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Pristine.

com Presents

Mastering Breakouts
and Breakdowns
Dan Gibby
Lead Moderator, Pristine.com Advanced Stocks and Derivatives
Trading Room, and Senior Pristine Certified Trainer

Copyright 2006, Pristine Capital Holdings, Inc.


Disclaimer
It should not be assumed that the methods, techniques, or indicators presented in this book and seminar will be
profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples in
this book and seminar are for educational purposes only. This is not a solicitation of any order to buy or sell.

“HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS.


UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL
TRADING. ALSO, SINCE THE TRADES IN THIS BOOK and SEMINAR HAVE NOT ACTUALLY BEEN
EXECUTED, THE RESULTS WE STATE 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 DESIGNED WITH THE
BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS
LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.”

The authors and publisher assume no responsibilities for actions taken by readers. The authors and publisher are not
providing investment advice. The authors and publisher do not make any claims, promises, or guarantees that any
suggestions, systems, trading strategies, or information will result in a profit, loss, or any other desired result. All
readers and seminar attendees assume all risk, including but not limited to the risk of trading losses.

Day Trading can result in large losses and may not be an activity suitable for everyone.

Copyright © 1994-2006 by Pristine Capital Holdings, Inc. All rights reserved. Printed in the United States of America.
Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or
distributed in any form or by any means, or stored in a database or retrieval system, without prior written permission of
the publisher.

2
Table of Contents
Introduction Breakout/down Strategies
The Pristine Method®
Initial Pristine Breakout/Down
Trading Style and Time Frames
PBO/PBD from Wide Range Bars
Trading Plan
PBO/PBD from Gaps
Basics and Foundation Retracement After Breakout/Down

Fluid moves vs. Congestion Secondary Breakout/Down

Wide Range Bars (WRB) Late Day Breakout/Down

Volume Gaps Negated in Morning

Quality Consolidation
Concluding Thoughts
Pristine ESP™
3
What This Seminar is Not About

The intricacies of The Pristine Method® (TPM)

Tools, tactics, or setups taught in TPM Parts 1-2

Trading Plan and Managing Your Trading Business

Risk management, proper share size, psychological aspects

Futures, options, commodities, and derivatives

Classical, technical, macro, or fundamental analysis

Level II analysis or direct access trading

Other topics included at Pristine Trading University


4
Introduction to
The Pristine
Method®

5
Who is Pristine?

Established in 1994 by Oliver Velez and Greg Capra,


Pristine provides insight, intelligence and education for
the self-directed trader

Much more than stock tips and buy-sell-hold advice, The


Pristine Method® guides both new and experienced
traders to a more intuitive understanding of the markets

The Pristine educational system helps you understand the


markets and prepare you to trade objectively

Offer worldwide educational seminars, DVDs, trading


software, real-time trading rooms, and trading newsletters
6
Pristine Capital Holdings

ONSITE SEMINARS

DVD

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ONLINE
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The BOOK

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7
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by: FEATURED by:

8
Traits of a Successful Trader

Trading is a Business – treat it like one!

Choose a defined Method

Choose a time frame in which to trade from

Choose which stocks and/or Futures you will trade

Money Management

Discipline and Patience to follow your Method 9


Pristine Successful Trader Matrix
TRADING PLAN COMPELLING TECHNICAL PATTERN
TPM 1-2
Wealth/Income
Hardware/Software
Setups NO SETUP,
Instruments
NO TRADE!!
Listed/OTC
Reward-Risk
Share Size and #
Market Internals ENTER AND SET PROTECTIVE STOP
Management Rules
Pivots For Exits
Winning/losing
Trade Review MANAGE IN BETWEEN
Continuing Education
Demon elimination
Target Stop
Discipline/Patience 10
Trade Types
The Pristine Method® teaches specific Compelling Patterns

These should be clearly highlighted in your Trading Plan


PBS/PSS
CBS PBS
CBS/CSS

Guerrilla Trades

Breakouts and Breakdowns


W and M Formations

Pinch Play +COG

Failed Patterns

Bearish Gap that Bullies 11


Breakout and
Breakdown
Foundation
Introductory Concepts

Concept Review

Fluid move Bases and consolidations


leaves little
congestion Types of breakouts and
breakdowns

Quality of setups

Fluid versus choppy moves

When to trade with or against


the intended move
Congestion
areas Using Pristine ESP™
13
Price Congestion

Prices move between areas of


support and resistance
Fluid move
leaves little
congestion Congestion areas have
overlapping bars, tails, and
gaps

Fluid moves have consecutive


bar moves with relatively equal
openings and closings

Congestion Prices retrace easier without


areas congestion to the left
14
Intra-Day Pattern Into Close
15-Min.
15-Min.

