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Established in 1994 by Greg Capra, well-known technical analyst and successful trader, Pristine has successfully taught thousands of people to consistently profit from the markets for over 16 years. Greg and Pristine have appeared on CNBC, Barron’s, Investors Business Daily, International... More
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Pristine.com
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Pristine Trading Education
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Trading Tools & Tactics - Reading the Mind of the Market
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  • In Search Of The Elusive Bottom

    Over the years, I've seen many TV commentators, newsletter writers, self-proclaimed market gurus, chat room moderators and of course, traders call a bottom. Most of them being early on their call and/or entry are caught on the wrong side of the trend. However, they always have follow up calls to get long in hopes of catching the elusive bottom. I'll show you how elusive - it isn't.

    What is baffling is, bottoms are one the easiest patterns to spot, so why not wait for it to setup? Of course that would take some trading education, which most people resist spending money on until they have lost some money - or a lot it. But how senseless is it to be calling and risking money on a reversal without any evidence of one? Don't expect this to ever change and we don't want it to. The bottoming pattern happens not only because of accumulation, it is also because of the early buyers capitulating.

    Let's review some examples.

    In the charts above are various tradable instruments. I chose bottoming patterns in stocks, commodities, currencies and the broader markets indices. It does not matter what you trade, this happens the same way in all tradable instruments.

    As prices move lower within a downtrend they will begin to accelerate lower near its end. This is seen through multiple bars moving down with little overlap between them and/or wide range bars. At some point, the move lower will be rejected and prices will spring back up. The spring up typically is shallow and does not violate the trend by overcoming Major Resistance (NYSE:MR).

    What follows is a consolidation and pullback that will retest the original low. At times, the original low point of the move will be violated; however, all moves higher that initiated from the retest should have multiple bars moving higher into MR or above it and may have bullish Wide Range Bars (+WRB) as well. Pristine Tip: Multiple bars moving in one direction with little overlap between them are a Wide Range Bar in a higher time frame.

    The bottoming process can go on for a relatively long period of time depending on the time frame being viewed. Longer time frames will form bottoms over a longer period of time and vice versa for shorter. That being said, the Pristine Trained Trader (PTT) knows that the odds of the bottoming pattern having high odds of making a significant move depends on the alignment of multiple time frames and where the bottom sets up. Let's look at an example of a stock that should form a bottoming pattern soon.

    In the chart above, I have displayed multiple time frames of ROSS Stores (NASDAQ:ROST). The monthly time frame is in a strong uptrend and pulling back where buyers will show up. That pullback is coming into first price support (green area), which may be hard to see to the untrained eye in this time frame.

    What I have marked on the monthly as price support is the overlapping candles in the $50 dollar area. Pristine Tip: Overlapping candles in a higher time frame are a base in a lower time frame. See the base in the weekly time frame at the left. Notice the increase in volume last week as current prices neared the base of price support. That pick up in volume is exactly what we want to see when prices enter into a price support area.

    The daily time frame of ROST is clearly in a downtrend and has not formed a bottom. However, Thursday's gap lower on increased volume that resulted in the formation of a Bottoming Tail (NYSE:BT) is a typical exhaustion gap. This gap lower and BT could be the start of the bottoming process; time will tell. Exhaustion gaps come after a period of declining prices and signal that the last of the traders/investors hoping that prices would hold and turn higher have given up hope and are dumping their shares.

    With the current correction in the broader markets ongoing, I hope this Chart of the Week will help you what to look for. There may be stocks that have shown relative strength and have started the bottoming process already. You will have to scan for them, but now you know what to look for!

    Many new to trading the markets are lured into thinking that one market is a better market to trade than another. Those trying to sell you their services related to a specific market will guide you to that faulty thinking. For example, FOREX is a better or easier market to trade than individual stocks or equity e-minis.

    This is completely false. Any market can be difficult at times because of uncertainty related to that market resulting in choppy price action. Or, any market can be relatively easy to trade when multiple technical concepts are in alignment.

    With the right trading education - you can trade any market or stock you want with the same method.

    Remember, the examples of bottoming patterns above were from Stocks, Commodities and Currencies. There is no difference. Yes, different instruments have basic foundational information related to them, but that information is not what you will trade. It's the patterns within the trends at the time that you will trade.

    Please join us for this week's Pristine's Power Trading Workshops.

    Happy Thanksgiving to All!

    Greg Capra
    President & CEO
    Pristine Capital Holdings, Inc.

    Sponsored by Mastertrader.com

    Nov 20 11:05 AM | Link | Comment!
  • What Causes Failure? Part One Of Three

    After many years of seeing many issues in trading through the eyes of many traders, I have come to one inescapable conclusion. Something I now consider a fact. Everyone who enters trading is exactly the same, and stay the same for a long time. It is not until later in development, that some break out into 'unique' ground. So relax, everyone has gone through what you are, or have gone through.

