Every month we have a tutorial on a different topic.

In the past 3 years we have covered subjects from advanced Fibonacci retracements, basic and advanced pitchforks, multiple applications of Gann including square of 9 as well as range and time square. We also cover the psychological side of trading, mental toughness and what it takes to master any skill. This year weve worked towards marrying the psychology of the market (and yourself) with the technical side. Many beginning to intermediate traders have never given any thought to who might be on the other side of the trade. You should never forget this is a zero sum business. There is always a winner and a loser. As tough as this may sound, for you to make money, someone has to lose money. Its important to have a method and an edge. But to get there you have to go beyond the robotic instincts of your early years. If you are thinking too much about the charts there is no way you can possibly be thinking about what the other guy might be doing wrong. You are too consumed with that YOU might be doing wrong. This is why we take a comprehensive approach to our training. We want you to be able to understand any condition in any market. The following information by itself is not sufficient without a firm foundation. The subject of understanding what the other side might be doing wrong is very comprehensive and deserves a whole book. However, for our purposes, it is sufficient to take these basic examples, become aware of it and build on it yourself. Have fun with this. Our newsletters are very reasonably priced and will help you follow the markets from one sequence to the next. Ours is likely the only newsletter that combines so many powerful methodologies (Gann, Andrews, Fibonacci, Support/Resistance, timing cycles, psychology) so a subscription will certainly help you on the road to mastery and shorten the learning curve.

From Thursday Nights STU (Oct 6)

This months theme is winners and losers. Its a zero sum business and you are either on the right side of the trade or you arent. Thats just the way it is and there is no middle ground. When you start in this business you are consumed with stochastics and MACD and all these other lagging indicators. That will give you an idea of whats going on but if you attempt to trade on it, youll get killed. I think most of you have figured that out by now. Then the pattern recognition skills get more sophisticated and you are able to spot tendencies and what actual patterns mean because readings and patterns are nothing more than picture and numerical representations of human emotions. Then there is empathy. Thats right, this is not a novel. Its the ability to put you in the other guys shoes. Watch what he is doing and feel what he is feeling. The truth of the matter is if a lot of the people trading are losing money we should be able to spot the places where they are obviously wrong and do the exact opposite. The simplest thing in the world would be if you are losing trader just start buying when you think about selling and sell when you think about buying. In reality that might be more complicated than it appears on the surface and I dont recommend it but I think you get my point. But if you are a member of a chat room and see a bunch of traders always losing money, then you could do the exact opposite of what they are doing. 1

But think about the times you went long, got under water and yearned to get out. Losers dont use stops. They wait until the market comes back to their entry and then cry UNCLE. Somehow we always get back to professional sports. In order to take advantage of the oppositions mistakes, they have to be pretty good to begin with. Take the Arizona Cardinals. They are halfway decent, they can take advantage of the oppositions mistakes but they themselves are not technically sound so they make their fair share of mistakes that the opposition turns the tables back on them. I was at the game on Sunday and heres a team that recovered a fumble inside the opposition 20 on the opening drive of the game and only got a 3 instead of a 7. The bottom line is the way the first half went they couldve been up 21-0 but at one point were down 7-6. They were ahead by 10 with 5 minutes left in the game (almost insurmountable lead in an NFL game) and ending up LOSING. So weve spent the last 3 years becoming sound at what we do here. The best teams are sound AND take advantage of the other teams mistakes. Getting back to our not so mythical trader who doesnt use stops you have to know there are a lot of people who only act when it feels secure after the move is well established. Those people are probably wrong 8 out of 10 times. I want to start this theme with simple examples you can spot and use on your own. Well get more sophisticated as we go but I want you to start thinking of the people behind the pattern and tune in to what THEY are thinking and feeling.