Opening price here


has higher odds of
retracement
Opening Gap above
Base has high odds
of moving up

Hourly – EOD Base

1515
Volume Analysis
Volume = Money and represents commitment or lack thereof

Price tells us what a stock is doing; Volume tells us how

> 500,000 average 30-day volume

Volume increases should occur in the


direction of the PBO/PBD; reduced
Volume on Retracement

Volume increase without price moving is a warning

Volume is secondary to price …. Price is King!


16
Proper Base or Consolidation

Consolidation is a resting period in an existing trend

Want controlled, tight consolidation, with few to no


overlapping bars or significant gaps and tails

Base of at least 8 - 10 bars

Provides the base of support for breakout, or base of


resistance if break down

Low risk, high-odds strategy using The Pristine Method®


17
Quality Consolidation

20MA

20MA

20MA
Tight arrangement of bars
with few tails, overlapping
bars, and gaps 18
Improper Basing/Consolidation

20MA 20MA

Poor consolidation: tails,


overlapping bars, and gaps 19
Pristine ESP™

Pristine ESP™ will


search PBO/PBD in
many time frames

20
Breakouts and Breakdowns
General Comments
Can be traded on any time frame and in any trend

Every trade needs a compelling pattern and little congestion


above (for longs) or below (for shorts)

Increased Volume a plus

Not all New High/Lows are Buyable/Shortable

Apply other concepts from The Pristine Method®

Pristine ESP™ scans to find tradable candidates


21
Determining Targets and Stops

Need generous Reward (price target) to Risk (stop loss)

Generally, targets will be:

Resistance/Support for PBO/PBD

Take ½ after a multi-bar move

At major moving average, if corresponds with congestion

Stops are always placed slightly below the support area for
longs, or slightly over the resistance area for shorts 22
Initial and
Secondary
Breakout
PBO to New Uptrend

The Pristine Method® teaches various ways to trade


PBO/PBD from a sideways trend to new trend. We will cover:

Initial PBO

First Retracement

Secondary Breakout

Wide Range Bar (WRB) out of a base

Other bullish/bearish Retests


24
Breakout Types
1. Initial Breakout: The stock breaks above resistance after a
Quality Consolidation.
2. First Retracement: The stock retraces towards the Initial
Breakout point, and reverses on support. This is the safest entry
point, provided it retraces in a compelling manner.
3. Secondary Breakout: The stock moves above the Initial Breakout
(prior high), after consolidating at the prior high.

33
11

22
25
Proper Initial Pristine Breakout

Stop
Stop Loss

20MA

Initial bullish move,


bullish consolidation in
upper 1/3
Buy PBO (Vol. a
plus) 26
Improper Pristine Breakout Play
Incorrect PBO: Extended Retracement analysis is
0
used to objectively measure
the Strength or Weakness of
a move counter to the
prevailing trend
40

50
Some suggest buying over
60 a prior high, irrespective of
the Retracement level

We sell into extended


100
rallies over prior highs
27
Secondary PBO/PBD
Correct PBO: Consolidated at prior high
0 We sell into that
band wagon
mentality of buying
new highs if the
stock is extended
40

50

60
Secondary
PBO/PBD are
tradable if they
have consolidated
over time at the
100
prior high
28
Buyable Secondary PBO
3
PBO

1 2

Is this Secondary
+WRBThese afterwere both PBO buyable? Why?
failedrecommended
PBD as breakout
longs one day in a
competitor’s newsletter
1. PBO
Not a Pristine Initial
sinceBreakout
very extended to make new
2. MA
highs (also 5-day First
of Retracement
TRIN a CBS 3. under prior low) Breakout
Secondary
29
Breakout Types
1. Initial Breakout 3
2. First Retracement
3. Secondary Breakout

