..••. small traders tend to rely on long
run trend following methods for profits. Such trading theories
result in strategies of buying strength and selling weakness,
which enables the small trader to reap high profits in years when
such trends are in long duration. Unfortunately, the markets are
trading markets than long trending markets, and there is more of
a chance of price reversal than for price continuation. However,
please, please do not forget that astute knowledge of trend
following can probably make U all the money U need with much less
bother and stress, especially if U have another occupation than
commodities. Great profits can be made by sitting and waiting for
trends !!!
Technicians are famous for making spectacular profits one week and
enormous losses the next. It is a fact of life that prices will .:
not fluctuate according to what their past performance dictates
on a medium to long term action. In contrast, P&L charting enables
me to expect the action on a day to day basis, based on the action
of the last three days. When unexpected moves happen, these
technicians must start all over again.
C~NSESTIONS I49
CHARACTERISTICS OF
see also chapter on P&L charting ) (9)
!II~\ \~~r
2) prices close two days in one direction,
with one corrective day and then two days again
in the one direction, but then expect two days
in the opposite direction.
days down
ISO CONGES':'IONS
~
market
is now
in
days
congestion
low
CATEGORIES
Long and maxi-term trends without congestive interuptions of
major importance are virtually non-existent. Most traders sooner
or later becurn serious congestion area students.
CONGESTION ACTION
All medium term trends - days to weeks - are virtually without
exception interupted by a resting period which alters the
disequilibrium that exists in a trend move to a period of
equilibrium during the congestion's life. A trend interuption,
permanent or temporary, occurs as prices shoot past the prices at
which the market at that time considers a more equal equivalent
of the laws of supply and demand. And, accordingly, market
movements will adjust until this price of equivalent equalization
of the law of supply and demand has been reached. During this
period of equilibrium rest, new forces, both technical and
fundamental will enter the market, which will influence prices in
the direction of disequilibrium from the period of resting
equilibrium. This disequilibrium - trend - will continue with
further periods of equilibrium - rest - until fi_nally for the
contract for that year, we have distinct topping, bottoming
equilibrium, from which a trend emerges in the opposite direction.
I
.... J
CONGESTIONS 153
most of the activity tha~ does exist occurs at the opposite end
of the resting area from the path in which the new trend is likely
to emerge.
texl?ect
lpr~c~s
to r~se
i
resting II
~!
area
~ I I I I I I I I higher volume
Usually this two days forward or down and one day back ~ill
continue thruout the life of the congestion area ( resting and
'angular' congestions ) . Utilization of P&L charting ( chapter
nine ) will further enable the trader to first of all
recognize congestion at its' onset, ( within a day or two )
and also using the factors presented in this chapter, enable the
trader to either I) trade in congestions or 2) -accumrnulation ·in
anticipation of the trend that will evolve, or 3) recognize
the emerging trena and board it on breakout.
ANALYZING CONGESTIONS
Some clues that are useful are
5) P&L charting
With #I
.. -. -
~~~~~~~---------------~~~~~.----~-------,-~
c..ft ,.,...
CDIICIDZ,. CIWI:r SEJ!nCZ
A "'•ekl:r ~1c:.ti.,. ot
~-~. JIIC.
- - ~~ Plna 11.~ • .•·~·.'~ ~
;n . ~II
11!1
1%10
I ll
1r
lL lflt,
-l.'
Ht.runn
'111'1~
tlJ
HI
l!llf
ill
--
'[ :r·-rr d "1!1 ' f'. ;( I I ~
"!l!llli; • ., i<.:lJ' I 111
90
I ~- uru.•
'I .....
h1.U
~
~l
111n•
•
·ao
N1J! '
With clue #2
With clue #3
With clue #4
With clue #5
I_J
7
CONGESTIONS !57
'actuals' , - one wud analyze the p~ice and ~~e O.I. activity
du~ing the resting a~ea, especially one of longer duration.
"
~ j
~
i
.
!
Jl!
--- ....: i
..,
.i
CMn Pna
CCIOalnT c:HAJC' suncz
A "••klr Pw.al11cau• of
CCICIICIDUT aESJ:UOI a~g, SliC.
One ~~ P1a&& N.Y. M.Y.JD006
i
CONGESTIONS I59
MID-WAY PATTERNS
After prices have travelled a considerable distance, a general
feeling can develop that prices have gone up or down far enough.
Call this a psychological quirk of traders if U wish but this
type of thinking becums an important market factor with new
buying and short covering, with new selling and with long
liquidation developing on this assumption. During an up market
and the prior trend is up, it favors the emergence of the trend
in the same direction after the resting area has completed itself.
A most common mid-way pattern are the flag/pennant, which form
after rapid vertical moves. Note, however, that if after a gentle
market move as opposed to a precipitous market move if what
appears to be forming is as a pennant or flag, the orthodox
technician shud obediently try to visualize another pattern.
Flags and pennants usually occur after a rapid price move. The
pennant and flag usually slope in the direction opposite the
preceding fast move and they seldom persist longer than two
weeks. Pullbacks and consolidations usually last from 5 - 20
days. Volume shud be smaller during the formation of the pennant
or flag than during the move that preceded it. The fact that
flags and pennants ( and wedges ) customarily slope against the
prevailing trend makes sense when realized that a consolidation
area is often simply an area of price corrective action caused by
a market sprint which overran a price level that cud then be
supported by the law of supply and demand. Corrective action is
by implication trend countering.
CONGESTIONS I6I
reversal.
Now, what U shud do, is do the above for every section in this
book, and create U're own manual, appropriately labelled, page
and topic for easy reference to this book and to U're manual )
CONGESTIONS I63
END - RUNS
An end-run is a sudden trend reversal which soon fully pierces
the congestion area from which the prior trend recently emerged.
back to congestion
A congestion area is a
stand-off between buyers
and sellers which may last a short
time or for several years. Congestion
areas have been submitted to considerably more
exhaustive study than any other aspect of technical
analysis, the objective being to determine the direction of
the trend when it emerges and also to judge how long the
congestion area is likely to last and possibly to judge how far
the ensuing trend is likely to carry. The longer the sideways
movements last the more we can assume that old positions are being
liquidated and new positions being established within the constricted
price range. Therefore, when prices finally do break out of a
congestion area and establish a new price trend, those who are on
the wrong side of the market will be anxious to get out of their
positions. Consequently, we have a continuation of the development
of a new trend.
The longer the congestion area has developed, the greater will be
the number of traders with new positions who wud have losses in
the development of prices against them out of the congestion, and
the greater the number of orders will be placed in the market to
cover, just outside· the congestion area and the greater shud be
the emphasis to-the price move. Accordingly, end-runs can be rather
dramatic. Actually an end-run can occur at any point. An end -run
which occurs subsequent to break-outs from a congestion area that
contains no top or bottom characteristics is fairly easy to foresee.
End-runs occuring just above or just below top or bottom formations
are more difficult to anticipate. When prices stall shortly
following a breakout and congests, a trader is warned that a prior
relationship between buyers and sellers may in fact be in the
process of major alteration. Therefore, good action tends to
develop out of long periods of congestion.
!64 CONGESTIONS
To start:
countering, and accordingly, one can expect that with ~he formation
of these patterns that the breakout from the pennant/flag will be
in accordance with the prevailing trend which developed the
pattern. The prior trend enhances the emergence of the trend in
the same direction. ( In anticipation of a major breakout from
a top or bottom formation, with regards to the pattern of head
and shoulders, refer to chapts. 8 & 23 )
congestion area
quiet area
------------------------~--buyers finally satiated
~
Most resting area trend aborting is done by those traders, who
already enjoy sizeable profits in the market. New position takers
tend to be scarce or are apt to view the market as one in which
they have already missed the boat. Many seasoned traders avoid
positioning markets in anticip~tion of breakouts. They claim traders
are better off waiting for the markets to tell them what to do.
There are some seasoned traders, however, who position markets in
CONGESTIONS I67
Special note - "gaps" , the rule here is that prices move out
of trading areas in the direction
of the most or largest gaps. ( Chapt. 23 )
There's more on this in chapt.9 re: P&L!
f
1\ (\ (\
V V
t2ing,
J~hort
1Ti positions that had proved profitable.
This combined buying pressure both
from bulls and former bears may often
covering stop the break in the previous
congestion region. It is a typical
effect of horizontal support areas.
The more traders that have a vested interest at prices within
the zone the greater will be the expected buying or selling
power shud a return move occur. A related idea is that the recent
congestion areas are more significant than older ones.
support
CONGESTIONS I69
lt
b) old resistance becums new support
old
resistance
The basic idea behind support and resistance is simply that price
levels that were significant in the past will have significant
impact on price action in the future.
!70 CONGESTIONS
suooort area
area
T
CONGESTIONS I7I
resistance
support
resistance
++J.
\
If the breakout support
is on the downside
the support layer of the
congestion area now becums a
belt of resistance., shud prices
cum back up to it.
e.g. in an upside move from a congestion area, the
support area at the bottom becums a resistance and the resistance
at the top becums a support area. And, if prices eventually cum
back down to the old support area, it will act as a resistance and
be able to withhold price declines. If prices cum back down to the
old resistance , it will act as a support. ( This is part B of
'transformed' support and resistance. )
/---..
('a'.· is an isolated high that is
\...._./
penetrated and becurns a support
price
50 % RETRACEMENTS
Markets are continually retracing 50 % • U can trace a 50 %
CONGESTIONS I73
move almost on a day to day basis. This author feels that being
a good '50 %man' is like being a good 'gap man' or 'resistance
or suooort level man '. U can make a lot of money just by using
50 % retracement patterns. Why prices retrace 50 % I wilJ neyer
know, but ~~ey are continually do~ng so at all times.
Prices, as a general
rule, have a tendency
so % to correct about 50 %
following an extended
price move.
accummulation in anticipation
of breakout to upside
buy 'scalps'
CONGESTIONS I75
\
1 never short here i f U feel this
is just a counter trend.
Buy instead.
1/\ I
tU
( and, don't forget our little friend- 2/3 days up,2/3 days down.)pg.I53
For the student of price reversal bottoms and tops, this author
respectfully refers the reader to the next chapter on 'trend
reversal' wherein great detail is given towards the evolution
of tops and bottoms, in price reversals, within the context of
congestions and non-congestions.
In large and efficient markets, such noise has been known to account
for 75 % of all new prices corning across the ticker. It is a
meaningles5 fluctuation that characterizes a market at rest.
CHAPTER EIGHT
TREND REVERSAl
c.omme.n.to
bct:tom.6
top.6
illustration)
isolated high failed
to surpass the
previous high 'a',
and if the current
reaction is
carried below the
former trading
low 'b'.
I) trend lines
2) chart patterns
3) fundamentals
5) 50 % retracements
8) I-2-3 's
REVE?..SALS I8I
I
-point '3' represents a challenge to a
previous high , 'I' , and a fall-off
from this area cud be the top price
for the commodity for that year.
Remember that U only have one top price
per year for each commodity contr~ct.
One must be aware of the entire picture
of a given commodity to assess whether
this I-2-3 top is in effect a good time
for the topping formation to occur. ( How about 'odds',
'basis' , 'O.I.' , 'contrarian opinion' etc ? )
L l l ' : • ; '
-·-------
I ' I I I
: ~ : i ----~-~--~----r----~-~-
:
I
: :
I.
I :
I I i
· ! ~ : i :
• Ii : '
1 :
;
~--~~----4----~-~---~-~--·------J--
: :
I
-~:
I ; t I
: : : 1 i :
: ! :
1--~-1--~-1--:-1--t-1·-r-1--t~·-:-f--r-i--·-1
Charts from: IBEX Chart Services Box 693 2420 Ist Ave. Seattle,Wash.98I2I
COTTON Cont:.lnuoi:.ion
·cv· se
I I l l I I
9712l 1971 97::3 517~ 97S 5176 977 15178
8
REVERSAI..S I83
COMMENTS
v-
An upside reversal within a bottom is virtually meaningless.
forget it !
I 84 REVERSALS
r-O.K.
An upside reversal within a counter uptrend, quite likely
foreshadows a continuation of the prevailing overall downtrend.
~-good?
Lastly, bu~ most importantly, an upside revers 1 attended bv
unusually high vo ume shud be taken very seriously as a topping
formation.
,._______...
Buying in a bottom·area can tie up one's money for a considerable
length of time. Positioning in a top area is also apt to tie up
one's money bu~ not for as long a time. There are two principle
advantages to positioning in a bottom and/or top area. First, one's
risk is easier to calculate and limit. Taking a position after
a trend emerges runs the risk of a nast- 1 s owf:ng ~o a bre~out
failure ora s fr
I) 'spearhead'
the 'v' or inverted 'v'
the island tops and bottoms
the I-2-3 's
the double tops, bottoms
the triple tops, bottoms
2) formal patterns
the rounded tops, rounded, scallop,saucer bottoms
the head and shoulder formation
the triangle
the wedge
the flag, pennant
the diamond
the rectangle
the box, platform
the low sloping trend channel
SPEARHEAD
FORMAL PATTERNS
The round top, saucer top, scallop top is illustated on the next page.
8
R:."'"VERSALS I87
This formation,
as the name suggests
is a gradual reversal
of a trend. The upward price
movement gradually reverses as
selling pressure gradually overcums
new buying and prices slowly work into
a downward trend. Just turn the pattern
upside down and it is a picture of a rounded
saucer, scallop bottom - i.e. a gradual reversal from a downtrend
to an uptrend. This type of formation is occasionally accompanied
by minor price swings creating the scalloped effect. One advantage
to this formation is that the rounded top, bottom becums obvious
before the pattern is complete. Traders often use the establishment
of new positions close enough to the fulcrum to utilize it as a
stop-loss point. A rounded top is usually formed by a commodity
whose daily range is rather small. With this type of chart, the
picture is usually followed by a major move. Large saucers consti-
tute a gentle major price reversal action. Consequently, they occur
far more frequently as bottoms than tops. Sideways action immediately
upon breakout from a major saucer is a common patience - testing
occurence, per 'a' and 'b' in}
A sym."Tlet.rical triangle,
broadening
Pennant Flag
-:----....
~
descending
~scending
I
The wedge is perhaps even more useful when spotted than the
pennant or flag, for it is frequently the final consolidation area
prior to the formation of a major price reversal.
The Diamond
----- ==:~~~~--~--~----~--~--~--~--~--~--~----~·g
see chapt. 23. ) •11- 72 CDI'P!R MU tm .l.t. _:.. !
I
r---~--~--t---,---~--~~---f'·---+--~--~--~-----~
'I
t-r.!:",,-:-:r'',-ii--~-~-~---r-----...:...--+--+---:- ......_______~--1;u
This is a
classic }·' i 'tl !
t---~:·~~~··_~·~·;~·f\~----~-----~·--~----------...:...--...:...---~;~
consolidation
reversal
pattern, r :~.JI
,;l
:"1
• !
i',li'
I~~;
' l:
lo.:
•
'1·······;....
1
·
!1
i
·~f
!
I
............ ; ••.••.• ~. ' •••. J I
..
which occurs
infrequently.
. .
......... . ..,.. ....,..
,, , ..
occ:
,. . .,..,..
" ,,
I92 REVERSALS
see chapter 23
The Box
----
It is smaller than the rectangle.
r
The Platform
------
c
- is small
saucer
and, the
extended
bottom.
Deflated prices usually stay down longer than inflated prices stay
up, as it usually takes longer to absorb an oversupply than it
takes to sate an over-demand.
_ _:_ _ ~--·-IMMENSELY-
' ·INFLATED
1---.;__.;_..__IMMEN!>ELV -
!DEFLATED G K
: I I
REVE?$ALS 197
BOTTOMS
Bottoms are customarily characterized by moderating activity. For
this reason, pla:tform major price reversals and rounded-, scallop
major reversals are more often located at the terminals of down
trends than uptrends. This includes the H&S formation.
I) short term
- spearheads
2) medi urn term
- I-2-3's
3) long term
- rounded bottoms
RevERSALS I 99
TOPS
A top constitutes a price level which will ultimately prove to
have been unduly inflated. Unduly inflated prices exert a crucially
powerful impact on producers and consumers. The longer such prices
persist the greater the resultant impact.The chartist is always
concerned with his ability to recognize the commencement of a trend
reversal. What always occurs at market tops is that there are no
longer any buyers and prices collapse ; when all the bulls decide
concurrently to take profits and suddenly sellers are without buyers.
All markets have only one top per year. In looking for the top,
give the market plenty of time to do its dancing or possibly
look for a sharp break in an uptrend line, followed by a rise so
that we get a I-2-3 consolidation top pattern.
I
#I cud be a spearhead
~2 is the reaction
#3 is the last rally
It must be kept in mind that the more prices rise the more likely
they are to continue to rise. One must be aware that once markets
move, there's usually plenty of time to get out and a trader does
not have to panic about a sudden decline unless, of course, he/she
bought in the topping formation. Markets do not simply rise over
c
R-~ERSALS 20I
If u play U're hand correctly with a plan, U are more likely to end
up with more profits than U anticipated. So long as the trend line
remains valid, the market will continue to trade in the uptrend
channel in a succession of isolated highs and lows and the prevailing
trend is assumed to be intact. Prices may penetrate the trend line
in a session and then close back for a day or two. However, the
penetration of the trend line shud raise the possibility of a trend
reversal.
~t
b ( on a medium term basis )
failed to pass the previous
descending triangle
wedge
flag
pennant
island reversal
inverted 'v'
trend lines that are broken.
L closes down
·202 REVERSALS
To review: -
1. volume. c.ha.p:t. 4
2. 0. I. c.ha.p:t. 5
3. c..o w~n op-<.ru..on c.ha.p:t. 5
4. c.ommatme.n:t on aa.de!L6 c.ha.p:t. 5
5. c.Mh c.ha.p:t. 5
6. ba.o-U c.ha.p:t. 5
7. odd6 c.ha.pt. 5
204 REVERS&..S
6-i..nd U 'tte6 e..£.6 a. te.c.hnJ..c.a..t too.£. tha;t U lik.e.. [ how a.bo!Lt P&L )
a.6teJt,
U ha.ve.. .£.e..a.ttne..d what J..o J..nvo.tve..d wUh
I) e..t)t)o!tt a.nd dMup.Une.. c.ha:pt. 17
2) ~ e..£.6 - awa.tte..ne6~ c.ha.pt. 18
wUh,
the.. 6/tJ..ng e. b e.ne.6-i..U o 6 k.nowJ..ng a.bo!Lt
a.) who w-i..YL6, who .to~ e6 c.ha.pt. 16
b) pe.Mona..Utlj ~ ne..c.u~a.tty
6ott ~u.c.c.e6~ 6u.£. :tn.a.cU.ng c.ha.pt. 19
c.) who t!ta.de6 a.nd how c.ha.pt. 20
a.nd,
£or..tho~ e. o6 u who like. 6ood 6oJt thought, theJte. r .6 c.ha.pte.M
1 , 2 , 3 , 1 0 , 11 , I 2 , 1 5 , 2 7 , 22 , 2 5 , to tto und th<.ng~ o 66
a. bd,
a.nd,
the..n,
the. p e..nui.;t.,i,ma.t e.,
' Po-int a.nd L-ine.. ( P&L ) c.ha.Jt.ti.ng,
ne..xt c.ha.pteJt.
'10 U 1
get' a..t.e. 06 thJ..o, theJte.. 1 ~ no ~toppJ..ng U QltOm ma.k.J..ng tha.t
12 rn.Ulio n J..n U9 ht ye..a.lt.6 •
Hope. U'Jte.. ha.vJ..ng t)un. )
CHAPTER NINE
Now, i f U are a futures trader who has been trading for some time,
u are probably perplexed by the special activity that relates to
each trading day. I mean, really, what is each day's activity all
about ?
Sure enough, prices will crash/rise thru trend lines, bounce out
of congestions and do all sorts of things. Now I ask U - how many
times does a commodity break thru a trend line ? How many times
does it bounce out of a congestion ? Not very many. Even then,
these exits and bounces can and do abort.
To continue :
Big deal. But then what I have just said is true. And this is
where this author got stuck.
Time passed and all sorts of things filtered thru this author's
technical search. I tried to expose myself to everyone's viewpoint
and then I became fascinated with 11 mathematical trend a.nalysjs "
mentioned in chapter two.
What more cud I ask for ? Than a mathematical constant which was
an average of such and such. Where can I go from here ?
- prices each day moved a maximum of "x" mm. away from the
'dot' line
-prices each day, moved a maximum of "x" cents up or down
from the dot itself
prices eventually stop moving above the main line in an
up market into an area or channel just under the line,
and in an upmoving market·, prices are topping
- the dots started to move closer and closer together in an
upmarket and the market was topping
- dots swung off the main dot line - bells ringing left
and right ---- market is topping
- the dot is swinging more, it's falling under or above.
The dot didn't swing under or above. And sinceit didn't,
and not doing what it's supposed to do, the opposite
is happ~ning
- instead of the dot going up exactly in a straight line,
or down in a straight line, they are "snaking" very
close to each other, horizontally - we're in a congestion.
Often I can tell, two days into a congestion that we're into a
congestion.
Now .that I've taken u this far, I'm afraid I will have to take
U thru lots and lots of explanation and slowly unfold and reveal
/ and illustrate the effectiveness, reality and constinancy of
I what I call ' P&L Charting ".
I've just told U what it is. The formula is on page 573
P&L 209
U people who are into Point and 'Figure" charting may even throw
it out altogether.
I presume that even some of those who will use P&L charting will
becum such avid enthusiasts that they in turn will start to throw
out any other new, innovative, technical analysis. The fool
that U are. But, why not? I know I'm hooked on it.
