The three skills of top trading pdf download

Erweiterte Suche. Ihr Warenkorb 0. Modelle Anatomische Modelle Somso-Modelle. Lehmanns Verlag. Hank Pruden Autor. His logic,understanding of human foibles, and use of the Wyckoff method oftrading are broadly referenced, readable, understandable, andentertaining.

Hank has taken the best of Wyckoff's work, combining it with theessential aspects of trader discipline and psychology, to provide ahighly readable and particularly useful guide to trading. This book not only belongs on every trader's shelfbut should be close enough for continuous reference. Pring, President, www. Pruden has brought together his lifetime of work in developinga modern approach to analyzing and trading the markets built uponclassic market analysis from the early part of the twentiethcentury and topped off with modern-day tenets of behavioral financeand mental state management.

I believe that this book will give the averageinvestor a lot more than just one. Want to Read Currently Reading Read. Other editions. Enlarge cover.

Error rating book. Refresh and try again. Open Preview See a Problem? Details if other :. Thanks for telling us about the problem. Return to Book Page. His logic, understanding of human foibles, and use of the Wyckoff method of trading are broadly referenced, readable, understandable, and entertaini Praise for The Three Skills of Top Trading "Professor Pruden's new book, The Three Skills of Top Trading, is unquestionably the best book on a specific trading method and the necessary attributes for trading that I have read.

His logic, understanding of human foibles, and use of the Wyckoff method of trading are broadly referenced, readable, understandable, and entertaining. Hank has taken the best of Wyckoff's work, combining it with the essential aspects of trader discipline and psychology, to provide a highly readable and particularly useful guide to trading.

This book not only belongs on every trader's shelf but should be close enough for continuous reference. Pring, President, www. Pruden has brought together his lifetime of work in developing a modern approach to analyzing and trading the markets built upon classic market analysis from the early part of the twentieth century and topped off with modern-day tenets of behavioral finance and mental state management. I believe that this book will give the average investor a lot more than just one.

Get A Copy. Hardcover , pages. More Details Original Title. Other Editions 5. Friend Reviews. To see what your friends thought of this book, please sign up. Lists with This Book. This book is not yet featured on Listopia. Add this book to your favorite list ». Community Reviews. Showing Average rating 3. Rating details. We are, of course, referring to those attitudes and actions that stand in her path to greater and more consistent profits in the stock market. The crowd dynamics of buying and selling are the same in all markets.

I only had to make the same mistake about times before I learned i. It can take repeated bashing of the head for something to sink into the skull. Bright, welleducated, and professionally successful businessmen and women are too frequently dismal failures in the stock market.

Ironically, the very traits that contribute to their organizational or entrepreneurial success work against them in trading and investing. Ambition, drive, the will to succeed, can translate into stubbornness in the stock market. In the corporate world, perseverance is an admirable trait. But whereas perseverance can help a manager overcome obstacles in business, this same doggedness can trap a trader into a stubborn refusal to change position despite an alteration in the trend of the market.

Letting go of ambition or drive may seem counterintuitive, but if you cling to these traits, they will separate you from your money. The moral is that you, the individual investor, are merely a ship on a sea of opinion. To survive in the market, you must adopt a seemingly more wishy-washy stance; in other words, be flexible. However, flexibility is difficult when you have made a financial commitment. During —, I was bombarded with e-mails that argued the market should decline, but it kept on rising.

Linda Rascke, a consummately good tradertechnician, contends that a good trader must learn and relearn the principles of the market, and oftentimes the hard way. Unable to resist this bargain, I went ahead and bought another puts, putting my entire account into this one trade. I calculated that a move of just two points in the option price would get me my house money.

Needless to say, Einstein would be impressed. The next day the markets did an odd thing. They opened higher. Even more unusual, they continued to move higher through midmorning and into lunch. And strangest of all, the markets closed at their dead highs on the day.

I was a bit perplexed, but at the same time I had confidence that the trade would work out. The markets screamed higher for the next four trading days in a row. Unable to take the pain any longer, I finally called my broker and begged him to close me out. I had just blown out my trading account.

