In Search of the Elusive Bottom

[PristineTrading 10]

Over the years, I've seen many TV commentators, newsletter writers, self-proclaimed market gurus, chat room moderators and of course, traders call a bottom. Most of them being early on their call and/or entry are caught on the wrong side of the trend. However, they always have follow up calls to get long in hopes of catching the elusive bottom. I'll show you how elusive - it isn't.

 

What is baffling is, bottoms are one the easiest patterns to spot, so why not wait for it to setup? Of course that would take some trading education, which most people resist spending money on until they have lost some money - or a lot it. But how senseless is it to be calling and risking money on a reversal without any evidence of one? Don't expect this to ever change and we don't want it to. The bottoming pattern happens not only because of accumulation, it is also because of the early buyers capitulating.

 

Let's review some examples.

 

 

In the charts above are various tradable instruments. I chose bottoming patterns in stocks, commodities, currencies and the broader markets indices. It does not matter what you trade, this happens the same way in all tradable instruments.

 

As prices move lower within a downtrend they will begin to accelerate lower near its end. This is seen through multiple bars moving down with little overlap between them and/or wide range bars. At some point, the move lower will be rejected and prices will spring back up. The spring up typically is shallow and does not violate the trend by overcoming Major Resistance (MR).

 

What follows is a consolidation and pullback that will retest the original low. At times, the original low point of the move will be violated; however, all moves higher that initiated from the retest should have multiple bars moving higher into MR or above it and may have bullish Wide Range Bars (+WRB) as well. Pristine Tip: Multiple bars moving in one direction with little overlap between them are a Wide Range Bar in a higher time frame.

 

The bottoming process can go on for a relatively long period of time depending on the time frame being viewed. Longer time frames will form bottoms over a longer period of time and vice versa for shorter. That being said, the Pristine Trained Trader (PTT) knows that the odds of the bottoming pattern having high odds of making a significant move depends on the alignment of multiple time frames and where the bottom sets up. Let's look at an example of a stock that should form a bottoming pattern soon.

 

 

In the chart above, I have displayed multiple time frames of ROSS Stores (ROST). The monthly time frame is in a strong uptrend and pulling back where buyers will show up. That pullback is coming into first price support (green area), which may be hard to see to the untrained eye in this time frame.

 

What I have marked on the monthly as price support is the overlapping candles in the $50 dollar area. Pristine Tip: Overlapping candles in a higher time frame are a base in a lower time frame. See the base in the weekly time frame at the left. Notice the increase in volume last week as current prices neared the base of price support. That pick up in volume is exactly what we want to see when prices enter into a price support area.

 

The daily time frame of ROST is clearly in a downtrend and has not formed a bottom. However, Thursday's gap lower on increased volume that resulted in the formation of a Bottoming Tail (BT) is a typical exhaustion gap. This gap lower and BT could be the start of the bottoming process; time will tell. Exhaustion gaps come after a period of declining prices and signal that the last of the traders/investors hoping that prices would hold and turn higher have given up hope and are dumping their shares.

 

With the current correction in the broader markets ongoing, I hope this Chart of the Week will help you what to look for. There may be stocks that have shown relative strength and have started the bottoming process already. You will have to scan for them, but now you know what to look for!

 

Many new to trading the markets are lured into thinking that one market is a better market to trade than another. Those trying to sell you their services related to a specific market will guide you to that faulty thinking. For example, FOREX is a better or easier market to trade than individual stocks or equity e-minis.

 

This is completely false. Any market can be difficult at times because of uncertainty related to that market resulting in choppy price action. Or, any market can be relatively easy to trade when multiple technical concepts are in alignment.

 

With the right trading education - you can trade any market or stock you want with the same method.

 

Remember, the examples of bottoming patterns above were from Stocks, Commodities and Currencies. There is no difference. Yes, different instruments have basic foundational information related to them, but that information is not what you will trade. It's the patterns within the trends at the time that you will trade.

 

Happy Thanksgiving to All!

 

Greg Capra

President & CEO

Pristine Capital Holdings, Inc.

[Cruiser 10]

There is only one bottom for stocks, and I've bought a couple over the years that got there. It is when the stock hit's Zero. That is "the" bottom. Other than that it can always go lower.

[thalestrader 14]

Greg Capra, Pristine, and Oscar Velez - that is all you need to know to run the other way.

 

If any trader, new or otherwise, is out there looking for the holy grail in the form of trader education, Pristine is the last place you should look.

 

Do your due diligence, search the trading forums, and do not allow you and your money to be parted by these dudes!

 

Best Wishes,

 

Thales

[TEAMTRADER 10]

The careful use of divergence AND convergence is my best tip to go bottom fishing.

Regards

TEAMTRADER

[DbPhoenix 42]

Greg Capra, Pristine, and Oscar Velez - that is all you need to know to run the other way.

 

If any trader, new or otherwise, is out there looking for the holy grail in the form of trader education, Pristine is the last place you should look.

 

Do your due diligence, search the trading forums, and do not allow you and your money to be parted by these dudes!

 

Best Wishes,

 

Thales

 

I disagree. While I don't always agree with the particulars, I've found their charts and lessons to be very useful. And they have far more material available for free than just about anybody. In addition, it's concrete and practical, unlike the usual philosophical and psychological piffle.

 

Db

[Greg Capra 10]

Originally Posted by thalestrader »

Greg Capra, Pristine, and Oscar Velez - that is all you need to know to run the other way.

 

If any trader, new or otherwise, is out there looking for the holy grail in the form of trader education, Pristine is the last place you should look.

 

Do your due diligence, search the trading forums, and do not allow you and your money to be parted by these dudes!

 

Best Wishes,

 

Thales

 

Thalestrader,

 

First, let me correct you on my X-partner’s name. It’s Oliver Velez, not Oscar. There are those and I assume that you are one of them that don’t like Oliver. That’s okay; you’re entitled to your opinion. Some didn’t care for him because they felt he was too much of a salesman. There are salesmen in every field and many that cannot succeed as well as those selling often dislike that salesperson. If Oliver rubs you the wrong way, I think you know where to find him and can tell him. If not e-mail me.

 

As someone posting at this site, I assume that you are looking for education in some form and have tried to find the Holy Grail of education about the markets yourself, as most have at the start. I was not different. I studied and used many indicators. I wrote my own and tried many trading styles.

 

Everyone or most everyone goes through that process. Most then realize there is no such thing as the perfect trading system or style of trading. In time, they settle on a trading plan based on a method of trading that they have tested or traded for a period of time. Or they give up.

 

Now, if you have taken Pristine courses and were dissatisfied with them, I would like to hear from you about that. We have never had anyone in 18-years complain and ask for a refund. That does not mean everyone that takes a Pristine course makes money. As I believe you know, someone can make money with the same method another cannot make money with. I doubt I need to tell you why.

 

Thales, if you have not taken a course with us your opinion is baseless. Regardless, why you would try to bad-mouth me? Have you ever met me? Have I or Pristine not delivered something promised to you?

 

I have personally traded live with real money at many traders’ expos and won most of those trading events with the same trading method taught in our courses. Not many that teach are willing to do that as you know. What Pristine teaches is traded every trading day in our trading rooms for anyone to see in real-time. Most days are winners, but not all.

 

I don’t know if you are one, but it’s not uncommon for competitors to hind behind fake names and make such posts. Thales, if you are not and for whatever reason you hold a dislike for me or Pristine, I hope my reply helps give you some insights that you didn’t have before

 

All the best,

 

Greg Capra

greg@pristine.com

President and CEO

Pristine