Diversi cation Identifying

Holy Grail?
High Pro t Candlestick Patterns

Dynamic Cycles
Tops and Bottoms
Pattern

Trading

TRADERSWORLD
www.tradersworld.com | May/June/July 2012

THE OFFICIAL MAGAZINE OF TECHNICAL ANALYSIS

Issue #51

Where Traders Go Wrong

Cup with Handle

The Critical Nature of Volume

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May/June/July 2012 Issue #51
World Cup Trading Championships Traders World Online Expo #11 The Inside Technician eSignal Traders Expo Dallas Selfish Investing ELWAVE The Andrews Course Sacred Science Institute Sacred Science Institute Sacred Science Institute Trading On Target MMA Cycles Forecasting Made Easy Joe Krutsinger, CTA Traders World Back Issues Market Cycle Investment Mgmt Know Yourself Murrey Math Trading Supplies Naked Swan Trading Jan Arps Traders Toolbox Elliott Wave-Compass Traders Book Library 3 5 7-8 12 14 17 21 23 28 30 35 39 41 43 54 94 95 102 105 114 123 133 143

Editor-in-Chief
Larry Jacobs - Winner of 2001 World Cup Championship of Stock Trading

Office
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Contact Information
417-882-9697,800-288-4266 Email: publisher@tradersworld.com Copyright 2012 Hallikers, Inc. All rights reserved. Information in this publication must not be reproduced in any form without written permission from the publisher. Traders World (ISSN 1045-7690) is published quarterly - 4 issues, (may run late due to content creation) for $15.96 per year by Hallikers, Inc., 2508 W. Grayrock Dr., Springfield, MO 65810. Created in the U.S.A. is prepared from information believed to be reliable but not guaranteed us without further verification and does not purport to be complete. Futures and options trading are speculative and involves risk of loss. Opinions expressed are subject to revision without further notification. We are not offering to buy or sell securities or commodities discussed. Hallikers Inc., one or more of its officers, and/or authors may have a position in the securities or commodities discussed herein. Any article that shows hypothetical or stimulated performance results have certain inherent limitations, unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not already been executed, the results 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 designated with the benefits of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. The names of products and services presented in this magazine are used only in editorial fashion and to the benefit of the trademark owner with no intention of infringing on trademark rights. Products and services in the Traders World Catalog are subject to availability and prices are subject to change without notice.

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Contents
The Polarity Factor System By Daniele Prandelli

High Profit Candlestick Patterns Enhancing Market Trend Returns The Fry-pan bottom By Stephen W. Bigalow 78 Why Trade the Cup with Handle Pattern? By Dale Glazier 82 6 THE 1:1 STOCK TIME EQUILIBRIUM ANALYSIS & THE LAW of VIBRATION By Dave Franklin

May/June/July 2012 Issue #51

Moving Ahead: Trading Dynamic Cycles By Lars von Thienen

The Quest for the Hole in One Golf Ball By Ron Jaenisch 22 27 36

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THE PHASES OF A TRADING CAREER By Adrienne Toghraie Diversification The Holy Grail? By Kevin J. Davey Know When to Holdem, Know When to Foldem! By Joe Krutsinger, CTA Where Traders Go Wrong Five Reasons Why Traders Fail By Bennett McDowell Dont Be Fooled By Brady Preston NOTES ON GAP THEORY Part 2 from Novy Principles of Market Flow By Leonard Novy The Price of Certainty BY Joel Rensink

How To Make Short Term Trading Your Long Term Investment Strategy Trading, the Operational Mainframe of Successful Commercial Enterprise By Steve Selengut 95

43 Gold / Mining Stock Index Divergences Leading Indicator? By Robert Miner 101 49 NAKEDSWAN TRADING By Efrem Hoffman 106

55 58

Identifying Tops and Bottoms Using the Sweet Pea Deep Dip Triple Oscillator Divergence Concept By Jan Arps 115 The Critical Nature of Volume By Jeffrey A. Killing Elliott Wave Outlook S&P and Gold By Peter Goodburn The EUR / USD and Gold By Jaime Johnson 124

