Вы находитесь на странице: 1из 41

-So take gold for example, if I'm trading gold, I'm also watching the euro, oil,

spoos and silver. I'm also watching the ACD on those products and what they are
doing. Are the spoos strong? Are commodities strong, are they confirming A ups?
Is silver stronger then gold? If so why? What are the macro signals, is Gold tr
ending up, has it been sluggish? How is it responding to news?
-All these things are very important. As far as the ACD details, ACD is about th
ree things, time, price and volatility. If Gold is making an A up, it doesn't ne
ed to stay above the A up for half the OR time, I would like to see it there at
the end of the time period. And again, even if it confirms I may not take the lo
ng. Because it really depends on how price is acting. This is why you need to be
a good trader. You can't just buy it there. You have to look at all the other f
actors I mentioned above.

-To keep this acd discussion going, you may want to look into this setup...the p
ast month, with the markets just inching higher each day (and not really any ran
ge expansion). _Breakout strategies, acd- a up type setups - aren't really worki
ng. _I've been doing this and it's been quite effective to buying dips and addin
g to them for a 2-3 day swing trade. _Find a stock...note the opening for the ye
ar/month, week, day and fishers pivot point formula. _Find a stock that's sold o
ff and it's trading near/above the year (and month) opening price...the next tra
ding day, this level should serve as a long term support to put this on....let t
he stock open, note the opening print and the days PP (and pivot high-low). _You
want the stock to open down from the OR, but not trade below the year/month ope
ning level (or if it does, trade below and have a failed a down type action. _If
that happens note the current days low and place buy limit orders above the mkt
right above the days opening range and pivot point (which should be just above
the day OR value)...if you get hit place a stop below the days low or a mental s
top if it makes an a down. _If it makes an a up, start adding to the long and mo
ving stop below the days opening price. _You would be surprised how effect this
trade works in this type of market especially with a stock that has earnings, tr
ades down, but rebounds mid day. _It works even better if you can find a play wi
th a nice tight pivot, cause you can expect increased volatility for the day and
it will turn into a trend day cause all the late shorts are getting caught sell
ing short into the low. _
I'm doing something very similar. I use daily, weekly, monthly and quarterly lev
els and they all interact with each other. Once you understand the dynamics of v
olatility in different time frames, your mind starts opening up to all the diffe
rent possibilities.

-I can't believe there are like 4 people on ET that use ACD. Maybe that is why i
t's so effective. Everyone else is too busy trying to pick a top in silver and t
he S&P instead of actually learning how to trade.
Anyway, back to your question. No, I don't use the rolling pivots, or really any
of the "macro" stuff in Fisher's book. I created my own version of what I call
the Macro ACD. And yes, same principles, except on weekly, monthly, quarterly an
d yearly time frames. I find they work much better then just using longer term p
ivots.
I honestly cannot stress enough what a great book "The Logical Trader" is for an
y of you that have not read it. Just as a trading book, as a way of treating the
markets as a business and not a gamble. I think a lot of guys on here lose sigh
t of the fact that this is a real business just like running a restaurant. Too m
any guys focusing on picking tops and bottoms and taking shots at the market. Tr
ading is all about understanding probability and odds and payoffs. It's about fo
cusing your time efficiently. Read the book again, only this time put a focus no
t so much on how does he determine the "A" values but rather how he looks at tra
ding as running a casino.
I've read the book several times with each time focusing on a different aspect o
f this business while I read it. Too many guys get caught up in formulas and var
iables and values of this and that when at the end of the day it's about the nua
nce and subtly of price action that is so important.

-I don't know about pain next week, but the weekly ACD signals will be your tell
. Don't try to go into the week with a pre-set idea of what you "think" will hap
pen or worse, what you "want" to happen.
Here is another way for you to use ACD. Since this is a price action based syste
m, paying attention every day to the A confirmations is huge. This is where Fish
er created the 30 day number line concept.
So what I've noticed this week is the market, despite all the volatility we have
had this week, has not been able to make A downs. This is very important. Weak
markets should be able to confirm intra-day A downs just as strong markets shoul
d be able to confirm A ups. So even though the price action this week was crazy
with huge price drops, we never actually traded through the A levels. This tells
me the market is beginning to stabilize. Now all that could change next week, a
nd again, the tell is going to be the A levels. Both the weekly and the intra-da
y levels.
-The answer is, it depends. For example in the grain space, you can look at what
soybeans, wheat and Corn are doing and get an idea of which product is really b
reaking out. Same with fixed income and currencies. With coffee, sugar, cotton a
nd coco, I just look at them individually. I'm sure there are plenty of fundamen
tal guys out there that look at all sorts of stuff, but I try to keep it simple.
The real important thing for me is finding trades early before everyone else doe
s. The whole world is watching the breakouts in Gold for example. Very messy tra
de now.
Last year ACD spotted a huge breakout in Cotton at 95 when 95 was a 20 year high

. My CTA buddy explained to me that from a fundamental perspective cotton really


can't go much higher. He later went on about 115 being the all time notional hi
gh during the Civil War. I told him it was a confirmed monthly A up and it was t
he first real breakout in quite some time and nobody in the media was talking ab
out cotton yet. Well, we went from 95 to about 219 shattering every record on th
e book, doubling the levels from the Civil War. By the time cotton got to 150 CN
BC was talking about cotton every day and it started to get messy. Limit moves u
p and down every day.
I cannot emphasize enough the importance in product selection, getting in produc
ts that are not over crowded and spotting tells no one else has picked up on yet
. Just remember, when you get long or short with the crowd, your stops are next
to their stops as well.

-Keep things simple. Ask yourself some basic questions:


1) Does the product look strong or weak?
2) Is there anything unusual about the behavior of the product right now?
3) Is this product being heavily watched at the moment?
I actually don't like when a product becomes more volatile than normal because m
ore often then not, that means the move is just about over. Volatility is nature
's way of bring back normalcy to a product. You want to get in the product befor
e it becomes overly volatile.
Also, just a general recommendation. Please don't add too many other indicators
to whatever you are doing. I've never met a profitable trader that uses too many
indicators and needs so many confirming indicators. What makes price action is
effective is that it's simple. Indicators kill price action because it destroys
the purity of it.
-Volatility usually means the trade is becoming crowded, over leveraged and the
price action is driven by stops. It's very hard to make money in those markets.
Usually "daytraders" want volatility because they have a fixed amount of time to
exit a position. A swing trader does not. A swing trader wants trend, not volat
ility. Of course all traders want movement, but not erratic movement.
It's very hard to enter a swing trade with a stop if there are stops all around
you and people jumping in and out with massive leverage. I much rather have a qu
iet market that is being slowly accumulated that is trending.
One of the mistakes a lot of newbies make is looking for volatility. It causes t
hem to get into stocks or commodities "after" they have made big moves and now t
he product is whipping back and forth stopping everyone out. It causes them to o
ver trade and also to build bad habits i.e taking profits too quickly.
Once you see an explosive move in volatility, usually it's best to look for trad
es elsewhere. Not wait for them to calm down and get in them. The volatility usu
ally represents the culmination of a move.
I remember back when I daytraded in NY for Worldco as a newbie, I would run scan
s everyday for volatile stocks, because that is where I thought the "action" was
. Then one day a guy came up to me and said why are you watching those stocks, t
he move already happened. Watch these. I said, those stocks look dead, why would
I trade them. And his response was, because they are going to move. I asked him
, how did he know that? He said, it takes practice, but that is the skill you ne

ed to develop. It's not easy, but who said trading was.


-Try your hardest to refrain from passing judgements on the market. It's always
good to erase certain words from your vocabulary that are destructive to traders
. Such as bull or bear markets, over bought and over sold, etc. Also avoid thing
s like, there is no volume on this rally, or this is just a short covering rally
.
Just focus on price! We currently have CONFIRMED weekly A ups across the board i
n all the indices. Do not short this market! Weekly A ups are solid signals. The
y are momentum trades. Also crude oil has confirmed on the weekly as well as cop
per. This rally is for real. As long we hold above 1174 on the week, buy the dip
s in the ES.

-I don't use QTR for entries. They do have a very specific purpose though.
-All of our economic growth is coming from inflation. The more inflation we have
, the lower our dollar. Japan has had zero economic growth for decades and their
currency reflects that. The more money we print, the lower our currency goes. S
ince stocks have a fixed amount of shares and the supply of dollars that's chasi
ng stocks is increasing, it forces stocks higher. Keep in mind stocks are a spre
ad trade like everything else. It's all relative value. AAPL is priced in dollar
s. If we price stocks in Gold, equities are sitting near the 2009 lows.
Let me put it another way, if you continue to lower the denominator in the equat
ion, the relative value of the numerator goes higher. So when you see a SPY quot
e, what you are really seeing is a currency trade SPY/USD.
-And besides, I don't initiate new positions at the end of the month or week. Yo
u want to see breakouts "early" in the cycle, not late in the cycle.
-Don't need stats, just look at the A levels. On Thursday NG closed right above
the weekly A up triggering a buy. However it right was below the monthly A up. I
t then broke above the monthly Friday morning. It's important to note NG failed
at the monthly A up on the 17th. This is important because when price fails at a
n A level then comes back through it, you usually get nice follow through. This
is true on all time frames.
So you take all that info and combine it with the pivots and you have a nice tra
de.
Other trades this month were the two failed monthly A downs at 3.47 on the 7th a
nd the 12th of the month.
If you didn't like those you had a long entry on the failed weekly A down at 3.5
7 on Wednesday.
There were many solid trades in NG this month. The idea is to trade what your st
yle is and make sure you absolutely know where your out is. This is something I
hear very few people talking about on this thread. Stops! It's easy to look at a
ll the big moves but the idea is to catch the big moves with tight stops or at l
east reasonable stops.

-For stocks

Shan, you should also probably look at using relative volume as a filter intra-d
ay. There are many indicators out there that will give you the % of today's volu
me relative to say a 30 day average. When you put this indicator in a column it
allows one to quickly sort all the more active stocks to the top. If you combine
that with the tight opening ranges and tight pivots, you should have yourself e
verything you need.
-I think the term "trend following" is more about a mentality then actually desc
ribing price action. A trend follower by definition acknowledges that they have
no ability to predict the future and simply follow price. There is very little a
nalytical work done.
I think ACD is a combination of trend following and price action so it's more of
a hybrid.
Most bad habits from new traders come from them trying to tell price what to do
instead of the reverse. A good trader listens to the market, not to their mind.
You will see this all over ET when guys talk their book. Explaining to you why t
he market must go lower or higher. They will talk your ear off if you let them.
And when price goes the other direction they tell the market it's wrong.
Another major problem traders have is they have two separate game plans. One is
the game plan before you enter the trade. The other is the game plan once you ar
e in the trade. They should be the SAME game plan. The problem is, very few peop
le can stick to their discipline once the trade is live. This is a serious serio
us problem.
-I'm attaching my monthly FX montage to take a look at all these yen pairs that
bounced off their monthly A downs.
You'll notice EUR/JPY, AUD/JPY, CHF/JPY and CAD/JPY all bounced. As well as EUR/
USD, EUR/GBP and AUD/USD.
Why am I talking about this. Because FX flows drive risk. Even if you only trade
stocks or oil, you should be watching FX flows. They are outstanding tells. The
fact that all the risk currencies held their monthly A levels at least for now,
shows we might be able to push risk assets higher from here. But, if they all b
reak down, then you want to abandon very quickly any buy the dip mentality.
-Let me add one more thing regarding mean reversion and wide ATR's. I'm going to
use my favorite word again, nuance. In 2008, we had very wide OR almost every s
ingle day. And despite the wide OR, the market had a lot of follow through. Fadi
ng the A levels didn't work. However, when we are not in a "crisis" market envir
onment with normal ranges, then fading A levels with wide opening ranges works v
ery well. So there is nuance to the price action one has to understand. Not all
wide opening ranges are created equal. Right now fading works well because the t
ape is dead. There is no volume and all the action is in the over night markets
with news out of Europe. So every different market environment is going to have
a different tape.
-This is basically what we are dealing with today folks. These are the 9 SPY sel
ect sector ETF's. It's a good way to get a quick look at the price action and br
eak everything down and see what is doing what.

-I want to get these thoughts down on paper before I forget to mention. One of t
he biggest aha moments I had in my trading life was when I started reading about
these large macro hedge fund traders when they would put on a trade and swap th
e denominating currency to spike the return. In other words, say you wanted to g
et long AAPL. But instead of buying AAPL in dollars you could buy AAPL in Yen an
d add 10% to your annual return. Something as simple as swapping the denominatin
g currency can dramatically change the trade. That was such a big revelation to
me as it got me to think about trades differently.
You'll often hear someone like Dennis Gartman say he is long Gold in Euros, not
dollars. Or buying a bond in another country and not only earning the interest a
nd principal return on that bond but also the currency appreciation. The great B
razilian Bond trades of the 1980's come to mind where traders made 50% plus retu
rns being long government bonds on foreign countries from the currency appreciat
ion.
-Mean reversion is another term for short volatility. I don't like playing mean
reversion. You are basically selling premium. Make nickels and lose dollars. Mea
n reversion traders are generally volatility neutral in that they are trying to
capture the "excess" volatility in a pair.
I want to be long volatility. I want to make dollars and lose nickels. There is
another difference though. Usually mean reversion traders are trading highly cor
related relationships. Where as mine are "loosely" correlated. For example, trad
ing Coke and Pepsi. Let's say they have a correlation close to 1 and ideally you
would trade that pair with the same volatility parameters. I might trade long A
APL against short Copper. Both being fairly correlated to SPY as they are both r
isk assets. But by no means should AAPL and Copper move lock step with each othe
r.
An easy way to know if you are long or short volatility is just see what your p&
l would do if a large outsized move happened to your pair. Usually a mean revers
ion trader will get killed in that scenario. If I'm long AAPL and short Copper a
nd risk assets sell off hard, Copper could fall 30% while AAPL might sell off 10
%. I'm synthetically long volatility in that spread. A stat correlation trader m
ight be short Copper and long FCX which are very correlated. If Copper starts to
sell off hard, he might be looking to buy Copper and sell more FCX "hoping" the
pairs reverts back to the mean.
Just different ways at looking at the market. Neither one is right or wrong. Som
e people like to sell premium.
-for anyone...if you had a monthly a up would ignore all of the daily a dn?
I personally want to see price action confirm on all time frames. The best month
ly A ups don't make weekly A downs. The best weekly A ups don't make intra-day A
downs. Usually strong markets have failed A downs. So yes, I would be concerned
if I was long anything that was making an A down.
-It took me a long time but I finally learned never ever take a trade opposite o
f a confirmed monthly signal. Sure one or two here or there may retrace but most
of them go against you very fast.
-No, I'm not referring to Al Brooks. Price action is about taking the price of a
market and observing it's behavior in relation to something else. Could be a ne
ws item, like jobless claims, or could be news in a stock or a sector or macro n
ews in Europe. Price action is about all the players at the card table throwing
their cards down and showing you what they are holding.
Here is why it's not in the charts. Take ES for example. Say 1200 is a big suppo
rt level. And ES opens at 1207. Some really really bad news comes out and ES tak

es out the support at 1200 and trades down to 1195, most chart guys get bearish
because we broke a "key" support level. However, based on the news, you might ha
ve thought ES would be selling off much more but it's not. In fact, some sectors
of the market are not even down and before you know it, some key stocks are now
in the green. The chart guy is so focused on that key 1200 level that he is not
watching everything around him. The adept price action trader is actually buyin
g ES below that key break because he knows the market is going much higher. That
is how you read price action.

