Bringing Common Sense to Trading

[PristineTrading 10]

Bringing Common Sense to Trading

 

In this week's Chart of the Week, I'm going to share with you one of the concepts taught in Pristine seminars. After reading this I believe that you will have what is referred to as a Ha-Ha or Light- Bulb moment. The basis of this concept isn't a new revolutionary type of technical analysis, but it is a powerful common sense approach to understand the interaction between buyers and sellers. Find someone else teaching the same - and you'll have found a forma Pristine student.

 

Frankly, there isn't anything new or revolutionary when it comes to technical analysis. However, there are different ways of interpreting the same raw data that we all use. Most do this with a hodge-podge of indicators. Some even make a business out of selling you their proprietary indicators or indicator based system that will tell you what to do and when to do it.

 

Knowing what to do and when to do it sounds great and why so many buy into these marketing indicator schemes. Maybe you remember or bought the once popular red light - green light trading system that many paid thousands for in the mid-2000 period. If you're interesting in a long-term approach to technical investing or trading, the history of the red light - green light indicator approach (gone) and others like it isn't it.

 

The use of indicators or indicator systems attracts virtually everyone that becomes interested in trading the markets. I was no different when I started and tried many indicators and wrote a few of my own. The idea of removing the guess work and the uncertainty is attractive. It is also a powerful way of motivating those interested to buy into their marketing. Been there?

 

Here's the concept I want to share with you....... There are buyers at prior price support (a demand area) and sellers at prior price resistance (a supply area). If you're thinking; I knew that already, that's it? You don't realize what a power concept this is.

Let me explain.

 

Virtually all price indicators/oscillators (there are hundreds) attempt to define when prices have moved too far and will reverse, right? Sure, but it doesn't work except in hindsight.

 

These indicators have absolutely nothing to do with prices reversing. If you doubt it, think about why does what becomes overbought or oversold either stays that way or becomes more so without returning to the other extreme so often? It's not that you're using the wrong indicator or settings either. That's thing will keep you in search of the Holy Grail and the next indicator.

 

Next there are technical tools like Fibonacci Retracements, Gann Lines, Moving Averages, Elliot Waves, Andrews Pitchforks, Bollinger Bands, Regression lines, Median Lines, Trendlines and they go on and on. All of them are supposed to locate the area where prices will find support or resistance.

 

All of this hocus-pocus analysis is insane! So, what's the answer?

 

An in-depth understanding of price support and resistance pivot points or consolidations as reference points are where you need to focus. This is where buyers and sellers interacted in the past and will likely do so again. Once you have a reference point, wait for a price pattern signaling slowing momentum and reversal.

 

At Pristine, we define a Support Pivot as a bar or candle having at least two higher low bars to its right and left. A Resistance Pivot is a bar or candle having at least two lower high bars to its right and left; simple.

 

The trend of prices, the arrangement of the candles, changing ranges and volume are some of the other concepts to consider that increase the odds of follow through, but that's for another lesson. As far as where prices are likely to stall, it's the basics you need to follow. There are buyers at prior price support (demand) and sellers at prior price resistance (supply).

 

Let's look at a couple of chart examples.

 

 

As Google (GOOG) moved lower on the left side of the chart, it formed a Resistance Pivot. As you can see, sellers came in at the same location. You didn't need an indicator to guide you where sellers would be, did you? You only needed to look at the chart for a pivot high. Once the trend was violated, look for buyers (demand) to overcome sellers (supply) at a Support Pivot.

 

As prices move higher in an uptrend, the concept of what was resistance becomes support applies. However, in the strongest trends prices will not pull back to what was resistance. I'm sure you've seen that in the past. At these times, don't chase. Wait for a Support Pivot to form. Once it does, you have a new or created reference point of support where buyers will step in again. Reversal candles are you confirmation at those points.

 

 

In the chart of Facebook (FB), prices moved up from a low pivot point and there was no clear resistance area to the left. However, once a Resistance pivot formed there was a clear point where sellers (supply) overcame buyers (demand) and that would likely happen again. Once FB broke lower many will look for a retracement to sell, which is fine. However, when supply is overwhelming demand - prices cannot retrace that much. Don't chase out of fear of missing the move, even though that may happen. Wait for a Resistance Pivot to form. Once it does, use that reference point and your Candle Analysis to tell when to act.

 

 

In the chart of the New Zealand Dollar versus the U.S. Dollar (NZD/USD.FXB) a climactic move lower occurred. This created a Pristine Price Void above and once a pivot low formed we had a reference point where buyers (demand) would show up again. However, we cannot know for sure if that low will hold, and we don't want buy in such a strong downtrend without confirmation. Rather, we want to wait to see if a reversal will form in the same area. If it does, we have that confirmation on the retest and a strong buy signal.

