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! do not need a moving average of the prices to see if prices are going up. t can just look at my price chart. If prices are going up they are going up, I can see that for myself. If they are going down they are going down, I can see that for myself. The only other way that they can go is sideways, and that, too, I am able to see. If I cant tell which way they are going, I must stay out!
When prices are going up, the others will all be looking for a top, for a place to sell - I will be buying as prices go up. When prices are going down, the others will be looking for a bottom and a chance to buy - I wili be selling when prices go down. It will take guts. 1 must have them. If I dont have them i must develop them by developing confidence in myself and in the only truth there is in the markets that I can use - PRICE. Price is reality and price is truth.
I must learn to surrender to the markets. I cannot make them go my way or where I think that they should go. I cannot be a prophet. I cannot believe anyone else who says he is one. I must not believe any of the countless ads claiming that I can pick tops and bottoms. They are not true, but I have been tempted mightily to satisfy my curiosity. I need to remember this, anyone can pick the tops and bottoms some of the time. The only certainty is that t cannot pick them all of the time. I have to put that knowledge to my advantage. My method is usually wrong when it comes to picking a top or bottom. I can count on that and make money from that certainty.
What 1 want to do Is to learn how to take piece out of the middle, the way the greatest traders traditionally have done and are still doing.
I have come to see that those having the most patience, the most self-discipline, and the most self-control, are the biggest winners in the markets.
I must also learn to lose, i cannot always be right, even when I have learned to harmonize my trading with the markets. I have to learn to keep my losses small and to maximize my gains - this is the most important part of trading and it is a part of money management.
However, 1 do not have to learn to love losses as some have stated. My effort must be In the direction of never losing, that way my mind-set wilt be toward always winning.
The Waves (Not Elliot} Have It
When I was a teenager, I frequented the beaches from Santa Monica to Maiibu, California. It was there that i found the thrill and enjoyment of body surfing.
There are a great many analogies that can be made between body surfing and trading markets. When I trade I never fail to picture myself as riding the big wave. Although there is not a perfect analogy between surfing and trading markets, the similarities are many, and a great many lessons can be learned in the comparison.
When I first looked at the charts depicting the price action of markets, I immediately, as Im sure others may have, noticed the similarity between price action and ocean waves. Ocean waves are mainly affected by the pull of the moon and to a lesser extent by other celestial bodies. The wind also greatiy affects the surface action. There is a great deal more research that needs to be done In this area. Why? Because human beings are made up mostly of water. Markets are made up of actions, based upon the decisions of human beings. In some of the large markets, like Bonds, Eurodollars and the S&P, thats an awful lot of water.
in the area of technical analysis, there are a few things that are helpful in making trading decisions:
Cycles, which although subject to interpretation, do reflect natural phenomena. Unless there is something clearly cyclical as concerns a market, I dont use cycles in futures trading, but I can see some value in them for those who do. There are many good technicians who use them. There are some who have very successfully used cycles to filter and trade Ross hooks.
Seasonal tendencies which are observable and can be useful, I dont use these very much either. For some they are good because of the way that they trade. Seasonality, when a market is making a major tow, can be very useful, and seasonality may have good consistency when it comes to trading seasonal spreads.
Certain mathematical relationships which have been historically proven as accurate may help. I use these from time to time in the form of Fibonacci numbers. They give a best guess in some situations. My greatest use for Fibonacci numbers is in knowing what other traders will do. t anticipate some sort of congestion, support, or resistance at the Fibonacci ratios. In markets where many traders use them, Fibonacci ratios tend to be self-fulfilling.
Wave theory is of some small use, but I dont use it because it confuses me. I can never figure out which wave Im in. It is not a very reliable predictor of the actions of others, because few wave traders can agree as to which wave they are in.
I reject moving averages except in a few situations which I will be describing. The way that I trade, they hold little value and I can go a long time without ever using one and not miss it, I never enter a market based upon the crossing of two moving averages, but in the past these have been good for fading the trades of those who do use them.
I reject most oscillators except for the simplest ones and then only to be used as a crutch until one learns to read a market via the bar chart. I will show how I use them in another part of the manual. For the most part, oscillators are just not worth the trouble to compute. I dont use median lines, trend lines, Andrews pitchforks, speed lines, Gann angles, etc.; they are not worth drawing on paper or on the computer screen with the methods I use to make my money in the markets.
I do keep track of the more popular studies so I will have a good idea of what others may be doing.
With the exception of, at times, using high-low bands, an offset moving average, and a simple oscillator, I use nothing that cannot be seen by just looking at a price chart showing a graphic representation of open, high, low and closing prices.
I am very interested in gaps as they relate to the magnitude of the movement of price from one price bar to another. Gaps and large magnitude price bars set off an immediate alert that something important is going on, I may not know what it is, but I can put on the brakes and go slow until I see what it means.
As concerns fundamental knowledge, I find it of no use at all in my trading, and if anything it throws me off track. I did not invent any of the things that I use in trading, with one exception, and that is the envelope around the breakout of a range shown in Part I of the manual. There is nothing new here except perhaps in the blending of useful things discovered by others and incorporated into my method of trading. Many of the methods I use were invented before the turn of the century, when there were no computers, calculators, or any of the technical analysis used today. Yet vast fortunes were accumulated using those techniques; they worked then and they work now - they have stood the test of time.
Current intraday news items can be useful. I have made many good trades by watching the early financial news, and then anticipating how a market will react.
When I write about my trading, I often quote from my collection of proverbs and trading wisdom. The wisdom of old is still the wisdom of today. I try to utilize that wisdom in my trading. It works!
As each section of the manual unfolds, my trading methods will be seen to the extent that they incorporate what was learned in Part I of the manual plus all of the new material in this part of the manual. But I have specifically designed the flow of the manual so as to force a review of its parts one by one, and to ponder each concept as it is revealed. The parts are literally built concept by concept, and principle by principle. Parts lll-VI reveal many more of these concepts.
This manual unfolds my trading methods tn the way that a novel unfolds its story. I cannot jump into the middle of a novel and expect to know what is going on. The part; of this manual are not necessarily written by subject. They are a weaving together of thi elements that make up good trading. Perhaps in that way these sections are different from any book Ive ever read. I read and re-read this manual periodically. Each time I dc I continue to learn from it.
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