-Yeah, that's not an A down. An A down should not come back above the A level an
d the market price action should be "confirming" the weakness. In other words, w
hat are bonds doing, oil, AAPL, XLF, VIX, etc. You can just get short because we
had two or 3 candles below an A level.
I've tried to explain this concept for months on this board and I get a lot of f
lack for it. Let me try to explain it this way. You and I are have different A l
evels let's say. So on your chart, we spent 3 candles below the A down and on mi
ne we have not even broken yet. So who is right? Neither of us. The answer is no
t your A level or mine, but rather price action. You and I should both be in agr
eement that the market is acting weak. That is what is going to generate the sho
rt trade. This is how all of us on this thread can have 15 different A levels ye
t all take the same trade because all of us can agree that the market is acting
weak. I hope that explains it better.
-You just want to avoid the noise. Trading everything every one else is trading
is going to frustrate you. Perfect example in fact was the Euro. The whole world
has been short that pair. And during the Euro debt crisis it rallied! It refuse
d to go down because everyone and their brother was short.
I have spent a lot of time discussing this on this
one is trading the same product, the moves are not
only for the fact that there are stops everywhere
to trade things that don't move. I'm saying trade
on't usually move much! I hope this helps.

thread further back. If every


very clean. They are messy if
at every tick. I'm not saying
things that are moving that d

-There are two types of edges. I have discussed this at length on this thread bu
t I'll go over it one more time. There are structural edges (market maker bid/of
f spreads, technology, cost of doing business and information flow). These are i
mplicit edges that are not really debatable. The other edges fall into what is k
nown as "theoretical edges". They are not implicit. A lot of guys like to think
technical analysis falls into that category. I personally don't, but what the he
ll do I know. LOL.
To me, when I hear the word edge, it implies to me some "advantage" one person h
as over another. The first category I listed is pretty obvious. If someone can t
rade on the bid and offer and you can't, that is an advantage. I like to talk my
book and say that understanding price action is an edge. Simply because most pe
ople can't do it. When I was a tape reader for listed stocks, that was an edge.
Again, most guys could never learn to read the tape. So if you had that skill an
d they didn't, it was an edge. One could make the argument that being able to do
quick math in your head can be an edge especially if one has to trade complicat
ed option positions or spread positions.

Edges should be able to prove themselves quantitatively over time. If I claim my


quick math skills is an edge and I trade on the floor but over time I'm not mak
ing money, then I guess it isn't really an edge. If I use information flow to ma
ke money and it doesn't prove to be profitable over time, it probably is not an
edge. An edge should have the probabilities working for it over large data sampl
es.
-I think you should stop trading ES. LOL. As I've said before on this thread, yo
u can't trade crude oil the way you trade ES. And you can trade FX the way you t
rade Gold, etc. Every product is different. The ACD aspect of it is the same, th
e price action aspect of it is different.
If you are an ACD purist like I am, I can pretty much trade any correlated risk
asset. The non correlated assets are much harder for obvious reasons. I try to p
ost trades on this thread from every asset class just to show people that it doe
sn't matter what product you are trading, ACD works just as well. I will try to
continue to do that this year.
-Just to follow up on this comment earlier to RCG. For those of you that trade F
X over night, what I was saying to RCG earlier is that the US levels often act a
s great profit targets for trades taken during the London session. Case in point
, the Euro made an A down over night at 1.2896. The Intra-day A down in the US s
ession was 1.2783. The actual low of the day was 1.2783!!!!! To the tick.
There are a lot of great ways to trade FX in the multiple time zones using the t
hree major sessions. You can also enter a failed A trade over night and cover at
the opposite failed A level during the US session.
-Gold made a confirmed monthly A up. Shan asked me about it. I told him I was su
spect of the breakout because the entire commodity complex was getting sold hard
. All the grains rolled over hard. Coffee, coco, sugar, all them were getting hi
t. That is not the best environment to be buying a breakout in Gold. So I told S
han I didn't like the trade. Sure enough the next morning Gold came off 30 handl
es. Now it still might end up breaking out. All the other commodities are sittin
g at their monthly A downs. If those levels hold and they lift then Gold might h
ave enough energy to break out. I would be shocked to see Gold actually trade hi
gher with grains going in free fall. There is an example where watching the pric
e action of other products kept me out of a trade that technically on paper conf
irmed a buy signal.

-I posted this on another thread and thought it would be useful here as well. It
pertains to the idea of re-using old A levels.
OK, as far as levels getting revisited, here is my take on that. ACD levels are
hidden from the rest of the community until they print. I say hidden because the
y are not on anyone else's charts. Once an A level becomes realized, meaning the
market trades there and fails, that level is no longer hidden. It becomes visib
le to the whole world, the cloak comes off if you will. Once that level is visib
le to everyone, others can now trade off of it. It becomes a swing high or low s
o to speak. In my humble opinion, that level loses a lot of it's luster once it
becomes shown to all. What I mean by this is, it will start attracting stops and
get messy. I don't like that. So as Shan said, i don't like to re-use old level
s. Especially if they worked!!!! I would be more inclined to re-use the level if
they didn't work because that would mean others are not aware of it yet! Hope t
hat makes sense.
The aspect of time is also very important in ACD. The longer you go in a cycle,
the usefulness of any A level wears off. I tend to ignore intra-day A levels lat

e in the day, weekly levels late in the week and monthly levels late in the mont
h.
The whole idea behind ACD is seeing things other people are not seeing. It's lik
e being able to wear night goggles at night. Everyone else sees darkness, you se
e light. Being able to recognize things that are NOT obvious is what trading is
all about. Things that are not obvious are cheap, things that are obvious are ex
pensive. That should make intuitive sense to you. Think of placing a bet. Any be
t that had close to a 100% chance of winning is only going to pay out a very lit
tle amount. A long shot bet that no one thinks will win will pay out huge. Tradi
ng works the same way.
Certainly there is no right or wrong way to use ACD. But I've put about 10k hour
s into this over the last 5 years and these are the things I have noticed. They
are just observations. I would not re-use old levels. In fact, if there is an A
level around another key level, I disregard it. That also sounds counter-intuiti
ve. For example, say the weekly A down in CL is also the 100 day moving avg. Tha
t level is now useless to me. Why? Because everyone is already watching that lev
el. My level is now visible to everyone and will create noise as a result. Noise
is hard to trade and even harder to read the price action.
-What do you think about the constant failure at the monthly level in the S&P? D
o you see it as more of a sideways kinda thing? I would think that if we were re
ally going to fall we would have by now. Otherwise the short trade here could be
easily seen by the bus folks...
I think there is a lot of open interest at 1350 and it's expiration week. That i
s going to hold the breakout in check. It will also keep us from rolling over ha
rd. I can tell you this right now, my number lines have been getting crushed the
last few days. They were very very strong up until this week. My 5 day rolling
number lines are getting very very negative. There is no juice in my opinion to
get a clean breakout. And now financials are rolling over. All this market has i
s AAPL. I guess if AAPL can go to $700 we can break out sure.
I lean really hard on these number lines. Crude oil failed, the Euro failed, fin
ancials rolling over and the 5 day number line getting weak. Having said that, w
ith this being expiration week that 1350 in ES is a huge magnet.
-I've been neglecting FX for awhile and since there have been some major develop
ments in the FX market, I wanted to post my Yen charts. The Yen is currently in
the midst of a major breakdown against every pair. We had solid monthly confirma
tions over a week in all of them. Check it out. These are some pretty big moves
in the Yen world.
Let me further add here, I've always talked about the significance of clean move
s and the concept of rarity. What this means is, when you see a clean breakout i
n an instrument that has not broken out for several months, the likelihood of th
e move being sustainable is rather large. In this case, the Yen has not broken d
own in most of these pairs in over a year! This is VERY significant. I cannot st
ress this enough. The upside potential in these trades is huge at this time. Mig
ht possibly be the biggest trade of the year. Book mark this post.
-Let me add a thought here. For those wondering why the market is not tanking wi
th such negative number lines, it helps to add some perspective. AAPL makes up 4
% of the S&P 500 and 16% of the Nasdaq 100. Energy stocks make up about 20% of t
he S&P 500. Between AAPL and Energy, that's 25% of the index that is still holdi
ng a strong bid because of oil. That's why the market is not in free fall. To ga
in a better understanding of this, the Russell 2k which has no such weighting is
sues has a -6 on the rolling 5 day number line and is no where near the April hi
ghs from 2011 showing the real weakness in the market. Just some food for though

t.
To further clarify, over the last 5 sessions, the Russell 2k has made 4 A downs.
-Let me further break these down a little bit. The two really strong sectors in
risk assets are consumer discretionary and financials. EEM is the emerging marke
t ETF and it is showing capital flows moving out of US stocks to overseas market
s. XLV is a defensive sector, not a risk asset. Energy has turned down. And the
most glaring dislocation is the action in bonds. TBT is the inverse short for TL
T. This means bonds are getting weak along with equities which we have NOT seen
in quite a long time. So there is a lot of mixed action here. Again, nothing is
pointing towards a major move down or up. But the backdrop is changing. You don'
t go from very bullish to very bearish over night. It's a process. And we seem t
o be making the transition now.
-Shan and I have been talking about this topic every day. He was quite surprised
to hear my feelings on this issue as he said it contradicted what he has always
been told in many popular books. My views on this subject come from actual expe
rience trading at one of the most notorious daytrading firms in the country at t
he height of the daytrading bubble. I traded with Worldco in NYC from 2000 to 20
02. At our peak we had over 800 traders. We traded 5% of the total volume on the
NYSE. Absolutely mind boggling if you stop to think about it.
Psychology is very important as Shan has mentioned. It truly is the most importa
nt thing when it comes to trading not because it's an edge in and of itself. But
because it can over ride whatever edge you actually have. And if you don't have
an edge, it will take you out of the game before you actually find it. So one c
an definitely not ignore psychology.
This is a very long topic and I don't mind discussing it here since this thread
has actually gotten quiet and could use a new bid. So the topic came up about ex
ecuting your "system" and "following your rules". These are things you read abou
t over and over again in books. Don't trade with emotion, just follow your rules
. This is of course a load of shit of the highest grade of shit. There are no ru
les in life, only in books. We have a country of laws, values, rules, ordinances
, regulations, etc and at the end of the day, people are going to do what they a
re going to do. And it's usually predicated on emotions. Who they vote for, who
they marry, the movies they watch, the music they listen to and yes, how they tr
ade.
There is no way to get rid of emotion and I'm not sure why anyone would even wan
t to. Emotions are the only proof we have that we are actually alive. That we ac
tually care. Try being in an emotionless marriage and tell me how that goes. Try
working a job every day for the rest of your life where you have no emotion and
tell me how fulfilling that is.
Emotion is the one thing in our life that is actually strong enough to create "c
hange". Think about it. Good or bad, it's not logic that sways us, or facts, or
rules, but emotions. People smoke every day knowing that lung cancer will kill t
hem. That is the fact. But it's only when confronted with the emotion of it, bei
ng told by a doctor that they have it, does it really create change in behavior.
Knowing that you are going to leave loved ones behind. It's the "emotion" that
gets us.
And to bring this back to trading,
make a trader profitable. Emotion
regulating force. To a trader who
y hit a bad streak. It causes them

emotion is the only thing that can ultimately


is what drives that change. Emotion is also a
already is profitable, emotions help when the
to care, to take notice.

There are a lot of people that think losing money in and of itself does that but

that is not true. People throw money away every day. It's only when they start
"'caring" that they begin to modify their behavior.
Now I'm not saying that traders should trade on their emotions. I'm saying we ca
nnot ignore the emotional feelings we have. We need to find a way to use those e
motions for good. For example, in sports, coaches try to ride a certain athletes
momentum when they are hot. When a basketball player for example gets hot, coac
hes want to get him the ball as much as possible because his self confidence is
high. Studies have shown over and over again that self confidence is really the
magical cure for almost everything. Whether your trying to pick up a girl in a b
ar, or fight cancer. Whether you play the guitar or on the PGA tour. And when on
e is lacking self confidence, it's almost impossible to succeed at anything, eve
n when one has the actual skill. Think tiger Woods. He didn't forget how to play
golf, he lost his self confidence. And before anyone brings up injuries as a co
unter point as it pertains to sports, great athletes have overcome injuries for
100 years. One thing that injuries do to people is they take away your self conf
idence. You have to overcome that. You have to find that confidence.
Trading is all about confidence. When a trader is self confident, that's when fo
llowing the rules and executing his edge becomes important. When a trader is lac
king confidence, following rules becomes very difficult and edge, well, you have
to "believe" in your edge to actually have it. And self confidence, or lack the
re of, can destroy that belief.
Keep in mind, that most of our emotions are hidden away at the subconscious leve
l, not the conscience. So you could look at a trader and you should not necessar
ily see his emotion when trading. That is not good. You don't want to be screami
ng at your screen or the market nor do you want to be celebrating a good trade,
that all takes place at a much deeper level. This is why one can't simply "remov
e" emotions" from the equation. One can trick themselves by thinking that just b
ecause you are not screaming or cheering that you have removed emotions but I as
sure you, at the deepest level of your sub conscience, it's there and it governs
everything you do.
So to bring this back again to how we can "use" emotion to our benefit, I was ex
plaining to Shan that traders should do as much as possible to optimize their pe
rformance when they are doing well and do as little as possible when they are no
t. Losing money begets losing more money and making money feeds on itself as wel
l. Let me be very clear about this. I am not suggesting one should trade "more"
simply because they are trading well. I'm saying when they are trading well, the
y should be trading bigger and certainly should not STOP trading. The old, I'm h
aving a good day I think I'll stop. When you should STOP is when you are having
a bad day. You often hear one say, I need to get back to flat then I'll stop. Bu
t the problem is, they most likely won't because they are not in the proper mind
set.
Back at Worldco, we use to scorn guys who would quit trading after having a good
morning and we use to scorn those who would trade all day when they were in the
hole. The best way to re-set your emotions and your compass is to stop and get
out. Take the small loss vs the bigger loss that comes from trading in a hole. B
tw, this does not just apply to daytrading. It applies to swing trading and even
investing as well. When you are doing well, you are seeing the market well, you
are self confident and you are executing. That is the OPTIMAL environment you c
an have! Why would you want to stop?!?
Think of a poker player. When he has a lot of chips and the others don't, he wan
ts to squeeze them. Why? Because they are backed against the wall and they have
to make decisions they don't want to make. They have to play bad hands. The guy
with the big stack can do anything he wants. He has the edge. Well, the market h
as a stack of chips as well. When the winners are riding winners and the losers

