CONTENTS

Letter from the President - Page 3

Editors note - Page 4
Analysis of Market phases using 50, 200 SMA by Ananth Madhav - Page 5
Understanding Market Profile by Pit Trader Page 7
Gann Swing 7 base predicting method by Supriya Dutta- Page 10
Designing a trading system Part-5 by Subhadip Nandy Page 12
Dow Series Paper review of 2002 Identifying Bear Market Bottoms and New Bull Markets by Claudia
Mincucci Page 16
Breakthroughs in Technical Analysis Book review by Sahil Vijay- Page 19
Past and Future Events Page 22

This newsletter is produced by the Association of Technical Market Analysts. All comments and editorial material do not necessarily reflect the organization's
opinion nor does it constitute an endorsement by the Association of Technical Market Analysts or any of its officers, of any products or services mentioned.
Sources are believed to be reliable at time of publication, but not guaranteed. The Association of Technical Market Analysts and its officers, assume no
responsibility for errors or omissions.

SEPTEMBER 2014 ATMASPHERE | 2

LETTER FROM THE PRESIDENT

Dear Colleagues,

Greetings of the Festive Season to all the members of ATMA and all the readers of the ATMASPHERE! Autumn is in the air! May you enjoy the spell of
holidays and festivities with your near & dear ones. Let the luminescence of the upcoming Diwali lamps light up and brighten up our minds, bodies and
account balances!

We are having only one chapter meeting in the month of October at Mumbai. All other chapters will resume action once we return back from the holidays,

next month.

Sincerely,

Sushil Kedia

SEPTEMBER2014 ATMASPHERE | 3
EDITORS NOTE

In this issue -

1. Ananth Madhav explains market phases using moving averages, in his article Analysis of Market Phases using 50 and 200 SMA.

2. Alex a.k.a Pit trader continues the explanation of the concept of Market Profile.

3. Supriya Dutta shares a simple yet effective method by William D Gann for finding price targets.

4. Subhadip Nandy brings fifth part of his series - Designing a trading system.

5. Claudia Mincucci presents yet another brilliant review of the MTAs Dow Award winning paper of 2002 Identifying Bear market bottoms and new bull
markets.

6. Sahil Vijay gives yet another interesting review of the book Breakthroughs in Technical Analysis by David Keller, CMT

We await your feedback on ATMASphere. Please let us know what we can do to deliver content that meets your needs by sending an email to editor@atma-
india.net. You can also subscribe to ATMASphere completely free by clicking here.

Sincerely,

Gunjan Duaa.

SEPTEMBER2014 ATMASPHERE | 4
 Analysis of Market Phases using 50,
200 SMA.

"There is nothing new on Wall Street or in Stock Speculation. What

has happened in the past will happen again and again and again. This
is because human nature does not change, and its human emotion
that always gets in the way of human intelligence. Of this I am sure.
- Jesse Livermore.

In this Issue I am going to discuss the various market cycles / phases

using 50, 200 SMA. This study can help us understand that how the
market works and how a good grasp of technical analysis can help in
recognizing market cycles. The problem is that most investors and
traders either fail to recognize that the markets are cyclical or forget
to expect the end of the current market phase. Another significant
challenge is that, even when we accept the existence of cycles, it is
nearly impossible to pick the top or bottom of a particular trend, but
an understanding of cycles is essential if we want to maximize
investment or trading returns.

SEPTEMBER2014 ATMASPHERE | 5
Lets look each of the phases in detail. To be continued...

Accumulation: Price Close > 50 SMA. Price Close < 200 SMA and 50
SMA < 200 SMA. The Accumulation phase begins when traders who
are short decide to cover their positions, and investors decide to buy
the stock at its low. In this phase prices rise above 50 SMA, which
means prices are stronger than they have been recently and higher
lows are seen in this phase. But 50 SMA < 200 SMA which means long
term trend is still down.

Ananth Madhav, A CMT aspirant, is a full time trader having 6 years

of experience, teaches Technical Analysis. One can reach him on
ananthmadhav@live.com

SEPTEMBER2014 ATMASPHERE | 6
 Understanding Market Profile

I continue where I left the last article, in which I introduced the

concept of market profile, which is the backbone of my trading.
Market profile is not a trading system but its a way to trade. If you
missed the last article check the August series of ATMAsphere and
continue to this edition, the second in the series explaining Market
Profile.

