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

Email me! click here

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

Eurodollar update 4-20-2007 4hr

Hopefully everyone got their book updates 1 and 2. Remember that there will be some mistakes as what I'm giving you now is not the polished version that You will receive when the whole thing is done. It's just that I don't want you to keep having to wait because I know you've been waiting a while for it. Fortunately I have a couple of sharp students (Thanks Sue, thanks Mimo) who help me out by pointing out certain errors I make in these manuscript versions.

That brings be to a correction I need to make on the 2ND update I mailed out last night.

Page 2 paragraph 5 reads; "With all this volume this bar could not close below the low of the prior bar, and could not even close below the open of the swing bar.

"However it should read; "With all this volume this bar could not close below the low of the prior bar, and could not even close below the close of the swing bar.

"In order to further illustrate what I mean in that portion concerning volume I hope you will allow me a little analogy.Think of it this way.

If you are standing on some stairs and I push you and you stumble down 1 stair step and stop. Then I push you again twice as hard. On the second push you don't stumble down any more steps, but remain on the 1st step you went down to on the first push. Since I pushed you harder on the second push you should have stumbled down at least another step. The fact that you didn't means that you are showing strength of balance and your momentum has changed from down to up.This is what they mean when they say one needs to be counter intuitive when trading markets.

You can pull up the 4hr Eurodollar chart for today and look at the white candles. Even though their were 3 bars with higher volume the market really didn't do much. Professional traders who move the market can see that the market is showing strength so they did not jump in. By the force of the volume the market should have fallen much harder but did not. Since it did not do what it was supposed to do, fall, that is a show of strength.

On the chart I have provided see how bars 1,2,and 3 all close within the range of the green (up bar). The gold lines. With all that volume yet, only a 26 pip range? 3 bars staying within the range of one single up bar that doesn't even classify as a range bar... Bar 2 had higher volume than bar 1, yet, did not manage to close below the low of bar 1 (harder push no additional step).

Bar 4 finally managed a close below below the green bar and below the low of it's prior bar (3). So, finally we have a bearish breakout from the range of the green bar, but only by a paltry 2 pips. Non of this inspired confidence for a short entry today.

But the market did what the market does. After the breakout the next bar (5) pulled back up to test the range of the breakout before closing down. But, an inside bar. It did not close below the low of bar (4). It also closed on lower volume.

Now bar 5 did what it was supposed to do. It had lower volume so it was not supposed to close lower. So, here is what I expect from here.

I expect the next bar to test the range of the first two red lines (three bar equilibrium) which are the open and low of the bar that represents equilibrium. You can never know for sure if price will just test the open or go through the open and test the low. That is the range of decision for a trader.

If I'm already in a short trade here and looking to take profits I get out when the open is touched of the bar serving as 3 bar equilibrium. If I'm looking to fade the move and go long I will look to enter at the low of the bar serving as 3 bar equilibrium.

( fading a move is market jargon for expecting price to bounce off a certain level. When you do this you are not waiting for a pivot so it's a lot more risky. If the market is falling you place a limit order to buy when price touches a certain level. If the market is rising you place a limit order to sell when price hits a certain level)

It's just my opinion but I find success most often with this technique when I fade off of 3 bar equilibrium for a quick in and out trade.

If price should close below the low I'm looking for it to continue to A (The next 2 bars lower) third red line. If it closes below A I'm looking for it to fall to B (2 more bars lower) fourt red line. That's how you walk and that's how a market walks. left, right. One, two, one, two...left, right... The 2 step waltz.

I don't know if I've mentioned this before but before any single bar can be considers strong or weak it has to remove itself from the confines of the bar that preceded it.

So, while we're talking about three bar equilibrium, on the way to oz (2 bar above or below the swing bar) if price should bounce off the first bar then it's a good sign that the pivot will fail. This is just one more bullet in your pistol to confirm what other things are telling you.

If you're wondering why I'm milking pivots and 3 bar balance for all it's worth all you need to do is look back on your charts.
And, the longer time frame you look at the better the results. The moves are more pure because you get fewer whipsaws and the big volume is at support/resistance on the daily up.

I want you to do something. Look for pivots and 3 bar on the weekly and monthly, and daily. I'm telling you right now that if you were trading just based on pivot, 3 bar, and volume, you would have made big money. You will notice how pure the moves are on the weekly and monthly.

You only think you can't afford to trade off these charts. But what if you based your intraday entry off a pullback to a monthly pivot point. Your stop won't have to be the low of the monthly swing bar. You stop can still be below the low or the 1 or 4hr pivot. but just below that intraday pivot is the monthly pivot or the weekly pivot. That big pivot is playing big brother protector to your little pivot. Do your homework on this I guarantee you will be impressed.

This is the real deal. It's not that you can't afford to trade off the longer term support/resistance, it's that you don't have the patience to do so. From here on out when I make a trade call for you intraday it will be on an intraday bounce off a daily or longer support/resistance.

Oh, I better stop now before I've written another book.

Cheers, Jerry

Email me! click here

CONTINUATION OF BOOK UPDATE

Just to let you know that I've mailed out the continuation to the book update on pivots (part 2). If you didn't get it in your mailbox let me know.