are holding losers, the winners begin to press. They have the edge. They have th
e confidence. The losers feel the heat and continue to make poor decisions. This
is how trends form and persist. This is what drives momentum. This is what crea
tes a market. The key is not trying to figure out how to remove emotion from tra
ding, but how to USE it to your benefit.
-I should also point something else out. Commodities for the most part are known
as a sellers market vs stocks which are a buyers market. What this means is tha
t while stocks have a long term upward bias due to their cashflows, futures are
the opposite. This is very important to understand if you trade futures. Futures
cost money to hold. I'm talking about the cash market here. Since futures are u
sed to hedge the positions of the cash holders, they tend to have a downward bia
s.
There is also an economic reason for this. And that is, higher prices affects de
mand. That is not the case in stock. So when you look at a chart like soybeans,
one has to understand that soybeans is not AAPL. At some point, if prices are to
o high, it will affect demand. Also, when one crop is too strong, it forces farm
ers to farm more of that crop thereby increasing supply.
When commodities get too low, it forces producers to hoard supplies. When demand
is too strong they unload their supply in the market. So just something to keep
in mind when trading commodities.
-Not sure what happened that caused Thursday and Friday melt down. Beauty of day
s like Thursday and Friday is that BIG MONEY intentions are very clear. They can
not hide. I use 1 minute Volume bars to identify trade location. 2 charts from
Friday are attached. Both shorts were when intentions of BIG MONEY became clear.
All you had to do was look at that monthly A down. We bounced off it to the tick
on Thursday and held it for the night session before taking it out over night.
Crude has not had a clean monthly A down since last August. As I've mentioned on
here before, the more rare something is, the greater the importance. The break
of that 102.35 level was huge. Once we took it out, we went into meltdown.
One could even make the argument that once we took out the weekly A down at 103.
05 that was trouble being that we confirmed a weekly A up.
But to me the more important tell was the action on Crude to the ES. Spoos were
trading sideways when Crude took out the weekly A down. I knew that was trouble.
Again, price action.
We now have a solid confirmed monthly A down. Crude has the potential to really
crack here "if" the overall market rolls over. If the ES stabilizes here, "maybe
" the QTR A will hold at around 96.00. Last August when we took out the QTR A do
wn at 91, we traded all the way down to 75.
-the lower number would indicate more inside days in the market (failed A ups an
d A downs). Usually inside days lead to outsized moves. So if we had a long stre
tch of days where the market was coiling with no A ups or A downs, I would think
we would be more then likely to get vol expansion going forward. Same theme alo
ng the lines of the narrowing pivots and tight opening ranges.
We'll see how this plays out in real time. Again, as a stand alone indicator it
might be moderately useful, but when combined with the number line and the macro
ACD levels, it could be golden.
-Here are my three tells.
Bonds are my VIX. Throw the old VIX out the window. When bonds pop and roll over
, that is vol getting crushed. Gold is your deflation tell. If they are selling

Gold, they are betting on deflation and lower risk assets. AAPL is your spec mon
ey. AAPL is the FIRST thing everyone will buy when they want to buy risk.
So again, AAPL, Bonds, Gold, those are my tells. Throw the spoos out the window.
Absolutely useless to gauge anything from that.

-I'll try to clarify my original comment and expand on it some. I'm making the d
istinction here between strategy and execution. The two things are very very dif
ferent. One can have a great strategy but fail to execute it. One can have a ter
rible strategy but be really good at executing it. ACD is a methodology, a proce
ss, a way of looking at the market. That's wonderful but that alone is not going
to make you money. What makes you money is the ability to execute, what some ca
ll trading. Trading is the actual execution of an idea.
The problem newbies have is their execution is terrible. They have many great id
eas. In fact I'm always surprised when I meet new traders and listen to their id
eas. Some of them are really good! They just don't have the experience to execut
e them. That takes time, a lot of time.
So my comments you quoted there allude to this paradox. Having a great strategy
but no real ability to execute it. So what I'm trying to say is that one needs t
o build up a lot of screen time and just put in the hours to develop a feel and
understanding of how markets work in general. Having a good strategy can help wi
th this but it's secondary. The good news is once you have that ability to execu
te, the strategy becomes secondary. I know many guys I use to trade with in NY t
hat had real solid edges back in the day and now those edges are gone. But just
from experience alone, they are still able to make a living at trading because t
hey see the market really well and can execute it.
This is true btw with most all things in life. One can have ideas, knowledge, go
od intentions, all that stuff, but if you can't actually implement them then you
can only get so far. Sports usually provides a great analogy to this. Obviously
I can teach you how to play tennis or football. I can show you the rules of the
game. I can actually show you how to throw a tight spiral and hit a wicked kick
serve but if you can't actually perform and execute under pressure, then your s
kills will only have value on the practice court or on a Sunday afternoon in a p
ark.
A lot of guys don't understand that about trading. They spend so much time looki
ng for the grail and backtesting and zero time working on execution. I think one
can do both with the understanding that execution is the skill they have to get
down first. I've always said, no trader blows out because he/she has a bad stra
tegy or because they lack market knowledge, they blow out because they can't exe
cute. I hope this helps. And welcome to the thread!
-I'll chime in. here a bit give my opinion on things. I think when Mav mentions
"execution" he is not talking about hitting buy, sell, setting stops etc. Execut
ion is about seeing things in real time and being able to execute your ideas. Ma
nagin positions according to an objective view of price action.
ACD helps to provide some rules and framework for trading. But there are so many
nuances to trading. Markets have a context to them. Being a trader is like play
ing a sport. You are always actively engaged in the market and is upto you to le
arn about the nuances of things. How do markets usually trade in certain envirom
ents? What happens when the market is confused? How does on approach that market
. How does Vol trade coming out of a high volatility cycle. How do sectors rotat
e?

Learning all this just comes from screen time and knowing what to look for. Its
alot easier if someone is pointing these things out to you btw.
Strategy is important, but the most important thing is understanding market acti
on and executing your plan and know when to change or when to stay the course!
-That's the only way to shake out the longs and take out the trailing stops. Whe
n commodity markets start going limit on the upside, you tend to get a lot of li
mit down pullbacks into the trend. It starts getting really tough to go after th
e low hanging fruit. They never make this trading thing easy King.
-Hey guys, I thought you might like these two new ETF's I discovered. They have
been out for awhile but no one ever talks about them. They give you a way to mak
e a bet on the flattening or steepening of the yield curve. You no longer need t
o put on a futures spread or buy one ETF and sell another. Now you can simply bu
y one ETF and have it replicate a steepener trader.
If you want to bet on the yield curve flattening, you will want to buy FLAT. If
you believe the yield curve will steepen, you will buy STPP. These ETF's track t
he spread between the 2 year note and the 10 year note, a very popular hedge fun
d trade.
As a quick primer, typically the curve will steepen when inflation increases and
when there is a bid under risk assets. So think of buying STPP as another way t
o get long the market. The flattener is used when one is bearish on the market,
bullish on deflation, and a flight to quality.
-I use ACD along with price action so to me, the time confirmation has a lot to
do with price action. How is that product acting. How are the other correlated p
roducts acting. What time of the day is it. What does the macro chart look like.
There are a lot of factors involved. It's not really black and white where you
say, oh, it has spent 5 or 10 minutes above a level so I'll buy it.
-Futures tend to work best because in general, they are more volatile. But I hav
e yet to find a product where it doesn't work. I've even used ACD levels on mutu
al funds!!! FX works great on the longer macro levels.
-I don't know that there is a real structural advantage to ETF's over futures. B
ut here are some of the things to think about. One is obviously size, futures ar
e much larger positions. Harder to scale.
Futures are broad based. ETF's often give you the chance to get more detailed ex
posure. For example, you could be long ES futures or in the ETF world you could
specifically be long financials. Or even more specifically regional banks.
ETF's you don't have to roll. Of course you still pay for the roll, but it makes
charting easier to look at one product.
The advantages to futures are obviously the tax benefit if you are doing really
well. They trade 24/7 for the most part. And you get much better margin on the r
etail level as well as risk based margin on the option level.
I don't think one is easier or harder to trade if you are properly capitalized.
-On the fades, the failed monthly was solid down around 88, we got a nice 6 pt b
ounce on that. Now that was when the 30 day was sitting at the low reading but a
gain, in that situation, what I do is check the 5 day. The 5 day was flat and sh
owing that the momentum from the downside was subsiding. If the 5 day were -5 at
the monthly A down I wouldn't go near it.

On the flip side, Natty Gas has been the opposite. Breaking weekly levels almost
every week "with" a strong number line. The 5 day has been positive from +2 to
+8 over the last 3 weeks and the 30 day number line is +20!!!!
These numbers are a godsend in my opinion for getting you in or keeping you out
of trades. Sure you might miss a trade here or there but it definitely keeps the
chop to a minimum.
-how do ya handle the roll on various contracts? will ya run the nov numbers for
dec? or rerun the numbers using dec? natgas is pretty liquid till expiry so i g
uess ya could use the nov contract but for somethin like crude which expires mid
month how would ya handle the roll?
thanks B
I can't remember the last time I saw one month confirm and the following month d
id not. So basically all the months seem to trade together. If one fails, they a
ll fail. If one confirms, they all confirm. So you can use Nov and roll to Dec w
hen the volume switches over and the trade is still valid.
-About crude oil: contrary to popular belief, oil is not a US product. The volum
e in the physical market dwarfs the futures in magnitude. A large majority of oi
l is traded in London and Switzerland and now Singapore. The volume numbers you
see on NYMEX are not a good indication of when oil is active. And to take this a
step further, the front month futures on a relative basis are where the least m
ount of activity is as most big players trade the forward curve, not the near te
rm delivery.
So I only point this out to keep people from thinking that US sets the price of
oil or even that US hours are where the action is. I suspect the best hours for
trading oil are 2am to 7am central time. With 7am to 10am being the runner up.
Having said that, you need to set your OR based on when YOU trade. I know I have
said this repeatedly here but I still get the feeling there is a misunderstandi
ng of this point.
-The next question on here by many will be how to trade these pairs. I'll highli
ght some of the important levels as they come up. But in the currency world, I b
elieve in buying the pullbacks on the strong trends vs buying a breakout. These
could be failed monthly A downs or failed weekly A downs or even failed intra-da
y A downs.
Also, something very important that I've mentioned many times on here. Pay atten
tion to relative strength!!!!! These pairs do not all move lock step with each o
ther. Pay attention to the leaders and the laggards. A very easy way to do this
quantitatively is chart the cross pairs. For example, pull up a chart of the EUR
/GBP and you will see that pair also breaking out. That very clearly demonstrate
s that EUR/JPY will outperform GBP/JPY, etc.
---------------------------------------------------------------------------------------------------------------------------------------------------------------------Mav you seem to be playing the higher TFs, but have you ever tried to ACD intra
day?
Yes, I have done all sorts of work with intra-day ACD. I just don't have time to
post intra-day levels on here. But if someone wants to see specific levels on a
ny product at the end of the day I can show them and go over the thought behind
them.
Maverick74, Saturday at 5:26 PM Report#6941LikeReply
Maverick74

Active Member
OK, so I just went back and did the 30 day number lines for EUR/GBP and for GBP/
USD.
The 30 day for EUR/GBP is 24. It hit +9 back on Jan 14th just as it was breaking
above the monthly and QTR A up.
GBP/USD is -16. It hit -9 on Feb 12th just as it was breaking down at the monthl
y A down.
These number lines are telegraphing exactly what is happening in the market. The
se values are what's giving you the confidence to get involved in these trades.
Maverick74, Saturday at 6:40 PM Report#6942LikeReply
kinggyppo likes this.
wavefinder
Member
Maverick74 said: ↑
Yes, I have done all sorts of work with intra-day ACD. I just don't have time to
post intra-day levels on here. But if someone wants to see specific levels on a
ny product at the end of the day I can show them and go over the thought behind
them.
If you have time could you post the intra-day levels on crude from friday and so
me thoughts? Thanks!
wavefinder, Saturday at 7:53 PM Report#6943LikeReply
-wavefinder said: ↑
If you have time could you post the intra-day levels on crude from friday and so
me thoughts? Thanks!
My A levels for Oil on Friday were 92.33 and 93.13. We had a confirmed weekly an
d monthly A down so I would NOT be looking to buy it. My monthly is -5 and my 5
day is -2. The 30 day is -7. So I would be looking for spots to sell. However, m
y volatility indicator is telling me oil has the potential for a large move righ
t now. The best trade in my view would be to aggressively go after a break below
92.33 which we did not get. You could have taken the first fade off the failed
A up for about 30 ticks. That trade was legit. The 2nd fade I would not have tak
e. I never take any fades after the first one. So Friday there was not much goin
g there and the ACD levels kept you from chopping yourself to death.
Maverick74, Sunday at 10:40 AM Report#6944LikeReply
wavefinder, justrading and wickedwin like this.
wickedwin
New Member
New
Such an elegant analysis via these simple ACD tools.
wickedwin, Sunday at 10:57 AM Report#6944LikeReply
Maverick74
Active Member
New
koolaid said: ↑
Hey Mav, what is your current thought on the yen crosses.
OK, so let's do an update on the Yen crosses. As we get near the end of month he
re we need to lay off putting on longer term stuff. We have the weekly levels th
is week so that should be your focus on a swing basis. Let's go over the number
lines.
USD/JPY is +10 and has been consolidating. We really want this to re-set to zero
to complete the consolidation phase. We peaked at +19 a few weeks ago. The 5 da
y is +1 so that also confirms we are in consolidation phase. GBP/JPY has just hi
t 0 on the 30 day so it has completed it's consolidation phase. GBP/JPY failed r
ight at the monthly A up and came off 700 pips and went through the monthly A do