- dot direction
- dot distance
- distance from dots ( 2 dots on, 3 dots on )
- dot swinging
- dot turned up/down
- crests
- channel system main channel
outer channel
main channel lines
channel momentum
- T.R's
- hitting/digging
- blocking
- normal tops/bottoms
- abnormal dot movements
- secondary keys 50% retracements
trend lines
target projections
openings
closings
... -
A full page sample
is on page 572,
which U cud use to
make copies of.
Figure out how many horizontal lines U wish for each cent in the
commodity u are charting.
one line
for each
'dollar'
in gold
high $222.50
low I93
close 216
cotton ~5'
high 55.30 ¢
lo~· 53.20 f'-1
close 54.60
~~
)l.
~CJtJ
silver high 602
low 592
close 598
S7o
dot calculation 594.50
160
_
I
I most certainly wud be foolish to place it on
the day's range, wudn't I ? I wudn't see it,
and if I placed it on the vertical line two
to the right of the day's range, then I wud be
placing it on the vertical line on which I
will be placing to-morrow's prices.
--·- --
_......; .
214 ?&L
So, he=e's how Dec. (Chicago) Silver Oct !6~~/78 looks for the
last seven trading days.
Do U notice how prices flitter about on one side of the dots and
then swing to the other?
We will be studying how the dots move away and towards each other,
( 'dQt distance' ) and how they swing away from the line which
can be drawn th.~ them ( 'dots swinging' ) and how dots move
above and below each other and what the movements of these dots
portray.
So, there we have it. Dot direction gives the day by day trend
of the commodity. If I'm lazy and if I wish to day trade, I trade
only in the direction of the dots. If the dots are up, I look to
more later
IDOT DI STAf·KEI
Now, let's look at how the dots move away and towards each other
and what it can !ll~-~n.._ Let's take our Dec/78 silver illustration
and tack on another four weeks of trading, and see what we can
learn from dot distance.
First of all, I guess U can see that dot direction is up, except
for short term congestions A , B , C , where dot direction sort
of slithered sideways. ( the fact that A,B,C, did not 'dot:__down
strongly meant a congestion existed ) .
Now notice that in area 'D' , gats are quite amazingly equidistant
from each other ! So are E and F area dots ! And so is G (B) , the
five day contra-trend congestion ! This illustrates a perfectly
happy harmonious market for those few days. Dots are equidistant
apart ( amazing ? ) and in approximately an absolute straight
line. ( amazing ? )
But look what happens on day #I, .the dot turns flat ! The market
is temporarily losing upward steam. Look at the selling the next
9
P&L 2I7
dav, #2, ...•.. it closes down to 564.50 . No way wud that market
go higher or up strongly that day ! Too much selling pressure.
But, good gracious, look what happened to the dot that day ( #2 ),
.... it went up .... which meant that buying pressure was really
there that day, and look what happened the next day. It opened 6¢
and closed IO¢ higher. And the dot moved away from #2's dot .
And, the next day, and the next day. Dots equidistant. Good
orderly momentum. But look at day #3 •.•••.•.. the dot flipped
sideways again. O.K. No way on day #4 wud prices go up strongly.
U wud look to sell, or take long profits, or whatever. Look what
happened to the dot on day #4 . It moved down. But not very far.
Certainly not as far apart as were dots of days between #2 and
just before #3.
This was the signal to me, that since the down dots were not far
apart, that I shud be preparing to buy again and go long, and that
some sort of flag, pennant was forming. And, sure enough, the
days following #3 put the dots close together and in a straight
line and finally on day #5, the dot moved slightly up off the line
and I was a buyer ( more later ) . And suddenly on day 6 the dot
moved strongly up and away we went.
So u can see how, generally speaking, the dots tend to stay i~a
straight line and that as the market is temporarily slowing down,
·the dot will pull back towards the previous day's dot, one way or
Ianother, and that when the dots·move apart, we have an expression
of a renewed or new trend.
When U get to realize how important the distance of the dots are
from each other, U too will appreciate almost immediately what
the market will do that day and possibly for the next few days.
It is not the purpose of this book to teach U everything U need
to know about dot distance, but once U see the dots unfold as
they shud, or shudn't, U will know all that there is to know.
2!8 P&L
If during the course of events of the day following the day U have
put a dot on the chart - prices move "x" mm ( millimeters ) away
from that dot, U will find that given the normal momentum flow
of the commodity for that general market period - weeks to months -
that the price will be very temporarily ( or permanently, a. top/
bottom ) , over bought or over sold, for that day. ( This enables
u to be in on the very top price or bottom price of the commodity
for that contract price, if u acted inothis range. )
What I am trying to say is. that if to-morrow's price goes "x" mm.
from to-day's dot, then in an upmarket, I wud get out of my long
position, and possibly go short and in a down market I wud get out
of my short position, stand aside or go long. This is especially
true if the dots are ..,.ide apart and momentmn channel uery steep
more later ) which wud ·be an expression of a runaway market or
a exhausting market.)
ooor•oo::l·--··0~--- ..
--...I'==~~
;--.Jl""oor---- ....- - - - . :. : - --==t:
=~:::::::: - f.•
::::::::: =--=.:~. :::-..::1. t1:::5:::- . . . ..; ...:=; ._,...:::. - P
·- --:;:= : ----=-i:;
0
=- ----- ------- . -
This is an actual
working ·chart
: ::.r.- - :. of soybean '77
-. -- -~0 ----· ,_ .:. -
-:~-
market top •
- r-:r: ~ see if U can
- 1'-1-0 - - . - find the dot of
--~ ~;:1 ~~- --0 - -
.= - . =- -"1-· - ~ : ,...;._
·~=::;!; -~
.-.·---~~
.. - ....._.,___; the day before
0
_.
• - • o...,j ' - : : :
-- .:..
:
: "
-
~
...
-
- ___.,__
- r--
9
P&L 219
Let's look at silver ...•. I4 mm. seems to be the figure for silver
at the moment,
-- ·-· ----
. -----·-- --- --- ------------------ ___ I_ s~:A·~~
.
0 • ; !
l .. _ .
L__ _:_~-- --- ---_;________
0
" u v _: .·' ) - _- i_ tBT;_--- _ _ _;
~ r . : . . .. . . _• -·- ------- ___
; -·-
)-.v:~-:~:~-C. ·.-:~·_:-:~;:------: • ·. - . :
...
_, ·- , ...
.. - -- .. -
s~ :·_>~_::;:~_=:>::t-~-:- i --
~
_-=_; !~)-:--·
t~
_""T""_ _·..:..·;_·..;.·
-!-- ..
......
./
Take any commodity U like and if U have the patience, trace out
the dots and high/lows and see if U can cum up with the "x" distance
from dots at which U wud buy/sell, for that commodity for that
'season' . Look at the silver illustration again. Days B,C,D stopped
at I4¢, and back a few weeks; it was stopping consistently at around
9¢ (days E,F,G,H,I,J,K,L, ). Since silver has opened to I4¢, does
this mean it is opening up to commence a bull blow-off, or is it
already topping. I'll tell U something, something is up!!!
---- .... do Usee how watching these dots and prices around them
signals the market's mood ?
-
-+-· .._
·t-
---
----
1-- _..
·-:r. - ·-
-·
.6
t --
§ti--
- 1'1-- -
--~
- --
.,:.-
=~-
:F-· •
1
.........
222 P&L
Now, let's look at this distance from dots another way, and that
is from the criteria of two dots on, three dots on.
- that's
to-day.
Now, guess what ? Let's have
a little snapperoo. Let's put
on the line the dot that's going to be there
two days from now,
and, why not put on the line the
dot that shud (will ~t?)
- three days from now
be there 3 days
- two days from now from now.
(to-morrow's dot)
A to-day
Well, on the line we've got
to-morrow's dot (who cares .... to-morrow
is going to happen anyways •.•. maybe the
dot won't even be on the line to-morrow ..•. a
crucial signal !!!!! . . . . more later)
So, what's going on? ..... if we already have the dot on the
straight line two or three days from now, to-day, we have a
\] calculated price i.e. the dot already before us, and somehow the
prices of the day two days away, and three days away are already
P&L 223
Since we wud presume that we already know what the prices cud be
in two or three days from now , in order to give the appropriate
dots so they wud be on the line .... what the heck is one supposed
to think if prices already move into that range, - to-morrow ?
If prices to-morrow ( day #I) are already up to the price of the
dot for the day after, or even better still, the day after that,
i.e. day #3 , then prices to-morrow are already where they're
going to be 2-3 days away ( or 1-2 days from to-morrow ) .
Q
N
X
'0
N
Q
11'1
11'1
"'"'
J
...
..
Look at day '3' -its' prices ·stopped on the upside in the area
of the dot two days away - '?' . Ditto for day D,E,F,G, . This
/{
business cud go on for ever, and it does.
P&L 225
~· then again,
if all that was happening
was that a new main
channel line
was developing and a steeper
one, wud it not hold true
that '2dots on,3 dots on'
, or even better '4 dots on'
wud work on this new main • _/
/
And, u wudn't either. And U won't when U cum across some of them
U'reself. They're all right there. U have all the Fieces right
before U're eyres, as 1 do. All U have to do is think about them.
226 ?&L
We're going to speed up a bit now. I've got a lot to cover and
I will be talking to U in a less gentle style and will be more
didactic. I will be stating realities and·presumably U will catch
on to the significance of P&L charting and appreciate the
significance of that 'dot' or point. There's all sorts of neat
little tricks cuming up. I leave it to U to think about why
they work. (Because, if I can get U to think .••• I know
U will effectively employ P&L charting and make just scads and
scads of money, and if U employ what's in the rest of this
book, U will keep it! )
DoT SWINGING
The day that dot swings off the main channel line,
watch out !!!
/
/\
•/ • dot swings off
/
•
/
/
•
P&L 227
The day following that day that the dot moves off the line, U
look to sell •
.·
Just because the
·sell in this area
dot moves off the
line doesn't mean
- look to sell market has topped
this day. ( may be only - it's just topping,
good for - maybe just entering
one day ) a congestion, but,
look to sell or take
profits from long
positions.
In an upmarket, dot moving off the line means that market losing
( hasn't lost - just losing ) momentum. ( rPverse for down market
..
l ••
. --·-- ..... .
-- - ..•••.
' j
•- .
•__ ~ .. :1)cr.~.:--·.. -:~_:_:~·:··:·-·---.------.--~~-----~--
I
I
"
1 • '\-dot turned down from 'a'
•
•
I
I
I
I
.
, /• '1" whoops
b
- dot just turned up from day 'b'
/
•
I
•
' •, • • )'dot just turned up
\
It's not a bad idea to go with the dot. If the dot turns down, go
with it, look to short or stay short. [ I've already taken long
profits, thanks, because dot swung off the line the day before ]
Let's look at the silver chart again, and I will extend it further
backwards to give U further illustrations. It's on the next page.
Days the dot turned up and U cud nor have gone with it.
- #'s IO •.••. only one day- not bad ! and even then U cud
have gone with it because even two days later, prices went up
P&L 229
• • . .
: ·
-·:::::·:~~~:-: ~.:_:_·_::-
.. :.:t· _-· .. t·- ..
: ·;. 'l1._:7_. - _.. :_ . ·:.:::·_._:. !_ . ; .: -. -,~~.T •.· . ., ·, __ 1~_.=-:_-_·. :
:-: .... •• ---" • •
..:.~;:.: ~----·:.
• - . •1
-- •
·------------------y-·
tflll •
--y--
.. -.- .
'. •.
---~----i---. --:-----i ---;-_---.
.
Days the dot turned down and u cud have gone with
it are #'s II,I2, I3, I4 •
Days the dot turned down and u cud not have gone
with it are ( remember the major trend in silver is up )
- #'s IS, I6
- only two days
( remember what ·I said about 2-3 dots on and
trees and forests ) /
So, out of I6 days, only three days of dots turning didn't work ••
the principle of dots turning up or down is BI % effective
- not bad.
F&L 23I
down. If prices don't go crashing on down the day after the dot
goes flat o~f the l~ne, tSen pr~ces are oversold and Euy~ng
support evolves.
To note here:::::::- the dot shud not move that quickly off
the line. This fact is placed in this book, because u will cum
across it in U're trading and u will have sum reference therein.
So, we.' ve. c..ovette.d the. bcu..i..CA ..<..n Point a.nd L..<..~e. Chaltting
1) dot d.Ute.c..tion
2 J dot futa.nc..e.
3) cU..ota.nc..e. t)Jtom dot ( 2, 3 do:U on )
4) dot .ow..<..ng..i..ng
5) dot t~ne.d up/down
a.nd, U' ve. le.a.Jtne.d to look a.;t Une..o dJtallJn tlvw the. do:U.
Nov:, le.t'.o .te.a.Jtn the. .tauJ, tee, doe..o,
- "c..Jtut" a.c..tion
- :the. c.ha.n.ne.l .o U.6 -tem
- .the. T. R. '.6 ( an ..i..nCJte.d..tbf.e. de.v.i..c.e. )
- :the. c.onc.e.p:U on IU.:t:t.<.ng, d..<..gg..i..ng a.nd , bloc.IU.ng,
Then we. wil.l look a.:t noltma.l :top.6 I boUom6 a.nd .oome. a.bnoltma.l
dot movemvU:o
·.Then .oome .oe.c.onda.Jty ke.y.o e.g. 50% JtetJta.c.eme.n:U, ta.Jt.get pJtoje.c.iloYL6
\ I a.nd .o:tut) t),
WheAe.upon we. will. delve ..<..n:to :tJtend a.na.i.y.o..i...o a.nd c.onge..otion a.na.ly.o..<...o.
9
232 P&L
CREST ACTION
Here's a crest
,the 'crest'
•
Taking the high/low/close bar lines off the silver chart makes
the 'dots' look like this, and will reveal the crest
. - ..... _
- -- -, ...... .-- . .
~--
?&L 233
c) 6 to 7 equals 8 to 9
d) distance 8 to 9 equals IO to II
All we're trying to get at here is that the closing price of any
day subsequent to the t~e a crest is formed can either represent
a challenge,
.~.
close is above •
or below ·,
236 P&L
I) channel wall
2) main channel
3) main channel line
( thru dots )
4) outer channel
5) outer channel line
/
P&L 237
For silver, we take the main channel line, and draw two lines
-~ parallel to it,
7 mm ( mill~eters)
on each side, creating
two channels.
.!. . .
--~---------~-------:-----.-----
. . .
-..... ---.--- ·-:- ·-· ---------- -------
·r-~o
--s--~o- ·- :· -. --··
--s70
:--se~--
.! .
.- -- .. - _, .... -. ......
........
....-·-
- .. ---
.. -. -.-
--. . . . . - t -- .. - . ; . •
.- : . -- - ~: .::.: -~-:: ~. : . : .
_,._ --.---:---~~---:-.7"7."':-:-:-.-~.--.-:-·-:-----
r- ___:_·. __ :~:~---
. : -· <:. ...
---- - ....... .
-- ........
= :;::;- : .
.
~
.. . -. .--
L-·---~-
- .
•
.
• I •
LJ : : :.;-~··.:.
.. ..J:I---···--------.·--'-=-:-:.:..-::-:~~ -~~: :._:..::.:_ . _----
__ -------- ___
. .
: : • • 0 • '·
-- - -.,._ ....... --
-. --------
: - -;_________ ~ ----------------- . •··-
. ·--·-....
;
-.
·- ..
... - each commodity has its own channel width. Do some tracings
with P&L charting and U will find the width appropriate
for the commodity U are trading in.
- -·in the main channel, note how, ·channel wall caught high
section prices at 573 . Notice how two days later, the dot moves
'A' in ofr main channel line and the next day prices are off.
illust.
note how in outer channel, prices il~!:~er up in outer
section channel for five days before falling thru and never enter
'B' back into the main channel
section - now the main channel in the down market - look how it catches
'C' low at 56I and then see how it slithers around for three
days in outer channel 'D' before moving up.
section - very interesting. Once again catching the highs. Note how
'E' prices close one day outside main channel 'E' on the upside
at 584. Rarely does a price do this - it means that the
following day prices had to explode to keep up the same
momentum, but it didn't and fell back into the main channel.
What a day to 'short' . - the bull had evaporated. A typical
bull blow-off. Look at that area again, reread the above and
see what l mean
look at the congestion between 'G' and 'F' , when the dots
are snaking almost horizontally, - even then the channel
system was catching the highs at 558 and the lows at 545.
9
P&L 239
There is plenty to see with the channel system and it's all yours
to use in U're trading plan, if U wish. ( Don't try selling it to
others, because it is copyrighted, as is all of Point and Line
Charting, per chapters nine and thirteen ) •
some tricks:
I) low momentum MI
2) medium momentum M
2
3) steep momentum M
II
3
e.g. in above chart
A, E •
P&L 241
/ - phantom line
Project a line
up thru dot of
day 'X' , similiar
to momentum M and
2
draw a line
7 mm. parallel to
it on the upside.
Now, I suggest u
subtract about 2
mm. from 7 to give
u '5' mm, because
the dot for the
next day more times than not will not fire rite up but be a l.ittle
to the rite of the projected ( phantom ) main line. If U look
closely, U will see that this 5 mrn. line turned out to be the
'channel wall ' . This is a reasonably interesting tool, and with
a bit o= exposure U will cum to appreciate what market movements ·
are all about and how almost predictable they are. This trick belongs
especially to market congestion and topping/bottoming analysis.
THE T,R,'S
Now I'm going to revert a bit, and hold U' re hand again. I
want to go thru this in same detail because of its relevance to
Point and Line Charting.
242 ?&L
~
h h = isolated high
rj~~l
1 isolated low
and,
the phantom isolated high/low
phantom high
/
phantom
low
-·
. ~ ... _
·---- .
··- '·-·
Definition time !
~
day have a daily
low on either
side. At
lower/ '
lower
than than
A A
T.R. means
Prices swing from one T.R. ( the isolated and phantom high/lows
to another, alternating from up, down. up. down llp, ciown up,
down, - ip infinrite se~Je~c&
P&L 245
I've done quite a bit of work on the subject, and I've got
two pyramiding formulas
I - 2 - 7 - IS - 32 11
$35,000 is needed 11
I - 2 - 4 - 5 - 7 11
$10,000 is needed "
To review:
246 ?&L
.--.
i
[? t:-((1 oo
. -~.
eoP.FE£
r·
:(!ace Pt
l -------r~--+---~~r-~~~~~~~~--~~~~~~~~~~+--
: S UG
!
i-~~~~~~~~~i-
' 7 f'L1t11WIII')
. ~••q-t $A "j'
.. •. . ..·· ....
. . 0 JL.,..
Ct-rliL"E
ffCJ'~
-~ -. •,. .... .
(' l."fWOOO ;:t ..;
, ls>o~t>--~-~,_,.,1';,;:i>
$1~ VE:fl.
__ J
P&L 247
An uptrend begins when the last peak of a rally from the down
market is penetrated on the upside. This new trend stay in effect
until prices fall below the most recent low. There is an absolute
market with this concept. An uptrend can be reversed in only one
fashion, and a down trend can be reversed in only one fashion.
Profit/loss
I¢ = $50.00
profits = 6350
losses = ISSO
So,
using $IO,OOO starting capital, I guess that's 38.76%
return on U're money in I4 weeks. Not bad, I guess. It's
quite an approach. Remember Murphy's Law ? - wherein, if anything
can go wrong it will. Probably if U were to use this approach in
actual market conditions, it wudn't work. Something wud go wrong.
But, my goodness gracious me, it seems to work everytirne I see
it on the charts.
9
P&L 249
I like to use these T.R. 's in knowing what has to happen with
my point and line charting ( cuming up in 'hitting/digging'
and blocking. )
HITTING / DIGGING
Let's assume an upmarket.
Prices are going up, dots are up, channels are up and everything
appears happy and normal for the bulls.
Now, we know that there are such things as trend lines, resistance
lines and now with Point and Line charting, we have the 'channel
wall' and the 'main channel ' .
It may sound ridiculous, but I envisage the market hitting its head
against these little lines on the upside. The market goes up and
then hits its' head against a trend line, resistance, or the above
two tines.
/
Big deal U say. But what happens if prices continue to hit its'
head in subsequent trading days and eact time within the same
general area ? Wud U not say that there appears to be resistance ?
Well, there is. Prices may hit a trend line and stop. Maybe it hit
its' head hard enough so that one of the 'dots' moves off the
main channel line
off the main channel line, there's going to be a lot more head
hitting. Are u starting to get the picture ? Altho' the market
may continue to rally, it's going to hit its head on the next
available line and keep hitting its head, sometimes 3 or 4 times
-maybe 4-6 trading days .•.• resistance is incredible.
~=a 'hit'
.....
••••• '.:
.
.-:-""7
; . -. . . . ~ . R: _; ·-~
-. -·------:------------ ---.:..-----~---·- --·- -·+--:--·-· .
I . , .. ~
. ·- ' :·
----. ·-·---
.........
r •. . ..
• --. 1
,j
···•,
.......
.. . •I .... -·...
- .• .. --.
. .
.. . ·--
. . .... . ... --.-
--·.....
~
... .. . -.
~
~.
. .. - - . .. . ....
. .
.. . .
::-::: L:::. :
:. i :I·-._·~
. · .:.~-~.L~-~3-~~_l~:~~
--
- -.,,...-------
.- .
_ _:____'
·-s:1~1···_-
.
'
'
•·
-··
1
- . ~-~·
-~ r~. ~ 8~ AL..i.t :~·· ~ ::! ':iJ
.Toft,. . . . - - .. - . .. . .
.. s:>o· . ::· :: .. . . :plt\C&f"C ... ~-. :-:.: ······ . . : -·: .:
--- ... :----.