In this series I will explain TPOs, on which market profile is based on.

TPOs are basic building blocks of Market profile. Short for Time Price
Opportunities.

Each alphabet has been assigned to each 30 minute timeframe. If

market opens at 9:30 AM then for 9:30 AM to 10 AM alphabet 'A' has
been assigned. That alphabet can be replaced with number or
anything, but the methodology is same. For Time period between 10
AM to 10:30 AM alphabet B has been assigned.

Ordering of each alphabet is horizontal unlike regular chart where

each new price assigned to new time period. See the image attached
for better understanding.

SEPTEMBER2014 ATMASPHERE | 7
New price has been assigned to that price range. Every time price
trades at 1951 subsequent letters depend on the timeframe assigned
in the range of 1951.

Same way volume can be assigned in front of that particular price. If

price is at 1951, then volume traded at that price has been assigned
in front of it.

Okay, lets utilize this information in practice, if you dont understand

how to build TPOs no problem, nowadays retail trading software
provide market profile charts by default, more you look at it
understanding will get easier. Lets have a look at $ES_F chart of 18th
of September December contract.

SEPTEMBER2014 ATMASPHERE | 8
On the left of the chart are TPOs OR time price opportunity areas
represents that particular time span. And on the right of the chart in brown
color are nothing but volume plotted horizontally on that particular
price. On 18th highest volume traded at 2001. In short left profile is
for a price and writes profile is for volume.
We will discuss more on value areas and strategies in next segment.
By now you can judge the condition of market by just glancing at
Market profile chart.

Now we can easily see that where the price has been auctioned
most. Where there is cluster of TPOs price has been auctioned most Hi, I often go with nick name Pit Trader.
in that range, that happens when that particular price range got
I trade Index futures and options. I currently live in Toronto, Canada.
accepted by most of the market participants. In the chart that price is
I use Multicharts and R.I am a programmer myself, and use my own
2000 on 18th and 1990 on 17th (shown by a magenta line in the chart
trading systems based on statistical models and Market profile.
above). Which is called as point of control or POC? I (f we added all
the TPOs (that is overall range of the market) and omit 30% of the You can follow me on twitter @NarcissisTrader.
range where the market traded least, what we left with is price range
of 70% of total range which is called as Value area. That green color
bar represents value area. Value area and point of control are
probably the most important factors in auction market theory. Most
strategies are devised around that. High of the value area is called as
value area high (VAH) and low of the value area is called as value
area low (VAL)

SEPTEMBER2014 ATMASPHERE | 9
 Gann Swing 7 Base Predicting Method

WD Gann Developed power tools for prediction, based on Price &

Time Co-relations. I am going to share one of the tools developed by
WD Gann. This Tool / Method is the simplest, easiest and yet very
accurate. This method is based on values derived from Swing Lows &
Swing Highs.

Based on Gann theory (square of 9) every move can be divided into 8

halfs. I have made few changes to the Base Value 7 to 7.5 (which
adjust superbly well on NIFTY). The values which are derived
generally occur at lows or Tops each rally.

I am explaining two case Studies Bullish and Bearish.

A) BULLISH

Lets begin with understanding the swing low & swing high (IMd
Ress). Low made by nifty 7422 (swing low) and faced IMD ress at
7478 (swing high). Ones we have the two swing (high / low) values,
subtract (7478-7422=56) 56 is the net diff. Multiply the net diff (56)
with Base Method (7.5 times) 56*7.5=420. Now to ascertain the
target area (bullish rally) add the derived value (base method) 420
with the lower swing point (7422+420=7842). Post our calculations
deploy the Final Value to charts. Snap 7840 target was taken out by
NIFTY (actual high was made 7840.9).

SEPTEMBER2014 ATMASPHERE | 10
B) Bearish High made by nifty 7840.9 (swing high) and faced IMD support at
77801 (swing low). Ones we have the two swing (high / low) values,
subtract (7840.9-7801=39.9) 39.9 is the net diff. Multiply the net diff
(39.9) with Base Method (7.5 times) 39.9*7.5=299. Now to ascertain
the target area (bearish rally) subtract the derived value (base
method) 299 with the lower swing point (7840.9-299=7542). Post our
calculations deploy the Final Value to charts. Snap 7542 target was
taken out by NIFTY (actual low was made 7540).