wn but it was late month so we disregard that. Notice how you don't even have to
look at a price chart when looking at number lines. If you only gave me the num
ber line values and no price chart, I could tell you EXACTLY what the chart look
s like and what it's doing. I could tell you if the product was trending, choppy
, breaking out or consolidating. I wanted to point that because it is incredibly
important to understand this concept. On the 5 day it's -2. Again, the weekly l
evels will be the focus this week. Also, btw, I'm not suggesting that a product
after it completes consolidation has to continue the upside trend, it can move i
nto a down trend phase from the consolidation phase. I'm simply saying the numbe
r lines have re-set and now both +9 and -9 are in play.
EUR/JPY peaked at 21 and is now at 12 on the 30 day. The 5 day is -1. It's sitti
ng at the monthly A down which means little in the last week of the month. It's
still well above the QTR A up.
AUD/JPY is +7 from a peak of 24. The 5 day is +3. This one is consolidating nice
ly.
Again, this is very important and something I think 95% of traders ignore. You M
UST under what cycle your product is in. I cannot type this enough. You cannot s
imply willy nilly get long and short at levels because you "think" something is
going to happen. You need to watch the number lines as they take precedent over
the A levels. And you must know if the product is in a trending phase or chop. A
nd you must know if it's in a high volatility phase or low. This is probably mor
e important in things like oil and gas where getting the cycle wrong will really
damage your p&l even if you get the direction RIGHT! Please read over that sent
ence many times.
Maverick74, Sunday at 10:57 AM Report#6944LikeReply
Maverick74 said: ↑
Yeah but that post should be read 3 times for safe measure. LOL.
Haha force-feeding us huh? Do you happen to know why the "change in trend" data
was discontinued?
wickedwin, Sunday at 12:27 PM Report#6947LikeReply
wavefinder
Member
New
Maverick74 said: ↑
My A levels for Oil on Friday.
Thanks Maverick, great info!
-Here's the problem I see here. You are like a guy trying to impress a girl. You
are trying to0 hard. You are trying to make these stocks do all sorts of things
. Without even looking at ACD you should have a feel for what AAPL and GOOG are
doing. Then the ACD should either confirm what you are seeing or cause you to pa
use. You are also using all these values at the same time and reading them one o
n top of another. I use all sorts of number lines but I use them all differently
. You are looking at the forest and trying to find the trees. I look at the tree
s and see the forest. You need to take a few steps back and keep this simple.
-NFLX is getting interesting to me, the intraday A down level was a level it bou
nced off of only to retest it later in the day, which is close to the monthly C
level. I noticed yesterday the 30 day number line got weak on it. Do you also vo
id out Cs? Meaning if Monday a stock that had a monthly A up level makes a C dow
n, are you back to neutral on the stock, still have a bullish bias or just won't
touch it until the following month?
Not sure I'm reading this right. It's pretty rare for a stock to make a monthly
C down in the same week. That would be really bearish. LOL. I void out late cycl
e trades. Intra-day confirms after about 11:00, weekly confirms after Wednesday,

monthly confirms after the 15th and QTR confirms on the 3rd month. Goes back to
the cycle thing.
-Maverick recently posted a few comments on the ISSE index. They have data on th
eir website going back to 2002. The all securities value of 41 registered yester
day is the lowest reading in the entire data set. As I understand it, based on h
istory, the low of this move may occur within a few days of today's low. Maveric
k, please correct me if I got this wrong...
So a couple of things about the ISEE and analyzing any kind of data in general.
One of the things I have noticed about the ISEE is that you need to be careful w
hen readings jump from one extreme to another in a short amount of time. I have
the found the ISEE to be the most reliable when the extreme reading comes after
a prolonged move. Such as at the end of the recent rally. To generate a extreme
reading on the short side after only a month is something I would discount.
Having said that, it's obvious that from that reading how quickly sentiment can
change and when people are that scared that fast, you should expect some kind of
bounce. Let me also warn and re-iterate what Fisher said on the last webinar wh
en I asked him about sentiment readings. I, nor he, would NEVER make a trade sol
ely based on ISEE readings. It's simply one variable among many. I watch the ISE
E readings because it gives you a good feel on day to day sentiment which you ca
n cross reference with your number lines or A levels. But ALL my trading decisio
ns are number line based. Not on sentiment.
-Maverick thoughts on USDJPY and the great bond unwind, lots of chess pieces mov
ing around. Was curious what your thinking is here, pretty healthy stock market
correction trading well under 1590, thoughts?
Bonds confirmed for me around 142 to 143 on the 30 day and we got nice follow th
rough on that confirmation. That confirm also coincided with the break of the QT
R A down. I said this on another thread I think but I thought or predicted or mu
sed that all assets would go down together just as they all went up together. We
had a strong bull market in equities, bonds and Gold that all went up tick for
tick. Even though all three asset classes contradicted each other. Now we are se
eing Gold get dumped, bonds get dumped and stocks get dumped all together. The h
erd runs in and the herd runs out.
I have said this before and I will say it again. I don't care if you guys never
trade a currency in your entire life, for the love of God, please watch them. Ev
ery major move in the last 200 years has been preceded by action in the currency
markets. Your trading will improve immensely if you start to watch and track wh
at's going on in currencies. I absolutely promise you that. I can't think of a s
ingle macro hedge fund manager that I respect that does not watch them like a ha
wk. And yes, I track the number lines on all the currencies. Take a look at the
Dollar Peso. And then mosy on over to the EUR/AUD. Watch these guys.
-Do NOT backtest. Form a hypothesis first based on whatever experience or knowle
dge you have (as little as it may me), then collect data and see if the data is
agreeing with your hypothesis. Not the other way around. One you have some sound
ideas, the important thing to remember is to be absolutely consistent in how yo
u analyze and compare your data. Remember, form the idea first, then collect the
data. Don't just grab a lot of data and say, oh, it looks like every time there
is an A Up on monday, there is follow through the rest of the week. You'll be c
hasing a lot of rabbits.
Try to form a scoring system that is consistent. Maybe all currencies get scored
one way and equities another. But don't take ideas that work in equities and ju
st arbitrarily apply them to currencies. Make sure when comparing relative stren
gth or weakness that you are doing it in the same time frames with the same OR s
o you can measure data specifically from that time period. This can get tricky w

ith commodities vs commodity ETF's for example. And even more so with currencies
. Since currencies have three different main time zones.
It's going to take a lot of time. I doubt most people will ever put the effort i
nto it which means there is a lot of edge out there for you if you are willing t
o make that time sacrifice. I promise you this, if you put the time into the num
ber line analysis, you will get information that absolutely no one out there is
getting from price charts. But there are no shortcuts unfortunately. Just be con
sistent, match up the time frames and OR consistently, form your ideas first, co
llect the data and try to be objective as you can about the results.
One thing I try to do is keep everything ACD based. I don't mix and match with o
ther technical stuff. So I'm always asking myself the question, does this make s
ense with the core ACD logic? Is this what should be happening? If the data is g
iving me something inconclusive, I do NOT try to manipulate the data to agree wi
th me. I come up with new ideas. There is an old saying in statistics, if you to
rture data enough, you can make it say anything.
If you tell me what products you are specifically looking at I can try to give y
ou some more pointers specifically geared towards those products.
-You can do a search on this thread to get a detailed explanation of it. The sho
rt version is, it's a unique indicator from the ISE exchange that measures trade
r sentiment by taking the number of calls purchased over the number of puts. The
se are open only transactions and only retail flow. No market makers or firm ord
ers. Also does not factor in spread orders. It measures the exuberance or lack t
here of in the market. When the reading is high,it's showing lots of spec call a
ctivity. When it's low it's showing everyone running to buy puts. Market reversa
ls usually happen at extreme readings after a prolonged trend. The indicator is
broken down into equity only, Index only and both. There has been a lot of discu
ssion on this thread about it.
-Guys, the reason why we use a methodology like ACD to begin with is to avoid th
e interpretation of the news. Nobody here, myself included, has no idea how the
market is going to react to news. The market went on a huge upside tear after th
e assassination of JFK. And it's not because the market didn't like him, it's be
cause it didn't matter.
Use the news as a sentiment lean against your levels. For example, I see my numb
er lines getting stronger every day even though price is going lower and the new
s gets worse. So what do you think that means? Yes, this is a pop quiz.
-What is showing up in X is that it's intra-day price action has changed it's be
havior dramatically from the rest of the year. Trading is all about recognizing
small, subtle and meaningful changes. Remember, obvious changes everyone notices
. Also remember, the more rare something is, the more valuable the information.
As for my price targets, right out of the ACD playbook. The QTR target is the QT
R A up. And the end of year target is actually the OR on the yearly ACD levels.
We actually have a failed A down on the yearly in the 17.50 area. We have bounce
d off of it several times. Now this late in the year I would never use the Yearl
y A up as a target but proper protocol for ANY trade that fails at ANY A down on
ANY time frame is a bounce at least back into the OR. I'm trying to illustrate
my thought process here on how I generate my price targets. I don't just pull th
em out of the air.
Likewise, my upside target on Gold is 1550. Why? That is the Yearly A down. Gold
bounced off it perfectly on the first touch and then went through it. Again, we
can evaluate typical ACD behavior and see that markets have a strong tendency t
o retrace BACK to broken A levels on the upside or the downside. So any product

that makes ANY A up or down on ANY time frame usually more often then not at som
e point re-test that level.
So if one "believes" the lows in Gold are in for the year, then logic will dicta
te that a reasonable upside target for Gold be that re-test of 1550. There was a
reason Fisher called his book "The Logical Trader".
-Thanks for the background Captain. Let me give some further color on this. Obvi
ously I don't follow all the steel related products. There is a steel ETF (SLX)
but it's very illiquid. I've been following X for awhile as it's part of my sect
or basket. So by no means am I implying that of all the steel choices out there,
this is the best one. However, having said that, I do follow this name closely
and this is the first number line confirmation since January! That's a big deal
in my world being that all my trades are number line based.
One thing I left out was the risk part, so let's fill that last piece in. I alwa
ys use the monthly A downs as stops for my trades. For me, anything that is stro
ng or should become strong should NOT confirm a monthly A down. So Tuesday of ne
xt week I will post the monthly A down level for X and rest assured, if it confi
rms, I'm out. It's as simple as that. I have a lot of trades on now and this is
only one of them. So while I'm making a big deal about it for the purpose of thi
s thread, it represents a small part of my book.
I do however like to illustrate these trades because I have found, in my experie
nce, that when you get a number line confirmation on something that has NOT conf
irmed in a very long time, it provides the "opportunity" for a big move. Let me
repeat this part. I'm looking for an "opportunity". I have no way of knowing if
this or any trade will play out. But number line confirmations, especially rare
ones, often lead to massive outsized moves where one can get in "early". I point
ed this out awhile back on USD/JPY when that still looked like crap. I got a con
firm way back in the low to mid 80's. Keep in mind, that yen pair had been dead
for years with absolutely NO volatility. Who am I to make a crazy prediction on
the Yen. But out of no where the thing confirms. So I broadcasted that on this v
ery thread. And I said the same thing, I know this sounds crazy, but this Yen mi
ght actually break out to the upside. I even through a crazy crazy target out th
ere that it might actually go to par. Well, it did and then some. I think it got
a tad shy of 104. That is a MONSTER move for that pair.
As traders all we can do is two things. Look for opportunity and manage the risk
if we try to capitalize on that opportunity. That's it. Everything else is just
conversation. While the Captain provided a nice fundamental backdrop, all my tr
ades are quantitative based, not fundamental. I'm not trying to make a statement
about China or an improving economy. I update my spreadsheets every day and tak
e all the trades it generates and GET OUT every time a risk level gets violated,
no questions. I'll put my discipline up against anyone in the world. That's alw
ays been my strength. That and my propensity to out work everyone around me.
-Mav,
CL is coiled up now big time.. you or anyone else got any thoughts on this one..
.. i'm getting more towards neutral with my spreads because this state of price
action , and as well going into the weekend.. CAve
So the way we look at this through the lens of ACD is we review all the various
time cycles and A levels and put a picture together. We are in a confirmed QTR A
up but we are at the end of QTR so we can discount this data to some degree but
make note of the fact that we have held above the QTR A up almost the entire QT
R.
Last month I mentioned we had an inside month with the A levels and this month w
e failed at the monthly A up around 111. Now that we are in the 2nd half of the
month, the odds of a strong monthly breakout are slim which means we may get yet

another inside month. On the weekly we made a weekly A down but the week is ove
r.
The number line reset for me 3 weeks ago. What does that mean? It means exactly
what you already intuitively know, that oil is currently in it's consolidation p
hase.
So what are we setting up for? An explosive move. However, that does not mean th
e move has to be to the upside. As of right now, we are sitting on the 50 yard l
ine. There is no need to have a bias because ACD will give us the bias when it h
appens. No need to come up with fundamental reasons why this or that should happ
en.
So you ask yourself, what DO you KNOW. We know that volatility is coiling as you
mentioned and we have been hanging out above 100 for several months now. So wha
t we can gleam from this is that volatility will expand and it's more then likel
y to come in October.
So how to play it? Wait for the number line to confirm again, that's our price a
ction indicator. Watch your new A levels next month for bias. The monthly A down
this month is around 102. If we traded down there and HELD, I think that could
be a great entry for the "possible" monthly A up in Oct. And of course you have
your weekly levels next week which have provided great signals but keep in mind,
vol has contracted a lot so these trades have tighter risk/rewards right now.
This is how you do a complete ACD analysis. You should go through this process o
n every product you are watching and trading.
-OK, so a couple of things here. My 30 day confirmed on 8/27 at 18.00. I have no
idea how you are doing your number line and that is not to say you are doing an
ything wrong. But I've modified my number lines quite a bit from Fisher. Again,
not to say there is anything wrong with how he does it either. I've just put a l
ot of time in the process and I feel I have my process down pretty good. Now, ha
ving said that, let me address your question:
A 30 day confirm is NOT a buy signal. The 30 day number line is a reflection of
internal price action. It's telling you there is a "potential" for a sizeable mo
ve due to the way the product is acting. I have created number line derivatives
that help in that process. But there are many ways you can play a number line co
nfirm. Yes, you could simply get long on the day of the confirm. I personally us
e monthly A downs as stops. Since your confirm happened above the monthly A up,
I would probably take a smaller position to account for the wider stop. And I wo
uld look to add to my position on failed weekly A downs at better prices "provid
ed" that the number line was still strong.
Another way to play it is once you get the confirm wait for a failed weekly A do
wn to get long. This would give you a tighter stop. You could wait for a re-test
of the monthly A up which it did do at 18.00. Remember I mentioned earlier that
more then half the time you get a re-test of an A level.
There are countless ways to do this. You have to be the ball coach and make the
call. Read the defense, call in the play, protect your quarterback. Just like tr
ading. And another thing regarding number lines, markets rarely take off right a
fter the confirm. I got lucky that X did that but that is not the norm. I'm gett
ing in for the "potential". Not because it's going to take off to the moon. If y
ou want to play pure momentum I would focus primarily on week one monthly A up c
onfirms. Those have much higher octane. Those have their drawbacks as well so ev
erything is a trade off.
-Let me add one more thing here. I've said this many times on here but it's impo