~ . . . -· . . :·
--~-=--=-~-=--- ~
-·-::·----:~:--
....
- :- : t~~;-~~~r~~~=J~ :~)~:.;·=~-:~-:-~~r:__:_::~
.. ::! : .: .. ::::
~ :~::: >-~~ ~-1: ~ -~:: ~-~ :! : :. .-> . : . .
P&L 2SI
Let's take area 'A' prices start t0 hit the channel wall
'W' ~ 562 . No sweat - it doesn't mean market has stopped.
It's just our first 'hit' . All it did was validate the chanpel
wall line, because if a line is hit, the line becums valid and
U can buy/sell on it ( in this case we sell. } Prices fiddle
around for 2 more days between 558-564 while the dots caught
up on the line. Remember 2-3 dots on ? Prices therein move up
to trade for two days @ 563-569 , but, U know what ? They never
got near the channel wall 'W' • This means to me that prices are
not even strong enough to go back up to touch the 'W' wall. In
fact, the prices were such that on day 'R' ( range 562-569 } , the
dot swung off the main channel line -ever so slightly. But all the
signals were there for me to consider taking profits and maybe
shorting because a price correction was cuming up. On day 'S',
prices hit their head again on a line drawn thru the last two dots.
Getting complicated ? not really. All I'm trying to do is illustrate
that my psychic starts to get ready for a price correction epee
that 'hitting' occurs a few times, and each hit is on a different
line
~J
~~ as each line swings over.
Now,
U know what ?
There's only one thing that will relieve all that 'hitting'
or digging if it occurs. There's only one thing that will relieve
all that pressure, if say, hitting has occured. And, it's the T.R.
Because I know that once the T.R. is passed thru on the downside
(just approaching it in a runaway market is enough sometimes )
and especially if prices have just ticked thru or snuggled up to
as in a runaway market, that the market can almost immediately
shoot back upwards. Once that T.R. is snicked, then the market
can do anything on the way up. All the old lines that evolved
the 'hitting' are now invalid and prices can now shoot up thru
them as i f they didn'texist. This rule is firm .• so firm that
generally I consider it a firm one. It's so amazing. If there is
a T.R. nearby, prices wills~ive to get there, one way or another
once the hitting/digging gets underway.
In area 'A' of our silver chart, there is that phantom down T.R.
@ 559 on day 'X' and this T.R. price is passed thru on day 'T' ,
thus relieving the 'hitting' pressure, whereupon I look for
digging in , which occurs on day 'T' , 'U' , 'V' .
This may sound all very complicated at the moment, but don't
worry, because if D shud get involved with P&L charting, U will
cum to know it as a visual momentum barometer, and u won't be
able to live without it.
I cud make some more rules on the topic. ( Now don't groan. )
They're just refinements and not really necessary and cud serve
only to fog clear cogitation.
~~~
HITTING
T.'};~ DIGGING
17~
P&L 253
r
\r\~R'M•f 1_ ?&L 255
SECONVARY KEYS
And,
/''\
they are \
I)\50% retracements
2)}trend lines, support & resistance
3 )j targ~t projections
. 4} opem.ngs
IJ 1
) closings
256 ?&L
I) 50% RETRACEMENTS
3) TARGET PROJECTIONS
A -------------- B
Now, separate that straight line but keep its actual length /
identical,
A-------------------
B
The distance between A and B is the same and who cares what
goes on in between them as long as the distance from A to B
remains constant. ( I like constants. )
9
P&L 257
To repeat,
A----------- B
c---------T
from 'C' to 'T' has to equal the 'T' , the constant,
since it is a part of it. This being the case, then,
A -------"~"---------
--------·~·~~~---------T
258 P&L
t-lhat we are saying here is that the distance that "B" travels
plus the distance "C" travels is the same as the distance as
the crow flies from A to T since it is part of the distance
A to T, and that,
So, we have
"B" + "C" =A + T
( "B" + "C" ) - A =T
and, let's mirror that and make it
T =( "B" + "C" ) - A
WE GOT IT
"B" , "C" , and A are prices that are the low or high for that
particular day.
/
So, now let's look at our silver chart and find some of these
highs and lows that we can put into our formula and see
if we can cum up with a target.
Calculation A=$5.7I
B $5.92
c = $5.83
9
I
(5,~c-Si"t•) 'i"!>-~:::: o,~f ~S8J ..:it' 6.0it. P&L 259
W~V<. A.~C
J?,/c. c.:: J..oo1 · A~ <{"h c ~Wit, !
Don't forget that prices moved from 57I to 604, a distance of 33¢
and it didn't matter what happened in between, did it ? It still
got there. The only problem was that at 'A' we didn't know that
prices wud go up 33 ¢ • But we did at 'C' because we cud take
(B+C) -A from our formula and by golly, if prices do go up to
604, the target area, I sure as heck want to be ready for a top,
and as of this writing, it certainly is having a grand time up
there - seven days of congesting- at least I'm ready for the
bear crack correction if it occurs.
I will now take the silver chart and put it back a bit to show
U some more illustrations. I will designate the isolated
highs and lows for U and lay out the calculations and I leave it
to U to apply it to any commodity U wish. Have fun.
( formula (B+C)-A = T )
CB +c >
2 2
- A
2
= (5.89 + 5.60) - 5.59 = target of 5.90
·- --t -i - - ...,._
- ·-l-
-- - -·-
·- -- --.:..;·- -·~···-
::==
·-
. :;.:-; :--
~-
.-l. - -
·-f--
_.,..,..,___
~1
:::::!.:~-
~f-._-·--
For example,
Maybe on closing. I wud like to be shorting if its against
a main channel line. I love this !
Such is ~~e beauty to me of P&L charting: Anyways, I had bought the( CJ·
day before because it was at 50 \ retracement plus the outer (/
channel wall, plus I luv to buck a counter-trend move. ( see chapt. <~>
on trends, chapt.6 )
(5.82 was about S-6 mm out from the main channel line - to the
outer channel wall. The low of the next day just touched the
outer channel wall. Also, I just luv to buy or sell the Ist
day that prices ever enter an outer channel or the dot hasn't
swung, up or down. This first day in outer channe1 bnylseJ1 is
a firm rule. See if U get what I mean. )
262 P&L
/
most closes are above dots and breakout will be up
~tt_,rr
/ ~hit this day
phantom
Note the other side of the coin, in that the trends are clearly
marked by straight line channels and dots wide apart, in
A, c, D, F, G, I, J, K, M, 0, Q, . Do U see how readily distinguish-
able trends are from congestions, and how with P&L charting they
are readily recognized ? At least, I for one know when I'm into
a trend or congestion.
GOOD LUCK
tSUGGESTION "'
- MAKE A PRECIS OF THIS CHAPTER .
i
PART
CHAPTER TEN
PRICE MAKING INFLUENCES
toc.a£6
big boyJ.J
U:ttie. g u.y
c.hcvr.,tU, ;U
he.dgvr.
c.ha.n.:t patieJtYLJ.J
m~~e.t pJ.Jyc.hatogy
PRELUDE
U might very well ask "Why bother with this and the next
chapter?" . U may yawn U're way thru it, but U must realize
that the time will cum when U are sitting there, watching
the "box" of the charts, or the newspaper quotations and
wondering .... "what the heck is going on?".---- with prices.
I know, I have been thru it .••. U want to know why prices are
moving as they are and what in heaven's name does "this price
movement mean?". Maybe it's not really worthwhile to know
why the prices are moving, - but, it cud be comforting to
have an idea, and maybe relieve some anxiety in the process.
Anxiety is one of our chief enemies.
NEWS
In interpreting and understanding price movernents,if U see
that the market will not act on bullish news, don't buy !
- and, if the market will not fall on bearish news - don't
sell!
WEATHER
This one is all very obvious. If it doesn't rai~ we have
drought. u can't grow tomatoes in dry desert sand. What is
important is being able to anticipate a drought, and,
understanding what the rumours &/or actual facts of lack of
rain have on the market prices, and, this sometimes includes
price effects for a one particular day, as the floor traders
watch for signs of precipitation on their local news facilities.
These floor traders have a first impulse into the market prices
for a particular day.
The other approach is the more long term one, where by means
of sunspots, or, as the way things happen, there is a drought
in the Mid-West. This can have a profound effect on prices
for North American grains. Sometimes, even a hint of drought
can send the grains for a very nice medium term move. ( maybe
even 50¢ to $I.OO on beans.)
Big capital can be laid, and big capital can be made using
seasonal & cyclical patterns as one·of these approaches to
forecast price movements.
FUNDAMENTALS
Needless to say, - "fundamentals" - supply and demand - is
what it is all about, ( besides making money ) •
When U assess the fact that prices have gone far out of kilter,
that eventually, the forces of the fundamentals will play
to create a correction of the price level.
PRICE INFLUENCES 273
However, let's take a look at a few things. Why not ask the
following questions:? - What are the figures of the U.S.
production and stocks relative to a year ago ? What are the
demand prospects domestically ? Better or worse than last
year? How are the number of animal units if it's a grain
feed, or the level of demand for the major industry for
which the commodity is a raw material? What is the production
like outside the u.s. ? Is it larger than a year ago and
where ? Is it a normally exporting or importing country ?
How do the export propects look ? Is it the production of a
competitive society ? How about the government loan levels?
Is it higher or lower than last year? Are there any other
forms of government support - such as export subsidies - or
import quotas ?
Population to double
Mexico City - if current
growth rates continue,
Mexico's pop. of 63
million will double
in 20 years
One thing for sure, the law of supply and demand is going to
be vicious, no matter what the circumstances of individual
and collective thought portray. I wonder what will happen when
some wrought-up individual blows up the c.E.O.T. with a little
nuclear bomb, protesting the sharks who are allegedly responsible
for the problem of food shortage ? That shud be an interesting
one.
A tree cut down in the Lake Tahoe area found rings or cycles
that many droughts do not simply last one or two years - they
last for IO years or 20 years.
PRICE LEVEL
A price level, at a particular moment, can by itself influence
prices. Obviously the horde of the public is going to be
buying like crazy the higher prices go and most certainly near
the top. They are influencing the price at this level by
keeping it there. But, they are buying from strong hands and
when the public is satisfied, this price level will by itself
cause the market to crack, and potentially be the market top
for that year. Certainly, smart money buys - especially if
they can do their timing very well - at market bottoms. Price
level assumes that a position is attractive to this smart
money.
The affinity for the public and weak traders to assume that
prices are cheap seems to be based on the psychological
precept that the price cannot go below zero on the downside.
Whereas, the sky is the limit on the upside. There seems to
be a huge vacuum on the upside and the public has this affinity
for being bulls. ( As well as full of bull. )
. I.
j.
. . . . : 4 : : ::-: :~ . :_ i--:~.::! ~-,;.,..-. =i:
·i .
.
·-.
.
! . . . . . . -· - - · - .- · · - ·\·~~~
••. ··- • -. -- · - - -- ' 1.5
.. - t ----4 .
.:.:-:·. -.:-· :: ·;.-:-:
) .. ' . --. -·-
-l- :m:::·-
.. • ,--'·
---.;....
' ' u
~F.r
~In' ~ SD!VlCZ
. a :..,..• ~ ~"! •... ~ j, M. !• ~ ... ,. .'Z.c: •I SE9'T~ 1 ·~ ! ·..o: !• He. • A "••U:r P\4>11cati- of
c::r::»>IIIC%"'1 ~ •UJIEAU. DC.
One l.Uoerty Plau X. T. X.T. 2 OOOfi
TREND
Trends by themselves can influence prices. Once a well-established
trend is well under-way, it tends to perpetuate prices much
longer than most traders wud anticipate.
r
PRICE INFLLTENCES 277
SPOT PRICES
The following table will illustrate what one can expect from
a rise/fall in the cash price and its relation to futures
and the concomitant results.
WHO TRADES
.Loc.a.£6
b-<.g boyJ.J
LU:.ti. e 9u.yJ.J
c.ha.Jz;t,U .:tA
hedgeJr.
.f..oc.a..£6 :- They account for much of the "noise" that cums across
the ticker tape. They gobble up the gap openings, reversing
themselves to close the gap and reversing again as the gap closes,
taking their little bites out of price fluctuations all day long.
They are unable to influence prices beyond a day or two, if at
all.
and their faces after close were beaming -they somehow had
taken advantage of this character and they had gotten a
good one. Why not? If the cattle trader was stupid ecough
to let his pattern known.
We are all subject to the same rules. In fact, the big trader
is watched more closely by the regulatory authorities.
All this I cannot figure out - whether the cart is before the
horse or the horse before the cart. I do know that patterns
create markets and these patterns re-occur and re-occur.
so once prices are in a trend it will stay in a trend, and
once prices are in a congestion, they will stay in a congestion
by virtue of the pattern. Oh god, let's get on to the next one!
ma4ket p~ychology
What about the government loan level? What is the exact dollar
and cent price - is it higher or lower than last year? Are there
other forms of government support such as export subsidies -
import quotas? Prices are now affected by complex government
regulation with regards to harvest time. Another predictable
bias affecting prices is the influence of the government loan
program. Futures prices in wheat for example, have regularily /
risen toward the guaranteed loan price. And even tho that
movement is predictable, it cannot take place until the
movement into government hands has occured.
Remember the big, big price swings of '73-75 -well, the really
keen professional traders recognized the fact there was
government interference. They quickly learned to discount
official reports and proclamations made for general public
consumption and devised alternate sources of information.
Moreover, recognizing that the markets were overeacting
they decided that the best strategy was to ride the trends
and trade less frequently. That is, trading when risks appeared
reasonably low, and they temporarily discarded some old
concepts. They took a broader view of the market. - in fact,
they took an international view. Both minds and trading plans
were flexible enough to acquire profits even in those
unusual and adverse times.
QUOTATIONS
r
-"·------~ ·----·-·------------ ----------- --------------- --------·--
IO
PRICE IXFLUENCES 289
- Eric Sevareid
L. Taylor
PRICE INFLUENCES 29I
CHAPTER ELEVEN
market theories
Pnel.u.de.
Jta..ndom
!ULUIJ, ne.a.c.t...Lon -ttte.nd, c.ongMtion
WaVeA
C.tj c...Uc.a.f
e.xpe.c.tationo hypo~hMi¢
ga~ng hypo~hMi¢
PRELUDE
Prices fluctuate up, down and sideways, and a lot of this
fluctuation is nothing but "noise".
So, I guess we'll sit back in our little 'ole rocking chairs
and get to know a little about the why's and how's of market
wiggles, and, maybe, at the end, I'll share a great big yawn
with u.
HISTORICAL
New concepts displace other and old concepts. Theoriticians
will never give up. I suggest u join them. I argue fervently,
for example, with the random walk theory. [~&L charting has
;;abled me to show that the very short term day to day
fluctuations are constant, given specific momentum and ~•Y
deviation suggests a weakening of momentum - the dots are
swinging - the prices are not going during the day to the
areas where they shud, and accordingly, the direction of
prices prolate themselves in keeping with the new market.
movement ]
I
1
I
~
•
r ~ t~sing price,
to prevent dots swin~ng.
( Take my word for it,'
• it's true )
MARKET THEORIES 297
So, u see, even I, with an I.Q. of about two, can assume new
concepts displacing old concepts.
New Concepua
I Displaced Concepts
1. Open·Comract Concept:
Futures markeu serve primarily to fa· Futures markets serve primarily to facilitate
cilitate contract holding (1922). buying and selling. (Disproved.)
4. Pnce·of·Storage Concept;
Storage of a commodity is a service sup· Storage of a commodiry is a service that is
plied often at a price that is reflected in supplied only in response to an assured or
intencmporal price spreads, and because expected financial return equal to or greater
the holding of commodiry stoeks can af· than the cost, the lancr calculable ordinarily .
ford also a "convenience yield," the price without regard to the quantity of stocks to be
for storing small stocks is often negative stored. (Disproved,)
(1933; 1949).
6. Mnlttt·BIIlllnct Conctpt:
A significant tendency for futures prices Aversion to risk·taking, leading to risk pre-
to rise during the life of each future is miums, produces a general tendency toward
nor uniformly prt~ent in futures mar· "normal backwardation" in futures markets,
kcu, and when it exists is to be attrib· statistically measurable as a tendency for the:
utcd chiefly to lack of balance in the price of any future to be higher in the de-
marker (1960). livery month than several months earlier.
aDares shown in parentheses arc years in publication of at least the substance of the
which the conecpts may be said to have new concept.
emerged. Where rwo dates are shown, the
Source: Holbrook Working, '.'New Concepts
earlier one i~ the d"e of publication of
~dcnce recognized as chalicnging the older
Concerning Futures Markeu and Prices,"
Americ1111 Economic R~il!1li, S2. (June 1962):
. concept; the later date, that of first· known
298 !-l.;RKET THEOP.IES
PRICE FLUCTUATIONS
/ta.n.dom
Jta.Lty Jt ea. c.tio n .t!ten.d
c.o n.g eo :U..o n
wa.ve,o
c.yc.L<..c.a1.
RANVOM
The random walk hypothesis is really a simple theory. It merely
says - " Price changes are unpredictable, when only the previous
price changes and not all available information are used. "
Futures and cash price changes are uncorrelated with earlier
price changes.
There is one thing that those who hold that the random walk
model describes reality better than any other model; - they
do not say the trader cannot make money. - the theory itself
becurns fair game •... that it sets the tone for the game makes
beating it a delicacy never expected with certainty, but
always savored. The assumptions of its tenants sharpens the
trader for the battle. He can win but only if he discovers
the reality of the "random" theory.
People like Tewells, Harlow and Stone put forward the likes
of which are presented in the following statement: " Successive
price changes are independant and that past prices are not
a reliable indicator of future prices". I agree except that
P&L charting suggests to me that there is a potential range
for the next day's price - and not random.
1
- - [(Xz - €1-1) +(XI- 10 1-1 - 10 r-2) .,. · · '
m
1
y~m) =- !(m- 1)e1 .,. 1 + (m- 2)e 1 _ 2 + ...
m
(3A.4l
There are several books that deal with this matter. Take a
visit to U're library.
It is trend directional
and on a day-to-day
basis - not random.
third day
302 Y~RKE~ THEORIES
only the price level wit~ the time of day (see chapt.8&23)
so that with experience G can anticipate price movements
for the day on a straight line basis. (see chapt. 6,1,8)
RALLY REACTION
U must admit that not taking into account that prices may
meander all over the place or how they meander, that in the
end run all they do is meander and rally up or down in trends
or rally up and down within sideways patterns. If all that
prices do is fluctuate then all that prices do is go in three
directions only - up, down, or sideways, - within all designated
formations that are perceived by mankind. Such is the birth
of P&L charting).
Also the faster the trend progresses and the steeper the trend's
angle ·of ascent or descent, the sooner the trend will reach
its ultimate objective, and correspondingly the shorter will
be that trend's life.
/:A:;;~
lke •waves~~ecause it takes into account trends, congestions
dament ~ technical foreplays of all traders and factors
and shows the undulation of the market as it unfolds on your
chart graphs.
There are a few things I wish to discuss about the wave theory.
We will start with an observation about the length of each
fluctuation or wave :- each successive wave tends to be of
.\\ ecrual d ation, but don't oo or erfect fits. Wave mea urementJ\
does provide the trader with an idea of the magnitude o eac
sw1.ng. (see target calculatl.on, c a_ • 9 • -------........ ,/
And, the veteran chartist often does not oppose a major trend
unless it has gone thru three separate stages. First, an uptrend,
- the initial thrust, - then a period of consolidation - then
a second upthrust, - another period of consolidation, - finally
the third upward movenment, which often marks the culmination
of the major move. This rule of thumb usually works better in
bull markets, than bears.
and adaptation and the :ast one that mixes the belated zeal
o= the latecomers witt the lagging strength of old age.
Now, the next idea is that Elliott's wave counts are based
on t::.e "Fibonacci Su."tlmation Series", a no. series with
interesting properties. It has been confirmed that both
living and inanimate objects obey a no of laws that revolve
around the mathematical properties of this series. Using a
"Fibonacci" suromation (!-2-3-5-8-I3-2I-34-55-89-I44-222 etc.)
it is possible [ what do u think. ] for scientists to predict
how the population of animals will multiply, how plants will
grow, how crystalline structures will form naturally, and a
great many other things. This series also yields the "golden
mean" that is used in architecture. It is evident that study
of this series discloses mathematical relationships that hold
in real-life situations. It has been hypothesized that these
relatiors.hips are so all-inclusive that they extend into the
psychological arena as well.
CYCLICAL
That hedging and speculation shud influence price, apart from demand
is reasonable when one recalls that the total value of contract
trading in the futures market is often much greater than the
value of physical supply and demand. Prices are less responsive
to supply and demand where speculation is low. With high levels
of speculation and no seasonal patterns one sees little or no
3IO ~ARKE~ THEORIES
I have yet to talk to anyone who does not feel that commodity
markets is a "game" and is gambling. I find nothing more
preposterous than this assumption. No wonder people consistently
lose money in commodity trading. They buy, sell, sit back, hope
and pray that the game will go their way. This is a facetious
!1J..?.Y...E:" T~ORIES 3 I3
This chapter and the last one has been to some degree,
one great big yawn! But, yet, has it? Actually, it's
been fun. At least it's refreshing in its diversity,
and shud prove to expand U're appreciation of the futures
market, as being beyond solely a vehicle to make money,
altho' either is a superb entity unto itself, and each
by itself in conjunction with the other, wud enable the
trader to appreciate that there's nothing quite so
enjoyable and fruitful as expanding one's mind or one's
pocket book. v~hich is better, I leave to U. )
3I4
CHAPTER THELVE
•
systems & servtces
Modw
Mode£ BLUl.cU.ng
A CYU;t- Cha-t
r-"ODELS
In the last several decades, a Yast amount of work has been done
to erect a means of technical and fundamental tools, all with
the aim of anticipating future prices from trading statistics or
whatever.