2
3
20MA 1

2
3

30
Stops on Breakouts

Trail stop after


two bars

20MA Trail stop after Buy pull


two bars back

Buy First Retracement


on support

This is low
risk entry

31
Poor Pristine Breakouts
Would you be a buyer or
seller into strength here? Buy
PBO?

Some traders would


buy these as “breakouts”
What has to happen to
make them buyable? 32
PBO From Base
The stock builds
support over time

+WRB to the top of


Could you add the base
on this PBO?
Buy PBO over
+WRB out of base
Buy over +WRB
through resistance Manage in between

What does the


consolidation after
Stop Loss
the PBO imply?
33
PBO on Pre-Market Economic Number
S&P Futures 5-Min. Nasdaq Futures 5-Min.

QUIZ: Was the Initial


PBO buyable? First
Retracement? Second
PBO?

Futures had bullish PBO at 8:30 Economic Number


34
Pristine Breakout Analysis
Incorrect: Extended Factors
Extended
Correct: Gap from
before PBO?
consolidation

Incorrect: Consolidate in
Extended a tight range
before PBO?

Congestion to
Incorrect: Deep the left?
retracement
Correct: Pull back Tails,
into +WRB overlapping
bars, and gaps? 35
PBO and Retracement Quiz

QUIZ: Name the type of Setup


at each letter and discuss
whether or not buyable.

G
F H
C
20MA

E
B D

A
36
PBO to New Uptrend

Buy retracement
since extended
Pull back to gap fill
from 2x bottom; buy
over prior bar’s high

PBO after
2x bottom buy

Aggressive Pristine Stop


entry, stop under base 37
Patterns on Multiple Time Frames
Daily PBO Monthly
Monthly

GOOG - Daily
PBO
Failed
breakdown

PBO

S S

Weekly
Reverse H&S H 3838
PBO/PBD Stock Scanning
Pristine ESP™ Scans
Swing Trading Module
Narrow Range 7 Setup; Daily Basing; Daily Above Average
Up/Down Volume
Guerrilla Trading Module
10/10 Buy/Sell Setup; Wide Range Up/Down Bars;
Bullish/Bearish Engulfing Bars
Micro Trading Module
15-Min. Basing; Basing in Top 2% of Day’s Range; Gap Up and
Strong; Gap Down and Strong; 30-Min. Gap Buy/Sell
Basic Trading Module
Above Average Up/Down Volume; 52-Week High/Lows; Top
20% Gainers/Losers; One Month High
39
Pristine ESP™ 30-Min. Gap Buy
15-Min.

Pro Gap and +WRB, Triggered


consolidation at high

Stocks that gap up/down and then make new highs/lows after
the first 30-Min. session often ignite new moves
40
Initial &
Secondary
Breakdown
41
Breakdown Types
1. Initial Breakdown: The stock breaks below support after a
Quality Consolidation.
2. First Retracement: The stock retraces towards the Initial
Breakdown point. This is the “safest” entry point, provided it
retraces in a compelling manner.
3. Secondary Breakdown: The stock moves below its Initial
Breakdown point, after consolidating at the prior low.

MR

MS 22

11

33

42
Breakdown Types
Initial PBD 1. Initial Breakdown
2. First Retracement
2 3. Secondary Breakdown

QUIZ: Which Secondary


1 Breakdowns are quality?

2
1&3

3
4343
Gap Below Prior Low
ISRG – 5-Min.