Once committed to an objective, your enthusiasm helps you follow through, and along the way it infects others with an urge to join you in the accomplishment. But in the stock market, enthusiasm is apt to blind you to the obstacles and pitfalls that you cannot overcome or bypass. A person in a heightened emotional state is susceptible to suggestion and sensational information, and is likely to imitate the crowd—to be influenced by headlines, influenced by trader chat, and so on.

Her reactions are liable to become even more visceral and less cerebral the more the market price moves negatively away from her original entry point.

It is hard to turn your back on a stock that you were rah-rah about when you purchased it. Ignorance starts by failing to understand how one is emotionally tied to the market and what the emotional requirements of successful market operators are.

The competitive nature of the market causes its sophisticated participants to constantly anticipate future developments. The first crude images of the future are quickly translated into current stock prices. If important elements of the market are uncertain, yet potentially threatening, the result may be a panic sell-off in advance of or culminating with the final arrival of the bad news.

The visceral reaction of the uninitiated is to sell upon bad news, which often gives that seller the dubious distinction of being the one who sold at the bottom, just as the worst possible future scenario was being discounted. As soon as John R. Carter decided that the market should give him the down payment on his home, he fell prey to an enthusiasm that caused him to abandon good money management principles.

While they like to hear what everyone else is talking about and get a feel for the mood and the theme, very rarely do you see people copy each other. But it could spark a thought—if something is interesting, it might lead them to a completely different trade. Here the trader faces a dilemma.

On the one hand, she is instructed to go along with the major trend, not to fight the tape, and, in effect, to join the crowd. On the other hand, she is counseled to invert her thinking, to take a position contrary to the prevailing majority sentiment in the market. These maxims are, obviously, diametrically opposed, leaving the investor a mental wreck if they are taken at face value.

The trick to mental health is not to take them literally but to follow the prevailing sentiment during the middle of the trend, and to go contrary to it at extreme tops and bottoms. Unfortunately, ignorance about how to play the market leaves the trader open to all the gossip, rumor, sensationalism, deceptiveness, and pooled ignorance of Wall Street.

Without a sense of how the market operates, she gives in to her fears and hopes at just the wrong times. She joins the general public in selling too soon, repurchasing at higher prices, buying more after the market has turned down and then liquidating on breaks. Those traders who survive to become hedge fund pros have cultivated the capacity to listen to, yet withstand, the siren call of the emotion-laden talk that surrounds markets.

To succeed, they must become gifted contrarians. The Dangers of Hope, Fear, and Greed Hope, fear, and greed are emotional enemies that must be subjugated if you are to have a fighting chance to realize the 7 out of 10 profitable trades that your superior stock market knowledge should bring you.

Obversely, if ignorance, hope, fear, and greed take command of you, then the odds are probably 7 out of 10 that you will lose. As Albert Haas Jr. Fear takes the other hand of the greedy, fear that what is wanted most can be lost or denied; greed and fear together can team up to make stock market activities a profitless torment. Greed, like an intoxicant, fogs the mind, and fear unsteadies the hand.

Both of these basic human feelings are sometimes hard to recognize and difficult to tease apart. A victim of greed and fear presents a curious paradox, since he hopes for so much and expects so little.

A criticism of greed in the stock market is not made on moral grounds. Criticism of greed is warranted when it is excessive and when it becomes the dominant motive at the wrong time.

When you see a position advance 30 percent and then insist that it has to double, you are being greedy. Granted, but what you have to guard against is an unwarranted change in attitude once an advance decline is well under way.

If you start to become more confident, complacent, even cocky as your paper profits pile up, you are liable to raise your profit targets to unrealistic levels. It is the emotion of greed gaining control over your intellect; it is your aspirations forever outrunning your grasp.

In that example, greed grows after the advance has occurred. We become bolder rather than more timid as we move further and further away from our original support zone and closer to the resistance level where we should logically expect a reaction. This same sort of operant conditioning appears to occur over the market cycle as well; we become very bold and confident greedy after the market has risen for months, whereas we are cautious and fearful at the inception of the rise.