The most expensive model in the world will not improve upon
correct estimates. In fundamental analysis, the first step in
building any model is an analytical study of the relationships
which are most important. At the early stage, one draws a kind of
economic road-map to point up the main cause and effect relationships.
l refer u to quite a road-map on page ll This model is
much too much for me. This is something for the bureaucrats in
Washington to play with. -- it wud probably keep about two buildings
full of them happy.
2
MODEL BUILDING
U are going to take this book and U are going to develop U're
own model ( with lots of help from me ) , otherwise throw this
book away rite now or add it to U're library and becum an
expe~t. ( All experts have a nice big library. )
The biggest problem for most traders is when to buy and sell.
It is not that all difficult to predict the direction of the
cur~ent trend or that it may reverse someday - u must take
correct action at the right time. U, of course, can do this.
( chapt. I3 ) .
Develop some ideas on what the market is doing without the formal
framework of a model. Take a look at wh~t prices in supermarkets
are doing and how people are buying. - if people are filling their
buggies full of coffee, U know that the coffee market has
reached it's peak.
/
Remember that few can trade every day and emerge winners. Change
U're style. A corollary here is to have several model approaches
( chapter I3 ? ) which u have developed and as I say, develop
the flexibility to jump from one model to the other, and write
down U're reasons on paper, each time u do.
The most cautious approach I can give U is that U're model shud
ferret out the big moves and to sit on them. Here I quote the
penultimate advice - - - it's just beautiful and perfect,
from Mr. Stanley Kroll. The Professional Commodity Trader,
I974, Stanley Kroll )
2
3!8 SYSTEMS:SERviCES
4. forecasting the next year's total supply, total demand, and resulting
carryover. and
A CHIT-CHAT
The -c=ader wuc ":.hen be able to see whether t.."'le "V" :formation
can make any reliable tracing signals. U may eventually becum
sus-::ic.ious of computers, as I am, altho' I use a "home" computer
to ~~ore data ~~d create some wiggle-waggles on its screen.
I think U wud agree with me. However, wud U agree with me that
SYSTE~S:SERVICES 321
Traders have been searching in vain for the perfect system. The
idea is as intri_guing as it is illusive. As I say, perhaps thousands
of trading systems have been proposed over the years. However, a
fev> can have merit, and knov-'ledge of the principles on which they
are based cud be an essential part of a trader's bag of tricks.
Why are many technical all but worthless ? The most common reason
is that the originator has a very limited amount of data and tised
only that data to create his system. The system turns out to fit
that contract experience and none other. Sometimes, originators of
technical systems phrase their trading rules in such vague terms
that there is really no way of knowing when U are really doing
what U are supposed to do, in actual trading situations. When
confronted with the fact that the system failed the originator can
then claim that their user misinterpreted the rules. It has been
said that a system shud be judged by two things.
322 SYST:S!·~S :SERVICES
Signals are given by many day's price activities and ~rP extremely
diffic:.1lt to define mathematica1ly. The chartist is simply performing
a highly complicated and subjective multiple correlation analysis
as he examines his chart.
Go back over existing markets and see that the approach U decide
on works, and observe when it works and get to know when it works.
However, please do not let me negate U're purchasing any trading
plan which-is available. There are trading plans which I wud
certainly not negate, and there are certainly lots of them.
~eason for buying a method may be that the method of trade selection
is sound but the trading plan is incomplete, with no allowance made
for t~ings like money management. Losses cud be due to poor money
management and not because trade selection was inherently poor.
Because the importance of the complete plan is usually over-looked,
the chances are that many valid methods of trade selection which
u might locate, are uneffective because of this reason.
Develop U're model plan. Stick to it. Be flexible and let the
infinite possibilities of U're mind guide U, in U're discipline
and U're use of it. ( And, U will have that million bucks is
five years. )
·r -··
2
Please do not forget that altho' the market may have discounted
t~e news that has entered the market, and that the facts are
known by large trading houses and other profe~sio~als, but that
in reality, certain events can occur unexpectantly. Prices may
not have completely discounted these occurences in which case U
might be caught off guard and very little can be done in these
situations to protect U're position ( and that includes the
professional ) except to be alert to recognize the event,
especially in thin markets, such as orange juice, platinum, and
potatoes. A sudden change in market trend can occur sporadically.
That is why I stay from thin markets, except to trade them in
anticipation of trend direction, such as when seasonal and odds
are in my favour. (chapt. 5,24.) Buy orange juice in the summer
in anticipation of a frost scare in the fall. (maybe.)
SERVICES
Believe me, there are some honest, wonderful brokers around. But,
I think_it takes experience to know one. That is difficult for U
novice tradeEs out there. I guess the only advice I can give u is
to ask a broker on what citeria he makes his trading decisions,
and see what U think. Wud U buy a used car from him/her ?
Also, maybe U shud write to Bruce Gould @ Box !6 Seattle,
Washington 98II~,since he has a list of brokers who take it
easy with their trading. But, u will probaly have to subscribe
to Mr. Gould's service to get it. Not a bad investment, I think.
I subscribe.
When U go outside the brokerage house and your broker, U're left
with nothing but the professional advisor. He charges U
for his service.
/
QUESTIONS: I. Why do U give trade advise if U know how to make
money, - u shud get all the money U need from ~~e
commodity exchange, like I try to do.
3. Yes.
4. Yes.
7. Yes.
THEN,
you've got a first class advisory service ..... subscribe
a~ fundamental research
- Bruce Gould
Box I6 Seattle Washington 98II
Remember also, that commodity letters and free advice cud get in
the way of listening to the voice of the market. Better to see who
is buying what at the supermarket. Or, that the market is not
flowing with the news as i t shud.
And, take note also, please that, several brokers are great
technicians and have profound knowledge of the markets and are
very successful, but that, when they trade their own money, they
are unsuccessful. Accordingly, because of their psychological
make-up, they trade only their client's money, since only with
someone else's money, do they have success, and do it extremely well,
and I mean extremely well. I think that U will find that this is
the case with U're successful broker. This is the kind of man/woman
I2
SYSTEMS:SERV!CES 33I
( I think so. )
" And all around U'll find peace. Not sleepiness. But the
tranquility which stems from being mature of years and
knowing the pace best suited to getting the most out of
life "
It's rather embarassing when U've made a bad trade and U see in
print - U're own handwriting, how inane U were to make that trade.
At least U have a record of the reasons behind that trade and can
analyse it for future use. ( Even categorize and put them in a
box for future reference ) . (A box for good trades and one for
bad trades )
KEEP IT SIMPLE
1. vo.tu.me.
2. cpe.n inte.~e.~t
3. c.c nttz.a.Jtia.H c pinion
4. c.ommittment c~ t~ade.Jt6
5. 'c.a..6h'
6. 'ba..oL!>'
7. , 0 dd.6 ,
8 • .6ea.6onal patte.Jtn.6
9. c.haJtt pattef!.n.6
1. tr~end.6
Z• c. o n 9 e.o t~ o n.o
3. p!!.~c.e JteveJt.oa.l.o
i~ c.onge~tion ti~ety to be
a.) c.ontinua.tion
b J n e v en~ a.t
Con~iden : volume a) high/tow activity
duning the. da.y
b) high/tow a.c.tivity
a.t ~uppont a.nd
n e.~ i~ tan c. e.
c.) nean a.pex a.nd at
binth
thnee. da.y~ up/down, one day down/up ?
length o6 c.onge~tion
he.igth o6 c.onge~tion
P:...A!~KING 337
0. 1.
ccmmitt. c6 t~ade.~~. cent~.
opinion, ca..!:Jh, cdd.o, ba.oi,!l,
.oe.a.oonal patte~n.o, cha~t
pa:tte.Jtn.6
via ~e..6e.a.Jtch
0. 1.
comm. c6 :tJtadeJt.6
volume inde.x(chap:t.2)
ba.6 i.6
pJtemium
monthly,we.ekly baJt chaJtt.6
BJtu.c.e. Gou.ld.
Box I6 Se~ttle, Washington 98II
FIRM RULE
NEVER COMMIT MORE THAN 30% OF EQUITY AT ALL TIMES
I tend to use 20%.
ThJtow :th-Cb boo~ ~w~y i6 U b!te.a~ :th-Cf.>
Jtu.le.. r don':t wan:t u in my c.~mp.
O.K. gang. Now U know the ground rules. do the above ~nd
U've got it made.
O.K. now that U have committed U'reself to the above, and have
becurr. totally exposed to all their facets, we will get down to
some more details such as record keeping, what I wud do if I
had $2,000 to invest or one million. I will explain how I trade -
long term, day trading, and swing trades. I will explain what
a fool I can be, and then again how easy it is to make money,
consistently. How I trend-buck, trend follow, pyramid, congestion
play and how I handle tops/bottoms. We will discuss what I wud do
if I was not a full time trader.
And, U will get an idea ho~ I use Point and Line Charting!
The trader, like the gambler, will find it far mo1:e difficult
to handle his money in a 1ogical and disciplined manner, than to
learn the rules of the games, if he does not include as a rule
of the game - money management .
. the chart purist who does not wish to knok' anything about
fundamentals ot the market, seems to represent too extreme
a view for the successful long term price forecasting ...
... the ideal compromise is to use both .... when they
agree, the combination seems likely to be highly profitable
when they disagree, the market shud be approached
with caution
STEP # I
STEP #2
(Also, prepare a weekly and month~y bar chart to look at the 'forest' !~!)
+ IO ¢
see pg.II3
/
+- 5 ¢
- _s ¢
- IO ¢
346 PLAl-lNING!
I)
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onos
I~ "' •
describing
~ what the contract did the day before. Did
it stop at a trend line? etc •... where was
it strong weak, whatever.
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COMMODITY date
technical
VOL. CASH chart pat.
0.1 BASIS trend T.L. Is last
CONT. OP. ODDS congest. support day's
COMM. TRAD. SEAS'LS reversal resist. acti.
PSYCHOL. MKT. premiu 1 s so %
trend mj.
med. cong.
(con.)
P&L min.
(rev.)
day's up
dt.ds. dt. hit op.c.c down
¥ dt. off op.dt c.c target
dt. pos.: old dt. c.c 3dts .on
I-2-3
2 day dt 1 .l-
dys1' ~ breakout
c.c hit
~....-1_ I
oid c.c
Action taken
We have
The 'DAILY ACTIVITY RECORD' accounts for the activity that took
place that day, see next page, ( at the top ) and the open /
positions held after closings, which includes a 'power statement'
under it based on closing prices and closed out trades. ( $8,584
plus gains on 'open' silver contracts ) . Margins are portrayed
to give me an idea how much 'free equity' I have for 'free' trading
and if I'm over margined ... I am in the illustration.@ 35% .
.( remember the 30 % equity rule ? ) . The accummulative balance
is next portrayed on the 'ACCOUNT BALANCE RECORD' , two pages from
here. This tells me how I've done on actual trades, profit or
loss. I like to have this because I can see if I have more wins
than losses they're clearly defined, as is the running
profit/loss figure re: current balance. This is U're closed out
350 PLANNING!
PREVIOUS ACCUMHO~ATIO~ :
AC':'IVI'U Ac:c:<>un~
I 1'1.1.-l
... ,s
CO"II•O NO. ~. ltti.l'l 8oUUIT! ~'"'""'! 9.i9 ,.,..,.. "".,~(~~ ('u,.,••·" (Cir"tNNr hE.., IM~.Jtrj
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OPEN POSITION
au'fj ~L ..
1' .J,.
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---
5-C.L lfc.Ju Oc. TI
POWER STATEMENT
--
---
---
--- Mlt:OIN ON OPEN TP.AtiE~
~~~
------
---
-- --- POWER
--
--
---
---
--
--
---
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PLANNING! 35I
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ACCOUNT
YEAR
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I3
PLANNING! 353
I hate to tell U, but I've got one more sheet! use. It's just
to have on my desk daily, as a sort of quick-glance watch-dog,
written out each morning. Read it over - I think U will get the
idea. It's very handy and sort of programs me for the day.
STOP_
SOYBEANS
!Pr••~nt poajtjon
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BROILERS IJ.~
;
SILVER
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!sPECIAL
354 ?LANNING!
I will say that as I write, I have no idea how they will work out.
This is written before an analysis of the effect these approaches
wud have on the chart. It shud be fun. Are U ready ?
Let's discuss money management firs~. We'll assume that the margin
for silver is $!,000 . Therefore, to meet our criteria of 30~
equity rule, we'd need $3,400 to start with one contract. If we
shud build equity in our account as we go thru a plan and it shud
increase sufficient to take on more contracts, yet retaining the
money management rule of 30 \ of equity for margin, we will do so.
If at any time we get under our base cash flow of $3,400 , we will
see what we shall do. ( Probably borrow from our favorite Aunt ! l
Also, no account is being made for bad fills. And, an assumption
is made that we do get filled within close approximation to price
mentioned. ( Do U follow me . )
PLA!\'TNING 355
Keep in mind that the trader who maintains at all times a maximum
( no matter what ) of $50,000 in his account and trades a maximum
of $8,000 of that amount at any time, will be around a long, long,
time ...••... superb money management. !
BREAKOUT TRADER
TREND FOLLOWER
TREND CHANNEL TRADING
TREND LINE FOLLO~~R
HOW I USE TREND LINES ( P&L CHARTING )
THE TREND BUCKER
BUYING/SELL:::NG CONTRA-TREND
BUYING SUPPORT
SELLING ON RESISTANCE
B'l"Y!NG/SELLING @ 50 % RETRACE.iENT
THREE DAY UP/ONE DAY DOWN TRADER
TrlREE DAY DOWNJONE DAY UP TRADER
THE CONGESTION TRADER
FOUR KINDS OF TRADER
SANDWHICH TRADER
DAY TRADER
POSITION TRADER
SURE THING TRADER
356
IB:REAKOUT TRADER
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358
This trader wud have done his homework and assumed that the trend
of silver wud be up. He wud always look to buy, take profits,
never go short until major ~rend turned down. He's a long ~ermer.
He thinks like this : Buy or. breakout opening @A ( offset @ 532)
@ 547. Flag develops @B, get out as prices go thru flag about half
way to end of pole target ( 6.00 ) @ 580 and stand aside. (profit
5.80- 5.47 = 1,650- 50 commission, equity now $5050 ), and wait
for 50 % retracement from top of pole 588 to bottom of pole 532 ,
i.e. 560 which occurs @'C' and buys again. As price approached
previous high again @ 588 @D , he wud be suspicious of a double
top and wud take profits on close. (5.84 , with profit 584 - 560
= 1,200 equity now 6250 ) and wud buy again probably if prices
went over the high. But it didn't. Prices cracked. He wud still
look to buy and wud have done so in congestion @E (stop @542). He
wud still be long since prices have gone over 588 and the 580to
590 area seems to provide support. His profit @F if he had closed
out, was 6.IO -5.60 = 2,500 equity now $8,750 , a $5,350 profit.
Does this make sense ? Do U see how a trend follower only trades
on the side of the trend and do U see his thinking as to when he
takes profits and stands aside ?
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359
Really a difficult job and I hate it. U want to know why ? Because
there are so many chartists putting channel lines on charts and
there are stops in the market all over the place, with false
penetrations and breakthoughs. I mean, how do U know when to act,
unless U use the upper channel wall to trend buck with. But, do
U know where to buy ? Sometimes, a clearly defined trend channel
exists and sometimes last a long time, but by the time it's formed,
it cud be a little late. I don't know. There's not one trend
channel in the above I cud be happy with. What do U think. Sorry !
I like trend lines much better cuming up next.
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360
>C·
lHOW I USE TREND LINES ! ( P & L CHARTING. )
Now, let me show U how ! use trend lines. Part of P&L Charting )
It's going to blow U're mind and cud make U a millionaire. I shall
try to go thru it in detail and hopefully U will grasp it. It's
incredibly beautiful.I hope U're ready. It's one of mv secret,
secret weapons and I'm glad to give it to U. ( Some people wud
charge thousands to reveal this one.What the heck. Why shudn't
I give this one to U .) Here we go.
is closed
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First, we draw a line thru the highs of day 'I' (550) and day '2'
(546.50) and we have our trend line.OUr P&L trend line.( remember,
always close the gap) • We have a trend line. If prices go thru this
trend line we go with it, i.e. day '3'.@ 53B .I shall now draw the
lines for U and see is u can figure it out. ( u will !) Draw line
thru low of day 4 ( close gap ) and day 5 and sell if prices go
down thru it, i.e. day '6' @ 568 . Buy next day @ 568, sell @ 572
(I leave it to U to see why. look at the chart. ) @ day ~ ?
a line thru highs day 7 & 8 , and buy if prices ~o thru,~~- day~
9 @ 562 . praw line thru low of day 9 and low of day TQ (close gap)
and sell as it touches that line @ 5.82 . Please re-read the above
and see if U get the message where to draw lines. I've drawn the
lines for the rest of the chart for u. If I tried to describe each
line I wud be here forever. U shud be able to figure how they are
placed. If U have troub-le, take U're time, U will see it. Now, I
will review our buy/sells to date, and list them as well as the
future buy/sells past !0 on our chart as numbered and see what
happens and pyramid with 30 % equity, if we can.
362
anc, goodness gracious me, let's stop rite ~here and talk a little.
No~ U know why I cud not hold U're hand thru all of this. If U
can't figure out how to do it - keep looking at it - the light
will dawn. /
363
Now, let's assume that once u reach $50,000 equity, that U withdraw
any amount over fifty thousand dollars from U're account ( and
give it to U're favourite charity - namely U'reself ) , and accordingly
at 30% equity rule, U're maximum number of contracts with silver
will be IS contracts. O.K., using my trendline system, ( a 'line'
in Point & Line Charting! ) , silver has given 2!7 points in the
last fifteen weeks of trading ( after commissions ) . That's an
average of I4 points a week. Let's lop off two more points for
bad fills, or whatever, that's I2 points profit per contract of
silver per week after commissions and bad fills. Let's lop off
another four points - what the heck, why not ? Let's use that eight
point per contract per week. For silver, at 30% equity of $50,000
at IS contracts per trade, for the year ending after the IS weeks,
i.e. 37 more weeks .•••.. at the end of the year with the above
constants U wud have equity $50,000 ( end of IS weeks ) plus,
8 points at $50 a point = $400 per week times IS contracts =
$6,000 per week. ( Cud U live with $6,000 income per week ? )
for 37 weeks cums to $222,000 plus the $50,000, gives U an income
for the year of $272,000
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Rule . Use trend line ( t.'l-le -~usual' {not P&L) trend line ) , after
prices have been up 2 or 3 or 4 days to short against
and wait three days to take profit.
Day J - short @ 603 (2 days up) -)take profit $400 , 3 days later
@ K - happy wi~~ 594
!BUYING/SELLING COh~RA-TREND
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366
Day A - 50% retracement @ 555, but flag formed, use bottom line
of flag to buy on day I-. @ 560 - take profits @ trend
line @ B @ 587 - stand aside. Profit $!,300
Day B - wait 2-4 days, look to buy. We have support @ 560 , buy
day B - a good bet because of support. ( This approach is
a bit more subjective, isn't it?) - hold to sell @ trend
line @ C @ 585 Profit $I,I50
Day F - wait 2-4 days from isolated high to buy near support
@ 548-50, but try trend line @ 553 Buy, prices ccngest
@ G- take profit, stand side @ 577 Profit $I,I50
Day G - buy in support area 'H' @ 565 , sell @ trend line @ 604
Profit $I,900
Good luck. This is one of the best and easiest and slowest ways to
trade. - They're usually loaded. Have the patience to sit on U're
cash for the buy point and sit on U're trade until profit areas are
reached. U and U're broker will be very happy, as this is one of the
best ways to trade. u cud be in commodities a long, long time. But,
BUYING SUPPORT
Day II - buy @ support line 'D' @ ¥!! @ 565 , hold until trend
line @ #12 hit @ 602 Profit $1,800
Day !3 -buy@ 583 and we're s~ill long
Profit for buying support areas and taking profits @ trend lines,
resistance or 50% up retracements is $5,350 - no losses - I57 %
return on equity in fifteen weeks. Who needs fancy, expensive
moving average, weighted average lines ! Another example of how
easy trading can be. But do U notice we operate by rather specific
criteria. At least it's fairly well defined. I really pray I am
not leading too many people down the garden path. But the above
seems so very obvious. Just take the above criteria to a few charts
and see what happens. Really, shudn't everyone be able to succeed
in futures trading ??? The above guidelines alone are sufficient
to achieve a workable format for success, let alone any programs
r have presented so far and yet to cum. ( Take U're pick ??? )
I guess the reason is that most traders do not have the patience
to sit on their cash to wait for the ·buy and sit on their trades
to wait to sell. They have to fiddle with the market, and are more
st~ulated by the activities of the market than they are by making
money. What do U think.
SELLING ON RESISTANCE
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369
Total profit was $4,150 and !22% return on equity in fifteen weeks.
All this is very subjective, I agree, but it can be dona. - and
we did use some objective guidelines, did we not?
Note. We cud have taken a trade between day 'X' and day 'Y' .
I leave it to U to see why.
370
;(f __ :: -=-··_ -~ .
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/
Take isolated high 'A' (586) and add to it isolated low 'B' (533)
and divide by two and U have $560.50 and this price is reached
@ day #I , which is a 50% retracement down from the high 588
and buy here for day #I
37I
Day 3 - the next third day up, we find a trend line @ day 3 @ 583
on cl9se, so we short. We take profits the next day on close. (The
high of that day bounced off a trend line, so why not wait 'till
close?), on day #4@ 572 • Profit $500 (Not bad.)