Gap under Daily


support
Short first
retracement

stop
Short 5-
Min. low
Gap under
Add Secondary +WRB
PBD. Why?
4444
30-Min. Low on Upgrade and Bear Gap
Daily Morgan Stanley: Punk Ziegal
analyst on CNBC says stock
should be bought aggressively
here; those selling making mistake

15-Min.
Gaps under
much support
Stop
loss

Bear Gap, deep Short First Retracement


5-Min.
into Support or 30-Min. low 4545
Initial and Secondary PBD

Short Initial
PBD at d20ma

20MA

Relentless Buy First


selling with Retracement
weak bounces;
short PBD and
Retracements
Gap and
Short +WRB
Retracement
46
Bear Flag Breakdown
Monthly Price bounded by
two parallel trend
lines, against the
prevailing trend
Volume typically
lighter in flag
Short below
trend line
Implied Measurement
Met Near
Measurement met atSupport
prior Stop over prior
monthly major support high
Implied
measurement
47
Head and Shoulders
H The left and right
shoulders are
Stop opposite the higher
Loss head in both
S distance and time
S

Short PPD of the


Short PBD neckline on
expanding volume

Target Area Implied


measurement 48
Pristine Breakdown Quiz

B D I
F
K

A
C
E
G
H
J
L
QUIZ: Identify the type and M
quality of each marked trade.
49
PBO/PBD From
Wide Range Bars
WRB After Low Volatility

PBO Many PBO/PBD fail

If sloppy consolidation,
wait for WRB that closes
outside the consolidation
Stop Loss

The WRB shows


commitment and has high
PBD odds of follow through if
no congestion to left

51
Bullish +WRB Out of Base
Daily 15-Min.

Add pull back


+WRB PBO in +WRB
with r20/40ma

Hourly +WRB
PBO

52
PBD From –WRB
Bearish, tight consolidation
at bottom of –WRB
Short Initial PBD; leaves
overhead congestion

Add retracement –WRB/Engulfing


after weak bounce

Short -WRB PBD, stop


over consolidation
53
-WRB PBD
What do these tails tell us,
particularly after the prior
+WRB from base?

Short PBD

Bearish action after


failed buy setup

What does this


consolidation imply?

54
Risk of Buying Before +WRB Completed
At A, the bulls were Unhappy bulls
confident while the bar was
being formed
How would the bulls feel if
the bar closed like B?

A B

+WRB becomes
bearish TT at bar’s close
Short under –
WRB/engulfing
55
PBO/PBD From Base Against Trend
Stop Loss

Wait for +WRB to


close above base

Wait for -WRB to


close below base

Stop Loss
56
Bullish +WRB Out of Base

Sell on +WRB closed


Novice Gap outside the base

Buy Initial PBO; No congestion


add over +WRB above, so odds of
from base 20MA continuation high

Trail stop under a


prior bar’s low or
when far from 20ma
57
Breakout From Sloppy Consolidation
Daily 5-Min.
20MA Intra-day chart of
the bar following
Target = Resistance daily +WRB

Indecision
settled. Why?
20MA

QUIZ: Could
you buy the
Stop under afternoon PBO?
+WRB 58
PBO After +WRB Through Resistance

+WRB through 3 prior


highs and trend line

Stop
Bullish gap loss
after -Trap

59
PBD From Bearish Consolidation

20MA

-WRB under
support; short PBD
QUIZ: Where is
stop and target?
60
Breakdown After -WRB
Daily
Daily 15-Min.
Daily
Daily Daily 60-Min.

20MA
Stop Loss (inside bar’s
high made 2x top)
60-Min.
20MA

60-Min.

Short under support;


no support below!
Short under Support/-WRB 61
Breakdowns and Management
Buy setup failure

First Retracement shortable

Short under –WRB after


-WRB shows
close under support
bears in control

6262
+WRB PBO
Daily 15-Min.
20MA

+123

+WRB from
PBS on MS

20MA

6363
Breakout and
Breakdown
From Gaps
Initial PBO From Pro Gap

Pro Gap - one that ignites


a new move up or down Conflict resolved

Novice Gap – one in the


same direction of an already Stop Loss
extended move, and
typically ends the move
Initial bullish move,
bullish consolidation
Continuation Gap – one in upper 1/3, then Pro
that continues a move, Gap, has high odds
typically at half-way points
65
Gap Questions Before Trade
Does the Gap create a compelling pattern?

Where is the next area of Support or Resistance?

Did it Gap from a consolidation or from an already extended move?

Is the Gap too excessive to invalidate a favorable Reward-Risk?

Does it set up a compelling pattern intra-day after the Gap?

Is the Reward-Risk at least 3:1?