Take this AMAT chart. Look at the top. Look at the VERY LAST sequence. Think about this, its a long bull market and you had a bunch of people pile in. You are not going to know they are 2

the last ones in when it happens but you dont have to. You dont have to worry about it UNTIL AFTER THE FIRST LEG DOWN. Who do you think is buying off that first drop? Isnt it the people who are erroneously buying what they think is a dip? You dont really know if they are right either. But it always helps to know the reading and cycle picture which helps you to identify the high. Weve done enough cycle work that we arent going to cover it now. But the idea here is to look at those people who piled on and think where it is they might be crying Uncle. Wouldnt it be close to where they bought in? If you are tracking anything and it fails close to breakeven for late, late, late buyers thats a sign what you are looking at in the preceding rally could be a top. Its a place you would strongly consider going short. Smart traders are watching this and are looking to establish short positions. The combination of the 2 is what drives the new trend lower. Heres a recent example, its a simple play but you need patience to spot it. Gap up after the move which creates the island top. It dips leaving latecomers below water, they exit near breakeven and the bears swoop in.

From the Saturday Futures Update (Oct 8)

I know the majority of you who read the Saturday update have been here for several years and youve seen it evolve over time. This is a publication that started 4 months before the financial crisis and its 3 years later and we are still here. The reason is we never rest on our laurels and 3

have a commitment to continuous improvement. Each year weve upgraded our methodology in one important way. Last year it was Gann and the year before it was pitchforks. Now we are working at bringing the charts to life because at the end of the day all we have are patterns that are visual representations of human emotions. Never forget that. We have 2 distinct groups of traders. Ones that know what they are doing and another group that does not. The idea is to think back to the time you were in the first category and remember what you did. How did you lose money? Others are doing the same thing now. Why is that? Its because there are so many people out there who want to trade but are in over their heads. Its not that they shouldnt be here. They just dont give trading as a business the respect it deserves. Ill be frank with you. We have people who come to the training program and in the early stages remain stubborn. Ill remind you its a go at your own pace program. I show them what to do; many of them run with it and are glad they did. However some are stubborn, know better than the coach, do their own thing and disappear for a couple of months. Invariably they come back because they get killed on their own. Then they get serious. Okay, so whats the point? This is a business of STRONG PSYCHOLOGICAL LURES. Anyone can trade and when you are sitting in front of that screen you can do anything. Nobody will know. PT Barnum said theres a sucker born every minute. Sad to say, its true. I just dont want YOU to be the sucker and taking that one step further I want you to learn to recognize who the sucker is. Thats not to say every situation has a sucker but you have lots of situations where people are wrong and going to have to liquidate. Im here to show you how these situations develop. One of the problems is with the training and tools available to the average trader. There are so many lagging indicators. We have stochastics, RSI, MACD, Bollinger, Keltner and the list goes on and on. They all have their value but to a point. And if thats all you are using, there will always be a ceiling on your potential in this business. A lot of you have realized it but are wondering what the next frontier is. Its really not MORE technical analysis but looking at what we already have in a different way. You have to realize the winners are looking at something totally different than the losers are. Thats why there are winners and losers. This is a zero sum game, folks. I know the government tried outcome based education where if little Johnny tried really hard but still thought 2+2=3, they told him hooray because he came close. You want to learn, practice your skills and if necessary use a simulator when trying new things. But at the end of the day, there is a winner and a loser. Its partly Wall Streets fault because they dont provide the kind of education in this business that one needs to succeed. Its mostly a closed society and the people who learn how to trade have done so because it is passed on from one generation to the next. I know this because Ive had the chance to meet some very interesting characters at these conventions the past 5 years. They pass it down. Oh, you do have people who are so determined, willing to blow several bankrolls, pay for education and figure it out, but we are in the minority. Anyone can do it, all it takes is commitment. My first wealthy partner gave me a chance to see if I could do it and Im grateful for that but hell even tell you he was an extremely flawed individual. Hes the one that put me up to sending my work to EWI because right from the beginning he thought I was good enough. Right from the 4