Day 5 - was the third day down, so we look to buy. 563 looks
good @ trend line. Buy on close. Take profits next day on close
@ day #6 @ 569 Profit S250 ( Not bad. )
373
Day thi=c day up, on trend line, sell @ 584 . Buy on close
the next day @ day #8 @ 576 ?ro::it $350 (Note how t=end lines
a=e many minor trend lines. )
Day 9 - third day down - buy on close @ 553 . Sell next day #IO
@ resistance line 'A' to take profit. (We have to take orofit
somewhere this day and the resistance area is being challenged,
so why not take profits?) Take profit @ #IO @ 56! Profit $350
Day II - is the next three day segment. (We had to wait three
weeks !!!! ) we buy the third day down@ #II@ 552@ trend line.
The next day we have to be satisfied with 556 on day #I2 .
Profits $250
Day I5 - three days down, buy @ 566 (trend line) and sell next day
@ 574 on close. Profit $350
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374
CONGESTION TRADER I
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Our equity is now $I0,300 and we're getting into formidable profits,
but I wish to stop right here. Congestion trading can be very
subjective, because U can find many variables why u shud take a
particular action and this author cud cum up with one for any point
I wished to choose I may be leading either U or myself up the
garden path. conoestions are easily recognized, particularily with
P&L charting, and easily traded and profits easily procured, ~f
U're experienced or aware. Develop a congestion area plan of U're
own to have ready when prices rest.
I. sandwhich t.rader
2. day-trader
3. position trader
4. sure thing trader
The next trader is the day-trader, who may not hold a position over
nite. Perhaps he takes that three days up/down and gets out that
day, or the nex~ day.
The next style is what I call the sure-thing style. This person
will wait, and I mean wait, for what he calls a sure thing and
then mercilessly hits the market with everything he's got and
pyramids.
377
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I. SANDWICH TRADER
I
2. wAY - TR..<\wE?. \
Let's say his game plan is to act only against the market on
trend lines and looks for 6¢ profit after commissions. He gets
his wish on days 'X' ( can U find the trend lines ? ) , i.e.
seventeen days. Waiting out the market and waiting for these
particular days (we're being subjective) and taking the above
criteria, and if he stated with SIO,OOO equity ( 3 cts. to
start with ) then in the fifteen weeks, pyramiding with the
30% equity rule, up to IO contracts on the I7th day trade ,
the equity is $38,800 , a profit of $28,800 . Do U see why
this trader likes to occasionally day trade ? It's fun and
profitable. I usually limit a day trade to sure-thing trades,
cuming up shortly. Consistently successful day-traders stick to
a trading plan. There's plenty of material for U to stick to, if
c wish to be a day trader. The market is U're's to do with as
U wish.
3. POSITION TRADER
Impossible to pick bottoms, tops ? Garbage All I did was look for
379
a) trend lines
b) support ( to a major trend
c) 50 % corrections
d) resistance challenged
And, that's all I used - four tricks. And U say U cannot pick
the swings. One thing tho' - U do not know whether one of the
above will be the permanent top or bottom to the market. D cannot
assume this. Use long term charts, (Monthly, weekly,) market
psychology, fundamentals, reaction to news, or whatever to achieve
this.
We're talking here of those special, special days, wn1cn cum now
and then. To this author, these are situations of unusual appeal.
To other traders, maybe following the trend is the sure-thing trade.
Draw u·· re list of sure-thing trades and look for them. Actually,
U will be surprised how often they occur.
381
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ARE U READY ?
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382
Take it easy. Take U're time. Take a few months , maybe a year
or two, and U v.•ill get on to Point and Line Charting.
Read this book and get to know it thoroughly, and when U know
and I mean know all the basics of volume, whatever, plus some
guidelines from Point and Line Charting, - svmeday, some.how,
someday U can put it all tog~ther and cum up with favourable
results.
For gosh sakes, don't rush out and apply Point and Line
Charting to U're trading account. Take months· please
take months, maybe a year, until U've got a good grip on it.
And, when U do, don't let go.
-·
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LIST OF PRICES FOR THE DEC. '78 CHIC. SILVER
CHSILVER 7812
DATE OPEN HIGH LOW CLOSE HLC AHLC
780630 543. 50 546. 50 538. 50 541. 30 542. 1 547.8
780703 544. 00 545. 00 541. 50 543. 50 543.3 543.9
780705 546. 00 546. 40 540. 50 542. 70 543.2 542. 9
780706 541. 50 541. 50 534. 00 536. so 537.4 541. 3
780707 539. 00 543. 50 538. 50 543. 10 541. 7 540.8
780710 545. 50 548. 80 544. 30 544. 70 545. 9 541. 7
780711 544. 00 545.80 542. 60 545. 30 544.6 544. 1
780712 546. 00 548.00 545. 50 546.20 546.6 545.7
START (780713 548. 50 550. 50 541.00 542. 60 544. 7 545.3
780714 544. 00 544.00 541. 50 543.30 542.9 544.7
780717 539. 00 539.00 532. 50 538. 70 536. 7 541. 5
780718 538. 00 541. 00 536. 50 539. 10 538.9 539. 5
780719 539. 00 543.00 536.00 541. 60 540.2 538.6
780720 545. 00 557. 50 545.00 557.00 553.2 544. 1
780721 557. 00 _574 .. 00 553. 50 566.80 564.8 552. 7
780724 570. 00 57o.·oo 562. 10 565. 30 565.8 561. 2
780725 563. 50 573.00 562. 50 567.70 567. 7 566. 1
780726 563. 50 567.00 559.00 563.90 563.3 565.6
780727 560. 50 571. 00 558. 50 570. 70 566.7 565. 9
780728 580. 00 583.00 572.20 574. 50 576.6 568.9
780731 574. 50 583. 50 573. 50 582. 50 579.8 574.4
780801 588. 00 588.00 570.00 572.00 576. 7 577. 7
780802 573. 50 575. 50 567.00 568. 50 570.3 575.6
780803 568. 00 571. 50 560. 50 562. 50 564.8 570.6
780804 565. 00 570. 50 563.60 569.80 568.0 567. 7
780807 571. 50 572.00 566.00 569.80 569.3 567.4
780808 568. 50 574. 00 561. 50 566. 50 567.3 568.2
780809 566.-50- 569.60 560.60 562.20 564. 1 566.9
780810 561. 00 572. 00 561. 00 571. 20 568. 1 566. 5
780811 573. 00 579.00 572. 50 575.80 575.8 569.3
780814 581. 00 585.90 578.00 583.20 582.4 575.4
780815 581. 00 581. 00 572. 10 575. 50 576.2 578. 1
780816 577. 50 581. 50 564. 50 568.20 571. 4 576. 7
780817 561. 00 562. 00 551. 00 552.70 555. 2 567. 6
780818 562. 00 562.00 545. 50 552.00 553.2 559.9
780821 547. 00 555. 50 545.60 554.80 552.0 553. 5
780822 554. 00 555.00 548.00 550.30 551. 1 552. 1
780823 543. 00 555.80 543.00 554.90 551. 2 551. 4 /
780824 555. 00 557.00 551. 30 555.70 554. 7 552.3
780825 550. 50 554.80 549. 10 552.40 552. 1 552. 7
780828 553. 50 557. 60 548. 10 549. 70 551. 8 552.9
780829 551. 00 561.90 550.00 561. 70 557.9 553.9
780830 559. 50 563.90 557.70 560.30 560.6 556.8
780831 563. 00 564. 50 558.00 561. 20 561.2 559.9
780901 562. 50 568.30 561. 70 567.90 566.0 562.6
780905 564. 00 569.00 562. 10 567.60 566. 2 564. 5
780906 564. 50 566. 50 560.60 564. 30 563.8 565.3
780907 559. 50 561.30 555. 50 556.20 557. 7 562. 6
780908 554. 80 555. 50 551. 10 554.80 553.8 558.4
780911 552. 00 557. 50 552. 00 556.30 555.3 555.6
780912 558. 00 559. 90 556. 50 558.60 558. 3 555.8
780913 559. 50 567. 50 558. 50 566. 60 564.2 559.3
780914 564. 00 566. 00 562.00 563.60 563.9 562. 1
780915 565. 50 572.00 564. 10 565.70 567.3 565. 1
780918 563. 10 568. 70 562. 00 566.80 565.8 565. 7
780919 565. 00 571. 50 562. 50 564. 70 566.2 566. 4
780920 570. 50 577. 00 570. 10 576.80 574. 6 568. 9
780921 576. 80 577. 50 572. 00 574. 50 574. 7 571.8
780922 570. 00 578. 00 569. 00 576. 80 574. 6 574.6
780925 575. 50 580. 00 572. 80 573. 10 575.3 574. 9
780926 578. 00 579. 00 567. 00 570.90 572. 3 574. 1
780927 564. 00 576. 50 564. 00 "575. 80 572. 1 573.2
780928 574. 00 576. 50 572.30 573. 90 574.2 572. 9
780929 571. 50 573. 80 570. 80 573. 30 572.6 573.0
781002 572. 00 583. 50 570. 80 582. 80 579.0 575. 3
781003 584. 20 589. 40 581. 50 589. 00 586.6 579.4
781004 591. 00 592. 30 585. 50 586. 70 588.2 584.6
781005 588. 50 591. 00 585. 60 588.30 588.3 587. 7
781006 586. 50 588. 00 582. so· 584. 20 584. 9 587. 1
781009 584. 00 595. 50 582. 50 594.30 590.8 588.0
781010 600. 00 603. 00 595.00 595.80 597.9 591.2
781011 601. 50 604. 00 599. 50 603.70 602.4 597.0
781012 601. 00 601. 00 591. 50 593. 50 595.3 598.6
781013 594. 50 595. 90 591. 00 592.80 593.2 597.0
781016 590. 00 600. 5o 588.00 598.70 595.7 594.8
781017 600. 50 604. 50 595. 50 599.20 599.7 596.2
781018 602.00 602.00 594. 00 597.80 597. 9 597.8
781019 592.00 595.20 598. 50 590.60 591.4 596.4
781020 595. 50 596. 00 584. 00 589.20 589.7 593.0
781023 589. 00 591. 50 583.00 583. 50 586.0 589. 1
781024 584. 00 591. 00 583. 00 590. 70 588.2 588. 0
(781025 596. 00 610. 60 596.00 610.30 605.6 593. 3- - LAST PRICE
781026 612. 50 619. 00 607. 60 612. 50 613. 0 602. 3 ON OUR
781027 611. 00 624. 00 608. 20 620.00 617. 4 612.0 CHART
781030 627. 50 640. 00 627. 50 637.00 634. e 621.8
781031 631. 50 632. 50 617. 50 621. 60 623. 9 625. 4
781101 601. 60 . 601. 60 601. 60 601. 60 601. 6 620. 1
781102 581. 60 592. 00 .581. 60 587. 30 587. 0 604. 1
781103 580. 50 591. 00 580. 50 584. 80 585. 4 591. 3
781106 579. 00 585. 50 579. 00 585. 30 583.3 585. 2
781108 590. 00 592. 00 584. 50 585. 00 587.2 585. 3
781109 580. 00 582. 00 566. 50 567. 00 571. 8 580. 8
781i10 567. 00 572. 50 564. 20 572. 10 569. 6 576.2
781113 568. 50 592. 10 568. 50 592. 10 584.2 575. 2
781114 589. 50 593. 00 572. 10 580. 10 581. 7 578. 5
7EH 115 577. 00 581. 50 568. 00 573. 90 574. 5 580. 1 /
7E31116 568. 00 585. 00 568. 00 582. 70 578.6 578. 3
7E5111 7 580. 00 601. 00 579. 00 599. 00 593. 0 582.0
7!:~1120 596. 00 607. 00 594.00 598.20 599. 7 590.4
781121 600. 00 611. 50 599. 00 603.80 604. 8 599.2
781122 601. 00 612. 20 600. 00 609.30 607. 2 603.9
781124 613. 00 615. 00 609. 10 612.80 612. 3 608. 1
781127 606. 50 608. 50 603. 10 604. 10 605.2 608.2
781128 602.00 604. 00 . 589.. 00 591. 80 594.9 604.2
781129 597. 00 597. 50 585.00 590.90 591. 1 597. 1
781130 591. 50 599. 50 588. 00 597.20 594. 9 593. 7
781201 597. 00 598. 50 588. 00 589.00 591. 8 592. 6
781204 594. 00 595. 50 583. 00 584. 90 587.8 591. 5
781205 586. 00 590. 00 585. 50 585.80 587. 1 588.9
781206 585. 50 585. 50 579. 00 581. 80 582. 1 585. 7
781207 587. 00 587. 00 580. 00 581. 60 592. 9 584. 0
781208 585. 50 567. 00 585. 00 586. 90 586. 3 583. 8
781211 590. 00 590. 00 583. 50 583. 70 585. 7 585.0
.781212 582. 50 587. 80 582. 00 586. 40 585.4 585.8
PART
money management !
$
ONE GREAT BIG HAPPY HARANGUE
$
$
topics which are·discussed
f.locJ..aiMm
ma./Ung $100,000
30 % e.qu.<..ty Jtule.
a.cce.pt only 10 % e.q~ Lo-6-6 pe.Jt tJta.de.
t OuJt Oa.-6.-{.c. Ue.me.n:t-6 0 n mo ne.y ma.n.a.g e.me.vL-t
f.l~ng on c.a.-6h
rvU.k
pytz..a.m.-i..rU.ng
co ng eo tio YL-6
d.a..y- tJta.rU.ng
a.nd Lou moJte.
$$S 387
It's early Monday morning, July 3Ist, I978, and by early I mean
4:45 A.M.. I have had a rather pleasant week-end and guess what
I'm doing? (More later). Well, - this book is beginning to irritate
me; - I itch to return to the market, but some compelling force
obliges me to write .. And, I'm determined to finish it - even if it
means not partaking.of the opportunity to make many times more
money in the market than I cud ever dream of making on publication
of this book. -, but here I am, 5:00A.M. - sitting down and
writing a damn book ! and, I'm into a chapter called money
management. It is simplistic. - there's nothing to money management,
except hard fast rules, which U and I, and everyone who wishes to
make money- no matter if we're buying potatoes in the grocery
store - we shud oblige ourselves by. It is simplistic and it is
hardcore. There's nothing like hardcore. I tell U one thing - I
shall precise this chapter to death because money management is
incredibly simplistic - but, U know what I'm doing ? (The more later).
To cope with this simple problem ? I have had I/2 a bottle of wine.
Imagine, at S:oo A.M. , I/2 bottle wine and I'm trying to tell
U one of the truthisms in commodity trading and life. Money
management.
S$S 389
But the same criteria holds true for all of those who have $IOO,OOOO
$I,OOO,OOO , or $5,000 to invest. U have specific rules to oblige
by and that is what is involved with money management.
$$$ 39!
It has been said that C shud acquire wealth at a flat rate faster
than the speed at which U previously stored wealth. That is to say,
it's easy enough to make money and more difficult to hang on to it,
and that u shud acquire U're wealth slowly and surely - at a flat
rate and this flat rate shud be faster than U previously store
U're wealth.
I. initial capital
2. objectives
3. expectation of the game being played
4. probability of ruin
- to this I adhere.
sss 393
All of this above is involved with " risk " . We might as well
assume that there's risk in the market. Everyone else does.
Altho' risk is profoundly reduced by judicious application of
things like "dot direction" (chapt. 9) . It has been said that
so-so trades offer a possible gain equal to or greater than the
risk must eventually drag most traders down. It cud be true.
However, when involved with trading ranges, sometimes the price
objective is minL~a~- however, it is money and in analysing
congestions, it cannot be said that u cannot make money therein
and that the eventual outcome of the market breakout cannot be
determined. Risk is minimized is congestions and this includes,
- bottoming and topping formations.
The risk on each position that U have shud not exceed IS% of
U're total capital and reduce this as close to IO\ as possible
and even less as capital grows. We're talking here of stops
when the market goes against U and with a IO-IS\ loss of equity
U say - " I want out. " . There are times in the market place
394 $$$
Some people play the markets on the basis that as soon as prices
tend in general to rise as the maturity of the contract approaches,
the trader simply goes along and has sufficient capital to take
care of the interim market reaction reversals. A lot of these
people in the long run will have profit.
It has been said that plunging is the most cardinal sin in money
management. Pyramiding, in many instances, establishes u in a
position similiar to plunging.
A
1V 1V 1V 1V 1V 1V
A A
1V 1V 1V 1V 1V
A A 6
1V \l \l 'l
A A A A
'V 1V 'l
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6 A A A A A
•. n.-..-.,.... 1V
co Q
Q Q c Q
c c c Q
t::l c c Q
0 0
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Q 0 0 c
A -15.60
A A -u.~
A A L -15.4.0
A A D. A - 15.)0
A 6 A D. D. -u.zo
r:::::J Q -15.15
c c -15.10
c Q - IS.CID
CHAPTER FIFTEEN
max1• m s
CRITICISM
There is some old saying that will justify almost anything.
There is always an equally plausible maxim that appears to
justify diametrically opposed actions. No matter what the
event there are maxims around to describe it. Traders often
blithely choose the one that encourages only what they are
doing. Orin Thevault ( Commodity Futures Game, Who Wins,
Who loses,Why! - Mcgraw Hill ) states that sociologists have
named this phenomenon " selective perception " . The most
favoured alibi comforts the trader when he has taken a loss
or a smaller profit than he shud have.
- Thomas Babington
Lord - Macaulay - I859
398 MAXIMS
MAXIMS 399
A bull can make money. A bear can make money, but a hog
never can .
Watch out for a trend when market opinion seems on~ sided.
FUZZY MAXIMS
The losers are like the lemmings that race to the sea. They
are caught in the trap of self-denunciation , artificial
rejection and they can't wait to get more of it! Bombardment
by negatives, by parents and relatives to children and the
continuation of this thru life is as if there is a conspiracy
to develop and sustain a "can't do" thinking-attitude in
individuals. Conditioning continues thru song lyrics,television
commercials, pressures from friends, relatives, neighbours,
social contacts and nearly all of society. A newspaper cannot
be sold, a news hour cannot be made interesting unless it reeks
with unpleasantries and miseries, .... that which th~ loser is
made of.
The losers of the world love misery ..•. it is the only thing
that makes him happy. Think of it!
Everyday logic does not work in the market. The loser thinks
that his natural reaction to news is invariably correct. The
opposite is true. Our natural reaction to news is invariably
wrong. The loser is mentally attracted to the negative news
output of our society. He knee-jerks in times of embullient
excitement. He will slip into the market with the news rather
than against it. He cannot stop himself from becoming more
and more fascinated with publicized bullish and bearish events.
His mind just does not "cotton" to dull markets. He always
seems to be buying on up days, buying on emotion. The herd
instinct makes him buy on the first reaction in a topping
formation, simply because it's "cheaper",- simply because
his mind says the price is cheap.
The losers mind does not think. It's supposed to. But it
doesn't. It's entrapped by emotion. It's processes are over-
whelmed by fear, greed, insecurity, unawareness. Sociologists
claim that 85% of all the people on planet earth do not think.
Of the remaining IS%, I3% think they think and the remaining
2% think. Got that? 2% of the total world population actually
think! And, it's got nothing to do with being stupid, or bright.
Even stupid people can think. - it's just that they don't!
An interesting corollary here is that the 2% thinkers actually
approximate the percentage of commodity traders who are
consistently successful year after year. The 2% who think,
know the market their trading, know the price movements, know
the fundamental factors underpinning the trend, and the market's
reaction to it, and are well-disciplined, almost bored, without
fear, and know the game in the spirit of fair, good and bad
bets. The I3% who think they think, involve themselves with
all the technical wiggle-waggles of chart formations. Th~
becum "pros" - especially as a result of a short-lived, recent
success and feel that they have found the holy grail and are
capable of finally reaping revenge, and garnishing continuous
success. At the back of his mind is fear, - insecurity, - all
the non-productive behavoural patterns engrained since youth.
They're still there, lurking, and he knows it. And, the market
leaps back up to him, and grabs him, and shakes him, once
again to his very roots.
C. This is the man who just hates going home to his wife with
bad news. Emotions grip him, during this event, just as it
did when he was in the market place.)
Maybe his mind will take a rest for one week, while his
execution is in the market. He decides that if he's not in
profits by one week, then he will get out, or some other
rule. His mind jumps to the task, maybe after that one
week - or when a signal permeates his mental alarm system
that something is wrong with prices, with the market's
reaction to news - the market is just not doing what it is
supposed to. His mind is quick to adapt.
WINNEP~:LOSERS 407
Maybe the mind is lazy. Maybe it just wants to sit and wait.
After all, enough is expected of it. A well honed mind is in
such good shape that like the jogger who is capable of ten
miles, - that running to catch the bus is child's play. It
is so well honed and trained that it can take it easy and
can be lazy. It doesn't have to be worrying about "sprinting
to the bus" -so lazy and so well tuned that it can just sit
and wait for the silly little demands that the market place
makes of it. It handles it like the pro it is - lazy, aware,
408 WINNERS: LOSERS
PoRTRAIT OF A WINNER
Most who trade futures have the capacity to develop winning
styles. However, most cannot resist deviating from their
styles that customarily win for them. The winner sticks to
a winning sty 1 e , - ~nows that this requires patience and
perseverance. The w~nner has the fortitude to await those
opportunities for which his style is tailor-made. A winner
is foremost a controller. He luvs to focus on the loaded
trades. He writes down on a piece of paper his reasons for
making a trade. A winner realizes that there are very few
surething trades and never over-looks the best trades and
he sits tight on good positions. Discipline pays!
