How to Increase Your Odds for How to Increase Your Odds for A Successful Trend Trade A Successful Trend Trade Greg Capra Sponsored by Mastertrader Live Presentation Starts at 3:30 PM Chicago Time Live Presentation Starts at 3:30 PM Chicago Time DISCLAIMER: Futures and options trading are speculative and involve risk of loss. The information in this seminar is taken from sources believed to be reliable. It is intended for information and education only and is not guaranteed by the CBOT as to accuracy, completeness, nor any trading result. It is not intended as investment advice, nor does CBOT endorse or support any product or service represented in the presentation. The views and opinions offered by individuals or their associated firms in interactive seminars are solely those of the authors, and do not necessarily represent the views of the Chicago Board of Trade. The Rules & Regulations of the CBOT remain the authoritative source on all current contract specifications & regulations. "Dow Jones," "The Dow," "Dow Jones Industrial Average," and "DJIA" are service marks of Dow Jones & Company, Inc. and have been licensed for use for certain purposes by the Board of Trade of the City of Chicago (CBOT). The CBOT's futures and futures-options contracts based on the Dow Jones Industrial Average are not sponsored, endorsed, sold, or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of trading in such products. Information provided is taken from sources believed to be reliable but is not guaranteed as to its accuracy or completeness. The Rules and Regulations of the Chicago Board of Trade should be consulted as the authoritative source for information, rules, and contract specifications.
Transcript
How to Increase Your Odds for How to Increase Your Odds for A Successful Trend TradeA Successful Trend Trade
Greg CapraSponsored by Mastertrader
Live Presentation Starts at 3:30 PM Chicago TimeLive Presentation Starts at 3:30 PM Chicago TimeDISCLAIMER: Futures and options trading are speculative and involve risk of loss. The information in this seminar is taken from sources believed to be reliable. It is intended for information and education only and is not guaranteed by the CBOT as to accuracy, completeness, nor any trading result. It is not intended as investment advice, nor does CBOT endorse or support any product or service represented in the presentation. The views and opinions offered by individuals or their associated firms in interactive seminars are solely those of the authors, and do not necessarily represent the views of the Chicago Board of Trade. The Rules & Regulations of the CBOT remain the authoritative source on all current contract specifications & regulations. "Dow Jones," "The Dow," "Dow Jones Industrial Average," and "DJIA" are service marks of Dow Jones & Company, Inc. and have been licensed for use for certain purposes by the Board of Trade of the City of Chicago (CBOT). The CBOT's futures and futures-options contracts based on the Dow Jones Industrial Average are not sponsored, endorsed, sold, or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of trading in such products. Information provided is taken from sources believed to be reliable but is not guaranteed as to its accuracy or completeness. The Rules and Regulations of the Chicago Board of Trade should be consulted as the authoritative source for information, rules, and contract specifications.
An Introduction To Trading the mini DOW with the Pristine Method®
www.pristine.comwww.pristine.com
PRESENTED BY GREG CAPRAPRESIDENT AND CEO OF PRISTINE CAPITAL HOLDINGSWWW.PRISTINE.COM
DisclaimerDisclaimerIt should not be assumed that the methods, techniques, or indicators presented in this book and seminar will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples in this book and seminar are for educational purposes only. This is not a solicitation of any order to buy or sell.
“HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES IN THIS BOOK and SEMINAR HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS WE STATE MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.”
The authors and publisher assume no responsibilities for actions taken by readers. The authors and publisher are not providing investment advice. The authors and publisher do not make any claims, promises, or guarantees that any suggestions, systems, trading strategies, or information will result in a profit, loss, or any other desired result. All readers and seminar attendees assume all risk, including but not limited to the risk of trading losses.
Day Trading can result in large losses and may not be an activity suitable for everyone.
Combining Support and Resistance, Market Internals, Trends and Price Patterns for high probability trades.
Sponsored by The Chicago Board of Trade and MasterTrader.com
5
The Plan for trading the mini-sized Dow (YM)
Define the “reference points” of support and resistance or, more importantly the lack thereof.
Define the market environment each day with market internals.
Define the current trend or lack thereof.
Trade when a predefined price pattern forms in alignment with the above.