rtant enough to keep re-mentioning. The ACD is a large eco-system. In this eco-s
ystem everything should align. Most technical systems don't have this and that i
s where many break down. You hear traders say this all the time, this indicator
is telling me to buy but that indicator is telling me to sell....confusion sets
in or a trader falls back on his bias (perma bull, perma bear, fader, etc) to "s
elect" the indicator that "agrees" with his bias. BAD! Don't do this.
My rule is that an ACD signal is NOT valid IF it CONTRADICTS a current live sign
al. A simple example: XYZ confirms on the 30 day number line but it's below the
monthly A down and still within the first 2 weeks of the month....invalid trade.
So once you get that down, you are able to discern the complete picture much be
tter. Again the problem is if you pick and choose "what" you want to use you wil
l always revert to your bias which will almost always be wrong. You've seen me t
alk about this on oil or bonds or gold or something where I say Bonds are weak o
n the number line but made a weekly A up. Or AAPL looks good here but it's still
below the QTR A down.
Let me briefly explain the importance of this concept. It is actually IMPERATIVE
that you BELIEVE in what you are doing. I cannot stress this enough. In the mil
itary it's called the chain of command. They teach 18 year old's to follow order
s to the T without exception and to obey their commanding officers. They do not
want them to think. They want their to be an order in the process of how decisio
ns are made. This is so when life and death is on the line and a soldier is give
n a command they they do NOT get emotional and make discretionary decisions. And
it's important that since they are following orders without questions, they hav
e to BELIEVE absolutely in their officers and trust they they are giving them th
e right orders or the entire chain of command breaks down.
What happens with traders is they don't really "believe" in their system. Usuall
y this comes from taking signals that contradict their system and they work. So
if they work, they begin to ask themselves does their system even have any value
at all? All the ACD metrics have value. They are TELLING you something. You nee
d to LISTEN to them. It does not mean you take every signal it generates, it sim
ply means you do not fade it. If you start doing the opposite then that opens th
e door to you being the "discretionary guy who always knows best. This leads to
a breakdown in discipline. Where you here guys say I know I should stop my self
out here but I think it's a head fake, I'm doubling down. See they don't really
"believe" their signals, they are constantly full of doubt and hence the emotion
al anxiety and bad discipline.
OK enough of that. So regardless of how you use your signals, what I'm trying to
say is that they should be in agreement. If the number line is weak but somethi
ng is making a monthly A up, how is that happening? If you want to get long ABC
but it confirmed a weekly A down, wait. The weekly A down doesn't get pushed to
the side just because you really really want to buy something. Stay within the e
cosystem and look at the complete picture. The more you practice it, the better
you will get. Almost every trader I know who has failed has done so because they
break their rules, they don't believe in their system and they fall back on emo
tional decision making. One of the clues you'll hear is when guys talk about sto
p running, the Fed, the PPT, insiders, Goldman, market makers, HFT's, Algos, etc
, the list goes on. The fact of the matter is, you have a collection of data. Th
at data is not right or wrong, it has no opinion, it simply is stating something
like the current temp in NY. It is YOUR job as a trader to take the raw meaning
less data and organize it and create information out of it. Then with that infor
mation to seek value. And then to act on that value without prejudice or hesitat
ion. All other variables are meaningless. Once you blame them, you have stepped
outside your ecosystem and handed control to outside forces. You will be hard pr
essed to ever make money if you do that.
-I really can't go into details as I have too much intellectual property investe

d in it. I will say that anyone has has traded long enough will understand the e
xogenous variables (inputs) needed to go into the number line to increase it's a
ccuracy. The output (effect) results are earlier signals are generated. I should
note that not only did I change the "scoring" of the daily values but
I added a 2nd derivative to the number line itself.
As I've mentioned many times, with enough screen time you will understand the li
mitations of what's given and how to optimize those limitations. Some points I c
an add here are the importance of collecting data. Every one of you guys should
be storing data in every imaginable form. Even if you are not going to use it no
w, perhaps in the future you will want to reference it. It makes data analysis 1
00 times easier when you have the raw data saved and you only have to go back to
manipulate it vs going back in time and going through the laborious process of
getting it day by day and product by product.
I put that part in bold to truly emphasize the importance of this. For those of
you concerned about labor costs (your investment in time), you need to make a po
int to maximize your efficiency in your research. This means become more efficie
nt at collecting data, storing it, accessing it, and try to create functions tha
t reference previous functions to make calculations easier. In simple parlance,
don't use a hammer to cut down a tree.
I know to many of you reading my posts you will be discouraged by the amount of
work I have laid out before you here. Trust me when I say this, there is NOBODY
that is going to make consistent long term profits in the market WITHOUT doing t
his kind of work. And anyone who tells you different is probably trying to sell
you something.
-No, not DX. I'm talking about following the risk around the world. You can get
a great feel for risk appetite by watching where the money is flowing. Do you th
ink it's a coincidence that the spoos are strong while the Aussie is catching a
bid? Or the Peso which has been rocking to the upside. Do you really think it's
risk off when money is flying into Mexico? LOL.
I've said this before and I will say it again. Why? Because it's that important.
I don't care if you ever trade a currency in your entire life, but you better b
e watching them. It's not that difficult to follow them. It will absolutely add
to your bottom line.

-Good call on the Sugar. Still going. Almost at the QTR A up.
BTW, let me tell you WHY this is a good call since the "why" is critical to one
becoming a better trader. There is NOT a single damn post on this entire message
board about Sugar. You have this trade all to yourself. This is how you make mo
ney in the markets. Hell, I didn't even see this. Good job.
-Problem with re-entry "Look for a pullback at your A levels for re-entry" is th
at oftentimes the momentum has totally changed
Further, it *could* lead to a complex consolidation (eg JPY) potentially lasting
for months...lots of trapped traders..
Dead money.
Look at X for another example
Seems to be counter to one of the main principles of good trading/ACD of taking
the trade when it's less obvious to the majority
In any case, AUD (vs US$) looks far weaker than EURO in relative terms these pas

t few days.
Why would one want to trade a weaker currency..
Dunno what the big deal about the Aussie is.
Look at the NZD/US$, it's given up all the gains from the recent up move to 0.85
Don't fall in love with AUD/USD just b/c it was once a good trade.
I believe this is the concept of "Next!" in ACD as Fisher says. LOL
All things you said are true, I tend to focus on number lines. The EUR/AUD pair
had a nice bounce to the tick off the QTR A down. The EUR has been very strong a
cross the complex. It's not a matter of falling in love with a currency, it's ab
out focus. Some guys focus on very short term, others on long term. I base almos
t all my trading on number lines which almost forces me to take a longer term pe
rspective. Having said that,you are right, one has to know when to buy the faile
d A down and when to let it go. And that is where the number lines come in. Many
products will maintain strong number lines into the pullback, those are to be b
ought. Other number lines will break down into the pullback, those are to be avo
ided. As I've said countless times on this thread, all aspects of ACD have to be
incorporated.
-I'm having a A down on the ES, a first in a very long time.
Any ideas ? could be gone in a few hours when Bernanke opens it's toybox, but, i
t's still a valid first A down.
OK, I will walk you through the logic "I" use to create trade ideas. Let's say I
was "looking" for a short or wanted to "express" that point of view. Knowing th
at the ES has a confirmed number line I would avoid it and instead draw my atten
tion to bonds which are confirmed on the number line and tend to rally when stoc
ks go down. Well, we had a perfect failed A down in the bonds to the A up. Trade
done. It accomplishes what I wanted to accomplish based on the view I had of th
e overall market. This is how to make ACD work for you. This is the kind of thou
ght process I use everyday.
-CL confirming QTR A down into end of month (for me 97ish level)
also had the late in the month A down and this week a failed weekly Aup into the
month A dn area
looks interesting to the down for the rest of the Qtr...anyone have any addl tho
ughts?
That's good analysis. So the optimal setups will be:
Selling into failed weekly A ups and possible a failed monthly A up in Nov.
Being that the market is really overbought at these levels, fading crude seems l
ike a good high probability bet.
-To make this even simpler, let's remove the directional aspect of this. With re
gards to FX, when FX "volatility" increases, regardless of direction, something
is going on there. It takes a lot of money to move currencies. These aren't smal
l cap stocks with small floats that are heavily shorted or futures contracts goi
ng into expiration where traders are forced to roll or close out. There is liter
ally an unlimited supply of currency in the world (because it can be printed) so
when you see massive moves or sharp increases in volatility, that's telling you
something and often provides good tells for risk assets.
Combine this with the yield curve flattening and investor sentiment at near all
time highs and margin leverage approaching 1999 levels, well, you've got yoursel
f an interesting situation here.

-I'm not talking about stat vol and I'm not referring to just the Euro. OK, let
me give an example. When the lights are off in your house, you have all sorts of
critters walking around independently of each other. There is almost no correla
tion to what one bug, cockroach, etc are doing to each other. However, the secon
d you turn on the light, correlation goes to 1 and they all scatter.
In FX land, what I'm watching is the lights going on. When I see sharp moves acr
oss all the FX pairs all moving at the same time, that tells me there is a major
shift going on. It's not about analyzing the stat vol on the Euro and noticing
it's 10 basis pts higher this week over last week.
Regarding the number lines, yes, London open and I use a 24 hour day since FX tr
ades around the clock.
-Maverick,
I know you have moved away from intraday trading, but a quick question. If you a
re using number lines generated from daily price action to construct swing trade
s that i assume last from days to weeks, is it feasible to generate number lines
from shorter time periods to set up trades that are measured in minutes and hou
rs?
Obviously, dependind on the product, certain periods within the 24 hour cycle wo
uld have to be filtered outdepnding on volume, but maybe something like this wou
ld be usefull?
No because to look at the macro you have to build it from within. The intra-day
action is where the hidden footprints are. I can't tell anything looking at a da
ily bar. The daily bar "hides" all the action. This is where "I" think a lot of
longer term traders steer wrong by just looking at a long term chart. Sure, it p
rovides some value, but anyone can pull up a longer term chart. Very few people
have the insight or are willing to put the work into looking under the hood of t
he car and seeing what's really underneath there. You would be amazed at what yo
u find under the hood.
And I've shown that on this very thread where I put up a long term chart that is
showing one thing and then the number line is saying EXACTLY the opposite. The
most recent example of this was the trade in US Steel. As TradeFighter pointed o
ut, the long term chart looked like it was in a downtrend or at least in chop mo
de but the number line was YELLING screaming buy. And from the day I posted that
we got a 40% move in less then two months. There was NOTHING on the daily or lo
nger term chart that portended that move. It was all under the "hood".
You asked a good question. It's precisely why I put the work into the number lin
es and yeah, it's a lot of tedious work.
-Doesn't it stand to reason that in the crosses we should include one of the str
ongest currencies, GBP, instead of one of the weakest currencies, US$ ?
If as expected, GBP:US$ to stengthen & JPY:US$ to weaken, then the preferred tra
de would be GBP:JPY to strengthen (US$ simply cancels out in the 2 respective cr
osses)...
?
Absolutely. Your logic is spot on and that is exactly the type of analysis I do.
However, I have a confirmed number line on the dollar and it's stronger then ca
ble on my number line. And as you correctly pointed out all I have to do is look
at my gbp/usd number line. The reality is both are similar enough chart wise bu
t number line wise dollar is a little stronger.
-I follow and track 15 pairs now:

USD/JPY EUR/AUD GBP/JPY EUR/JPY AUD/JPY EUR/GBP GBP/USD USD/MXN EUR/USD AUD/USD
EUR/CAD GBP/AUD USD/TRY GBP/CAD CAD/JPY DX
-OK, so I use OCT for the beginning of the QTR following the typical business ca
lendar year. I had a perfect QTR failed A up to the tick in the Euro and guess w
here it traded down to? You don't have to guess, you know. It traded down to the
QTR A down. Now on my numbers we have a confirmed monthly A down for Nov and a
deteriorating number line. I have a -5 on the 30 and a -5 on the 5 day showing t
he negative downward momentum.
At this point, I wouldn't touch the Euro. You had the sick move to the upside as
well as that perfect fade at the QTR level. Don't keep going back for more. Thi
s is what most traders really struggle with. They keep going back to the well. W
hen you get a great move in anything whether it's TSLA, Oil or the Euro, take th
e money, thank the market and move on. There are psychological reasons for this
btw. Whenever you get a "clean" move in any product, all the traders who missed
the move now take notice. Now that it's "obvious" to everyone, the "fools rush i
n". This makes the product sloppy and the noise level goes up considerably.
Let's go back to my US Steel example. When I posted that trade, it was NOT obvio
us. The move off that level was as smooth as a baby's ass. Now, every Tom, Dick
and Harry sees that X took off like a rocket ship. So some guys will try to fade
it, some will try to buy new highs, some will try to buy pullbacks. But they al
l will TRY "something". I call that traffic or noise. X might keep going higher,
but it's going to make a lot of noise doing so. The easy money was made "before
" it was obvious. This is the part 99% of all traders simply don't get. You have
to catch the move when no one is involved. This is why I often chide guys on ET
who try to pick tops in the market. They are trying to short the market after i
t's gone up 30 days in a row which sounds completely logical right? The issue he
re is not whether the trade has value, but how much noise you have to deal with
to capture that value. Noisy trades are VERY hard to execute.
Think of it like trying to date a hot girl who "knows" she's hot. That relations
hip is going to be very messy. There might be perceived value there, but what ar
e you going to give up to realize that value. A friend of mine once joked (corre
ctly so) that you want to find a hot girl who doesn't know she is hot. LOL. Anyw
ay I digress. The point is, there are two aspects to every trade. Discovering va
lue and calculating what you are going to have to give up in order to capture th
at value. Finding the value is only one half the battle. Anybody can say short t
he market, it's overbought. But that is a lousy trade because the whole world is
trying to execute that trade. Traffic!!!!!
Write this down on a post it note and put it on your computer monitor:
GET INVOLVED IN TRADES NO ONE ELSE IS INVOLVED IN.
LOOK FOR VALUE WHERE OTHERS ARE NOT.
BE FIRST TO THE TRADE.
-Try to refrain from "having your own" ideas. LOL. I know that sounds funny. But
the problem is once you impose your "ideas" on top of ACD the trade becomes mor
e about your idea and less then about ACD. Now don't get me wrong, you can have
ideas and trade those ideas, just be careful with how they relate to ACD. Now I'
m not saying you can't have ACD ideas. OK, this sounds confusing. What I'm tryin
g to say is try to compartmentalize ACD from everything else. Because what will
happen if you mix them up too much is you will begin to discount all the A value
s, all the number lines and replace them with hunches and feelings and emotions
and what you want to happen and what should happen and heaven forbid conspiracy
theories about your broker out to get you or Goldman trying to get you or the gr

and daddy of them all: "they". LOL.