PORTRAIT OF A LOSER
The loser is the public speculator. He may have recently
begun commodity trading. He is frequently a poor student
a= the commodity. He places his market action on hot tips,
rumours and hunches.
4I6 WINNERS:LOSERS
William Willi~ rull,· wanted to be a ~~:iaCiator out was ilom in th~ wron~
piace :11 the wron@: ume. lJoaoie to rcaiize his prUnar,r ambition. he tumed
to commocilty tratiins:. '"I'bis wn01e ilusmess is icill or be icilied: says Wil·
iiam. hoiciinlt up his clens:hed iist and fac:illlt the emperor. "The war to ileat
this lhmlt JS to probe ior tile ilac one anci tileD milk it cirv. ~ William accom-
plishes this by wauinr; untii he sees wnat be believes 10 be a IJ'UI oppor·
tunil'!' ed then IIIOYintt in with all his resoun:es. '"I'be way to detennine
the size of an irutilli posit:IOD is to d!vicie your Cftdit balarac:e by the IDIU'JUI
cieposit requi:eci and buy all you can. Whell the market aoes your way
even a little. )'Out base is big ~ so that eve~~ the small mow wiU
c:re:ate enoulth lldditional capstai 10 pyramid quickly. and tbeD 7'0U keep OD
pynllllidiJII untii )'OU have all the IIIODeY that 7'0U can carT)' home."
Willi= is QUite confident at the motDellt that he is about to acm- a
peat VICIOI'Y because be lw iustiiiCCIIeCied iD ~ the 11.000 be lost
by holdiD& seven pork bellies twO days 1110 lorac with ~ be bo~
fmn tbe Credit Unioa aDd is htlpiq that tbe !5.000 busMis ol wbeat De
intencis 10 buy iD the liiDnliDI will rise quidcly -.11 1M ilim to repay
the loan before his wife larDs of it and onien ilim tNt of the boule apiA.
William's llltra_.,.tive friend. Loa& :£. Baatis. asiu what be is aoiD&
to cio if wileat aoes down and be fiDcis bimsclf iD debt to the Credit Uaion
withtlut the meaDS to ~Y Dacit tbe obliptjcm. "'WbeD the pine pts
t~- replies william. "tbe IOIIIb cet a-&·" ""But." Lata& penista. "isn't
it true that iD lillY pme iD wbich 'P!'obabililies - iztwol¥81! the lonpr )'OU
piaythemore cenaiD it becomes that a seriesofloues willoc=r? ADd isn't
it aiso true that ) ' O U - - ewe~~ prepued for tile first loss. much 1-
aseriesot ta.m?"UiiliDqallof hisi:- ~ poww. William re;Nies.
'11 you can't stud the beat, stay out of the i:i~ •
Mllf'tU: M.U. oace read in a booklet that c:uh aDd iuwr. prica Qaft a
tezlciency to - duriltg tile deii~ - t h - or lator. This 1118de a
'$ impression OD ).Wws wfto raai:s the impDifWICe of this bit of
1
II ell
iai-.Dooa - a . t above tbe Bill of RiP~ He is cur-.dy iCIII& ODe
CDBttact of October lift cattle wbich is sellin& 4 cents a pound below tbe
cash price of cattle as quoted on tbe DeWIWire in the broi<er~~~e office.
-~is aoiDI to maile that +-cat difs-." b:8)'l Maml:'. "and it
mipt as well be me.· Wbell M-.s placed tile onier with his broker. bis
recistered represatalive wiUD!eWMi to cMc:i: with the r.an:h depan·
JDeDt ill Cltic:aco ior an opinioc OD the poteDtial ill Marcus· trade. AltliDulh
tbe ..-ch c!.....-t was ailout to leave for a baml WPI aDCi a milk
shake for lunch. be did take tbe lime 10 re;.iy and the broker. TJ'Mium
Offen. c:alled Mucus back with the llad oews. '1D orcier to be _ . of malt·
inc tile +<eat ciiffel'ela. • Tzaciam Aid. '"You mtzlt a... aallllicilnd sudl
thinlts as location of the cattle. diiierences iD cracie. aDd pauible problems
with c:enification for cieiiven- ill' the • .a.-. Aiao. ~ that tbe
-kent dillerenee is IIIIICie up before futures traciiDc stops ill OctoOer IIIICi 1101
aiter, it could be met iusi as well by tbe cash price clrDppia& 10 - tbe
futures prices as by the fvtUNS price risiDc to ~Met the cash. ill wbicia case.
~ -.ld malce 1>0 money. Ala 111a11er of !.ct. tbe c:uh price aauJd cizop 8
cents and tbe futures 4 cents anci .,.,u aauid lose.· His ailarp miDc! fuDc:liol>.
1n1: in its USUAl maftllet. Man:us fel)iied. '"HJa¥e lJ'OU a iate quote OD Novem-
ber potatoe<?~ -rile futures busilless is one tbina ana the cash is -ther-
C!OIItinued Tracium after tellinlt Marcus tllat No-oer potatoes aft limlt
"" (Marcus is short). ~lt is not wise 10 puay another nwis pme." '1 llave
to move my car·. reJ!iied Marcus shrewdly. '1t's ill a loMiiD& - . •
By the time be retUmed from IIIO¥iltg his c:u. he llad rec:er-i cielivery of
the CDIItraCt of cattle. Only then did be iunl that it - the last day or
t..diar. and the cattle cannot be redeli"~Md. Shonly tbereafter ODe of
Marcus· c:mle died and two othen aft not looiti~t~ -u. Marazs stilllw tile
remainder of his CDftllad of catl1e IIDCi lw SJ~Ct a busy IDOI'IIiD& writizt&
letters 10 tbe Commodity ~ Authtlrity. tbe Oaicaao M-lil•
Ucbanac. Dow-Jooes.. ud the State e o - Frauds DiYiliaa biaeriy
CDI'IIpWnilllt of the fa ud lllilleadiDC c:uh prices reptiNii 011 tbe
newswiftS by an iDcDftaloetent win CIII8IWIW aDd Q~ bow lillY boD-
est trader CDuici poaibir beat a . - with such unfair rules. .NotlliDc-
lias uppemld to Mamas lillce he tocNt: cieliYery of a carload of Ollioas ODiy
to lam that tradiDc llad emied ill that rmt i'tt rore-- and his ODiDas
werelli"'Utinr; ~ the bqs iD wbicb they were clelnwed. He did suc-
ceed in sellirut - o f the~ 10 a dealer iD ~ burlap for~
as much as it CDII bizn 10 have the bap deociorized. Marc:us would like 10
tell of some other of his experieDces. but be lias to leave for court 10 filbt
tbe ticltet unjustifiably placed on his car for JW'i<in' ill the ioadiD& lODe.
WI~LRS:LOSEP$ 4I7
luon BentoU.. has had trouble all his lile with unrusooabie people. lD
~l. w~r he was prepared for "Show and Tell" b e - &Qt called
on. but when un!)rf:l)&red his aame was illwriabiy caliecl. In tbe Little
Learue .De was called out em every play. Policemen berd him out of traifit
to Jive him tickets. althoutth everyone else is clearly poe faster. N- he
trades CDmmociilies. He reeently opened bis third CDIDIIIOdity ecc:DUDt to , .
place the one he bas juit closed witb U'IOtber broker wilom he is auio& for
rect~mmencim1 the -purchase of com which went down 9 t:eiiiS a busDel fol·
lowmr. a sui'IJrisiD~y bearish crop ~ ISSued two weelc$ alter the pur·
chase. '"My broke~ obviously ltnew of the ~ aDd ~ot me to buy the axn
so be or his f~m~'s Jl&mten CDUld bail out." declares iYIIII. his eyes blaz:izl&.
"£...., if he did not I t - it. be is derelict ill his ficiuc:Wy ml•ticm•bip to me
because he should bave known it. After all. his iirm c:Wms to hne a Re-
seatrch ~artment ill OUc.qo richt i1l the Board of Tf81ie BuilciiDc.•
Havinct calmeci down enougb 10 discuss his traciia& pbilolopby, iwo aalks
of objecriwos. "A $l.OOO accouot really ouaht to provide &D a..enae retun1
of sew:ral buodrecl dollan eacb 11100tb u d - 51.000 or more.
After all. it woldd yield 5 petCODt ill a Sa'WiD;s &Dei LoaD witb oo risk at
all (to uy oolhizl& of tile use of a ootary public at DO cl:wte>. If YIIU dorl't
aet a cbaDce ior p:reater reward. it ·s fooiisb to take the tmra risk.
"You bave 10 be especially careiw of brokers.· be CDOtilluu. 1'bey are
always foistio; advice oo )IOU like UlJiDI )'OU 10 use stops &Dei ob;.ca..es 10
malce sure tbat l'OU are always 1ettillc out of )'OUt positiolt - way or the
other. I bad a big profit a iew 11100tbs aao. toolt the profit ad - t into
aootber posiz:ion whicb also resulted iD a profit. but I would haw made
more JUSt stayill& with tbe first position. My broker did DOt mall:e a siD&Ie
move to stop me from SWitcbin& the posiDon. I am still waitinc ior tbe CEA
to do somethiq about it, but they -·t usw.r my letters &DYiftOI'&. Three
or four yean a~o I doubled my IIIODey iD tbe first liz -tbs of the yec.
and my broker thought that was a bia deal. but I bad a friend who ~eel
his mone¥ during tbe same period acrvss the stteet. My irienc!'s bmlter
is qwte CDIISei'Yalin and told me tbat be really only eq~~~Cted an UIDual
)'1eic of 80 pen:eut. l figured if be only dici baH tba: well. l was c:enain
of 40 pen:ent .so 1 opeoed an accowu. In SlJite of bis vinuai guaraotee. I
lost my mcmey on my fust two tracies iD only a wtoeir.. 10 I am ~g my
lawyer fiie a suit baseci on material misrepl'esentauon. laclr. oi suitaDility.
and cbtlliWI&."
418 WINNERS:LOSERS
E.nc Von p,,..eror i>eiieves aamg IS eve!'1-"'nlnlo;. SO ne Dues All his traciinl:
ciecisiDIU em the mazme:- tn wiDen maricets are acun, ciunng the inirequent
penocis wnen De icnOWJ WDat IS Dappe!IUIO.. When his oroiter calls him with
• tr:acimE suggestion. Eric cneciu his cilans anc then ioliows the suuestJOnS
th:u A.IV"e aaeci well recellUY tgone in the ciiteCDOJ> of the broicer s s~·
gesucm ior a ieast Otte ciay •· When he is aciviseci to taite a iou. &ic usualiy
replies tbat "the mari<et is ac:tillr; :ss if a reversal is about to oc:cm." When
aciVISeci to take a profit.. £ric studies his clwu anci pniCiaims that "it is
. premature to liouiciate the position Oec:ause tile market is actiA& well." Be-
cause any posiao11 ti>atmows a profit has had to m well. Eric has great
diificuiry in liquidating positioiiS at a profit. &ic once rud ill a book that
priees tenti m act best just before tbey ODilapse &Dei worst just before they
rally so Eric sold the booi<.
--t
A frienci once suaesteci that &ic cietermille objectives a~ci stops in ad·
vance and place oniers at tbose poilus ill the mui<et.. but Eric prefers to use
his judgment md make dec:isioaa at poiDts at which marltet aclioD indicates
be sbouid take ection. He il DOt disturbed by the fm that the he
usually takes actioD is alw.,. one durillc which be ilappem to be in the
broker8Je office or 011 the telephone Ill his resistered representatiYe. "You
should De¥er place stops." i l l - .Eric. ·o-ase &her will iavariably drive
the lll&l'ket Just to your stOp, lcJIOCk you out of your positioll. and then nm
the market just to where you thoucht it would 10 in the first piacef" Whe!l
asiceci whether his -problem miJ,bt DOt be the p i - t of his Stoll'- Uld just
wilD 1nm or sells tbe lwDdrecis of coatr&CIS 11.-afY m touch off bis stDIIS
nn hi$one or two l:DIItrllctS. &ic s:ays "You just don't unders~nd the Com-
modity Furures Mirilets." He aays _this with the same baughty air that bis
:ancient ancestor. a Cartha;iman ~- assumed when ~ the
strnter;)' ne pianned to use &Pins! the aPIJI'08Cili111 ~..:,._
COMME"-ITS
Looks for the winning edge Born bulls and are always
of a proposition & analyzes looking to buy. Early in
the human element of the their trading career are
market. happy enough to rely on
broker's advice. If this
is initially correct,
they think it is all too
easy & take over the /
decision making themselves.
They will then find a way
to make their broker a
scapegoat.
( Have U gotten the message who the winners and losers are? )
~25
CHAPTER SEVENTEEN
EFFORT & DISCIPLINE
Vi~ c.ip.tin e.
wha.:t i..h l!.e.q u.bte.d
Wha.:t t.o do
Some cU6c.ipUnaJty Jud.~
VISCI'PL1NE
~'/HAT IS REQUIRED
If there is one consistency among successful traders, it is
their disciplined and concomitant use of a good plan.
It has been said of the 25% of traders who win in any given
year, that only 2% manage their skills with discipline and
effort, in such a consistant manner that they are insured
of re-appearing year, after year. ( Remember our
thinking 2% ? It correlates, doesn't it? )
I I
I I ~
r-- I t l
- r-- j;;;'ftT" J- ~
~
J
~
-t
1 - J
I
j
-
I
It has been said that 6-8 yrs. are required to replace a bad
habit with a desireable one. ( 6-8 years !!! )
Don't take profits quickly for fear that they will evaporate.
Don't be reluctant to take quick losses. U must do the opposite.
- don't limit profits, and don't let losses accummulate.
EFFORT 431
EFFORT
WHAT IS REQUIRED
Predictive skills are not easily bestowed to the casual reader.
They are acquired through work, experience and delving deeper
and deeper into the thoughts of U're mind and how it interprets
what makes the market tick.
The chartist ~ust be ready for thorough study and hard work,
and learn to develop experience. It is an art because of its
skill, and the finesse and experience of the technician are
without doubt the essential ingredients in joyful trading.
The technici~ must constantly check and re-check. He must
apply himself affectively to the market, and this requires
diligence in everything U do with U're life.
RESULTS
U're thoughts & action will crystalize into circumstances
of wealth and financial freedom.
u know the old saying, "the poor get poorer and the rich get
richer", -well, it's true. But, in this day and age, partic-
ularily if it's not inherited, it's acqui~ed th~u diligence
and hardwork. ( And in the commodity industry, it can be
achieved honestly.) ( Those who inherit great wealth and are
not diligent will find that their life and wealth cud be
frittered away. )
self awareness
Beha.v..i..ouJtal.. Slu:Lt6
Fea.IL
However, most people just trudge along and even let new
bad habits creep into their lives. Subsequently, they find
it easier to let the bad habit control them, rather than
they control it.
..:;36 SELF
I know of one trader who feels that all speculators shud have
an accounting with themselves everynite based on settlement
prices. This is a hard task, but is one way to approach the
market in the context of appreciating U're psychological /
impact towards successful speculation.
SEL!' 437
Let U're brain run wild with emotions in the luv-bed. The
market ain't no place for the release of emotion.
When U win - stay calm. When U lose, stay calm. When U commit
U'reself to the market, stay calm. Do not allow U're brain
tissue to be shackled by the debilitating effect of emotion.
If U have had a fight with U're wife, stay out of the market.
If u are hung-over, stay out of the market. If you are on
drugs, stay out of the market. If you are not in good to
excellent physical and mental shape_, stay out of the market.
U're brain is only as good as what it is attached to and as
it lives off its host, its host must be in keen shape.
SELF 439
TRANS-ACTIONAL ANALYSIS
Some authors estimate that 90% or more of our decisions are
foisted upon us by others and accounts for 2/3 rds of the
imputs into our decision making.processes.
states:-
SELF 44I
·.
444 SELF
who buy or sell on 1mpui)oe finC "ooner or ~ter th~t me~ it-~lin~ .. bow
tradm~ are 50-SCi: UlO.&~ ~. there ~ no "u:niiic:ant StOit&a.ltc.:~l &:nrTeUallon
between good feelings and proin.. bie trades. Therefore 10 ~"""! the rc:-
sult.s of emot10n::a.i ;a.ctiyjt~· tht: successiul trAder must be urc:u.srctl In g•ve
up tracbn~ wh:lt he: i1ncis most rewarchn~ tn anterpunun.aJ rc:l••hu•~hil•:~~
good feeimp Th" propcru;rt)' lor the tr..Uer to rei~! >uch cJ.,...,,..,...,j""''"""
b h.is:h. and thc:r~ is a constant tem'PUllaon 10 S$-Jill out uver th.: buuncl;~ri~
of the weli..iehnecl role oi tr..ding. Good ieeiin~:o> will come ..0 " ,,...,11
uf
the successi.,J J>lans that the A<iuh c:once~ves J&nd eae<.'\lte>.
The broker is eq..aily well iiOvi>ed to "ncierst:ond thlat he l"'> thr~oe Jlecmie
lor M client. not j"st one. Perhaps the "suitJ&biliry" Nle 5huu.lcl incl&Kie not
only a financial but a behavioral matclMop ..s well. The fin.t nrlc of wrn·
munication ts that when stimulus and response, in the P-A..C >Cn>e. make
Plll'llllel lines the lr1111S11Ct10n is camplemc:ntary ,;md gar wntinue in·
dcfiniteiy." In other words. " transaction be""""" bNkct ""d cli.,nt nr11y
go on tndcfinitciy a. P..,.ent·Parent. Aduh·Adult. Child..Chilcl. Parent·
Chile!. Child-Adult. anci so on:
l. /'areru./'aJYnt Trv~U~JCtiDfl
CI.IENT: Those people you have on the lloor alwaY> get the worst fill>
)>Oii>ible.
IOOUI\: Mllkes you wo'nder 'where it wiU All end. dOGn't rt~
2. A.dult..Adult Trvuacnorr
CI.IENT: I don't know whether to buy the bellies here or wait u.ntil after
tire report.
uor.u: 111 wire Chicqo wtcl 5c:e if they l~;~ve lillY infumuuiou un e&IICC:tll•
tiuru.
3. Pal'ftlt·ChiJd Trvuoctimr
CUEHT (Parenl!: I see where tbe Ua~· lhCI¥iUK overa11c in r.IJ&y -
crossed the lO.Oay moving llvcraee on the IIP"tde yesterduy unci "" I touk
a lon& po5iuon. It's off ;1 lillie tociay but the wc:elcly c:h:trt i• bullwr 1111d
wi>en the weekly says up, you j!>it.don 't WOfTY .. Lruut Jill)' uclv.:n.ity in the:
dwly signal. e•1oec:Wily durin~ tbe time when the"""""""! t"'nd i> up. In
fact, I think 111 scalp about JO 1>0ints on thc: u.,.icie IOdu)' 11nd louy it buc:k
on Thursd11y momin& alter the WcdPCS<ioly lmOJ&k.
ooou.· (Child): RiJihL .
.;. A.dull-l'ol'ftlr TroniGCtaon
c:ur:N'T tAduh ): I know I huvc truuble l~"ing the "'"" iu when the uwrkut
~ u~inte puurly. J want yuu to tnvmu.e n1e yuu wuu'l listt,... , wl~u I try In
pull out t hc •top.
••ou~ CP:lrent l: I won't cb.;an~ec: u.ny s1uu for yuu dunn.: m .. rkct la,urll.
"IDic!.. liP·~~6.
11
iMia,a A. Hama.. J"m OK. to.. ,. 0¥.. ~ * 1\ow. li6'7.
"/Did... o. 25.
SELF 445
commodity futures trading. Of this one factor I am sure, -
if U becum a student of transactional analysis U most
certainly will consistently reap glorious profits, year
after year and it will change U're life. It is one of those
things that can set U up for life !
BEHAVIOURAL SKILLS
One speculator I know has $50,000 in his account. He trades
only $8,000 and holds the rest in reserve. He will be around
a long time.
FEAR
As we have been saying all along, the commodity trader who
fears will be led to choose r.isky trades. He will abort.
He will buck all logic - like Taurus the Bull. It seriously
impairs the decision making process.
One does not fear the normal routine of losses that occur
during the normal pattern of a normal day. But no where in
the material world in our society do some people cum as near
to facing ourselves than in trading commodity futures.
In the Soybean mkt. of '77 , at the mkt. top for the year,
the newswires were broadcasting "scary" up-limit days for
4-5 days. The floor traders were "scared". The ruthless
trader wud have star.ted to short the market. He smelt fear.
Fear can work both for U and against u. Obviate all fear
from U're personal life and sop up and take advantage of
the fear that others have. In this context, isolate and
destroy all your bad habits which affect your trading, but
ruthlessly take advantage of the bad habits of others.
(in the market place, that is.)
What a task !
I9
449
HERE WE GO
There's no way U can change U're personality. U're born with
it - I ~hink. But what a task u have if U do not have at
least some inkling of some of the necessary personality traits
that make up the fantastic commodity trader ! - who consist-
ently makes and keeps his money.
That's a terrible analogy- isn't it? - " Lick off the plate!"
- but this is a rough game and to some degree U must have a
rough personality.
Most people are born losers. They learn losing habits during '
youth and never put any sustained effort to change their live's
pattern. Success or failure is the just result of what U have/
done in the past plus what U do now.
45I
453
Some traders make good short term trades, - put the blinkers
on - are disciplined and they can do it. Other traders lose
because they do not have the necessary personality traits.
They may allow the broker, consultants, and others to interfere
with ~he decision making process.
Just wait 'till U start to make money. Let's say that in the
last 3 mths. U have turned $5,000 into $50-!20,000. Can U
imagine what happens? The broker knows. The margin man knows.