63 67

129 135

The Vibrational Positioning Sequence (VPS) A Market Forecasting Model based on the Law of Vibrations By Anthony Scelfo with Thomas Hart 72

Power Cycle Day Trading Course Review 144 The Ivy Bridge Sonata By Larry Jacobs 146 Traders Book Library 147

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Where traders come to convert their pain points into profit

NAKEDSWAN TRADING

Integrated Idea Generation & Risk Intelligence:

A New Framework For Converting Your Pain Points into Trading Profits

n this article, Efrem Hoffman, Founder & Visionary of NakedSwanTrading.com, features a new kind of market intelligence, called RiskWindows; and describes how the research service built around it, and generated by his proprietary software innovation, is offering traders a unique quantitative and leading indicator, which is developing a solid record of analytic accuracy. Real market data from today and tomorrow is utilized to test its predictive strength, and build industry traction from its ongoing performance. This is already being demonstrated by the stream of market calls made on NakedSwanTrading.com and its Twitter feed source, NakedSwanTrader. For a real-life sneak- preview of how our research is made actionable, look no further than our illustration in Fig. 4, and our special webinar event (posted in March on NakedSwanTrading.com), regarding the precise timing of Apples reversal. Hoffman describes the financial markets as the most extensive and longest running data warehouse on human social behavior that ever was an elaborate laboratory having an unparalleled shelf-life for testing out new theories of how human experience and interaction can impact your pocket book. [Every month more than 100 Billion transactions or 19.3 tera-bytes per year get executed across all traded asset classes in North America alone, along with 41 trillion messages per day pushed out across the 13 U.S. Stock Exchanges, 9 Options Exchanges, and 60+ Dark Pools of capital assets] -- according to Interactive Data -- making the social media data store, of the

Figure 1
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more than 845 million people that record and share 30 billion traces of their daily lives per month on Facebook alone [according to McKinsey Global Institute], look like a ball in the park. Tapping into this collective intelligence, he has also rigorously tested this research framework in the midst of financial hurricanes in equity, commodity, and currency markets, to successfully warn investors right before the top of the Housing Bubble and Mortgage Meltdown; specifically pre-identifying, the demise of WorldCom, Bear Stearns, Lehman Brothers, GM, among others, before any signs of trouble emerged. A review of the much more mixed market settings, scrolling back as far as 400 years across world capital markets, shows similar predictive intelligence. The richness of that information field goes some distance to explain why Wall Street is in an arms race to re-invent and make better sense of all this information. To address these growing demands, our mission is to play a leading role in the development and contribution of change-making technologies, to help transport this new science Out of the Lab and into your Trading Room. Stay tuned! -Efrem Hoffman is bolstering his operating capabilities to make NakedSwanTrading.com the premier innovation center and on-line destination for trader education, alpha-idea generation, and global risk intelligence -- all designed to make learning how to maximize RiskWindows, for your trading style, a snap. That means eliminating your blind-spots to help you keep your wallet closer to your hip and on a competitive playing field with institutional traders. One research group inside NakedSwanTrading, known as the Big-Data Science and HumanDecision Network, is tasked with the challenge of mathematically sniffing out digital records of market data to look for deep structure that explain the HOW and the WHY of the markets human social wiring, and specifically quantifies how and when traders with different market perceptions and time horizons are plugged into the global grid of fear and greed. We call this analytics engine, Bottom-Down Intelligence first drilling down to the very first and smallestscale transaction of an individual security, and then digging deeper into our underlying

Figure 2
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motivations for making trading decisions; and the interactions that shape the market outputs of our minute to minute transactions across groups of market securities. Another characteristic that is unique to our research strategy is that we defined a novel mathematical notation that corresponds to our discovery of an elaborate mathematical structure, which exists in and of itself, without fine-tuning parameters to match past experience. The structure dynamically traces out the extremities of price movement across all time-lines, while the mathematics of this solution framework decodes how, when, and at what valuation level market decision-makers (buyers and sellers) will observe and act on perceptions of momentum change into the future -- specifically when viewed from the perspective of each performance time-line. Hoffman likens what they do to building a telescope of human perceptions, saying that the techniques they engineer are transforming our scientific understanding of market rhythms in the same way that astronomy and relativity revolutionized our discovery of the cosmos, or how biology has inspired our design of more efficient information transfer, as well as lighter, stronger, and cheaper materials, with a more energy efficient purpose. To advance our capabilities in these areas, for the better part of 16 years, Efrem Hoffman has conducted ongoing scientific investigations to addresses the most elemental themes about human market dynamics, namely, personal influence and salience of decision-makers, diffusion, and viral propagation of information -- that telegraph market contagion; as well as the shape of the social network (code-named i-Grid) which gives rise to these attributes. His weapons of analysis have their home at the intersection of where first principles of quantum physics meets the mathematics of social interaction. He has engineered a High-Definition Risk Map that shows what extremes could be expected