Jerry
Email me! click here

EURODOLLAR FRI 4-20 TRADING LESSON

Let's recap what we talked about today

Okay, bar 3 is not a valid pivot bar because a valid pivot bar, like any other breakout of support/resistance should occur on higher volume. This was not a pivot bar to trade from. What I failed to make clear was that I only mentioned it to show that it was not a valid pivot due to volume. So, at this point there had not been not bullish pivot I really wanted to point out that it was not a valid pivot. I've been gone for a while, maybe I have to get my mental coordination back.

Look to bar 6. This is the actual valid bull pivot bar. This is the first bar that closed higher than the high of bar 1 on higher volume. This occurred eight bars after bar 1. This is a complex pivot. The temptation is to look at bar 5 (seven bars after bar 1) as the pivot measuring (swing) bar but it is not. Up to this point (bar 5) There has not been a valid pivot bar since bar 1. Bar 1 is still the pivot measuring (swing) bar until another bar closes below it.

Bar 5 closed inside the range of bar 1 not lower than bar 1 so it could not be the swing (pivot measuring) bar. Now you know why it's called a complex pivot. Note again, bar 1 is the swing (potential measuring) bar until a close below it. The eight bar after bar 1 (bar 6) is the bullish trade signal bar, the valid pivot bar on higher volume. The time to enter would be the close of bar 6 or a pullback to the high of bar 1. The stop would be below the low of bar 1, and the first target would still be bar 2 (three bar equilibrium).

Then also consider that bar 1 is a range bar. If we add our range bar guidelines to the picture it becomes even more clear. This is what I mean by not trading one thing by itself (in a vacuum). Just by considering what you have learned about range bars would clear up some questions about this pattern since we already know that range bars are support/resistance in their own right. So, even if bar 1 was not a swing bar it would still be the barometer for a breakout. Then, when we add what we already know about volume, that any breakout of support/resistance needs to be supported by higher volume, even if I make an error you will see that it I am in error without me saying anything.

Jerry

Email me! click here

CORRECTION ON LAST CHART

This post is to notify you of a correction to the last chart I posted. Click on chart to see how it should have appeared. On the prior chart bar 1 is noted as the pivot measuring bar but it is underneath the wrong bar. It should be underneath the long white candle instead of the green candle that it is sitting under. I apologize for the confusion. I should have been more careful.

Many times when I am doing real time updates I am rushing to get it out to illustrate a particular point before the market moves and does something else. I want you to have it before a move occurs so that you can get an idea of anticipating certain happenings before they happen.

I also want you to keep in mind that real time commentary can not be as orderly as the lessons in the book, or when I'm simply posting a lesson. During real time I am commenting on things as they happen and they don't happen in a certain order. Thus, I am jumping around without
regard for a particular order of lessons.

Then too I'm trying to give you an outlook for both daily and intraday simultaneously. So, at times it may seem inconsistent because a person whom is trading off the daily will have a different outlook than a person trading intraday. But I need your feedback to tell me what is helpful or not or what seems confusing or inconsistent. In this way I can conform the commentary to the needs of the less experienced as well as the more experienced. If I don't hear from you I have to assume that you are getting out of it what you need to get out of it.

Today a got a response from one of my most dedicated students letting me know that I seem to be somewhat inconsistant and the comments were extremely illuminating for me. I need you to give me your feedback also so that I may make necessary adjustments as needed.

Jerry

4TH POST 4-19-2007

Here is an important point I need to mention about 3 bar equilibrium. Just as you should not count inside bars there is a flip side to that. For everything there is a balance and the balance to not counting inside bars is this. A range bar counts as 2 bars. At this point I hope I don't have to go into what a range bar is (see LCM).

Also I want you to remember that no technique is to be traded alone. Care should be taken to look at any indication within in the totality of market structure. There are six keys to knowing where a market is as far as structure is concerned.

1. Most recent top and bottom
2.Most recent pivot
3. Three bar equilibrium
4. Range bars
5. Fibonacci
6. Volume

1. Most recent top and bottom tells you where the market is in relation to trend.

2.Most recent pivot tells you the likely direction and strength of the current move within the most recent top and bottom.

3. Three bar equilibrium tells you if the most recent pivot will test the most recent top or bottom and the first level you should look to take profits.

4. Range bars present a level of support or resistance that a market must get through on the way to the next top or bottom. It is one bar support/resistance.

5. Fibonacci tells you if a move is a temporary bounce or a real reversal as well as providing logical entry/exit points.

6. Volume tells you if a move contains enough energy to be sustained.

This is something that many of you intraday traders don't want to consider even though I repeat this over and over. An intraday trade must be considered in the context of what's going on with the daily, weekly, and monthly charts, Just as daily charts must be consider the context of the weekly and monthly charts. There is a hierarchy of power and you must always look up to the next level of power.

Monthly trumps weekly. Weekly trumps daily. Daily trumps 4 hr. 4hr trumps 1 hr. 1 hr trumps 30 min, ans so on. Oh yeah, there are also quarterly and annual charts. Quarterly trumps monthly. Annual trumps quarterly.

When something does not work like you think it should, 9 times out of 10 it did work the next leve up and you bumped heads with it. You did not pay attention to the hierarchy. The larger wave trumps the smaller wave. Nothing else even makes sense.

Well, I think I've given you enough fat to chew on for today. I've got to get busy on the new website which is under construction.

Take care, Jerry.
Email me! click here