beginning about 11 years ago Ive been on this trading and writing path because I really thought I had a chance to work for EWI. But it didnt work out due to politics but thats okay. Chances are I never would have evolved beyond Elliott had I gone there. What Im trying to tell you is my latest epiphany came to me earlier in the year as a result of watching sports for the past 45 years and the light bulb just went on. As always I test things out before I bring them her. But once you start looking at charts this way it will put you light years ahead of people who look at charts in the old tired mechanical way. I include myself as being guilty of that for a long time. That being said, lets look at this Gold chart. Its from earlier in the year; Ive shown you this chart before but not presented this way. I showed you where the bears gave up, but I didnt describe what led to it. This sequence is the end of August. We have a move to supply, which could be an area where bears come in. They did but they were early. They tried to take it down. What I want you to do is look at the sequence after it turns back up and imagine how you feel in the pit of your stomach as you see the bullish action encroach on your position and stop loss. Its gut wrenching. Its the kind of thing that makes people dislike trading. Who likes this kind of stress? Finally, they get taken out. But look at the consolidation. There is a point (which I described in a prior STU) where the bears simply gave up. Eventually, all of the buy stops got tagged, the gold bugs came in and prices exploded higher. At the end of the day, I always tell you that at supply you have to give bears the chance to take it down. But if they cant by default, you can get in. This is how it works. Wait for them to go through their gut wrenching gyrations and then come in. In the very least youll get a quick burst higher. These people are not amateurs who got short; they are just early thats all. But if you can understand the emotion of the situation you may be able to exploit it and create an opportunity for yourself where the amateur or intermediate trader never sees it or understands it.

From our Short Term Update (Oct 13) Our theme this month is to be able to spot the losers on the chart and do the exact opposite of what they are doing. Losers can range anywhere from amateurs who have no clue what they are doing to people who just miscalculate, it happens. None of us are going to be on the right side of the market all the time. We are not dealing with individuals, these are institutions who put forth huge blocks of trades. But at the end of the day its still people who make these decisions. Take Paulson, for instance. Heres a guy who runs a hedge fund where one of the funds is off 47%. This is not some rank amateur. Then you had the boys over in London who supposedly ran one of the most successful energy funds who lost the $400 million in 4 days when oil topped and were quoted by Dow Jones as saying they had no clue. Personally, I think there are a handful of hedge fund guys who are absolute wizards and David Einhorn (the guy who tried to buy the Mets) might be one of them. I also think some of these hedge fund guys were right when they went against the subprime mess and made their once in a lifetime fortunes out of that disaster. But I dont think that hedge fund people overall need to be looked at like they are financial gods that the media portrays them to be. They make mistakes and get caught on the wrong side. But those guys are different than the retail people you see piling in near tops. So you have 2 groups of people. The chart we are going to look at today is probably NOT retail people but weve been bringing this one to your attention all the way down.

Im not exactly sure who bought the absolute top but it doesnt matter because it started a perfect unwind. Every sequence has been met by someone buying a dip and ending up under water and having to liquidate on every bounce. I think the most dramatic example is that last bullish bar which had the look of a morning star yet within one trading day THOSE people were under water as well. That sequence was dramatic enough the 90dg pivot did not hold. In the last case they didnt even wait to break even, you had a mass exodus which was represented by the big bearish bar below the 90dg pivot. Dont forget that when you have a strong Gann line like a 90dg mark if it breaks, it usually will do so in dramatic fashion. Now prices have come all the way down to important institutional support and the people who bought the first portion of this move off the May bottom might be getting a bit nervous right now. After breaking a 90dg line chances have improved for a breakdown. As a sidebar to this particular discussion China had the big night, held support and in the process may send the entire market a huge dose of oxygen. Of course, oxygen to the market might be carbon dioxide to the Greenback. The unwind might continue. But heres what you look for. When you get institutions or series of institutions on the wrong side, they end up under water and get out on the next bounce NEAR the breakeven point. Its one of the principles that fuel our polarity flip play. This Dollar sequence is one of the best examples youll see. From our Futures Update (Oct 15)