Figure 3
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over a period of time (branded under the RiskWindows Trademark); how devastating tail-risk events like credit crunches, currency crises, and market crashes can be; and which asset classes and global hot-zones are going to be on the forefront of recovery after prolonged risk events. For retail investors, busy with their full-time commitments, as well as wealth advisers and professional traders alike, this could help them whittle down to a dozen or fewer areas where they could be focusing on high performance growth opportunities, and another dozen areas where they might want to go short in the near term -- out of more than 5,000 liquid assets including stocks, financial futures, commodities, currencies, bonds, and global-assetclass proxies, such as todays diverse array of exchange-traded funds (ETFs). This process is designed to yield diversification without redundancy; namely, because our analysis allows traders to avoid generating a large number of mediocre ideas that would otherwise drag down the best performers. Our real-time market updates on NakedSwanTrading.com are specially formulated to put this information at your fingertips, so that you can enter your trading positions right near overhead resistance or baseline support, before your competition takes a piece of your potential profits. The service addresses three actionable time-lines, ranging from intra-day trading to 5 days forward, 2 to 3 week trends, as well as 3, 5 and 9 month macro events. When we see a market crisis on the horizon, as we do today (see Fig. 3-7), we extend the outlook beyond 12 months, and upwards to 3 years. Efrem Hoffman summarizes his review of how he uses this proprietary information to build a unique market intelligence service: By combining a forensic analysis of global trends -- and their inter-market variables -with a bottom-down research process, we are helping traders hunt down the hidden structures

Figure 4
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and subtle relationships between markets and the trading participants that create them. This type of insight enables RiskWindows to give traders first-mover advantage in zeroing in on attack-points (see figures 1 through 7 for an illustration) -- special Risk-On, Risk-Off switches, that allow traders to sense upcoming short-term price trends, expansions or contractions in volatility and liquidity, as well as anticipating buying and selling inflection points of all shapes and sizes, with just-in-time action cues. To account for how traders weigh in on events on different time-scales, we are the first in the industry to create market momentum maps that chart out future perceptions of zero momentum crossing points -- branded under the trade name, Momentum Perception Maps (MPM). This process begins by overlaying zero momentum isobars on a price chart, one for each marginally longer trader time horizon -- starting from the tick (single transaction) level to multi-generation time-lines. Analogous to isobars on a weather map, which plot out boundaries of equal pressure, zero momentum isobars are curve-linear lines, overlaid on a price chart, that represent constant price levels of zero momentum. When the full spectrum of such isobars are displayed at once, and across all assets covered, a 360 degree view of global decision-maker pressure points are instantly rendered visible. How? By tracing out the gaps between valuation levels that correspond to future zero momentum crossing points on different time horizons. These forward-looking valuation zones define what different trader groups will see in hindsight on their momentum oscillators, such as MACD or RSI. Because the momentum jet stream, which these isobars telegraph, is versatile in shape and malleable in structure, many interesting and pertinent properties of future momentum change can be deduced and quantified with unparalleled resolution and lead-time. These properties are illustrated in Fig. 1 (step 1) and Fig. 2 (step 2), where we walk you through the construction of a risk window from start to finish. They are further exemplified in our free weekly analysis of global markets on NakedSwanTrading.com. Specifically, these zero momentum isobars are designed to indicate how fast an asset will be rising or falling in value its speed or momentum. Moreover, contrary to the popular belief that a stock must first slow down, or even stop

