PIVOT LESSON 1

• THIS IS YOUR KEY FOR INTERPRETING THE NOTATIONS ON THE CHART. I WILL BE REFERRING TO THIS CHRT FOR THE NEXT FEW DAYS.
  
  S= SWING BAR
  
  ARROW= SIGNAL BAR
  
  RED NUMBER= PIVOT NUMBER
  
  YELLOW NUMBER= CORROSPONDS WITH RED NUMBER (Profit target)
  
  
  WHY I STARTED THE COUNT HERE
  WHY I ENDED WITH PIVOT 9
  WHY I DIDN’T INCLUDE THE LOW AFTER PIVOT 6 IN THE COUNT
  

A. WHY I STARTED THE COUNT HERE

I started the count here because I had to start somewhere didn’t I? Just kidding…If you are going to trade with the trend then you first have to be able to identify if the trend is up or down.

In the case of our chart I started here because, as I stated in the chart-reading 101 post, it is where the prior down-trend ended and the current up-trend began. How do we know this is the transition point? Because when we look at pivot number 2 on the chart we see that it is a higher pivot than pivot 1. Translation, the first higher pivot after a series of lower pivots equals change in trend from down to up.

For more clarification see page 26 of L/C.M. under the heading- FIRST HIGHER BOTTOM-FIRST LOWER TOP. This is otherwise known as trend failure. When the down-trend failed to print a lower pivot than pivot 1 that means the downtrend has failed and an up-trend has begun.

B. WHY I ENDED WITH PIVOT 9.

Because, pivot 9 is the most recent bullish pivot in the current up-trend. If we are to trade with the trend we only need to concern ourselves with bull pivots in the current up-trend.

C. WHY I DIDN’T INCLUDE THE LOW AFTER PIVOT 6 IN THE
COUNT

Simple… because I missed that one. So we can add 1 more pivot to the count and make it 10 pivots instead of 9. So, you can make a big deal about me missing that one or you can focus on the fact that it performed as advertised, as in profitable 10 for 10.


Now, I know you have questions but for this week I’m going to ask you to restrict your questions to the lessons at hand. I also want you to hold them until the end of the week and then if you still have those questions I will be more than happy to answer. Or, you can send me your questions but instead of answering it directly I will weave the answer into the lessons as we go forward. Then, again, if it is still not clear to you, let me know on Saturday and I will clarify the answer on a more personal level. The second option may be better because it may insure that I don’t miss something as I progress the lessons. That is how I realized I missed a pivot because one of my observant students notified me of this today. That allowed me to weave that into today’s post so instead of helping one it helps all.

Don’t get me wrong, it’s not as if I’m avoiding your questions it’s just that I’m trying to present the material in a more organized format and I believe this step by step approach will be more beneficial and less confusing to the majority as it will avoid jumping around from point to point, as well as providing an organized frame of reference if I have to go back and clarify a point for you on a more individualized level later.

In the next post we will take a couple of more steps and I’m sure at least some of the questions you have now will be covered.

This has been the setup phase for our future discussions. If you feel this format is unsuitable for you let me know and I'll try to think of a way that we can improve upon it. Remember, nothing is absolute, everything is probability.

NOTE: One of my students has posted a comment on the post prior to this one. I think you should go down and click on the comments button there to see what he has to say as it was not just meant for me but for you also.

Cheers, Jerry

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CHARTREADING 101

uptrend bottoms

In my last post I suggested that you do a little back-testing on your charts to look for pivots. Sometimes when I suggest back-testing it seems as if it evokes images of digging foxholes or something. I think traders have been trained to back-test by using complicated mathematics, or specialized software programs and such.

Well, when back-testing for pivots you need none of that. It is as simple as looking at the tops and bottoms on the chart. As I’ve stated many times before that wherever you have a bottom or a time you will find a pivot. It is not about looking at every single bar on the chart. All you are looking for are the signals. Really, how many tops and bottoms are on a chart…?

Today I have supplied a chart that marks the tops and bottoms for approximately the last 3 months starting from January 12-2007. Since that time until now there have occurred 9 bottoms and 6 tops. I’ve done the work for you but it would have taken you no more that 2 minutes. I mean, think about it. If I had a line 100 of people standing in a row and I said walk down the row and pick out only the people who were shorter than the person standing both, to their immediate left and their immediate right. You could stand back from a distance and point them out real quick wouldn’t you. That’s a big difference from saying go to each person and measure them to see who’s the shortest.

That short person is the pivot person.

On one chart (bottom of post) I have identified each high and low for you with green arrows just so you can see how quick and painless it is for you to do.

On the other (top of post) chart I have only identified the bottoms with green arrows. THIS IS THE IMPORTANT CHART FOR NOW. Reason being is that the market has been in an up-trend since the beginning date. And as I’ve said many times, the trend is your friend so you want to trade in the direction of the trend. This holds true no matter what style or system you are using. You need to hold on to this chart and the one I’m sending you tomorrow because they “WILL BE THE CHART OF REFERENCE FOR THE NEXT WEEK.”

See, I need to clarify some things by getting back to the bare basics of LCM. When you paid for this system I promised you that it would be successful on 8 out of every 10 trades. I also advertise that this is a system to be traded off the daily charts and what that means is this.

TRADE THE PIVOTS
TRADE IN THE DIRECTION OF THE TREND
TAKE PROFIT AT 3 BAR EQUILIBRIUM
PLACE YOUR STOP BEYOND THE PIVOT

That’s it. Everything else I talk about is just additional techniques to help you better understand trading concepts to fit the system in with your various individual trading styles. Most prominently intraday trading… And then I’m trying to show you how to be conservative with the system as opposed to aggressive just so you know the difference and you have a choice. Everything else is just gravy.
So now it’s back to basics. I have to take this approach because I’m finding that some of you who started off with massive success like 9-10 winning trades in a row but lately you have been losing money. This tells me that somewhere along the line the additional information is confusing you instead of helping you.

So, I have to ask myself, if there have been 9 bullish pivots on the daily charts over the last 3 months without a single loser, why are some of my people losing money. The conclusion is that it’s my fault due to information overload.

Also, I too often make assumptions in my commentary. I mean, if I’m talking about a trade and I say it’s a high risk trade, and that I wouldn’t trade it unless I’m willing to take a gamble on a particular trade because it’s against the trend, or for whatever reason I should have been spelling it out like this. “THIS TRADE IS NOT ACCORDING TO THE SPECIFICATIONS OF L.C.M BUT, IF YOU FEEL THE NEED TO SCRATCH THE TRADE ITCH AND TAKE ADDITIONAL RISK, THIS IS HOW YOU SHOULD DO IT.”

I do know one thing for sure. If you can’t look back on the charts and find the trade signals, then you certainly won’t be able to identify trade opportunities going forward.

So, here’s the game plan for this week. We’re going to identify each one of those 9 bull pivots and examine why each one was profitable. We’re going to define with each one exactly where you should have entered, where you should have placed your stop, where you should have taken your profit and why. Then I will ask you to go back-test 3 months prior to January 12-2007 and identify the pivots. Then I will show you how to get practice identifying pivots going forward without practice software and all that stuff.

Then, next week we will get into the specifics of how you could have used intraday techniques to take advantage of these trades while keeping your stops within an intraday range.

Now is the time to get back to, ‘THE LAWS OF CHARTS AND MEN.’

Jerry

All bottoms and tops