In the worst cases, fear, greed, and hope feed one another to create a cycle of perpetual powerlessness and poor decision making. Hope leads us into a land of reverie where we can construct an imaginary world of fame and fortune. Hope transports us to the door of Lady Luck, whom we beseech to turn the tide in our favor.

Hope helps us to overlook our losses while we wait for a favorable run of events, or even a sunny day. Hope is a sort of daytime reverie that fogs our perception and clouds our reasoning. Our anxieties arise at night to keep us awake. We can combat hope as an enemy through the judicious use of stop-loss orders, for hope at its most debilitating makes us hang on to a sick position until it becomes so critical that we must undergo an amputation without an anesthetic.

Hope has two handmaidens: rationalization and denial. These are psychological defenses with which we can cope with the unpleasantries we encounter in life, either by reasoning them away or by pretending that we do not know what we do know.

Rationalization has hold of an investor when she habitually takes action or avoids it for reasons that appear perfectly sound, objective, and acceptable to her, though the real reasons are entirely different. When she does take the plunge and her stock declines, she ignores the first few points and rationalizes away the next two or three as due to a sluggish market.

If an unexpectedly poor earnings report is published and the stock retreats further, she rejoices that the bad news is finally out. She might even compound the error by averaging down through purchasing additional shares as the price declines, to show the courage of her convictions.

The most important reason for expecting that stock prices are heavily influenced by social dynamics comes from observations of participants in the market and of human nature as presented in the literature on social psychology, sociology, and marketing. A study of the history of the U. Must we rely on such evidence to make the case against market efficiency?

Yes; there is no alternative to human judgment in understanding human behavior. Shiller, in Richard H. Thaler, ed. Current appraisals of the market, estimations of the future, favorite industrial groups and their major stocks, all reflect moves toward consensus. This is a mindless conformity in as much as the crowd usually exaggerates a trend and ultimately underperforms the market averages. As a stock market operator, you must keep your own counsel. It is vital that you avoid being swept up by the emotions of the crowd.

Mindlessness is one of the hallmarks of crowd thinking. Singularly, a group of investors may be rational businessmen, lawyers, doctors, and Indian chiefs. As a group seeking profit on Wall Street, they will be unwitting, sometimes irrational, members of an unconscious groupthink. They share rising and sinking feelings with the tape; they are attracted to the same stocks at the same time and are apt to sell them in unison. As Gustave Le Bon wrote in The Crowd: The gathering has thus become what, in the absence of a better expression, I will call an organized crowd, or, if the term is considered preferable, a psychological crowd.

It forms a single being, and is subjected to the law of the mental unity of crowds. We see, then, that the disappearance of the conscious personality, the predominance of the unconscious personality, the turning by means of suggestions and contagion of feelings and ideas in an identical direction, the tendency immediately to transform the suggested ideas into acts; these we see, are the principal characteristics of the individual forming part of a crowd.

He is no longer himself, but has become an automaton who has ceased to be guided by his will. A crowd does not reason; it is controlled by its sentiment. A deeper discussion of the crowd phenomenon is beyond the scope of this chapter, but you can find more information on the topics of panic, craze, imitation, anxiety and uncertainty, images, leadership, impulsive action, exaggeration, illusions, and intolerance of deviation in the sociological literature.

Social psychology—including writings on selective perception, social comparison, reference groups, goal displacement, ambiguity, anxiety, collective misjudgment, stress—may also help explain why mass psychology has such a firm grip on Wall Street. As the scale of my operations increased I became known as a speculator.

Now I am called a banker. But I have been doing the same thing all the time. The performance of mutual funds, bank trust departments, and other institutions has been abysmally poor when compared to the market averages. More recently, many were sucked into the Internet bubble of the late s, only to suffer when it popped in the early s. Their favorite stock recommendations outperform the market for only a short term and to a limited extent. Over a longer term, stocks they shun outperform the stocks they favor!