-Regarding the Euro, if it gets back above the monthly A down then you can try t
o make the argument for a failed A down entry on the QTR. But.....again, here's
the thing. This trade is going to be messy. There are going to be other pairs th
at people are NOT paying attention to that will be cleaner and have more follow
through behind them. All things being equal, why not make things easier on yours
elf.
Next point, another poster brought the triangular relationship between A, B and
C. If A is stronger then B and B is stronger then C then A has to be stronger th
en C. We apply this to FX. So we have a confirmed number line on the Dollar righ
t now. When you are buying the EUR/USD you are shorting the USD which has a conf
irmed strength. Now, if you want to buy the Euro, pick something "weaker" to sel
l it against. Remember, currencies are pair trades just like being long AAPL and
short GOOG. You want to "spread" the Euro against a weaker product.
OK, let's do some math and ACD analysis guys. I'll try to bring this home and co
mplete the big picture. So let's make the Euro our constant variable and except
it as a given that we be to be long the Euro based on some earlier pre-determine
d analysis. Now we have to solve for the weakest pair.
I present to you the loony (EUR/CAD). The EUR/CAD just came off a very strong nu
mber and re-set but it did NOT make a monthly A down, in fact it just bounced of
f of it and it also did not make or even get to the QTR A down. But it had a nic
e retracement.
Now, let's test my theory by comparing the loony to the dollar. Remember the rel
ationship of A, B and C has to hold. When we pull up a chart of the USD/CAD we s
ee that the dollar is indeed much stronger then the loony. Implying we would rat
her be short it vs the dollar. In fact, on my charts, the USD/CAD is attempting
to confirm a QTR A up at 104.62. So this tells us using the Euro as our constant
, the loony appears to be the better pair and therefore if I wanted to buy the E
uro the optimal solution is to buy the EUR/CAD vs the EUR/USD all things being e
qual.
So this is how I analyze things within the ACD framework. And btw, you can apply
this approach across all products. This is how you take your ACD to the next le
vel. Notice how I kept my thoughts, opinions and emotions out of it. Of course,
you can use those as imputs I suppose for your numerator selection and use the q
uantitative approach for the denominator.
-Mav,
In all the time you have been following ACD, Has a market correction (I am using
a drop of over 5%) occurred with a positive 30day NL ?
Currently the 30day on the SPX etc are positive (methodology could be wrong ...
but still) over a threshold of 9. I am beginning to wonder from a NL perspective
what you look for (ISEE is one marker you mentioned).
In my short experience using it with stocks, the NL always telegraphs a change i
n sentiment with stocks in both directions.
Thanks,
Partha
That's a very good question. I actually pulled up my data from 2011 to take a lo
ok. That was the last year we really had any kind of meaningful downside volatil
ity. The answer is, we got number line confirmations to the UPSIDE right before

major corrections.
Now why and how this happen? Well, the corrections we got in April and July of t
hat year both came right off swing highs. So the market was acting well going in
to the highs. My theory to this is that sharp corrections are outliers. ACD is n
ot effective in predicting outliers because by definition, outliers fall outside
your data set. ACD does a good job modeling "normal" markets. It takes the patt
erns in volatility, the centering of important time zones and together with obse
rved price action behavior, spits out very predictable results.
Market crashes or corrections happen when something breaks or snaps. It's very h
ard to time those events. The goal is simply to have a risk management protocol
in place in order to deal with them rather then try to predict them. Now, if you
looked under the hood at other things going on in the market, perhaps there wou
ld have been some clues. I've said before many times that often the best tells a
re in the currencies. When you see money sharply moving out of risk countries an
d into safe havens, something is up. If there is a tell out there when a crash o
r sharp correction is coming, you are much better off looking at the currency ch
arts then the SP 500.
I've got a pretty good eye so I tend to notice very subtle things going on. I'm
sure you will notice some action in a particular stock or sector that seems off
or out of character that will clue you in to something happening. But it's highl
y unlikely that the number lines will be the tell.
For example in 2007, credit spreads were blowing out while the spoos were making
new highs. And by credit spreads I mean things like the TED spread and the OIS.
Watch these like a hawk. When they start to blow out, you'll be amazed how few
people even notice. Both these spreads telegraphed the 2007 top and the sharp 20
11 correction we had after the debt downgrade.
-I guess I'm still confused here. You are talking about two different time frame
s. A 150 pip move is nothing is you are "sized" correctly for a longer term trad
e. If you are using intra-day sizing then yeah, that would hurt. But you are tal
king about 1% moves here on position trades. If that is painful it's probably be
cause you have waaaaaay too much size on. The nice thing about FX is you can pre
tty much customize the size you want. There really is no excuse for being positi
oned too big. I think position sizing is something most trades ignore when they
are starting out. There is this idea that if you like a trade, to trade it as a
big as you can. But that is silly. The money should be made by being involved in
lots of trades over the course of a year. Not going so big that a 150 pip pullb
ack is causing you stress. I mean that's the avg daily ATR in most yen pairs. So
it's not even an outlier, you can EXPECT that move EVERY single day. LOL. That
means EVERY day you will be in stress. That's one recipe for a short trading car
eer.
I don't know what it is about FX guys and why they trade as big as they do. I me
an I know you get 50 to 1 leverage but you need to trade FX the same way you tra
de nat gas or oil. Regarding trading around your position, you absolutely should
do that with FX. But I use the various A levels. So the weekly and monthly leve
ls give you great opportunities. And yes, you can trade intra-day with FX using
the daily levels as well. Since you have 3 time zones you get a lot of great two
way action which you should take advantage of. What you should NOT do is over t
rade. Take legitimate trades against legitimate levels. And if you are scared ei
ther get smaller or get out.
-I think ultimately stress comes
arket, but rather uncertainty in
m going to do and WHEN I'm going
actions are planned out. In the

from uncertainty. Not from uncertainty in the m


your decision making. If I know EXACTLY what I'
to do it, I don't have any stress. Because your
past, if I shot from the hip and asked question

s later, I would feel stress from not knowing what my course of action was going
to be. Psychologists have studied this extensively. For example, people are pro
ne to have more stress awaiting an important medical test result because they "d
on't know" what it is. Once they find out it's cancer, surprisingly despite the
bad prognosis, people often are relieved and deal with it. It's the "not knowing
" that causes the stress.
What you need to do is make sure your decision making process is FIRM. Again, th
is is how I use ACD. I know EXACTLY how I enter trades and why I am entering the
m. And I know EXACTLY when and where I'm getting out. There is no stress because
it's routine. It's only when you deviate from that routine do you find stress.
Don't think of your trade in terms of p&l. Think of it in terms of a process. If
it's process oriented then you are NOT giving back p&l, you are executing a pro
cess. The trade has an entry and an exit. Upon exit, you have a result. That res
ult is one of many results you will have. The sum total of your results will equ
ate to how effective your process is and how efficient you are at executing it.
It's really that simple. And if it's NOT that simple, you need to MAKE it that s
imple.
-I would not initiate a new position EXACTLY ahead of a binary event. More often
then not, ACD triggers signals several days before hand so you often get a nice
cushion going into large volatility events. What I do like to do is if I did ge
t a signal ahead of such an event and that event creates a counter move to the s
ignal, I use that move to enter on the fade.
-So here is the soliloquy I promised on currency trading and ACD. This text has
two purposes. One, to help guide any newbies reading this thread who are trying
to start out in trading and don't know where or how to begin. The other is to sh
ow some of the more veteran traders what I believe are advantages that currency
trading offers in context of ACD. I'll start with the veterans. And by veterans
I mean active readers of the thread who have been using ACD for quite some time
and are fully aware of the benefits and limitations as well as all the idiosyncr
asies involved in ACD and there are many. At it's core, ACD is all about volatil
ity. The volatility input affects almost every aspect of ACD from opening range,
the ATR's to number lines, pivot ranges, etc. So most of you should have figure
d out by now that ACD works best in environments were volatility is best modeled
. Or put another way, where the day to day volatility is consistent. Consistent
does not mean the same, it simply means that the given product has predictable v
olatility cycles. The more predictable the cycle, the more accurate the A levels
will be. The more accurate the A levels will be, the more accurate the number l
ines will be and so on. Over the last seven years, my observations have shown me
time and time again that that volatlity in currencies seem to be the most relia
ble. And to that end, the A levels are almost pinpoint accurate. Currencies exhi
bit very predictable patterns over and over and over again that lend itself perf
ectly to ACD trading.
So what are my theories about this. One, I simply think the flow of money around
the world is much more calendar oriented then perhaps say Corn or even Crude Oi
l. Currency fluctuations are driven by many factors, one being the demand for mo
ney in a particular currency relative to another. This demand comes from transac
tions between countries, interest rates, demand for particular products in a giv
en country (their stocks, debt, resources), and lastly, the actions of large mac
ro global hedge funds. These behemoth monsters control billions notionally and t
rillions via leverage and they aren't buying TSLA, they are moving into Yen. Pou
nds and Euros. And these global hedge funds have redemption cycles, annual marks
to hit, etc that lend itself well to the various ACD cycles. So money by itself
seems to follow very predictable patterns. While there may not be a "right" tim
e to buy GOOG, most Americans get paid ever other Friday, increase spending arou
nd the holidays and weekends, reduce spending around tax time and tend to respon

d according to the cost of money (real interest rates). All these things create
cycles that model well with ACD.
Next, we have the spread component of ACD. I've spent some time on here discussi
ng spread trading and how spreads work very well with ACD. This makes intuitive
sense when you think about combining two products that are producing opposite AC
D signals. It also makes sense in that ACD is very much a methodology about rela
tive value. If I'm telling you that GOOG has a strong number line, it's not only
saying that GOOG is acting well against it's historical price action but I can
compare the number line of GOOG to another stock or an index itself. Well, if yo
u think about what currencies are, every one of them is a spread trade. Currenci
es do not exist as a stand alone product. Their value is derived in relation to
another currency. If you change the denominator, the value changes. If you chang
e the numerator the value changes. So if one is long USD/JPY, these are in fact
two separate trades, not one. You are long US Dollars and short Japanese Yen. Yo
u can't really simply buy US Dollars, you have to sell something against it. Why
Yen? Why not Pounds or Euros? It has to be because you believe putting Yen in t
he denominator will increase the spread value more then putting Pounds there. Th
erefore you have yourself a spread trade. This allows one endless combinations a
nd permutations to create pairs. Using the number lines, one can easily isolate
which country has the strongest demand for money against which that heave the we
akest and by combining the two, one gets a more robust product then simply havin
g a stand alone product. This makes the number lines on currencies VERY robust.
Third, let's talk about the execution of this product. Many products gap a lot a
nd that creates havac on many a ACD chart as well as the number lines. This is o
bviously most common in stocks but can also happen in commodities when they go l
imit. Since currencies flow 24/7 there is a much smoother transition at the pric
e level that allows the ACD levels to stay intact and the number lines to not ha
ve to make adjustments for gaps. Along these same lines, getting "into" the trad
e is easier. What happens when you get a buy signal in TSLA after it makes a lar
ge move? Do you chase? Do you wait and run the risk of missing the trade? Curren
cies in general chop. This is a good thing. They move in sine or wavelike patter
n even when trending. This lends itself perfectly to ACD. It allows one to get e
ntries at good prices almost 100% of the time as they can enter on daily pullbac
ks, weekly pullbacks, monthly pullbacks or even QTR pullbacks. Currencies don't
go to the moon. The EURO/USD is not going to 200 this week if it breaks out like
a stock could. It might move 200 pips with 100 pip pullback entries. This also
allows the skilled trader to actively trade around his/her position to take adva
ntage of the wave like motion. This is caused primarily because currencies trade
around the clock with three major market time zones that often produce counter
trend moves. The Euro might break out during the Asian session but get hit hard
during the London session only to recover to new highs by the US session. With s
tocks and most commodities you have a very limited time window to get in or out.
You can wait for a pullback but time is not on your side. With currencies you h
ave nothing but time.
You often hear people talk about the trending aspect of currencies. This is true
for the most part as the demand for money in various countries is controlled by
their central banks monetary policy. And since this policy does not swing up an
d down the way a stocks earnings do, the trends tend to stay in tact longer. Thi
s is why it always puzzles me to hear people talking about the move being over i
n the Yen. The Bank of Japan (BOJ) can print for years and years and years. They
will keep printing until they GET the result they want. THIS is why the move in
the Yen will be sustained. It's very hard for stocks or commodities to do that
because the natural demand is not fixed, it's variable. TSLA might be trending f
or weeks and then GS comes out and downgrades the stock and it takes a hit. Or s
ome WSJ article comes out and says their cars explode. There is a lot of noise t
hat can shake stocks. Oil and gas has inventory reports, grains have crop report
s, stocks have earnings, upgrades/downgrades. While it's true currencies do get

volatile around central bank meetings, the volatility in context of the bigger p
icture is rather tame and actually works IN the traders favor. In fact, volatili
ty can only really help the FX trader. Why? Well, we are making two assumptions
here about FX. One, a currency can't go to zero. And two, it can't go to infinit
y. In fact, as it approaches zero and infinity (in a relative sense of course) t
he brakes get slammed. This is not true of the ES or AAPL or even Oil. In fact,
when large moves happen in these products, it tends to accelerate volatility, no
t slow it down. This is because stocks CAN go to zero and they CAN go parabolic.
Oil went from 12 to 147 back down to 35. AAPL from single digits to 700 back do
wn to 350 and back to 550 plus. As currencies get too expensive or too cheap, ce
ntral banks will step in and supply Most of you guys have probably heard me say
on here countless times, follow the money. Even if all you trade is oil or spoos
, follow the money. The demand ALWAYS begins with the currency. Why? Because tha
t is the unit in which your product is being bought. You may not realize this bu
t when you buy AAPL, you are shorting the USD at the same time. Why? Because you
trade actually looks like this: AAPL/USD. You are funding your purchase your AA
PL shares with dollars. Most people won't notice this much of course because the
price volatility in AAPL far outpaces the volatility in the Dollar. If you guys
tracked FX movements more, you would be spotting the turns in Oil, ES and even
AAPL much quicker then just staring at it's respective chart. This is because de
mand begins with the currency and then with that currency follows through to the
transaction. Often I would hear on ET, why are people buying US Bonds that pay
no interest. What many are missing is that our bonds are being purchased by fore
igners that actually are really betting on our currency, not our debt. What they
REALLY want to do is buy dollars and the bond is simply where those dollars are
stored. So while it may seem that they are only making 3% to 4% on their money,
they are actually making 10% to 15% by the time they sell the bonds and convert
back to their currency. The demand for debt around the world is often derived f
or the demand in their currency. In the 1980's a killing was made with the purch
ase of Brady Bonds. These were debt instruments issued in Brazil and other South
American Countries. The killing was made threefold. Their debt was paying huge
interest rates. The principal value of their debt increased and lastly the value
of the currency shot up. So for those of you who like to map out the big pictur
e and analyze long term macro-economic trends, the currencies provide a treasure
trove of information to dive into. If you follow the currency markets daily, yo
u will have a far better understanding of the world, the market and where money
is flowing into and out of. Ignoring this and you are simply trading the tail of
the dog.
Let me use this last part to dispel some common myths or misunderstandings of cu
rrencies. Let me start by saying I truly believe currencies need to be traded wi
th a long term view. That is not to say one cannot daytrade them, it simply mean
s that all the things that benefit the long term trader tend to work against the
short term trader. There is a lot of baseless noise intra-day that I feel is ve
ry random. Many on here will blame evil bucket shops for running stops and so on
, when in reality, currencies are just erratic intra-day. They are prone to spik
es anytime ANY news comes out in ANY country. The world never stops spinning and
the news cycle for currencies never stops. Sure there are patterns intra-day bu
t the product you are trading is deriving it's value from long term expectations
. Having said this, the rants I often here about how wide certain spreads are be
come a moot point. If I'm trying to take 800 pips out of the USD/JPY do I honest
ly care if firm A is 1 pip wide, firm B is 1.5 pips wide and firm C is 1.8 pips
wide? It matters not to the longer term trader. In fact, if you compare currenci
es to options, futures and stocks and use the commission + the bid/offer spread
as your total cost, you will find the spreads in FX to be very tight. Another co
mmon remark I might get is, but Mav, with stocks I can trade 100's of different
products and currencies there are just a few. Actually, the combinations of can
easily reach 100 + and even if we eliminate the more exotic pairs, there are eas
ily over 30 good pairs. Most people don't watch more then 20 to 30 stocks at a t
ime or more then a handful of commodities. Then you have the FX is a scam crowd.