Money Management
TREND TRADE PLAN
Pristine Capital Holdings, Inc.
Actual Support and Resistance
Subjective Support and ResistanceFib Retracements-Extensions
Moving Averages
An unfilled gap between price bars
Prior price highs and lows, e.g., pivots
A series of price bars, e.g., a base
Trendlines
Trading Bands or EnvelopesThese analysis tools are used by many to locate or predict support or resistance.
The only real support or resistance is price. This the key to objective analysis.
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SUPPORT and RESISTANCE
SUPPORT and RESISTANCE
7
Price support and resistance reference points tell us where others are likely to act (buy-sell) or react (take stops).
When those points are far apart, the odds are that prices will trend toward those points when internals are supporting.
8
When price support (demand) and resistance (supply) are in a range, trend trading does not work.
Distance
Void
Void
Breakout failures have “shock value”that overcome demand
Prior support, as well as market internals, guide us to the odds of potential trend reversals. Most trends end once they
become climactic based on emotional extremes.
SUPPORT and RESISTANCE
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Retracement levels, moving averages, and/or trendlines did not stop this move lower.
Trends like this one occur when there are few price reference points of support with market internals in alignment.
The distance to those points and there size will indicate their potency as support.
SUPPORT and RESISTANCE
10
Market Internals provide an objective comparison between the current market environment and past based on historical references.
Market Internals act as “gauges” to determine the broader market’s current level of strength, weakness and sentiment.
Market Internal readings should be read in combination with each other. One internal gauge alone may be misleading.
Market Internals guide our bias – Bullish – Bearish – Neutral. This stops us from projecting our own bias that may be influenced by our wishes, fear or greed at the moment.
Why Use Market Internals
Market InternalsIntra-day Internals
NYSE TICK
NYSE TRIN
NYSE Advance-Decline Line
NYSE Advance-Decline
Volume
NYSE VIX
DOW TIKI
Buy and Sell programs
Total Put/Call Ratio
End-of-day Internals
McClellan Oscillator
Advancing Stocks Ratio
Advancing Volume Ratio
VIX and VIX Oscillator
5-MA of the NYSE TRIN
10-MA of the NYSE TRIN
Closing NYSE TRIN
Closing DOW TICKI
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Equity Put/Call Ratio
Total Put/Call Ratio
OEX Put/Call Ratio
Sentiment Surveys
The TICK is used to determine very short-term changes in market momentum.
Trading ranges above 0 indicate a Bullish Bias.
Trading ranges below 0 indicate a Bearish Bias.
Extreme TICK readings (+ 1000, - 1000) suggest a short-term turn, but
consistent readings between + 600 and + 1000 are very bullish, and vice versa.
Divergences, or a non-conformation of price highs or lows, and TICK highs and
lows, indicate relative strength or weakness, signaling a potential trend change.
Confirmation of price highs or lows by TICK highs or lows suggests continuation.
THE TICK
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TICK Guidelines:
TICK spending time between +, - 600 is neutral.
This is a scalper’s market!
NYSE TICK
13
TICK staying well above zero and moving to extremes, very bullish.
TICK often stays at a high level when prices trend higher.
Trend traders should use this as a guide to hold onto longs.
New high and extreme! Breakouts in YM should go higher after a pullback!
TICK Support
NYSE TICK
14
TICK spending most of the time above zero and between + 600 and + 1000, very bullish.
When the TICK pulls back, ideally near the zero line, consider longs.
Support
NYSE TICKResistance at extremes. Don’t sell or sell short based on this information alone!
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NYSE TICKTICK spends most time below zero, bearish.
Lower Highs
Below -600 to -1000, very bearish. While bounces do occur from -1000, avoid longs, unless climactic.
HHs
HLs
HH-HL TICK, environment changing
LLs
16
TICK extremes can indicate a bottom, as well as confirm an upward move.
While Tick extremes suggest a stall in an uptrend, trends typically do not end until prices reach a point of price resistance.
Stars show bullish price-tick action.
TICK divergences can lead a turn in YM, but the most reliable signals will come when prices are also in an area of price support or resistance.
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Bullish Divergence TICK Support
YM & NYSE TICK
Readings above 1.00 indicates more volume is associated with declining stocks.