The secretaries know. The people who handle the computer
printouts know. The "clearing"memebers head office may know,
and most certainly will know if this pattern continues. A
consistant winner sticks out like a sore-thumb. He becurns a
live one. There will be lots of money in U're account. U will
be amazed by the subtle instances of prodding, probing, -all
to the purpose of making U move that money, and maybe to churn
trades, to make more money. An avalanche will hit U,
( eventually ) . People in the business and other traders will
swamp right over U and drive U right into the wall, when they
find out U're making money. The process·may take a year or two,
but they will do it.
Let no one know what you are doing, why, when, or how.
{except U're spouse?)
455
Bye for now. We'll see U in the next chapter, when we will
discuss who trades and how. Hopefully by the time U have
finished section three of this book U will have becum rather
astute in the all important facet of psychology in the market
without which U would have no hope in hell of even having
the remote possibility of making lots of money, and doing it
year after year after year. Have fun. But take a break. The
next chapter is a long one.
456
CHAPTER n·IENTY
Ke;t;Ue. o 6 F-<..6 h
c.e.a,b-6-i. 6-i.c.o.:Uo n
ge.ne.Jz..a..l
~hont-~~ ~den
da.y ~dvr.
~c.a.lpvr.
· .-Aggregate profits a.nd losses of specula.tors a.nd ratio of profits u, losses, by grain and occupational grouJ
Retired·------------------------ ~1.300 1,566,800 • 15 205, 151 1, 203,813 . 17 120, 059 351,317 .3-4
647,706 . 26 115, 161 206,910 .~
lJnknolVD •••••••• ~-------------- 228, 500 914,400 .25 170,648
All speculators•••••• _. ____ • 2. 064. soo Ill· 958, 200 1 . 17 1. so8. 40719· 411, 620 1 • 16 11, 183, 993 ,2, 222, 6021 .:
Oats I Rye
Occupational group
Profits Losses RAtio
l Profits Losses Ratio
-
..r·
Business m&nagers: Dollara DoUara DoUara DoUcra
Grain business ____ ••••. _. _. _••••• _••• ____ •• __ • _ 12,273 39,885 0. 31 12,918 56, 756 o.
Other.------------------------·-·------------- 51,512 365,990 . 14 93,095 362, 868
ProfessionaL •••••••••••.• --. ______ ••• _____ •• _. ___ •. ,I
11, 520 65, 115 • 18 58,534 92,306
Semiprofessional ••••• ____ • __ ----- _________ • ____ •• _•• 2, 843 4,068 • 70 383 4, 366 .0\
15,075 • 19 3,669 15,556 • r•
24
Clerical •••. --------------------------------------- 2,933
9, 824 72, 611 • 14 14,370 58,234 ..
Fannen
Manual ••• ----------------------------------------
workers
Retired. ________
•••• __ ••••••• ______ ._. ____________ ._
• ____ •• __ -----_. __ • _________ • _____ 5,528 31,969 • 17 13,476 34,470 .:
lJnknowo __________________________________________ 13, 187
14,418
108, 195
69,224
• 12
-21
67, 1~~
29,46
88,341
112, 941 ::If
i :3!
All speculators. _______ ------------ ___________
t The numbers o! traders in the "All grains" column generally are not the
sums of the figures for the individual grains because many traders traded in more
than 1 grain.
- - -- -- --
'Num- Num- Num- Num- Num-
Ma.nual workers: ber ber ber ber ber
Skilled and semiskilled ••••••••••••• _. 680 377 134 liS 777
Laborers and unskilled •••• __ •••• ___ ._ 155 75 27 25 171
835 452 161 140 948
Touu •• --------------------------
Retired:
Professional. _____ •• _______ ---- _____ 28 13 5 4 32
Semiprofessional__.~---- ______ ••••••
ClericaL __ ------ •••• -----_---------
1
10 7 4 ------ 12
1
Business •••••• __ •• ----- _____ ••• ____ 292 144 48 37 3.29
Connected with grain business •••••••• 44 28 13 11 50
~ianual •• -------------------------- 35 17 4 7 38
175 112 43 33 '218
Farmers
Previous••connectioD
--------------------------
unknown ••••••••• 222 143 62 46 265
Government employees. __ •• _ •••• _. __ 8 4 1 3 9
Total.--------------------------- 815 468 180 141 954
Unknown:
Status llnascertainable ••••• ____ • ____ • 735 396 176 112. 971
Unemployed, former occupation un-
known.-------------------------- 47 22 6 10 54
Total.--------------------------- 782 418 182 122 1, 025
====== ======
ToW, nonbedgers ••• _---- ____ • ____ 7, 541 3,928 1, 586 1, 313 8, 782
Hed~ers:
Processor hedgers·------------------ 44 15 7 5 47
Grain merch&nts, terminaL___________ 45 22 17 13 49
Grain merchants, subterminaL........ 10 8 3 3 ~2
Grain merchants, country____________ 23 16 10 6 32
ToW •• -------------------------- 122 61 371 27 140
ToW, all traden;__________________ 7, 663 j3.m 1, 623 j1. 340 js. 922
United States Department of AJ;Ticu1ture, Cirt:sUar No. 391.
Business mana~~;er~:
Grain businc,;s _____________ 76 96 172 44.2
Other·------·------------ 577 806 1, 383 41. 7
Professional ••• __ ._. _______ .--. 133 221 354 37.G
Semiprofe,;sionaL. __ ••• _______ • 16 20 36 44.4
Cieri cal •••. _______ • ___________ 76 159 235 32.3
Farmers---------------------- 151 261 412 36. 7
Manual workers •. _ .•• ____ • ___ • 163 289 452 36. 1
Retired •••• _. ____ . _________ --- 189 280 469 40.3
Unknown. ________ • ___________ 144 271 41!1 34. 7
TotaL. ___ ._ ..•• ______ • _ 1. 525 2,403 3, 928 38. 8
..
OATS
n usi nessmanal(ers:
Grain busin,ss ..••..... _. _• 23 54 77 29.9
Other_ • ______ • _ _ _ _______ 223 374 597 37.4
Prof~ionaL. ____ • _ .••. _______ 4.') 74 119 37. R
SemJprofes:;IOn!l.l. _•. _____ . _ •• _. 1 7 7 14 50. 0
ClericaL---. __ ._ ... _.• _•. _____ 37 50 87 42.5
Farmers·---------------------
l'.ianual workers .... _._ •. _••... 1
57
53
112
108
I 169
16)
33. 7
32. 9
107 II
Retired ••••...••••.•.......... ti9 111 180 38. 3
Unknown •••. ___ •...• _ ••.• __ •. 75 182 41.2
TotaL ••• - •.. ---- .• ----- 589 997 1, 586 37. 1
'
Rl"&
Business mnna~:crs:
Grain ____________________
Other IJUl;ines!'. ---- _•• _. ___ 22 37 59 37.3
201 303 504 39.9
ProfessionaL ••••••••••• ----- •• 36 78 114 31. 6
Semiprofe!:;l;ionnt"••..•• ___ • ___ • ·j 2 12 ]-I 14.3
ClericaL•••• __ •••••• _. __ •• _._ •• 33 49 82 40.2
Farmers·--------------------- 43 94 137 31. 4
Manual workers. __ • ___________ !
1
52 88 140 I 37. l
Source: U.S. Department of Agriculture, TechniCltl Bulletin 1001.
Dow Jones-Irwin Guide to Commodity Trading
462 WHO TRADES
CLASSIFICATION
GENERAL
There are two general classes of traders.
I. The Speculator
a) Public Speculator
b) Professional Speculator
i) floor trader
ii) scalper
iii) day trader
WHO TRADES 463
2. The hedger
SPECIFIC
~ oFf'·SEI
_rt!_It-~. . .;._l~_r
r r~----i~F~-1_; ::~T I
~ offSE I
I
464 WHO TR~DES
Sometimes the floor traders will sense that there are a number
of stop-orders which can be activated by a good day's move in
that direction. At this time, the individual traders on the
466 w"'HO TP.ADES
Floor traders often play little games with the big trader
whose pattern of trading can be recognized. This is another
reason why I am inconsistent in my trading styles.
Now, do u see how the psychology of the market can affect the
trading pit itself? The floor traders are no fools. They back
off when something unusual hits the pits. However, the amazing
thing is that I was filled with a I I/2 ¢ range each time.
What liquidity!
gone before the top formation has occured. He may enter the
market a little late and may leave a little early. He may
or may not pyramid as ~he market goes as he anticipated. He
does not sit and watch the "box" or the ticker-tape. He has
researched thoroughly. His research may have included only
a few mental gymnastics. Particularily the older traders
are adept with sniffing out the good plays for the year.
They're wise, old men and they don't fool around. For some
people there's not enough action in long-term trading. My
friend, one of the basis for U're trading plan must be to
parlay at least I/3 of U're thinking approaches and market
attack on the long term basis plan, if U absolutely must be
more active than long-term trading portrays. I waited 2 yrs.
for the soybean mkt. of '77 & I've waited 4 yrs. for the
silver and gold mkts. of '78. These things take time. In the
interim I like to jump around with occasional day-trades, -
occasional scalping _and some short-term runs, especially
bear correction "snaps", if I can catch one.
analysis is used.
-·
- - - - - . .,..,........ -o• ,.... ..........
. ~-':'
r _ ...... --·-·Ii ·- I I
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- -;--.:..::::,::;-=,·~1--·· ·------------
FE" 1•!
:::
,..,
....
•••
t:
~l,
ll
SCTU&>~
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One must trade only from a trading plan. Charts are only an
adjunct to the plan. It is not unusual for a technical trader
to abort an excellent position prematurely on the basis of
his interpretations of the wiggle-waggles.
I. flamboyant plunger
2. the bookish recluse
will start to
short for small
scalps, maybe to
bottom trend
line
A good "gap" man can convert those blank spaces on the chart
into cash in his account. Gap man are always jumping into
the areas where gaps are closed, and always interpreting
certain gaps as meaning such and such.
Gap men and women are beautiful people. All the more power to
them.
THE TRADE
Suffice it to say, these are the people who actually utilize
commodities in which u trade.
The trade and farmers on average account for 58% of total O.I.
of all futures contracts. The trade on balance is short.
During a market rise the trade customarily buys heavily in the
cash and sells moderately in the futures.
Partial ),t-ric:e (con- arhitrorR<·· 2. Lnclt it- marw:in realu:•tlon en aoods in be basc.-d on latt-r fu-
r stan!. 1101 z~ro. net H,'lll:t' t:•C"r!o\ tr¥eT thrnur.l• io-<VStinl in.,entory tures q'IOiattor"
JKI)il~t~n) Lirn Law ,.w mat~ri<ll (lo cover S. Sell future~ lo .,.,,,~ 1:. Deal in haw. hhis CICJ'W'o
[:&lt:s: E:~clud~ C. 11•-dJtt: "'-"•""naJ a sale C"Otnmitmenl J price for ant.cipated ers a -.,ci" a..v.nuaent ot
srorar.c- 3. Alsurc repurchase o! product ton •.,.a.b.ed •PJ'I....-)
L..i!o ba.\c. J.c·drr onl)
4. Cover risks or. u~ 3. Ute price or marcrn tar·
I
!C:&loOilaJ •C'cumulalaon ~- Ux: or futures to ccon- tcnJporar;l,_· liquidated
3. \'•ri•l.le b.=d•• omin c.ash tied up in Lilobasc:sto<lu pric:ed sales. requirr-
rnents contracts. or
~ets lo determine: hn-·
much busineu •·ill bP
(p1annc.~ or bud~toled in.,na1orie1. or to (. Antieipate Jtnrii~C ac-·
net position) sbonen expowre with. cumulotion by ,...,. ·price dat~t of deJi.,. dolle. •• in c:k-cidin:
L Exan•ples: Hc•dquar- out s:-oif•cia·~ CU:"!'ent chose ol new crop cry" bow much to llorc or
,. .,-!
. --.,.,.. ters m:.anaated Jredr.c;
dis.crcaU,nary JJC~SiliOn
•;thin limits
lh,.,.,.hout
DilltJ:arcJ bu!.iiK:i.;
rw!!'t'ds; str•i;ht SJJeCU·
futures
S. Use fu1ures lo attain
1ars:c.:1 expc.sure when
S. Liquidate unwanted
rislt b1· oelhn« futures
wben cash ""on'l move
ptae:eSS
•. Pin dOW!! other half of
a c:uh commnd,ty trade
j .. ---~ . :. . ;, 4. \'ariobltl••d~• Ide~!. lation Ktuals not •'·ailable 6. Sell futures lardJCr in futures.. awam.-,s:. "P'
I. • •• ~ .·I :• cr•te ,-ariaftC'e'S 10 e. Pin doWTI allraclive abud thon ••tua4 ponunity to fuUill witb
t profir from prier msl lor anticipoted coD be booked ill IM actuals
mari<et 5. Buy low, sell bilh.
! IWU>p) needs
1:. ~mples' Cydial 7. lle.ocb oul. speculote wbercYer U.e OIJPO"'u•
ily p ....nts it.ell- .u
f position takinJ; lt:&J'r-
in, inlo the wind;
rcJ•nlleso of commer·
c:ial needs cub. all futiPH. OJ •
1
This column assumes a commercial operation in which all decisions are based on cash market considerations. The net cash positions (or portions of them)
are tl•cn hedged in futures.
'This column assumes that added c:~sh positions y.-iJl be undertaken simply because they can be hedged.
'The c-olumn for profit marsins and incenti\'es relates to operations in which the primary focus is not on protection from general price swings, but on eam·
ings from residuals and differentials (basis), or e"en from deliberate position taking.
'Includes earninp. of storage: by holding deliverable CASh product a;;ainst short futures. This is sometimes referred to as "cash and carry."
SOURCE: H«!nry B. Arthur, Commodity Futures as a Busineu Management Tool, Di,'ision of Research, Graduate School of Business Aciministratior., Har-
vard Uoiver~ity, Ca."D'!:.ridge, Mass., 1971, pp. 336-337.
HEDGING Buy Hedge: the purchase A silverware manufacturer books orders for his product at a set price for delivery io
of futures against a for- six months. He may buy an equivalent silver futures position as a hedge, prior to ac-
ward sale of actuals. tually purchasing the spot silver from a bullion dealer. \\'b::n he ultimately does buy
his actual silver, he will simultaneously sell out his long futures hedge positioo.
Sell Hedge: the sale of The operator of a country grain elevator buys soybeans from lo::al farmers at harvest
futures against the owner- time. To protect himself against Joss due to price decline· in the period before he is
ship of actuals. able to sell these soybeans, the operator hedges by selling (short) Chicago soybean
futures. When he ultimately sells his cash soybeans, he will sirrrtlltaneously cover his
short futures position.
QUASI· HEDGING Buy Versus Fi:red Selling A bottler who uses sugar as an ingredient in the manufacture of a soft drink, sold for
OR Price. 10¢ per bottle, buys forward delivery domestic sugar futures when 'it affords him a
rJUCE SETTING Buy futures to cover input reasonable cost-price basis for this sugar.
requirements for a product
whose selling price is fixed
or relatively stable.
Sell Versus Fi:red Cost. A farmer, who sees com prices have risen sharply, sells new crop futures short, even
Sell futures when it affords before he plants his seed. This assures him an acceptable price basis on the corre-
an attractive selling basis sponding portion of his forthcoming new crop.
relative to fixed or rela·
tivcly stable costs.
A plywood manufacturer sells plywood futures short, at wide premiums over actuals.
He calculates that the existing selling basi~ provides a substantial "cushion .. against
foreseeable changes in his raw materic.l costs.
Just because U are a hedger will not then mean that U will
make money. Hedging is not for the speculator, but it is an
interesting bag of tricks and the trader shud be aware of
the psychology - philosophy of the hedging process.
So there U are.
480 WHO TFADES
They pay very little commissions and are on or near the trading
floor at all times. Even when on vacation, it has been said
he rarely fails to make a trade.
Remember, that of the 25% who may win in any given year, only
2 % manage their skills in a consistent manner that assures
their re-appearance year after year.
Write U're plan down, and write down the reasons each time U
trade ..
The market will be here after 6 rnths. - just make sure U are
too! If U blow U'reself out before then, then U have only
U' reself to blame. Don't walk away disgusted with commodity
trading. Too many do. They are so foolish.
--··----- - - -·-----
ADVICE 489
The trader shud be certain that his rules are not out of
date for each commodity he is following.
The market has only one top per year. In looking for a top,
give the market plenty of time to dance around, or else look
for sharp break in an uptrend line. ( And watch out for those
inverted "v" 's and island reversals. )
In general, the more prices rise, the more likely they are to
continue to rise. If U ever have to bet blind, bet that the
market will continue its chosen path.
Watch out for a trend, when market opinion seems one sided.
~he chart purist who does not wish to know anything about
the fundamentals of the market seems to represent too extreme
a view for the successful long term price forecasting.
Identify
Well, here it is :
well,
finally,
In the bank,
money,
large amounts
. Make a graph for a wall which portrays the money you are
making j losing on a 'closed out' basis, daily .
498
CHAPTER TWENTY-TWO
r
PRACTICAL TRADING HINTS
b~ L~\,'(CZ.,
r up ?
opening
22
HINTS 499
Some traders base their stops on time basis. i.e. for example,
the commodity must start its projected move in four days or
theres an indication that something isn't right. This trader
uses a IO day time rule for major positions and occasionally,
if I am firmly and heavily committed - one day !
With regards to gaps ( which are not closed during the trading
session). - if the gap stays open, and for e.g. the gap is up
and not up limit, if prices have run into resistance, then
there's a heavy wall of sellers, even tho' volume may be heavy
, moderate or light, and even tho' prices may fluctuate,
possibly even~n the high of the day on close , reckon on
lower opening prices the next day ( especially if against a
channel line in P&L charting.).
Stay away from high risk trades. They will nickle and dime
U to death.
'spike' support
~
1 ---
.: ..
f- -
.
-----== - ~·
~. ~ .
. .I
.~· . -
23
505
CHAPTER TWENTY-THREE
CHART PATTERNS
506 CHART PATTER~S
I I I I I i
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OTHER PATTERNS
ga.p.o
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Jt e..o .<stan c. e., .o uppoJtt
5!0 CHART PATTERNS
simple
Market is coiling.
Which direction
will it spring ?
ascending
Market is trying to
go through~ top .
descending
Market is trying to
break thru on the
downside.
to the new price level and then will gradually simmer down.
(Volume is greatest at the congestion area's, triangles's conception
and then will gradually ebb to the congestion's breakout . ) The
triangle is the only or most common pattern that turns up as
both continuation and reversal patterns.
r? ?
i [_- ,.
apex
same as "a"
SIMPLE TRIANGLE
~~e closer ~~e price gets to the apex, the less significance
the triangle will have. Watch ou:t for end-runs. (chapt. 7) .
A seemingly valid move will not violate either line of the
triangle past the last third to quarter of the triangle.
) triangle
I
bottom
this is the least dependable triangle. It merely foretells
that a substantial move out of the congestion may occur.
SYMMETRICAl
TRIANGLE
tl..
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Ill: [:l:l .I lr Ii ~ I I ! II I I I I' I 1 1
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5!4 CHART PATTERNS
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ASCENVING TRIANGLE
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:II./ . 'lCDVtOrllT'l' ~ JIU~. JJC. . 1-
, en. :LU>&z-tr Plac.a tl.Y. 11.1'.20006 210
====~~~t:============~.==============~====~~··
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~~~,o~j~,~,-o~.~~~~-,~7~1,--~15--~~~-1~,~-~,~~.~,o~,~.~~-7~-~,-,~~-·~·~~~~~~2~,.~~f~,u
I
the highs of the triangle are pretty well the same price
and the isolated lows are coming up against it, so· the top
of the triangle is always flat and the bottom of the triangle
is acute and slanting to it.
again, the closer U get to the apex, the less reliable the
movement is except that a close above the top flat line wud
be bullish. The bottom line mu~t not be broken if it is, it
is a bearish signal.
VESCENV1NG TRIANGLE
2.3
CHART PATTERNS 5I7
I
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l pennant
flag
they never last long, often four or five days, and after the
flag/pennant is formed, the move is abruptly resumed,
carrying to new high/lows.
CAUTION
----- - - 1ll.f'~-
--···-·j---·........
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pennant flag
C"rlART PATTE~~S 52I
'lSD
! 1974
itt-----
pennant
522 CHART PATTER.~S
The " rn " or " w " formations are also known as double tops
and bottoms, and triple tops and bottoms.
~ ,-:-+-_::::~:t:tl:~:t~:t:tl:t:~;:;::HO«+-+~-c.n~+Al-+UHf-T--~~-+-~+-T-+-~I~;~~~~I~I~--~~:~~~~~~~1~:~~~~·'~
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I I I I ; i ~ I I I ~ I I I i • I I ' I ; i l I I
I, FEB. I, MAR.
2 16 )0 14 21 II 2~ I • 2l ,. • ~ " 17 :JI ,. 21 12 261 'JUNE= 7 21 A II -.
1 SEP'T. I OCT. I NOV. DEC. JAN. I APR I MAY JULY AUCl.
'
526 CEART ?~TTERNS
Here the market has thrust up, gone down a bit, then thrust
still higher, once again it goes down a bit, then thrusts even
higher than its last peak, - at least tries to, as the "head"
prevails - too much selling pressure and it falls back to a
starting place and U have a " H & S " ( head and shoulder ) •
The right shoulder is usually on a smaller volume than occured
during the left shoulder. After a right shoulder has formed, the
chartist will try to trace a line horizontally at the base of
the H&S to create the neckline. The minimal move following a
major H&S reversal·forrnation will approximate the distance from
the tip of the head to the neckline. The slope of the neckline
may influence the extent of the price move. A downward sloping
neckline will likely carry prices lower than wud the same top
formation with a neckline slanted upwards. The downward tipped
neck-line carries a more bearish implication than an upward
sloping neckiine.