Figure 5
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before plunging lower, we have discovered an anomaly in this occurrence at special points in an assets lifecycle, which we call attack-points -- located at the leading edge of risk windows. These points define when peoples perceptions of market sentiment can instantaneously change or be magnified without any application of force or external stimuli. This is a revolutionary development, Efrem adds, because it implies that black swan events have been misclassified. They are often born out of the background noise of prior crises. This intelligence can forever change the way traders defend their assets ahead of parabolic manias or market capitulations. As an illustration, you need not look any further than those times when a runaway stock or commodity heads into the stratosphere, only to find out later that it plummets back to earth without a shred of warning. What makes these special events counter-intuitive and exceptionally difficult to grasp or quantify, with any level of logical certainty, is that they violate a well guarded principle of classical physics which we have all been endlessly trained to believe ever since our childhood experiences with nature. These stories of our pastime indicate that before an object (i.e. baseball or price) can fall back to ground level (fair value equilibrium), it must first slow down, or even stall out completely as it passes through its zero acceleration point. Although this slight change in momentum can be usually exploited to detect trend change in price, when a market is parabolic in nature and closing in on its high tick before the final bell rings, there is very little that a momentum indicator can tell you regarding the opening transactions on the following day. But all too often, and with great surprise, markets can gap down violently, blowing through your capital preservation stops or even decimating your option-driven income-generation strategy even in those instances where there is no sign of negative pre-market action. Traders can be guided to avoid these types of market train wrecks with potentially high levels of consistency, by following our free weekly webinars, and subscribing to our attackpoint database, which we will be rolling out, in Q2 and Q3, as an online application service solution. It was our risk window analysis of these attack-points, as showcased in Fig. 4 (timestamped on Twitter feed: NakedSwanTrader ), that enabled us to precisely predict and map out Apples (symbol: AAPL) parabolic reversal, with high confidence, specificity, and lead time,

Figure 6
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as it plunged from its high point this past week, taking many investors by surprise. What should really get traders excited about NakedSwanTrading.com is that its market intelligence is now signaling, loud and clear, unparalleled short and long opportunities in multiple equity, commodity, currency, and bond markets, right as they are entering a large number of attack-points and critical risk windows, which are expected to amplify the frequency of trade during the next 18 months and beyond. Figures 3 through 7 provide a sneak preview of such tail-risk that will likely impact several key markets, including the e-Mini NASDAQ 100 Futures, Apple (AAPL), e-Mini S&P 500 Futures, SPDR S&P 500 (SPY), and Spain ETF (EWP). Start building your information advantage today by subscribing to our free weekly webinars; and checking out our latest market commentaries and archived videos trend pieces at: http:// NakedSwanTrading.com ; Twitter Feed: NakedSwanTrader Fig. 1 Step One in the Construction of a Risk Window, as illustrated on the 89 minute price sampling interval of the NASDAQ 100 Futures (June Contract) sell-off, which triggered near April 4th (as illustrated in Fig. 3), following the run-up on a breakout which began on March 13, 2012 (as depicted in this figure). Fig. 2 Step Two in the Construction of Risk Window trigger points and attack- points, as illustrated on the 84 minute price sampling interval of the NASDAQ 100 Futures (June Contract) sell signature, which was evaluated before April 2nd. Note: Attack-Points signify zero momentum crossing points that are first observed by longer-term traders -- before shorter-term market players this implies an inversion in the ordinary flow of incoming future information, leading to short term momentum players running for the gates as soon as large block orders come in from institutional traders that act on information regarding momentum changes first. Fig. 3 NASDAQ 100 Futures (June Contract) Risk Window for Sell Off which began near April 4th; 2738 to 2757 is overhead resistance ; 2633 is critical support; Extreme Base-Line Support: 2535 if a spike low into May; Each price bar represents the price range of an 84 minute time interval.