The pros seem to suffer from their own version of crowd insanity, or groupthink. Under pressure to satisfy bosses and clients with current performance, dealing with data that are limited and difficult to define objectively, and facing major uncertainty over the future, professional money managers unconsciously and consciously turn to other people both for clarification and for benchmarks against which to measure their own opinions.

Reality for the pros becomes social reality. What the larger group perceives as reality reflects a combination of objective and subjective criteria. The moral of the story for the trader is clear: Be tough-minded so that you can take positions contrary to prevailing, majority opinion.

The Fashion Cycle Analogy [T]he action of the stock market is nothing more nor less than a manifestation of mass crowd psychology in action. The fashion world follows a pattern of innovation adoption similar to that of the stock market—from innovators to early adopters, to the mass market, to laggards—and results in the inevitable exhaustion of potential buyers.

A new fashion is seldom, if ever, adopted by everyone everywhere at once. Rather, it follows a trickle-down pattern. These ladies have traits of wealth, cosmopolitan surroundings, contacts in fashion circles, an awareness of what the creative designers are making, and so on.

A new fashion may never reach beyond this level, as was the case with the midi skirt in the s, if not adopted by a wide cross section of the population. To succeed, the fashion must trickle down to the greater masses of skirt wearers. The trickle-down process is one of diffusion and adoption, aided and abetted by opinion leaders, advertisement, retail merchandising, wordof-mouth, imitation, contagion, convergence, and conformity. Let us explore each of these factors one at a time. Diffusion in this context means a spreading out, a broadening of usage.

The concept implies that the diffusion starts from a center and works outward over time in concentric circles, capturing those nearest to the center first and converting those farthest away last. So we would expect the new hemline to be adopted by high-status women in large cities first, then by fashion-conscious younger women, and only later will longer hemlines appear on women who live in outlying areas, who are older, of lower status, and less fashion conscious.

The dissemination of information is needed to effect this diffusion. Concurrently, advertisements appear in the national press while retail merchandisers are cajoled into placing orders for the new design. Meanwhile, among these fashion innovators and early adopters there will be considerable word-of-mouth discussion about appropriate style, color, texture, designer, and so forth, a communication network that tends to reinforce convergence toward a few accepted looks.

Imitation and emotion aid and abet the diffusion process. The greater the number of women seen in the new fashion, the greater the pressure to convert. Without anything being said to her directly, a nonadopter is apt to feel psychological discomfort—she feels awful because she perceives that she looks awful. Underlying her feelings are basic drives like fear and vanity.

She fears that she may appear old-fashioned, unattractive, and undesirable. Her self-image, her vanity, tells her that she deserves a better reward than this. But she agonizes between the serviceability of her old wardrobe and the cost of a new one. Then, one day someone close to her friend, enemy, neighbor, relative, etc. That does it. She goes on a buying spree, taking advantage of the great sale prices.

When at last Suzy Q. For all intents and purposes there are no more buyers—the market has become saturated. Meanwhile, the original fashion innovators back in New York and Los Angeles have long since abandoned this look.

At the same time that Suzy Q. In effect, Suzy Q. And so it goes, cycle after cycle. The Stock Market Cycle Many of the processes and motivations we observed in the fashion cycle are reflected in the stock market. It is most instructive to read back over the fashion example, inserting where appropriate such stock market elements as specialists, traders, financial press, advisory services, retail brokerage firms, fear and greed, glamour stocks, herd effect, panic and craze, hot groups, odd lotters, boardroom gossip, institutional sponsorship, fear and depression, greed and euphoria, and so on.

Analysis of the stock exchange reveals two underlying processes, one at the individual or psychological level, the other at the group or sociological level. These two processes are: 1. The motivation of fear and greed individual level. The cycle of diffusion and adoption sociological level. Fear and Greed In this context, fear is defined as an unpleasant, often strong emotion caused by the anticipation or awareness of danger.

Greed is an excessive desire for requiring or having. Fear and greed are not single-state variables; rather, they lie along spectrums of greater or lesser degree. The fear spectrum ranges from euphoria to confidence, to hope, to concern, to apprehension, to panic; in short, from optimism to pessimism.