I hope youve been enjoying our series on tracking the winners/losers and identifying the correct side of the trade this month. Heres another example. This one comes from just one leg up in Gold. Heres what Ive been finding. If you find a leg that pulls back dramatically but cant break support, its probably an emotional reaction. Think about this. You are watching a test of support and the last bar looks big, bad and ugly. But it cant push prices down. Chances are that was the bears best shot at it. On this chart after the first high we had 3 out of 4 bearish bars but that was it. Prices moved higher and when they covered the high end of that range, those who were short for forced to cover, thus propelling prices appreciably higher. Is it frightful to take a trade up there? Sure it is but look at the ridge just off the reversal. Perhaps people are taking small experimental positions and adding to them once all the bearishness clears. All I can tell you is a steep drop will lead to an action reaction reversal and if the high end of the range is achieved chances are its going higher. A steep drop in a DOWNTREND usually doesnt retrace back to the prior high, does it? So in the first half of this move those 3 bars are really the only selling we have as evidenced by virtue of the fact polarity does flip later in the move. But what of the current condition? We have a steep drop again and a deep retracement already near the high. Its my contention it will break this high. Im not right every time but starting to see these kinds of patterns and themes emerge on lots of charts.

LOOK AT THE NEXT CHART, IT CONFIRMS WHAT I WROTE IN THE UPDATE AS THE PRICES DID END UP MAKING A NEW HIGH. ITS THE SAME SEQUENCE SEVERAL DAYS LATER.

So lets look at a downtrend, can you spot the difference?

Each leg only retraces back up to where buyers who were wrong are trying to breakeven. Off the top, they come right back to the origin of the last leg up. This doesnt work every time but if a leg retraces back close to the high odds are you are going to see a new high. If it only comes to the area of the prior bounce, short it. The challenge really will be if you do get caught, you have to crafty enough to place your stop in a place where you dont give back a whole week of profits. If you cant figure that out you probably dont take the trade. Right now, if you went long Gold youd probably put your stop at the low end of the ridge under 1680. Worst case scenario it would be around 1678 below that last bullish bar on the way up but what you should do is wait to see if the last bearish bar in this congestion is taken out and that high is 1684. But the point here is when you line up a downtrend against an uptrend you see the prevailing condition has already retraced too steeply into the corrective wave down and while there are no guarantees, odds favor this being the continuation of a move north. Thats really all you need. When does this type of trading NOT WORK? In a sideways market that slices you up. But it will work in many cases. Id suggest that if you try this on any particular day and you do get sliced once, back off. Dont keep doing it. Wait til tomorrow when the odds will be better the pattern will clear up and head in a direction again.

From our Short Term Update (Oct 20) Tonight we are going to wrap THIS ROUND of tracking the losing side of the trade. This theme is going to continue but now that Ive shown you the simple techniques its time to get a little more advanced. Maybe the stock market Gods will help out and get me some more great examples, well see. But the biggest problem the beginning to intermediate level trader has is THEIR URGE TO PICK TOPS AND BOTTOMS. Let me be frank with you, the best of the best dont do it. Even the guys on TV do it but nothing said they are the best of the best. That goes for the Fast Money guys. Remember Tuesdays short squeeze? I forget which, but it was one of the guys on the panel who was very nervous about his short position on Monday and we see what happened. It just so happen to LUCK OUT FOR THEM that AAPL got killed right after the Euro squeeze or else theyd still be crying in their beer. As an aside some of these guys on television are very good and you just have to know which is which. A lot of these guys on television are very skilled options players who have a very well defined risk and reward and with their synthetic spreads have the exact amount of profit they could make before they pull the trigger. Thats fine but its a different type of trading than many of us do. Most of us here are position traders who look for the price action to get from point A to point B and do so with the least amount of risk. Then you have another group of trader/investor types who take big positions and cant pick tops or bottoms because too much money is at risk and if you throw too much at a stock at any given point they might move the market. But theres yet another reason not to pick tops or bottoms. In the long run IT JUST DOES NOT WORK! In a newsletter such as this we attempt to establish the probability an important pivot is in place as a guide to help you navigate the market. Some turns are better than others. But it is an entirely 10