 

I hope this Chart of the Week has provided you with the Light bulb moment I promised

 

All the best,

 

Greg Capra

 

 

Greg Capra

President & CEO

Pristine Capital Holdings, Inc.

[bakrob99 11]

If you want to have more credibility in this community, why don't you post a chart and analysis with a setup that is in real time, based on daily bars. Your common sense method should easily show a setup where you can say .. if price goes to X, it is a buy or sell and the expectation is for Y to happen.

[DbPhoenix 42]

Because he's trying to teach people how to fish.

 

Db

[bakrob99 11]

  DbPhoenix said:

Because he's trying to teach people how to fish.

 

Db

 

Fair enough, and I think that the Pristine method could be a useful start for new traders - but cherry picking examples form the past reduces the credibility factor.

[DbPhoenix 42]

I wouldn't call it "cherry-picking". The guy wants to illustrate a particular point, so he chooses an example that illustrates that point. These examples, though, occur all the time, every day.

 

It's certainly easier and makes much more sense than most of what's posted by vendors.

 

In any case, there is no such thing as posting RT on message boards. The closest thing is to post the required characteristics of the trade in advance, but virtually no one does that. And those who do equivocate so much about direction and all the potential qualifiers that it becomes comic. I used to do this sort of thing all the time in the Wyckoff Forum, as did others, but I can't say that anybody learned anything from it other than those who participated because it's all as fresh as today's newspaper. By tomorrow, it's old news and who cares?

 

People don't plan. They "feel" what they're supposed to do. So best they learn principles rather than follow "RT trades". At least they might do less damage to themselves.

 

Db

Edited September 2, 2012 by DbPhoenix

[bakrob99 11]

  DbPhoenix said:

...

In any case, there is no such thing as posting RT on message boards.

Db

 

That's not true for weekly or daily setups, which was my point - as the setup he was showing was based on daily bars. The daily bar can be shown, the setup explained and the result can be viewed over the next few days or weeks. And the TL observers can see that it was done not by looking in the rear view mirror.

[DbPhoenix 42]

I don't want to seem argumentative, but there's nothing to post until the setup has already begun to occur. Otherwise, one is posting a status report on whatever it is every day for the foreseeable future. By the time something actually happens, nobody is left to care. In the case of daily or weekly charts, there are few people to care to begin with.

 

With few exceptions, those who are most interested in RT trades are those who want to be told what to do. They belong in trading rooms (though the trades there are likely not RT either). Those who want to learn to trade should understand the principles involved, then trade "RT" themselves through replay. Otherwise, they're just following somebody else's lead, and it's going to take them far longer to learn how to trade than somebody who takes control of the reins themselves.

 

Db

[steve46 12]

"With few exceptions, those who are most interested in RT trades are those who want to be told what to do. They belong in trading rooms (though the trades there are likely not RT either). Those who want to learn to trade should understand the principles involved, then trade "RT" themselves through replay. Otherwise, they're just following somebody else's lead, and it's going to take them far longer to learn how to trade than somebody who takes control of the reins themselves."

 

I copied and posted this because A)I agree with (most of) it....and B) it should be read by as many members as possible...

 

Where I disagree is as follows;

 

There is a hierachy of things that a "student trader" has to learn...from system development, to learning order types, to risk management, etc....one of the most important things a student trader must learn is how to be self possessed...meaning how to control their emotional status while they are "in" a trade.....this is critical because (as many of you well know) if you get out too soon, you miss the opportunity to make money....more importantly, you have cut short a profit opportunity and if you continue to make that mistake, the cost of your losing trades will overtake your reduced profits, and you will be out of business...I hope everyone reads and understand this important point as well....

 

I would argue that a skilled teacher should KNOW THIS and be able to provide the student with techniques that work to help the student get past this point.....

 

by the way, none of that solves the problem of folks wanting to be told when to buy and sell...its a real significant roadblock to really learning how to operate in the markets.

[windsurfer 10]

Greg,

 

I appreciated the clarity of your explanation, especially because of your examples.

 

Please comment on intra-day?

[SunTrader 10]

  DbPhoenix said:

Because he's trying to teach people how to fish.

 

Db

 

Through a rearview mirror.

[DbPhoenix 42]

  SunTrader said:

Through a rearview mirror.

 

One can learn to fish without reading anything. Or consulting anyone. Or making any attempt to benefit from the experiences of others.

 

Takes a while though.

 

Unless one is a bear.

 

Db

[SunTrader 10]

  DbPhoenix said:

One can learn to fish without reading anything. Or consulting anyone. Or making any attempt to benefit from the experiences of others.

 

Takes a while though.

 

Unless one is a bear.

 

Db

Exactly my point.

 

One can learn slowly through the rearview or quicker out the windshield,

 

For some they don't know this difference and for others can only handle the slower of the two.

 

And for some of us neither choice will be sufficient.