The greed spectrum ranges from headlong covetousness—leading to overbuying and overvaluation—to headlong parsimoniousness, leading to overselling and undervaluation.

It is because the interaction between them is one of dynamic tension. At market bottoms when values are great, investors should be optimistic. After all, they should be greediest and most optimistic when the greatest bargains exist; this would be consonant, consistent, rational behavior. This is manifestly dissonant, inconsistent, and irrational behavior.

At market tops we find the opposite but equally irrational state of optimism versus low values. Is it any wonder, then, that when fear declines while greed rises at market bottoms we see explosive up-moves, or when fear overcomes greed at the tops we observe catastrophic declines?

The crowd is brought into a manageable design that is both a picture and a checklist. Together these two analytical forms supplement and complement each other to furnish the trader with a conceptual edge. Most of the concepts in that site are also considered at www.

A great depth and breadth of writing on the topic can be found in the Financial Economics Network FEN behavioral finance articles: www. The web site of the Journal of Behavioral Finance is www. This chapter is built around the distinct theme that stock market action follows the life cycle of other living organisms and so exhibits distinguishing patterns and phases.

This Life Cycle Model of Crowd Behavior is an adaptation of the product life cycle model often used in business, forecasting, and planning. In marketing, the life cycle model has proven its usefulness time and again for understanding and guiding new products and other innovations.

The model developed in this chapter will show you how to organize and synthesize the technical market analysis of price, volume, sentiment, and time into a meaningful yet efficient system for market analysis. In addition to helping you organize and synthesize branches of technical analysis in this book, the Life Cycle Model of Crowd Behavior can be used as a supplement and complement to other textbooks on the subject of technical analysis.

It is my hope that this chapter, and indeed this book as a whole, will become a useful reference and serve you well. The trader gains a further advantage using the Life Cycle Model of Crowd Behavior because it employs both sides of his brain. A digital checklist analysis of price, volume, time, and sentiment engages the left hemisphere of the brain L-directed thinking ; a pictorial, graphic schematic that shows price, volume, time, and sentiment operating simultaneously and all together activates the right hemisphere of the brain R-directed thinking.

In this chapter you will learn about the analytical frameworks of the Life Cycle Model, namely a bell-shaped curve defining various categories of investors and traders, and indicating at which phase of the market cycle you can expect them to enter or exit the market. Next you will study an S-shaped curve showing the impact on price as the various categories of traders and investors join a bull trend or depart the market during a bearish trend.

The second section of this chapter features an application of the Life Cycle Model by two trader-technicians. Based on my experience and my observations of other traders, I have created two stereotypical characters, Wright and Lefty, who tell the story of their trading and the impact of the Life Cycle Model.

The third and final section of this chapter offers a mini lecture on the details of technical analysis, covering the parameters of price, volume, sentiment, and time as they are organized and synthesized by the Life Cycle Model.

These figures show how a society adopts an innovation over time, like a bandwagon of buyers chasing a desired stock. The graph takes the shape of a bell curve when representing the number of people adopting the innovation each period and looks like an S-curve when representing the number of people on a cumulative basis.

For dramatic examples of crowd behavior in action, we can look at such classic cases as tulipomania, the South Sea Bubble, and the Mississippi Scheme. This bandwagon-like crowd phenomenon is also observable in market cycles of much shorter duration and smaller magnitude. Used with permission. Adopter categorization on the basis of innovativeness. Innovators Early Adopters 2. However, this variable may be partitioned into five adopter categories by laying off standard deviations from the average time of adoption.

Together, the two curves form a life cycle model that is a powerful integrator of indicators to gauge technical market conditions and to predict market behavior.

In fact, the life cycle concept is so powerful that economic theorist Theodore Modis argues that such models can forecast the rise and fall of almost anything. Using this model, Figure 3. Here, we see the four technical analysis parameters used in the decision-making process—price, volume, sentiment, and time.

Since the data for each parameter are independent from that of the others, the indicators representing them can be combined. Indicators that represent each parameter can be arranged to provide a more in-depth and reliable understanding of each parameter, as suggested in Figure 3.