If so, enter and manage in between per your Trading Plan


66
Gap Under Bearish Consolidation
Daily EXAMPLES
MORE
Stop over
bearish
consolidation

Pro Gap, no bounce,


short 5-Min. low

6767
Gap Over -WRB
Daily Bullish pattern?
First target is
prior high Distance to next
Resistance?

Gap from
20MA consolidation?

Gap too
Gap over excessive?
bearish bar
Bullish intra-day
pattern?
68
Gap Over Resistance, No Congestion
Daily
KLIC - Daily 5-Min.
5-Min. Add PBO
CNTF -TARO - Daily
DailyGap over 5-Min. 5-Min.
resistance
Gap over
resistance G
A
P
Shorted bounce,
stop high
Bear Pro Gap, Are Gap
Buy 5-
shallow bounce Questions
Min. high
satisfied?
Buy 5-Min. PBS
Stop
Buy 5-Min. PBS
PBO from Pro Gap
Daily
Daily
5-Min. Daily Daily

Pro Gap over – Pro Gap


WRBDaily
and resistance
Buy 5-Min. high
Buy bullish intra-
day pull back

Weekly

70
PBO Multiple Time Frame
Daily
5-Min.
Daily Pro Gap over resistance

Monthly
Daily

Weekly Weekly

PBO after
+WRB
Weekly
from base
71
Pro Gap Examples
Daily
Gap over bullish Daily
consolidation

Gaps out of multi-


week consolidation

Bullish gap
after -Trap

7272
Pro Gap PBO to New Uptrend
Daily 5-Min.

Add
PBO

Pro Gap
from base

Buy pull
back

73
Pro Gap Over Prior High
Daily 5-Min.

Gap over
consolidation Tight bullish
consolidation; buy
high, stop low

Bullish gap
after -Trap

7474
PBD and PBO
Daily

Target Area
Buy First
Retracement
Gap over
resistance

Short
+WRB +WRB
PBD
75
Bearish Gap PBD
Daily Weekly

20MA 20MA

Failed CBS/BT/+COG on MS

Failed buy setup at


TIP: A gap just under a prior low, no support
+WRB with no support
is powerful! 76
Gap Under Support
Daily
Daily If you bought 15-Min.
Daily 60-Min. LH-1
Daily LH-2 this PBO, you
are aShorted
_______?
15-Min.
low or 2/5-Min.
L PSS, stop high.
20MA

Buy Setup Are these


with +COG
playable? Covered 1/3 lot
Stop
Covered 1/3 lot Loss
5-Min.
B
Target Area
Bearish Gap under support;
Covered 1/3 lot, with
trail stopAremaining short 5-Min. low; Vol.
WRB
confirms bearishness
Target from –BM is Major Support
77
Late Day
Breakouts and
Breakdowns
78
Late Day Breakout (LDBO)
Setup, Entry and Exit Guidelines
8 - 10 bar base or consolidation in a tight range

In the upper 1/3 of the preceding bullish move

Above the 20MA on intra-day charts

No significant resistance/congestion to the left

Up on the day, and over the prior bar’s close

Breakout over resistance, on Vol., after 2:15 ET

Buy over resistance, with stop under base

Sell ½ under reversal bar; other ½ far from 20MA, or


congestion 79
Late Day Breakdown (LDBD)
Setup, Entry and Exit Guidelines
8 - 10 bar base or consolidation in a tight range

At the lower 1/3 of the preceding bearish move

Below the 20MA on the intra-day charts

No significant support/congestion to the left

Down on the day, and under yesterday’s close

Breakdown under support, on Vol., after 2:15 ET

Short under support, with stop over base

Cover ½ over reversal bar; other ½ far from 20MA, or


congestion 80
Late Day Breakout
Daily Daily
15-Min.
Daily Up on day and 15-Min.
20MA over prior close
Tight bullish
base near high, 20MA

during doldrums,
Buy LDBO
and into r20ma

60-Min. 30-Min.

Bullish hourly
consolidation
15-Min.
20MA

81
Late Day Breakout
Daily 15-Min. Buy PBO, add
NIHD 15-Min.
over +WRB

Significance?