Ignore all this. Yes, the FX "business" is full of scams and that is due primar
ily to the wild west mentality of the market and the lack of regulations. George
Soros, Bruce Kovner, Bill Lipshultz and Andy Krieger certainly don't believe it
's a scam. And this goes without saying, don't abuse the leverage.
Some of the structural benefits of FX are obviously no hard to borrows. Get long
or short anything you want. No licenses to attain. Plenty of leverage. Cheap ac
cess to capital. Yes, you can actually get paid to put on FX trades. Because thi
s business is so competitive, there are many brokers competing for your business
which means there is a limitless amount of solid info out there. Live real time
news feeds, real time economic reports all over the world, plenty of in depth a
nalytics, all provided to you free of charge. Try getting that in the equity and
commodity markets. Software is usually always free. Currencies are never halted
. And yes, you can trade with the big elephant in the room, the central banks. I
t's very hard to know who the big elephant is in equities, but in the FX world i
t's the central banks and they actually TELL you what they are going to do BEFOR
E they do it.
Let me add one more thing here. I talked about putting trades on for free. While
rates are low now, eventually they will go back up and one of the best trades g
oing when they do is creating all the various carry trades. This is where you ca
n borrow money for free in one country and get paid higher interest in another c
ountry. With a little bit of leverage, these trades can produce far better reven
ue streams then the old fav naked option selling or iron condors. Much easier to
manage as well. And much better margin. Now on a closing note before I move ove
r to the newbies. I'm no where in here implying there is some kind of edge in th
is product that does not exist elsewhere. This assumes a constant edge. Meaning
whatever you are using in one market to analyze and make trades, you can use in
this market. Here with the context of ACD, I'm saying ACD models very well with
currencies. No one is handing out free money. And yes, trading FX requires all t
he long hours of research you would have to put in trading other products. Curre
ncies give you all sorts of ways to replicate trades you might want to express i
n other markets. For example if you want to express a view in interest rates, st
ock prices, commodity prices, being long or short risk, being long or short vola
tility, etc. All these ideas can be expressed with various currency pairs. For e
xample, many people are buying the USD/JPY as a way to be exposed to long Japane
se equities. They are the SAME bet. Many people were shorting the AUD/USD as a w
ay to short Gold without the volatility one has to endure in Gold. Many trades f
ound unique ways to short US equities without having to endure the constant rall
y in US equities by trading an FX pair that behaved the same way as an ES short
without the drawdown. The opportunities are endless. I could go on about how to
use options in FX but I'll save that for another time.
money or reduce supply to stop volatility or minimize it. The point I want to ge
t to here is that if one wanted to buy the USD/YEN and some news came out that s
ent the pair down 200 pips, it's much easier for a trader to step in and take ad
vantage of this volatility and buy the pair on a long signal then say step in fr
ont of GOOG while it's in free fall. GOOG will run you over, the USD/JPY won't.
-alright, now for the newbies. There are a lot of new traders on ET and on this
thread looking for the right way to get started. Most new traders seem to gravit
ate towards stocks. Usually penny stocks or low priced stocks. Some try to dabbl
e in cheap options. Some make the HUGE mistake of trying to start out in futures
. In my opinion, I think every new trader should start out in FX and probably th
e best place to start is with Oanda. But really any of them are fine. Oanda is g
ood because you can trade any notional amount of currency. Why FX? For starters
you get around that PDT rule for stocks. Futures are too big for newbies to star
t and options also fall under PDT. FX allows you to open a small account, with v
irtually no restrictions. Do NOT start out backtesting systems. You need to know
how to trade and what to look for before you start designing something.

What your first goal should be is to do what every young athlete starts doing wh
en they are 7 years old. Practice hitting, throwing, catching, kicking, etc. You
're going to place trades. You are going to get comfortable having risk on. Now
obviously I think the ACD framework is perfect for a newbie but to be honest, ho
w you trade in the beginning is not as important as much as you do trade. If you
DO follow the ACD framework, start tracking the number lines. The number lines
will give you practice looking at intra-day charts every day and scoring the pri
ce action. You'll be amazed at the feel you get scoring charts every day. Plot o
ut your ACD levels. Use TIME stops not PRICE stops. You should be trading VERY s
mall. Let the market breathe. It's going to go back and forth. No one is out to
get you. There is no "they". Flow with the market, not against it. You should ha
ve an idea of what is strong and weak as I mention it all the time on here.
Your first step should be the big picture. What do you want to do. Remember ever
y FX pair is a spread trade. Which one do you want to be long and which one do y
ou want to be short. Do NOT chase anything. Remember, FX prices move back and fo
rth like a pendulum. You wait for it to come back around. Place bids below the m
arket, place offers above the market. Have a core position you hold and practice
trading around your core. As you track your number lines, you will see the tran
sitions. You will see the money flow before your very eyes as it moves around th
e world. Just because I like one pair today does not mean I will like it tomorro
w. The Yen might be THE currency to be short but your long might vary. It could
be the GBP today or the EUR next week.
There are many reasons I think new guys should start out in FX besides the struc
tural ones. One, you will get use to the idea of spread trading. It's good to bu
ild an eye for market relationships. What causes what to move. Everything has va
lue in relation to something else. Another reason is I think a big mistake newbi
es make is thinking they know something. Most of us are familiar with stocks. We
mistakenly believe that we understand the Dow or the S&P because we watch CNBC
or because you like AAPL products that you know the stock. It's better to trade
something you are not as familiar with. It will keep you more objective. Also yo
u will learn more about economics. Instead of watching earnings reports and upgr
ades and downgrades and stock rumors on twitter, you will start following intere
st rates, inflation, GDP growth, central banks and the bigger macro picture. Thi
s will help you immensely down the line even if you do decide to trade stocks, o
il or corn. Understanding the big picture is VERY important. I am always shocked
on ET how little most traders known about really anything. It's like they have
a line on a chart or some moving averages and suddenly they are traders. That's
all fine and dandy, but without understanding the bigger picture you will never
be able to "anticipate" market transitions. You will never be in tune with marke
t cycles. Volatility will always make you uncomfortable because you won't unders
tand what's driving it. You will never have the patience to catch big moves beca
use you won't understand what's driving the price action. Try to develop a thirs
t for knowledge. Almost all successful traders are driven by an ambition to know
and understand more.
Even with ACD, in order to understand price action you need to know what the act
ion is. If some pair is reacting to some news event you need to understand what
the market was expecting so you can determine if it's good news/bad action or ba
d action on good news. Do NOT marry yourself to one currency. Some guys like to
only trade the Euro. Only trading the Euro will void everything I just previousl
y mentioned. Remember, these are pair trades. There are two currencies to every
pair. Why be long the EUR/USD if the USD is strong and the AUD is very weak? It
makes absolutely no sense. As I mentioned in the previous post, ACD models curre
ncies very well. You have your levels, you have your number lines and you have a
trading plan. Let your number lines direct to the right pairs and let your A le
vels tell you where to lean on your entries and exits.
Is it really that simple? Yes it is. But the key over time will be how fast are

you spotting these relationships. How fast are you reacting to levels. How fast
do you notice the transition from one currency to the next. How consistent you c
an be over time. Remember, whatever you think you know about the market, it's no
t enough. It will never be enough. You will ALWAYS have a knowledge deficit. You
need to deal with that. You need to practice saying to yourself, you do NOT kno
w what is going to happen. No one does. After you enter a trade, the market is g
oing to communicate to you through your p&l. You need to listen to that. The mar
ket will probably be the only thing that doesn't lie to you in your life so you
should respect that. And for the love of God, if you have any conspiracy theorie
s running through your head, please dispose of them while you are trading. There
is no "they". The broker is NOT going after your stop. There are no market make
rs pushing the market against you to get you out. FX does about 4 trillion a day
. It doesn't need your $100. Remember the only thing you have control over is yo
ur own actions.
Lastly, pay attention to the carry trades. Pay attention to interest rates. Inte
rest rates drive money flows. Watch commodities. Watch world stock markets. In o
rder to buy a country's stock or debt or resources, you need to own their curren
cy. So pay attention to where the demand is. Try to learn over time what is driv
ing Fed policy in that country. If rates are high, why are they high? If they ar
e low, why are they low? Remember, you will pay to borrow high rate currencies a
nd you will earn high rates when you own them. There is some carry in the world
right now: India, South Africa, New Zealand and Australia. Watch those carry tra
des. They will clue you in on risk appetite around the world.
And finally,
time to make
helpful. One
the other is
hers at UBS.

regarding good FX books, there are many out there and I don't have
an exhaustive list. So I will mention two that I thought were very
is "Currency Trading and Intermarket Analysis" by Ashraf Laidi and
"Foreign Exchange; A Practical Guide to the FX Markets" by Tim Weit
Good luck guys!

-Welcome to the thread trader31. Let's tackle the USD/JPY first. Yes, you are co
rrect that if you are long Japanese stocks, you will get hurt somewhat by the ye
n depreciation. The volatility impact is far greater in stocks then in currency.
The Nikkei is up over 50% YTD and the Yen is down about 16% vs the Dollar. And
yes, the stocks are going up as a result of their weakening currency. Again, and
I'll go over this several times, the easy way to think about this is if you had
to pick one to hold, which is safer. If your currency is being devalued, do you
want to own the currency or the equity. Generally speaking equities will go up.
Why? Because companies are earning higher profits as a result of inflation. The
ir profits are higher in nominal terms, not in real terms. But you need nominal
protection if you are holding cash. Now there is a ETF that I have talked about
on this thread quite often that owns Japanese stocks and shorts the currency to
hedge out the currency risk and that is DXJ. But the benefit in my opinion of sa
ying being in the currency pair vs trading the Nikkei, is one, simplicity, it's
not terribly easy to buy Japanese stocks. Yes, there are ETF's but you have to i
nvestigate how they are structured and their fees and all that. Then there is th
e futures, but then you have to roll and deal with insane volatility the Nikkei
has. Being long USD/JPY has less volatility, is easier to put on and trades in a
more controlled fashion.
Your second question about being long AAPL/USD or SPY/USD, think of it like this
. If I'm long shares of AAPL and I want to convert the shares into cash, do you
want cash to be cheap or expensive? Cheap right? Because you are buying cash in
a way. And when you are holding cash, what do you want? You want the price of ca
sh to go up and you would like to see APPL go down. Because if you wanted to pur
chase those shares back, you want to do so at a lower price. So put another way,
by being long shares of AAPL, you are forgoing all the benefits of holding cash
, thereby short. An easy way to try to conceptualize this is by following the ca
sh flows.

I've tried to explain to people how you can synthetically short the housing mark
et. It's hard to get your head around it at first until you map out the cash flo
ws. A renter is a defacto housing short. Why? Because they are forgoing all the
benefits of owning the house. What does a renter want? He wants housing prices t
o go down right? So he is a natural short. You can take a owner and a renter and
line them up in both columns and their cash flows will net out over time so tha
t one's gains is the others loss.
You can do this with currency as well. In fact, the decision for money managers
to be long bonds vs equities is often solved by evaluating the opportunity costs
of money. If stocks get too rich and bonds get too cheap, then it might make se
nse to buy bonds and sell stocks. When bonds are cheap, rates are high. If rates
get high enough they become more attractive then stocks. And vice versa. So a l
ong stock investor could see himself as being a natural bond short and so on.
When you make investments you always want to understand the opportunity costs. A
nd also the true economic costs. The cost of owning something is not just the pr
ice of that product but also what you are giving up. That is the TOTAL economic
cost. Hopefully these examples help explained this better.
-Why is the Yen seen as a safe haven currency?
Yes, I know Japan is the world's biggest creditor nation
It's not. Again, we need to understand what's going on in the big picture here a
nd it's why I beat this to a drum over and over again on here. The Yen for years
has been a funding currency to risk. This means the counterparties are by defau
lt on the risk side of the equation. In other words, they are borrowing Yen to t
ake risk, in most cases, a lot of highly leveraged risk. Since Japan is on the o
ther side of that, they are the benefactors of those who seek to be risk averse.
So what happened during the 2008 credit crisis is money flowed back into Japan
when risk sold off. Why? Not because it's safe there. But because it's the safe
leg of the risk trade. Everyone and their brother was highly leveraged in the ca
rry trade. They were long carry in high risk countries. So if you knew their was
going to be a risk liquidation, where would you want to be? Long Yen of course.
Think of being long Yen as squeezing a stock that has a short interest with a s
mall float. People would often ask why hedge funds would buy some crap stock wit
h no earnings. The answer often would be because they could squeeze the shorts b
y buying the stock knowing the shorts had to cover. You KNEW there was a buyer t
o sell into.
Same thing with the Yen. If you know the entire world is short the Yen and we ar
e talking trillions upon trillions of dollars here, wouldn't it be a "safe" bet
to buy the Yen? Of course it would. Because all these players will have to dump
their risk currencies and buy the Yen back. That is why the media often referred
to the Yen as a safe haven because the Yen was always the benefactor of the unw
inding of the carry trade. Again, not to beat a dead horse, but this is why I re
commended those books to read and why I think the readers of this thread should
study this stuff. So you gain a greater understanding of what's going on. The me
dia often labels things incorrectly because they are trying to dumb things down
for the avg viewer.
If I add a new product, I go back and get the number line for the entire year. T
he good news is if it's in February I only go back to Jan 1st unless there is le
ss then 30 days of data in which I will go back to the following year to fill up
an entire 30 day span. The bottom line is, the further you go back the better.
One, as you pointed out, you want to know what the patterns are. And two, by goi
ng back and scoring the daily charts each and every day, you are going to get a
feel for how that product trades. I can't begin to tell you how important that i