Supriya Dutta is a Head Strategist and Trading Coach for Moneyrizing

Wealth Management. She Manages funds based on prop strategies
and methods based on statistical models .She has been a trader
since 1998 and has trained over 800+ Traders / HNIs. She mostly
trades Index futures & crude Oil on Indian exchanges. You can follow
her on twitter @Moneyrizing.

SEPTEMBER2014 ATMASPHERE | 11

Designing a trading system Part 5
In the previous part of this series, I provided a back test for the
system as follows:
Out of this back testing report, we can see that the most number of
consecutive losses is 5, i.e., Rs.1 lakh of drawdown is possible if using
a fixed risk of Rs.20, 000. Hence, the risk capital is Rs.1 lakh. Rs.2
lakhs is necessary to trade 1000 Nifty futures on an intraday basis.
Now we get down to the process of stress testing the system to
check how we expect it to perform in real life. I am providing the
SEPTEMBER2014
Stress test report and then explaining each factor which I have
considered.
Let us consider the year of 2010. The number of profitable trades in
the initial back test was 23. We consider a standard error (simply root
of 23) which comes to 4.795832 and its rounded off to 5. We now
assume that in real life trading, the number of profitable trades will
be 5 less than that shown in the back test. So in real life trading, we
assume that the number of profitable trades will be 23-5 = 18. Then
we multiply the average profit per trade with this new number of
profitable trades to get the Curr Win figure which is obviously
much reduced than the original profits.
ATMASPHERE | 12
We do the same standard error calculation for the losing trades thus
increasing the number of losing trades from 14 to 18 and increase
the total loss amount.

So in essence, we are taking 18 profitable trades in place of 23

profitable trades, and 18 loss making trades in place of 14 loss
making trades. This revised win loss figures gives us an adjusted
return of around 52% in place of 117% shown in the first run of back
test. This is what you can realistically expect and this figure remaining
positive even after taking adverse trades into account proves the
robustness of the system. This result is known as Pessimistic returns.

Now we run some more tests and come to the following chart:

Win ratio: (Total wins/total trades). The probability of wins, total

wins divided by total number of trades.

Payoff Ratio: (Average profit per profitable trade / Average loss per
losing trade) the return expected per rupee of risk, must be greater
than 1.

Trade Expectancy: (win ratio *avg win)/ (loss ratio*avg loss) this
must be positive for the system to be ultimately profitable

Top 10% winnings: Total amount earned in the highest 10% of

winning trades

Top 10% losses: Total amount lost in the biggest 10% losing trades

Net Top 10% wins: This figure must be positive, i.e., whether the
system is still profitable after deducting the top 10% winnings

SEPTEMBER2014 ATMASPHERE | 13

Returns minus positive outliers: Returns calculated after deducting
the top winnings
Tops wins minus top losses: Best 10% wins minus best 10% losses.
This figure must be sufficiently positive
Ratio of top wins to top losses: This ratio must be greater than 1.
Anything greater than 2 is great, the more the merrier
Net minus all outliers: Returns calculated after removing the top
10% of wins and losses. In terms of a bell curve, removing the outliers
both sides
Returns % minus all outliers: the net returns after outliers removed
on both sides.
Profit factor: (gross profit / gross loss)
the profit factor is defined as the gross profit divided by the gross
loss (including commissions) for the entire trading period. This
performance metric relates the amount of profit per unit of risk, with
values greater than one indicating a profitable system. We all know
that not every trade will be a winner and that we will have to sustain
losses. The profit factor metric helps traders analyze the degree to
which wins are greater than losses.
SEPTEMBER2014
Max drawdown amount: A drawdown is measured from the time a
retrenchment begins to when a new high is reached. This method is
used because a valley can't be measured until a new high occurs.
Once the new high is reached, the percentage change from the old
high to the smallest trough is recorded. Draw downs help determine
an investment's financial risk. Both the Calmar and Sterling ratios use
this metric to compare a security's possible reward to its risk.
Max drawdown percentage: Drawdown expected as percentage
Luck factor: (% of highest winning trade / % of average winning
trade). This explains how much a single trade contributes (is lucky) to
the performance of the system. We are looking for a low figure on
this one. A system with a luck factor of 6 or 7 means that 6-7 times
the average profit came via a single trade. Hence, in real trading we
might not come across such a trade
Recovery factor: (total net profit / absolute drawdown) this figure
must be greater than 2, a lower figure would suggest that the system
is not robust enough to cover the drawdown
Pessimistic returns: We have covered this earlier
Realistic returns: This is something I personally check. I use twice
weight age on the outlier adjusted returns and a normal weight age
on the pessimistic returns and take an average. In my experience,
this comes closest to the actual system performance in real life.
ATMASPHERE | 14
I expect readers to go through the figures systematically, Google
when necessary and come up with questions.