[DbPhoenix 42]

Or one can learn quickly through the rearview mirror or slowly out the windshield.

 

Db

[SunTrader 10]

  DbPhoenix said:

Or one can learn quickly through the rearview mirror or slowly out the windshield.

 

Db

Anything is possible.

 

But this thread is after all about common sense.

[steve46 12]

If one is so concerned with common sense, how about going and testing his assertions with regard to support and resistance pivots for yourself, rather than having pointless arguements about whether he is doing this "the right way"?

[DbPhoenix 42]

  SunTrader said:

Anything is possible.

 

But this thread is after all about common sense.

 

So which sense would be common?

 

Db

[SunTrader 10]

  DbPhoenix said:

So which sense would be common?

 

Db

 

Common sense is an oxymoron.

 

If only it was common.

[SunTrader 10]

  steve46 said:

....., how about going and testing his assertions ....

Because that again is looking in the rear view mirror

 

How about this one. Looking at your first chart (GOOG) the down close bar after the bar identified as a trend break is what is called a Gann Pullback entry signal to enter short. Or just a breakout failure - short term. Until as you point support holds.

 

Many other patterns can be found - after the fact.

 

For those who are new to the game these tips/tricks help but only if they going to continue to look in the past. How do they get beyond that is the real education.

[DbPhoenix 42]

  SunTrader said:

Common sense is an oxymoron.

 

If only it was common.

 

When you used the phrase, I'm sure you had something in mind. But that's okay.

 

Db

[SunTrader 10]

I didn't have to go too far. Bringing Common ...

[JohnHL 10]

Come on Pristine; let's have more good stuff like your first post.

Don't be put off by the secondary arguments and discussions that have developed - not that these didn't have some valid points; but they have become a bit distracting from the main theme of the promising thread you started.

[DbPhoenix 42]

  JohnHL said:

Come on Pristine; let's have more good stuff like your first post.

Don't be put off by the secondary arguments and discussions that have developed - not that these didn't have some valid points; but they have become a bit distracting from the main theme of the promising thread you started.

 

Since this thread -- a vendor's thread -- has been billboarded on our homepage, I suppose it's okay to refer interested readers to the Pristine homepage. The hucksterism of the site will turn many people off, and even those who think they can get past it will at some point most likely find themselves gagging.

 

However, the Pristine folks have provided an enormous library of articles over the years which I found helpful and enlightening at a time when nobody else was trading at this level of simplicity. (Actually, even today I can't think of anybody else offhand who trades at this level of simplicity.) I've never attended a Pristine seminar or spent any time in one of their rooms. In fact, I've never spent a dime there. But I have to assume that providing all this material for free pays off for them, so I don't feel guilty about it. If anybody from Pristine reads these comments, which I doubt, perhaps I can use this as an opportunity to say "thanks".

 

And, incidentally, anyone who signs up for one of these rooms looking for real-time "calls" is missing the point.

 

Db

[JohnHL 10]

  DbPhoenix said:

Since this thread -- a vendor's thread -- has been billboarded on our homepage, I suppose it's okay to refer interested readers to the Pristine homepage. The hucksterism of the site will turn many people off, and even those who think they can get past it will at some point most likely find themselves gagging.

 

However, the Pristine folks have provided an enormous library of articles over the years which I found helpful and enlightening at a time when nobody else was trading at this level of simplicity. (Actually, even today I can't think of anybody else offhand who trades at this level of simplicity.) I've never attended a Pristine seminar or spent any time in one of their rooms. In fact, I've never spent a dime there. But I have to assume that providing all this material for free pays off for them, so I don't feel guilty about it. If anybody from Pristine reads these comments, which I doubt, perhaps I can use this as an opportunity to say "thanks".

 

And, incidentally, anyone who signs up for one of these rooms looking for real-time "calls" is missing the point.

 

Db

Point(s) taken Db. Thanks

[Colonel B 10]

Is it just me or is the first post seem to be more of an advertisement for the most elite trading school? Even though I agree with about half of the post the rest seems hardly elite. I wonder what the cost is to go to the worlds elite trading school?

 

I saw this post in my email and I had no idea that it was going to be about what it was about. I will say this though. Most things in trading are not common sense. I kind of wish it was but unfortunately it is not.

[bobcollett 10]

  Colonel B said:

Is it just me or is the first post seem to be more of an advertisement for the most elite trading school? Even though I agree with about half of the post the rest seems hardly elite. I wonder what the cost is to go to the worlds elite trading school?

 

I saw this post in my email and I had no idea that it was going to be about what it was about. I will say this though. Most things in trading are not common sense. I kind of wish it was but unfortunately it is not.

 

Hi Colonel Saunders

Buy the lows , sell the highs.......................common sense?

The S&P is at a new high...... SELL. (dont buy breakouts at the TOP)

kind regards

bobc