The two shoulders need not be of identical size, altho' they shud
be smaller than the head. A market is considered especially weak
if the rally forming the right shoulder is unable to carry as
far as the top of the left shoulder. The H&S sometimes develop a
series of multiple shoulders, but is less common than the simple
formation.
H&S occur in both bull and bear markets and are the basic reversal
formation. It is usually sited as the most common chart formation
because most chartists have been programmed to identify every
third assortment as a "H&S" . " Reinach " , as mentioned in_...:the
excellent book Getting rich in commodities, currencies,of coins,
before or during the next depression , by Robert Vichas, Arlington
House Publishers , has classified twenty seven clear-cut,
H & S patterns !
CHART PATTERNS 52i
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ll 2'71
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....... .,_~~...J,--;..-, . 23 I ' ;; 'l; ' ,·, i I;. ' .~ . ll i. I 'T
AF'JI. I IIAY JUNE JUL.Y AUG. SE'PT. I OCT. I NOV. DEC. JAN. 1'£8. MAR. I AI>R.
-.
-·~·I I
H & S
C~~T PATTERNS 529
i ~ ___
---__,...·-·_____ COTTON NO.2 lllT1878.JU.:·i T· 1 ·-;-.:.: ~-~·r:·!
......,_ lA.CH MOIIU:IIMtAL LINi z: • ., POl~
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Saucer Bottom
CHART PATTERNS 53!
HAT BOTTOM
,· I:: . . ; : : : ! ct.
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- - - - - - - - - - - - · __ PAWDIUMSEI'T.tm-1.'1',___ · '' ... ''.'' .
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·---.~ 25
1SLANV REVERSALS
This formation isno ted for being one of the more dependable
forecasts of futur·e price movements, which are always away from
the island, the opposite direction from the trend that created
the island. It is a trading range, separated by an exhaustion
gap on one side and a break-away gap on the other. If an island
is neutralized by the right hand gap being filled in a few days
or a week later, then it is no longer valid.
Island reversals do not occur very often, but when u do see them
U shud consider the possibility that a change in price is
forthcoming.
....
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·en. t.!l>&n:)' Ple&& "·'l'• "·'l' .20006
Island Reversals
534 CHART PATTERNS
.· :=··--i .• L ...
COCOA MAY1971-N.Y •
·. .,_ --·
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COMMODITY CHART SERVICE
CHAaT 8Y:
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Island Reversals
CHART PATTERNS 535
Has a reliability of 70 %
It-: _f- ~- 1-
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(ICED) MAY 11n-cat.
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536 CHA?..T PATTERNS
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C.. UloeftJ' Plau M.1'. X.'I'.J~
A more valid key reversal day is when prices exceeded the previous
day's range both in high and low prices and closed lower than the
precious day's low ( in a top ) or higher than the previous day's
high in a bottom. /
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CCIICHQDI,-r Jti:SEI.IIOI auau.u, XJIC,
ODe S.U.ny Pla&& a&,J, a&,\'.20006
53 8 CHART PATTERNS
r
a good deal higher than the previous day's close, it gives a
2-day reversal to the upside. ~
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infrequently seen
the longer the rectangle took to develop the more si~nificant
will be the ultimate result
the minimum anticipated price objective equals the height
of the rectangle
the top or bottom of the rectangle need not be perfectly
horizontal
has a long history of use by chartists
because it takes at least two points to define each line,
the rectangle is not built in a day.
to trade :
I. Inside rectangle - any time after the fourth turn
in prices, a short sale can be made when prices
approach top of formation & buy when prices reach
bottom of rectangle.
2. Take initial position on stop when prices-finally
punch their way out. (As with other formations, a
good rule of thumb for defining a breakout is at
least 3 % of the price at the edge of the breakout.)
SER'PEI\rr HEAV
to trade :
- short term trading within the confines of
the congestion channel of the head or the
neck.
-
-CURRENCIES~; -iamsa ·;ou•o II.LS.
....... DEC. 1878-CBI. I
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IACH HOIIIZI:INf""- L1Ni •••I'OINIS : I
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A Weakly ~llca~aa of
~lTI .a:.uc:t~ ~. JIIC.
OM U'berey J'lau a.1' ••• ,. .20006
CHART PATTERNS 543
IV OTHER PATTERNS
GAPS
Some gaps are closed during the same trading session or within
a few days - while others may not be closed for weeks or months.
A good " gap man " can convert these blank spaces into cash in
his/her account. Gap afficionados point out that the ability of
the market to " jump " price levels certainly must signify a
powerful underlying trend. However, many gaps result purely from
the coincidental fact that some significant development occured
after a market had closed ; and that had the news becurn known
during trading hours, no gap wud have appeared. Also, by the time
it becums apparent that a gap isn't going to be filled, the
subsequent move may be over.
I. opening gap
2. pattern gap
3. breakaway gap
4. runaway gap
5. exhaustion gap
I. Opening gap
runaway
3. Breakaway Gap
3. Runaway Gap
Continuation Gap )
4. Exhaustion Gaps
A major top reversal from a bull market usually takes less time
to develop than does a major bottom formation, followin~ an
extended market.
TRENVLINES
s:s .
······ .... . ... "-----1
-= !'lAY '74 _ __,'·I
,.,.CED....--13-R""'O""'t""'L_ERS
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.
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Trendlines
549
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Trendlines
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Here ' s a trend channel·
-i--~~--~-~--~~--+-i--t·~--~-~--~-~--~- 1--~~~--r-~--~-~-:-~--~~--r-~--r~--r-1--r-i-·r-~--~J-n~-~--~-~
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-;' -~-~--r-~--~-~--r-~--r----r-~--r-~--r-i··r~--r-t--r---~--r-~--r-f--~·
Chart From: IBEX Chart Services Box 693 2420 Ist Ave. Seattle Wash.98I2I
552 CHAR~ PATTERNS
RESISTANCE , SUPPORT
1
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SEASONAL
AND
CYCLICAL
TENDENCIES
24
I. Industrial
copper, lumber, silver, ~old, pkywood
2. Agricultural
pork bellies, hogs, cattle, & all grains
3. Perishables
eggs, potatoes
all grains
cotton
cocoa
coffee
orange juice
potatoes
556
pork bellies
hogs
cattle
eggs
broilers
chickens
choice steers
Alt!8 the major metals and sugar do fluctuate around time cycles
and with seasonal patterns, one must always be on guard for the
possibility that the cycle might turn into a super-cycle.This is
where technical analysis wud be a useful tool. Gold purchased in
November of the last ten years wud have given a profit.
l Some c:ommodltlu, aucl\ as tile malala, de not nave cl.. rty defined Maaonal prtca pan.ma.
• More than tna usual number ot axcaotlons to lila Muonal oatlam.
•• TMM ;rains have ottan bean aut>jact to al\arp reactions In February (known as tile Fel:lruary
l:lraak) at1ar wlllcl\ a ;ooct rally aometlmas IIU oc:currael.
Major Use
c
0..,
':CD
==
CD-
C.:
c
0
E"'
o.C
0~
a
_e
CD :::0
5e e,
_c
cce
:ELL.
c 0
<(.)
Broilers X x· X X X X
Cattle X X· X X X
Cocoa X X X X X X
Coffee X X X X X
Copper X X X X X
Com X X X X X X X
Cotton X X X X X X X
Eggs X X X X X
Flaxseed X X X X X X
Hides X X X X X X X
Oats X X X X X X
Orange Julc:e X X X )( X X
Palladium X X X X X
Platinum X X X X X
Pork Bellies X X X X X
Potatoes X X X X X
Rye X X X X X X X X
Sliver X X X X
Soybeans X X X X X X
Soybean Meal X X X X X
Soybean Oll X X X X X X X
Sugar X X X X X
Wheat X X X X X X
Wool X X X X X X X
Theoretical No. of
Buying Oate Uquidate Times Profitable
They are:
BUY SELL
Wheat February 22nd January 1Oth
-------------------------------------------------·----
Com March 1st May 20th
May June Ju Iy Aug. Sept. Oct. Nov. Dee. Jan. Feb. Mar. Apr.
s.o
~.0
3.0
September
1.30
1.20
1.10~--~--~--~----~--~--~--~~--._--~___.__~~--~
Nov. Dee. Jan. Feb. /IAar. Apr. May June July Aug. Sept. Oct.
70.00
69.00
c:
0
1-
...
Ci
~ 68.00
.E December
0
0
67.00
March
66.00 October
November
34.00
33.00
September
32.00
"t3 31 .00
c:
:::>
t:..
&>
c..
c"'
~ 30.00
March
29.00
December
October
28.00
27.00
November
26.00~----------------------------------------------------~
Courtesy Dow-Jones Irwin Guide to Commodity Trading
566 SEASON~ & CYCLICAL
2.82
2.81
2.80
2.79
2.78
2.77
2.76
2.75
2.74
2.73
2.72
2.71
2.70
2.69
2.68
2.67
2.66
2.65
2.64
2.63
2.62
2.61
2.60
Oc:t. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept.
Cash seasonal pattern is well known and is reflected in the pri~ of the various options.
Comment:
" The Grain Exchange designates the month for which contracts may be
traded. Five months have been so designated for corn,wheat, & oats.
These months are Dec. March, May, July and Sept. December represents
the end of the harvest season for corn and the beginning of winter
storage for all grains as navigation closes on the Great Lakes.
Southern hemisphere crops are coming to market in volume by March,
making it a important month for many grains. May is the "clean-up"
month prio~ to harvest for small grains as well as the month when
navigation again opens on the Great Lakes and when naturally dried
corn, which has been stored at country points thuout the great grain-
producing areas of the midwest, falls below IS % moisture. July is
the month of heavy movement of winter wheat, with a fair amount of
oats and barley. Setp. is a month when new crop soybeans start corning
to markets in the southern parts of the u.s ..... seven trading months
have been disignated for soybeans. Nov. replaces Dec. because the
harvest is completed earlier than for corn. January has beea added
because substantial amounts of beans have been marketed for that month.·
This also makes contracts expiring every other month for beans from
Nov. thru July. August has been added to provide a "clean-up" period
prior to new crop harvest in September in southern regions.
Winning is self-perpetuating.
Law of Momentum:
Once a trend has commenced it tends to endure at
least until a significant counter force intervenes.
l(.Lossit.is Ainevitable
winner is
- the essential factor is to contro111
forem ost a controller. J
~HOUGHTS 569
570 THOUGHTS
l all_be~iev~d that{')
1
The great speculators in the past -
the study of psychology exceeds stat~st~cs ~n
importance.
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O.K. Here's how you do i t ! The market has closed on day #I and we
have a high 583.50 and a low of 570.80 and a closing price of_
582.80 . So we add all those numbers together and divide that
number by three, in effect an average of the high,low closing price.
( 583.50 + 570.80 + 582.80 1737.10 ] divided by three= 579.00 )
O.K. you do that for the next three days, days #2,#3,
Guess what? You take the average prices of the last three day's,
(day #I 579.00, day #2 586.6 , day #3 588.2), add them. all tnqether,
divide by three , ( 579.00 + 586.60 + 588.20 divided by 3 = 584.6 )
and U've got the dot !
cont'd next page.
In effect the dot in point and line charting can be defined as ~~e
counts.
COMMODITY
TRADING
FACTS
MINIMUM UNIT NOVE
TRADING HOURS COII.'TRACT
COMMODITY
I EXCHANGE CEI'>TRAJ. TINE SIZE
FLUC'TtiATION
AIIOUNT ~.~ ..
FaoY PREVI01..'S CLOSE
AIIOUNT ~A~EI<
BJU77SH I'OUND I '""· MGNUry Mt\. I:•S A.M.•I:IO P.M. 1S.DOIIIP __,,,.,I Sll.SO .0$001 SI.2SO.OO
8ROII.ER5. ICED I o..c.,..-•ott... I !:15 A.M.•I:OS P.M. )Q.DOIIUS. .lllU/U 7.50 :u 600.00
CANADIAN l>OUJtR; laLl. WDM&ar)' Wt.1. I:U A.M.· I :10 P.M. ICIO.OOOCD .OOOISICD I 10.00 .11075S 750.00
CA TTl.£. LIVE fO.C.IO-uio!.-j t:OSA.M.·I~'4SP.M.j •o.-us. .O:SSILI_ I 10.00 1.501 600.oo
CA TTL£. FEEDER O.C.co M.,......, tac-.. t:OSA.M.·I~,cl P.M.! •1.000 US. I .01$1/U I IO.SO I .SOl 6)0.00
COCOA H,.C_Ea_ 9:00 A~.-~:UO P.N. I .owu I
COFFEE. ~C"·
)0.000 LIS.
lil' Col'""- foopr f . - / 1:41 A.N •1 :JO P.M I 37.500 Las. I .OJ~ILI I
3.00
J.7S "
61
1.100.00
uso.oo
CO/'P£11 , _ , , Eacb.lac:.• HY I I:SV ....1.•1 :ull '·"' I u.ooo Las. I .J~ILI I 15.00 )( UO.DQ
CORN C~o »ou4 ollr•* I 9:)0 A.N.•I:I.I P.M. UIOOIU 114m!U I 1:1.50 IIW I 500.00
COTiON NYConoaE~ I 9:30 .r..M.•l:OO P.M. I so.ooo Las .owu' s.oo :u I 1,000.00
DEI.fl'SCH£/I!ARJ: laai.M.-...,,Wi.t 1:4IA.N.·I :IQ t.lol. i 115.000 Dill .DOIIISIDI.t I 12.50 .00601 no.oo
EGGS. SHELl. Ooa,o ........, .. t . . - 9:20 A.lot.•I:OU Ul I 12.500 DOZ. JISt/DOZ.. I 11.2S :u •50.DQ
FRENOI F1UNC '•" Moaeu.ry Mkt. j a:•s ....... ,:so P.M. 1 uo.ooo FF I .oooossiFF 12.50 .0051 1.250.00
GNMA Cllco,..- oil..... I:SOA.M.·I:JO P.M. I SIOO.OOO 1/ll )J.2S 1•m no.oo
GOLD anu.w--...,.wt •. I 1:21A.M.·I:)O P.M. IOOlrorO:t.l .lOS/OZ. 10.00 lOS 1.000.00
GOLD ' - " > Ead>. loo:.. HY I 1:21 4.11 .•I :JO P.M I 100 lror OZ.. .IOSIOZ 10.00 lOS 1.000.00
HOCS.L/1'£ Olocoeo ........... E..._ , ,,,~ ...M.·I2:!S P.M. I lo.ooo Las. I .0151/LI 7.$0 I .SOl 450.00
JAPANESE YEll' ••u... _u.ry .. tl. I .,., A.N.•I:IO I'.N. I u.soo.ooo l' I .OOOIS/Y 1:1.50 .110601 TJ(t.OO
LUMBER a.-..Mncaa.... E.-i 9:00A.M.·I:OS P.W./ ICIQ.DOIIIF .JOS/10001f1 10.00 51 500.00
MEXICAN PE:SO l.DU. Moftlul)· .Wk1o I 1:05 ....... :J~ P.W. I 1,000.0001' .IIOOOJS/P 10.00 .001501 1.$00.00
OAT.! a-.-••rT..... ,,,o ... w.•s:u P.M. I !.000 It! I 1144/IU I 12.50 6t )00.00
ORANGE JUICE H'V (OUOft i;.adlaftJc I 9:15 A.N.·I:Cl P.M. I U.OOOLIS. I .Dst/U T.SO )( uo.oo
PALLADIUM
PLATINUM
PLYifiiOOD
H"t Me•""'* baa""
HYWcrcoo.... E.a- 9:20A.W.•II:SSP..W.IIOOlrorOZ..I .DSS/OZ I
j I:•SA.N.•l:IOP.... f SOlrorO:t.f .IOSIOZ. I
O..Caro llau4 of TtaAr I 9:00 ........ 1:00 P.M. 74.032 so. Fl/ .IOS/1000 I
s.oo
s.oo l
7.60
I
I
•s
lOS
11
I
I
400.00
500.00
53~
/'ORA BELLIES ~WCIQolllcE..._./ t:IOA.W.·I:OOP.... I 34.ooo Las. I .015tiLI I 9.00 I :1< 120.00
POTA TO!:S. IDAHO a.-..~o~c .....,.. £.-,.1 t:OOA.)I .• Jl:$0 P.ld. I 10.000 LIS : .OifU I 1.00 I .SOt (
400.00
POTATOES. MAINE W'l' Mcn::a11w.: l-.Cbanl~ ! •:oo 4.W.·1:00,..M. I 50:1100 Las . I .owu I s.oo I .Sot 150.00
SILVER '-o-ooflr- I •·•o
A..ll.·l~l P.N. I l.iiOOOZ. .JIId/0%.. s.oo I liW l_ 1.000.00
SILVER C...-ur i,)ot~. lac., NY I:•&A.W.•I:IS P.W s.ooooz .lot/OZ I s.oo ! 211<' I 1.000.00
SILVER COINS ,.,,. Mctc.e'* £.1Ldwur I:UA.W.•I:Ill'.". 110.000 IS/!lao I 10.00 I ISOI 1,500.110
SOYBEANS O.C.,..r-fdollr""' I f:JO A.W.·I:ll P.M. I SJIOOilJ ll•i ! 11.50 sot 1.500.00
SOYBE.A/1' ME.AJ.. O.C.,o r-.o ol1ro4c !:JO A.W.•I:Jl P.M 100 Toa' .101/T I 10.00 lOS 1.000.00
SOYBEAN OIL O...,o.....,..orlro4c I 9,JOA.W·I:llP.M I 60.000 LIS I .owu I 6.00 It
SUGAR. I!IIORLD•J I HY Collcc .. S..o f . - f t:OO A.W.•I :CS P.W lll.IIOO Las. .OitiU I ll.lO 14 1.120.00
S~.tSF1UNC l•U .......ryMkl. f I:ClA.M,I:IO P.M. I 12SJIOOSf .OOOUI$F I n.so .11060$ 150.00
TRE.ASURY BIU.S I som
••u.lrlklM..,ICtt 1:15 A.W.•I:ll P.M. SJ .000.000 .OIP'T I 2$.00 1.250.00
INHEA T. SOFT RED 12..50 20t JIJ()Q.tiO
Clocooo - · ollrada l_ t:JO A.N.•I:IS P.W. 5.00011! 1141 I
IIIHEA T. HARD RED .:.c.._,. orTtMc I t:JOA.W.•I:IS P.M. 5.000 IU ,,., I 11.50 1St 1.250.00
INHEA T. SPRING
"".S Gnuo b<lloooc I 9:)0 A.M.•I:I.S P.N. !.000 IU 1/U I 6.15 20t 1.000.00
576
Conmact Siu
Pric~s Minimum Pnc~ Most Actively
An Vlfr'i~rtiol'l Tr11d~ d Fu nt~s
Commodity Quoud ( U or S J mtni~S) Mor1tbs
Crup
Normal Seasonal Important
Year !>rice Pattern Economic Fll&tors
(mllrketing Higb l..o'UI Affecting Prices
ye11r)
(continued)
580
(continued)
Contract Si:~
Pric~~ Minrrnwrn Pnc~ Most AclitJ~Iy
Ar~ Vanarion Trad~d Fwrwr~s
Commodity Quot~d ( U or S J rnOtJesJ Montbs
Poraroes
Jdllho (Cbi.)
(100/b. b11gsJ Dollars 50,000 lbs. Nov., Ma.r.,-
per (1 c:ent/c:wt. •S S .00) Apt., Ma.y
Potatoes, Maine Cwt.
(NY)
(SO lb. bags)
C1'op
Yeaf' Normal S~asonal Jmporunu
(maf'keung Price Pattern Econormc Factors
year) Htgb J..D'IIJ Affeczrng Prices
July thru june, April Dec:. Crop estimates, total U.S. Fall stocks,
bulk carlot shipmenu. truck holdings 16
Oct. thru May Spring Summer cities, Maine & Idaho situations, weather.
(comi,med)
552
(conzinued)
Contract Si:e
Prices Minimum Price Most Actively
Art Variation Tr~~ded
Futures
Commodity Quoted ( U or S I mDrJe.s) Montbs
Sug~~rNo. 10
(Domestic)
Cents 112,000 lbs. Jan., Mar.,
per 1 poinr"'S 11.20 May, July,
Sug11rNo. 8 Pound (1 cent•Sll20) Sept., Nov.
(World)
Crop
Ye41r Normal Seas.onal lmpor11n11
(m4frketing Price Pattern Eco11omic FtJctors
ye4fr) H1gb LO'UJ. Affecting Prices
Production, consumption,
None None .None government policy on silver
sales.
FORGET DEFINITIONS
~ ~
DAY WITH BOTH PHANTOM HIGH & LOW
~t~~prices
I
open here & U can see that there is an
'isolated' high for the day@ 'x' , (a phantom
high) ; ; ; but the day is not over ; prices then
go crawling up (&usually do 'crawl') and BINGO!
,,, hit that isolated but phantom high.
~liJ-
prices go here first,as I say,usually in the
morning and saunder on down to hit that little
monkey, that phantom-isolated low for the day.
Index no's 26
Intra-day analysis 66,50I,I77
News 3I,26S-70
Noise I77
'
Volume 22,29,55-69,92,I32,I4I,ISI-8,I67,I79,I80,I95-6,500
Weather 270
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385
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425-34
435
445
448-55
485 *
487-504
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