    You may not like the answers. However, you need to hear them. While education in technical analysis is absolutely needed, most who really try, receive that education. In addition, they receive enough to make them potentially successful. For those who do not get an education, it may be the biggest cause of failure. However, anyone can understand the education material once presented, and many who receive the education still fail, so lack of education, while critically important, is NOT making my top three list.

    Number one quite simply is the ability to do what need to be done, and do it now. The word for that is 'discipline'. This is the number one reason for failure amongst traders. Initially it may be the lack of discipline to take a stop. Later it may be the lack of discipline to reach a target. Note that the trader knows what the stop is, and what the target is. This is why the 'education' doesn't make the list. The problem is, even those that know what to do and when to do it, do NOT do it. Lack of discipline.

    It shows up in many other places. The lack of discipline to review material learned. The lack of discipline to review trades and make changes. The lack of discipline to create and use a trading plan. The lack of discipline to honestly analyze your trades and determine you need an education. All of the key things in trading are easily learned by someone who wants to learn them. However, they are not easily done. Lack of discipline is a number one reason traders fail. Do you suffer from a lack of discipline in your trading? Is it holding you back from your goals?

    Closing Comments:

    This is the first of three things we will look at. After seeing them all, you may disagree about the order. Do not. They will not be in any particular order. They are all important and it is like the 'chicken and the egg' argument. All three of them are critical, and the lack of any of them will cause failure, just like removing one leg of a three-legged stool.

    Paul Lange
    Vice President of Services
    Pristine Capital Holdings, Inc.

    Sponsored by Mastertrader.com

    Tags: failure
    Nov 20 11:02 AM | Link | Comment!
  • A Beginner's Handbook Part 3 Of 3

    Good Morning All:

    Last week I continued with part two of a three part series to help beginners, and maybe some 'veteran' beginners also. Last week we looked at different time frames and the types of accounts used to encompass those time frames properly. We talked about how education is so over looked by so many yet so needed, as everyone will pay their dues one way or another. Here is part three. In this issue, are finally ready to begin trading, so let's go over some rules to get you off on the right foot.

    Once you have made all the decisions that were discussed in the first two lessons and have received an education to the level you feel you need to begin trading, the decisive moment arrives. At this point, I want to make sure you have a few tools in your tool belt when you begin trading. First, there is a steep learning curve in trading. I suggest (well, insist if I can…) that you start out slowly with very minimal risk amounts. Get used to your trading software. Understand the plays. Begin to pick your favorites and really develop your trading plan. At this point your plan is likely just a 'shell'. Know how to get in and out of trades. The odds are that you will lose in the beginning. You are learning how to apply what you have been taught. You will make mistakes. The question becomes, do you want to have all this learning cost you serious money or small money? By the way, it is good to start out paper trading, but as soon as your plan develops and you know your trading software, begin trading very small risk amounts. The most important aspects of trading are not learned trading on paper.

    Most of you reading this need to understand something. The vast majority of traders who come in to the market fail. Many people try to do this without any education, and those who do are the first ones to fail and usually do so in a big way. However, even with an education, it is not an easy game. There are reasons why even somewhat educated traders still fail at this. For most, there is a lack of discipline by individual traders regardless of whatever education level they may be at. In addition, a lack of capital that forces traders to trade with 'scared money'. It is simply a fact that most traders try to make a living from the markets with very little capital base to work with. That causes over trading and poor management decisions. If you have been trading for a while, do any of these things sound like they are powerful issues that are currently impeding your progress?

    Another skill you must develop is the habit of keeping good records. Keeping records and statistical information can give you an excellent insight in your trading. There are many things that traders should track such as Sharpe ratios, batting averages, percentage gains based on any particular strategy, percentage gain based on long or short, etc. During this process you should be perfecting your trading plan. One that out lines the types of plays you will look for. It should restrict you from trading certain times and plays that you do not want to trade. It should outline money management rules for you, for handling both winning and losing days. It should set up your share size rules, and it should dictate what kind of record keeping, analysis, and continuing education you will do.

    All of these things are taught at Pristine. Some of these I touched on in prior week in this letter. Here is one of the most important things you can do for you trading plan, and for your continued improvement.

    Pay attention to the analysis part and make plans to follow up on all of your trades. Most traders spend 90% of their time trading. 10% on preparation and 0% on follow up. This is a very big mistake. Traders should spend as much time following up on trades as they do trading. That does not mean that from 9:00 - 4:30 must be counted as 'trading time'.

    Your plan may call for you to trade the first hour and last hour. The time in between could be used to review the morning trades and prepare for the next day, paper trade new ideas, etc. You should spend considerable time printing charts of the trades you make and evaluating them and learning from any mistakes. Good traders understand that the money lost when making a bad trade can be an 'investment' in a process that works to eliminate mistakes and improve trading.

    Closing Comments

    Good traders also understand that the market is always right, and the best we can do is play the odds. Be flexible and remember that even the best trades can be stopped out.

    This is the final article on "A Beginners Handbook".

    Paul Lange
    Vice President of Services
    Pristine Capital Holdings, Inc.

    Day Trader School

    Sponsored by Mastertrader.com

    Nov 12 9:41 AM | Link | Comment!
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