1. THE OFFICIAL MAGAZINE OF TECHNICAL ANALYSIS
TRADERSWORLD
www.tradersworld.com | May/June/July 2012 Issue #51
Trading Where Traders
Go Wrong
Dynamic Cycles
Diversification Identifying
Holy Grail? Tops and
Bottoms
High Profit
Cup with
Handle
Candlestick Pattern
Patterns
The
Critical
Nature
1
of Volume
www.tradersworld.com May/June/July 2012
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MMA Cycles 41 mance results have certain inherent limitations, unlike
an actual performance record, simulated results do not
Forecasting Made Easy 43 represent actual trading. Also, since the trades have not
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ket factors, such as lack of liquidity. Simulated trading
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Know Yourself 102 to achieve profits or losses similar to those shown. The
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Murrey Math Trading Supplies 105 zine are used only in editorial fashion and to the benefit
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Naked Swan Trading 114
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2 www.tradersworld.com May/June/July 2012
3. Contents
High Profit Candlestick Patterns Enhancing
Market Trend Returns
The Fry-pan bottom
By Stephen W. Bigalow 78
May/June/July 2012 Issue #51
Why Trade the Cup with Handle Pattern?
Moving Ahead: Trading Dynamic Cycles By Dale Glazier 82
By Lars von Thienen 6
THE 1:1 STOCK TIME EQUILIBRIUM
The Quest for the Hole in One Golf Ball ANALYSIS
By Ron Jaenisch 22 & THE LAW of VIBRATION
By Dave Franklin 88
The Polarity Factor System
By Daniele Prandelli 27 How To Make Short Term Trading Your Long
Term Investment Strategy
THE PHASES OF A TRADING CAREER Trading, the Operational Mainframe of
By Adrienne Toghraie 36 Successful Commercial Enterprise
By Steve Selengut 95
Diversification The Holy Grail?
By Kevin J. Davey 43 Gold / Mining Stock Index Divergences –
Leading Indicator?
Know When to Hold‘em, By Robert Miner 101
Know When to Fold‘em!”
By Joe Krutsinger, CTA 49 NAKEDSWAN TRADING
By Efrem Hoffman 106
Where Traders Go Wrong
Five Reasons Why Traders Fail Identifying Tops and Bottoms Using the
By Bennett McDowell 55 Sweet Pea Deep Dip Triple Oscillator
Divergence Concept
Don’t Be Fooled By Jan Arps 115
By Brady Preston 58
The Critical Nature of Volume
NOTES ON GAP THEORY By Jeffrey A. Killing 124
Part 2
from “Novy Principles of Market Flow Elliott Wave Outlook
By Leonard Novy 63 S&P and Gold
By Peter Goodburn 129
The Price of Certainty
BY Joel Rensink 67 The EUR / USD and Gold
By Jaime Johnson 135
The Vibrational Positioning Sequence (VPS)
A Market Forecasting Model based on the Power Cycle Day Trading Course Review
Law of Vibrations 144
By Anthony Scelfo with Thomas Hart 72 The Ivy Bridge Sonata
By Larry Jacobs 146
Traders Book Library 147
4 www.tradersworld.com May/June/July 2012
4. NAKEDSWAN TRADING
“Where traders come to convert their pain points into profit”
Integrated Idea Generation & Risk Intelligence:
A New Framework For Converting Your Pain Points into Trading Profits
I
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 Apple’s 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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5. 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 Human-
Decision 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 market’s
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 smallest-
scale transaction of an individual security, and then digging deeper into our underlying
Figure 2
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6. 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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7. 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-asset-
class proxies, such as today’s 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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8. 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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9. before plunging lower, we have discovered an anomaly in this occurrence at special points in
an asset’s lifecycle, which we call attack-points -- located at the leading edge of risk windows.
These points define when people’s 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 ‘attack-
point 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 (time-
stamped on Twitter feed: NakedSwanTrader ), that enabled us to precisely predict and map
out Apple’s (symbol: AAPL) parabolic reversal, with high confidence, specificity, and lead time,
Figure 6
111 www.tradersworld.com May/June/July 2012
10. 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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11. 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 base-
line 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 base-
line 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
113 www.tradersworld.com May/June/July 2012