Figure 7
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Fig. 4 Apple Inc. (symbol: AAPL) Risk Window for Sell Off which began near April 11th crossing below $633.00 (as predicted in our NakedSwanTrader Twitter post on April 10th, 2012; just above $640 level was overhead resistance level, identified at that time, and which trapped prices and reversing them as low as $571 so far, as of April 17th. Trailing resistance has now dropped down to the $620 to $627 price zone into April 24th. Next significant baseline support comes in at $556 to $548 price zone, with a risk of a spike down to 538 to 526 levels. Each price bar represents the price range of a 60 minute time interval. Fig. 5 E-Mini S&P 500 Futures (June Contact) Shorter-Term Risk Window (see Fig. 6 for longer term outlook) for Sell-Off which began near April 3rd, crossing below 1415 attack-point at the first red arrow; 1420 to 1430 price zone was overhead resistance, identified at that time, and which trapped prices and reversing them as low as the 1352.50 so far, as of April 10th. Trailing resistance has now dropped down to the 1396 to 1405.50 price zones into late April. Next significant support comes in at 1340 with 1330 to 1320 offering longer term baseline support into the May period. Each price bar represents the price range of an 89 minute time interval. Fig. 6 S&P 500 ETF (SPY) Long-Term Risk Window for Sell-Off which is in place for the period of early/mid December 2012 through 3rd Quarter 2016, with the most precarious liquidity crisis playing out in the interval as early as Dec 2012 or as late as July 2013 into Jan 2014, and possibly again in 2015. A violent long-term market sell-off with extreme downside volatility will ensue when Price trades below the 145.20 attack-points (the strip in time between December 2012 and June 2013, where the upper teal line hugs the upper yellow line), and particularly while the upper white line is sloped up into the future in any portion of this strip. Longer term extreme overhead resistance, which covers the interval into the 3Q 2016 is resting at $156 to $157. $114.81 is baseline intermediate term support until mid-year 2013 [in event of an all out market crisis -- Spain, being the canary in the coal mine when selling escalates through critical longer-term support levels as illustrated in Fig. 7 -- before December 2012, $128 to $123 will support market into year-end], until such time that price trades below the Red Horizontal Line (which rests at a level of 109.42) for at least one trading week. If this level is breached thereafter, then the $80 level to as low as $72.59 on a spike low is in the cards. If before 2017, price trades below $72.50 level for at least one week of persistence, an all out market meltdown into the $40.00 level (equating with the S&P 500 near 400 or lower) is a real possibility. As nearer these times, detailed crisis advisories and warnings will be issued and updated on NakedSwanTrading.com as well as our Twitter feed, NakedSwanTrader. Fig. 7 SPAIN ETF (Symbol: EWP ) Long-Term Risk Window for Sell-Off which is in play for the period into April 2013 to as late as September 2013 marks the interval with highest potential for crisis. Critical Support is now resting at a price level of $22.30. If prices trade below this level for at least one week, this market has no base-line support until $5.00. The only good news is that this support level rises to $10.00 in 2014 that is if we are not already below this level when we get into this time zone. Until such time that this ETF trades above $28.21 for at least one week, EWP will remain one of the weakest markets in the world with longer term overhead resistance starting out at $33.75 to $36, thereafter. A dire situation indeed! The
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A Critical Alert Window was opened on AAPL starting in March which led to a precise Attack-Point set up at the 633 level on April 10th. Traders had eleven full days to develop short strategies as AAPL was on the verge of a serious drop. Efrem Hoffman laid it all out on his HIGH-DEFINITION RISK MAP days in advance!!

EFREM HOFFMAN is Offering His Market Intelligence on dozens of markets as they set up their exact Attack-Points for trading strategies.
See Efrem's exclusive article on Risk-Windows in this issue. You can see the NEXT AAPL before it happens! Enter Your First Name Enter Your Email Address

We will NOT share your information with others.

He has invested over 16 years of research for the purpose of identifying Tail-Risk Attack-Points on specific equities, futures, commodities and emerging markets as they enter their Critical Risk-Windows See his decades of data mining experience using dozens of computers to drive the analytical engine that distills the bottom down intelligence Benefit from this analysis utilizing advanced math and physics tools to secure a telescopic and forward looking view of market rhythms and human perceptions.

Efrem Hoffman states there are going to be extensive trading Critical Windows Setting up over the next 18 Months!
To learn more about Efrem Hoffman, go to: www.NakedSwanTrading.com

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