s.
-Mav,
Can you tell us how you interpret the action for failed ADn - using AAPL and PCL
N. Both made contact with the ADn monthly on the third day of the month. PCLN pa
inted a nice hammer and retook the OR. AAPL is bumbling along. At what point wou
ld you consider each one to be a failed ADn. I am not proposing a trade on the f
ailed ADn - just trying to learn how you see the action.
So I like to key off of strength. I really don't like trading these that have NO
T demonstrated strength. My first go to is the 30 day number line. Anything stoc
k that has confirmed is already telling you the price action is favorable. So I
always take those failed monthly A downs. If it has not confirmed on the 30 day
then it's already telling me it's in chop mode which often leads to stocks that
will bounce off the A down but meander around and not really go anywhere.
The one exception I would take to taking a trade that has not confirmed would be
if it demonstrated strength by confirming a monthly A up and then buying the fa
iled weekly A down. So now I'm keying off the strength on the monthly and using
the weekly fade as my entry. But simply buying something only because it bounces
off of a monthly level is probably a 50/50 proposition. so some will work very
nicely and others won't.
In general, you want failed A trades to reject price quickly, not sit there and
form a base. As Fisher calls them, they are the bus people. If the bus is waitin
g around for the slowest people to get on, then you probably don't want to get o
n that bus.
-BTW, let me add something here. About stocks basing, I have no problem with a s
tock forming a base, but I want that base to either be along a monthly A up or a
fter it made a monthly A up. In other words, I want the base to be in a position
of strength. So it's holding at a high level that people don't want to buy and
are waiting for it to come back down. Those are the bases people are too afraid
to buy. Everyone loves to buy the low bases. The ones that form along the lows b
ecause they think they are getting a good price there. Low bases tend to break d
own and high bases tend to break out.
-Mav,
NG at ADn ... at least on my levels .. 4.095 NL is inconclusive ... how do you r
ead this one ...
Thanks for the education, the post on buying bases wrt. ACD helped me clarify my
thinking.
So natty made it all the way down to the QTR A down around $4. Regarding your qu
estion about the monthly level, you want to use all your ACD tools at your dispo
sal. So I'm going to assume that not everyone has read every page on this thread
because I have gone over this before but it might be several 100 pages back. My
5 day number line always helps me reject or confirm a possible trade. With mome
ntum trades I mentioned that I want to see a +/- 5 or greater. With fades in a p
erfect world, a reading close to 0. Today we had a -3 on natty giving us a -5 on
the 5 day. That is NOT something you want to fade. This means you need to sit b
ack and wait for some of those A downs to roll off the 5 day.
Also I mentioned earlier when you get to an A level, you want to the bus to take
off and peel some rubber leaving the tourists shaking their fists as they could
n't get on in time. When prices come down to an A level and the bus driver waits
there for hours and days, everyone can get on. So you want to see those A level
s get rejected and fast. No base forming! Now we have the issue of confirming th
e monthly A down and that is problematic for a long trade. So how does this reso
lve itself? The way all problems resolve themselves....time.

-Yes, it's really hard to get technical traders to follow the news because techn
ical guys like to always say, hey it's in the chart. But news helps one filter n
oise. It also helps one anticipate future volatility. Can you imagine a nat gas
trader who was not even aware of the cold weather and traded off his charts alon
e? Or someone holding stock XYZ into earnings or holding an ES into a Fed meetin
g. I know there is a lot out there and with FX, you have the whole world you hav
e to keep an eye on.
So I've been watching the peso for a while now and tracking the number lines on
it as well as Turkey so that is why I mention those two. I don't have the number
lines for the Rupee but I can trade it on Oanda and that also looks ripe for th
e picking. THB looks good and even CNY.
Does USD/TRY have legs? Absolutely. I think it can double from here. But I would
NOT get long here. There will be some news that will come out that will cause t
his thing to puke really hard for days or a week. I would look to get long on th
at. I'll post my levels as it develops.
-what is based on your observation and experience is the toughest hurdle swing t
rader has to overcome for lasting success ?
That's actually a great question. From what I have observed across the board, an
d I think ET demonstrates this as well, is the fact that you need far more disci
pline swing trading. With daytrading, discipline is kind of forced on you both t
hrough the use of leverage and through time. But with swing trading, it's very e
asy for a trader to sit on losers, avg down, get emotionally involved in their p
osition and also at the same time to really take advantage of the one thing swin
g trading offers, which is time. Holding on to your winners.
I think swing traders are far more opinionated about their positions. You often
hear them talk about what the market "should do" or the "fed", or "manipulation"
, etc. They lose sight of the quantitative aspect of this job. You have probably
often heard me say on other threads why I feel math is important and the unders
tanding of statistics and numbers in general. Usually this is in response to how
to get a "trading job" in which many guys blurt back, I don't need that crap, I
know how to trade. But the problem is, when you are missing the quantitative si
de of things, it often gets replaced by emotion and conspiracy and crazy ideas o
f why the market should be doing something other then what it actually IS doing.
To give an analogy, it's like you are going in for surgery and the doctor, inste
ad of using his medical expertise and relying on hard data, imagine if he instea
d made judgements about you based on your diet, life style or maybe the fact he
just doesn't like you. It's very important for a doctor to separate emotion from
data. Doctors have to be make logical decisions based on research, probability
and past experience.
Another important aspect of swing trading that I think is important is the conce
pt of optimizing time. Since time is such a critical variable in your p&l, one h
as to be far more efficient in how they allocate it. In other words, if one is d
aytrading and they trade the wrong stock that day or focus on oil when they shou
ld have been watching gas, the consequence is relatively minor, it's just one da
y. But if you allocate capital to say a position in the ES that you ended up hol
ding for two weeks and the trade didn't go anywhere but copper made a 30% move,
well, that ES trade actually cost you a lot of money. The idea of opportunity co
st is often neglected on ET. Opportunity cost is huge. Time is such an important
variable and it must be optimized. The penalty for time is multitudes larger fo
r swing traders than day traders.
Good question too lazy.

-Thanks! That's what I thought and trying to do. Watching closely only "interest
ing" stuff at the time and have some kind of filter/signals to recognize it (my
filter is price near certain pivot level, just like livermore's and NLs as a hel
per:). I have coded NLs and didn't review much products yet but from few I check
ed automatic NLs (just like Fisher's) is working quite well too (and automation
saves a lot of time :) The purpose of number line IMO is to quantify intraday pr
ice action (strong/weak/neutral) and yes if for example product closes and confi
rms above lets say some longer term resistance that's a big deal for intraday pr
ice action and automated OR focused NLs might not reflect that. Which leads to m
y another idea I'm working on. Have anyone thought about using ACD for levels li
ke s/r, high/low, rolling pivots etc? As soon as price touches significant level
- start counting OR and use standard ACD on it.
I do all sorts of creative things with number lines. Creativity is your friend.
Let me just say that you are moving in the right direction with your thought pro
cess. Let me repeat some of the important principles. The concept of "rarity". T
he less something happens, the more significant it is. Look for time periods tha
t are "meaningful". Especially pay attention to trades that go against what the
fundamentals would otherwise imply. Look for correlation breakdowns. And get ver
y excited when you spot something that NOBODY else is talking about either in th
e media, twitter or ET. Those are some good hints to set your sails by.
-or those of you home gamers out there, let me point out a process which led to
perhaps info that could lead to a series of productive trades.
1) Collect Data
2) Analyze Data
3) Look for obscure patterns or changes in existing patterns
4) Concept of rarity
5) Use data to isolate specific areas of opportunity
6) Estimate your risk
7) Design optimal trade
-Regarding all the number lines and all the A levels, let me say that the best w
ay to learn about them is simply to jump into the pool in the deep end and start
swimming. It took me a long time to understand how all the moving parts interac
ted with each other. Be weary of getting involved with this and seeing numbers a
nd thinking you know what they mean. Once you start making trades you will quick
ly learn how all this works. It's very hard to come in cold and say oh the 30 da
y is this and the 5 day is that and the monthly A level is here so it's a good t
rade. After you score 100's of days of data and looked at hundreds of weekly and
monthly levels you will start to understand.
And yes, I'll repeat this again, my number lines should mean nothing to you and
yours should mean nothing to me. You have to "build a relationship" with your da
ta. And that relationship needs time to get intimate. But give it some patience.
I promise you, it will pay off. You'll start to see stuff in this market that n
o one on ET is talking about. Big, big juicy opportunities and you will have it
all to yourself. And the payoff will be huge. It just takes time. Patience and t
ime.
-A fair warning. One of the cardinal sins in data analysis is run different data
sets and select the one that looks best. You want to formulate your theory FIRS
T. Then TEST that theory very much like the hypothesis testing you learned in sc
hool. Create a null and alternative hypothesis. Calculate your t-value. calculat

e your t-crit. Try to reject your null. If you cannot reject your null, then you
have something. If you can, try again. Run another test. ALWAYS put theory firs
t, not data.
One of my favorite data quotes is "if you torture your data enough, you can make
it say anything".
-ACD is dynamic and very sensitive to change. When volatility contracts, the eff
ect ripples across all the levels. Since the daily ranges are getting smaller, t
he A values contract. This causes the opening range levels to tighten. The weekl
y and monthly levels contract. The pivots get tighter. And you'll see price clos
e inside the A levels more frequently. It usually only takes about two trading s
essions for ACD to adjust from a high vol to a low vol environment. One of the t
hings that amazes me the most when I go back and look at levels from 2008 to now
is how quickly the levels adjust to the current environment. Even a stock let's
say that was once a $20 stock and now suddenly is a $150 stock. The levels are
spot on. Obviously you work your way out from daily to weekly to monthly to quar
terly over time so the QTR charts adjust the slowest but the OR levels are real
time so they are immediate.
-I will say this, usually when vol picks up in currencies, it tends to be bearis
h for risk. Nobody "needs" to rush into risk in currencies, they usually "rush"
to get out of risk. Just keep an eye on the emerging market currencies. If you g
uys can keep a secret, I like to watch Mexico and Turkey for tells. But that's j
ust between us
-So I sent Hoop an e-mail two days ago talking about the market and currencies i
n particular. The market looked tired and maybe about to roll over. God knows ev
eryone on ET is still trying to topcall this thing. But I noticed a huge surge o
f money flows into the risk currencies. I've talked about this for a while on he
re and I'll continue to do so, the best tells in the overall market come from FX
. Why? Because before money can flow into AAPL or GOOG or the ES, it has to flow
through the currencies. Well, FX land exploded and I told him it looked like th
e spoos might pop for another leg higher. And sure enough, that is exactly what
happened. Watch those currencies guys. Lots of great tells in there. Copper is a
cting well too. Confirmed on my 30 day.
-Why does any monies that want to get long any equities "flow" or trade at FX fi
rst ?
It's about economics. Money doesn't really flow into equities. It flows into ris
k. The highest risk asset sets the market price for risk which we will call the
marginal product of risk. The highest risk asset sets the price because being at
the margin, it's the first asset to get sold in a risk averse environment. Bein
g the highest risk asset, it also has to produce the highest rate of return. The
refore this "risk" asset is where money flows to capture margin. Don't worry abo
ut the type of asset or which country, that will only confuse you. Just think of
risk as a stand alone product that openly trades in the marketplace.
So logic would tell us that when capital seeks out risk and flows into regions w
here that return is provided, then capital will be allocated into various risk a
ssets based on different levels of risk appetite. The same is true when risk is
sold and liquidity is sought. Liquidity is synonymous with safety or protection.
So by watching where capital is flowing around the world you can deduce what th
e risk appetite is for capital and from there it's a relative value game. Where
can one earn a given return with the least amount of risk.
-Remember currencies are not stocks. They don't go to zero. The important thing
if you are going to trade FX is getting good entries because the upside is very
limited outside of a financial crisis where currencies traded like TSLA in 2008.
LOL. The problem with FX is, by the time something looks good, like cable right

now, it's too late. I saw cable back around 1.60 starting to look good and neve
r really got a good setup. Currencies have to be milked. In and out, back and fo
rth. The number lines try to give you a look under the hood to see things before
everyone else does. For example, I have a pretty negative number line in this G
BP/CAD for a while and it has not gone anywhere. This thing had a monster move l
ast year and has gone sideways this year. So sometimes nothing materializes. I l
ike to always make the analogy to weather. The number lines give you the read of
the atmosphere but don't guarantee rain. You have no control over that but you
do have control over your risk. If you can find a good risk setup, take it. Beca
use once these things do move, you will find it hard to get in.
-No. It's not really meant to be used like that. The indicator is sold as more o
f a trend. The trading signals are really generated when the moving averages of
the ISEE reading get to extremes. In other words, when you get a huge series of
extreme readings. I have noticed when you have spikes on one day at the end of "
long" moves it tends to give a great warning sign. Well, a 3 day selloff does no
t qualify as a long move. LOL. Now a reading that low obviously shows the panic
that overcame this market from what was some very high call readings. And that p
rint that I posted a week back was really a series of really high prints that I
have noticed for about a month now. So it really wasn't just "one" day. I do thi
nk you can probably get a bounce off that reading for a day or two but my opinio
n is to avoid the index markets altogether. It's going to be really messy now fo
r a few months after that long sustained smooth rally. Markets don't just race b
ack to the highs and they are not just going to roll over nice and smooth. It's
going to be very choppy.
-Beware of the old adage, that significant hyped events, once realized, often ma
rk important turning points in the market
-Right. So the point Arnold is making and what most traders over look is that pr
ice is the outer layer of the asset. It wraps around the asset and denotes it's
value. But the actual makeup of that asset is embedded underneath that outer lay
er. So Arnold talks about pipelines and physical gas flows. This is granular ana
lysis we talk about all the time on here. Simply looking at Henry Hub front mont
h natty is just giving you a large outer layer. You have to go deeper then that
to get a full understanding of what's happening. Simply drawing a trend line or
a moving avg is not going to give you that understanding.
In ACD land we get that deeper granular knowledge through number line analysis.
That is analogous to pipelines flows and studying the physical gas flows around
the country. The number lines are explaining to us how capital flows from one as
set to another. It's revealing a more intimate nature of the buyers and sellers
vs just looking at a chart and drawing levels.
-Mav,
What do you do (if anything) after a binary event causes a major gap during the
Month .. do you establish a new OR post event ? Or is that whole month's lines u
seless ?
Simple, trade off the weekly and intra-day levels. Weekly's work outstanding on
huge gap events.
-i try to keep everything relative. So I use the same times. I want to know how
Gold is acting during US hours. Because that is where I am watching the spoos an
d AAPL and Copper and Bonds, etc. Relative performance is very important to me b
ecause it gives me more info than looking at something in isolation.
Having said, I did find a way to create another indicator that corrects that for
that (from the ACD playbook). So that acts as a modifier for 24 hour markets th
at takes into account the 24 hour cycle.

-It doesn't matter. Everything is relative. As long as you are scoring like prod
ucts in a similar fashion then you can make relative comparisons. I do find the
pivot levels to help aid in markets which are active overnight because the daily
pivot range encompasses the entire 24 hour period.

Вам также может понравиться