Graduated with Economics with post grad in Business Management

and having 12+ years experience as a trader and analyst, Subhadip
Nandy was the Head-Research and Director-Algorithmic Strategies
for one of the biggest commodities prop firms in India.

He now manages his own and prop money, based upon self
developed algorithmic strategies. He can be reached at
www.quantgym.com

SEPTEMBER2014 ATMASPHERE | 15

DOW AWARDS 2002 - IDENTIFYING BEAR
MARKET BOTTOMS AND NEW BULL
MARKETS
By Paul F. Desmond
Buy at the end of bear markets is the sweet spot for investors
because the first few months of a new bull market in which so many
stocks rise so dramatically.
But is well known the difficulty in identifying the primary trend of the
stock market.
After a new bull market has begun, financial news typically remains
negative for months and economic indicators does not begin to
improve before six to nine months.
An eventual market bottom is made when prices are being deeply
discounted beyond rational valuations and sellers are exhausted.
A strong demand is needed to cause prices to rise substantially. If
not, sellers will eventually be forced to discount prices further.
Author based his research on the Lowry analysis derived from the
Law of Supply and Demand, the foundation of all macro-economic
analysis.
SEPTEMBER2014
Important market declines are produced by extremes in human
emotions and this decline precede important market bottoms
The intensity of those emotions can be statistically measured
through the purchases and sales in the market.
Looking for measuring panic selling in terms of intensity, rather than
just activity, author broke the volume of trading into two parts
Upside Volume (buyers) and Downside Volume (sellers).
As well for price changes for all NYSE-listed stocks that advanced
each day (Points Gained) and stocks that declined each day (Points
Lost).
A day of panic selling is defined as a day in which Downside Volume
equaled 90.0% or more of the total of Upside Volume plus Downside
Volume, and Points Lost equaled 90.0% or more of the total of Points
Gained plus Points Lost.
In the following table was shown in Lowrys Daily Market Trend
Analysis Report of April 4.
April 3, 2001 qualified as a valid 90% Downside Day.
ATMASPHERE | 16
In this paper we could see several charts of Dow Jones Industrial
Average in the months before and after a number of major market
bottoms.
An oscillator of both Price and Volume percentages combined into a
single indicator highlights the 90%Days (both Downside and Upside)
with dots outside the 90% lines.
SEPTEMBER2014
Having reviewed the daily history from 1933 to present (2002) on the
New York Stock Exchange, the following observations were
extracted.
90% Downside Days typically occur on a more than once
throughout a major decline, often spread apart by as much as
thirty trading days.
Declines containing two or more 90% Downside Days usually
persist, on a trend basis, until investors eventually come
rushing back in to snap up what they perceive to be the
bargains of the decade to produce a 90% Upside
A single, isolated 90% Downside Day does not, by itself, have
any long term trend implications, since they often occur at
the end of short term corrections.
But it should be viewed as an important warning that more
could follow because it shows that investors are in panic
mood.
Impressive, big-volume snap-back rallies lasting from two to
seven days commonly follow quickly after 90% Downside
Days
As a general rule, longer-term investors should probably view
snap-back rallies as opportunities to move to a more
defensive position.
In approximately half the cases in the period observed, the
90% Upside Day, or the back-to- back 80% Upside Days, which
signaled a major market reversal, occurred within five trading
days or less of the market low.
As a general rule, the longer it takes for buyers to
enthusiastically rush in after the market low, the more
investors should look for other confirmatory evidence of a
market reversal.
ATMASPHERE | 17
 Be aware of upside days on which only one component
(Upside Volume or Points Gained) reaches the 90.0% or more
level, while the other component falls short of the 90% level.
Such rallies are often short-lived.
Back-to-back 90% Upside Days (such as May 31 and June 1,
1988) are a relatively rare development, and have usually
been appeared near the beginning of important intermediate
and longer term trend rallies.
1999-2002 context, a new market low developing in process.
There were no 90% Downside Days recorded during 1999 or 2000.
The sharp drop in the Dow Jones Industrial Average during the early
months of 2001 generated two 90% Downside Days, on March 12
and April 3.
Followed by a six weeks rally without a 90% Upside Day, leaving the
impression that the final lows had not been seen.