Furthermore, this grid can be used as a worksheet to aid in model development and testing. As the figure shows, each element is broken down into three levels of analysis. Depending on the time frame used and the market studied, each technician can systematically select an array of specific technical indicators to represent each element of the model.

A tree of indicators concept comes into play during the building and testing of complex models. If, for example, he is an intermediate-term options or futures trader, then he might wish to examine the price parameter using stochastics or relative strength index RSI to study momentum, an hourly Dow Jones chart to count Elliott Waves, and a point-and-figure chart of the Dow Jones Industrial Average DJIA to measure the potential extent of moves.

These price indicators can be seen positioned along the S-shaped curve. With respect to volume, the analyst might include total daily New York Stock Exchange NYSE volume, a measure of overall upside versus downside volume, and perhaps also a further refinement of an on-balance volume study of the 30 stocks in the DJIA.

Volume is appropriately viewed on the bell-shaped curve under the S-shaped curve of price. Sentiment measures both the opinion and the behavior of various market participants.

Sentiment indicators of opinion are captured by the feedback loop see Figure 3. Here, the analyst might choose to evaluate market opinion by using the Investors Intelligence ratio of bulls to bears www. Moreover, he might evaluate the prevailing public sentiment with the headlines and leading stories from newspapers and magazines. Finally, the intermediate-term investor might utilize the fourth major parameter, time.

This might be achieved by analyzing a to week trough-to-trough cycle, the duration spent in a given up- or downtrend, and the significance of seasonal influences.

Framing the indicators into the model shown in Figure 3. The combined picture of price-volume-sentiment-time appears different in the lower-left quadrant accumulation of the model than in the upper right distribution. One would want to buy every high-volume upside breakout in the former case, but not when the latter circumstances appear to prevail.

These benchmarks can come from back-testing and real-time experience. As shown in Figure 3. Thus, the model provides a systematic way to view and interrelate the daily, short-term, intermediate, and long-term trends of a market.

A general observation is that the field of technical trading has become too competitive for a trader to rely solely on a simple system of one or two indicators. Trading in the markets is rapidly approaching the levels of competition found in professional sports. Hence, you need something more complex yet intelligible to help you gain that extra edge.

Behavioral finance models can help you frame your technical information to gain that advantage. The shortening of life cycles An overall S-curve pattern may consist of a long series of smaller S-curves. The life cycles indicated by the smaller S-curves become longer in the middle of the overall curve, then become shorter again.

A successful technology will have a longer life cycle within the natural growth curve of a family of technologies. The shorter life cycles combine to form a larger cycle. Wright strode in with the confidence of someone who had just won a challenging tennis match.

He was eager to tell Lefty about the profitable result of his firstever trade based on scientific logic and a forward plan. Wright hoped his good fortune would encourage Lefty, who purchased common stocks, attended trading seminars focusing on mechanical technical trading systems, and even installed a complete software program with end-of-day data feed.

Wright described the three big things that helped him and that he thought could also help Lefty: 1. A change in attitude, a change in how he looked at the world: a con- ceptual, empathetic, twenty-first-century view. A true scientific logic to guide his interpretation of stock market ac- tion through charts and indicators, using models from crowd behavior, behavioral finance, and the life cycle. A balanced and integrated study of the market, visually and analytically, through the simultaneous use of schematic diagrams and checklists to evaluate market data.

Essentially, Pink says that while rule-based trading remains important, it is no longer sufficient. To succeed in the future we have to take a page from the distant past, from the days of Richard D. Wyckoff and Jesse Livermore. We need to regain our chart reading skills, to get a feel for the market, and to be able to listen to the story the market is telling us. These skills are lodged in the right hemisphere of the brain, what Pink calls R-directed or R-mode attributes.

They enable us to put the pieces of the market puzzle together, to discern patterns, to really get a feel for a person, for people, and for the crowd. When somebody is demonstrating a new concept to me, I like to see the big picture, to see it mapped out so that I can relate parts one to another.

That works. For me, one without the other is less than half the plan. I can trust the life cycle market model because it gives me a schematic to look at and a checklist to fit the pieces together.