Readings below 1.00 indicate more volume is associated with advancing stocks.
The TRIN’s trend is as important as the current value.
A TRIN rising from 1.2 towards 2.0 indicates a more bearish market than one
rising from .55 to 1.0. Declining from 1.2 to .50 is a more bullish environment than
one declining from 2.3 towards 1.5. A sideways TRIN is associated with its level.
While a Rising trend is Bearish and a Declining trend is Bullish. This guide
alone can be incomplete; therefore, a deeper understanding of the TRIN is needed.18
TRIN Guidelines:
THE TRIN
19
Sideways, TRIN rising. Note wide range bars
YM Rising, T
RIN fallin
gYM’s range contracts once YM and TRIN are in sync.
Range expands after YM is rising for two hours!
TRIN does not always trend opposite YM
NYSE TRIN
Below 1, but rising
TRIN is below 1, so bullish, but rising bearish. Volume is increasing into decliners.
This chart tells us that the
market can rise while the
TRIN is rising, so there must
be more to this indicator.
TRIN below 1 and flat to declining. Bullish, but this does not truly give a complete picture of the environment.
Although this TRIN indicates a bullish environment, this TRIN value alone is misleading. The calculated numbers are not bullish.
-1081
23
- 632810
THE TRIN
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The Advance – Decline line measures the number of stocks that are advancing verses declining. When more are advancing, the lines rises; more declining, the line falls.
The A-D line does not consider how much each stock has moved or how much volume is associated with advancers or decliners, so its information is not complete.
That said, the advance - decline line, when added to other market internals, does provide a complete picture of what is occurring in the market.
ADVANCE – DECLINE LINE
General A-D Line Guidelines:
A rising A-D line indicates the number stocks advancing vs. declining is increasing
A declining A-D line indicates the number stocks declining vs. advancing is increasing
An A-D line between + / - 500 is neutral, but follow its trend
The higher an A-D line rises, the more bullish. Values above + 500 are decisive
The lower an A-D line falls, the more bearish. Values below - 500 are decisive
Readings of + or - 1000 and greater are ideal for a trend to continue 25
ADVANCE – DECLINE LINE
26
Set horizontal lines at every 500 increments
Flat at neutral level means the market is choppy. Good for scalpers, but not trend traders.
Now the market is getting ugly. Don’t fight the trend!
ADVANCE – DECLINE LINE
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Although this was at a very bearish level, the trend turned up. Now look at the TICK to see if it moved to a more bullish level.
Market environments change!
Although the A-D is still at a negative level, it is improving.
ADVANCE – DECLINE LINE
28
The trend is up and the level is bullish, don’t short. Hold those longs.
It’s very likely that the TICK was hitting high extremes (+1000).
That’s bullish with this A-D Line, and not a reason to exit long positions.
ADVANCE – DECLINE LINE
29
Advancing volume is the volume in stocks trading above yesterday’s close. Declining Volume is the volume in stocks trading below yesterday’s close.
The Advance – Decline Volume Line measures the advancing volume minus declining. When more is advancing, the lines rises; more declining, the line falls.
When the A-D Volume Line is added to other market internals, it provides a complete picture of what is occurring in the market.
ADVANCING – DECLINING VOLUME
General A-D Volume Guidelines:
A rising A-D Volume line indicates advancing vol. vs. declining vol. is increasing
A declining A-D Vol. line indicates advancing vol. vs. declining vol. is decreasing
An A-D Vol. line near the 0 area or + / - 150000k is neutral
An A-D vol. value above + 200000k and rising is decisively bullish
An A-D vol. value below – 200000k and declining is decisively bearish
Readings greater than + or – 200000k, and trending are ideal for a trend to continue30
ADVANCING – DECLINING VOLUME
31
Sideways at a bullish level. Rising
rapid
ly at
very
bulli
sh le
vels
ADVANCING – DECLINING VOLUME
Maintain a bullish bias, but be open to change if internals and YM’s trend suggest change.
32
A-D Volume is declining and declining rapidly to lower levels.
Bearish, but at a neutral level. Check other internal gauges for guidance.