After the rally peak in May 2001, market began to weaken again,
eventually plunging to a three-year low in the midst of the
September, 2001 without a single 90% Downside Day recorded from
May through September.
The selling during that decline never reached the panic proportions
found near almost all major market bottoms in the studied period.
Thus, the probabilities drawn from past experience suggested that
stock prices had not been discounted enough to attract a broad
sustained buying interest.
The highly selective rally from the September 2001 low through early
January 2002 was, not strong enough to produce a 90% Upside Day,
adding more evidence that the final low for the Dow Jones Industrial
Average has not yet been reached, and that a period of investor
panic, generating a series of 90% Downside Days, may still be ahead.
(*)
SEPTEMBER2014
Conclusion
This 90% indicator has proven be a very valuable tool in identifying
the extremes of human psychology that occur near major market
bottoms.
In spite of that it should not be used solely as single indicator. Other
measurements of price, volume, breadth, and momentum are
needed to monitor the strength of buying versus selling on a 13
continuous daily basis.
This paper is available to the public and it could be found at
http://www.mta.org/eweb/docs/2002DowAwardb.pdf (**)
(*)Market lows were reached on September30, 2002.
(**)A detailed Appendix showing each 90% Day (or back-to-back 80%
Upside Days) over the past 40 years, since January 1, 1960 to 2002,
could be found inside the original publication.
Claudia Mincucci is a trader since 2008.Her
speciality is trading micro trends with a focus
on analyzing and trading Stocks, Options, FX,
ETFs on a daily basis on the US and Canadian
Stock Indices.
She is a graduate from the University of Buenos Aires, where she
studied Accounting and Business Administration.
She is pursuing her CMT designation and currently lives in Montreal,
Canada. She can be contacted at cmqcca@yahoo.ca.
ATMASPHERE | 18
 Breakthroughs in Technical Analysis- Book
Review
This book is a must for anyone who wants to trade markets using
technical analysis. In this book the worlds greatest minds have come
together and have shared their meaningful insights. Every chapter
brings to the surface a new dimension of analysis and trading.
The book starts off with the chapter Drummed Geometry. Ted
Hearne magnificently portrays the well known factors to make a
great trading platform which is primarily based upon: identifying the
resistance and support zones and their projection into the future,
description of the markets current state and its next state, multiple
time frame analysis. He goes on to exhibit how one can study the
state of the market and from there to predict the future state of it
and explains the types of trading etc to nurture budding aspirants of
technical analysis and enlighten the existing practitioners.
SEPTEMBER2014
The Book continues with the great work of Tom Demark in the
chapter Trend Spotting with TD Combo. Tom Demark challenges
some of the pre conceived notions about how the markets functions,
how tops and bottoms are formed. The so called bottoms formation
by smart money and tops by smart investor selling out is challenged
with research and its the lack of selling and buying, which create that
market phenomenon. The author goes on to explain several great
inputs such as Price exhaustion and Reversal etc.
The Book continues with marvelous insights from Nicole Elliott on
Candlestick charts in the chapter charting with candles and Clouds
and Reading Candlestick Charts by Yosukh Shimizu. Nicole explains
various candlestick patterns and their trading significance and how to
set up trade based on these inputs. Yosukh Shimizu gives great inputs
on how to read candlesticks and plan trading set up on that. The
logical reasoning behind various candlestick patterns and their
significance is explained in detail.
Constance Brown then explains the criticality of Time and Price
confluence analysis. She goes on to explain the importance of
drawing right confluence zones to combat market expansion and
contraction. She goes on to almost construct a trading platform using
multiplicity of factors such as RSI, Gann Analysis, Fibonacci
Confluence Zones, composite index and much more. The importance
of Time cycles and their worth in technical analysis is touched upon.
David E Bowden gives his insights into Unlocking Gann by
familiarizing the importance of time aspect, market cycles, range
selection, proper trading set up and much more.
ATMASPHERE | 19
Bernie Schaeffer elaborates on Options Based Technical Indicators
for Stock Trading. He enlightens up by explaining why we should go
for options and what are the criteria for successful options trading
and how the options data can be helpful in technical analysis.