But you need to start with accurate geography; otherwise no number or combination of turn-by-turn directions and detailed maps will get you to your destination. By contrast, the market models from behavioral finance start with the assumption that market players are motivated by fear, greed, and other characteristics of human behavior identified in psychology, sociology, and anthropology.

Anyone who lived through the Internet boom and bust of the s knows in their bones that the markets are emotional and not efficient.

From practical, real-world experience it made sense to him; he had observed the impact of the four seasons of the year, and the birth-growth-maturity-harvest cycle of plants and crops. Wright recollected a high school history class where he learned that the ancient Greeks used the life cycle model from nature to describe and explain the rise-and-fall of nations, other man-made institutions, and even the panics of crowds.

For example, I saw the base forming. I bought the breakout from the base. The gradually expanding volume as prices advanced confirmed that buyers were entering the market, creating a bull-market bandwagon. Like in late , a four-year cycle was heading for a bottom. Also around that same time, there were scary news reports concerning Iraq and a falling economy, plus the market letters were bearish. All in all, price and volume were now joined by time and sentiment to create a bullish quartet.

The pattern grabbed me, but, since I am a guy who likes to wear suspenders as well as a belt, I was glad to have the analytical checklist half of the Life Cycle Model—what Pink would call the L-directed half—to compare it to. One good thing about the checklist is that I can choose my indicators and then add them up. I can have more confidence in the picture I see of the market if these indicators add up to the same bullish conclusion.

On the other hand, sometimes the picture is so clear and persuasive that it pulls one or two indicators that were a little short of a full-blown bullish reading over the hump. It all adds up; it all ties together to give a more scientific basis for decision making. Insisting on the right overall look may not be a true fail-safe system, but it sort of acts like one.

There are limits to how frequently you should trade, how much money you should place at risk, how many different stocks or commodities you should invest in, how many technical indicators you should use, and so on.

The Life Cycle Model is a great help in regards to placing limits. I like to trade in two time frames: the intermediate, or week to week cycle; and the major, or four-year cycle.

I select 15 indicators for each of these two different time frames and an array of indicators that are sufficiently different from each other that I can add them together. It finally dawned on me that all of those indicators were momentum indicators— they were all tapping the same underlying dimension of market behavior, and so of course they would be highly correlated. When Lefty finally recognized the paramount importance of the primary trend of the market, he got solid traction under his trading.

Underlying everything at the conference was the fact that the U. The Primary Trend Projector see Chapter 1, Appendix A indicated that the major market averages still pointed upward in early June Hence, until there was a decided downside movement in prices that would cause the day moving average to turn downward and prices to remain below declining day moving averages, a bull market would remain in force.

Until that confirmed reversal in the primary trend, the trader could expect hesitations and reactions in the market to be corrections and buying opportunities. As of this writing, we are most likely nearing an outstanding buying juncture in U. We should not miss this opportunity. We should prepare ourselves to profit from the next up-leg of this bull market. Profit opportunities can be great during a final leg of a bull market, but risks are also commensurately high.

A classic approach to trading, popularized by Jake Bernstein, is to think of it in terms of setup, trigger, and follow-through.

One of the four big elements in that model is sentiment shown both on the graph and in the checklist. Market movements end with exhaustion, and exhaustion is in part revealed when the laggards come into the market, buying puts late in the downswing see the bell-shaped curve.

Record levels of put buying in late May and early June showed strong evidence that the odd-lotters were aggressively joining the bear bandwagon. But in June we have evidence of these laggard types already joining the downside bandwagon and expressing a degree of fear that is out of touch with the price and volume evidence of the market index. The trigger is given to us by the Wyckoff elements of price and volume. The Wyckoff method has been giving evidence of the proximity of a low point.

Often the price and volume readings are sufficient and do not need strong corroboration from the sentiment indicators. However, in this instance the sentiment readings are a powerful cross-validation of the Wyckoff price and volume signals and further argument that an important low is at hand.

The third step is the follow-through. This is where most people miss the boat because they are too afraid to buy.