20MA

Are LDBO
Questions
satisfied?
15-Min.
Bullish Volume
82
LDBO After Gap Into -WRB
Daily 15-Min.

20MA

Buy LDBO, stop


under base

20MA

Gap into –WRB after


five red bars
Late Day Breakouts
Daily PBO Daily
Bullish
+WRB PBO
20MA

20MA

Buy LDBO
15-Min. Buy LDBO, stop
Stop under base
20MA

20MA 20MA

15-Min. 15-Min. 84
Bullish Gap Into -WRB
Daily 5-Min.

Buy 30-
Min. high

Bullish gap
after 15 Add LDBO
PRX - Hourly
red bars

Gap
Daily (at close)
15-Min.
8585
Late Day Breakout Examples

20MA

20MA

20MA

20MA
20MA
Late Day Breakout Examples
(B)
(A)

20MA

20MA

(C) (D)

20MA
20MA

87
Above Average Up/Down Volume
15-Min. Volume shows the
magnitude of interest

+WRB out of Unusually high


base on Vol. up/down volume in the
opening Reversal
Period is often
associated with Pro
up/down moves

Keep Pristine ESP™


alert box open and
evaluate each issue on
multiple time frames
88
LDBO Quiz
Whether
Daily
Daily- ENG 15-Min. 15-Min. F
D
D
PBO
C C
Daily - ENG 15-Min.
E
B B D
20MA
AA

QUIZ: IdentifyQUIZ:
entry, stop,
Rank
QUIZ: Rank
and target on each
eachLDBO.
PBO
each PBO
Late Day Breakdown
60-Min. LDBD Criteria
Down on the day

20MA Below prior


day’s close

Basing at low
Stop
Consolidation
near low into
Target = Demand d20ma
Increased volume on
breakdown
Bearish consolidation at Short
low of –WRB; short PBD breakdown, stop
over base
90
Late Day Breakdown Examples
(A) (B)
20MA

20MA

(C) (D)
20MA

20MA

91
Finding LDBD Using Pristine ESP™
Whether

20MA

Under Micro Trader


Scan:
15-Min. Basing
Gap Down and
Weak
Last Trade at 20MA
Low
Stocks Near
Lower 2% Daily
Range 92
LDBO/LDBD
From Morning
Gaps Negated
Bearish Gaps That Bully Resistance
Oversold stock with little congestion to the left

The stock gaps down significantly and then rallies strong at


the open, on Increased Volume (Vol.)

Bar closes with a +WRB on the 30-Min. chart, at or through


intra-day resistance

The +WRB should have a very small, if any, bottoming tail

Look for a bullish intra-day entry, and manage in between

Reverse applies for bullish gaps negated in morning


94
Bearish Gap That Bullies Resistance
Daily Daily 5-Min. 15-Min.

20MA Bullish basing


through
Add PBOdoldrums;
buy LDBO

Extended daily and Gap


20MA
G
Hourly
20MA A
P Retracement
buyable

Bearish
+WRB Gapafter
close
under
gap, no Support
BT 9595
Bearish Gap That Bullies Resistance
Daily 15-Min.

20MA

Buy LDBO

Extended daily and Gap


20MA

20MA
Hourly

+WRB close after


gap, no BT 96
Bullish Gap That Buries
30-Min. 30-Min. 1
1
2

2
3

20MA

3
1. Bullish Gap
2. 100% Gap Fill in first 30-Min.
3. Short PBD (or other bearish
entry) on smaller time frame, if
97
no congestion to left
Using Pristine ESP™ to Find Candidates

Go to Scans; Micro Trader; Gap Down and Strong (for


longs), and Gap Up and Weak (for shorts)
98
Concluding
Thoughts
Pristine Services and Education
Thank You For Joining Us!

At this point, you have the information to build on. It’s up


to you to work with the material and now make it yours.
There are no secrets or proprietary indicators to making
money in the markets. Defining an opportunity, where the
odds are in your favor, then having the discipline to
follow your trading and money management rules is all
that you can do. Your job is to objectively monitor, then
change as the market suggests you should.

In closing, we at Pristine wish you great success!


101

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