ADVANCING – DECLINING VOLUME
33
A-D Volume is rising, but rising slowly at neutral levels. This indicates a slightly bullish market, but not a decisive one.
Check other internals for guidance
ADVANCING – DECLINING VOLUME
COMBINING MARKET INTERNALS
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Conflict
Agreement
A-D Volume
A-D Line
NYSE TRIN
NYSE TICK
35
Conflict
Agreement
COMBINING MARKET INTERNALS
A-D Volume
A-D Line
NYSE TRIN
NYSE TICK
36
Bullish Market Environment
TICKS 0 to +1000 with many ticks + 600 to + 1000 are key
TRIN declining, ideally below 1.0, or sideways below .50
A-D line rising, ideally above + 500
A-D Volume rising, ideally above + 200000
Bearish Market Environment
TICKS 0 to -1000 with many ticks - 600 to - 1000 are key
TRIN rising, ideally above 1.0, or sideways above 1.2
A-D line falling, ideally below - 500
A-D Volume falling, ideally below - 200000
Neutral Market Environment
TICKS between - 600 to + 600, or oscillating in that area.
TRIN sideways, ideally between .90 to 1.05
A-D line sideways, ideally between – 500 to + 500
A-D Volume sideways, ideally between - 200000 to + 200000
These are ideal scenarios, and they can and do occur. But realize
that there are many combinations of levels and trends.
Experience will teach how to combine and interpret them.
COMBINING MARKET INTERNALS
DEFINING a TREND and TREND CHANGES
If there is a “Void” of price reference points (support – resistance), the odds are
high that a trend will develop when market internals are supporting.
To take advantage of this, an objective method of trend analysis is needed.
Moving average crossovers, Trendline breaks and/or Fibonacci retracements
are all subjective and potentially misleading as methods of trend analysis.
By simply monitoring pivotal price points, as the market forms them, we can
objectively follow the market’s trend.
This method will also signal trend changes in the time frame being viewed.37
Demand has increased
Supply has increased
All price pivot lows begin with
higher low (HL) bars adjacent to
both sides of the “pivot bar.”
All price pivot highs begin with
lower high (LH) bars adjacent to
both sides of the “pivot bar.”
For a change in trend to occur, a
prior price pivot must be overcome
on a closing basis.
It cannot happen any other way!
HL HL
LHLH
The next bar will determine if a pivotal point of significance has formed.
?
?
?
?
DEFINING a TREND and TREND CHANGES
38
LH
HL
39
While pivot lows formed (support), a down trend within a void, with supporting internals, suggests that they can be overcome.
DEFINING a TREND and TREND CHANGES
YM never traded above a prior pivot high within this trend.
40
Trading is psychological to a great extent.
Let’s use that to our advantage through technical analysis.
Price patterns are pictures of psychology in motion.
Have you ever bought a breakout or shorted a breakdown?
Have any of those breakouts or breakdowns ever failed?
How did it make you feel, think and what did you do?
DEFINE A PRICE PATTERN
41
DEFINE A PRICE PATTERN
A breakout failure catches buyers on the wrong side of the prevailing trend.
This typically results in a continuation of the trend soon afterward.
Short under the failure bar’s low, stop 2 ticks above its high.
41
Breakout Failure
Breakout Failure
TREND and all INTERNALS in AGREEMENT
Breakdown Failure signals a buy with bullish trend and internals.
Breakout Failures are not taken.
The trend and internals are bullish.
A-D Line is bullish
Vol. Line is bullish TRIN is bullish
TICK is bullish
With all internals in agreement at bullish levels and a bullishtrend, the odds are high that the breakdown failure pattern willresult in a continuation of the prevailing bullish trend. 42
43
Price patterns are pictures of the thoughts, expectations and emotions of the traders that formed them.
When those pictures tell you that others have been caught on the wrong side of the trend and market internals, you have an opportunity to take advantage of it.
Odds of similar patterns repeating an outcome in exactly the same way are low.
That said, pattern recognition does suggest a similar outcome.
Accept the fact that you do not know what will happen next.
The odds will be on your side, if you have a method of trading that you have internalized, have confidence in – and, of course, have the discipline to follow.
FINAL THOUGHTS
44
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