different skill to find the right place to take the trade closest to the point where it could have its best part of the move at the least risk. Read that again. When you pick or bottoms you are NOT taking a trade close to the point with the least risk that puts you in a position to LET IT RUN. So how does this fall into our theme of the month? Its very simple. When it doesnt work those players have to run for the exits all at the same time and if you know that, you might be able to exploit it and go the other way. That happened Tuesday at least on the monumental up bar on the NQ. So if you are an intraday trader or even a swing trader you have a choice. You can pick the top and get in near the bottom of the A wave after it give you the bar but not the follow through OR if it starts regurgitating would you rather piggy-back on those who are getting squeezed and go long? It doesnt always work that beautifully, but every day we see it happen on a much smaller and subtle scale. Heres another thing before I get started. Youve seen my terminology in these tutorials on the short side? The term we use is unwind. On Tuesday, I think it was Jack Bouroudjian who was being interviewed by Santelli on the floor of the CME. They were talking about some commodity and I cant remember which (I have a few senior moments) but what I do remember was he specifically was referring to this chart starting to show SIGNS OF UNWINDING. The point, the smart money people are looking for certain patterns and theres no way you can figure this out when you pick tops or bottoms. After a high, your odds of success GO WAY UP, if the chart starts showing signs of unwinding. If you are not sure what unwinding is, go back and look at the Dollar chart from last Thursdays update. Here, weve been talking about polarity flips for a long time. Thats what it is. The unwind is a form of that. On the bull side, I suppose the best term to use would be stair-stepping or developing a building block. I challenge each and every one of you to go to a 3 or 5 minute chart and watch the stair step or unwind and youll see the difference. Ill help you a little and show you a 3 minute EUR-USD.

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This could be you trading this chart. On the left side, you got 3 good flips/stair-steps/building blocks on the way up. Where do you take the trade? NOT ON THE BREAKOUT, but a little technique or panache, please. You wait until the next pullback starts to come off the low but ONLY AS IT THE POLARITY FLIP has tested close to a prior high. DO YOU GET THAT? On the average trade you arent going to make a fortune but youll hit a lot of singles and doubles. Every so often youll hit one out of the park. Why does the stair-step work? Because there is ALWAYS SOMEBODY trying to pick the top who has to cover and fuels the move higher. Its the same as the folks buying the dip on the way down who are forced to cry uncle. Then of course you have a few smart people in there as well who use the opportunity of the flip to add to already winning positions. Okay so now we come to that emotional drop. Should you buy that bottom? Chances are youll be right 6 out of 10 times if you use it as a pure strategy. Its not fun. But theres a bigger point here. Every bottom like that is OVERDONE. You hear it on television all the time. This leg is overdone, that leg is overdone. Thats what it means. Theres always going to be the late bear who either is getting in because this is his comfort level or the smart bear who overstays his welcome. It happens to the best of us. But look at all the bottoms; they always have that V where it never comes to again. Thats the emotional part. The retest defines exactly what that is. Better yet, after the retest, you get the best part of the move. Remember this is a 3 minute chart so whatever pips you are getting when taking these trades is within an hour to 2 hours. Thats a good wage. But when you dont pick bottoms and wait for the takeoff, you are NOT playing a pure short covering phase, you are already getting in on the real trending phase and you know it has transitioned from bear to bear covering which creates liquidity to actual buying which gives 12

the trend some staying power. That short covering phase is the buffer because ABOVE THAT LEVEL THERE ARE NO SELLERS! I hope that Ive explained this to you in a way that makes these candles and patterns come to life. The feedback that Ive been getting ranges from people who never considered who is on the other side of their trade to others who are being introduced to this way of looking at charts which goes beyond retracements, moving averages and lagging indicators which is what the average intermediate level trader is used to. Certainly, the square of 9 readings is a BIG HELP because if you get into trouble if you took the trade on a good reading it will enable you to have the conviction and persistence if the trade doesnt stop you out and initially doesnt go your way. A good reading will tend to hold the line much better than a pivot that has an average reading.

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