Jeremy Du Plessis gives invaluable inputs on Point and Figure

Analysis. He depicts the modern developments in this age old
technique of technical analysis, Then Robin Mesch teaches the great
work of Deconstructing the Market: The application of Market Profile
to Global Spreads.
Sahil Vijay, CMT is in the financial markets for the last nine years and
To end this magnificent book Robin Griffiths gives us Ten
currently working as a Treasury Analyst with Capital Bank. A Banker
Commandments where he advocates rules-based expert system to
by profession he looks after Investments and takes trading decision
market analysis which integrates technical and fundamental forces.
in Debt, Equity and Foreign Exchange markets. He uses Elliot Wave
He goes on to exhibit Trading Rules for entry and exit which goes on
Theory, Gann Studies, Bollinger Bands, Fibonacci Analysis and
to increase the odds for better trading results.
Momentum Oscillators like RSI to drive confluence points in various
markets to establish low risk high yield set ups, he also include inter
market analysis and global indices in his study to draw better
All in all, this is a magnificent work of industry leaders and is an eye understanding of the under currents in global financial markets.
opener. The best thing is that it covers multiplicity of tools and
techniques to enhance ones analytical skills.

SEPTEMBER2014 ATMASPHERE | 20
World's FIRST E-Library of Technical Analysis
The R. N. Elliott ATMA E-library of Technical Analysis
Inaugurated on 6th October 2012, at the hands of Mr. Robert
Prechter, Jr. the worlds first E-library for Technical Analysts continues
to grow.
As a well rounded professional you surely wish to read on
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business biographies, investment classics and a whole host
of subjects. Yes, the R.N. Elliott ATMA E-library of Technical
Analysis regularly stocks up on varied titles that take care of
holistic professional interests of Technical Analysts!

A world that is short on time to travel, you can check-out books, Some of the latest e-book additions in the Library:
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SEPTEMBER2014 ATMASPHERE | 21
PAST EVENTS UPDATES
Mr.Krishna Rao Chapter : Date: 07-09-2014
Bengaluru
Topic: Using Trend Line and Fibonacci
FUTURE EVENT UPDATES
Summary:
1. What is trend? Mr.Ambareesh Chapter : Date:18-10-2014
2. Method of drawing trend. Baliga Mumbai
3. Usage of Moving Averages and Topic: The Games Promoters Play-In the
Indicators. market as well as in the financial accounts.
4. Trend Line along with Fibonacci Ratio
5. How to identify Flase Break out without 1. How Promoters function in the financial
trend line. markets.
2. What Promoters do to manipulate
Mr.Atul Suri Chapter : Date: 20-09-2014 markets?
Mumbai 3. Discussion on Money Laundering.
4. How promoters cook up financial
Topic: Trading for a Living
markets?
Summary:
1. Journey from technical analyst to
successful trader.
2. Sharing Practical experience of the
speaker.
3. Trader Personality and Systems.
4. Money Management and wealth
creation.
5. Individual introspection and finding
individual answers.

SEPTEMBER2014 ATMASPHERE | 22
SEPTEMBER2014 ATMASPHERE | 23
 Benefits of Membership with the ATMA

Apply for your ATMA Membership Today!

SEPTEMBER2014 ATMASPHERE | 24
SEPTEMBER2014 ATMASPHERE | 25